Conflict Minerals Disclosures are Due in May – Will You be Ready?


As required by the Dodd-Frank Act of 2010, the Securities and Exchange Commission (SEC) adopted new rules for all public companies and foreign private issuers that use conflict minerals. The conflict minerals rules require extensive supply chain due diligence and disclosure. Although controversial, the Conflict Minerals Rules have survived a challenge in federal district court. As a result, public companies should be well on their way to completing the necessary steps to provide the mandated disclosure which is due by May 31, 2014 on new Form SD.

The conflict minerals rules require SEC reporting companies to provide a report and website disclosure on their use of “conflict minerals” that originated in the Democratic Republic of Congo or any of its adjoining countries. The term “conflict mineral” generally includes gold, tantalum, tin and tungsten. Due to the pervasive use of conflict minerals in a number of different industries including: consumer electronics, jewelry, aviation, automotive, tool-making and food (packing), these rules are affecting thousands of public companies. The conflict minerals rules require a three-step analysis to determine whether disclosure is required, and if so, the character of that disclosure.

The Three-Step Analysis

The three-step analysis requires public companies to:

  1. Make an annual determination whether any conflict mineral is “necessary to the functionality or production of a product” that it manufactures or contracts to manufacture, if so,
  2. Perform a “reasonable country of origin inquiry” regarding whether such mineral originated in the DRC or a adjoining country (or if unable to prove it did not), if so,
  3. Perform due diligence on the source of, and chain of custody relating to, such conflict mineral.

Required Disclosure

Under the conflict mineral rules, the required disclosure varies from company to company depending on the results of the three-part test. Companies that complete step one and conclude that no conflict minerals are necessary to the functionality or production of any of their products are not subject to any of the disclosure requirements of the conflict minerals rules.

Companies that complete step two and determine that their products contain conflict minerals, but that the conflict minerals do not originate in the DRC or its neighboring countries must:

  • disclose their determination in their annual report;
  • disclose the reasonable country of origin inquiry undertaken in reaching that determination in their annual report;
  • provide that disclosure on their website; and
  • provide a link to the website disclosure in their annual report.

Companies that are unable to conclude that their products do not include conflict minerals originating in the DRC or its adjoining countries and companies that conclude that their products do include conflict minerals originating in the DRC or its adjoining countries must undertake step three. Companies that undertake step three will be required to furnish a Conflict Minerals Report as an exhibit to its annual report. The Conflict Minerals Report shall include:

  • a description of the measures taken to exercise due diligence on the source and custody of conflict minerals;
  • an independent sector audit of the Conflict Minerals Report;
  • a certification by the company of such audit; and
  • a description of the companies’ products that are not conflict free, which shall include a description of the facilities used to process the conflict minerals and the identity of the country and, if possible, the mine where the conflict minerals originated.

In addition, these companies must provide a copy of the Conflict Minerals Report on their website and will be required to disclose in their annual report that the Conflict Minerals Report has been furnished as an exhibit and provide a link to the Conflict Minerals Report on their website.

What Should You Do Now?

The three-step process noted above is time consuming. Hopefully, you have already started this process. If not, here is what you should be doing now:

  • Consult with outside experts, including subject matter experts.
  • Review the requirements of the conflict minerals rules and new Form SD.
  • Create a working group tasked with reviewing all products manufactured by your company and with the goal of identifying each product that contains conflict minerals.
  • Establish a compliance program that will permit your company to make the required disclosures regarding management of its supply chain.
  • Determine your company’s disclosure obligations under the conflict minerals rules and Form SD and document the steps taken to satisfy those obligations.

I welcome you to contact me with any questions regarding the conflict minerals rules and what they mean to your company, including the difficult interpretive questions that arise as you grapple with the process such as:

  • What does “product” mean?
  • When does packaging become part of a product?
  • What does “manufacture” mean?
  • What does “contract to manufacture” mean?
  • When does a license agreement begin to look like a “contract to manufacture?”

Topics:  Conflict Mineral Rules, Disclosure Requirements, Minerals, SEC

Published In: General Business Updates, Energy & Utilities Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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