The Securities and Exchange Commission confirmed last week that it expects companies to timely file reports required under the conflict minerals rule and to comply with other provisions unaffected by a recent appellate decision holding a portion of the rule unconstitutional. The guidance was contained in a statement issued on April 29, 2014 by the Director of the SEC Division of Corporate Finance. The clarification followed the April 14, 2014 ruling by the United States Court of Appeals for the District of Columbia Circuit in National Association of Manufacturers, et al. v. SEC, et al. that certain reporting requirements under the conflict minerals rule violated the First Amendment.
Effectively, reporting companies that file a conflict minerals report are no longer required to describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.” Rather, if a company has products that would have merited such a label, the company must disclose the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts to determine the mine or location of the origin. A company may still voluntarily describe its products using one of the above labels, provided that it has obtained an independent private sector audit. For companies that are not required to file a conflict minerals report, the guidance does not change any of the requirements under the SEC’s conflict minerals rule.
Notwithstanding the SEC’s statement about compliance with Rule 13p-1, such guidance remains subject to further action taken by the SEC or a court. A prior statement issued by two of the five Commissioners recommending a stay of the rule in its entirety pending final resolution of the litigation suggests that the Commission is divided in its response to the issue.
The SEC will consider the need for further guidance on the conflict minerals rule in advance of the June 2, 2014 filing date. We will continue to monitor the case and action by the SEC and provide updates to this alert as necessary.