SEC Issues New FAQs on Conflict Minerals

by Katten Muchin Rosenman LLP
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On April 7, the Division of Corporation Finance of the Securities and Exchange Commission issued nine new responses to frequently asked questions regarding the disclosure of conflict mineral usage that is required by rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, as discussed in the Corporate and Financial Weekly Digest edition of August 24, 2012. The Division of Corporation Finance released an initial set of FAQs regarding conflict mineral usage on May 30, 2013, which were previously discussed in the Corporate and Financial Weekly Digest edition of June 7, 2013.

With respect to the requirement to obtain an independent private sector audit (IPSA) of a Conflict Minerals Report, the Division of Corporation Finance provided the following guidance: 

  • An auditor that is not a certified public accountant may perform the IPSA of an issuer’s Conflict Minerals Report as long as the auditor meets the requirements in the US Government Accountability Office’s Government Auditing Standards (Yellow Book).
  • An IPSA is not required to cover any matter beyond the IPSA objective provided in the rule, including completeness or reasonableness of the due diligence measures performed by an issuer.
  • An IPSA need not include a reasonable country of origin inquiry because such an inquiry is a distinct step separate from the due diligence process.  
  • Though an issuer’s due diligence measures covered by an IPSA apply to the conflicts minerals in products manufactured during the calendar year, the requirement does not imply that such measures need to be carried out consistently throughout the year.
  • An issuer is not required to include a full description of the design of its due diligence in its Conflict Minerals Report. However, the Conflict Minerals Report must include a description of the due diligence measures taken that are the subject of the IPSA.

With respect to disclosure of the use of conflict minerals, the Division of Corporation Finance provided the following guidance: 

  • During the temporary transition period, an issuer will not be required to obtain an IPSA of its Conflicts Minerals Report if any of its products are “DRC conflict undeterminable.”
  • In order to describe any of its products as “DRC conflict free” in its Conflict Minerals Report, an issuer must obtain an IPSA.
  • During the temporary transition period, if an issuer has a product that contains a conflict mineral that the issuer is unable to determine did not originate in the Democratic Republic of the Congo (DRC) or an adjoining country, or finance or benefit armed groups in such countries, the issuer may not describe the product as “DRC conflict free.” In addition, if an issuer determines that a product contains a conflict mineral that did finance or benefit armed groups in the DRC or an adjoining country, it must describe the product as “having not been found to be ‘DRC conflict free.’”

With respect to disclosure requirements on Form SD, the Division of Corporation Finance provided that if an issuer has a product that contains conflict minerals from recycled or scrap sources, it must disclose information about those conflict minerals in a specialized disclosure report on Form SD. If the product also contains conflict minerals not from recycled or scrap sources, the issuer must include a Conflict Minerals Report covering those conflict minerals. The Conflict Minerals Report and IPSA only need to cover the conflict minerals that are not from recycled or scrap sources.

Click here to read the full text of the FAQs.

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