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SEC provides guidance on implementing conflict minerals rule

Published on: 01 May 2014

On April 29, the staff in the SEC’s Division of Corporation Finance released a statement in response to a recent ruling by the U.S. Court of Appeals for the District of Columbia Circuit that Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the SEC’s conflict minerals rule (the “rule”) violate the First Amendment of the U.S. Constitution to the extent that they require issuers to describe certain of their products as “not been found to be ‘DRC conflict free.’” The court remanded the case back to the U.S. District Court for the District of Columbia for further proceedings consistent with the ruling. 

The SEC’s statement indicates that subject to the guidance below and any further actions that may be taken by the courts and the SEC, the SEC still expects issuers to file any reports (Form SD or a Conflict Minerals Report (CMR)) required by the rule on or before June 2, 2014 (the due date), and that those reports should comply with and address those provisions of the rule that the court upheld. Accordingly:

  • Issuers that do not need to file a CMR will continue to be required to disclose their reasonable country of origin inquiry and briefly describe the inquiry they undertook.
  • Issuers that are required to file a CMR should include in the CMR a description of the due diligence measures that they undertook. However, if issuers have “products that fall within the scope of Items 1.01(c)(2)1 or 1.01(c)(2)(i)2 of Form SD, [they] would not have to identify the products as ‘DRC conflict undeterminable’ or ‘not found to be “DRC conflict free,”’ but should disclose, for those products, 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 origin.”

Editor’s Note: We believe that issuers would still specify the products for which they performed due diligence; however, they would not be required to classify those products as “not found to be ‘DRC conflict free’” or “DRC conflict undeterminable.” Issuers were never required under the rule to classify products as “DRC conflict free.”

  • Issuers are permitted to voluntarily elect to describe any of their products as “DRC conflict free” in their CMR; however, they are then required to obtain an independent private sector audit (IPSA).
  • Pending further action by the courts and the SEC, issuers will not be required during the temporary transition period to obtain an IPSA unless, as noted above, they voluntarily elect to describe a product as “DRC conflict free” in their CMR.

Editor’s Note: Under the rule, if issuers determine that any of their conflict minerals are “DRC conflict undeterminable,” they do not have to obtain an IPSA for the first two calendar years (four years for smaller issuers) after November 13, 2012, the rule’s effective date. After this temporary transition period, in the absence of further clarification by the SEC, all issuers filing a CMR would be required to obtain an IPSA.


1 Refers to the issuer’s determination that products have not been found to be “DRC conflict free.” The rule defines a product that is “DRC conflict free” as one that “does not contain conflict minerals necessary to the functionality or production of that product that directly or indirectly finance or benefit armed groups . . . in the [DRC] or an adjoining country.” The rule also specifies that conflict minerals that the registrant obtains from recycled or scrap sources are considered DRC conflict free.

2 Refers to the issuer’s determination that products are “DRC conflict undeterminable.” As defined in the rule, the term “DRC conflict undeterminable” refers to “any product manufactured or contracted to be manufactured by a registrant, that the registrant is unable to determine, after exercising due diligence . . . whether or not such product qualifies as DRC conflict free.”

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