The US Court of Appeals for the District of Columbia Circuit (DC Circuit) on May 14, 2014, denied a motion filed by three industry groups seeking an emergency stay of the conflict minerals rule promulgated by the Securities and Exchange Commission (SEC) to implement Dodd-Frank Section 1502. In their motion, the National Association of Manufacturers, the US Chamber of Commerce, and the Business Roundtable requested a temporary stay, pending the outcome of district court proceedings, arguing that their members would otherwise “suffer irreparable injury in the form of extraordinary and unrecoverable expenditures as well as unresolvable legal uncertainty about the [R]ule's requirements.” The DC Circuit was unpersuaded by the groups’ arguments. Its denial of the stay request means that all entities covered by the Rule remain subject to the June 2 deadline by which initial disclosures must be filed with the SEC. Covered entities are those that file annual reports with the SEC under sections 13(a) or 15(d) of the Exchange Act for which conflict minerals are necessary to the functionality or production of products they manufacture or contract to manufacture.
The request for a temporary stay followed an April 14, 2014 decision by the DC Circuit concluding that the Rule and underlying statute violate the First Amendment to the extent they require regulated entities to describe products on their website and in a report to the Commission as not “DRC conflict free.” The DC Circuit remanded the case to the district court for further proceedings, creating uncertainty about whether issuers would be required to file initial disclosures by the June 2 deadline and to what extent the filing requirements would be affected by the DC Circuit's April 14, 2014 decision holding portions of the reporting regime unconstitutional.
Following the DC Circuit's decision, the SEC issued an order on May 2, 2014, staying the effective date for compliance with those portions of the Rule and the related Form SD that would require companies to make statements that their products have “not been found to be ‘DRC conflict free.’” In contrast, the SEC order provided that companies must comply with those requirements not disrupted by the DC Circuit's decision.
In light of the DC Circuit's May 14, 2014 denial of the temporary stay request, issuers subject to the conflict minerals rule should comply with guidance issued by the SEC staff describing those compliance obligations that remain in effect. The key requirements are as follows:
- The initial Form SD and any related conflict minerals report must be filed by June 2, 2014.
- Covered entities that file a Form SD but not a conflict minerals report must still disclose their reasonable country of origin inquiry and briefly describe the inquiry undertaken.
- Covered entities that are required to file a Form SD and a conflict minerals report should describe the due diligence undertaken. If certain products fall within the scope of Items 1.01(c)(2) or 1.01(c)(2)(i) of Form SD, the companies do not need to identify these as “DRC conflict undeterminable” or “not found to be ‘DRC conflict free.’” However, for such products, the companies must describe 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.
- If any company voluntarily elects to describe its products as 'DRC conflict free' in its conflict minerals report, the company would be required to have obtained an independent private sector audit. However, until legal proceedings are concluded on remand, no independent private sector audit is required unless a company voluntarily describes a product as 'DRC conflict free' in its conflict minerals report.
Additional useful guidance may be found by referring to the “Frequently Asked Questions” portion of the SEC’s website.