For months, many have been pressing for additional guidance from the SEC on the conflict minerals rule. Finally, on May 30, 2013, the SEC staff provided a bit of that guidance. The FAQs cover some of the questions that have been raised almost continuously since the rule was issued last August. But, the guidance is limited to only 12 questions and, for the most part, confirms what had become the consensus view on those points. And, several of the guidance statements were expressed narrowly and the examples included certain key facts that determined the answers. Despite this additional guidance, many difficult issues remain, and companies will need to consider their own facts and circumstances carefully when determining how the specifics of the rule apply to them.
The total body of SEC guidance on the rule to date is found in:
- the adopting Release (August 2012)
- the FAQs (May 2013)
- the SEC’s legal challenge reply brief (March 2013) (note: the statements in the brief are not binding on the SEC, but they do provide useful insight into the SEC’s views on certain issues)
A brief summary of the FAQs is provided below, but you will want to review the FAQs to understand the limitations of the answers. The numbers below correspond to the numbers of the questions/answers in the FAQs.
- Entities that voluntarily file reports with the SEC are covered by the rule.
- Activities customarily associated with mining are not within the scope of the rule.
- A consolidated subsidiary of an issuer is covered by the rule.
- Etching or affixing a label or other mark onto a generic product manufactured by a third party does not, by itself, constitute “contracting to manufacture” a product.
- Conflict minerals in a “generic component” that is included in another product is covered by the rule.
- A package or container sold with a product is not considered to be part of the “product” for purposes of the rule, even if it is necessary to preserve the product until it is purchased. For the company that manufactures the package or container, the package or container is a product.
- Equipment used to provide a service and kept by the service provider is not within the scope of the rule.
- Tools, machines, or other equipment used in a manufacturing process and then sold after their use are not within the scope of the rule.
- The Conflict Minerals Report may describe products as they are commonly referred to but must state clearly if the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable.” Model numbers of products need not be provided.
- Reporting companies with products that contain conflict minerals from a covered country that are “DRC conflict free” must file a Form SD with an audited Conflict Minerals Report. But the reporting company need not disclose the products that are conflict free.
- When a company is acquired, there is a short transition time before the acquiring company must report conflict minerals of the acquired company. There is a similar transition period for an issuer that conducts an initial public offering.
- Failure to timely file a Form SD cannot cause an issuer to lose eligibility to use Form S-3.