On April 29, 2014, Keith Higgins, the director of the Division of Corporation Finance for the US Securities and Exchange Commission (the Division), issued a statement confirming that “the Division expects companies to file any reports required under Rule 13p-1 on or before” June 2, 2014.1 The statement was issued in response to a recent court decision holding certain portions of the conflict minerals rules to be unconstitutional. On May 2, 2014, the SEC formally issued a stay of the effective date for compliance with the portions of the rule that the court found to be unconstitutional.2
As we have previously highlighted,3 on April 14, 2014, the US Court of Appeals for the District of Columbia Circuit issued an opinion in the conflict minerals litigation brought by the National Association of Manufacturers, et al.4 The appellate court upheld many elements of the SEC’s conflict minerals rule, but held that the conflict mineral statute and rule:
violate the First Amendment to the extent that the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have “not been found to be ‘DRC conflict free.’”
The appellate court’s decision created uncertainty for issuers in light of the impending filing deadline of June 2, 2014 to file their first Form SDs, the report required by Rule 13p-1 under the Securities Exchange Act of 1934. In the statement, the Division clarified that:
- The deadline has not changed, and that it expects companies to file their Form SDs on or before June 2, 2014;
- The Form SD, and any related Conflict Minerals Report required to be filed, should comply with and address those portions of Rule 13p-1 and Form SD that the appellate court upheld;5
- Companies that are required to file a Form SD, but that do not need to file a Conflict Minerals Report, are to disclose their reasonable country of origin inquiry and briefly describe the inquiry they undertook;
- Companies required to file a Conflict Minerals Report are to disclose a description of the due diligence that they undertook; and
- Companies that manufacture, or contract to manufacture, products that have not been found to be “DRC conflict free” must 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 the minerals.
Pursuant to the Division’s statement, no company is required to describe its products as “DRC conflict free,” as having “not been found to be ‘DRC conflict free’” or as “DRC conflict undeterminable.” In addition, companies are not required to obtain an independent private sector audit as set forth in Rule 13p-1. However, if a company voluntarily elects to describe any of its products as “DRC conflict free,” it would be permitted to do so only if it had obtained an independent private sector audit.
Because it is now clear that the SEC will not postpone the filing deadline for the first Form SD, which is less than one month away, companies should be focusing on finalizing the disclosures that will be provided in the first filing. In addition to the disclosures that will be made, companies should be also focusing on becoming comfortable that their disclosure controls and procedures are adequate to gather the necessary information that will be included in this first Form SD.
Although certain disclosures are no longer required, affected companies should use the applicable guidance issued by the Division when preparing their disclosures. In addition, companies should be on the alert for any additional guidance that is issued before the first filings are made.
Finally, affected companies should monitor developments from both the courts and the SEC when preparing their filings. This is an evolving area and further information could be released before the first filings are made.