The U.S. Securities and Exchange Commission (SEC) recently published limited guidance on frequently asked questions relating to the SEC’s new Conflict Mineral Rules, which require U.S. issuers that manufacture or contract to manufacture products containing conflict minerals to disclose annually whether those minerals originated in the Democratic Republic of the Congo or an adjoining country.

On May 30, 2013, the U.S. Securities and Exchange Commission (SEC) published limited guidance on frequently asked questions (FAQs) relating to the SEC’s new Conflict Mineral Rules, which implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to require U.S. issuers that manufacture or contract to manufacture products containing conflict minerals to disclose annually whether those minerals originated in the Democratic Republic of the Congo or an adjoining country.  See SEC Release No. 34-67716, August 22, 2012.

The SEC prefaced that its responses to the 12 FAQs released on May 30 “are not rules, regulations, or statements of the Commission.”  Nevertheless, this guidance may be useful to corporations in determining their obligations under Rule 13p-1.  A brief summary of the FAQs follows below.  Review the complete text here.

  1. Rule 13p-1 applies to “all issuers that file reports with the Commission under Exchange Act Sections 13(a) or 15(d), whether or not the issuer is required to file such reports.”  Registered investment companies that file reports under Rule 30d-1 are not subject to Rule 13p-1.
  2. Rule 13p-1 does not apply to an issuer that engages in customary mining activities, as mining is not considered to be “manufacturing.”  See Instruction 1 to Item 1.01 of Form SD.
  3. Rule 13p-1 requires that an issuer make any required disclosures for itself and its consolidated subsidiaries.
  4. An issuer is not considered to be “contracting to manufacture” a generic product if its action involves no more than “affixing its brand, marks, logo, or label to a generic product manufactured by a third party.
  5. If a product contains a conflict mineral in a “generic” component of its product, the issuer is required to conduct a reasonable inquiry with respect to conflict minerals included in those generic components.
  6. Packaging or containers sold with a product are not considered to be “necessary to the functionality or production” of the product, even if it is necessary to preserve its “usability.”  If, however, the issuer manufacturers and sells packaging independent of a product, the packaging is considered a product.
  7. Equipment used to provide “services” is not within the scope of Rule 13p-1, as Item 1.01(a) of Form SD requires issuers only to report on conflict minerals used in “products.”
  8. Tools, machines or other equipment containing conflict minerals used in the manufacturing of an issuer’s products, and later sold by the issuer, are not products of that issuer under Rule 13p-1.
  9. Item 1.01(c)(2) of Form SD requires a description of products “in terms commonly understood within [the issuer’s] industry,” and does not require the identification of a model number.  The issuer must, however, clearly state that the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable.”
  10. An issuer that determines that its conflict minerals products from a covered country are “DRC conflict free” is still required to file a Form SD and to obtain an independent audit of the Conflict Minerals Report, but the issuer is not required to disclose the applicable products.
  11. An issuer that conducts an initial public offering will receive an extension to start reporting for the first reporting calendar year that begins no sooner than eight months after the effective date of its initial public offering registration statement.  See Instruction 3 to Item 1.01 of Form SD relating to new acquisitions.
  12. Under Rule 13p-1, the failure to timely file a Form SD regarding conflict minerals will not cause an issuer to lose eligibility to use Form S-3.