The deadline for U.S. public companies to file their initial disclosure reports in connection with the Securities Exchange Commission’s conflict minerals rules is June 2, 2014.  The SEC estimates that approximately 6,000 public companies that manufacture or contract to manufacture products where “conflict minerals are necessary to the functionality or production” of the product will be directly impacted by the rule.  As of this writing, less than 5 disclosure reports have been filed with SEC.  The SEC also estimates that the initial cost of compliance will be between $3 billion and $4 billion with annual costs thereafter of between $207 million and $609 million.  In addition, many private companies in the supply chains of these issuers will be impacted indirectly by the flow down of these disclosure requirements.


Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required that the SEC adopt a rule that requires public companies to prepare and file annually a disclosure about their use of conflict minerals (cassiterite, columbite-tantalite, gold and wolframite, as well as their derivatives) originating in the Democratic Republic of the Congo or an adjoining country (the DRC region).  Armed groups engaged in mining operations in the DRC region are using proceeds from the sale of conflict minerals to finance regional conflicts and the law is aimed at dissuading companies from continuing to engage in trade that directly or indirectly supports such conflicts.  The SEC adopted Rule 13p-1 in August 2012.

Legal Challenge to Rule 13p-1

The conflict minerals rule has been controversial since it were first proposed by the SEC.  After adoption, the National Association of Manufacturers, the Chamber of Commerce, and the Business Roundtable challenged Rule 13p-1 on several grounds, raising claims under the Administrative Procedures Act, the Securities Exchange Act, and the First Amendment.  The District Court for the District of Columbia granted summary judgment in favor of the SEC in July 2013.  On April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit rejected the majority of the plaintiff’s claims on appeal, however the Court concluded that the requirement in the rules to describe products as not “DRC conflict free” in SEC disclosures and on companies’ websites unconstitutionally compels speech.

SEC Statement and Partial Stay

On April 29, 2014, the director of the SEC’s Division of Corporation Finance issued a statement on the effect of the recent Court of Appeals decision and indicated that it expects issuers to file any reports required under Rule 13p-1 on or before the due date of June 2, 2014, subject to the following guidance:

  • An issuer is not required to describe its products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable”  but may voluntarily elect to do so.
  • An issuer should make all other disclosures called for in the rule, including a description of its reasonable country of origin inquiry and, if required to attach a Conflict Minerals Report, a description of the due diligence it undertook.
  • For any products that an issuer finds to be “DRC conflict undeterminable” or “not found to be ‘DRC conflict free’” in accordance with the rule and Form SD, it would not have identify the products using these terms but should disclose 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.
  • An independent private sector audit (IPSA) is no longer required unless an issuer voluntarily elects to describe any of its products as “DRC conflict free” in its Conflict Minerals Report.

In keeping with the guidance contained in the statement, on May 2, 2014, the SEC issued an order staying the effective date for compliance with the portions of Rule 13p-1 and Form SD that would require statements by issuers that the Court of Appeals held would violate the First Amendment. In its order, the SEC denied the motion filed by the Plaintiffs for a stay of the entire rule.