On August 22, 2012, the Securities and Exchange Commission (the “SEC”) adopted a final rule requiring companies subject to the reporting requirements Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) to disclose their use of tantalum, tin, gold, and tungsten (“conflict minerals”) in products they manufacture or contract to have others manufacture for them, if they have influence over the manufacturing process. 

Concerned that conflict minerals finance a brutal conflict in the Democratic Republic of Congo (the “DRC”), Congress included conflict minerals disclosure as part of the Dodd-Frank Act in 2010. The resulting Section 13(p) of Exchange required the SEC to propose and solicit public comment on a rule implementing this statutory provision, as described in our Lathrop & Gage alert dated April 2011, here.

What companies does the rule affect?

  • SEC-reporting companies, including smaller reporting companies (with public floats under $75 million) and foreign private issuers, that manufacture products containing any conflict minerals (there is no de minimis exception);
  • SEC-reporting companies that contract for others to manufacture products containing any conflict minerals, if they have influence over the manufacturing process; and
  • Non-reporting companies that manufacture products or components containing any conflict minerals, if they are in the supply chain of SEC-reporting companies that are subject to the rule.  

What products does the rule affect?

  • Any product containing conflict minerals, which are widely used in manufacturing;
  • However, the rule has reduced requirements if the conflict minerals are recycled or from scrap; and
  • The rule does not apply when conflict minerals are contained in tools, equipment, or machinery (e.g., wiring or computers) used in manufacturing a product, or in manufacturing processes (e.g., catalysts), unless they are also contained in the product.  

What does the rule require when it applies?

  • A company subject to the rule must conduct a reasonable country of origin inquiry (“RCOI”) into whether the conflict minerals in the products it manufactures, or contracts to have manufactured, originated from the DRC or an adjoining country, and must file a Form SD (for “specialized disclosure”) describing the RCOI and its results.
  • Form SD will be due each year on May 31 for the previous calendar year, starting May 31, 2014, for the 2013 calendar year.
  • The form is filed rather than furnished, so it is subject to liability for false or misleading statements of material fact under Section 18 of the Exchange Act. 
  • It must be signed on behalf of the company by an executive officer, but separate CEO/CFO certifications are not required.

If the RCOI concludes that the conflict minerals may have originated in the DRC or an adjoining country, the company must exercise due diligence on the source and chain of custody of the conflict minerals.

  • If the company determines based on its due diligence that the conflict minerals did not originate from the DRC or an adjoining country, or that they are recycled or from scrap, then the Form SD must also describe the due diligence and the resulting determination.
  • Otherwise, the company must attach as an exhibit to its Form SD a Conflict Minerals Report describing its due diligence and whether the company determined that the conflict minerals financed or benefited armed groups in the DRC or an adjoining country.
    • If the company determines in its due diligence that such benefit occurred, then its Conflict Minerals Report must include an independent private sector audit report and a description of products that have not been found to be “DRC Conflict Free.” 
    • If the company does not make this determination, then for a two-year grace period (or four years for smaller reporting companies) the company must provide specified disclosures in its Conflict Minerals Report, including a description of its products that are “DRC Conflict Undeter­minable.”

Where is there further information?

The SEC has issued a Fact Sheet summarizing the final rule, here. The SEC’s adopting release for the final rule, here, contains a flowchart summarizing it on page 33.