In guidance issued on April 29 regarding the Conflict Mineral Rules, the Securities and Exchange Commission (SEC) has announced that reporting companies are not required to describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable,” as originally required in the Conflict Minerals Rule (CMR).
The CMR, however, continues to require that companies must undertake other reasonable country of origin inquiries and due diligence requirements and that companies must still file any reports required by the CMR on or before the June 2, 2014 due date.
New Guidance on Filing Requirements After DC Circuit Ruling
According to the April 29 statement, the Form SD (Conflict Minerals Reporting Form)3 and any related Conflict Minerals Report should comply with, and address, those portions of the CMR and Form SD that the Court upheld.
- Companies that do not need to file a Conflict Minerals Report should disclose their reasonable country of origin inquiry and briefly describe the inquiry they undertook.
- For those companies that are required to file a Conflict Minerals Report, the report should include a description of the due diligence that the company undertook.
- If the company has products that fall within the scope of Items 1.01(c)(2) or 1.01(c)(2)(i) of Form SD (i.e., the product descriptions under the due diligence provisions for companies that are required to file a Conflict Minerals Reports), it would not have to identify the products as “DRC conflict undeterminable” or “not found to be ‘DRC conflict free,’” but should 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 origin.
- No company is required to describe its products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.”
According to the April 29 statement, if a company voluntarily elects to describe any of its products as “DRC conflict free” in its Conflict Minerals Report, it would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as required by the rule.4Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.
Background on DC Circuit Ruling
On April 14, the US Court of Appeals for the DC Circuit stuck down portions of the CMR as unconstitutional. In National Association of Manufacturers v. Securities and Exchange Commission, the Court held that requiring regulated entities to report to the Commission and on their website that their products have “not been found to be ‘DRC conflict free’” violated the First Amendment. In an order issued concurrently with the decision, the Court of Appeals withheld the issuance of its mandate until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc. The April 29 statement notes that the earliest date on which the Court’s mandate is likely to issue is June 5, 2014.
The ultimate effect of the decision is unclear as the free speech holding may be affected by an upcoming en banc decision of the Court in American Meat Institute v. United States Department of Agriculture (the hearing is scheduled for May 19, 2014). The April 29 statement leaves open the possibility for further SEC action or Court action before the June 2, 2014 CMR reporting deadline.
A summary of the CMR requirements was provided in a recent alert on the DC Circuit ruling.