On May 30, 2013, the SEC provided frequently asked questions and answers as guidance on the disclosure required by Rule 13p-1 of the Securities Exchange Act of 1934, as amended, regarding the use of conflict minerals from the Democratic Republic of the Congo and adjoining countries. These FAQs address application of the Rule to aid in determining whether or not a registrant or one or more of its products fall under the scope of the Rule.
Those required to file
The Rule requires that a registrant file a Form SD if that registrant uses conflict minerals in the functionality or production of a product manufactured or contracted to be manufactured for that registrant. Registrants who solely engage in the process of mining are not considered to be manufacturing these minerals and, therefore, are not required to file a Form SD.
The requirement to disclose the use of conflict minerals applies to all registrants who file reports under the Exchange Act Sections 13(a) or 15(d) and to voluntary filers who file reports pursuant to indenture covenants. Registered investment companies who file reports pursuant to Rule 30d-1 of the Investment Company Act of 1940 are not subject to the requirement.
Products covered by the Rule
Under the Rule, registrants are responsible for reporting the presence of conflict minerals in any product manufactured or contracted to be manufactured by the registrant, including those manufactured or contracted to be manufactured by its consolidated subsidiaries. However, the SEC clarified that merely affixing a logo or other identifier is not sufficient to be considered “contracting to manufacture” the item. Additionally, registrants are encouraged to do a reasonable country of origin inquiry with respect to every single component in their products, as the SEC takes the position that a registrant would be responsible for the presence of conflict minerals in generic parts that it purchases to include in the product, even if they did not contract to manufacture the generic parts.
The SEC explained that product packaging, even if necessary to preserve the usability of the product, is not subject to the Rule. However, the manufacturing and selling of the packaging, if independent of the product itself, would be covered.
The SEC stated that registrants that primarily provide a service would not be required to report the presence of conflict minerals in equipment necessary for them to provide their service. The FAQs cite a cruise line whose cruise ship contains conflict minerals as an example of a registrant that would not be required to file a Form SD. Similarly, the tools and machines required to manufacture product are not covered.
In reporting products on Form SD, a registrant is free to describe the product based on available information and industry practice. However, the description with regard to conflict minerals must either be “have not been found to be DRC conflict free’” or “DRC conflict undeterminable.”
For registrants that acquire a company that manufactures or contracts to manufacture products with conflict minerals or such a company conducts an IPO, the registrant can wait until the first reporting calendar year that is more than eight months from the event to begin reporting on Form SD. Failure to file a Form SD will not impact a registrant’s eligibility to use Form S-3.