The Wall Street Reform and Consumer Protection Act (also known as the “Dodd-Frank Act”) includes a provision requiring disclosures when certain minerals are used in manufacturing. The purpose of this requirement is to discourage the use of minerals that finance a brutal conflict in the Democratic Republic of the Congo (the “DRC”). The Securities and Exchange Commission (the “SEC”) has proposed rules to implement the “conflict minerals” provision of the Dodd-Frank Act.
All SEC-reporting companies that manufacture (or contract to have other companies manufacture on their behalf) any products containing (or made using) gold, tin, tantalum, tungsten or any of their derivatives will be required to investigate and disclose whether any of these “conflict minerals” originated from the DRC or any of its adjoining countries.
As the decision chart on the next page shows, under the SEC’s proposed rules, no disclosure or other action is required by this provision if:
- the company is not a SEC-reporting company;
- the company is not a manufacturer; or
- the company’s products do not contain (and are not made using) any conflict minerals.
Otherwise, the company must conduct a “reasonable country of origin inquiry” to determine whether its conflict minerals originated from the DRC or an adjoining country. If the inquiry concludes that the company’s conflict minerals are “DRC conflict free,” the company must simply disclose this in its annual report and on its website.
However, if the company’s conflict minerals originated in the DRC or an adjoining country, or if the company is unable to conclude that they are “DRC conflict free,” then it must prepare an annual “Conflict Minerals Report.” The company must also obtain an independent private sector audit of the Conflict Minerals Report, which must include a copy of the audit report. The Conflict Minerals Report, to be attached to the company’s annual report and posted on its website, must describe:
- the company’s due diligence on the source and chain of custody of the conflict minerals;
- the company’s products that are not “DRC conflict free;”
- the country of origin of the company’s conflict minerals;
- the facilities used to process the company’s conflict minerals; and
- the company’s efforts to determine the mine or location of origin.
The comment period for the SEC’s proposed rules on conflict minerals disclosure expired on March 2, 2011. The Dodd-Frank Act requires the SEC to adopt final rules by April 15, 2011.