On April 7, 2017, the Division of Corporation Finance of the Securities and Exchange Commission issued a statement regarding the April 1, 2017, final judgment of the United States District Court for the District of Columbia issued in the multi-year conflict minerals litigation. The final judgment, which is identical to the proposed judgment issued by the court on March 20, 2017, states that the conflict minerals rule violates the First Amendment to the extent that the rule requires registrants to report to the Commission and state on their websites that any of their products “have not been found to be” DRC conflict-free.
As a result of the court’s final decision, the Division indicated that it will not recommend enforcement action against registrants that do not provide the disclosures required by Item 1.01(c) of Form SD, which (if applicable depending on the specific facts and circumstances) requires a separate Conflict Minerals Report and disclosures about the registrant’s due diligence on the source and chain of custody of conflict minerals in the registrant’s products. The disclosure requirements of Items 1.01(a) and 1.01(b) of Form SD remain in effect, including the requirement to disclose in the body of the Form S-D the company’s reasonable country-of-origin inquiry under certain circumstances required by the rule. The statement of the Division is available here.
Also as a result of the court’s decision, Acting Chairman Michael S. Piwowar released a statement noting that he has instructed Commission staff to begin work on a recommendation for future Commission action in light of the court’s ruling. The statement of the Acting Chairman follows a similar January 31, 2017, statement concerning possible reconsideration of the conflict minerals rule in which the Acting Chairman directed the staff to consider whether any relief was appropriate in light of the “unintended consequences” of the rule. The statement of the Acting Chairman is available here.
The Division’s action is a significant development that substantially reduces the level of disclosure required in connection with this year’s Form SD for companies that would otherwise have been required to prepare and file a Conflict Minerals Report. Companies may still want to consider, however, whether other factors, including the status of their due diligence efforts for 2016 and the influence of industry watchdog groups or other constituents, would weigh toward continuing to file a Conflict Minerals Report. In addition, unless and until there is further action by the Commission to repeal or significantly alter the existing conflict minerals rule, we expect most companies will likely determine it is prudent to continue their due diligence activities on the source and chain of custody of any conflict minerals in their products. The 2017 Form SD filing is due no later than May 31, 2017.