Some issuers who are required to progress far enough down the conflict minerals decision tree may be unable, after performing due diligence, to determine whether conflict minerals in relevant products financed or benefitted armed groups. While such issuers will still be required to file a conflict minerals report, for a period of time those issuers will be able to describe their products as “DRC conflict undeterminable.” Under the conflict minerals rules, issuers that use the “DRC conflict undeterminable” designation will not be required to include an independent private sector audit in their conflict minerals report. However, if the “DRC conflict undeterminable” designation is used, issuers will be required to provide a description of the products, the facilities used to process the necessary conflict minerals in those products, if known, the country of origin of the necessary conflict minerals in those products, if known, and the efforts to determine the mine or location of origin with the greatest possible specificity.
The purpose of the “DRC conflict undeterminable” designation is to:
- Allow time for viable tracking systems to be put in place and avoid a de-facto embargo on conflict minerals from the DRC and other covered countries
- Lead to more accurate disclosure, as the alternative would be to state the products have not been found to be “DRC conflict free”
- Avoid the situation in which virtually all issuers would describe their products as having not been found to be “DRC conflict free” simply because they could not determine the origin of their conflict minerals
As the due date for the first conflict minerals report approaches, many issuers may greet the use of the “DRC conflicts undeterminable” designation with a sigh of relief. However, as pointed out in this blog by The Elm Consulting Group, the ability to use the designation may be accompanied by many perplexing questions, such as “Is the “Undeterminable” status negated if a company has reasonable information about the sourcing status of only one metal in a product, or is “Undeterminable” linked to knowledge of all the conflict minerals in a product?” Issuers are therefore urged to think carefully and monitor regulatory developments.