In September 2012, the Securities and Exchange Commission (“SEC”) published the final rule implementing the requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act that issuers with conflict minerals that are necessary to the functionality or production of a product manufactured by them disclose annually whether any of those minerals originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country.
Almost immediately, a consortium of businesses led by the National Association of Manufacturers challenged the rules and on April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit ruled on that challenge. The court held that newly added Section 13(p)(1) (the “Conflict Minerals Rule”) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) violated “the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’” The court rejected all other challenges based on the Administrative Procedures Act or the Securities Exchange Act and remanded the case to the district court.
The court also withheld the issuance of its mandate until seven days after the disposition of any timely petition seeking rehearing or petition for rehearing en banc. As a result, the earliest date on which the court’s mandate is likely to be issued is June 5, 2014, which is after the June 2, 2014 due date for the first reports under the SEC’s Conflict Minerals Rule. Two weeks after the Court issued its opinion two SEC Commissioners, Daniel Gallagher and Michael Piwowar, issued a statement urging the agency to stay all further actions on the rule until all litigation was completed. The next day, however, Keith Higgins, Director of the Division of Corporation Finance, advised issuers that the Division expects firms to file their first Form SD and post their conflict minerals reports by June 2. Under the Division’s statement:
- 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.
- Companies that are required to file a conflict minerals 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, 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.” However, if a company voluntarily elects to describe any of its products as “DRC conflict free” it would be permitted to do so, provided it had obtained an independent private sector audit.
Additionally, on May 2, 2014, the SEC issued a partial stay of the Conflicts Mineral Rule regarding those portions that were found by the court to be in violation of the First Amendment. A copy of the SEC’s press release regarding the partial stay (and a link to the SEC order) can be found here.