Pursuant to Section 1502 of the Dodd-Frank Wall Street Reform Act, the Securities and Exchange Commission (SEC) issued final regulations on September 12, 2012 requiring publicly traded companies to disclose their use of “conflict minerals” in products they manufacture or have contract manufactured for them to proprietary specifications.
Under the new law, minerals deemed to be conflict minerals include cassiterite (the metal ore from which tin is extracted), columbite-tantalite (the metal ore from which tantalum is extracted), wolframite (the metal ore used to produce tungsten), their respective derivatives, and gold that originates from “covered countries” (including the Democratic Republic of the Congo) or a contiguous country. Such minerals are commonly used in electronic components and automotive products, but can also be used in the manufacture of consumer goods such as apparel and fashion accessories that contain metal parts.
Companies subject to this disclosure requirement must annually conduct a “reasonable country of origin inquiry” to determine whether conflict minerals have been used in the manufacture of company products during a given calendar year. The first annual disclosure is due by May 31, 2014 and covers product manufacturing during 2013.
Companies are required to submit their inquiry findings to the SEC using “Form SD.” In cases where a company can confirm the noted minerals used in their products do not come from covered countries and/or do come from recycled or scrap sources, the company is only required to complete Form SD to the SEC and post its findings on its Internet website. Companies that cannot determine the origin of such minerals used in its products, or that do use conflict minerals, are required to undertake additional due diligence steps and submit more detailed information to the SEC.
With the first reporting deadline of May 31, 2014 approaching, many subject companies have begun communicating with their respective supply chains as part of their country of origin inquires to determine if raw materials, components, finished products, etc., that are provided to the company contain conflict minerals. Frequently suppliers are being provided with Supplier Codes of Conduct, Purchase Sales Agreements, and Supplier Declarations that request that signed statements be provided regarding whether conflict minerals are being used in the materials, components, or finished products being provided to the company. Indeed, Costco Wholesale Corp. is asking its suppliers to register on a proprietary electronic platform called “Source Intelligence,” pay a $675 annual fee for doing so, and complete a detailed conflicts mineral questionnaire.
Companies will use supplier responses to these types of inquiries in their reporting to the SEC. We recommend that suppliers only sign such inquires/declarations, etc., if they possess adequate substantiation supporting their signed statements.