SEC Approves Propose Rule on Conflict Minerals Disclosure
On December 15, 2010, the Securities and Exchange Commission voted unanimously to propose a rule, as mandated by the Dodd-Frank Act1, requiring companies (reporting issuers) to disclose annually whether they use “conflict minerals” that are “necessary to the functionality or production” of a product that they either manufacture or contract to be manufactured that originate from the Democratic Republic of the Congo or adjoining countries (DRC countries).
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According to the SEC’s press release, comments on the proposed rule, once it is published in the Federal Register, will be due by January 31, 2011.
Conflict Minerals Include Gold, Cassiterite, Wolframite Used in Cell Phones, Jewelry, Etc.
The conflict minerals are cassiterite, columbite-tantalite, gold, wolframite or their derivatives (generally tantalum, tin, gold, or tungsten). These minerals are essential to many products - from jewelry to cell phones to jet engines.
Proposed Rule Would Apply to Issuers Filing Reports with SEC, Etc.
The proposed rule would apply to an issuer if it (1) files reports with the SEC under the Exchange Act, and (2) conflict minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the issuer.
Origin Disclosure Would be Based on “Reasonable Country of Origin Inquiry”
The reporting issuer would be required to disclose in its annual reports whether its conflict minerals originated in the DRC countries. This disclosure would be based on a reasonable country of origin inquiry.
Disclosure Would be Required Whether Minerals Are from DRC Countries or Not
If an issuer concludes that its conflict minerals did not originate in the DRC countries, the issuer would disclose this determination and the reasonable country of origin inquiry process it used in reaching this determination. The issuer also would be required to make the disclosure regarding this determination available on its Internet website and maintain certain records.
If the issuer concludes that its conflict minerals did originate in the DRC countries, or is unable to conclude that its conflict minerals did not originate in the DRC countries, the issuer would issue a Conflict Minerals Report, describe how it exercised due diligence (including a private sector audit of the Report), disclose its conclusion, and make this information available on its website.
Could Report if Conflict Minerals Are Derived from Recycled or Scrap Sources
If an issuer’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the issuer would be permitted to file a Conflict Minerals Report stating that their conflict minerals were obtained from recycled or scrap sources and providing the basis on which they believe their conflict minerals are recycled or scrap. Issuers would be required to exercise due diligence in determining that their conflict minerals were recycled or scrap. The Conflict Minerals Report would be subject to the independent private sector audit requirement.
1On July 21, 2010, the President signed into law the conference version of H.R. 4173, Dodd-Frank Wall Street Reform and Consumer Protection Act, in order to impose new requirements on companies that use “conflict minerals” and provide new whistleblower rewards for securities violations, including violations of the FCPA. See ITT's Online Archives or 07/22/10 news, 10072230, for BP summary of this law.)
(See ITT's Online Archives or 12/10/10 news, 10121026, for BP summary announcing that the SEC would meet on conflict mineral reporting, etc.)