SEC Extends Comment Period on DRC Countries Conflict Minerals Disclosure Proposed Rule
The Securities and Exchange Commission is extending the comment period on its proposed rule to change the annual reporting requirements of certain issuers that file reports pursuant to the Securities Exchange Act of 1934 (Exchange Act), when conflict minerals originating in the Democratic Republic of the Congo or an adjoining country (DRC countries) are necessary to their product line, to March 2, 2011 (from January 31).1
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(Conflict minerals are cassiterite, columbite-tantalite, gold, wolframite, or their derivatives, or any other minerals or their derivatives determined by the Secretary of State to be financing conflict in DRC countries.)
SEC Says Proposed Disclosure Different from its Normal Disclosure Requirements
SEC notes that the nature of the proposed DRC countries conflict minerals disclosure requirements differs from the disclosure traditionally required by the Exchange Act, and the proposal requested comment on a variety of significant aspects of the proposed rules.
SEC received requests for an extension of time for public comment on the proposal to, among other things, allow for the collection of information and improve the quality of responses. SEC believes that providing the public additional time to consider thoroughly the matters addressed by the proposed rule and to submit comprehensive responses would benefit SEC in its consideration of a final rule.
Highlights of Proposed Rule
The following are highlights of Broker Power’s earlier summary on SEC’s proposed rule. (See ITT’s Online Archives 12/23/10 news, 10122326, for that BP summary.)
Certain SEC Report Filers That Use Conflict Minerals Would be Affected
The disclosure requirements of the proposed rule would apply to an issuer if (1) it files reports with the SEC pursuant to Sections 13(a) or 15(d) of 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.
Issuers Would Need to Disclose Use of Conflict Minerals in Annual Report
Any issuer for which conflict minerals are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer would be required to disclose in the body of its annual report whether its conflict minerals originated DRC countries.
If so, that issuer would also be required to furnish a separate report as an exhibit to its annual report that includes, among other matters, a description of the measures taken by the issuer to exercise due diligence on the source and chain of custody of its conflict minerals.
Conflict Mineral Disclosure Would be Divided into 3 Steps
SEC proposed that the conflict minerals disclosure requirement for conflict minerals be divided into three steps:
- The first step would require the issuer to determine whether it is subject to the Conflict Minerals Provision.
- The second step would require the issuer to determine after a reasonable country of origin inquiry, whether its conflict minerals originated in DRC countries.
- The third step would require an issuer with conflict minerals that originated in DRC countries, or an issuer that is unable to conclude that its conflict minerals did not originate in DRC countries, to furnish a Conflict Minerals Report.
If No Conflict Minerals Originate in DRC Countries, Would Disclose in Body of Report and on Website
Affected issuers would be required to disclose, based on their reasonable country of origin inquiry, in the body of their annual reports whether their conflict minerals originated in DRC countries. If an issuer concludes that its conflict minerals did not originate in DRC countries, the issuer would disclose this determination and the reasonable country of origin inquiry process it used in reaching this determination in the body of its annual report.
Also, the issuer would be required to provide on its Internet website its determination that its conflict minerals did not originate in DRC countries, disclose that this information is available on its website and the Internet address of that site in the body of its annual report, and maintain records demonstrating that its conflict minerals did not originate in DRC countries.
If Conflict Minerals Found, or Unknown, Need Additional Conflict Minerals Report
If the issuer concludes that its conflict minerals did originate in DRC countries, or is unable to conclude that its conflict minerals did not originate in DRC countries, the issuer would similarly disclose this conclusion, note that the Conflict Minerals Report is furnished as an exhibit to the annual report, furnish the Conflict Minerals Report, make available the Conflict Minerals Report on its Internet website, disclose that the Conflict
Minerals Report is posted on its Internet website, and provide the Internet address of that site.
Act Calls for SEC to Issue Final Rule by April 15
The Dodd-Frank Act1 requires the SEC to issue a final rule no later than 270 days after the date of enactment, or April 15, 2011; however, it is not known if the statutory deadline can be met in light of the extended comment period.
1On July 21, 2010, the President signed into law the conference version of H.R. 4173, the 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 12/17/10 news, 10121722, for BP summary announcing that the SEC voted to issue the proposed rule.)
SEC contact- John Fieldsend (202) 551-3430