Conflict minerals: an overview
In 2010, Congress enacted Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act because of concerns that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the Democratic Republic of the Congo (DRC) and adjoining countries and is contributing to an emergency humanitarian crisis. The Dodd-Frank Act directed the SEC to issue rules requiring certain companies to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product” manufactured by those companies. Under the Act, those minerals include tantalum, tin, gold or tungsten.
New Form SD
On August 22, 2012 the SEC adopted a final rule in Release No. 34-67716 requiring companies to publicly disclose on new Form SD their use of conflict minerals that originated in the DRC or an adjoining country if (a) the company files reports with the SEC under the Exchange Act, and (b) the minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company. Issuers are required to file Form SD for a calendar year, regardless of when their fiscal year ends. Form SD must first be filed by May 31, 2014 for the 2013 calendar year and annually by May 31 thereafter.
“Country of origin” inquiry
Under the final rule, a company that uses any of the designated conflict minerals is required to conduct a reasonable “country of origin” inquiry to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources. The company must disclose its determination, provide a brief description of the inquiry it undertook and the results of the inquiry on Form SD if the inquiry determines either of the following to be true: (a) the company knows that the minerals did not originate in the covered countries or are from scrap or recycled sources, or (b) the company has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources. A full Conflict Mineral Report does not have to be submitted to the SEC in this situation.
Due diligence measures
Only if a company knows or has reason to believe that the minerals may have originated in the covered countries and are not scrap or recycled will it have to undertake “due diligence” on the source and chain of custody of its conflict minerals and file a Conflict Minerals Report as an exhibit to Form SD. The due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organisation for Economic Co-operation and Development. For those companies that are required to file a Conflict Minerals Report, the report should include a description of the due diligence that the company undertook.
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.” If a company voluntarily elects to describe any of its products as “DRC conflict free” in its Conflict Minerals Report, it would be permitted to do so provided it has obtained an independent private sector audit of its Conflict Minerals Report, certify that it obtained such an audit, include the audit report as part of the Conflict Minerals Report, and identify the auditor. Pending further action by the SEC, an independent private sector audit will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.
Special rules for minerals from recycled or scrap sources
There are special rules governing the due diligence and Conflict Minerals Report for minerals from recycled or scrap sources. If a company’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the company’s products containing such minerals are considered “DRC conflict free.”