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Conflict Minerals Disclosure Requirement

The U.S. Securities and Exchange Commission (“SEC”) has published a final rule implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) relating to “conflict minerals” from the Democratic Republic of Congo (“DRC”).

The Final Rule imposes new disclosure and reporting requirements on companies already required to file disclosures with the SEC,1 that manufacture or contract to manufacture products for which “conflict minerals” are necessary to functionality or production.

In essence, the new rule requires companies that produce goods containing conflict minerals—gold, tantalum, tin or tungsten—to conduct inquiries to ensure that any such minerals are not contributing to the violence in the DRC. These requirements are both far reaching, and potentially quite onerous. Any publicly-traded company producing goods that incorporate these minerals may face a considerable disclosure obligation, no matter how deep within the supply chain such minerals have been added, or how miniscule the presence of such minerals in the finished product.

Broadly speaking, there are two conditions that trigger the obligation to file a disclosure. First, the rule applies to companies that manufacture or contract to manufacture goods containing conflict minerals. The SEC has explained that the term “manufacture” is used in its ordinary sense, and that a company “contracts to manufacture” when it exerts some degree of actual influence over the manufacturing process. Thus, while made to order goods would clearly satisfy this requirement, purchases of existing inventory, whether resold as-is or “private labeled” do not trigger the disclosure requirement even if those goods contain conflict minerals. Second, the disclosure requirement is triggered when conflict minerals are necessary to the functionality or production of the goods in question. Conflict minerals are necessary to functionality when they are essential to any of a product’s functions, uses and purposes; conflict minerals incorporated for purely decorative or ornamental purposes would therefore not be considered necessary to functionality. Additionally, conflict minerals are considered necessary to production if, in addition to being used in the production process, are also present in the finished product in some amount, including trace amounts.

Companies meeting these threshold conditions are required to file a specialized disclosure report with the SEC, on new Form SD, as described in the recently amended regulation at 17 C.F.R. § 249b.400. The first filing deadline will be May 31, 2014 for goods manufactured during the 2013 calendar year. The basic obligation accompanying the disclosure requirement is a “reasonable country of origin inquiry,” designed to assess the origin of the conflict minerals in each of the reporting company’s products. Depending on the outcome of this country of origin inquiry, and particularly if there is reason to believe that the conflict minerals may of originated from the DRC or neighboring countries, the reporting company may have to conduct more rigorous supply chain due diligence according to internationally recognized standards. Ultimately, companies whose products contain DRC origin conflict minerals will be required to make a determination as to whether such minerals are or are not “DRC Conflict Free,” and to publicly disclose that conclusion in its SEC filing.

The above was provided by EACC member Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP. If you have specific questions about the operation of this new rule and its effect on your business, please contact Alan R. Klestadt or John M. Foote.


[1] The statute applies to “[e]very registrant that files reports with the [SEC] under Sections 13(a) (15 U.S.C. 78m(a)) or 15(d) (15 U.S.C. 78o(d)) of the Exchange Act,” and applies equally to domestic companies, foreign private issuers, and smaller reporting companies.  Final Rule at 48–52, 343.