Reports Due June 2 Despite Court Ruling
The Securities and Exchange Commission released guidance last week on how companies should comply with the agency’s conflict minerals reporting rules in the wake of a U.S. court decision that struck down key provisions of the rule.
The rule requires companies to scrutinize their supply chains for any tin, tantalum, tungsten and gold that may be connected to conflicts in the Congo region. The materials are common in electronic devices, jewelry and auto parts.
The guidance is expected to resolve some of the confusion companies faced following an 14 April federal appeals court decision that struck down part of the rule. Citing free speech concerns, the court determined that the portions of the rule requiring companies to say whether their products contained conflict minerals from war-torn region of the Democratic Republic of the Congo was invalid.
Despite the court ruling and calls by two commissioners to find the entire rule invalid, the SEC still expects such reports to be filed on or before June 2 and to comply with and address those portions of the SEC regulations that the court upheld, subject to the following guidance:
- Companies that do not need to file a conflict minerals report should disclose and briefly describe their reasonable country of origin inquiry.
- For companies required to file, the conflict minerals report should include a description of the due diligence the company undertook.
- No covered products will have to be identified as “DRC conflict undeterminable” or “not found to be ‘DRC conflict free,’” but companies should disclose for such products the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts to determine the mine or location of origin.
- No company is required to describe a product as “DRC conflict free,” but such descriptions will be permitted if the company has obtained an independent private sector audit (IPSA).
- Pending further action, an IPSA will not be required in any other circumstance.
The rule was required by the Dodd-Frank Act of 2010 and has been strongly opposed by business groups, such as the National Association of Manufacturers, that cite a hefty cost for implementation.