SEC finally speaks on conflict minerals decision

by Cydney Posner

The SEC has finally issued some guidance in light of the decision of the D.C. Circuit on the conflict minerals case.  In essence, the SEC has fashioned a modified rule that requires companies to make the mandated filing on a timely basis without including a statement as to the conflict-free status of the products that could be deemed to violate the First Amendment.

You’ll recall that, in the recent court decision on a challenge to the rule, the D.C. Circuit upheld most aspects of the rule.  However, it concluded that the rule violated the First Amendment to the extent that companies were required to report that any of their products have “not been found to be DRC conflict free.” As a result, the judgment of the district court was affirmed in part and reversed in part, and the case was remanded to the district court for further proceedings consistent with the opinion. The Court of Appeals has not yet sent the case back to the district court to render a decision on remand and, as noted in the SEC guidance, will likely not do so until June 5,  after the June 2 deadline for filing Form SD and the related Conflict Minerals Report.

The Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule, by the director of Corp Fin, Keith Higgins, advises companies, “[s]ubject to the guidance below and any further action that may be taken either by the Commission or a court, the Division expects companies to file any reports required under Rule 13p-1 on or before the due date.” Perhaps in response to the joint statement by two of the SEC commissioners posted earlier this week, the Statement observes that the Appeals Court “specifically noted that there was no ‘First Amendment objection to any other aspect of the conflict minerals report or required disclosures.’” Accordingly, the statement advises companies to “comply with and address those portions of Rule 13p-1 and Form SD that the Court upheld.”

More specifically, “companies that do not need to file a Conflict Minerals Report should disclose [in Form SD] their reasonable country of origin inquiry and briefly describe the inquiry they undertook.” For those companies that are required to file a Conflict Minerals Report (because, as a result of the RCOI, they have reason to believe that the conflict minerals may have originated in the DRC or an adjoining country or that they may not be from recycled or scrap sources), the Report should include a description of the due diligence undertaken by the company. If the company has products that have either “not been found to be DRC conflict free” (within the scope of Item 1.01(c)(2) of Form SD) or are “DRC conflict undeterminable” (within the scope of the temporary transitional rule of Item 1.01(c)(2)(i) of Form SD), the company “would not have to identify the products as ‘DRC conflict undeterminable’ or ‘not found to be ‘DRC conflict free,’’ but should disclose, for those 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.”

The statement reiterates that “[n]o 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 had obtained an independent private sector audit (IPSA) as required by the rule. Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as ‘DRC conflict free’ in its Conflict Minerals Report.” [emphasis added]

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