SEC Issues Updated Guidance Regarding Conflict Mineral Rules


On April 7, 2017, the SEC Division of Corporate Finance issued updated guidance regarding the SEC’s conflict minerals rules, stating that, in light of uncertainties regarding how the SEC will resolve issues relating to its conflict mineral rules, the SEC will not recommend enforcement action with respect to a company – even if it is subject to Item 1.01(c) of Form SD – to comply with the disclosure obligations under the SEC’s conflict minerals rules by only including in its Form SD the disclosures required by Items 1.01(a) and (b) of Form SD.

The SEC was prompted to update its guidance by the April 3, 2017 final judgment of the U.S. District Court for the District of Columbia in National Association of Manufacturers, et al. v. Securities and Exchange Commission,[1] in which the court held that the provisions of Item 1.01(c) of Form SD that require companies to report to the SEC and state on their websites that a product has “not been found to be ‘DRC conflict free’” violates the First Amendment of the U.S. Constitution.

By way of background, Form SD generally requires the following:

  • Item 1.01(a) states that, if any conflict minerals are necessary to the functionality or production of a company’s manufactured or contracted to be manufactured products, then the company must conduct in good faith a reasonable country of origin inquiry (an “RCOI”) to determine whether any of the conflict minerals originated in the Democratic Republic of the Congo or an adjoining country or are from recycled or scrap sources.
  • Depending on the results of a company’s RCOI, Item 1.01(b) requires the company to disclose in its Form SD and on its website the company’s determinations with respect to its RCOI and briefly describe the RCOI itself and its results.
  • If, based on the results of its RCOI, a company knows or has reason to believe that any of its necessary conflict minerals originated in the Democratic Republic of Congo or an adjoining country and are not from recycled or scrap sources, then Item 1.01(c) requires the company to (i) exercise due diligence on the source and chain of custody of its conflict minerals (which due diligence efforts require an independent private sector audit), and (ii) attach a Conflict Minerals Report as an exhibit to its Form SD and post the report on its website. Per Item 1.01(c), a company’s Conflict Minerals Report is required to describe the company’s due diligence efforts, identify any of its products that have not been found to be “DRC conflict free,” the facilities used to process the necessary conflict minerals, the country of origin of the necessary conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.  As noted above, the SEC’s blanket no action position states that the SEC will not seek enforcement action if companies do not disclose the information required by Item 1.01(c).

In sum, a company that otherwise would have been required to file or post a Conflict Minerals Report with the SEC can comply with the SEC’s conflict minerals rules by describing on Form SD its determinations regarding the origin and source of its necessary conflict minerals and the nature and results of its RCOI.  Companies no longer will have to conduct the detailed due diligence or file with the SEC or post on their websites Conflict Mineral Reports as required by Item 1.01(c) of Form SD.

While the SEC noted that its updated guidance remains subject to further action by the SEC, is related to enforcement action only, and is not a statement of a legal conclusion, SEC Acting Chairman, Michael Piwowar, stated in a public statement issued on April 7, 2017, that until the regulatory uncertainties regarding Item 1.01(c) are resolved, “it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.”

Companies should pay close attention to developments regarding compliance with the SEC’s conflict minerals rules as the views of the SEC’s commissioners and staff continue to evolve.

[1] See Nat’l Ass’n of Mfrs., et al. v. SEC, No. 13-CF-000635 (D.D.C. Apr.3, 2017).

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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