July 11, 2012
On July 2, 2012, the U.S. Securities and Exchange Commission (SEC) announced
that it will likely vote on August 22, 2012, to finalize a contentious
rule that would require public companies to fully disclose whether they
produce or use designated “conflict minerals” (tantalum, tin, gold or tungsten)
mined or sourced in the Democratic Republic of the Congo or any adjoining
country.
The rule was proposed pursuant to Section 1502 of the 2010 Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank), which directed the SEC
to devise and implement rules that would compel a public company to annually
assess and disclose their conflict minerals usage.
The proposed rule requires issuers to prepare and disclose in their annual
report any conflict minerals that are necessary to the functionality or
production of a product manufactured or contracted to be manufactured by the
issuer. Companies that use or rely on even small amounts of any conflict mineral
must prepare a detailed Conflict Minerals Report, which would include conducting
supply chain due diligence to identify the source and chain of custody of any
such conflict minerals. If a CM Report is necessary, companies would also have
to obtain an independent private sector audit of the report, which must be filed
with the SEC and made available to the public on the company’s website.
According to SEC
guidance on the specialized corporate disclosures required under Dodd-Frank,
an issuer’s initial Conflict Minerals Report is not required until the end of
the reporting entity’s next full fiscal year that begins after the
Commission promulgates its final rules (i.e., if approved on August 22, issuers
with a March 31 or June 31 fiscal year end will not need to file a report until
2014).
Many companies have already begun to establish corporate risk management
procedures to help them identify and track conflict minerals. Nonetheless, it is
anticipated that compliance with the final rules will be a painstaking and
potentially costly undertaking. Understanding the rules, parameters and
standards for disclosure will be paramount for public companies and vendors in
their supply chain. If you have any questions or concerns relating to the
forthcoming SEC action and conflict minerals requirements, please contact the
authors.