SEC Sets Vote in August on “Conflict Minerals” Disclosure Rules

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.