August 24, 2010
Dear SEC,
Thank you for the opportunity to share some thoughts and concerns on what will be proposed regulations under Section 1502 of the Financial Reform Act (the Dodd-Frank Wall Street Reform and Consumer Protection Act).
These reporting requirements will improve the information available to purchasers of products to make informed decisions without actually banning the use of Conflict Mineral derived metals. The regulations will be time bound and have progress reports with the objective that Congo Conflict Minerals will cease to be an issue.
My comments:
Section 1502 (1)(A) and (2) does not provide clarity as to who is the reporting person. While the person is likely to be an individual, that individual is committing the reporting entity be it small or large. It should be clear that while this is required for business with SEC registered securities, most of the reporters will need reliable information from their supply chain which may not have direct SEC reporting obligations.
The level of due diligence should be explained in the regulation or supporting guidance and be in line with current business practices. The effort should be adequate to assure truthful disclosure.
The due diligence obligation needs to be extended to the supply chain. Some suppliers will have statutory reporting obligations, but others may be private companies or outside of the US. The regulation or guidance should be clear that reliable information will be needed for due diligence.
The supply chain should not be an easy way to extinguish the tracks of conflict mineral derived metals.
Recycling should be encouraged and recognized as a legitimate way to classify a listed metal as DRC Conflict Free if specific criteria are met. The smelting recovery process would require a level of due diligence that assures the scrap for recovery is post industrial or post consumer and not a sham for hiding conflict metals or ore. While this approach legitimizes historic conflict metals, it is a reasonable approach to deal with the past, encourage recycling and to provide a path forward for what would otherwise be tainted material.
The reporting required in section (1)(A) for materials intentionally used in the product or used in the manufacturing process is reasonable. The regulation or guidance should be clear that trace amounts that are contaminants are not included in the reporting requirement. Threshold levels should be established for contaminants.
Exemptions should be very limited. It would be ironic that national security would be the rational for continued sourcing of a conflict mineral that further undermines our national security. The exemption should be for the public reporting and require confidential reporting to the President and the appropriate Federal Agency with the objective of finding alternative sources or substitutes that do not jeopardize national security.
The report content is reasonable. By identifying the company and the product, the customer can make an educated choice when purchasing without compromising confidential business information.
The regulations or guidance should provide for the fact that a product may not contain an intentionally added conflict mineral derived metal. The reporter should not be required to prove a negative and be able to show that such materials are not commonly used for the product. Alternatively, the reporter can demonstrate the material is not part of the product.
The reporting regulations need to recognize the complexity of the supply chain as well as the important role the supply chain plays in accurate information needed for the report.
In line with the use of certified audits, the regulations should consider the use of “registries” similar to what is going on with Greenhouse Gas emission reporting under Executive Order 13524. A registry could add third party verification of conflict mineral status for a part or material used by many companies.
I hope these thoughts are helpful as you craft the regulations and (hopefully) guidance for this significant and complicated requirement. Feel free to contact me at 978-703-1283 if you have any questions.
Sincerely,
Stephen Greene, Principal
Howland Greene Consultants LLC
Lowell, MA 01852