Opening Statement at the SEC Open Meeting
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
August 22, 2012
Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on Aug. 22, 2012.
Today, the Commission will consider two items required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
First, we will consider whether to adopt a rule requiring companies to make certain specialized disclosure about conflict minerals.
And, second we will consider whether to adopt a rule requiring resource extraction companies to disclose payments they make to the U.S. or foreign governments.
I am recused from participating in the second matter concerning issuers in extractive industries.
We begin with the conflict minerals rule.
When Congress passed the Dodd-Frank Act, it directed the Commission to adopt a rule requiring companies to disclose their use of conflict minerals from the Democratic Republic of the Congo and adjoining countries. The statute explains that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the region and that the emergency humanitarian crisis there warrants these disclosure requirements.
As reflected in Section 1502 of the Act, Congress intended to further the humanitarian goal of ending the extremely violent conflict in the DRC, which has been partially financed by conflict minerals originating in the DRC. Congress chose to use the securities laws disclosure requirements to accomplish its goal.
We have received significant public input on this rulemaking through the written comment process which generated more than 400 letters, through extensive meetings with stakeholders of all types, and through a public roundtable we convened last October. Commentary came from corporations, professional associations, human rights and public policy groups, bar associations, auditors, institutional investors, investment firms, U.S. and foreign government officials, consumers, and other interested parties and stakeholders.
In response, we incorporated many changes from the proposal that are designed to address concerns about the costs. I believe the rule we are considering today faithfully implements the statutory requirement as mandated by Congress in a fair and balanced manner.
The rules we are considering use the same process as proposed, but many of the mechanisms within the process have been modified in response to comments. As proposed, issuers that are required to file reports with us will need to determine if they manufacture or contract to manufacture products that contain conflict minerals that are necessary to the production or functionality of the product. The release revises the guidance in these areas based on comments.
If issuers do have such products, they will need to conduct a reasonable inquiry regarding the origins of their conflict minerals. Issuers using recycled or scrap conflict minerals will also conduct such an inquiry to confirm that the minerals are recycled or scrap. In response to comments that our proposal’s treatment of recycled and scrap minerals would have been overly burdensome, the final rule was changed so that issuers using recycled or scrap sources are not automatically required to conduct due diligence of their supply chain and file a conflict minerals report. Instead, recycled and scrap conflict minerals are treated like other minerals.
If after the reasonable inquiry an issuer determines that its minerals originated or may have originated in the covered countries, or if the issuer learns or has reason to believe that its minerals may not be recycled or scrap, the issuer will be required to conduct due diligence on its supply chain to determine if the conflict minerals financed or benefited armed groups in the covered countries.
As required by the statute, due diligence includes an audit of the conflict minerals report and as requested by commenters the rule includes an audit objective. Because of concerns expressed by commenters, issuers that are unable to determine the source of their conflict minerals after conducting due diligence may, for two years, describe the products containing the minerals as “conflict undeterminable” rather than “not conflict free.” Smaller reporting companies may use the “conflict undeterminable” characterization for four years.
Before I turn the meeting over to Meredith Cross, our Director of the Division of Corporation Finance, for more details on the release, I would like to thank the staff members who have worked so hard for so many months to bring the conflict mineral provision before us.
From the Division of Corporation Finance, thank you to Meredith Cross, Paula Dubberly, Felicia Kung, John Fieldsend, Steven Hearne, and Lillian Brown.
From our General Counsel’s Office, thanks to Mark Cahn, Richard Levine, David Fredrickson, Dorothy McCuaig, Ben Schiffrin and Tracy Hardin.
Thank you also to our colleagues in the Division of Risk, Strategy and Financial Innovation, specifically Craig Lewis, Kathleen Hanley, Vladimir Ivanov, and Vanessa Countryman.
From the Office of the Chief Accountant, thank you to Paul Beswick, Brian Croteau, Jeff Minton, John Cook, and Neil Weingarten.
I’d also like to particularly thank my counsels Jim Burns and Erica Williams and all of the Commissioners and their counsels for the extraordinary amount of time and effort they have spent on this project.