SEC Proposes Specialized Disclosure of Use of Conflict Minerals Under Dodd-Frank Act
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 15, 2010 — The Securities and Exchange Commission today voted unanimously to propose measures, as mandated by the Dodd-Frank Act, which would require new disclosures by reporting issuers concerning conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country.
Specifically, companies would be required to disclose annually whether they use “conflict minerals” that are “necessary to the functionality or production” of a product that they either manufacture or contract to be manufactured that originate from the Democratic Republic of the Congo or adjoining countries. The conflict minerals are cassiterite, columbite-tantalite, gold, wolframite or their derivatives. These minerals are essential to many products — from jewelry to cell phones to jet engines.
“In adopting this statute, Congress expressed its hope that the reporting requirements of the securities laws will help to curb the violence in the eastern Democratic Republic of the Congo,” said SEC Chairman Mary L. Schapiro. “Because expertise about these events does not reside within the SEC, we have drafted these proposed rules carefully to follow the direction of Congress and look forward to the additional insights and perspective from public comments.”
Public comments on the proposed rules should be received by the Commission by Jan. 31, 2011.
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Requirements of the Proposed Rules
Application of the Rules
The proposed rules would apply to an issuer if:
- The issuer files reports with the Commission under the Exchange Act.
- Conflict minerals (generally tantalum, tin, gold, or tungsten) are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the issuer.
An issuer would be considered to be “contracting to manufacture” a product if:
- It has any influence over the product’s manufacturing.
- If it offers a generic product under its own brand name or a separate brand name, regardless of whether the issuer has any influence over the manufacturing specifications of the product, provided the issuer has contracted to have the product manufactured specifically for itself.
The requirements would apply equally to domestic and foreign issuers and to smaller reporting companies.
Determining Whether Conflict Minerals Originated in DRC Countries and Resulting Disclosure
Under the proposed rules, the reporting issuer would be required to disclose in its annual reports whether its conflict minerals originated in the DRC countries. This disclosure would be based on a reasonable country of origin inquiry.
If an issuer concludes that its conflict minerals did not originate in the DRC countries, the issuer would disclose this determination and the reasonable country of origin inquiry process it used in reaching this determination.
The issuer also would be required to:
- Make the disclosure regarding this determination available on its Internet website.
- Provide the Internet address of that site.
- Maintain records demonstrating that its conflict minerals did not originate in the DRC countries.
If the issuer concludes that its conflict minerals did originate in the DRC countries, or is unable to conclude that its conflict minerals did not originate in the DRC countries, the issuer would:
- Disclose this conclusion.
- Note that the Conflict Minerals Report is furnished as an exhibit to the annual report.
- Furnish the Conflict Minerals Report.
- Make available the Conflict Minerals Report on its Internet website.
- Disclose that the Conflict Minerals Report is posted on its Internet website.
- Provide the Internet address of that site.
Conflict Minerals Report
Under the proposed rule, the Conflict Minerals Report would include a description of the measures the issuer had taken to exercise due diligence on the source and chain of custody of its conflict minerals, including a certified independent private sector audit of the Conflict Minerals Report that identifies the auditor and is furnished as part of the Conflict Minerals Report.
Further, the issuer would be required to include in the Conflict Minerals Report:
- A description of its products manufactured or contracted to be manufactured containing conflict minerals that are not “DRC conflict free” as defined in the rules
- The facilities used to process those conflict minerals.
- Those conflict minerals’ country of origin.
- The efforts to determine the mine or location of origin with the greatest possible specificity.
Issuers would be required to disclose the due diligence they used in making their determinations, such as whether they used any nationally or internationally recognized standards or guidance for due diligence.
Recycled or Scrap Sources
If an issuer’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the issuer would be permitted to file a Conflict Minerals Report stating that their conflict minerals were obtained from recycled or scrap sources and providing the basis on which they believe their conflict minerals are recycled or scrap. Issuers would be required to exercise due diligence in determining that their conflict minerals were recycled or scrap. The Conflict Minerals Report would be subject to the independent private sector audit requirement.
The Commission is seeking public comments on the proposed rules that should be received by Jan. 31, 2011. The Commission will review the comments it receives and consider those comments in determining whether to adopt the proposed rules.