SEC Issues Guidance on Conflict Minerals

June 04, 2013

On May 30, 2013, for the first time since the adoption of the rule in August 2012 requiring companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or adjoining countries, the SEC’s Division of Corporation Finance issued written guidance in the form of 12 FAQs.1

These controversial rules apply to all SEC reporting companies (including foreign issuers and smaller reporting companies) that manufacture or contract to manufacture products if any conflict mineral (the ores used to produce Tantalum, Tin and Tungsten, and Gold), even in a de minimis amount, is “necessary to the functionality or production” of a product, regardless of the source of the conflict mineral. Starting with calendar year 2013, these companies are required to file a Form SD (for “specialized disclosure”) with specified information about their use of conflict minerals and their due diligence as to countries of origin or whether their conflict minerals came from recycled or scrap materials. For more information on the rules, please refer to our client alert from August 28, 2012.

Given the resources and expense required to comply with the rule, companies have been seeking guidance from the SEC. These FAQs should be of some help. In summary:

  • Packaging or containers sold with a product are not considered to be part of the product even if the packaging is necessary to preserve the usability of the product. If an issuer manufactures or sells packaging or containers independent of a product, those would be considered “products” and subject to the rules.
  • Equipment used to provide services is not considered a “product” even if the issuer manufactures or contracts to have manufactured such equipment. (Example: a cruise ship manufactured for a cruise line.)
  • Tools, machines and other equipment that an issuer manufactures or contracts to manufacture for use in the manufacture of its products are not considered “products,” even if later sold by the issuer.
  • There is no distinction between product components that an issuer directly manufactures or contracts to manufacture and “generic” components that an issuer purchases for inclusion in a product. An issuer is required to conduct a reasonable country of origin inquiry with respect to conflict minerals in generic components included in its products.
  • An issuer that etches or marks a generic product that is manufactured by a third party with a logo, serial number or other identifier is not considered to be “contracting to manufacture” the product.
  • Every issuer (including voluntary filers) that files reports under Exchange Act Sections 13(a) or 15(d) is required to file a Form SD (if applicable). Registered investment companies that are required to file reports pursuant to Rule 30d-1 under the Investment Company Act are not subject to the rule.
  • An issuer that only engages in the activities customarily associated with mining, including processing, is not considered to be manufacturing those minerals.
  • The rules apply to an issuer and all of its consolidated subsidiaries.
  • Form SD requires an issuer to describe products that have not been found to be “DRC conflict free” or that are “DRC conflict undeterminable.” An issuer must describe its products based on its own facts and circumstances and in terms commonly understood within its industry. Model numbers are not required. The description must state that the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable” (as applicable).
  • A Form SD is required to be filed along with a conflict minerals report and independent audit of such report even if it is determined that the products contain conflict minerals, but that the products are “DRC conflict free.” However, the issuer is not required to disclose the products containing those conflict minerals.
  • After an IPO, an issuer must begin providing conflict minerals disclosure for the first reporting calendar year that begins no sooner than eight months after the effective date of its IPO registration statement.
  • Failure to timely file a Form SD will not cause an issuer to lose S-3 or F-3 eligibility.

Update on Suit Filed by NAM/Chamber of Commerce Regarding Conflict Minerals

The lawsuit filed by National Association of Manufactures / U.S. Chamber of Commerce in October 2012 to enjoin the conflict mineral rules continues. The suit challenging the rules has been transferred to the United States District Court for the District of Columbia from the D.C. Circuit, and oral arguments are currently scheduled for July 1, 2013.


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This article was originally published by Bingham McCutchen LLP.