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Conflict Minerals: A Noble Cause, a Controversial Solution, and an Uncertain Future (Part 2 of 2)

In the previous installment of this multi-part series, I briefly laid out the historical context that was the impetus for Section 1502 of the Dodd-Frank Act. In this installment, I will describe the mechanics of the final rule promulgated by the SEC.

The final rule is Rule 13p-1 of the Exchange Act, which was adopted SEC pursuant to Exchange Act Section 13(p), which itself was added by Section 1502 of Dodd-Frank.1 Rule 13p-1 applies to a company that uses any of the 3TG minerals if the company is an “issuer” that is required to file reports, such as 10-K annual reports, with the SEC and the minerals used are “necessary to the functionality or production of a product manufactured or contracted to be manufactured by the company.”2 The phrase “contracted to be manufactured” applies when a company has actual influence over the manufacture of a product, and this determination is made by consideration of the facts and circumstances.3 The SEC provides that a company does not have actual influence over manufacture in situations where the company simply affixes its name to a generic product, services a product manufactured by an unrelated third party, or negotiates contractual terms with a manufacturer that are unrelated to the actual manufacture of the product.4

It should be noted that public companies, or issuers, are not the only companies that fall within the purview of the rule. Other privately held companies that are suppliers to issuers that are affected by the rule will be be required to disclose their conflict mineral sourcing as a part of the issuer’s inquiries and due diligence.5 The SEC estimated that nearly 1,200 public companies would be required to file a full report, but the number of additional private companies affected could be nearly 12,000.6

If a company is found to be in scope of the rule, it must file a disclosure with the SEC on Form SD.7 In completing this form, the company must first undertake a “reasonable country of origin inquiry,” or “RCOI.”8 If the inquiry leads to the conclusion that either (a) the company knows that the minerals did not originate in the covered countries (DRC and adjoining countries) or are from scrap or recycled sources, or (b) the company has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources, then the company must disclose its determination, describe the procedures it followed to perform the inquiry, and the results of the inquiry on Form SD.9 The company must also publish the results on its website and provide the web address on the form.10

If, however, the inquiry leads to the conclusion that both (a) the company knows or has reason to believe that the minerals may have originated in the covered countries, and (b) the company knows or has reason to believe that the minerals may not be from scrap or recycled sources, then the company becomes required to perform due diligence on the source as well as the chain of custody of the minerals.11 The company is further required to document this diligence in a Conflict Minerals Report to be filed with Form SD and published on its website.12

To summarize, if, during its RCOI, a company has any reason to believe that the minerals may have originated in the covered countries and are not recycled or scrap, the company must prepare a Conflict Minerals Report and file it with Form SD.

If a company is required to file a Conflict Minerals Report (CMR), it must exercise a process of due diligence over the source of its 3TG minerals.13 This diligence process must be carried out following a recognized methodology, such as that approved by the OECD.14 The process must yield one of three results: “DRC Conflict Free,” “Not Been Found to be DRC Conflict Free,” or “DRC Conflict Undeterminable.”15

A finding of “DRC Conflict Free” indicates that the company determined that minerals may have originated in a covered country, but conclusively did not benefit any armed groups.16 If a company arrives at this determination, it must have its diligence procedures audited by an independent private sector auditor and include the audit report in its CMR.17

If the company arrives at either of the other two results, then it must list the products for which those statuses were determined, as well as the facilities used to process and the countries of origin of the conflict minerals in those products.18 For companies that arrive at a conclusion of “Not Been Found to be DRC Conflict Free,” the private sector audit requirements remain in force, but for “DRC Conflict Undeterminable” products, an audit is not required.19

Hopefully this summary has provided some clarity as to how the final rule, as written operates. Future installments will address the current state of the law as well as possibilities for the future.

  1. Keith F. Higgins, Dir., SEC Div. of Corp. Fin., Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule, (Apr. 29, 2014), 

  2. U.S. Sec. & Exch. Comm’n, Fact Sheet: Disclosing the Use of Conflict Minerals (July 29, 2014), 

  3. Id. 

  4. Id. 

  5. Lisa Reisman, Conflict Minerals Law, Supply Chain Due Diligence and Impact on Metal Buying Organizations – Part Three, METALMINER (Feb. 25, 2011), 

  6. Id. 

  7. Supra note 1. 

  8. Id. 

  9. Id. 

  10. Id. 

  11. Id. 

  12. Id. 

  13. Id. 

  14. Id. 

  15. Id. 

  16. Id. 

  17. Id. 

  18. Id. 

  19. Id.