Saturday, April 16, 2011
Conflict Minerals Reporting Requirement
The Dodd-Frank Wall Street Reform & Consumer Protection Act amended the Securities Exchange Act of 1934 by including a new provision requiring companies filing with the US Securities and Exchange Commission (SEC) to disclose whether their products use conflict minerals. The Act defines such conflict minerals as “columbite-tantalite (coltan), cassiterite, gold, wolframite or their derivatives” and other minerals determined by the US Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC). Conflict minerals are commonly used in cell phones, laptops, electronic, medical and other high-tech products.
While the law does not prohibit companies from using conflict minerals, it aims to discourage such activity by requiring certain companies that use conflict minerals necessary to their manufactured products’ functionality or production to annually disclose to the SEC whether any such minerals originated in the DRC or an adjoining country. If so, then the company must submit a certified report to the SEC describing: (1) The due diligence measures taken on the source and chain of custody of the minerals, including an independent private sector audit of the report; and (2) The products manufactured or contracted to be manufactured that are not “DRC conflict free,” the country of origin of the conflict minerals, and the facilities used to process the conflict minerals.
“DRC conflict free” means the product does not contain minerals that directly or indirectly finance or benefit armed groups in the DRC or a neighboring country.
The law further requires that companies post the information disclosed to the SEC on their website. The SEC is expected to issue implementing regulations for this provision in the next month or so. These regulations should provide further clarification how the conflicts mineral reporting requirement will be applied. In the meantime, companies subject to this new provision should prepare for the requisite due diligence, product evaluations, and supply chain reviews. Non-subject companies also should ready themselves for cooperating with business partners who file with the SEC. Companies also should note that the new law does not otherwise widen the existing US sanctions prohibiting certain business transactions with DRC individuals and entities on the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons (SDN List.)