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SEC Adopts Rules Regarding Disclosing Use of Conflict Minerals

Release Date: September 27, 2012

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On August 22, 2012, the Securities and Exchange Commission adopted rules mandated by the Dodd-Frank Act to require companies to publicly disclose their use of certain conflict minerals that originated in the Democratic Republic of the Congo (the "DRC") or an adjoining country.  The mandate for rules under the Dodd-Frank Act came directly from a concern that armed groups in the Congo region are engaged in the trade of conflict minerals and are contributing to a significant humanitarian crisis.

SEC Rules

            Companies that file Exchange Act reports with the SEC and that use minerals including tantalum, tin, gold or tungsten considered "necessary to the functionality or production" of a product manufactured or contracted to be manufactured by the company are required to comply with the new rules.  Such issuers are now required to file with the SEC, each calendar year period (regardless of fiscal year end), a specialized disclosure report on new Form SD.  The rules apply to all public reporting companies, including smaller reporting companies.

Contracting to Manufacture

            A company is considered to be contracting to manufacture a product and therefore subject to the rules if it has some actual influence over the manufacturing of that product.  This determination focuses on the facts and circumstances, including a consideration of the degree of influence a company has over the product's manufacturing.

            A company is deemed not to have the requisite influence over the manufacturing if it merely:

• affixes its brand, marks, logo or label to a generic product manufactured by a third party;
• services, maintains or repairs a product manufactured by a third party; or
• specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product.

Determining Origination of Materials

            Companies using any of the designated materials are required to conduct a reasonable inquiry in good faith regarding the country of origin.  The inquiry must be reasonably designed to determine whether any of the minerals originated in the covered countries or are from scrap or recycled sources.

            If the inquiry reveals that the company knows the minerals did not originate in the covered countries or are from scrap or recycled sources or 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, briefly describe the inquiry process and the results of the inquiry on Form SD.  In addition, the company must more..