Tag Archives: SEC

SEC Upholds Conflict Minerals Reporting Deadline

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US Securities and Exchange (SEC) Commission Chair Mary Jo White on April 29 said that the agency will continue to implement the conflict minerals rule upheld by the US Court of Appeals.

The SEC has also issued guidance on meeting the May 31 reporting deadline. The gist is that companies must meet the deadline as expected, but may omit aspectsstruck down recently by the US Court of Appeals.

SEC Division of Corporation Finance Director Keith Higgins said companies should comply with parts of the rule that the court upheld and file initial reports by June 2 (reports will be due on June 2, 2014 as the May 31 deadline falls on a Saturday). Thing is, most parts of the rule were upheld, so there is very little change to requirements on the whole.

Higgins said no company will be required to describe products as “not been found to be ‘DRC conflict free'” but companies will still have to disclose the origins of the products.

Legal outlook.Insiders at IPC say that yesterday the industry petitioners, led by the National Association of Manufacturers, filed a Motion for a Stay with the SEC in the conflict minerals case. If the SEC denies the stay, the petitioners will consider filing a stay request with the DC Circuit.

On April 14, U.S. Court of Appeals for the District of Columbia Circuit ruled that the requirement that firms report whether their products have “not been found to be ‘DRC conflict free,’ included in the SEC conflict minerals regulation, violates the First Amendment.

If there is no stay requested or granted, and the case is remanded to the district court, that court may simply remand to the SEC to implement the DC Circuit’s decision in the first instance.

Do I have to file? So it’s business as usual for conflict mineral compliance. And the deadline at the end of May approacheth.

There are two categories of companies who must report.

  1. The first is standard: a company that uses minerals including tantalum, tin, gold or tungsten if that company a)files reports with the SEC under the Exchange Act, b) the minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company. For more on this, visit this helpful FAQ.
  2. The second category of company that must report is a softer definition, for these are companies whose downstream customers demand information on raw materials so that the downstream company can then file with the SEC. So, even though your company may not have to file with the SEC, if you’re a supplier to a company that does, then you’ll have to report to them on your conflict mineral uses. Yes, it will be challenging. But it’s not impossible.

It’s Official: US Conflict Mineral Rule

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The US Securities and Exchange Commission (SEC) has voted in favor (3-2) of a final conflict minerals regulation.

Good as gold? Overall, the final regulation is an improvement over the proposed rule. IPC, the electronics association, says the modified rule addresses 80% of IPC’s voiced concerns about the proposed version.

The SEC has not posted the final regulation text, but is expected to do so shortly. [Update August 27, 2012: click to see Final Rule, a 356-page PDF.]

Compliance will still be a significant burden for industry. But in fairness, the final rule makes reasonable efforts to lower the burden while achieving Congressional intent.

The final rule provides burden relief to industry by:

  • establishing a unified reporting schedule
  • creating an indeterminate category
  • implementing a phase-in period
  • removing the requirement that a CMR report is required for any recycled or scrap materials contained in a product

At the center of the final rule are three key amendments from proposed rule:

  • Following a reasonable country of origin inquiry, companies unable to determine the origin of the conflict minerals in their product may report the source of their conflict minerals as indeterminate for 2 years. Small companies have 4 years (the SEC did not define a small company as far as we know).
  • Unlike the proposal which would have required a CMR for all recycled or scrap sources of conflict minerals, companies need only conduct, disclose and describe a reasonable inquiry to verify that the conflict minerals come from scrap or recycled sources. A CMR is required only if the reasonable inquiry indicates that the source may not be from scrap or recycled sources.
  • CMR reports will be filed as part of a new SD form. The deadline for submitting the SD will be May 31 of each year, with data from January to December reported. The first report will be due May 31, 2014 for data from January 2013-December 2013. The SEC had originally proposed that each company would file according to their fiscal year. By providing a uniform reporting deadline, the burden on the supply chain will be reduced.

The Rule itself If adopted by the Commission, the final rule would apply to a company that uses any of the four designated minerals— gold, tin, tantalum or tungsten— if:

• The company files reports with the SEC under the Exchange Act.

• The minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company.

Contracting to manufacture. A company would be considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. This determination would be based on the facts and circumstances, taking into account the degree of influence the company exercises over the product’s manufacturing.

A company would not be deemed to have 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.

• Specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product.

Requirements apply equally to domestic and foreign issuers.

Determining if conflict minerals originated in the DRC or other covered countries

Under the final rule, a company that uses any of the designated minerals would be required to conduct a reasonable ‘country of origin’ inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources.

If the inquiry determines either of the following to be true:

• The company knows that the minerals did not originate in the covered countries or are from scrap or recycled sources.

• The company has no reason to believe that the minerals may have originated in the covered countries and may not be from scrap or recycled sources.

… then the company must disclose its determination, provide a brief description of the inquiry it undertook and the results of the inquiry on a new form (Form SD) filed with the Commission.

Then the company also would be required to:

• Make its description publicly available on its Internet website.

• Provide the Internet address of that site in the Form SD.

If the inquiry otherwise determines both of the following to be true:

• The company knows or has reason to believe that the minerals may have originated in the covered countries.

• The company knows or has reason to believe that the minerals may not be from scrap or recycled sources.

… then the company must undertake “due diligence” on the source and chain of custody of its conflict minerals and file a Conflict Minerals Report as an exhibit to the Form SD.

Then the company also would be required to:

• Make publicly available the Conflict Minerals Report on its Internet website.

• Provide the Internet address of that site on Form SD.

What must be included in the Conflict Minerals Report. Under the final rule, companies that are required to file a Conflict Minerals Report would have to exercise due diligence on the source and chain of custody of their conflict minerals. The due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organisation for Economic Co-operation and Development (OECD).

DRC Conflict Free – then what? If a company determines that its products are “DRC conflict free” – that is the minerals may originate from the covered countries but did not finance or benefit armed groups – then the company would have to undertake the following audit and certification requirements:

• Obtain an independent private sector audit of its Conflict Minerals Report

• Certify that it obtained such an audit.

• Include the audit report as part of the Conflict Minerals Report.

• Identify the auditor.

Not “DRC Conflict Free” – If a company’s products have not been found to be “DRC conflict free,” then the company in addition to the audit and certification requirements would have to describe the following in its Conflict Minerals Report:

• The products manufactured or contracted to be manufactured that have not been found to be “DRC conflict free.”

• The facilities used to process the conflict minerals in those products.

• The country of origin of the conflict minerals in those products.

• The efforts to determine the mine or location of origin with the greatest possible specificity.

DRC Conflict Undeterminable – For a temporary two-year period (or four-year period for smaller reporting companies), if the company is unable to determine whether the minerals in its products originated in the covered countries or financed or benefited armed groups in those countries, then those products would be considered “DRC conflict undeterminable.”

Then, in that case, the company must describe the following in its Conflict Minerals Report:

• Its products manufactured or contracted to be manufactured that are “DRC conflict undeterminable.”

• The facilities used to process the conflict minerals in those products, if known.

• The country of origin of the conflict minerals in those products, if known.

• The efforts to determine the mine or location of origin with the greatest possible specificity.

• The steps it has taken or will take, if any, since the end of the period covered in its most recent Conflict Minerals Report to mitigate the risk that its necessary conflict minerals benefit armed groups, including any steps to improve due diligence.

For those products that are “DRC conflict undeterminable,” the company would not be required to obtain an independent private sector audit of the Conflict Minerals Report regarding the conflict minerals in those products.

Recycled or scrap due diligence. There are special rules governing the due diligence and Conflict Minerals Report for minerals from recycled or scrap sources. If a company’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the company’s products containing such minerals are considered “DRC conflict free.”

About gold sources If a company cannot reasonably conclude after its inquiry that its gold is from recycled or scrap sources, then it would be required to undertake due diligence in accordance with the OECD Due Diligence Guidance, and get an audit of its Conflict Minerals Report. Currently, gold is the only conflict mineral with a nationally or internationally recognized due diligence framework for determining whether it is recycled or scrap, which is part of the OECD Due Diligence Guidance.

For the other three minerals if a company cannot reasonably conclude after its inquiry that its minerals are from recycled or scrap sources, until a due diligence framework is developed, the company will be required to describe the due diligence measures it exercised in determining that its conflict minerals are from recycled or scrap sources in its Conflict Minerals Report. Such a company is not required to obtain an independent private sector audit regarding such conflict minerals.

Conflict mineral deadlines Under the final rule, the issuer would be required to provide the disclosure on the new Form SD. All issuers will file for the same period – a calendar year – regardless of their fiscal year end. Companies would be required to file their first specialized disclosure report on May 31, 2014 (for the 2013 calendar year) and annually on May 31 for each calendar year thereafter.

References:

SEC relevant page: http://www.sec.gov/news/press/2012/2012-163.htm

IPC relevant page, with kudos to Stephanie Castorina for consistently providing well-crafted messages on the subject: http://www.ipc.org/ContentPage.aspx?pageid=Conflict-Minerals

Software for conflict minerals compliance assurance: http://www.actio.net/default/index.cfm/products/material-disclosure/

For a list of likely-relevant softwares, mostly “cloud” solutions, click here: http://supply-chain-data-mgmt.blogspot.com/2012/08/35-will-outsource-to-saas-or-cloud.html

IPC: Unconflicted about Scrap Material Disclosure

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As detailed in IPC’s* March 2, 2011, comments in response to the Security and Exchange Commission (SEC) proposed rule on Conflict Minerals, IPC has a clear, unconflicted stance on conflict minerals and disclosure requirements.

Recently the issue of whether scrap and recycled materials need to have Conflict Minerals Reports have resurfaced. And with some form of conflict minerals legislation likely to be approved by end of the third quarter this year, new seems a good time to profile IPC’s position on same.

IPC maintains that recycled or scrap sources should not be required to furnish a Conflict Minerals Report, including a certified independent private sector audit.  

IPC maintains that the SEC)final rule should include an alternative approach for recycled or scrap sources that is “practicable and does not overly burden recycled materials so as to discourage their use.”

Given other government efforts to encourage recycling in electronics and other industries it’s imperative that the SEC does not diminish these efforts by adding significant disclosure or regulatory burdens to the use of recycled or reclaimed conflict minerals, IPC said in supplemental comments in response to the SEC proposed rule on Conflict Minerals (S7-40-10) and the panel discussion held on October 18, 2011.

“An issuer using a recycled material containing conflict minerals will not be able to provide any of the details required in a Conflict Minerals Report. The traceability of the reclaimed metals is [challenging] to track due to the various forms of recycling and thousands of consolidators, reclaimers, and scrap dealers both foreign and domestic. Instead, issuers should have a reasonable basis for believing the material is recycled and maintain auditable records to support the determination. IPC believes that due diligence is the appropriate requirement for verifying recycled or reclaimed conflict minerals.

We believe recycled conflict minerals should have parity with conflict minerals originating from a conflict-free mine so as to encourage manufacturers to use recycled  and scrap materials, to reduce the demand for minerals that would support armed groups in the DRC and adjoining countries, and to maintain a fair market for metals and minerals.”

All this could be accomplished, IPC believes, by providing that — after a manufacturer conducts a reasonable inquiry into the source of its conflict minerals — no further action is required if either:

1.  the minerals were determined to originate not from the DRC or adjoining countries, or

2.  the minerals originated from a scrap or recycled source

> Read how the final conflict material disclosure law (Dodd-Frank) is expected this summer (2012).

> Read more about IPC’s position on conflict minerals online.

Conflict Minerals, Electronics and the SEC

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A letter has been circulating, collecting signatures.  The letter has been passed to mining, metals, electronics, and other industry corporate heads for signing, and it’s addressed to the U.S. Securities and  Exchange Commission (SEC) Chairman Shapiro.

The point of the letter is to amass signatures and put pressure on the SEC to address the conflict in the Democratic Republic of Congo (DRC or “the Congo”) by three primary avenues:

  1. Government engagement and diplomacy.
  2. Supply chain responsibility.
  3. Economic development and capacity building.

Conflict minerals are minerals mined in conflicted areas, such as the Congo, which provide revenue to militia committing human rights atrocities.  Efforts by the US Congress and other governments, human rights groups, non-governmental organizations (NGOs), as well as industry, are underway to improve transparency in the minerals supply chain so that conflict areas are not receiving subsidy that is in turn funding terrible crimes against humanity.  Here is a slide-show around conflict mineral mining; images are artfully done and recommended.

Conflict mineral ores include:

NGOs are increasingly urging consumers to reject electronics made with conflict minerals.  This forces electronics companies to pay much closer attention to the source of the metals in products.  Some suppliers are being asked to certify that the tin, for instance, used in their products is not conflict tin.

Conflict minerals pose a new twist on an old problem: supply chain visibility. This deep level of supply chain visibility is what we talk about often these days. Efforts by NGOs and human rights groups have been somewhat successful in the U.S. in getting consumers to demand sourcing from non-conflict areas. Thus — to some extent at least — there is general industry support of the conflict metals issue and bills in both the Senate and House of Representatives.

Also, see the July 2010 (version 3.0) of proposed SEC revision.

Title XV of the Dodd-Frank Wall Street Reform and Consumer Protection Act was put into place to provide for financial regulatory reform, to protect consumers and investors, to enhance federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes. Within the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, 2010, are new requirements for manufacturers of products containing tin, tantalum, gold, tungsten, or any other “conflict metals.” The Act contains several specialized disclosure provisions:

– Section 1502 requires persons to disclose annually whether any conflict minerals that are necessary to the functionality or production of a product of the person, as defined in the provision, originated in the Congo or an adjoining country and if so to report on due diligence on the source and chain of custody of those minerals, which must include an independent private sector audit of that report that is certified by the person filing the report.

– Section 1503 requires any reporting issuer that is a mine operator, or has a subsidiary that is an operator, to disclose in each periodic report filed with the Commission information related to health and safety violations, including the number of certain violations, orders, and citations received from the Mine Safety and Health Administration (MSHA) among other matters.

– Section 1504 requires reporting issuers engaged in the commercial development of oil, natural gas, or minerals to disclose in an annual report certain payments made to the United States or a foreign government.

Regulations required by Sections 1502 and 1504 must be adopted no later than 270 days after the Dodd-Frank Act’s enactment, so the latest would be April 15, 2011.

Signatories of the recent letter to the SEC signed that they generally agree to the following:

  1. The SEC regulation should support meaningful reporting and transparency that drives ethical behavior for the sourcing of minerals from the DRC.
  2. The SEC should coordinate with other global pr ocesses in the effort to address financing of the conflict in the DRC.
  3. The SEC should coordinate with the State Department on options to implement more robust accountability and reporting mechanisms with key stakeholders – in particular, the State Department’s progress on diplomacy under The Democratic Republic of Congo Relief, Security, and the Democracy Promotion Act (PL 109-456).
  4. Extreme violations of human rights, including slavery and sexual violence should be eliminated.
  5. The US government to proactively contribute to resolving the underlying sources of conflict in eastern DRC.
  6. That minerals would contribute to the real development of communities in the eastern Congo.

Most agree that joint action by the DRC government, influential governments like the US, industries and Congolese and international civil society is needed to end conflict-related abuses, slavery and other human rights violations.

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