On April 7, 2017, the SEC's Division of Corporation Finance stated that it would not recommend enforcement action if a company subject to its conflict minerals rule1 files only a Form SD which (i) describes the company's "reasonable country of origin inquiry" and (ii) states whether any conflict minerals used in the company's products originated or may have originated in a "covered country." (These requirements are set forth in Item 1.01(a) and Item 1.01(b) of Form SD.)
This means that the SEC will not recommend enforcement action if a company omits the Conflict Minerals Report that would otherwise be required by Item 1.01(c) of Form SD. The Conflict Minerals Report describes the supply chain due diligence the company has undertaken to determine the sources and chain of custody of the company's conflict minerals, its conflict minerals policy, and related matters. The SEC also will not take enforcement action if a company omits the independent private sector audit (referred to as the "IPSA") that would otherwise be required. The SEC previously stated that a company does not need to obtain an IPSA as long as it does not claim that its products are "DRC conflict-free."
The effects of the SEC's April 7 statement are that:
- companies subject to the conflict minerals rule are still required to file a Form SD by May 31, 2017; and
- companies may omit the Conflict Minerals Report exhibit to the Form SD, as long as they make the disclosures required by Item 1.01(a) and Item 1.01(b) of Form SD in the Form SD itself.
Realistically, most companies subject to the rule have already completed the due diligence required to prepare the Conflict Minerals Report to be filed as an exhibit to the 2017 Form SD, and so may decide to file it anyway.
It is important to note that the conflict minerals rule has not been amended; the SEC's statement only expresses its position on enforcement of the rule.
Click here to view the SEC's April 7, 2017 Public Statement.2
Please contact our Capital Markets & Securities lawyers for further information on the matters discussed herein.
1 The SEC's conflict minerals rule requires a public company to investigate and disclose whether certain minerals, referred to as "conflict minerals," are necessary to the functionality or production of any products manufactured by the company or contracted by the company to be manufactured. If so, the company is then required to conduct a good faith reasonable country of origin inquiry regarding those conflict minerals that is reasonably designed to determine whether any of the conflict minerals originated in the Democratic Republic of the Congo or an adjoining country, referred to as "covered countries," or whether any of the conflict minerals are from recycled or scrap sources. The rule then requires that the company conduct supply chain due diligence that conforms to a nationally or internationally recognized due diligence framework, and to describe those efforts in a Conflict Minerals Report to be filed as an exhibit to the Form SD.
2 The April 7, 2017, SEC statement was made after the United States District Court for the District of Columbia entered a final judgment, on April 3, 2017, declaring that the conflict minerals rule and the statutory provisions on which it is based violate the First Amendment to the extent that they require companies to disclose that any of their products have not been found to be "DRC conflict free." See Nat'l Ass'n of Mfrs., et al. v. SEC, No. 13-CF-000635 (D.D.C. April 3, 2017).