The Securities and Exchange Commission (the "SEC") has proposed rules under new Section 13(p) of the Securities Exchange Act of 1934 (the "Exchange Act") that will require certain annual report disclosures and reports by an Exchange Act reporting company for which specified conflict minerals are necessary to the functionality or production of a product it manufactures or has contracted to have manufactured.
The specified conflict minerals are columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted); or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country ("DRC countries"). These materials are used in alloys, tin plating, solder, electronic components, carbide tools, jet engine components, jewelry, and electronics, communications, and aerospace equipment, among other products. Exchange Act reporting companies that mine conflict materials would also be subject to the proposed rules.
A company subject to the proposed rules would be required undertake a reasonable inquiry to determine whether its conflict materials originated in the DRC countries.
If a reporting company determines that its conflict materials did not originate in the DRC countries after making such an inquiry, it would be required to disclose such determination and the inquiry it made to reach such determination in its annual report. It would also be required to disclose its determination on its Internet website and maintain records supporting its determination.
If, however, the reporting company determines that its conflict minerals did originate in the DRC countries, or after a reasonable inquiry the reporting company is unable to conclude that its conflict minerals did not originate in the DRC countries, it would be required to disclose this determination in its annual report and to furnish a Conflict Minerals Report ("Report") to the SEC as an exhibit to its annual report. The Report would also be required to be posted on the reporting company's Internet website. The reporting company's annual report would need to disclose that the Report has been furnished as an exhibit, is available on the company's Internet website, and provide the Internet address to access the Report.
The reporting company's Report would need to contain:
- a description of the measures taken to exercise due diligence on the source and chain of custody of its conflict minerals;
- a certification that it has obtained a independent private sector audit of the Report that identifies the auditor and is furnished as part of the Report;
- a description of its products containing conflict minerals that are not "DRC conflict free." Conflict minerals are "DRC conflict-free" if they do not directly or indirectly finance or benefit armed groups in the DRC countries. If a company cannot determine that conflict materials in a product did originate in the DRC countries, that product would not be "DRC conflict free" and would need to be described;
- the facilities used to process those conflict minerals;
- those conflict minerals' country of origin; and
- the company’s efforts to determine the mine or location of origin with the greatest possible specificity.
If the proposed rule is adopted within the time period required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, reporting companies with fiscal years ending on December 31 would need to comply with these disclosure requirements in connection with their annual reports to be filed in 2012.
For questions or more information, contact one of the members of the firm's Securities/SEC Practice Group including:
Lewis U. Davis, Jr. — 412 562 8953; firstname.lastname@example.org
Jeremiah G. Garvey — 412 562 8811; email@example.com
Jennifer R. Minter — 412 562 8444; firstname.lastname@example.org
Brian S. North — 215 665 3828; email@example.com
Brian S. Novosel — 412 562 5266; firstname.lastname@example.org