When Congress passed the Dodd-Frank Act, it directed the Commission to adopt a rule requiring companies to disclose their use of conflict minerals from the Democratic Republic of the Congo and adjoining countries. The statute explains that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the region and that the emergency humanitarian crisis there warrants these disclosure requirements.
…As proposed, issuers that are required to file reports with us will need to determine if they manufacture or contract to manufacture products that contain conflict minerals that are necessary to the production or functionality of the product. The release revises the guidance in these areas based on comments.
An excerpt from the opening statement of SEC Chairman Mary L. Schapiro on a rule requiring companies to disclose their use of conflict minerals.
If issuers do have such products, they will need to conduct a reasonable inquiry regarding the origins of their conflict minerals. Issuers using recycled or scrap conflict minerals will also conduct such an inquiry to confirm that the minerals are recycled or scrap. In response to comments that our proposal’s treatment of recycled and scrap minerals would have been overly burdensome, the final rule was changed so that issuers using recycled or scrap sources are not automatically required to conduct due diligence of their supply chain and file a conflict minerals report. Instead, recycled and scrap conflict minerals are treated like other minerals.
If after the reasonable inquiry an issuer determines that its minerals originated or may have originated in the covered countries, or if the issuer learns or has reason to believe that its minerals may not be recycled or scrap, the issuer will be required to conduct due diligence on its supply chain to determine if the conflict minerals financed or benefited armed groups in the covered countries.
As required by the statute, due diligence includes an audit of the conflict minerals report and as requested by commenters the rule includes an audit objective. Because of concerns expressed by commenters, issuers that are unable to determine the source of their conflict minerals after conducting due diligence may, for two years, describe the products containing the minerals as “conflict undeterminable” rather than “not conflict free.” Smaller reporting companies may use the “conflict undeterminable” characterization for four years.
Mary L. Schapiro is the 29th Chairman of the U.S. Securities and Exchange Commission.