ALERT: SEC Releases Updated Conflict Minerals FAQ

The following alert was issued by RGP’s Supply Chain Practice’s Senior Practice Leader, Kevin Deely on April 8, 2014.  Please feel free to contact us with any questions and we’ll put you in touch with the Supply Chain Practice leadership in your local region.

ALERT: SEC Releases Updated Conflict Minerals Frequently Asked Questions (FAQ)

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In a much-anticipated update to the Securities Exchange Commission (SEC) May 2013 Frequently Asked Questions (FAQ), the SEC released nine new questions and answers relating to conflict minerals. To view the SEC’s FAQ page, please click here.

The release of information addressed a number of lingering questions since the initial release of the FAQ. One of the most anticipated points of clarification included how companies should treat a hybrid of ‘DRC undeterminable’ and ‘DRC conflict free’ products in its Conflict Minerals Report (CMR). The SEC said that companies can only describe products that are ‘DRC conflict free’ if the issuer determines that the conflict minerals did not finance or benefit armed groups in the region based on its due diligence. In addition, that due diligence requires an Independent Private Sector Audit (IPSA) of the CMR, for filings describing products as ‘DRC conflict free’. Key excerpts from the release include:

  • If, after exercising due diligence on the source and chain of custody of its conflict minerals, an issuer determines that at least one of its products may be described as “DRC conflict undeterminable,” is the issuer required to obtain an IPSA of its Conflict Minerals Report during the temporary transition period?

    No. The Commission stated in the adopting release that, during the transition period, issuers with products that may be described.

  • If an issuer does not obtain an IPSA of its Conflict Minerals Report because one of its products is “DRC conflict undeterminable,” may it describe any of its other products as “DRC conflict free” in its Conflict Minerals Report?

    No. An issuer is not required, under the rule, to describe any qualifying products as “DRC conflict free” in its Conflict Minerals Report. The rule defines due diligence as including an IPSA of the Conflict Minerals Report. Therefore, to be able to describe qualifying products in its Conflict Minerals Report as “DRC conflict free,” an issuer must have obtained an IPSA.

  • During the temporary transition period, an issuer has products that it manufactured or contracted to have manufactured with conflict minerals that are necessary to the functionality or production of those products. Each product is composed of a number of conflict minerals from different sources. In its Conflict Minerals Report, how should the issuer describe any particular product based upon the various combinations of conflict minerals in the product?

    During the temporary transition period, if an issuer has a product that would qualify as “DRC conflict free” except that the product contains a conflict mineral that the issuer is unable to determine did not originate in the DRC or an adjoining country, or is unable to determine did not directly or indirectly finance or benefit armed groups in those countries, the issuer may not describe that product as “DRC conflict free.”

  • The nationally or internationally recognized due diligence framework used by an issuer may include procedures for obtaining information about a conflict mineral’s country of origin. If so, this aspect of the nationally or internationally recognized due diligence framework would encompass the reasonable country of origin inquiry requirement under the rule. In that situation, would the IPSA also include the issuer’s reasonable country of origin inquiry?

    No. The IPSA does not need to include the reasonable country of origin inquiry because, under the rule, that inquiry is a distinct step separate from the due diligence process.

 

The release of the updated FAQ is helpful, but still does not address a range of questions companies have before the first filing. Companies should evaluate how this new information may affect their current draft Form Specialized Disclosures (SD) and CMRs.

For additional information, please contact your RGP Client Service Director, visit RGP.com or call +1.800.900.1131.  (Or contact our policyIQ team and we’ll put you in touch with the local RGP Directors in your area.)

This entry was posted in Industry News and tagged , , by Chris Burd. Bookmark the permalink.

About Chris Burd

Chris is the Managing Director of the policyIQ group at RGP. She gets geeky about compliance and technology, and gets to spend every day working at the crossroads of the two. With policyIQ since 2005, Chris has worked with hundreds of policyIQ clients to implement technology and enhance their internal compliance environment. In the past few years, she's focused on enhancing policyIQ's offering as a Conflict Minerals and Anti-Corruption tool. In past lives, Chris worked as a system implementation consultant, a e-commerce specialist, a customer service call center manager, and - for one short but memorable summer during high school - a machine operator on midnight shift in a plastics factory. In her free time, she spoils her nieces, volunteers at her local food bank, and spends more time than she should taking photos of her cats. She would like to be a rock star when she grows up.

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