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On July 2, 2012, the U.S. Securities and Exchange Commission
(SEC) announced that it will likely vote on August 22, 2012, to
finalize a contentious rule that would require public companies to
fully disclose whether they produce or use designated
"conflict minerals" (tantalum, tin, gold or tungsten)
mined or sourced in the Democratic Republic of the Congo or any
adjoining country.
The rule was proposed pursuant to Section 1502 of the 2010
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), which directed the SEC to devise and implement rules
that would compel a public company to annually assess and disclose
their conflict minerals usage.
The proposed rule requires issuers to prepare and disclose in
their annual report any conflict minerals that are necessary to the
functionality or production of a product manufactured or contracted
to be manufactured by the issuer. Companies that use or rely on
even small amounts of any conflict mineral must prepare a detailed
Conflict Minerals Report, which would include conducting supply
chain due diligence to identify the source and chain of custody of
any such conflict minerals. If a CM Report is necessary, companies
would also have to obtain an independent private sector audit of
the report, which must be filed with the SEC and made available to
the public on the company's website.
According to SEC guidance on the specialized corporate
disclosures required under Dodd-Frank, an issuer's initial
Conflict Minerals Report is not required until the end of the
reporting entity's next full fiscal year that begins
after the Commission promulgates its final rules (i.e., if
approved on August 22, issuers with a March 31 or June 31 fiscal
year end will not need to file a report until 2014).
Many companies have already begun to establish corporate risk
management procedures to help them identify and track conflict
minerals. Nonetheless, it is anticipated that compliance with the
final rules will be a painstaking and potentially costly
undertaking. Understanding the rules, parameters and standards for
disclosure will be paramount for public companies and vendors in
their supply chain. If you have any questions or concerns relating
to the forthcoming SEC action and conflict minerals requirements,
please contact the authors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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