United States: SEC Staff Issues Guidance On The Conflict Minerals Rule

Last Updated: August 7 2013
Article by Troy M. Calkins and Peter B. Wolf

The Staff of the Securities and Exchange Commission's Division of Corporation Finance, on May 30, 2013, issued responses to several Frequently Asked Questions regarding the conflict minerals rule enacted pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Conflict Minerals Statutory Provision). The full text of the FAQs can be found at http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm.

As we noted in our September 2012 Client Alert, reporting issuers must make their initial conflict minerals analysis under Rule 13p-1 of the Exchange Act of 1934 (the Exchange Act) and, if necessary, file their initial Form SD and Conflict Minerals Report for the 2013 calendar year by May 31, 2014. The rule requires issuers to make a three-step disclosure analysis:

  • First, an issuer must determine whether it is subject to the Conflict Minerals Statutory Provision as a person for whom conflict minerals are necessary to the functionality or production of a product manufactured or contracted to be manufactured by the person.
  • Second, an issuer subject to the Conflict Minerals Statutory Provision is required to conduct a reasonable country-of-origin inquiry, in order to determine whether its conflict minerals originated in the Democratic Republic of the Congo or its adjoining countries (the "Covered Countries"), and to disclose the results of the inquiry on Form SD.
  • Third, an issuer whose conflict minerals did originate in the Covered Countries and did not come from recycled or scrap sources, or who has reason to believe that its conflict minerals may have originated in the Covered Countries and may not have come from recycled or scrap sources, must file a separate Conflict Minerals Report as an exhibit to Form SD and must comply with certain disclosure and auditing requirements.

The FAQs clarify certain aspects of Rule 13p-1, including:

  • Who the rule applies to

    • All issuers that file reports under Sections 13(a) or 15(d), including voluntary filers, must comply with the rule.1
    • An issuer must include all of its consolidated subsidiaries in its analysis under the rule.
    • An issuer engaging in mining activities is not considered to be manufacturing the mined minerals.
    • An issuer that conducts an IPO is subject to the rule, but does not have to file its initial Form SD until after the first reporting calendar year that beings no sooner than eight months after the effective date of its IPO registration statement.
  • When conflict minerals are necessary to the functionality or production of a product manufactured or contracted to be manufactured by the issuer

    • The packaging or container sold with a product is not considered to be part of the product under the rule. Thus, conflict minerals are not considered necessary to the functionality or production of a product due to conflict minerals contained in the product's package or container. Packaging or containers are, however, considered products in their own right if the issuer manufactures and sells them independent of a separate product.
    • Utilizing equipment that contains conflict minerals to provide a service does not subject an issuer to the Conflict Minerals Statutory Provision under the rule. Nor does subsequently selling the equipment.
  • Who must conduct a reasonable country–of-origin inquiry

    • An issuer that manufactures or contracts to manufacture products that include generic components that contain conflict minerals is required to conduct a reasonable country-of-origin inquiry with respect to the conflict minerals included in the generic component, even where the issuer has not contracted to manufacture the generic component.
    • An issuer that specifies that a logo, serial number or other identifier be etched or otherwise marked on a generic product that is manufactured by a third party is not "contracting to manufacture" that product.
  • What must the Conflict Minerals Report filed with Form SD contain

    • Aside from the requirement that the description of the issuer's products in the Conflict Minerals Report filed as an exhibit to Form SD must state clearly that the products "have not been found to be DRC conflict free" or are "DRC conflict undeterminable," an issuer may describe its products as it sees fit based on the facts and circumstances and in terms commonly understood within the issuer's industry.
    • An issuer whose products are determined to contain conflict minerals from the Covered Countries, but that are "DRC conflict free," must file a Form SD with a Conflict Minerals Report; however, the issuer is not required to disclose the products containing the conflict minerals in the Conflict Minerals Report.
  • What are the consequences of failing to timely file a Form SD

    • Failing to timely file a Form SD regarding conflict minerals does not cause an issuer to lose its eligibility to use Form S-3.

The foregoing is a summary of the FAQs. Companies intending to rely on any of these FAQs are cautioned to read the FAQs in their entirety.

The National Association of Manufacturers continues to challenge the conflict minerals rule on an expedited basis in the United States District Court for the District of Columbia, with oral argument on July 1, 2013. Pending the outcome of this challenge, reporting issuers should continue to prepare for their initial disclosure due May 31, 2014.


1. With the exception of registered investment companies that are required to file reports pursuant to Rule 30d-1 under the Investment Company Act.

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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Troy M. Calkins
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