United States: D.C. Circuit Denies Petition For Rehearing Conflict Minerals Rule Case

Those public companies that may have to comply with the SEC's conflict minerals rule should be aware that the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) recently refused to rehear en banc the August 2015 decision of a three-judge panel of that court in National Association of Manufacturers v. SEC (NAM), a case challenging the validity of the conflict minerals rule (Rule). In its August 2015 decision (Rehearing Decision),1 the D.C. Circuit panel reaffirmed its April 2014 decision (Original Decision, and together with the Rehearing Decision, Decisions)2 that provisions of the Rule requiring issuers to report to the SEC and to disclose on their websites whether any of their products have not been found to be "DRC conflict free" violated the First Amendment.

The petitioners have until February 8, 2016 to petition the U.S. Supreme Court for a writ of certiorari seeking its review of the Decisions. If such a petition is not filed or is filed and denied, the Decisions will become final and the case will go back to the district court for further action. If the Supreme Court takes the case, it is unlikely to issue a decision prior to the May 31, 2016 filing deadline for the required Form SDs and any required conflict mineral reports (CMRs) for the 2015 reporting year. Moreover, even with a decision by the Supreme Court, further litigation at the district court is possible. Unfortunately, this means that the uncertainty surrounding the Rule is likely to continue for a considerable time.

The Decisions and the SEC's partial stay of those parts of the Rule affected by the Original Decision3 do not affect core elements of the Rule, including the supply chain due diligence and SEC reporting requirements. Consequently, subject issuers must continue to comply with those requirements.

At a recent conference, representatives of the SEC's Division of Corporation Finance (CorpFin) confirmed that, pending a change in the status of the Rule as affected by the Decisions, CorpFin's guidance regarding compliance with the Rule in light of the Original Decision (Guidance)4 will remain in effect. Pending further action, subject issuers filing a CMR for the 2015 reporting year should not need to have an independent private sector audit (IPSA) of that CMR performed unless they voluntarily describe a product as "DRC conflict free" in that CMR.5 Subject issuers should take note that the CorpFin staff have previously advised issuers to exercise caution to avoid inadvertently labeling their products as "DRC conflict free" by using different words in their CMRs unless the issuers also have an IPSA of their CMRs performed.

Current Status of Complying with the Rule

The following is a brief summary of the steps that issuers must take to comply with the Rule until a different ruling occurs in NAM or the SEC takes additional action or issues additional guidance regarding the Rule:

  • an issuer manufacturing products or contracting for the manufacture of products that it sells must continue to first ascertain if those products contain conflict minerals that are necessary to the production or functionality of such products (necessary conflict minerals);
  • if the issuer has such products containing necessary conflict minerals (Conflict Products), it must perform a reasonable country of origin inquiry regarding the necessary conflict minerals in its Conflict Products and, where also required under the Rule, conduct due diligence regarding those necessary conflict minerals;
  • if an issuer with Conflict Products is required to file a Form SD, but not a CMR, for 2015, the Form SD must be filed on or before May 31, 2016 and must contain a description of the issuer's determination that none of the necessary conflict minerals contained in its Conflict Products originated in a covered country, a brief description of the reasonable country of origin inquiry performed by the issuer regarding such necessary conflict minerals and the results of that inquiry; and
  • if an issuer with Conflict Products is required to file a Form SD and a CMR for 2015, the Form SD and CMR must be filed on or before May 31, 2016 and the CMR must contain:
    • a description of the due diligence that the issuer undertook in accordance with the Rule's requirements, which due diligence must include, if any Conflict Products are represented in the CMR to be "DRC conflict free," an IPSA, and certain disclosures regarding the IPSA;
    • for those of the issuer's Conflict Products that it cannot determine to be "DRC conflict free," disclosure of the facilities used to process the conflict minerals in such Conflict Products,6 the countries of origin of such conflict minerals and the efforts made to determine the mine or location of origin of such conflict materials with the greatest possibility specificity; and
    • if any of the issuer's Conflict Products falls within the definition of "DRC conflict undeterminable," a statement of the actions the issuer has taken since January 1, 2015 to mitigate the risks that the conflict minerals in such Conflict Products benefit armed groups.

Under the Rule's provisions, issuers that are not smaller reporting companies would be required to identify in any CMR they file for 2015 or a subsequent reporting year those of their Conflict Products that fall within the definition of "DRC conflict undeterminable" as being Conflict Products "having not been found to be 'DRC conflict free.'" The Guidance indicates, however, that for the time being issuers need not identify in their CMRs those of their Conflict Products that are not "DRC conflict free" as being "not found to be 'DRC conflict free'" or "DRC conflict undeterminable." The Rule's transitional provision that requires issuers to disclose the facilities used to process the necessary conflict minerals in their Conflict Products that were "DRC conflict undeterminable" or the country of origin of such necessary conflict minerals only if the issuer knew that information after conducting the required due diligence no longer applies to issuers other than smaller reporting companies.7 The Guidance does not give such issuers any relief from the Rule's stricter requirement for disclosure of such matters now applicable to them.

Conclusion

Although the Decisions are somewhat helpful to issuers required to file CMRs, the continuing need for issuers to include in their CMRs the disclosure described above regarding their Conflict Products that are not "DRC conflict free" means that such disclosures will serve to identify issuers having Conflict Products that either have not been found to be "DRC conflict free" or are "DRC conflict undeterminable." Even if all of an issuer's Conflict Products are "DRC conflict undeterminable," such disclosures will still serve to stigmatize the issuer almost as effectively as would have compliance with the Rule without the benefit of the Decisions or the Guidance. At this point in 2015, however, it seems unlikely that the SEC will amend or supplement the Guidance to give issuers any relief on this or any other point with respect to the Rule, to require more extensive disclosure in the Form SDs and CMRs to be filed with respect to the 2015 reporting year or to change the SEC's current position regarding IPSAs. Nevertheless, issuers having Conflict Products containing necessary conflict minerals should stay tuned for future SEC guidance and for further developments in NAM.

Footnotes

1 For more information on the Rehearing Decision, which can be found here, and certain practical considerations relating to the Rule in light of the Decisions, please see our client alert dated August 28, 2015, Original Judgment in Conflict Minerals Case Reaffirmed.

2 Nat'l Assoc. of Mfrs. v. SEC, 748 F.3d 359 (D.C. Cir. 2014). For more information on that decision, please see our client alert dated May 2, 2014, The Conflict Mineral Rule: Important Recent Developments.

3 See In the Matter of Exchange Act Rule 13p-1 and Form SD, Order Issuing Stay (May 2, 2014), available at http://www.sec.gov/rules/other/2014/34-72079.pdf.

4 See Keith F. Higgins, Director, SEC Div. of Corp. Fin., Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule (Apr. 29, 2014), available at http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370541681994. For more information on the Guidance, please see our client alert dated May 2, 2014, The Conflict Minerals Rule: Important Recent Developments.

5 Under the Rule's transitional provisions, smaller reporting companies that will file a CMR for one or both of the 2015 and 2016 reporting years need not have the CMR for such a reporting year audited if they have products that are classified as "DRC conflict undeterminable" and do not represent in the CMR that one or more of their Conflict Products are "DRC conflict free."

6 The Guidance states this requirement as requiring disclosure of "the facilities used to produce the conflict minerals." Issuers should interpret that statement to be consistent with the Rule's actual language, which requires a description of "the facilities used to process" the conflict minerals contained in Conflict Products that have not been found to be "DRC conflict free." See paragraph (c)(2) of Item 1.01 of Form SD.

7 Such provision continues to apply to smaller reporting companies as to any CMR such issuers must file for the 2015 or 2016 reporting year.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Shearman & Sterling LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Shearman & Sterling LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions