SEC's Proposed 'Conflict Minerals' Rules Affect Multiple Industries and Require Public Disclosures

The Securities and Exchange Commission (SEC) recently proposed significant new reporting and supply-chain due diligence requirements relating to the use of so-called "conflict minerals." The new requirements are sweeping and, according to SEC estimates, would impact nearly 6,000 international trading companies, including manufacturers (and, in some cases, retailers) of technology, telecommunications, aerospace, automotive, electronics, industrial, jewelry and children's toy products, to name a few. The SEC's Notice of Proposed Rulemaking (NPRM) was published in the Federal Register on December 23, 2010, and the SEC has requested comments by January 31, 2011.

The proposed regulations would implement the "conflict minerals" reporting requirements directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frankjg1 Act"), which the president signed into law on July 21, 2010. Section 1502 of the Dodd-Frank Act amends Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78. New subsection (p) of Section 13, titled "Disclosures Relating to Conflict Minerals Originating in the Democratic Republic of Congo," is intended to limit trade in minerals originating from sources controlled by armed groups operating in the Democratic Republic of Congo (DRC) and adjoining countries and to decrease the violence funded by such trade.

SUMMARY OF THE NEW REQUIREMENTS

A few key aspects of the NPRM, discussed in greater detail below, are as follows:

Who and what is covered?

The proposed reporting requirements would apply to any issuer of U.S. securities who is otherwise required to file a report with the SEC if "conflict minerals" are necessary to the functionality or production of a product that they manufacture or contract to be manufactured. Companies that are otherwise exempt from filing reports with the SEC or whose products do not contain conflict minerals would be exempt from the new reporting requirements. Conflict minerals are: columbite-tantalite (coltan), commonly used to produce tantalum; cassiterite, commonly used to produce tin; wolframite, commonly used to produce tungsten; and gold. What is required?

Covered issuers would be required to determine and disclose in their annual reports to the SEC and on their public Web sites whether their manufactured goods contain conflict minerals (or their derivatives) that originated in the DRC or adjoining countries. Issuers whose products include DRC or adjoining country conflict minerals would also be required to conduct "supply chain due diligence" in an effort to certify that their conflict minerals do not "directly or indirectly finance or benefit armed groups" in the DRC or adjoining countries. Any required supply chain due diligence efforts and conflict minerals certifications must be documented in a "Conflict Minerals Report" that must be accompanied by a certified private-sector audit. The reporting issuer would be required to submit the Conflict Minerals Report and the...