alerts & publications
SEC Staff Publishes FAQs on Conflict Minerals DisclosureJune 3, 2013
On May 30, 2013, the Securities and Exchange Commission’s Division of Corporation Finance released a set of responses to “Frequently Asked Questions” regarding conflict minerals disclosure. The full text of the FAQs is available here. For a more complete discussion of the conflict minerals disclosure requirements, please see our prior client alert available here.
These responses provide further guidance regarding questions relating to disclosure regarding the use of conflict minerals.
Guidance on Determining if Conflict Minerals Disclosure is Required
- Exchange Act Rule 13p-1’s conflict mineral reporting requirements on Form SD are applicable to all issuers that file reports with the Commission under Exchange Act Section 13(a) or 15(d), including voluntary filers. Only registered investment companies that are required to file reports pursuant to Investment Company Act Rule 30d-1 are not subject to the rule. (Question 1)
- An issuer who engages in mining conflict minerals, including those activities customarily associated solely with mining (such as crushing and milling ore), is not considered to be manufacturing conflict minerals for purposes of Instruction 1 to Item 1.01 of Form SD. (Question 2)
- An issuer must determine the origin of conflict minerals and make any necessary disclosures, both for itself and its consolidated subsidiaries, even if the product that has conflict minerals necessary to its functionality or production is manufactured by a consolidated subsidiary of such issuer, rather than directly by the issuer itself. (Question 3)
- An issuer that specifies that its logo or some other identifier (such as a serial number) be etched into a generic product that is manufactured by a third party, is not considered to be “contracting to manufacture” for the purposes of Rule 13p-1. (Question 4)
- An issuer is required to conduct a reasonable country of origin inquiry with respect to conflict minerals included in its products, even if such products only contain conflict minerals as a result of generic components purchased from a third party. In making this determination, there is no distinction between components that the issuer directly manufactures or contracts to manufacture, and the generic components that are purchased from a third party to be included in the product. (Question 5)
- Conflict minerals contained in the packaging of a product are not considered to be “necessary to the functionality or production” of the product, and are not subject to the disclosure obligations of Rule 13p-1. (Question 6)
- If an issuer manufactures and sells packaging or containers as products themselves, any conflict minerals contained in such packaging or containers would be considered “necessary to the functionality or production” of the product. (Question 6)
- Issuers that manufacture or contract for the manufacturing of equipment that is used to provide a service (such as cruise ships) are not required to file reports on Form SD so long as the equipment is (i) used for the service provided by the issuer and the equipment is retained by the service provider, (ii) required to be returned to the service provider, or (iii) intended to be abandoned by the customer following the terms of the service. Equipment used by an issuer to provide services is not considered to be “products” under Rule 13p-1. (Question 7)
- An issuer does not incur a reporting obligation under Rule 13p-1 if it subsequently resells equipment used to manufacture the issuer’s product (such as tools, machines, etc.) that contain conflict minerals. Such equipment is not considered a “product” of the issuer for purposes of Rule 13p-1, and reselling such equipment does not cause it to become a “product” of the issuer. (Question 8)
Guidance on Disclosure in the Conflict Minerals Report on Form SD
- Issuers that manufacture products or contract for products to be manufactured that are not “DRC conflict free” or are “DRC conflict undeterminable” must describe its products in terms commonly understood within its industry. An issuer is not required to describe its products by model number, but the description in the Form SD must clearly state that products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable,” as applicable. (Question 9)
- An issuer that determines that the products it manufactures or contacts to manufacture contain conflict minerals from the DRC or an adjoining country, but are “DRC conflict free,” nonetheless must file a Form SD with a Conflict Minerals Report and obtain an independent private sector audit of the report. However, the issuer is not required to disclose the products containing those conflict minerals in the report or provide certain other disclosures specified in Item 101(c)(2) of Form SD. (Question 10)
- An issuer that acquires or otherwise obtains control over a company that manufactures or contracts to manufacture products with conflict minerals necessary to the functionality or production of those products that previously had not been obligated to provide a specialized disclosure report for those minerals must begin reporting on that company’s products with the first reporting calendar year that begins no sooner than eight months after the effective date of the acquisition. If the issuer is conducting an initial public offering, the staff will not object if the issuer starts reporting for the first reporting calendar year that begins no sooner than eight months after the effective date of the IPO registration statement. (Question 11)
- An issuer that fails to timely file a Form SD will not lose its Form S-3 eligibility. (Question 12)
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