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Conflict Minerals Law

The Source for Legal Insights & Analysis on Conflict Minerals Compliance

Conflict Minerals Rule Weekly Recap #94 – January 26, 2015

Posted in Weekly Recaps
January 16, 2015 – January 23, 2015
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

ERA Technology’s Head of Regulatory Compliance Discusses Results of Recent Survey

In an EBN article titled Conflict Minerals: A Happy New Year? Chris Robertson, Head of Regulatory Compliance at ERA Technology, discusses a survey circulated in a recent ERA Technology webinar that asked viewers “what they thought would be the most effective compliance solution for conflict minerals in the EU.” The survey was released on the backdrop of the EU Commission’s proposed regulation last year, which would create a voluntary process in which importers of tin, tantalum, tungsten and gold into the EU can self-certify that they do not contribute to financing armed conflict.

The survey options for “most effective solution” were as follows: (1) Voluntary self-certification of importers of minerals/metals, (2) Mandatory certification of importers of minerals/metals, and (3) mandatory due diligence by the final product manufacturer/importer into the EU.

Mr. Robertson presented the results, “Our predominantly downstream industry audience identified the most effective approach, with 58% of the vote, as mandatory certification of importers (i.e. regulation). Meanwhile, 24% favoured mandatory due diligence by the party putting the product on the market in the EU (similar to the U.S. law). The Commission’s proposed approach (option 1) attracted only 19%.”

To view the survey results and Mr. Robertson’s observations please see Conflict Minerals: A Happy New Year?

Conflict Minerals Rule and Recycling Businesses

Posted in Conflict Mineral Compliance, News and Analysis

For purposes of the conflict minerals rule, conflict minerals that are sourced from recycled or scrap materials are deemed to be “DRC conflict free” and require disclosure only about the inquiry that led the reporting company to conclude that they were from those recycled or scrap sources.  That means that for products whose conflict minerals are from recycled or scrap sources, there is no requirement to undertake due diligence or to report their processing facilities, countries of origin, or efforts to determine mine or location or origin.

Conflict minerals from recycled and scrap sources are given special treatment under the Rule because, as a practical matter, it is impossible to trace the mine of origin of materials that are recovered from existing products and materials and combined into the recycled or scrap material.  

What Qualifies as Recycled or Scrap

Conflict minerals are considered to be from recycled or scrap sources if they are from recycled metals — reclaimed end-user products, post-consumer products, or scrap processed metals created during product manufacturing.  Recycled metal includes excess, obsolete, defective and scrap metal materials that contain refined or processed metals that are appropriate to recycle in the production of conflict minerals.  But, tin, tantalum, tungsten, or gold that are partially processed, unprocessed or are a by-product from another ore are not considered to be “recycled” under the Rule.

Impact of Recycled or Scrap Sources on Compliance Costs

Because of the Rule’s special treatment of conflict minerals from recycled or scrap sources, companies that can source 100% from recycled or scrap can significantly reduce the cost of their conflict minerals compliance efforts. 

If a company’s conflict minerals are confirmed to be 100% from recycled or scrap sources, it can avoid undertaking due diligence, it will not have to analyze supplier due diligence responses, and it will not be required to prepare or file a Conflict Minerals Report with the SEC.  Depending upon the company, its products and the size of its supply chain, avoiding those steps could equate to hundreds of thousands of dollars per year of savings.  It will be difficult for a significant number of companies to source 100% from recycled or scrap.  But, for those that already source a significant portion from recycled or scrap sources, it could be worth considering a push to source completely from recycled or scrap because of the potential savings.     

Further, as more companies announce that their products are “conflict-free,” their suppliers will have to find ways to confirm and assure that their conflict minerals are conflict-free.  Some of those suppliers may turn to recycled or scrap sources as one way to meet their customers’ requirements.

Increasing Value of Recycled or Scrap Sources

All these factors should make recycled and scrap sources of conflict minerals more attractive, and (over time) should increase the value of recycled and scrap as a source of conflict minerals.  An increased demand for recycled and scrap materials will in turn further promote e-waste and other recycling programs.  And, such demand may encourage the expansion, and even creation, of businesses that can confirm that their conflict minerals are 100% from recycled and scrap sources.  

Conflict Minerals Rule Weekly Recap #93 – January 19, 2015

Posted in Weekly Recaps
January 9, 2015 – January 16, 2015
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

Elm Sustainability: IPSA Trigger May Be Delayed

In a recent blog post, the folks over at Elm Sustainability Partners LLC discuss whether the SEC’s April 29, 2014 statement suspending the product description requirement will extend the DRC conflict undeterminable temporary two-year transition period (and the associated waiver of the requirement to obtain an IPSA) that is set to expire for non-smaller reporting companies.

Elm Sustainability ponders, “given the current suspension of the mandate to use the term ‘DRC Conflict Undeterminable,’  does the deferral [to obtain an IPSA] actually end?” Elm Sustainability then notes, “we are seeing a much greater demand from customers to have their publicly-traded suppliers obtain an IPSA for the 2014 filing” and it concludes “on one hand, we see the IPSA deadline being set a year ahead of the requirements, and on the other hand we see the possibility of the deadline extending beyond the 2014 filing year.”

Note: As of today, the answer for calendar year 2014 reporting is that no IPSA is required unless a company claims that a product is “DRC conflict free.” In the SEC’s April 2014 statement, Keith Higgins wrote: “Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as ‘DRC conflict free’ in its Conflict Minerals Report.” But note, after the Court of Appeals renders a decision on the rehearing, we believe the SEC will likely issue new guidance that could change the answer.

Students Groups Meet with Brandeis University’s Faculty Senate; Make Edits to Conflict-Free Proposal

According to The Justice, Brandeis University’s independent student newspaper, student groups are proposing that the university take into consideration a supplier’s conflict minerals policy when making procurement decisions.

The proposal is still fluid such that the students are considering narrowing the scope of the proposal to the “bulk of the hardware” that the university purchases (i.e., computers, laptops, copiers, scanners, and servers). A former student representative stated, “It’s mostly about educating people … and to start phasing out … products from irresponsible practices.”

Conflict Minerals Rule – Complying With The Rule In The Meantime

Posted in Conflict Mineral Compliance, Legal Challenges, News and Analysis

Companies are unsure of how to prepare for the year 2 filings while the legal challenge is still pending and there is uncertainty about exactly what the reporting requirements will be when the filing deadline finally arrives.

Legal Challenge to the Conflict Minerals Rule

In the last few posts, we’ve discussed the legal challenge to the conflict minerals rule.  It started in October 2012, just a month after the SEC issued the conflict minerals rule, when industry groups filed a lawsuit challenging the rule.   Just 6 weeks before the year 1 filings were due, the Court of Appeals for the DC Circuit ruled that the product description requirement in the rule was unconstitutional.

April 2014 SEC Statement

Shortly after that decision, because the legal challenge was still pending and because of the uncertainty that resulted from the Court of Appeals decision, the SEC issued a partial stay of the rule and implemented the statement of the Director of Corporation Finance that modified the reporting requirements of the rule.  The April 2014 SEC Statement provided guidance on what the SEC expected to see in the year 1 conflict minerals filings in light of the decision by the Court of Appeals:

  • Companies filing only the Form SD must disclose and briefly describe their reasonable country of origin inquiry.
  • Companies that must file a conflict minerals report must describe their due diligence.
  • No product descriptions are required in a conflict minerals report. But, for products that would have been identified as either “DRC conflict undeterminable” or “not found to be ‘DRC conflict free,’” companies are required to disclose the smelters/refiners, the country of origin,  and the efforts to determine the mine or location of origin of the conflict minerals in those products.
  • Companies may use product descriptions if they wish.
  • Until further notice, an independent private sector audit is only required if a company chooses to describe a product as “DRC conflict free.”

As we discussed in our April 29, 2014 blog, the SEC stated that this guidance would apply until the SEC or a court directed otherwise.  As of today, the SEC has not provided any change or update to this guidance, and no court has directed otherwise.

What to Do in the Meantime

There is no guarantee that the Court of Appeals will render its decision before the June 1, 2015 reporting deadline. (The deadline for making the conflict minerals filings for year 2 is May 31, and because that is a Sunday, the deadline for filing will be Monday, June 1, 2015.)   And, we do not know whether the Court of Appeals will uphold the decision that the product description requirement in the conflict minerals rule is a violation of the First Amendment.

But, after the Court of Appeals renders its decision, the SEC is likely to issue guidance to clarify what the SEC expects companies to include in their filings in light of that decision.  Until that happens, the conflict minerals rule is still in effect as modified by the partial stay imposed after the Court of Appeals decision, and the April 2014 SEC Statement still describes what the SEC expects in the filings.  So, companies should continue to gather information about the country of origin of their conflict minerals and the source and chain of custody of any conflict minerals that originate (or may originate) from the Congo or adjoining countries.  They will need that information in order to report what is required by the conflict minerals rule as in effect on the filing date.

Next, we’ll discuss some common ways in which year 1 filings failed to reflect the guidance in the April 2014 SEC Statement.

 

Rehearing of NAM v. SEC — Part 3 (Brief of NAM)

Posted in Legal Challenges, News and Analysis

As required by the November 18, 2014 order, NAM filed its Supplemental Brief on December 29, 2014, arguing that the April 2014 decision by the Court of Appeals should be upheld and that the product description required by the conflict minerals rule violates the First Amendment. 

Brief of NAM

NAM argues that the product description required by the conflict minerals rule is the equivalent of a governmental message that is not purely “factual and uncontroversial.”  Instead, according to NAM, (1) the description is ideological and conveys a moral judgment, (2) it is misleading because the product description implies something about the product that may not be true, and (3) it is contentious because it conveys the government’s position on a controversial subject.   

Therefore, NAM argues that because the required disclosure is not purely factual and uncontroversial, the limited scrutiny of the Zauderer case does not apply here.  Further, NAM argues that the product description is not “commercial speech,” so it should be subject to a heightened scrutiny.    Finally, NAM also argues that the required description is not related to the government’s goal for the conflict minerals rule (which was to reduce the violence in the Congo).

Next Steps

Now that the briefs have been filed, we are waiting for an indication of whether an oral argument will take place and then for a decision about whether the product description requirement of the conflict minerals rule violates the First Amendment. 

In the meantime, companies should continue to gather the information about the country of origin of their conflict minerals and the source and chain of custody of any conflict minerals that originate (or may originate) from the Congo or adjoining countries.   The decision of the Court of Appeals could come as late as the spring, so companies should not put their compliance efforts on hold.   They need to continue their efforts so that they are prepared to comply with the requirements of the conflict minerals rule — regardless of what decision the Court of Appeals makes on the First Amendment issue.

Rehearing of NAM v. SEC — Part 2 (Briefs of SEC, Amnesty International, Global Witness and Free Speech for People)

Posted in Legal Challenges, News and Analysis

As required by the November 18, 2014 order, the parties in NAM v. SEC filed briefs responding to questions about the First Amendment issue that were posed by the Court of Appeals.  This post summarizes the briefs filed by the parties that want the product description requirements of the conflict minerals rule to be upheld. 

Brief of the SEC

On December 8, 2014, the SEC filed its Supplemental Brief, in which it argues that the product description requirement of the conflict minerals rule does not violate the First Amendment.  The SEC argues that the limited scrutiny of Zauderer is the appropriate test to review the required disclosure in this case and that the product description required by the conflict minerals rule is “factual and uncontroversial” and is therefore constitutional. 

The SEC’s arguments are: 

1.  The product descriptions are “factual” because they are objectively determinable by concluding that the facts fit a particular definition included in the conflict minerals rule and are not merely a matter of opinion.  The product descriptions are “uncontroversial” even if the topic discussed is controversial and even if the company making the statement would rather remain silent.  The SEC also questions NAM’s argument that the required product description leaves consumers with a misleading impression of a connection between the product and the conflict in the Congo.

2.  Even if Zauderer did not apply here, the disclosure requirements would survive the intermediate scrutiny of Central Hudson.  The product description requirements are “reasonably crafted,” and issuers are permitted to include additional statements to provide their own message about the product and the conflict minerals compliance process.

Brief of Amnesty International

On December 8, Amnesty International filed its Supplemental Brief as well.  In its brief, it argues that in light of the decision in American Meat, the limited scrutiny of Zauderer applies in this case.  It argues that the product description required by the conflict minerals rule is factual and uncontroversial, stating that it is possible for a product description to be accurate and truthful even if the message it communicates is controversial.  It argues that a statement of “not been found to be ‘DRC conflict free’” is merely a statement about the results of the company’s investigation and does not indicate moral culpability in the armed conflict in the Congo.

Brief of Global Witness and Free Speech for People

Global Witness and Free Speech for People filed a brief of amici curiae, in which they argue that the product description required by the conflict minerals rule is a statement of fact regardless of the subject matter of the statement and regardless of any reaction that others might have to that statement.

We’ll provide a summary of NAM’s arguments in our next post.

Rehearing of NAM v. SEC — Part 1 (Background)

Posted in Legal Challenges, News and Analysis

The SEC, Amnesty International, Global Witness, Free Speech for People, and the National Association of Manufacturers have all filed their briefs, and we are now waiting for the decision on the rehearing – do portions of the SEC’s conflict minerals rule violate the First Amendment?  What follows is an introduction to what is being considered. 

As you may recall, on April 14, 2014, a panel for the Court of Appeals for the District of Columbia Circuit in NAM v. SEC upheld most of the SEC’s conflict minerals rule.  But, it found that requiring issuers to describe products as “not found to be ‘DRC conflict-free’” was compelled speech that violated the issuers’ First Amendment rights.

In limited situations, government regulations require companies to make statement about their products or services.  For example, these requirements may require companies to tell the contents of their product or the cost of the product.   Of course, there are many government regulations requiring public companies to make statements about their operations and financial results.  When a government regulation that compels speech is challenged on First Amendment grounds, the court must determine what level of scrutiny to use in considering whether the regulation violates the First Amendment. In NAM v. SEC, the court considered a couple of levels of scrutiny:  a limited scrutiny under the Zauderer case (which makes it easier for a governmental requirement to survive a challenge) and intermediate scrutiny under the Central Hudson case (which is a more rigorous review and makes it harder for a government requirement to survive a challenge).

Without going through all the constitutional history and arguments, the Court of Appeals held  that the Zauderer test was not the appropriate level of scrutiny to use here.  It went on to conclude that the product descriptions required by the conflict minerals rule did not survive the intermediate scrutiny under Central Hudson.

But, on July 29, 2014, in another case (American Meat), the same Court of Appeals (en banc), expanded the situations in which the more limited scrutiny of Zauderer applies.  It held that Zauderer applies to a government requirement for commercial disclosure of “purely factual and uncontroversial information” about a product or service and not only when the disclosure is intended to prevent deception.

Because the en banc Court of Appeals in American Meat expanded the applicability of Zauderer, the SEC asked the Court of Appeals for a rehearing of NAM v. SEC in light of that more recent en banc decision.  

On November 18, 2014, a panel rehearing was granted, and the court required the parties to file briefs on the following questions:

  1.  What effect does the decision in American Meat have on the conflict minerals rule’s First Amendment issue?
  2. What does “purely factual and uncontroversial information” mean?
  3. Is the decision about what is “uncontroversial information” a question of fact or a question of law?

We’ll provide summaries of the parties’ arguments next week.

Conflict Minerals Rule Weekly Recap #92 – January 12, 2015

Posted in Weekly Recaps
January 2, 2015 – January 9, 2015
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

TheCorporateCounsel.net: EDGAR Is Fixed for Form SD Exhibits

In its January 7, 2015 blog post, TheCorporateCounsel.net highlighted that the SEC updated its EDGAR Filer Manual to allow for the new exhibit type EX-1.01 for submission form types SD and SD/A.

As you may remember, in our May 29, 2014 blog post, we confirmed that there was a glitch in the EDGAR filing system and that EDGAR was not accepting EX-1.01 to the Form SD but was accepting EX-1.02 despite the instructions to the Form SD.

This glitch has now been resolved. The SEC states, “Exhibit type EX-1.02, which was previously allowed on an SD and SD/A submission, will no longer be available on EDGARLink Online or accepted by EDGAR.”

Business Groups File Supplemental Brief in Conflict Minerals Legal Challenge

As you may be aware, on November 18, 2014, the United States Court of Appeals of Appeals for the District of Columbia granted the SEC’s petition for rehearing of the court’s April 2014 decision that found that certain disclosure requirements of the conflict minerals rule violated the First Amendment. On December 8, 2014, the SEC filed its Supplemental Brief with the United States Court of Appeals for the District of Columbia Circuit. On December 29, 2014, the business groups filed their Supplemental Brief.

In their brief, the business groups argue that the conflict minerals rule disclosure requirement does not result in “purely factual and uncontroversial disclosure” and thus should be subject to a stricter scrutiny.

Conflict Minerals Rule Weekly Recap #91 – December 19, 2014

Posted in Weekly Recaps
December 12, 2014 – December 19, 2014
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

Bloomberg BNA: SEC Argues Its Conflict Minerals Rule Survives First Amendment Scrutiny

As you may be aware, on November 18, 2014, the United States Court of Appeals of Appeals for the District of Columbia granted the SEC’s petition for rehearing of the court’s April 2014 decision that found that certain disclosure requirements of the conflict minerals rule violated the First Amendment. On December 8, 2014, the SEC filed its Supplemental Brief with the United States Court of Appeals for the District of Columbia Circuit.

Yin Wilczek of Bloomberg BNA reports that in its brief, the SEC argued that the court “should uphold the entirety of the agency’s conflict minerals rule.” Yin elaborates upon the SEC’s position, “The D.C. Circuit’s July en banc ruling in American Meat Institute v. Dep’t of Agriculture, 746 F.3d 1065, 2014 BL 86913 (D.C. Cir. 2014), ‘makes clear that the conflict minerals disclosure is consistent with the First Amendment.’”

The SEC reasons that the statements made by reporting companies to comply with the disclosure requirements of the conflict minerals rule are purely factual and uncontroversial.

According to the order granting the rehearing, responses by the business groups challenging the rule are due by December 29, 2014.

Conflict Minerals Rule Weekly Recap #90 – December 5, 2014

Posted in Weekly Recaps
November 28, 2014 – December 5, 2014
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

Washington Post Reports on the Unintended Consequences of the Conflict Minerals Rule, Many Miners Left Jobless

Sudarsan Raghavan of the Washington Post illustrates the unintended consequences of the conflict minerals rule in an article titled How a Well-Intentioned U.S. Law Left Congolese Miners Jobless.

Raghavan writes, “In 2010, before the law passed, miners were selling a kilogram of tin — about two pounds — for $7. The world market price averaged $18 a kilo. Now, the miners get only $4 for a kilo of tin — even though the global market price this year has averaged $22 per kilo.” The drop in price, Raghavan writes, is due to the fact that companies have avoided purchasing minerals from the area. The consequences of this are seen through a story of boy who left school to join the militia once his father, a miner, could no longer afford to pay for school.

Supporters of the conflict minerals rule argue that the rule has required corporations to implement measures to conduct due diligence on their supply chains, but that perhaps the rule should have included some financial aid mechanism to deal with the effects of the unintended consequences.

The article reports that aid programs are now being established to mitigate the effects of the unintended consequences.

Engineering Association Says EU Proposed Conflict Minerals Regulation Ambiguous

According to Chemical Watch, the European Engineering Industries Association has commented on the EU conflict minerals proposed regulation in advance of the EU hearings to be held at the end of this year and the beginning of next year.

Chemical Watch writes, “The industry group wants the Commission to clearly identify the regions, countries and minerals covered by the proposal, including a clear list of countries targeted by it.”

The geographic scope of the current draft of the proposed conflict minerals regulation is not specific, but focuses on “conflict-affected and high-risk” areas.

First European Parliamentary Hearing on Conflict Minerals Held on December 4, 2014

On Thursday, December 4, 2014, members of the Committee on International Trade discussed the proposed regulation on conflict minerals with several speakers. When we have any information or insight from the hearing, we will report back to you.