It’s Inauguration Day in the US, and it’s likely to be a new day for the US conflict minerals rule. Where have we been and where are we going?
2012 – 2016
Pursuant to Section 1502 of the Dodd-Frank Act of 2010, the SEC issued its conflict minerals rule in 2012, requiring reporting companies to report on their use and sourcing of tin, tantalum, tungsten and gold (3TG). In 2014, SEC reporting companies began reporting on their “reasonable country of origin inquiry” and their due diligence measures by filing their first Form SDs. A handful of companies also provided independent private-sector audits (IPSAs) as contemplated by the rule. The rule itself included no specific required form of disclosure. So, the initial filings on Form SD varied a bit. But, because industry groups and lawyers had suggested approaches to the reporting before the first due date, the filings did show significant commonalities. Within two years, reporting companies had largely settled on standard formatting for their disclosures on Form SD and for their conflict minerals reports.
A due diligence inquiry template created by the Conflict-Free Sourcing Initiative (now known as the Responsible Minerals Initiative or RMI) has probably been the single most important compliance tool available to companies. The conflict minerals reporting template (CMRT) is available to all at no cost. Almost all companies across all industries in all countries now use it to engage with suppliers and gather conflict minerals supply chain information. (The CMRT has been modified to be responsive to the additional geographic scope of the EU conflict minerals regulation.)
During this early period, certain industry groups challenged the US conflict minerals rule in US courts. The result of that challenge was the US court of appeals’ conclusion that portions of the US conflict minerals rule violated reporting companies’ free speech rights.
The Trump Administration signaled that rules like the US conflict minerals rule might be eliminated. Members of Congress introduced legislation that would have repealed Section 1502 of Dodd-Frank, which was the legislative basis for the US conflict minerals rule. No such legislation was passed. In April, as required by the decision of the US court of appeals, the US district court entered a final judgment invalidating the portion of the rule that required companies to state whether any of their products “have not been found to be ‘DRC conflict free.’” The district court remanded the matter back to the SEC to take additional action in furtherance of the court’s decision. The SEC Division of Corporation Finance issued a statement that it would not recommend enforcement action if a company were to file only a Form SD describing its reasonable country of origin inquiry and whether any of its conflict minerals originate (or may originate) from a covered country. The SEC indicated that this position was subject to further action.
2018 – 2020
The SEC did not issue any re-formulation of the US conflict minerals rule. Most companies continued their due diligence measures and disclosures without much change. Less than a handful each year provided an IPSA. NGOs that score conflict minerals disclosures concluded that the due diligence and reporting were now less rigorous. There are many possible reasons for the types of filings made and the disclosures included in them. But, the most likely is that companies continued the procedures they already had in place and did not make significant changes to their disclosures because there was no new guidance or interpretation by the SEC. Importantly, the focus of most industries and reporting companies since 2014 has been on smelters and refiners of 3TG (SORs) — encouraging SORs to participate in and comply with recognized due diligence assessment standards.
It is expected that the Biden Administration’s SEC will renew focus on the US conflict minerals rule and other responsible sourcing measures. The SEC could provide additional guidance and re-formulation of the US conflict minerals rule to address the courts’ decisions. Such a re-formulation could result in a significant overhaul of the rule. Congress could also weigh in with new legislation.
With a renewed focus on strengthening the US conflict minerals rule (along with the implementation of the EU conflict minerals regulation which came into full effect on January 1), there is likely to be significant activity in 2021 relating to 3TG due diligence and reporting.