January 1, 2013 marks the start date for compliance with the conflict minerals rule. If they haven’t already done so, reporting companies should begin identifying which products they “manufacture” or “contract to manufacture” and which of them contain necessary conflict minerals.
The Securities and Exchange Commission (SEC) has already said that it will not delay the effectiveness of the rule because conflict minerals legislation was first considered back in 2008 and it believes that companies have had enough time to prepare for the new rule. Therefore, unless the current legal challenge is successful, reporting companies with necessary conflict minerals will be required to file a specialized disclosure report on or before May 31, 2014 that will include disclosure disclosure for the initial reporting period of January 1, 2013 through December 31, 2013.
Not only does January 1, 2013 mark the start date for compliance, it is also an important date for other reasons:
- If a company begins manufacturing a product containing necessary conflict minerals in December 2012, but does not finish manufacturing the product until March 2013, the product is considered manufactured in 2013 and disclosure about it must be included in the report for 2013.
- If a company “contracts to manufacture” a product with a third-party in October 2012, and the third-party finishes manufacturing the product in November 2012, but the company does not take delivery of the product until February 2013, the product, although received in 2013, is considered “contracted for” in 2012 and thus disclosure about it need not be included in the report for 2013.
- If a company manufactures several component parts containing necessary conflict minerals in the fall of 2012, but does not finish manufacturing the final product including those components until February 2013, the final product containing the component parts is considered manufactured in 2013 and disclosure about it must be included in the report for 2013. If the component was manufactured by a third-party and that third-party is a reporting company, disclosure about the conflict mineral in the component must be included in the component manufacturer’s report for the year in which the component was manufactured, regardless of when its customer completes the final product.
Another important January date for the conflict minerals rule is January 31, 2013.
- Conflict minerals that are “outside the supply chain” before January 31, 2013 are exempt from the conflict minerals rule. That is, even if a product contains a necessary conflict mineral, if the conflict mineral in that product is outside the supply chain before January 31, 2013, the Rule does not apply to that conflict mineral and no diligence or disclosure about that conflict mineral is required. A conflict mineral is “outside the supply chain” only: (1) after it has been smelted in the case of tantalum, tin or tungsten, (2) after it has been fully refined in the case of gold, or (3) after it is physically located outside of the covered countries in the case of a conflict mineral that has not yet been smelted or fully refined.
January 2013 is an important month for the conflict minerals rule. If they haven’t already done so, reporting companies should begin to identify the products that they “manufacture” or “contract to manufacture” that contain necessary conflict minerals. In addition, reporting companies should create an internal team that includes senior management from various departments, which might include legal, supply chain, compliance, public relations, and corporate responsibility to manage their compliance activities and policies. Companies that take a “wait-and-see” approach in the beginning of the new year may find themselves behind the eight ball come next year when they have to report on their conflict minerals use.