On Tuesday, April 29, 2014, Keith Higgins, the Director of the Division of Corporation Finance, released an eagerly awaited statement on the effect of the Court of Appeals decision on the conflict minerals rule. Two weeks ago, the Court of Appeals found that the conflict minerals rule violated the First Amendment when it required reporting companies to report and post on their websites that any of their products have “not been found to be ‘DRC conflict free.’” Further, the statement pointed out that the Court specifically noted that there was no “First Amendment objection to any other aspect of the conflict minerals report or required disclosures.”
As a result of that reading of the Court’s decision, the SEC indicated that it expects companies to file reports by the June 2, 2014 filing date, and stated that those reports “should comply with and address those portions of Rule 13p-1 and Form SD that the Court upheld.” According to the statement, that means:
- Companies filing only the Form SD (without any Conflict Minerals Report) must disclose their RCOI and briefly describe their inquiry.
- Companies that are required to file the 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.
- Although companies are not required to use product descriptions, they are permitted to do so if they wish.
- Until further notice, no independent private sector audit is required unless a company chooses to describe products as “DRC conflict free.”
For the time being, we urge you to complete your inquiries, diligence, and the drafting of any required reports with this new guidance in mind. However, be aware that the trade associations that challenged the rule or the district court may act in response to this statement by the SEC. No doubt, this will not be the last word on how companies should comply with the conflict minerals rule.