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.