Wednesday, August 24, 2011

Corporate Secretaries Society Urges Gradual Phase-In of SEC Conflict Minerals Disclosure Regulations

In a letter to the SEC, the Society of Corporate Secretaries and Governance Professionals asked that the due diligence, disclosures and reporting required under the conflict minerals provisions of Dodd-Frank be phased-in similar to the approach taken by the SEC with respect to the introduction of required reporting on internal controls mandated by the Sarbanes-Oxley Act. A transitory phase-in would recognize the fact that the infrastructure necessary to comply with the SEC proposed regulations implementing Section 1502 of Dodd-Frank does not currently exist, said the Society, and thus would minimize the undue burden and cost imposed on companies in the near future. The Society also said that the cost of compliance with the regulations will be significantly greater than the SEC’s estimate.

In order to comply with the regulations, said the letter, companies must have a reliable basis for determining the origin of conflict minerals used at the processing facilities in its supply chain. A phase-in would provide the necessary time for companies to develop mechanisms to trace conflict minerals from the mine of origin to the processing facility. The Society urged the SEC to adopt a transition rule requiring reporting only with respect to conflict minerals that are derived from metal smelted on or after January 1, 2012. This would relieve companies of the undue burden of tracing minerals potentially sourced many years prior to the effective date of the Dodd-Frank Act.

More specifically, the Society suggested that for the period from January 2012 through January 2014, the SEC should require only disclosure of the following information for companies unable to determine the country of origin after a reasonable inquiry: (1) the conflict minerals that are necessary to the functionality or production of a product manufactured or contracted to be manufactured by that company and (2) the fact that the company is unable to determine the country of origin after due inquiry. During this period, such companies should not be required to submit a Conflict Minerals Report. After January 2014, company obligations would be phased-in by conflict mineral type based on when industry verification programs are put in place.

By recognizing the reality that it will take time for conflict mineral tracing mechanisms to develop and for downstream companies to implement practices affecting supplier sourcing behavior, reasoned the Society, this phase-in period would advance the goals of Section 1502 in the most effective manner and result in more meaningful disclosure

No comments: