Friday, December 07, 2012

Squire Sanders Releases Interactive Flowchart for Conflict Minerals Compliance

An interactive flowchart prepared by the Squire Sanders firm offers much-needed guidance in navigating the Dodd-Frank “conflict minerals” disclosure requirements. Section 1502 of the Act directed the SEC to issue regulations requiring companies to disclose their use of conflict minerals if those minerals are necessary to the functionality or production of a product manufactured by those companies. Under the Act, those minerals include tantalum, tin, gold or tungsten sourced from the Democratic Republic of the Congo, Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia. SEC rules implementing this law apply to companies that use any of four designated minerals if the company files Exchange Act reports with the SEC and the minerals are necessary to the functionality or production of a product manufactured or contracted to be manufactured by the company.

The flowchart, an impressive visual tool, is augmented by narrative discussions of various topics and terms used in Section 1502 and the implementing regulations. Under the final rules, a company that uses any of the designated minerals must conduct a good-faith, country-of-origin inquiry reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources. If the inquiry determines that the company knows that the minerals did not originate in the covered countries or come from scrap or recycled sources, or that the company has no reason to believe the minerals may have originated in the covered countries and may not be from scrap or recycled sources, then it must disclose the determination and briefly describe its inquiry and findings on new Form SD.

Also, companies required to file a conflict minerals report must exercise due diligence on the source and chain of custody of their conflict minerals. The due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organization for Economic Co-operation and Development (OECD).

If a company determines that its products are DRC-conflict free—that is, the minerals may originate from the covered countries but did not finance or benefit armed groups—then the company must: (1) obtain an independent private-sector audit of its conflict minerals report; (2) certify that it obtained such an audit; (3) include the audit report as part of the report; and (4) identify the auditor. The independent audit would verify that the company’s due diligence was conducted in conformity with an internationally recognized due-diligence guideline—i.e., the OECD Due Diligence Guidance, which the staff noted is the only nationally or internationally recognized due diligence guideline.

Further background can be found at the Squire Sanders conflict-minerals resources page.

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