Thursday, October 20, 2011

12 US Senators Urge the SEC to Promptly Implement Conflict Minerals Provision of Dodd-Frank

In a bi-partisan letter to the SEC, Senators Barbara Boxer (D-CA), John Boozman (R-AR) and Christopher Coons (D-DE), along with nine other Senators, urged the Commission to promptly implement Section 1502 of Dodd-Frank, the conflict minerals provision. Despite a mandated April 2011 deadline, noted the Senators, the SEC has delayed the adoption of regulations implementing Section 1502, which requires companies to disclose the origin of minerals purchased from the Democratic Republic of Congo and establish transparency and accountability in the mineral supply chain to help ensure that conflict minerals are not purchased by companies in the United States or abroad. The letter was also signed by Senators Mark Begich (D-AK), Sherrod Brown (D-OH), Robert P. Casey, Jr. (D-PA), Frank R. Lautenberg (D-NJ), Patrick J. Leahy (D-VT), Jeff Merkley (D-OR), Barbara A. Mikulski (D-MD), Sheldon Whitehouse (D-RI) and Ron Wyden (D-OR).

The Senators noted that the purpose of Sec. 1502 is to create transparency and accountability in the mineral supply chain in the DRC. Minerals from the DRC, which include tin, tantalum, tungsten and gold, are commonly used in products such as cellphones, laptops and jewelry. The ultimate goal of Sec. 1502 is to prevent minerals mined by illegal armed groups and the Congolese National Army, known as conflict minerals, from entering the supply chain and being purchased by companies in the United States and abroad.

Transparency and accountability in the supply chain are vitally important, said the letter, because much of today’s violence in the DRC is occurring in the east, which is home to vast mines rich in these four minerals. While there are legitimate mining operations in the region, there is also a significant presence of violent armed actors fighting over access to mines and reaping tremendous profits from their spoils. The prolonged fighting and violence, enabled by these profits, are having a direct and devastating impact on Congolese citizens and communities.

Importantly, the Senators pointed out that Section 1502 has already spurred reforms in the region, including corporate investment in conflict-free mines in the DRC, unprecedented and long-overdue arrests of conflict minerals smugglers by the Congolese government, and regional efforts to certify conflict-free minerals.

Ensuring the full enforcement of Sec. 1502, emphasized the Senators, is a critical step in ending this violence and incentivizing reforms that have begun to change the equation on the ground in the DRC. As such, they urged the SEC to adopt strong regulations soon with no phase-ins, exemptions, or delays so that companies can fully implement their obligations under Dodd-Frank.

The proposed SEC regulations implementing Section 1502 would require a company, including a foreign private issuer, to undergo a reasonable due diligence process to ascertain whether conflict minerals are used in the manufacture or production of its products and, if they are, disclose in the body of its annual report on Form 10-K, or Form 20-F for foreign private issuers, whether its conflict minerals originated in the Democratic Republic of the Congo or an adjoining country. In addition to disclosure in its annual report, a company must also furnish a separate conflict minerals report as an exhibit to its annual report when it concludes that conflict minerals are used in, or are necessary for the manufacture or functionality of, its products or the company is unable to conclude whether any of the named minerals originate from the DRC or adjoining countries.

Further, any company furnishing a Conflict Minerals Report as an exhibit to its annual report would be required to certify that it obtained an independent audit of the report, furnish the auditor’s report as an exhibit to its annual report, and make the report and the auditor’s report publically available on the company’s internet Web site.