SEC Announces Meeting to Consider Conflict Minerals Rule, GAO Publishes Study

The SEC announced that it will consider whether to adopt rules regarding disclosure and reporting obligations with respect to the use of conflict minerals to implement the requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act at an open meeting scheduled for August 22, 2012. The Commission proposed conflict minerals rules in December 2010 and the agency did not take action before the April 2011 statutory deadline established in the Dodd-Frank Act.

According to the SEC, several factors accounted for the lengthy rulemaking process. Initially, there was a significant “learning curve,” as staff members had to become familiar with several areas that were relatively new to them. For example, the staff had to:

1. develop contextual understanding about recent events in the area, including learning about the relevant in-region political and economic actors, economic arrangements between these actors, and other evolving issues in these countries; 
2. learn about complex supply chains and sourcing for conflict minerals, which includes various U.S. and international companies that can range in size from very small-scale enterprises to major multinational corporations;
3. stay abreast of external stakeholder efforts to develop and implement their own responsible supply chain initiatives for conflict minerals; and
4. understand the implications of using securities law to influence the behavior of covered companies in a way that would impact the situation in central African countries.  

In addition, the proposal sparked significant input from stakeholders. The agency received more than 400 distinct comment letters, and SEC officials have held approximately 140 meetings with external stakeholders. In addition, noted the SEC, the “complicated and technical nature” of the issues also contributed to delays.

The Commission also has a significant workload, with the Dodd-Frank Act rulemaking as well as the recent JOBS Act mandates and other initiatives. The agency is also under pressure to apply rigorous economic analysis in the rulemaking process in light of recent D.C. Circuit cases striking down rulemaking efforts for insufficient cost-benefit analysis.

The GAO recently published a study of SEC actions and stakeholder initiatives on conflict minerals. The report concluded that the SEC’s continued delay in issuing a final rule has contributed to a lingering uncertainty among industry and other stakeholders who expect their actions to be guided by a final rule. Some of these industry and other stakeholders have engaged in the development of various initiatives that they hope may help covered companies comply with the anticipated rule, in part by helping foreign and domestic suppliers of those covered companies trace minerals in their supply chains.

Without a final rule, noted the GAO, it is unclear to what extent the initiatives currently being developed or implemented by industry and other stakeholders will achieve results consistent with those anticipated under the conflict minerals legislation. Moreover, in part because of the delay in the rule’s issuance, many companies across the tin, tantalum, tungsten, and gold supply chains are reluctant to participate in or support the global and in-region initiatives currently being developed or implemented because they are uncertain whether or not the initiatives will align with the anticipated rule.

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