Back on April 14, 2014, the United States Court of Appeals for the District of Columbia Circuit issued a decision regarding the challenges to Exchange Act Rule 13p-1 and Form SD (National Association of Manufacturers, et al. v. SEC, et al., No. 13-5252, April 14, 2014). In their decision, the Court of Appeals rejected all of the challenges to the rule.
However, the Court also concluded that Section 13(p)(1) and Rule 13p-1 violate the First Amendment in requiring regulated entities to report to the SEC and to publicly state on their website if any of their products have not been found to be “DRC Conflict Free”. The First Amendment objection was specific to the requirement of filers to describe their products as “DRC conflict free,” as “having not been found to be ‘DRC conflict free,’” or as “DRC conflict undeterminable.” There was no objection to any other aspect of the conflict minerals report or other disclosures as set forth in Rule 13p-1.
As such, the SEC has issued a partial stay for the Conflict Minerals Rules. While companies will not be required to describe their products as stated above, a company may voluntarily elect to do so in its Conflict Minerals Report. If voluntarily describing a product’s status, a company must obtain an independent private sector audit (IPSA) as required by the Rule 13p-1. At this time, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.
The SEC expects companies to file any reports required under Rule 13p-1 on or before the due date of June 2, 2014. The SEC has denied the motion filed by the National Association of Manufacturers, Chamber of Commerce, and Business Roundtable for a stay of the entire rule. The stay granted by the SEC pertains only to those portions which require statements by issuers that the Court of Appeals held would violate the First Amendment.
So what does this mean?
Companies that do not need to file a Conflict Minerals Report should file Form SD and in doing so:
– disclose their country of origin inquiry;
– describe the inquiry they undertook.
Companies that do need to file a Conflict Minerals Report should file Form SD and in doing so:
– disclose the due diligence the company undertook;
– disclose the facilities used to produce the conflict minerals, the country of origin of the minerals and the effort to determine the mine or location of origin for the minerals used for each product that falls within the scope of Item 1.01(c)(2) or Item 1.01(c)(2)i of Form SD; companies that need to file a Conflict Minerals Report do not need to identify such products as “DRC conflict undeterminable” or “not found to be ‘DRC conflict free’”.