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Conflict Minerals Disclosure: It’s Coming Soon … Will You Be Ready?

Happy 2014! Are you ready for your conflict minerals disclosure? We’re rapidly approaching the Securities and Exchange Commission’s May 31 deadline for the first required disclosure by public companies involved in manufacturing. If the requirement applies to your company, you’d better be making good progress in collecting, compiling and analyzing information to determine the necessity, extent and content of your disclosure.

Covered companies are required to determine whether their products contain certain “conflict minerals” – tantalum, tin, gold or tungsten – from regions in or near the Democratic Republic of the Congo. They will be required to disclose that information utilizing Form SD, which was provided in the 356-page final SEC rule, and to establish auditing and due diligence processes to evaluate the source and chain of custody of those materials. The new requirements are a result of the SEC’s implementation of the conflict minerals provisions of the far-reaching Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The compliance challenges are daunting (per the SEC flow chart on this page) and will require companies to draw upon expertise in legal, EHS, IT, procurement, internal audit, finance and more. Beyond compliance lie some significant communications challenges – and perhaps even opportunities:

START 1) Does the issuer file reports with the SEC under Sections 13(a) or 15(d) of the Exchange Act? • No – Rule does not apply. – END • Yes – [move on to question (2)]  2) Does the issuer manufacture or contract to manufacture products? • No – Rule does not apply. – END • Yes – [move on to question (3)]  3) Are conflict minerals necessary to the functionality or production of the product manufactured or contracted to manufactured? • No – Rule does not apply. – END • Yes – [move on to question (4)]   4) Were the conflict minerals outside the supply chain prior to January 31, 2013? • Yes –	Rule does not apply. – END • No, if potentially scrap or recycled – [move to the question (5)] • No, if newly-mined – [move on to question (6)]  5) Based on the RCOI, does the issuer know or reasonably believe that the conflict minerals come from scrap or recycled? • Yes – File a Form SD that discloses the issuer’s determination and briefly describes the RCOI and the results of the inquiry. – END • No – [move on to question (6)]  6) Based on a reasonable country of origin inquiry (RCOI), does the issuer know or have reason to believe that the conflict minerals may have originated in the DRC or an adjoining country (the covered countries)? • No – File a Form SD that discloses the issuer’s determination and briefly describes the RCOI and the results of the inquiry. – END • Yes – [move on to question (7)]   7) Exercise due diligence on the source and chain of custody of its conflict minerals following a nationally or internationally recognized due diligence framework, if such framework is available for a specific conflict mineral.    In exercising this due diligence does the issuer determine the conflict minerals are not from the covered countries or are from scrap or recycled? • Yes – File a Form SD that discloses the issuer’s determina¬tion and briefly describes the RCOI and due diligence measures taken and the results thereof. – END • No – [move on to question (8)]  8) File a Form SD with a Conflict Minerals Report as an exhibit, which includes a description of the measures the issuer has taken to exercise due diligence.    In exercising the due diligence, was the issuer able to determine whether the conflict minerals financed or benefit¬ted armed groups? • Yes – The Conflict Minerals Report must also include an independent private sector audit report, which expresses an opinion or conclusion as to whether the design of the issuer’s due diligence measures is in conformity with the criteria set forth in the due diligence framework and whether the description of the issuer’s due diligence measures is consistent with the process undertaken by the issuer.    Also, include a description of the products that have not been found to be DRC Conflict Free, the facilities used to process the necessary conflict minerals in those products, the country of origin of the minerals and the efforts to determine the mine or location of origin of those minerals with the greatest possible specificity. – END • No – [move on to question (9)]  9) Is it less than two years after effective¬ness of the rule (four years for Smaller Reporting Companies)? • No – The Conflict Minerals Report must also include an independent private sector audit report, which expresses an opinion or conclusion as to whether the design of the issuer’s due diligence measures is in conformity with the criteria set forth in the due diligence framework and whether the description of the issuer’s due diligence measures is consistent with the process undertaken by the issuer.    Also, include a description of the products that have not been found to be DRC Conflict Free, the facilities used to process the necessary conflict minerals in those products, the country of origin of the minerals and the efforts to determine the mine or location of origin of those minerals with the greatest possible specificity. – END • Yes – The Conflict Minerals Report must also include a description of products that are “DRC Conflict Undetermin¬able” and the steps taken or that will be taken, if any, since the end of the period covered in the last Conflict Minerals Report to mitigate the risk that the necessary conflict minerals benefit armed groups, including any steps to improve due diligence.  No audit is required. – END

  • Given that the SEC is the regulating body, you may decide to include the conflict minerals discussion in your annual report (although the SEC decided against requiring it). The Form SD filing is an annual requirement, with a May 31 deadline for each calendar year (regardless of when your fiscal year ends).
  • If you publish a sustainability/corporate social responsibility report, you will most likely want to  add your conflict minerals position to those materials.
  • You should have a conflict minerals policy, and you may want to publish it online, along with your policies on supply chain responsibility and supplier expectations.
  • On or about May 31 and in the days and weeks thereafter, conflict minerals disclosures will likely gain media attention. Some companies may even issue a press release to announce their filing (although we don’t recommend doing so). However, media that follow your company may ask about your conflict minerals assessment and response. Being prepared with some key messages and talking points would be prudent.
  • Consistency and transparency will be very important. Providing the same information to all stakeholder groups and across multiple years is not only a best practice but also an expectation.

As the conflict minerals disclosure requirement nears its first deadline, the time for developing the communications strategy and tools is also at hand. 

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