SEC Adopts Final Rules to Implement the “Conflict Minerals” Disclosure Requirements of the Dodd-Frank Act: Rules Require SEC Filings and Disclosures Regarding the Use of Minerals Found in a Wide Array of ProductsSullivan & Cromwell LLP - August 31, 2012
On August 22, 2012, the SEC, by a vote of 3 to 2, adopted final rules under the Securities Exchange Act that require disclosure of “conflict minerals” in an issuer’s supply chain, as required by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Conflict minerals” include columbite-tantalite (also known as coltan), tantalum, cassiterite, tin, gold, wolframite and tungsten, and are found in a wide array of products and other applications.
Each SEC reporting issuer that uses conflict minerals necessary to the functionality or production of a product that it manufactures, or contracts to manufacture, must file a new Form SD with the SEC not later than May 31 with respect to the prior calendar year. The proposed rules, by contrast, would have required the relevant disclosures to be furnished in or as an exhibit to an issuer’s annual report. Since the new Form SD will be filed and not furnished, an issuer will be subject to liability under Section 18 of the Exchange Act for false or misleading statements in the report unless it can establish that it acted in good faith and had no knowledge that the statement in question was false or misleading. The Form SD, however, would not be incorporated into an issuer’s registration statement, unless the issuer so specifies, and is not required to be accompanied by officer certifications that are required under Forms 10-K, 10-Q, 20-F and 40-F.
The details of the reporting required by Form SD, and the accompanying reasonable country of origin inquiry and due diligence requirements, are described in detail in the body of this memorandum.
The SEC has indicated that, in light of the many uses of these minerals and their derivatives, it expects the rules to apply to approximately 6,000 issuers and, after analyzing the comments and taking into account additional data and information, the SEC believes the initial cost of compliance is likely to be between $3 billion and $4 billion, while the annual cost of ongoing compliance will be between $207 million and $609 million.
Issuers must comply with the new rules for the calendar year beginning January 1, 2013, and the first Form SD filings will be due by May 31, 2014.