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Practice Areas

Clarifications on Required Disclosure of Use of Conflict Minerals

Friday, June 07, 2013
Sandler, Travis & Rosenberg Trade Report

The Securities and Exchange Commission has posted to its Web site a list of frequently asked questions concerning the requirement for certain companies to publicly disclose their use of conflict minerals that originate in the Democratic Republic of the Congo or an adjoining country. Under SEC regulations implementing this requirement, companies that file reports with the SEC under the Securities and Exchange Act of 1934, whether foreign or domestic, must use a new Form SD to disclose their use of tantalum, tin, gold or tungsten originating in the DRC or an adjoining country if those minerals are necessary to the functionality or production of a product they manufacture or contract to manufacture. Subject companies will have to comply with this rule for calendar year 2013 and the first reports will be due May 31, 2014.

Among the information contained in the FAQs is the following.

- an issuer that only engages in those activities customarily associated with mining conflict minerals is not considered to be manufacturing those minerals

- an issuer that specifies that its logo be etched into a generic product manufactured by a third party is not considered to be “contracting to manufacture” that product

- an issuer would be required to conduct a reasonable country of origin inquiry with respect to conflict minerals included in generic components included in products it manufactures or contracts to manufacture; there is no distinction between the components of a product that an issuer directly manufactures or contracts to manufacture and the generic ones it purchases to include in a product

- SEC staff would not object if issuers did not file reports regarding the conflict minerals in the equipment that they manufacture or contract to have manufactured if that equipment is used for a service they provide and the equipment is retained by the service provider, is required to be returned to the service provider or is intended to be abandoned by the customer following the terms of the service; i.e., staff does not interpret equipment used to provide services to be “products” under the regulations

- tools, machines or other equipment that an issuer manufactures or contracts to have manufactured for use in the manufacture of products are not products of that issuer and SEC staff will not view their later entry into the stream of commerce (e.g., if they are sold by the issuer after use) as transforming them into products of that issuer

- regardless of the manner by which an issuer describes its products, the description in the conflict minerals report must state clearly that the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable,” as applicable

- if an issuer determines that the products it manufactures or contracts to manufacture contain conflict minerals but are “DRC conflict free,” it must file a conflict minerals report and obtain an independent private sector audit of that report but is not required to disclose those products in its report or provide certain other disclosures

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