The SEC Proposes New Rules on Conflict Minerals … Do You Know What’s In Your Supply Chain?

Yesterday the Securities and Exchange Commission proposed a series of new rules to implement provisions of the Dodd-Frank Act addressing:

• conflict minerals;

• mine safety; and

• payments made to governments in connection with resource extraction.

The proposed rules on conflict minerals would add a new Section 13(p) to the Securities Exchange Act of 1934, applicable to all reporting companies (including, as proposed, smaller reporting companies and foreign private issuers) for whom “conflict minerals are ‘necessary to the functionality or production of a product manufactured’ or contracted to be manufactured” by the company.

Conflict minerals include:

• columbite-tantalite, or coltan (from which tantalum is extracted);

• cassiterite (from which tin is extracted);

• gold;

• wolframite (from which tungsten is extracted); and

• any derivatives of the above or any other minerals or derivatives designated by the Secretary of State.

If a company falls within this new category of issuer, it would be required to make a reasonable country of origin inquiry to determine whether the conflict minerals it uses originate from the Democratic Republic of the Congo or any country sharing an internationally recognized border with the D.R. Congo (which, at this time, includes: Angola, Tanzania,Rwanda, Uganda, The Republic of Congo, The Central African Republic, The Sudan, Burundi and Zambia).

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If a company finds that its conflict minerals did not originate from the D.R. Congo or a bordering country, it would be required to disclosure that determination, and the reasonable country of origin inquiry used to make the determination, in its annual report and on its website.

If, however, a company finds that its conflict minerals did originate from the D.R. Congo or a bordering country, or if it is unable to find that they did not, then the company would be required to disclose that determination in its annual report, prepare and furnish as an exhibit to its annual report a Conflict Minerals Report and make the Conflict Minerals Report available on its website.

A company’s Conflict Mineral Report would be required to include a description of the:

• due diligence undertaken on the source and chain of custody of the company’s conflict minerals;

• products that are not “D.R. Congo conflict free”;

• country of origin of the conflict minerals,

• facilities used to process the conflict minerals; and

• efforts used to determine the mine or location of origin of the conflict minerals.

The company would also be required to obtain an independent audit of the Conflict Minerals Report, to certify the audit report and to furnish a copy of the audit report with its Conflict Minerals Report.

The Commission’s release defines a number of terms used throughout proposed rule, including: “manufacture” and “contract to manufacture”. Comments are due by January 31, 2011.

Summit on the Illegal Exploitation of Natural Resources

Coincidentally (unless yesterday was international conflict minerals day and no one told me), Mail and Globe is reporting that the International Conference on the Great Lakes Region held a Special Summit on the Illegal Exploitation of Natural Resources yesterday, where leaders from 11 African nations signed a pledge to take steps to implement a regional certification system to track conflict minerals from their location of origin to the facilities where they are processed.

Do You Know What’s In Your Supply Chain?

These proposed rules have the potential to affect a large number of companies (the Commission estimates approximately 6,000 issuers will be affected in some way).  Take a look at this report published by The Enough Project (an affiliate project of the Center for American Progress), leaving your political predilections aside for a moment, over the course of two years the group surveyed 21 of the largest electronic companies regarding the conflict status of their supply chains and found none of them to be conflict-free.  If Apple and Intel have conflict minerals in their supply chains, what’s in yours?

Source: Enough!, Conflict Minerals Company Ranking