Dodd-Frank Act Conflict Minerals Provisions - Skadden

More documents

Recommendations

Info

2 Dodd-Frank Act Conflict Minerals Provisions September 2011 • Establish supply chain due diligence process. 8 □ Identify the suppliers or manufacturers who supply conflict minerals or products containing conflict minerals and the source of such conflict minerals. 9 □ Determine whether the conflict minerals are used to “directly or indirectly finance or benefit armed groups.” 2 □ Establish a record-keeping process and policies for maintaining this information. □ Consider establishing record-keeping policies, procedures and/or conflict mineral standards with suppliers and manufacturers. • Identify a third-party independent auditor that will conduct and certify an independent private sector audit. • Prepare Conflict Minerals Report. ENDNOTES: 1 This checklist was prepared based on the conflict minerals rules proposed by the SEC on December 15, 2010 (http://www.sec.gov/rules/proposed/2010/34-63547.pdf) to implement Section 1502 of the Dodd-Frank Act. The SEC will need to adopt final rules before the conflict minerals provisions become effective. Those final SEC rules are expected to be adopted before December 31, 2011. 2 “Conflict minerals” is defined in Section 1502(e)(4) of the Dodd-Frank Act as “(A) columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted); or their derivatives; or (B) any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the DRC countries [defined below].” These materials are commonly found in such products as jewelry, computers, mobile telephones, digital cameras, videogame consoles, and electronic and communications equipment. 3 In a comment letter submitted by Senator Richard J. Durbin and Representative Jim McDermott to the SEC on its proposed conflict minerals rules, the Congressmen stated that the conflict mineral rules should “exempt pure retailers” who sell products over which retailers have no influence regarding their manufacture (i.e., third-party products). The Congressmen asserted that companies that contract for the manufacturing of products over which they have any influence regarding the manufacturing of those products would be subject to the conflict mineral rules. Additionally, the Congressmen stated that the conflict mineral rules were intended to apply to companies selling generic products under their own brand name or a separate brand name that they have established, regardless of whether such companies have any influence over the manufacturing specifications of those products, as long as such company has contracted with another party to have the product manufactured specifically for such company. 4 The SEC did not propose rules setting forth the steps required to satisfy the reasonable inquiry standard. The SEC did note, however, that an inquiry would be based on the facts and circumstances of each company and that the standard would not require absolute certainty. 5 Countries that adjoin the Democratic Republic of the Congo include Angola, Burundi, the Central African Republic, the Republic of Congo (a separate country from the Democratic Republic of the Congo), Rwanda, Sudan, Tanzania, Uganda and Zambia. 6 If companies obtain conflict minerals from recycled or scrap sources, then such company may consider the minerals to be “DRC conflict free” and would furnish a Conflict Minerals Report subject to special rules. Under the proposed rules, conflict minerals that are “reclaimed end-user or post-consumer products” would be considered “recycled,” but if such materials are partially processed, unprocessed, or a byproduct from another ore, then such materials would not be considered “recycled.” 2 Skadden, Arps, Slate, Meagher & Flom LLP
3 Dodd-Frank Act Conflict Minerals Provisions September 2011 7 The proposed conflict minerals rules include specific disclosure requirements for the Conflict Minerals Report, including a description of the measures taken by the company to exercise due diligence on the source and chain of custody of its conflict minerals. These due diligence measures would include, but would not be limited to, an independent private sector audit of the company’s report conducted in accordance with standards established by the comptroller general of the United States. 8 On July 15, 2011, the U.S. Department of State issued a statement encouraging companies to “begin immediately to structure their supply chain relationships in a responsible and productive manner to encourage legitimate, conflict-free trade, including conflict-free minerals sourced from the DRC and the Great Lakes region.” The State Department noted that starting this process immediately would “facilitate useful disclosures under Section 1502 . . . .” A copy of the statement can be found at: http://www.state. gov/e/eeb/diamonds/docs/168632.htm. 9 Due diligence should include a description of products, the facilities used to process the conflict minerals, and the mine or location of origin of those conflict minerals. In its July 2011 statement referenced above, the State Department endorsed “the guidance issued by the Organisation for Economic Co-operation and Development (OECD) and encourage[d] companies to draw upon this guidance as they establish their due diligence practices” and encouraged “companies, whether or not they are subject to the Section 1502 disclosure requirement, that are within the supply chain of these minerals to exercise due diligence based on the OECD guidance and framework as a means of responding to requests from subject suppliers and customers.” A copy of the OECD’s “Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” can be found at: http://www.oecd.org/dataoecd/62/30/46740847. pdf. There have been recent reports, however, that the OECD has launched a pilot program to review and revise its conflict minerals guidelines in response to complaints by companies that the guidelines are difficult to use and may not meet the requirements of the SEC’s rules. For additional information see: http://www.ipc.org/ContentPage.aspx?pageid=IPC-Invited-to-Participate-in-Pilot-Evaluation-of-OECD- Conflict-Minerals-Due-Diligence-Guide. 3 Skadden, Arps, Slate, Meagher & Flom LLP
Page 1: Dodd-Frank Act Conflict Minerals Pr

Dodd-Frank Act Conflict Minerals Provisions - Skadden

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?