Conflict Minerals Rulemaking Petition
In 2012, in response to the Dodd-Frank Act, the SEC adopted rules imposing due diligence, audit and disclosure requirements with respect the manufacturing of products containing so-called "conflict minerals" -- columbite-tantalite, cassiterite, gold, wolframite, and their derivatives, tin and tungsten. These minerals are used in numerous products, ranging from cell phones and computers to cars and heavy equipment. Most companies were caught flat-footed by the rules. Some were not even aware that their products contained conflict minerals. Most, maybe even all, underestimated the efforts that would be required in order to comply. Policies needed to be drafted, products needed to be analyzed, terms and conditions of purchase needed to be revised, preliminary surveys needed to be conducted, due diligence needed to be conducted, and IT and other systems needed to be developed to track and control this entire process. The rules are even tougher on companies with substantial foreign footprints, where some of their suppliers never have heard of the conflict mineral rules and operate under very different cultures.
Although the conflict minerals rules became effective on January 1, 2013, most products on hand at January 31, 2013, were grandfathered. The first publicly filed reports under the rules, which will be due in May 2014, must cover 2013. A reasonable reading of the rules requires that companies should have had in place ever since January 1, 2013, and at all time since then, the due diligence processes required by the rules.
Increasingly, we have become concerned that some of our clients, as well as many other public companies, are not going to be able to provide compliant reports when due for 2013. Alternatively, we believe many companies will qualify the reports to a significant degree, and the SEC may or may not accept that. Due to this concern, yesterday we filed a Petition for Rulemaking with the SEC that, in effect, requests a one-year deferral (two years for foreign operations) of the rules. Because deferrals are not favored by the SEC, we structured the Petition so that companies taking advantage of the deferral would instead be required to furnish periodic, and relatively detailed, reports on their progress toward compliance with the rules.
Petitions for rulemaking rarely succeed at the SEC given the amount of rulemaking on their agenda and that most petitions are filed by single-interest groups that have political agendas. Whether or not the SEC is responsive to the Petition, as a matter of principle, we thought that it was the right thing to do on behalf of our clients and others.
A copy of the Petition is available at www.sec.gov/rules/petitions.shtml.
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