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Execs Should Fight SEC “Conflict Minerals” Rule

Companies need to take a more active role in commenting on such rules and not rely on their trade associations to carry the load.

As part of the Dodd-Frank Act, Congress required the Securities and Exchange Commission to adopt rules requiring disclosures from public companies that manufacture, or contract to have manufactured, products that use so-called “conflict minerals.”

Opinion_Bug8Those minerals, including columbite-tantalite, cassiterite, gold and wolframite and derivatives such as tin and tungsten, originate in the Democratic Republic of the Congo or any of the adjacent countries. You can debate whether the requirement has anything at all to do with the SEC’s core mission of protecting investors, and it likely would be a brief debate. But the SEC had no say in the matter and dutifully proposed and adopted the required rules.

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Brinkley Dickerson, partner, Troutman Sanders LLP

A group including the Chamber of Commerce and the National Association of Manufacturers challenged the rules in court, but so far has been unsuccessful.

So, today, companies are implementing systems designed to determine whether conflict minerals are contained in their products and, if so, where they originated. It has not been an easy process.

First, conflict minerals are much more ubiquitous than most companies expected. Several of the minerals, for example, are common in electrical devices ranging from watches to cell phones to desktop computers. If a product uses electricity, it probably has tin or gold in its solder and contact points. Tungsten is common in many hardened metals, and even in the belting in car tires.

The implementation of these systems is taking a concerted effort by teams, including supply groups, IT, law and compliance, as well as outside consultants for most companies. Suppliers for the most part do not know where their minerals originated, and their first response to the inquiries from their customers most often is a simple “we don’t know.” That answer suffices only in the short term.

Creative Writing
The SEC adopted the rules in 2012, which were effective on January 1, 2013. That means that the systems required by the rules should have been in place since the beginning of this year. Very few of the more than the estimated 6,000 public companies that use conflict minerals had their systems fully in place then. Based upon anecdotal reports, I suspect that a significant majority still do not. The first reports required by the rules must be filed with the SEC in May 2014 and will cover 2013. I expect there to be more than a modest amount of creative writing involved.

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