Companies Lag on “Conflict Minerals” Reporting

The National Association of Manufacturers contends that compliance with the new NAIC rule will cost manufacturers $9 billion to $16 billion.

Despite estimates that put the costs of complying with the Securities and Exchange Commission’s “conflict minerals” rule as high as $16 billion, many corporate executives say their companies don’t have a clue about whether they would be subject to the regulation, according to a new survey.

Public companies must comply with the SEC’s Conflict Minerals Rule for the calendar year beginning January 2013, with the first reports due May 31, 2014. Yet almost half of 900 finance, internal audit and other executives responding to PricewaterhouseCoopers’ online survey say their companies have only just begun to launch their compliance efforts.

Sixteen percent of the respondents say their companies haven’t even started to gather compliance information pertaining to the rule, which was mandated under the Dodd-Frank Act and requires companies to publicly disclose their use of certain minerals from the Democratic Republic of the Congo (DRC) or an adjoining country.

The regulation was mandated based on the U.S. Congress’s sense that “the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual and gender-based violence, and contributing to an emergency humanitarian situation,” according to the rule.

Thirty-two percent of the respondents to the PwC said their companies are still determining whether the rule applies to them. Under it, companies are required to disclose their use of tantalum, tin, tungsten or gold (commonly called the “3TG” minerals) or if they are “necessary to the functionality or production of a product” manufactured by the companies.

The minerals are found in “thousands of products ranging from cell phones and laptop computers to jewelry, golf clubs, drill bits and hearing aids,” according to the report, which cited estimates that “6,000 SEC issuers will have to provide new disclosures under the rule.”

Further, about 275,000 non-public companies that are part of the issuers’ supply chains will be affected, according to the report.

The disclosures, which must be made on a new form to be filed with the SEC called Form SD, could entangle some companies in an elaborate quest for information from the most remote rungs of their supply chains in order to file what could be a fairly extensive report.

The process will be “very different” from other forms of SEC reporting, Bobby Kipp, a partner in PwC’s risk assurance practice, told CFO. “It cannot be done completely or solely by finance,” she says. To be sure, nearly 60 percent of the respondents to the Big Four firm’s study have roles in an SEC reporting and finance function. Twenty-five percent come from internal audit, and the remainder work in legal, supply-chain, sustainability, accounting and auditing, and other areas.  

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