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April 17, 2017

How Will The SEC’s Recent Conflict Minerals Decision Affect May 2017 Filings?

As Connecting the Dots reported last week, the U.S. Securities and Exchange Commission (SEC) has decided to suspend enforcement of the most onerous part of its conflict minerals regulation. As National Law Review explains, the SEC will not pursue enforcement actions against companies that do not comply with the “source and chain of custody” due diligence requirements and related disclosure in Item 1.01(c) of Form SD. Companies still will have to comply with the remaining disclosure requirements under Form SD. 

Does this mean that Metals Service Center Institute (MSCI) members subject to the rule don’t have to do anything this year? Not exactly. As the law firm Buchanan, Ingersoll and Rooney explains, companies can “exercise discretion to opt out of Item 1.01(c)’s extensive disclosure requirements and abstain from conflict mineral chain of custody due diligence investigations,” but report their “obligations under 1.01(a) of Form SD, which requires a company to perform a reasonable country of origin inquiry to determine if certain raw materials used in the company’s supply chain were sourced in the countries covered by the statute/regulations, or Item 1.01(b) of Form SD, which requires disclosure of due diligence efforts resulting in a determination that raw materials did not originate from the covered countries, should it make such a determination …” The law firm also notes that:

“Companies will still be required to file Form SD for fiscal 2016 by May 31, 2017 and … the filing must still contain the disclosures required by Item 1.01(a) and, if applicable, Item 1.01(b) of Form SD. However, the disclosures required by Item 1.01(c) of Form SD and the ‘Conflict Minerals Report,’ often required to be filed as an exhibit thereto, may be omitted this year without concern of Commission enforcement. Given that these turn of events occurred less than two months prior to the annual filing deadline, many companies may have already substantially completed their due diligence investigations concerning chain of custody per the requirements of Item1.01(c), and thus may choose to prepare their Form SD and Conflict Minerals Report filings consistent with prior years, notwithstanding the Commission’s recent statements.”

Finally, the law firm also cautions “companies should be mindful of how their customers and shareholders may react to an election to forego such disclosure.” MSCI members are encouraged to read the SEC Division of Corporate Finance’s public statement on the decision, which offers specific advice and is available here. The SEC has instructed companies with questions about the content of Form SD and the Conflict Minerals Report to contact the Division of Corporation Finance at (202) 551-3100 if additional guidance is needed.