Conflict Minerals, 80948-80975 [2010-31940]
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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules
Paper Comments
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 229 and 249
[Release No. 34–63547; File No. S7–40–10]
RIN 3235–AK84
Conflict Minerals
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
We are proposing changes to
the annual reporting requirements of
issuers that file reports pursuant to
Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934 to implement
Section 1502 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act. The proposed rules would require
any issuer for which conflict minerals
are necessary to the functionality or
production of a product manufactured,
or contracted to be manufactured, by
that issuer to disclose in the body of its
annual report whether its conflict
minerals originated in the Democratic
Republic of the Congo or an adjoining
country. If so, that issuer would be
required to furnish a separate report as
an exhibit to its annual report that
includes, among other matters, a
description of the measures taken by the
issuer 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 issuer’s report
conducted in accordance with standards
established by the Comptroller General
of the United States. Further, any issuer
furnishing such a report would be
required, in that report, to certify that it
obtained an independent private sector
audit of its report, provide the audit
report, and make its reports available to
the public on its Internet Web site.
DATES: Comments should be received on
or before January 31, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml);
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–40–10 on the subject line;
or
• Use the Federal Rulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–40–10. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments are also
available for Web site viewing and
copying in the Commission’s Public
Reference Room 100 F Street, NE.,
Washington, DC 20549–1090, on official
business days between the hours of
10 a.m. and 3 p.m. All comments
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: John
Fieldsend, Special Counsel in the Office
of Rulemaking, Division of Corporation
Finance, at (202) 551–3430, 100 F
Street, NE., Washington, DC 20549–
3628.
The
Commission is proposing to add a new
Item 104 to Regulation S–K,1 revise Item
601 of Regulation S–K,2 and amend
Form 20–F,3 Form 40–F,4 and Form 10–
K 5 under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’).6
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background and Summary
A. Statutory Requirements
B. Overview of Proposed Rules
II. Discussion
A. Conflict Minerals
B. Step One—Determining Issuers Covered
by the Conflict Minerals Provision
1. Issuers That File Reports Under the
Exchange Act
2. ‘‘Manufacture’’ and ‘‘Contract to
Manufacture’’ Products
3. Mining Issuers as ‘‘Manufacturing’’
Issuers
4. When Conflict Minerals are ‘‘Necessary’’
to a Product
C. Step Two—Determining Whether
Conflict Minerals Originated in the DRC
Countries and the Resulting Disclosure
1. Location of Disclosure
2. Standard for Disclosure
1 17
CFR 229.10 et seq.
CFR 229.601.
3 17 CFR 249.220f.
4 17 CFR 249.240f.
5 17 CFR 249.310.
6 15 U.S.C. 78a et seq.
D. Step Three—Conflict Minerals Report’s
Content and Supply Chain Due Diligence
1. Content of Conflict Minerals Report
2. Location and Furnishing of Conflict
Minerals Report
3. Due Diligence Standard in the Conflict
Minerals Report
E. Time Periods
1. Furnishing of the Initial Disclosure and
Conflict Minerals Report
2. Time Period in Which Conflict Minerals
Must be Disclosed or Reported
F. Thresholds, Alternatives, Termination,
Revisions, and Waivers
1. Materiality Threshold
2. Recycled and Scrap Minerals
3. Termination, Revisions, and Waivers
G. General Request for Comment
III. Paperwork Reduction Act
A. Background
B. Burden and Cost Estimates Related to
the Proposed Amendments
1. Form 10–K
2. Regulation S–K
3. Form 20–F
4. Form 40–F
C. Summary of Proposed Changes to
Annual Compliance Burden in
Collection of Information
D. Request for Comment
IV. Cost-Benefit Analysis
A. Benefits
B. Costs
V. Consideration of Burden on Competition
and Promotion of Efficiency,
Competition, and Capital Formation
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the
Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed
Amendments
D. Reporting, Recordkeeping, and Other
Compliance Requirements
E. Duplicative, Overlapping, or Conflicting
Federal Rules
F. Significant Alternatives
G. Solicitation of Comment
VII. Small Business Regulatory Enforcement
Fairness Act
VIII. Statutory Authority and Text of The
Proposed Rule and Form Amendments
I. Background and Summary
A. Statutory Requirements
Section 1502 (the ‘‘Conflict Minerals
Provision’’) of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the ‘‘Act’’) 7 amends the Exchange
Act by adding new Section 13(p).8 The
Commission is required pursuant to
new Section 13(p) to issue final rules
implementing Section 13(p) no later
than 270 days after the date of
enactment, or April 15, 2011.9 Section
13(p) requires the Commission to
promulgate disclosure and reporting
regulations regarding the use of conflict
minerals from the Democratic Republic
2 17
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7 Public Law 111–203, 124 Stat. 1376 (July 21,
2010).
8 15 U.S.C. 78m(p).
9 See Exchange Act Section 13(p)(1)(A).
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of the Congo (the ‘‘DRC’’) and adjoining
countries (together the ‘‘DRC
countries’’).10 Section 1502(a) of the
Conflict Minerals Provision, which is
titled ‘‘Sense of the Congress on
Exploitation and Trade of Conflict
Minerals Originating in the Democratic
Republic of the Congo,’’ sets forth the
background for this provision. In
Section 1502(a), Congress provides that:
‘‘It is the sense of the Congress 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
therein, warranting the provisions of
section 13(p) of the Securities Exchange
Act of 1934, as added by subsection
(b).’’ 11
Section 13(p) mandates that the
Commission promulgate regulations
requiring that a ‘‘person described’’ 12
disclose annually whether any ‘‘conflict
minerals’’ 13 that are ‘‘necessary to the
functionality or production of a product
manufactured by such person’’ 14
originated in the DRC countries,15 and
make that disclosure publicly available
on the issuer’s Internet Web site.16 If a
person’s conflict minerals originated in
the DRC countries, that person must
submit a report (the ‘‘Conflict Minerals
Report’’) to the Commission that
includes a description of the measures
taken by the person to exercise due
diligence on the minerals’ source and
chain of custody.17 In general,
undertaking due diligence involves
10 The term ‘‘adjoining country’’ is defined in
Section 1502(e)(1) of the Act as a country that
shares an internationally recognized border with
the DRC.
11 Section 1502(a) of the Act.
12 The term ‘‘person described’’ is defined in
Exchange Act Section 13(p)(2) as one (1) who is
required to file reports under Sections 13(p)(1)(A),
and (2) the conflict minerals are necessary to the
functionality or production of a product
manufactured by such person. Section 13(p)(1)(A)
does not provide a definition but refers back to
Section 13(p)(2).
13 The term ‘‘conflict mineral’’ is defined in
Section 1502(e)(4) of the Act as (A) columbitetantalite, 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.
14 Exchange Act Section 13(p)(2)(B).
15 Exchange Act Section 13(p)(1)(A).
16 See Exchange Act Section 13(p)(1)(E) (stating
that each issuer ‘‘shall make available to the public
on the Internet Web site of such [issuer] the
information disclosed under’’ Exchange Act Section
13(p)(1)(A)).
17 See Exchange Act Section 13(p)(1)(A)(i).
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performing the investigative measures
that a reasonably prudent person would
perform in the management of his or her
own property. Under Section 13(p), the
measures that must be taken to exercise
due diligence ‘‘shall include an
independent private sector audit’’ of the
Conflict Minerals Report that is
conducted according to standards
established by the Comptroller General
of the United States, in accordance with
the Commission’s promulgated rules, in
consultation with the Secretary of
State.18 The person submitting the
Conflict Minerals Report must also
identify the independent private sector
auditor 19 and certify the independent
private sector audit.20
Further, the Conflict Minerals Report
must include a description of the
products manufactured or contracted to
be manufactured that are not ‘‘DRC
conflict free,’’ the facilities used to
process the conflict minerals, the
country of origin of the conflict
minerals, and ‘‘the efforts to determine
the mine or location of origin with the
greatest possible specificity.’’ 21 The
term ‘‘DRC Conflict Free’’ is defined in
Exchange Act Section 13(p)(1)(A)(ii) and
Exchange Act Section 13(p)(1)(D) as
products that do not contain conflict
minerals that ‘‘directly or indirectly
finance or benefit armed groups’’ in the
DRC countries.22 Each person must
make their Conflict Minerals Report
available to the public on that person’s
Internet Web site.23
B. Overview of Proposed Rules
Our proposed rules would apply to
issuers who file reports with the
Commission under Exchange Act
Sections 13(a) 24 or 15(d) 25 and for
18 See id. (requiring in the Conflict Minerals
Report ‘‘a description of the measures taken by the
person to exercise due diligence on the source and
chain of custody of such [conflict] minerals, which
measures shall include an independent private
sector audit of such report’’). The Conflict Minerals
Provision assigns certain responsibilities to other
federal agencies. In developing our proposed rules,
our staff has consulted with the staff of these other
agencies, including the Government Accountability
Office (the ‘‘GAO’’), which is headed by the
Comptroller General, and the State Department.
19 See Exchange Act Section 13(p)(1)(A)(ii)
(stating that the issuer must provide a description
of the ‘‘entity that conducted the independent
private sector audit in accordance with’’ Exchange
Act Section 13(p)(1)(A)(i)’’).
20 As noted in Exchange Act Section 13(p)(1)(B),
if an issuer is required to provide a Conflict
Minerals Report that includes an independent
private sector audit, that issuer ‘‘shall certify the
audit’’ and that certified audit ‘‘shall constitute a
critical component of due diligence in establishing
the source and chain of custody of such minerals.’’
21 See Exchange Act Section 13(p)(1)(A)(ii).
22 Id.; Exchange Act Section 13(p)(1)(D).
23 Exchange Act Section 13(p)(1)(E).
24 15 U.S.C. 78m(a).
25 15 U.S.C. 78o(d).
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which conflict minerals are ‘‘necessary
to the functionality or production of a
product manufactured’’ or contracted to
be manufactured by such issuer.26 These
issuers would be required to disclose,
based on their reasonable country of
origin inquiry, in the body of their
annual reports whether their conflict
minerals originated in the DRC
countries. If an issuer concludes that its
conflict minerals did not originate in the
DRC countries, the issuer would
disclose this determination and the
reasonable country of origin inquiry
process it used in reaching this
determination in the body of its annual
report. Also, the issuer would be
required to provide on its Internet Web
site its determination that its conflict
minerals did not originate in the DRC
countries, disclose that this information
is available on its Web site and the
Internet address of that site in the body
of its annual report, and maintain
records demonstrating that its conflict
minerals did not originate in the DRC
countries. If the issuer concludes that its
conflict minerals did originate in the
DRC countries, or is unable to conclude
that its conflict minerals did not
originate in the DRC countries, the
issuer would similarly disclose this
conclusion, note that the Conflict
Minerals Report is furnished as an
exhibit to the annual report, furnish the
Conflict Minerals Report, make
available the Conflict Minerals Report
on its Internet Web site, disclose that
the Conflict Minerals Report is posted
on its Internet Web site, and provide the
Internet address of that site.
As required by Section 13(p), our
proposed rules would require that an
issuer provide, in its Conflict Minerals
Report, a description of the measures it
had taken to exercise due diligence on
the source and chain of custody of its
conflict minerals, which would have to
include a certified independent private
sector audit of the Conflict Minerals
Report that identifies the auditor and is
furnished as part of the Conflict
Minerals Report. Further, the issuer
would be required to include in the
Conflict Minerals Report a description
of its products manufactured or
contracted to be manufactured
containing conflict minerals that are not
‘‘DRC conflict free,’’ 27 the facilities used
to process those conflict minerals, those
conflict minerals’ country of origin, and
the efforts to determine the mine or
location of origin with the greatest
26 Exchange
Act Section 13(p)(2)(B).
definition of the term ‘‘DRC conflict free’’
in our proposed rules would be identical to the
definition in Exchange Act Sections 13(p)(1)(A)(ii)
and 13(p)(1)(D).
27 The
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possible specificity. The issuer would
be required to exercise due diligence in
making these determinations in the
Conflict Minerals Report.
II. Discussion
The Conflict Minerals Provision
establishes, and we are likewise
proposing, a disclosure requirement for
conflict minerals that is divided into
three steps. The first step required by
Section 1502 is for the issuer to
determine whether it is subject to the
Conflict Minerals Provision. An issuer is
only subject to the Conflict Minerals
Provision if it is a ‘‘person described,’’
which the Conflict Minerals Provision
defines as one for whom ‘‘conflict
minerals are necessary to the
functionality or production of a product
manufactured by such person.’’ 28 If an
issuer does not meet this definition, the
issuer would not be required to take any
action, make any disclosures, or submit
any reports. If, however, an issuer meets
this definition, that issuer would move
to the second step.
The second step would require the
issuer to determine after a reasonable
country of origin inquiry whether its
conflict minerals originated in the DRC
countries. If the issuer determines that
its conflict minerals did not originate in
the DRC countries, the issuer would
disclose this determination and the
reasonable country of origin inquiry it
used in reaching this determination in
the body of its annual report.29 If,
however, the issuer determines that its
conflict minerals did originate in the
DRC countries, or if it is unable to
conclude that its conflict minerals did
not originate in the DRC countries, the
issuer would disclose this conclusion in
its annual report and move to the third
step.30
Finally, the third step under the
Conflict Minerals Provision would
require an issuer with conflict minerals
that originated in the DRC countries, or
an issuer that is unable to conclude that
its conflict minerals did not originate in
the DRC countries, to furnish a Conflict
Minerals Report as described in greater
detail below. As required by Section
28 Exchange
Act Section 13(p)(2).
issuer also would be required to make
available this disclosure on its Internet Web site,
disclose in its annual report that the disclosure is
posted on its Internet Web site, and disclose the
Internet address on which this disclosure is posted.
Such an issuer, however, would not have any
further disclosure or reporting obligations with
regard to its conflict minerals.
30 The issuer also would be required make its
Conflict Minerals Report available to the public on
its Internet Web site, disclose in its annual report
that the Conflict Minerals Report is posted on its
Internet Web site, and disclose the Internet address
on which the Conflict Minerals Report is posted.
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29 The
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13(p)(1)(A)(ii), in the Conflict Minerals
Report, the issuer would be required to
provide, among other information, a
description of any of its products that
contain conflict minerals that it is
unable to determine did not ‘‘directly or
indirectly finance or benefit armed
groups’’ in the DRC countries.31 The
issuer would identify such products by
describing them as not ‘‘DRC conflict
free.’’ If any of its products contain
conflict minerals that do not ‘‘directly or
indirectly finance or benefit’’ these
armed groups, the issuer may describe
such products as ‘‘DRC conflict free,’’
whether or not the minerals originated
in the DRC countries.
A. Conflict Minerals
The Conflict Minerals Provision
defines the term ‘‘conflict mineral’’ as
cassiterite, columbite-tantalite, gold,
wolframite, or their derivatives, or any
other minerals or their derivatives
determined by the Secretary of State to
be financing conflict in the DRC
countries.32 Cassiterite is the metal ore
that is most commonly used to produce
tin, which is used in alloys, tin plating,
and solders for joining pipes and
electronic circuits.33 Columbite-tantalite
is the metal ore from which tantalum is
extracted. Tantalum is used in
electronic components, including
mobile telephones, computers,
videogame consoles, and digital
cameras, and as an alloy for making
carbide tools and jet engine
components.34 Gold is used for making
jewelry and, due to its superior electric
conductivity and corrosion resistance, is
also used in electronic,
communications, and aerospace
equipment.35 Finally, wolframite is the
metal ore that is used to produce
tungsten, which is used for metal wires,
electrodes, and contacts in lighting,
electronic, electrical, heating, and
welding applications.36 Based on the
many uses of these minerals, we expect
31 See
Exchange Act Section 13(p)(1)(A)(ii).
1502(e)(4) of the Act. Presently, the
Secretary of State has not designated any other
mineral as a conflict mineral. Therefore, the conflict
minerals include only cassiterite, columbitetantalite, gold, wolframite, or their derivatives.
33 Tin Statistics and Information, U.S. Geological
Survey. available at, https://minerals.usgs.gov/
minerals/pubs/commodity/tin/.
34 Niobium (Columbium) and Tantalum Statistics
and Information, U.S. Geological Survey, available
at, https://minerals.usgs.gov/minerals/pubs/
commodity/niobium.
35 Gold Statistics and Information, U.S. Geological
Survey, available at, https://minerals.usgs.gov/
minerals/pubs/commodity/gold.
36 Tungsten Statistics and Information, U.S.
Geological Survey, available at, https://
minerals.usgs.gov/minerals/pubs/commodity/
tungsten.
32 Section
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the Conflict Minerals Provision to apply
to many companies and industries.
B. Step One—Determining Issuers
Covered by the Conflict Mineral
Provision
1. Issuers That File Reports Under the
Exchange Act
Our proposed rules would apply to
any issuer that files reports with the
Commission under the Exchange Act,
provided that the issuer is a ‘‘person
described’’ under the Conflict Minerals
Provision. The Conflict Minerals
Provision defines a ‘‘person described’’
as one for whom conflict minerals are
‘‘necessary to the functionality or
production of a product manufactured
by such person.’’ 37 We note that the
provision could be read to apply to any
company, including companies that are
not subject to Commission reporting
requirements, or individuals, so long as
conflict minerals are necessary to the
functionality or production of a product
manufactured by that entity or
individual. Such a broad reading of the
provision, however, does not appear
warranted given the provision’s
background and its location in the
section of the Exchange Act dealing
with reporting issuers.38 Conversely, the
Conflict Minerals Provision does not
limit its disclosure or reporting
obligations to issuers of any particular
size. Again, the only limiting factor
appears to be whether conflict minerals
are ‘‘necessary to the functionality or
production’’ of an issuer’s products.39
Based on these considerations, we are
not proposing to include an exemption
for smaller reporting companies,
although we request comment below on
whether that would be appropriate.
We have received letters and other
communications with a variety of
recommendations regarding the Conflict
37 See
supra note 12.
Rep. No. 111–517, Joint Explanatory
Statement of the Committee of Conference, Title
XV, ‘‘Conflict Minerals,’’ at 879 (Conf. Rep.) (June
29, 2010) (‘‘The conference report requires
disclosure to the SEC by all persons otherwise
required to file with the SEC for whom minerals
originating in the Democratic Republic of Congo
and adjoining countries are necessary to the
functionality or production of a product
manufactured by such person.’’); 156 Cong. Rec.
S3978 (daily ed. May 19, 2010) (statement of Sen.
Feingold) (stating that the ‘‘Brownback amendment
was narrowly crafted’’ and, in discussing the
provision, referring only to ‘‘companies on the U.S.
stock exchanges’’); 156 Cong. Rec. S3865–66 (daily
ed. May 18, 2010) (stating that the Conflict Minerals
Provision ‘‘is a narrow SEC reporting requirement’’
and referring only to ‘‘SEC reporting requirements’’
in discussing the provision); and 156 Cong. Rec.
S3816–17 (daily ed. May 17, 2010) (statement of
Sen. Durbin) (stating that the provision ‘‘would
require companies listed on the New York Stock
Exchange to disclose in their SEC filings’’).
39 Exchange Act Section 13(p)(2)(B).
38 H.R.
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Minerals Provision and our
rulemaking,40 including those that
discussed what the provision’s
definition of a ‘‘person described’’
should be construed to mean.
Specifically, one industry group
representative stated that the term was
intended to apply solely to persons who
file periodic reports under Section
13(a)(2) of the Exchange Act, although
that representative indicates that the
provision is unclear as written.41 A
separate individual who submitted a
letter to us stated that the provision’s
definition of the term is broad and
appears to cover more than only
reporting issuers.42 Finally, another
issuer that submitted a letter to us
indicated our rules should define a
‘‘person described’’ in the broadest
possible sense so that it includes nonreporting companies.43 This issuer
stated that, because the provision’s
intent is to limit the exploitation and
trade of conflict minerals so as to
prevent human rights abuses, and the
provision is not necessarily intended to
protect investors, the scope of the
provision should include more than just
reporting issuers. Further, the issuer
stated that applying our proposed rules
only to reporting issuers would unfairly
burden reporting issuers and damage
their competitive position.
We recognize there is some ambiguity
as to whom the Conflict Minerals
Provision applies given that the Conflict
Minerals Provision states that the
Commission shall promulgate
regulations for any ‘‘person
described,’’ 44 and the provision states
that a ‘‘person is described’’ if ‘‘conflict
minerals are necessary to the
functionality or production of a product
manufactured by such person.’’ 45
Therefore, the Conflict Minerals
Provision could be interpreted to apply
to a wide range of private companies not
previously subject to our disclosure and
reporting rules. However, given the
provision’s legislative background, its
statutory location, and the absence of
Congressional direction to apply these
provisions to companies not previously
40 To facilitate public input on the Act, the
Commission has provided a series of e-mail links,
organized by topic, on its Web site at https://
www.sec.gov/spotlight/regreformcomments.shtml.
The public comments we have received on the topic
of the Conflict Minerals Provision are available on
our Web site at https://www.sec.gov/comments/dftitle-xv/specialized-disclosures/
specializeddisclosures-8.pdf.
41 See letter from Jewelers Vigilance Committee.
42 See letter from Stuart P. Seidel, Esq. (stating
that a person described is ‘‘not the usual SEC
‘issuer’ requirement and appears much broader’’).
43 See letter from Tiffany & Co.
44 See Exchange Act Section 13(p)(1)(A).
45 See supra note 12.
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subject to those rules,46 we do not
propose to extend the rules beyond
reporting companies. Also, even if we
were to interpret the provision in this
manner, it is uncertain how the
Commission could administer such a
program. Therefore, our proposed rules
would apply only to issuers that file
reports with the Commission under
Section 13(a) or Section 15(d) of the
Exchange Act, although we request
comment on this question below.47
Consistent with the statutory language,
our rules would apply to domestic
companies, foreign private issuers, and
smaller reporting companies. The
statutory language does not suggest an
exemption for foreign private issuers or
smaller reporting companies and our
proposal, therefore, would cover those
issuers, although we request comment
on this question below.
Request for Comment
1. Should our reporting standards, as
proposed, apply to all conflict minerals
equally? 48
2. Should our rules, as proposed,
apply to all issuers that file reports
under Sections 13(a) and 15(d) of the
Exchange Act? If not, to what issuers or
other persons should our rules apply?
Should we require an issuer that has a
class of securities exempt from
Exchange Act registration pursuant to
Exchange Act Rule 12g3–2(b) 49 to
46 See H.R. Rep. No. 111–517, Joint Explanatory
Statement of the Committee of Conference, Title
XV, ‘‘Conflict Minerals,’’ at 879 (Conf. Rep.) (June
29, 2010) (‘‘The conference report requires
disclosure to the SEC by all persons otherwise
required to file with the SEC for whom minerals
originating in the Democratic Republic of Congo
and adjoining countries are necessary to the
functionality or production of a product
manufactured by such person.’’)
47 Section 13(a) requires issuers with classes of
securities registered under Section 12 of the
Exchange Act to file periodic and other reports. 15
U.S.C. 78l. Section 15(d) requires issuers with
effective registration statements under the
Securities Act of 1933 (the ‘‘Securities Act’’) to file
reports similar to Section 13(a) for the fiscal year
within which such registration statement became
effective. 15 U.S.C. 77a et seq. Therefore, if our
proposed rules did not include issuers required to
file reports under Section 15(d), some issuers who
file annual reports may not otherwise be required
to comply with our proposed conflict minerals
rules.
48 See the petition attached to the memorandum
of the November 18, 2010 meeting with Chairman
Mary L. Schapiro and with John Prendergast and
Darren Fenwick of The Enough Project, Sasha
Lezhnev of Grassroots Reconciliation Group, and
Deborah R. Meshulam of DLA Piper (calling on the
Commission to promulgate rules that would require
equal reporting standards for all the conflict
minerals), available at, https://www.sec.gov/
comments/df-title-xv/specialized-disclosures/
specializeddisclosures-80.pdf.
49 17 CFR 240.12g3–2(b). A foreign private issuer
may claim that exemption as long as it meets a
foreign listing requirement, publishes its material
home country documents in English on its Internet
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provide the disclosure and reporting
requirements in its home country
annual report or in a report on EDGAR?
Would such an approach be consistent
with the Act? 50
3. Should we have an alternative
interpretation of a ‘‘person described?’’
4. Should our rules apply to foreign
private issuers, as proposed? Should we
exempt such issuers and, if so, why and
on what basis? Should the rules
otherwise be adjusted in some fashion
for foreign private issuers?
5. Would our proposed rules present
undue costs to smaller reporting
companies? If so, how could we mitigate
those costs? Also, if our proposed rules
present undue costs to smaller reporting
companies, do the benefits of making
their conflict minerals information
publicly available justify these costs?
Should our rules provide an exemption
for smaller reporting companies?
Alternatively, should our rules provide
more limited disclosure and reporting
obligations for smaller reporting
companies? If so, what should these
limited requirements entail? For
example, should our rules require
smaller reporting companies to disclose,
if true, that conflict minerals are
necessary to the functionality or
production of their products but not
require those issuers to disclose whether
those conflict minerals originated in the
DRC countries or to furnish a Conflict
Minerals Report? Should our rules
provide for a delayed implementation
date for smaller reporting companies in
order to provide them additional time to
prepare for the requirement and the
benefit of observing how larger
companies comply?
6. Should we require that all
individuals and entities, regardless of
whether they are reporting issuers,
private companies, or individuals who
manufacture products for which conflict
minerals are necessary to the
functionality or production of the
products, provide the conflict minerals
Web site or through another electronic information
delivery system that is generally available to the
public in its primary trading market, and otherwise
is not required to file Exchange Act reports. A
foreign private issuer typically relies on the Rule
12g3–2(b) exemption in order to establish an
unlisted American Depositary Receipt (‘‘ADR’’)
facility for the issuance and trading of ADRs
through the over-the-counter market.
50 The Commission has not considered Rule
12g3–2(b)-exempt companies to be subject to
Exchange Act reporting and filing requirements.
Prior to the amendment to Rule 12g3–2(b) in 2008,
we required issuers claiming the Rule 12g3–2(b)
exemption to furnish paper copies of their material
home country documents to the Commission. The
documents were deemed furnished and not filed
under the Exchange Act because they were subject
to their home country, and not Exchange Act,
disclosure rules.
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disclosure and, if necessary, a Conflict
Minerals Report? If so, how would we
oversee such a broad reporting system?
7. Would requiring compliance with
our proposed rules only by issuers filing
reports under the Exchange Act unfairly
burden those issuers and place them at
a significant competitive disadvantage
compared to companies that do not file
reports with us? If so, how can we
lessen that impact?
8. General Instruction I to Form 10–
K contains special provisions for the
omission of certain information by
wholly-owned subsidiaries. General
Instruction J to Form 10–K contains
special provisions for the omission of
certain information by asset-backed
issuers. Should either or both of these
types of registrants be permitted to omit
the proposed conflict minerals
disclosure in the annual reports on
Form 10–K?
2. ‘‘Manufacture’’ and ‘‘Contract To
Manufacture’’ Products
The Conflict Minerals Provision
applies to any person for whom conflict
minerals are necessary to the
functionality or production of a product
manufactured by that person.51 It
appears, therefore, that the Conflict
Minerals Provision was not intended to
apply to all issuers, but was intended to
apply only to issuers that manufacture
products. In this regard, our proposed
rules would likewise apply to reporting
issuers that manufacture products.
We do not propose to define the term
‘‘manufacture’’ in our rules, since we
believe it is generally understood.52 We
note that some of those submitting
letters in advance of this rulemaking
have suggested our proposed rules
should define the term ‘‘manufacturing’’
with greater specificity and have
provided their views on this matter. One
non-governmental organization (‘‘NGO’’)
stated that the term ‘‘manufactured’’
should be defined as the ‘‘production,
preparation, assembling, combination,
compounding, or processing of
ingredients, materials, and/or processes
such that the final product has a name,
character, and use, distinct from the
original ingredients, materials, and/or
processes.’’ 53 An industry group
indicated that the term manufacture
should exempt issuers involved in the
‘‘mining, processing, refining, alloying,
fabricating, importing, exporting or sale’’
of gold and those engaged in ‘‘jewelry
51 See
Exchange Act Section 13(p)(2)(B).
example, the Second Edition of the
Random House Webster’s Dictionary defines the
term to include the ‘‘making goods or wares by hand
or machinery, esp. on a large scale.’’ Random House
Webster’s Dictionary 403(2d ed. 1996).
53 See letter from The Enough Project.
52 For
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repairs or refurbishment, * * * setting
or re-setting diamonds or gemstones
into mountings or * * * [the]
manufactur[ing of] individual custom
jewelry pieces.’’ 54 We are not proposing
to define the term, but we request
comment on that point below.
One section of the Conflict Minerals
Provision defines a ‘‘person described’’
as one for which conflict minerals are
‘‘necessary to the functionality or
production of a product manufactured
by such a person,’’ 55 while another
section of the provision requires issuers
to describe ‘‘the products manufactured
or contracted to be manufactured that
are not DRC conflict free’’ [emphasis
added] in their Conflict Mineral
Reports.56 The absence of the phrase
‘‘contract to manufacture’’ from the
‘‘person described’’ definition raises
some question as to whether the
requirements apply equally to those
who manufacture products themselves
and those who contract to have their
products manufactured by others. Based
on the totality of the provision,
however, it appears that the legislative
intent was for the provision to apply
both to issuers that directly manufacture
products and to issuers that contract the
manufacturing of their products for
which conflict minerals are necessary to
the functionality or production of those
products. Our proposed rules, therefore,
would apply equally to issuers that
manufacture products and to issuers
that ‘‘contract to manufacture’’ their
products. We believe that this approach
would allow the ‘‘contracted to be
manufactured’’ language to have effect
in the Conflict Minerals Report.
With regard to what it means to
‘‘contract to manufacture a product,’’ an
industry group expressed concern that
our rules could include retailing issuers’
private label goods.57 Two of the
Congressmen who sponsored Section
1502 have stated in a letter submitted to
us that rules implementing the
provision should ‘‘exempt pure
retailers’’ from any reporting
requirements.58 In this regard, they
suggested that the rules should clarify
that retailers who sell ‘‘pure ‘white label’
products,’’ products over which retailers
have no influence regarding their
manufacture, would not be required to
provide information regarding any
conflict minerals in those products.
Also, they indicated that the rules
should include products that a retailer
54 See
letter from Jewelers Vigilance Committee.
Act Section 13(p)(2)(B).
Act Section 13(p)(1)(A)(ii).
57 See letter from National Retail Federation.
58 Letter from Senator Richard J. Durbin and
Representative Jim McDermott, United States
Congress.
55 Exchange
56 Exchange
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‘‘contracts to be manufactured or for
which the retailer issues unique product
requirements.’’ 59
We intend that our proposed rules
would apply to issuers that contract for
the manufacturing of products over
which they have any influence
regarding the manufacturing of those
products. They also would apply to
issuers selling generic products under
their own brand name or a separate
brand name that they have established,
regardless of whether those issuers have
any influence over the manufacturing
specifications of those products, as long
as an issuer has contracted with another
party to have the product manufactured
specifically for that issuer. We do not,
however, propose that our rules would
apply to retail issuers that sell only the
products of third parties if those
retailers have no contract or other
involvement regarding the
manufacturing of those products, or if
those retailers do not sell those products
under their brand name or a separate
brand they have established and do not
have those products manufactured
specifically for them.
Request for Comment
9. Should we define the term
‘‘manufacture?’’ If so, how should we
define the term?
10. Should our rules, as proposed,
apply both to issuers that manufacture
and issuers that contract to manufacture
products in which conflict minerals are
necessary to the functionality or
production of those products?
11. Should we require a minimum
level of influence, involvement, or
control over the manufacturing process
before an issuer must comply with our
proposed rules? If so, how should we
articulate the minimum amount?
Should we require issuers to have
nominal, minimal, substantial, total, or
another level of control over the
manufacturing process before those
issuers become subject to our rules?
How would those amounts be
measured? Should we require that
issuers must, at minimum, mandate that
the product be manufactured according
to particular specifications?
12. Is it appropriate to consider
issuers who sell generic products under
their own labels or labels that they
establish to be contracting the
manufacture of those products as long
as those issuers have contracted with
other parties to have the products
manufactured specifically for them? If
not, what would be a more appropriate
approach?
59 Id.
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3. Mining Issuers as ‘‘Manufacturing’’
Issuers
As a separate but related issue, our
proposed rules would consider issuers
that mine conflict minerals, including
issuers that mine gold, to be
manufacturing those minerals, and
issuers contracting for the mining of
conflict minerals to be contracting the
manufacturing of those minerals. In this
regard, we have received input that our
proposed rules should not consider a
gold mining issuer as manufacturing or
contracting to manufacture gold.60
Conversely, another view expressed to
us by an NGO was that our proposed
rules should consider mining
commensurate with manufacturing or
contracting to manufacture.61 This NGO
cited to and quoted from the United
States Controlled Substances Act,62
which includes mining under the
definition of manufacturing. We are
proposing in an instruction to our
proposed rules 63 that mining issuers
should be considered to be
manufacturing conflict minerals when
they extract those minerals.64 We do,
however, request comment on this point
below.
be permitted to perform on conflict
minerals before our proposed rules
should consider them to be
manufacturing products to which
conflict minerals are necessary?
4. When Conflict Minerals are
‘‘Necessary’’ to a Product
The Conflict Minerals Provision
requires the Commission to promulgate
regulations requiring that any ‘‘person
described’’ disclose annually whether
conflict minerals that are ‘‘necessary’’
originated in the DRC countries and, if
so, submit to the Commission a Conflict
Minerals Report.65 The provision
further states that a ‘‘person is
described’’ if ‘‘conflict minerals are
necessary to the functionality or
production of a product manufactured
by such person.’’ 66 The provision,
however, provides no additional
explanation or guidance as to the
meaning of this phrase. Likewise, we do
not propose to define when a conflict
mineral is necessary to the functionality
or production of a product. We are,
however, requesting comment on
whether our rules should define this
phrase and, if so, how.
We have received differing input as to
Request for Comment
when a conflict mineral should be
13. Is it appropriate for our rules, as
considered necessary to the
proposed, to consider reporting issuers
functionality or production of a product
that are mining companies as ‘‘persons
for purposes of the Conflict Minerals
described’’ under Section 1502? Does
Provision. One NGO stated that the term
the extraction of conflict minerals from
‘‘necessary’’ should be interpreted
a mine constitute ‘‘manufacturing’’ or
broadly and, at a minimum, include
‘‘contracting to manufacture’’ a ‘‘product’’ conflict minerals that are ‘‘intentionally
such that mining issuers should be
added,’’ ‘‘closely related,’’ or ‘‘directly
subject to our rules?
essential’’ to the production of a
14. Alternatively, should a mining
product.67 That NGO indicated also that
issuer not be viewed as manufacturing
a conflict mineral is necessary when it
a product under our rules unless it
is ‘‘required for the financial success or
engages in additional processes to refine marketability of the product.’’ 68 Further,
and concentrate the extracted minerals
the NGO affirmed that it believes that
into salable commodities or otherwise
our proposed rules should exempt any
changes the basic composition of the
product that contains naturally
extracted minerals?
occurring trace amount of conflict
15. If so, what transformative
minerals.69 Two of the Congressional
processes, if any, should mining issuers sponsors of Section 1502 indicated that
‘‘it is the policy of Section 1502 to
60 See letter from Jewelers Vigilance Committee
require transparency of all sourcing of
(stating that our proposed ‘‘rules should make clear
conflict minerals’’ from the DRC
that the mining, processing, refining, alloying,
fabricating, importing, exporting or sale of gold
countries, so they believe the provision
does not constitute ‘manufacture’ ’’).
was intended ‘‘to include all uses of
61 See letter from The Enough Project.
conflict minerals coming from DRC—
62 21 U.S.C.A. 802(15), the United States
except those that are ‘naturally
Controlled Substances Act, which defines the term
occurring’ or ‘unintentionally included’
‘‘manufacture’’ as the production, preparation,
propagation, compounding, or processing of a drug
in the product.’’ 70
or other substance, either directly or indirectly or
by extraction from substances of natural origin’’).
63 New Item 4(a) of Form 10–K (through new
Instruction 1 to Item 104 of Regulation S–K), new
Instruction 2 to Item 16 of Form 20–F, and new
Instruction 2 to General Instruction B(16) of Form
40–F.
64 See Industry Guide 7 [17 CFR 229.802(g)]
(implying that companies may ‘‘produce’’ minerals
from a mining reserve).
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65 Exchange
Act Section 13(p)(1)(A).
Act Section 13(p)(2)(B).
67 Letter from The Enough Project.
68 Id.
69 Id.
70 Letter from Senator Richard J. Durbin and
Representative Jim McDermott, United States
Congress.
66 Exchange
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While we are not proposing to define
‘‘necessary to the functionality or
production,’’ we note that if a mineral is
necessary, the product is covered
without regard to the amount of the
mineral involved.71 Further, we intend
our proposed rules to include products
if the conflict mineral is intentionally
included in a product’s production
process and is necessary to that process,
even if that conflict mineral is not
ultimately included anywhere in the
final product.72 On the other hand,
conflict minerals necessary to the
functionality or production of a physical
tool or machine used to produce a
product would not be considered
necessary to the production of the
product even if that tool or machine is
necessary to producing the product. For
example, if an automobile containing no
conflict minerals is produced using a
wrench that contains conflict minerals
necessary to the functionality or
production of that wrench, we would
not consider the conflict minerals in
that wrench necessary to the production
of the automobile.
Request for Comment
16. Should our rules define the phrase
‘‘necessary to the functionality or
production of a product,’’ or is that
phrase sufficiently clear without a
definition? If our rules should define the
phrase, how should it be defined?
17. If we were to define this phrase,
should we delineate it to mean that a
conflict mineral would be necessary to
a product’s functionality only if the
conflict mineral is necessary to the
product’s basic function? If so, should
we define the term ‘‘basic function’’ and,
if so, how should we define that term?
Should we define the term to include
components of a product if those
components are necessary to the
product’s basic function such that a
conflict mineral would be considered
necessary to the functionality of a
product if the conflict mineral is
necessary to the functionality of any of
the product’s components that are
required for that product’s basic
function? For example, if the only
conflict minerals in an automobile are
contained in the automobile’s radio,
should our proposed rules consider
those conflict minerals necessary to the
automobile’s functionality even if the
71 See
discussion infra Part II.F.1.
letter from Senator Richard J. Durbin and
Representative Jim McDermott, United States
Congress (‘‘All users of conflict minerals that
originate from the Democratic Republic of the
Congo an adjoining countries that are not naturally
occurring * * * or are a purely unintentional
byproduct * * * need to be subject to reporting and
transparency.’’).
72 See
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automobile’s basic function is for
transportation? If that radio is marketed
and sold with the automobile, should
our proposed rules consider the conflict
minerals that are isolated in the radio
necessary to the functionality of the
automobile? Alternatively, should such
a definition consider only conflict
minerals isolated in an automobile
component required specifically for the
automobile’s basic function as necessary
for the functionality of the automobile?
18. If we were to define the phrase
‘‘necessary to the functionality,’’ should
we delineate it to mean that a conflict
mineral would be necessary to a
product’s functionality if the conflict
mineral is included in a product for any
reason because that conflict mineral
would be contributing to the product’s
economic utility? Does the fact that, if
a conflict mineral is not ‘‘necessary’’ it,
axiomatically, could be excluded from
the product or the manufacturing
process support such a broad reading?
19. Should we define the phrase to
indicate that, as one letter suggested, a
conflict mineral should be considered
necessary when ‘‘[t]he conflict mineral
is intentionally added to the product; or
[t]he conflict mineral is used by the
[issuer] for the production of a product
and such mineral is purchased in
mineral form by the [issuer] and used by
the [issuer] in the production of the
final product but does not appear in the
final product; and [t]he conflict mineral
is essential to the product’s use or
purpose; or [t]he conflict mineral is
required for the marketability of the
product?’’ 73
20. Should we delineate the phrase
‘‘necessary to the production’’ to mean
that a conflict mineral would be
necessary to a product’s production
only if the conflict mineral is
intentionally included in a product’s
production process even if that conflict
mineral is not ultimately included in
the final product because it was
removed or washed away prior to the
completion of the production process?
Should we consider conflict minerals
necessary to the production of a product
if they are not contained in the product
but they are necessary to the
functionality or production of a physical
tool or machine used to produce a
product? Should we consider such
conflict minerals necessary to the
production of a product if the tool or
machine used to produce the product
was manufactured for the purpose of
producing the product? Would such an
73 See letter submitted by Patricia Jurewicz on
November 18, 2010 (the ‘‘Multi-Stakeholder Group
Letter’’) (representing a consortium of NGOs, large
issuers, and socially responsible institutional
investors).
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approach cover too broad a group of
tools or machines? Should we limit
such an approach to certain kinds of
tools or machines, and if so, which
ones? Should we be more specific and
provide, as a letter recommended, that
a conflict mineral is necessary to a
product’s production only if it is ‘‘used
by [an issuer] for the production of a
product and such mineral is purchased
in mineral form by the [issuer] and used
by the [issuer] in the production of the
final product but does not appear in the
final product?’’ 74
21. Should we delineate the phrase
‘‘necessary to the production’’ so that
our rules would not consider conflict
minerals occurring naturally in a
product or conflict minerals that are
purely an unintentional byproduct of
the product as necessary to the
production of that product?
C. Step Two—Determining Whether
Conflict Minerals Originated in the DRC
Countries and the Resulting Disclosure
If conflict minerals are necessary to
the functionality or production of a
product manufactured by that issuer,
the Conflict Minerals Provision requires
an issuer to disclose whether those
conflict minerals originated in the DRC
countries.75 If they did not originate in
the DRC countries, the statute requires
the issuer to make available that
disclosure on its Internet Web site, but
does not require the issuer to submit
anything further to the Commission. If,
however, any of the issuer’s conflict
minerals originated in the DRC
countries, the provision requires the
issuer to submit to the Commission a
Conflict Minerals Report for the portion
of its conflict minerals that originated in
the DRC countries, and make that report
available on its Internet Web site.
The rules we are proposing would
require an issuer to disclose whether its
conflict minerals originated in the DRC
countries. Under our proposed rules, an
issuer would be required to make a
reasonable country of origin inquiry as
to whether its conflict minerals
originated in the DRC countries, but our
proposed rules would not set forth what
constitutes a reasonable country of
origin inquiry. If, after a reasonable
country of origin inquiry, an issuer
concludes that any of its conflict
minerals did not originate in the DRC
countries, the issuer would be required
to disclose this in the body of the
annual report and on its Internet Web
site.76 Also, the issuer would be
74 See
id.
75 Exchange
Act Section 13(p)(1)(A).
Exchange Act Section 13(p)(1)(E). The
issuer would be required to keep this information
76 See
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required to disclose in the body of the
annual report the Internet address on
which the disclosure is posted and
retain the information on the Web site
at least until the issuer’s subsequent
annual report is filed with the
Commission. Further, the issuer would
be required to disclose in the body of its
annual report the reasonable country of
origin inquiry it undertook to determine
that its conflict minerals did not
originate in the DRC countries and
maintain reviewable business records to
support its determination.77 The issuer,
however, would not be required to make
any other disclosures with regard to its
conflict minerals that did not originate
in the DRC countries.
Under our proposed rules, if an issuer
determines through its reasonable
country of origin inquiry that any of its
conflict minerals originated in the DRC
countries, or if the issuer is unable to
determine after a reasonable country of
origin inquiry that any such conflict
minerals did not originate in the DRC
countries, our proposed rules would
require the issuer to disclose this in the
body of the annual report and disclose
that the Conflict Minerals Report is
furnished as an exhibit to the annual
report. Additionally, the issuer would
be required to make available its
Conflict Minerals Report on its Internet
Web site, disclose in the body of its
annual report that the Conflict Minerals
Report is posted online, and disclose in
the body of its annual report the Internet
address on which the Conflict Minerals
Report is located.78 We note, however,
that under our proposal such an issuer
would only have to post the Conflict
Minerals Report on its Internet Web site
and would not have to post any of the
disclosures it provides in the body of its
annual report.79
on its Internet Web site until it filed is subsequent
annual report.
77 See Multi-Stakeholder Group Letter (suggesting
that entities subject to the Conflict Minerals
Provision be required to maintain reviewable
business records to support a negative
determination).
78 See Exchange Act Section 13(p)(1)(E).
79 We recognize that there may be instances in
which an issuer determines that its products
contain a mixed assortment of conflict minerals,
such that some did not originate in the DRC
countries, some originated in the DRC countries,
some have minerals that the issuer cannot
determine did not originate in the DRC countries,
or any combination thereof. If an issuer can
determine which conflict minerals did not originate
in the DRC countries, it would not have to provide
a Conflict Minerals Report regarding those minerals.
However, the issuer would still be required to file
a Conflict Minerals Report for the minerals that
originated in the DRC countries or that the issuer
was unable to determine did not originate in the
DRC countries.
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1. Location of Disclosure
Our proposed rules would require
disclosure about conflict minerals in an
issuer’s annual report on Form 10–K for
a domestic issuer, Form 20–F for a
foreign private issuer, and Form 40–F
for an eligible Canadian issuer. Section
1502 requires issuers to disclose
information about their conflict
minerals annually, but does not
otherwise specify where this disclosure
must be located, either in terms of
which form or in terms of where within
a particular form. Our proposed rules
would require this disclosure in the
existing Form 10–K, Form 20–F, or
Form 40–F annual report because
issuers are already required to file these
reports so this approach should be less
burdensome than requiring a separate
annual report to be filed. Further, to
facilitate locating the conflict minerals
disclosure within the annual report
without over-burdening investors with
extensive information about conflict
minerals in the body of the report, our
proposed rules would require issuers to
include brief conflict minerals
disclosure under a separate heading
entitled, ‘‘Conflict Minerals Disclosure,’’
and the more extensive, information in
a separate exhibit to the annual report,
if required.
To implement Section 1502 of the
Act, we are proposing to add new Item
4(a) of Form 10–K (which references
new Item 104(a) of Regulation S–K),
new Item 16(a) of Form 20–F, and a new
General Instruction B(16)(a) of Form 40–
F. These rules would require that an
issuer disclose in its annual report
under a separate heading, entitled
‘‘Conflict Minerals Disclosure,’’ its
determination as to whether any of its
conflict minerals originated in the DRC
countries, based on its reasonable
country of origin inquiry, and, for its
conflict minerals that do not originate in
the DRC countries, a brief description of
the reasonable country of origin inquiry
it conducted in making such a
determination. Our proposed rules
would not require an issuer who
determines that its conflict minerals did
not originate in the DRC countries,
based on its reasonable country of origin
inquiry, to provide any further
disclosures.
We are also proposing that an issuer
include brief additional disclosure in
the body of the annual report if the
issuer’s conflict minerals originated in
the DRC countries or if the issuer cannot
determine that its conflict minerals did
not originate in the DRC countries,
based on its reasonable country of origin
inquiry. We propose to add new Item
4(a) of Form 10–K, new Item 104(b)(2)
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of Regulation S–K, new Item 16(b)(2) of
Form 20–F, and new General Instruction
B(16)(b)(2) and Form 40–F to implement
this additional disclosure. These
proposed requirements would require
an issuer to disclose that its conflict
minerals originated in the DRC
countries, or that it is unable to
conclude that its conflict minerals did
not originate in the DRC countries, that
its Conflict Minerals Report has been
furnished as an exhibit to the annual
report, that the Conflict Minerals
Report, including the certified
independent private sector audit, is
publicly available on the issuer’s
Internet Web site, and the issuer’s
Internet address on which the Conflict
Minerals Report and audit report are
located. As noted above, we are
proposing this approach to facilitate
access to the conflict minerals
information by placing it outside the
body of the annual report.
The Conflict Minerals Provision
requires that each issuer make its
Conflict Minerals Report available to the
public on the issuer’s Internet Web
site.80 Consistent with the statute, we
are proposing that new Item 104(b)(3) of
Regulation S–K, new Item 16(b)(3) of
Form 20–F, and new General Instruction
B(16)(b)(3) of Form 40–F require an
issuer to make such a report, including
the certified audit report, available to
the public by posting the text of the
report on its Internet Web site. Our
proposed rules would require that the
text of the Conflict Minerals Report
remain on the issuer’s Web site at least
until it files its subsequent annual
report. Although we would require an
issuer that furnishes a Conflict Minerals
Report to provide some disclosures in
the body of its annual report regarding
that report, we would not require that
issuer to post this disclosure on its Web
site. We believe this is appropriate
because any information disclosed in
the body of the annual report would
also be included in the Conflict
Minerals Report, which would be
required to be posted on the issuer’s
Internet Web site.
Request for Comment
22. Should we require issuers to
provide the conflict minerals disclosure
and reporting requirements mandated
under Section 13(p) in its Exchange Act
annual report, as proposed? Should we
require, or permit, the conflict minerals
disclosure to be included in a new,
80 See Exchange Act Section 13(p)(1)(E), which is
entitled ‘‘Information Available to the Public’’ and
states that ‘‘[e]ach person described under
paragraph (2) shall make available to the public on
the Internet Web site of such person the information
disclosed by such person under subparagraph (A).’’
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separate form furnished annually on
EDGAR, rather than adding it to Form
10–K, Form 20–F, and Form 40–F?
Would requiring issuers to disclose the
information in a separate annual report
be consistent with Section 13(p)?
Should we develop a separate annual
report to be filed on EDGAR that
includes all of the specialized
disclosures mandated by the DoddFrank Act? 81 What would be the
benefits or burdens of such a form for
investors or issuers with necessary
conflict minerals?
23. Should we require some brief
disclosure in the body of the annual
report, as proposed?
24. Should our rules provide that,
rather than be included in the body of
the annual report, all required
information would be set forth in the
Conflict Minerals Report that would be
furnished as an exhibit to the annual
report?
25. Instead, should all required
information, including the Conflict
Minerals Report, be included in the
body of the annual report?
26. Should issuers with necessary
conflict minerals that did not originate
in the DRC countries be required to
disclose any information other than as
proposed? For example, should we
require such an issuer to disclose the
countries from which its conflict
minerals originated?
27. Should we, as proposed, require
issuers to describe the reasonable
country of origin inquiry they used in
making their determination that their
conflict minerals did not originate in the
DRC countries? Is a separately captioned
section in the body of the annual report
the appropriate place for this
disclosure?
28. Should we require, as proposed,
that an issuer maintain reviewable
business records if it determines that its
conflict minerals did not originate in the
DRC countries? Are there other means of
verifying an issuer’s determination that
its minerals did not originate in the DRC
countries? Should we specify for how
long issuers would be required to
maintain these records? For example,
should we require issuers to maintain
records for one year, five years, 10 years,
or another period of time?
29. Should we require the disclosure
in an issuer’s annual report to be
provided in an interactive data format?
Why or why not? Would investors find
interactive data to be a useful tool to
easily find the information provided? If
so, what format would be most
appropriate for providing standardized
data disclosure? For example, should
81 Sections
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the format be eXtensible Business
Reporting Language (XBRL), as one
letter recommended,82 or should the
format be eXtensible Markup Language
(XML)?
30. Should we require issuers to
briefly disclose in the body of their
annual reports the contents of the
Conflict Minerals Report? If so, how
much of the information in the Conflict
Minerals Report should we require
issuers to disclose?
31. Should we require an issuer to
post its audit report on its Internet Web
site, as proposed?
32. Should we require, as proposed,
that an issuer post its Conflict Minerals
Report and its audit report on its
Internet Web site at least until it files its
subsequent annual report? If not, how
long should an issuer keep this
information posted on its Internet Web
site?
2. Standard for Disclosure
We are proposing rules that would
require issuers to disclose, based on
their reasonable country of origin
inquiry, whether their necessary conflict
minerals originated in the DRC
countries or that they are unable to
determine, after such a reasonable
country of origin inquiry, that their
conflict minerals did not originate in the
DRC countries. Our proposed rules
would not specify what constitutes a
reasonable country of origin inquiry.
Instead, the proposed rules would
require an issuer that determined its
conflict minerals did not originate in the
DRC countries to disclose its reasonable
country of origin inquiry in making its
determination.
Under our proposal, the reliability of
any inquiry would be based solely on
whether the information used provides
a reasonable basis for an issuer to be
able to trace the origin of any particular
conflict mineral it uses.83 For example,
it would not satisfy our proposed rules
for an issuer to conclude that it is
unreasonable for it to attempt to
determine the origin of its conflict
minerals solely because of the large
amount of conflict minerals it uses in its
products or the large number of its
products that include conflict minerals.
Instead, that issuer would be required to
make a reasonable country of origin
inquiry as to the origin of all of its
conflict minerals that are necessary to
the functionality or production of its
products that it manufactures or
contracts to be manufactured to
determine whether those conflict
minerals originated in the DRC
countries.
A multi-stakeholder group suggested a
similar approach. This group
recommended that our proposed rules
require an issuer to make a reasonable
inquiry into whether its conflict
minerals originated in the DRC
countries, provide a stated basis for any
determination that the source and origin
of the conflict minerals was not in the
DRC countries, and maintain auditable
business records to support a negative
determination.84 Similarly, in a separate
submission, an NGO stated that our
proposed rules should require issuers to
conduct ‘‘a sufficient inquiry to enable
them to have a reasonable basis to state
whether necessary conflict minerals do
or do not originate in the DRC or an
adjoining country.’’ 85 In this regard, that
NGO also indicated that our proposed
rules should require that the issuer
‘‘disclose the basis for any determination
that necessary conflict minerals did not
originate in the DRC or an adjoining
country.’’ 86
Others who submitted letters,
however, have suggested different
standards for determining whether an
issuer’s conflict minerals originated in
the DRC countries. A different NGO
stated that our proposed rules should
require issuers to ‘‘conduct sufficient
due diligence to enable them to
determine accurately whether conflict
minerals do or do not originate from the
DRC or an adjoining country.’’ 87 An
industry group indicated that our
proposed rules should require issuers to
use due diligence in determining
whether their conflict minerals
originated in the DRC countries.88 The
letter from that industry group stated,
however, that it is not possible for
issuers in every instance to determine
definitively the origins of certain
conflict minerals,89 so it suggested that
our proposed rules ‘‘should thus create
a mechanism by which entities can
make a disclosure stating ‘no evidence
of DRC or adjoining country origin.’ ’’ 90
We recognize the possibility that
issuers who have conducted a
reasonable country of origin inquiry
may nonetheless not be able to
determine with absolute accuracy the
origins of their conflict minerals. We do
not believe, however, that it is
appropriate for our rules to permit
84 See
85 See
Multi-Stakeholder Group Letter.
letter from The Enough Project.
86 Id.
82 See
letter from the Social Investment Forum.
83 This determination would not be based on
whether an issuer considers it reasonable to
undertake to determine the origin of all its conflict
minerals as a whole.
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87 Letter
from Global Witness.
from Jewelers Vigilance Committee.
89 We note that the comments submitted by the
Jewelers Vigilance Committee refer only to gold.
90 Letter from Jewelers Vigilance Committee.
88 Letter
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issuers to satisfy their country of origin
disclosure requirement by concluding
that there is ‘‘no evidence’’ that their
conflict minerals originated in the DRC
countries and, thereby, not be required
to provide any further information
regarding their conflict minerals. Such
an allowance might encourage issuers to
conduct poorly planned or executed
inquiries. Therefore, under our
proposed rules such an issuer would
still be required to file a Conflict
Minerals Report and, therefore, would
be required to exercise a greater level of
investigation into the source and chain
of custody of its conflict minerals. As
discussed in greater detail below, we
would permit issuers who cannot
determine the origins of their conflict
minerals, based on their reasonable
country of origin inquiry, to disclose
that they are unable to determine that
their conflict minerals did not originate
in the DRC countries. This approach is
similar to one recommended by a multistakeholder group, which indicated that,
if an issuer ‘‘is unable to determine the
origin of the minerals specified in the
statute after making a reasonable
country of origin inquiry, the [issuer]
should be required to submit’’ a Conflict
Minerals Report.91
We believe that conducting a
reasonable country of origin inquiry
before disclosing whether an issuer’s
conflict minerals originated in the DRC
countries is appropriate. However, our
proposed rules would not state what
that reasonable country of origin inquiry
would entail because we believe that
necessarily would depend on the
issuer’s particular facts and
circumstances. In this regard, we note
that the reasonable country of origin
inquiry requirement is not meant to
suggest that issuers would have to
determine with absolute certainty
whether their conflict minerals
originated in the DRC countries, as the
Commission has often stated that a
reasonableness standard is not the same
as an absolute standard.92
91 See
Multi-Stakeholder Group Letter.
Management’s Report on Internal Control
Over Financial Reporting, Release No. 33–8762
(Dec. 20, 2006) [71 FR 77635] (stating that the
‘‘Commission has long held that ‘reasonableness’ is
not an ‘absolute standard of exactitude for corporate
records’ ’’ (citing to Foreign Corrupt Practices Act of
1977, Release No. 34–17500 (Jan. 20, 1981) [46 FR
11544]) and that ‘‘the terms ‘reasonable,’
‘reasonably’ and ‘reasonableness’ in the context of
Section 404 [of the Sarbanes-Oxley Act of 2002, 15
U.S.C. 7262] implementation do not imply a single
conclusion or methodology, but encompass the full
range of appropriate potential conduct, conclusions
or methodologies upon which an issuer may
reasonably base its decisions’’). This release also
cites to the Foreign Corrupt Practices Act (the
‘‘FCPA’’), 15 U.S.C. 78m(b)(7) and Exchange Act
Section 13(b)(7), which states that ‘‘the terms
92 See
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We note that conducting the
reasonable country of origin inquiry
could be less exhaustive than the due
diligence discussed below. We believe
that this disparity in how the standards
are characterized reflects the language
in the Conflict Minerals Provision.
Initially, the provision requires issuers
to determine whether their conflict
minerals originated in the DRC
countries. After making this
determination, only issuers with
conflict minerals that originated in the
DRC countries or issuers that cannot
determine their minerals did not
originate in the DRC countries must
submit to the Commission the Conflict
Minerals Report, which describes,
among other matters, the issuer’s due
diligence exercised on the source and
chain of custody of its conflict minerals.
It appears, therefore, that the provision
was not intended to require the same
investigation for determining whether
conflict minerals originated in the DRC
countries and for determining the
source and chain of custody of those
conflict minerals that originate in the
DRC countries.
We believe that the steps necessary to
constitute a reasonable country of origin
inquiry will depend on the available
infrastructure at a given point in time.
Presently, we do not believe there is any
single or exclusive manner for issuers to
conduct this inquiry. However, one way
we would view an issuer as satisfying
the reasonable country of origin inquiry
standard is if it received reasonably
reliable representations from the facility
at which its conflict minerals were
processed that those conflict minerals
did or did not originate in the DRC
countries. These representations could
come either directly from that facility or
indirectly through the issuer’s suppliers,
but the issuer would have to reasonably
believe these representations to be true
based upon the facts and circumstances.
For example, one way that an issuer
could reasonably rely on a facility’s
representations regarding the source of
its conflict minerals is if the smelter was
identified as one that processes only
‘‘DRC conflict free’’ minerals under
recognized national or international
standards after receiving an
independent third party audit of the
source and chain of custody of the
‘reasonable assurances’ and ‘reasonable detail’
mean such level of detail and degree of assurance
as would satisfy prudent officials in the conduct of
their own affairs.’’ The release further cites to the
conference committee report on amendments to the
FCPA, Cong. Rec. H2116 (daily ed. Apr. 20, 1988),
which states the reasonableness ‘‘standard ‘does not
connote an unrealistic degree of exactitude or
precision,’ ’’ but instead ‘‘‘contemplates the
weighing of a number of relevant factors, including
the cost of compliance.’ ’’
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conflict minerals it processes. It is
important to note, however, that
although reliance on smelter
certifications and supplier declarations
may be sufficient now due to our
understanding of the current
information systems in place to discover
conflict minerals’ countries of origin, as
these systems improve, the facts and
circumstances surrounding what would
be considered a reasonable country of
origin inquiry may change. In other
words, as systems improve, smelter
certifications and supplier declarations
may not satisfy a reasonable country of
inquiry standard.
In this regard, we note a letter
submitted to us by a multi-stakeholder
group that discussed a similar approach,
which referred to a ‘‘compliant
smelter.’’ 93 The multi-stakeholder group
stated that it would prefer a ‘‘supplier
declaration approach’’ to sourcing
conflict minerals, which would ‘‘consist
of having direct and component
suppliers and others in the supply chain
take reasonable means to assure that all
the tin, tantalum, tungsten, and/or gold
in their materials/products are sourced
from a compliant smelter.’’ The group
stated further that a smelter would be
‘‘compliant’’ if it meets the requirements
of an individual or industry wide audit
process that stipulates the collection,
disclosure, and efforts made to obtain
certain information.94
Request for Comment
33. Is a reasonable country of origin
inquiry standard an appropriate
standard for determining whether an
issuer’s conflict minerals originated in
the DRC countries for purposes of our
rules implementing the Conflict
Minerals Provision? If not, what other
standard would be appropriate? Rather
than requiring a reasonable country of
origin inquiry as proposed, should our
rules mandate that the standard for
making the supply chain
determinations, as set forth in Exchange
Act Sections 13(p)(1)(A)(i) and (ii) (and
described below), also applies to the
determination as to whether an issuer’s
conflict minerals originated in the DRC
countries? Should we provide
additional guidance about what would
constitute a reasonable country of origin
inquiry in determining whether conflict
minerals originated in the DRC
countries?
34. Should we not require any type of
inquiry? For example, would it be
appropriate and consistent with the
Conflict Minerals Provision to permit an
93 See
Multi-Stakeholder Group Letter.
94 Id.
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issuer to make no inquiry, so long as it
disclosed that fact?
35. Should issuers be able to rely on
reasonably reliable representations from
their processing facilities, either directly
or indirectly through their suppliers, to
satisfy the reasonable country of origin
inquiry standard? If so, should we
provide additional guidance regarding
what would constitute reasonably
reliable representations and what type
of guidance should we provide? If not,
what would be a more appropriate
requirement?
36. Should any qualifying or
explanatory language be allowed in
addition to or instead of the reasonable
country of origin inquiry standard, as
proposed, regarding whether issuers’
conflict minerals originated in the DRC
countries? For example, should issuers
be able to state that none of their
conflict minerals originated in the DRC
countries ‘‘to the best of their
knowledge’’ or that ‘‘they are not aware’’
that any conflict minerals originated in
the DRC countries?
D. Step Three—Conflict Minerals
Report’s Content and Supply Chain Due
Diligence
The Conflict Minerals Provision
requires any issuer determining that its
necessary conflict minerals originated in
the DRC countries to submit to the
Commission a Conflict Minerals Report
that includes, among other matters, a
description of the measures taken by the
issuer to exercise due diligence on the
source and chain of custody of its
conflict minerals, which measures ‘‘shall
include an independent private sector
audit’’ of the Conflict Minerals Report.95
In this regard, the Conflict Minerals
Provision states that the issuer
submitting the Conflict Minerals Report
‘‘shall certify the audit * * * that is
included in such report’’ and such a
certified audit ‘‘shall constitute a critical
component of due diligence in
establishing the source and chain of
custody of such minerals.’’ 96
In order to implement these
requirements, our proposed rules would
require issuers that determined that
their necessary conflict minerals
originated in the DRC countries and
those that are unable to determine that
their conflict minerals did not originate
in the DRC countries to exercise due
diligence on the source and chain of
custody of their conflict minerals and
describe the due diligence they
exercised. After exercising due diligence
to make their Conflict Minerals Report
determinations, issuers would be
95 Exchange
96 Exchange
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required to describe their products that
are not ‘‘DRC conflict free,’’ the country
of origin of those conflict minerals, the
facilities used to process those conflict
minerals, and the efforts to determine
the mine or location of origin with the
greatest possible specificity.97
Additionally, our proposed rules would
require all issuers furnishing a Conflict
Minerals Report to certify that they
obtained an independent private sector
audit of the report and furnish as part
of the Conflict Minerals Report the audit
report of the independent private sector
auditor.
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1. Content of Conflict Minerals Report
As required by the Conflict Minerals
Provision,98 our proposed rules would
require issuers to exercise due diligence
on the source and chain of custody of
their conflict minerals and to describe
those due diligence measures in their
Conflict Minerals Reports.99 Moreover,
consistent with the Conflict Minerals
Provision,100 we are proposing to
require that the description of the
measures taken by issuers to exercise
due diligence on the source and chain
of custody of their conflict minerals
include a certified independent private
sector audit conducted in accordance
with the standards established by the
Comptroller General of the United
States.101 The proposed rules also state
that the audit would constitute a critical
component of due diligence.102 To
97 In this release, we refer to the issuer
determinations required by Exchange Act Sections
13(p)(1)(A)(i) and (ii) regarding the source and
chain of custody of the issuer’s conflict minerals,
its products manufactured or contracted to be
manufactured that are not DRC conflict free, its
conflict minerals’ country of origin, the facilities
used to process its conflict minerals, and the efforts
to determine the mine or location of origin with the
greatest possible specificity as the issuer’s ‘‘supply
chain determinations.’’ We recognize, of course, that
issuers that are unable to determine that their
conflict minerals did not originate in the DRC
countries would not know their minerals’ country
of origin and may not know their minerals
processing facility.
98 See Exchange Act Section 13(p)(1)(A)(i).
99 These rules would be included in proposed
Item 104(b)(1)(i) of Regulation S–K, proposed Item
16(b)(1)(i) of Form 20–F, and proposed General
Instruction B(16)(b)(1)(i) of Form 40–F.
100 See Exchange Act Sections 13(p)(1)(A)(i) and
13(p)(1)(B).
101 See Exchange Act Section 13(p)(1)(A). We note
that, under the Conflict Minerals Provision, the
Comptroller General establishes the appropriate
standards for the independent private sector audit.
Staff of the GAO has informed our staff that they
preliminarily believe no new standards need to be
promulgated, but rather auditing standards that are
part of the Government Auditing Standards, such as
the standards for Attestation Engagements or the
standards for Performance Audits will be
applicable. See GAO–07–731G. The GAO staff has
not indicated whether and, if so, what evaluation
criteria are required for an Attestation Engagement.
102 See new Item 4(a) of Form 10–K (referring to
new Item 104(b)(1)(i) of Regulation S–K), new Item
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implement the Conflict Minerals
Provision’s requirement that issuers
‘‘certify the audit,’’ 103 we are proposing
that issuers be required to certify that
they obtained an independent private
sector audit of their Conflict Minerals
Report,104 and we are proposing that
issuers provide this certification in that
report.105 Further, as required by the
Conflict Minerals Provision,106 we are
proposing that our rules require
descriptions, in the Conflict Minerals
Report, of issuers’ products that are not
‘‘DRC conflict free,’’ the facilities used to
process those conflict minerals, the
country of origin of those conflict
minerals, and the efforts to determine
the mine or location of origin with the
greatest possible specificity.107
An issuer that is required to furnish
a Conflict Minerals Report because it is
unable to determine that its conflict
minerals did not originate in the DRC
countries must also provide this
information. We recognize that such an
issuer may not be able to determine
with certainty whether any of its
16(b)(1)(i) of Form 20–F, and new General
Instruction B(16)(b)(1)(i) of Form 40–F. Exchange
Act Section 13(p)(1)(A)(i) states that a Conflict
Minerals Report must include ‘‘a description of the
measures taken by the person to exercise due
diligence on the source and chain of custody of
such minerals, which measures shall include an
independent private sector audit of such report
submitted through the Commission that is
conducted in accordance with standards
established by the Comptroller General of the
United States, in accordance with the rules
promulgated by the Commission, in consultation
with the Secretary of State.’’ Exchange Act Section
13(p)(1)(B) defines the term ‘‘Certification’’ as
follows: ‘‘The person submitting a report under
subparagraph (A) shall certify the audit described
in clause (i) of such subparagraph that is included
in such report. Such a certified audit shall
constitute a critical component of due diligence in
establishing the source and chain of custody of such
minerals.’’
103 Exchange Act Section 13(p)(1)(B).
104 Alternatively, one could interpret this
language to mean that an issuer must ensure that
the audit it obtained is accurate, but such an
interpretation would appear to mean that an issuer
must review the audit of its Conflict Minerals
Report, which the issuer created originally. We are
not proposing this approach since it appears
redundant.
105 These rules would be included under
proposed Item 104(b)(1)(ii) of Regulation S–K,
proposed Item 16(b)(1)(ii) of From 20–F, and
proposed General Instruction B(16)(b)(1)(ii) of Form
40–F.
106 See Exchange Act Section 13(p)(1)(A)(ii),
which states that a Conflict Minerals Report must
include, among other matters, ‘‘a description of the
products manufactured or contracted to be
manufactured that are not DRC conflict free * * *,
the facilities used to process the conflict minerals,
the country of origin of the conflict minerals, and
the efforts to determine the mine or location of
origin with the greatest possible specificity.’’
107 These rules would be included under
proposed Item 104(b)(1)(iii) of Regulation S–K,
proposed Item 16(b)(1)(iii) of Form 20–F, and
proposed General Instruction B(16)(b)(1)(iii) of
Form 40–F.
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products are or are not ‘‘DRC conflict
free,’’ insofar as their initial efforts to
determine the origin of the conflict
minerals in those products under the
reasonable country of origin inquiry was
inconclusive and their subsequent due
diligence on the source and chain of
custody of such minerals was also
inconclusive. Consistent with Section
13(p)(1)(A)(ii), we would require such
an issuer to describe all of its products
that contain such conflict minerals and
to identify these products as not ‘‘DRC
conflict free’’ 108 since the issuer would
not be able to establish that the minerals
did not directly or indirectly finance or
benefit armed groups in the DRC
countries. Also, such issuers would be
required to describe, to the extent
known after conducting due diligence,
the facilities used to process those
conflict minerals and the efforts to
determine the mine or location of origin
with the greatest possible specificity.109
An issuer may provide additional
disclosure explaining, for example, that
although these products are labeled as
not ‘‘DRC conflict free’’ in compliance
with our rules implementing the
Conflict Minerals Provision, the issuer
has been unable to determine the source
of the conflict minerals, including
whether the conflict minerals in these
products benefited or financed armed
groups in the DRC countries.
An issuer’s description of any of its
products that are not ‘‘DRC conflict free’’
should be based on its individual facts
and circumstances so that the
description sufficiently identifies the
products or categories of products. For
example, an issuer may disclose each
model of a product containing conflict
minerals that are not ‘‘DRC conflict
free,’’ each category of a product
containing conflict minerals that are not
‘‘DRC conflict free,’’ the specific
products containing conflict minerals
that are not ‘‘DRC conflict free’’ that were
produced during a specific time period,
that all its products contain conflict
108 If any products contain conflict minerals that
did not originate in the DRC countries and conflict
minerals that the issuer is unable to determine did
not originate in the DRC countries, the issuer would
be required to classify those products as not ‘‘DRC
conflict free.’’ Similarly, if any of an issuer’s
products contain conflict minerals that did not
originate in the DRC countries, that the issuer is
unable to determine did not originate in the DRC
countries, or that originated in the DRC countries
but did not directly or indirectly finance or benefit
armed groups in the DRC countries, and also
contain conflict minerals that originated in the DRC
countries and that directly or indirectly financed or
benefited armed groups in the DRC countries, the
issuer must classify those products as not ‘‘DRC
conflict free.’’
109 We recognize that such issuers would not be
able to provide the country of origin of those
minerals.
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minerals that are not ‘‘DRC conflict
free,’’ or another such description
depending on the issuer’s facts and
circumstances.
The Conflict Minerals Provision uses
the phrase ‘‘facilities used to process the
conflict minerals,’’ which would appear
to refer to the smelter or refinery
through which the issuer’s minerals
passed. We note also that the Conflict
Minerals Provision states that products
are ‘‘DRC conflict free’’ when those
products do not contain conflict
minerals that directly or indirectly
finance or benefit armed groups.110
Section 1502(e)(3) of the Act defines the
term ‘‘armed group’’ as ‘‘an armed group
that is identified as perpetrators of
serious human rights abuses in the
annual Country Reports on Human
Rights Practices under sections 116(d)
and 502B(b) of the Foreign Assistance
Act of 1961,’’ 111 as it relates to the DRC
countries.112 Our proposed rule
includes a cross reference to that
definition to provide guidance to
issuers.
Our proposed rules would require
issuers to furnish, as part of their
Conflict Minerals Report, the audit
report prepared by the independent
private sector auditor and to specifically
identify that auditor.113 While one
might read the statutory language to
suggest that only the issuer’s
certification of the audit, and not the
audit report itself, is required to be
submitted, we preliminarily believe that
approach is not the better reading of the
Conflict Minerals Provision. As noted
above, the Conflict Minerals Provision
emphasizes that the independent audit
is a ‘‘critical component of due
diligence.’’ In light of the importance of
this audit report to our new reporting
requirements and the statutory
language, we are proposing to require
that the audit report be furnished with
the Conflict Minerals Report.
Although we are proposing that the
audit report be furnished with the
Conflict Minerals Report, new Item 4(a)
of Form 10–K (referring to new
Instruction 2 to Item 104 of Regulation
S–K), new Instruction 3 to Item 16 of
110 See Exchange Act Sections 13(p)(1)(A)(ii) and
13(p)(1)(D).
111 22 U.S.C. 2151n(d) and 2304(b).
112 Section 1502(e)(3) of the Act.
113 These rules would be included in proposed
Item 4(a) of Form 10–K (through Item 104(b)(1)(iv)
of Regulation S–K), proposed Item 16(b)(1)(iv) of
From 20–F, and proposed General Instruction
B(16)(b)(1)(iv) of Form 40–F. Having our proposed
rules require the issuer to identify the certified
independent private sector auditor would satisfy
Exchange Act Section 13(p)(1)(A)(ii), which states
that the issuer must provide a description of ‘‘the
entity that conducted the independent private
sector audit in accordance with clause (i).’’
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Form 20–F, and new Instruction 3 to
General Instruction B(16) of Form 40–F
would state that the Conflict Minerals
Report, which would include the audit
report, would not be deemed to be
incorporated by reference into any filing
under the Securities Act or the
Exchange Act, except to the extent that
the issuer specifically incorporates it by
reference. For example, if an issuer
incorporates by reference its annual
report into a Securities Act registration
statement, that issuer would not be
automatically incorporating the Conflict
Minerals Report into the Securities Act
document. Therefore, in such a
situation, the independent private sector
auditor would not assume expert
liability and the issuer would not,114
therefore, have to file a consent from
that auditor unless the issuer
specifically incorporates by reference
the Conflict Minerals Report into the
Securities Act registration statement.
Request for Comment
37. Should our rules, as proposed,
require issuers that are unable to
determine the origin of their conflict
minerals to label their products that
contain such minerals as not ‘‘DRC
conflict free’’? Is this approach
consistent with the Conflict Minerals
Provision’’? Would it be more
appropriate to allow such issuers to
label such products differently, such as
‘‘May Not Be DRC Conflict Free’’? Would
having a separate category for products
that contain such unknown origin
minerals be consistent with the Conflict
Minerals Provision? Would the
proposed approach be confusing for
readers, or can issuers sufficiently
address any confusion by including
supplemental disclosure for those
products that contain minerals of
unknown origin?
38. Should our rules, as proposed,
permit issuers to describe their products
that contain conflict minerals that do
not qualify as being DRC conflict free or
that may not qualify as being DRC
conflict free based on their individual
facts and circumstances? If not, how
should we require issuers to describe
their products that contain conflict
minerals that do not qualify as being
DRC conflict free? If an issuer had
hundreds or thousands of products that
were not DRC conflict free, would the
report provide overwhelming
information? Would it be unduly
expensive to produce?
39. Should our rules, as proposed,
require issuers to disclose the facilities,
countries of origin, and efforts to find
114 See Rule 436 of Regulation C [17 CFR
230.436].
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the mine or location of origin only for
its conflict minerals that do not qualify
as DRC conflict free, and not for all of
its conflict minerals? Alternatively,
should we require issuers to disclose the
facilities, countries of origin, and efforts
to find the mine or location of origin for
all of its conflict minerals regardless of
whether those conflict minerals do not
qualify as DRC conflict free?
40. Should our rules require issuers to
disclose the mine or location of origin
of their conflict minerals with the
greatest possible specificity in addition
to requiring issuers, as proposed, to
describe the efforts to determine the
mine or location of origin with the
greatest possible specificity? If so, how
should we prescribe how the location is
described?
41. As suggested in a submission,115
should our rules require issuers to
include information on the capacity of
each mine they source from along with
the weights and dates of individual
mineral shipments?
42. We are proposing that an issuer
‘‘certify the audit’’ by certifying that it
obtained such an audit. Should we
further specify the nature of the
certification? We are not proposing that
anyone sign this certification. Should
our rules require issuers to have the
audit’s certification signed? If so, who
should be required to sign the
certification? Also, if we revise our
proposal to require an individual to
sign, should the individual who signs
the certification sign it in his or her
capacity within the company or on
behalf of the company? What liability
should our rules assign to the individual
who signs the certification?
43. Should our rules, as proposed,
require an issuer to furnish its
independent private sector audit report
as part of its Conflict Minerals Report?
Are there other ways to give effect to the
Conflict Minerals Provision’s
requirement of Section 13(p)(1)(B) that
the issuer ‘‘certify the audit * * * that
is included in’’ [emphasis added] the
Conflict Minerals Report? Would
investors find the audit report useful?
How would the potential liability for a
furnished audit report affect the cost
and availability of such audit services?
44. Should our rules provide that, as
proposed, the independent private
sector audit report furnished as an
115 See the petition attached to the memorandum
of the November 18, 2010 meeting with Chairman
Mary L. Schapiro and with John Prendergast and
Darren Fenwick of The Enough Project, Sasha
Lezhnev of Grassroots Reconciliation Group, and
Deborah R. Meshulam of DLA Piper, available at,
https://www.sec.gov/comments/df-title-xv/
specialized-disclosures/specializeddisclosures80.pdf.
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exhibit to an issuer’s annual report not
be deemed to be incorporated by
reference into any filing under the
Securities Act or the Exchange Act,
except to the extent that the issuer
specifically incorporates it by reference?
Is this audit report qualitatively
different from other experts’ reports for
which consent is required under our
rules?
45. Are there other ways we should
treat the audit report under our rules to
balance the interests of receiving a high
quality audit and not unnecessarily
increasing potential liability and costs?
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2. Location and Furnishing of Conflict
Minerals Report
As noted above, we are proposing
rules that require a Conflict Minerals
Report to be furnished as an exhibit to
an issuer’s annual report on Form 10–
K, Form 20–F, or Form 40–F, as
applicable.116 By requiring issuers to
furnish their Conflict Minerals Report as
an exhibit to the annual report, our
proposed rules would enable anyone
accessing the Commission’s Electronic
Data Gathering, Analysis, and Retrieval
system (the ‘‘EDGAR’’ system) 117 to
determine quickly whether an issuer
furnished a Conflict Minerals Report
with its annual report. Specifically,
proposed Item 4(a) of Form 10–K
(through Item 104 to Regulation S–K),
Item 16 to Form 20–F, and General
Instruction B(16) to Form 40–F would
require an issuer to furnish its Conflict
Minerals Report as an exhibit to its
annual report. Also, our proposed rules
would further revise Regulation S–K
and Form 20–F to include a new
Paragraph (96) of Item 601(b) and a new
Paragraph 16 to the ‘‘Instructions as to
Exhibits’’ section of Form 20–F to
provide additional instructions
specifically for their exhibits under Item
601 and Paragraph 16, respectively. The
text of Item 601(b)(96) and Paragraph 16
would be substantially similar and only
would reference Item 104 and Item 16,
respectively.118
Under our proposed rules, an issuer’s
Conflict Minerals Report, which would
include the independent private sector
116 Our proposed rules would require that issuers
furnish their Conflict Minerals Report as Exhibit 96
to their annual reports.
117 See the Securities and Exchange Commission’s
Internet Web site, ‘‘Researching Public Companies
Through EDGAR: A Guide for Investors,’’ available
at: https://www.sec.gov/investor/pubs/
edgarguide.htm.
118 Item 601(96) of Regulation S–K would state,
‘‘The report required by Item 104(b) of Regulation
S–K, if applicable.’’ Also, Paragraph 16 in the
‘‘Instructions as to Exhibits’’ section to Form 20–F
would state, ‘‘The Conflict Minerals Report required
by Item 16 of this Form, if applicable.’’ Further, our
proposed rules would revise the Exhibit Table in
Item 601 of Regulation S–K.
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audit report, would not be ‘‘filed’’ for
purposes of Section 18 of the Exchange
Act and would, thus, not be subject to
the liability of that section of the
Exchange Act unless the issuer states
explicitly that the Conflict Minerals
Report and the independent private
sector audit report are filed under the
Exchange Act. Instead, these documents
would only be furnished to the
Commission. These documents,
therefore, would be treated in the same
manner as other furnished disclosures,
such as the certifications required to be
submitted as exhibit 32 119 to Exchange
Act documents under Rule 13a–14(b) 120
or Rule 15d–14(b) 121 and Section 1350
of Chapter 63 of Title 18 of the United
States Code,122 the Audit Committee
Report required by Item 407(d) of
Regulation S–K,123 and the
Compensation Committee Report
required by Item 407(e)(5) of Regulation
S–K.124 Similarly, our proposed rules
would not consider the Conflict
Minerals Report and the independent
private sector audit report incorporated
by reference into any filing under the
Securities Act or the Exchange Act,
except to the extent that the issuer
specifically incorporates them by
reference into the documents.
We believe this approach is not
inconsistent with the Conflict Minerals
Provision, which provides that an issuer
must ‘‘submit’’ the Conflict Minerals
Report, and does not otherwise mandate
that the information be filed with the
Commission.125 Further, we
preliminarily believe this approach is
appropriate in light of the nature and
purpose of this disclosure as set forth in
Section 1502(a) of the Act.126 It appears
that the nature and purpose of the
Conflict Minerals Provision is for the
disclosure of certain information to help
end the emergency humanitarian
situation in the eastern DRC that is
financed by the exploitation and trade
of conflict minerals originating in the
119 Item 601(32)(ii) of Regulation S–K [17 CFR
229.601(b)(32)].
120 17 CFR 240.13a–14(b).
121 17 CFR 240.15d–14(b).
122 18 U.S.C. 1350.
123 17 CFR 229.407(d).
124 17 CFR 229.407(e)(5).
125 See Exchange Act Section 13(p)(1)(A).
126 See supra note 11. A co-sponsor of the
Conflict Minerals Provision stated that the
disclosure of an issuer’s conflict minerals
information would help investors make a more
informed decision. See 156 Cong. Rec. S3865–66
(statement of Sen. Feingold) (daily ed. May 18,
2010) (stating that ‘‘[c]reating these mechanisms to
enhance transparency will help the United States
and our allies more effectively deal with these
complex problems, at the same time that they will
also help American consumers and investors make
more informed decisions.’’)
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DRC countries,127 which is qualitatively
different from the nature and purpose of
the disclosure of information that has
been required under the periodic
reporting provisions of the Exchange
Act.128 Finally, we note that we have
received input indicating that our
proposed rules should allow issuers to
furnish their conflict minerals
disclosures and Conflict Minerals
Reports, as applicable.129
Although the Conflict Minerals Report
would not be subject to Section 18
liability,130 we note that under
Exchange Act Section 13(p)(1)(C),
failure to comply with the Conflict
Minerals Provision would deem the
issuer’s due diligence process
‘‘unreliable’’ and, therefore, the Conflict
Minerals Report ‘‘shall not satisfy’’ our
proposed rules.131 In this regard, issuers
that fail to comply with our proposed
rules would be subject to liability for
violations of Exchange Act Sections
13(a) or 15(d), as applicable.132
Request for Comment
46. Should we, as proposed, require
the Conflict Minerals Report to be
furnished as an exhibit to the issuer’s
annual report? If not, how should it be
provided?
47. Should we require the Conflict
Minerals Report to be filed as an exhibit,
rather than furnished, which would
affect issuers’ liability under the
Exchange Act or under the Securities
Act (if any such issuer incorporates by
reference its annual report into a
Securities Act registration statement)?
48. Under Exchange Act Section 18,
‘‘Any person who shall make or cause to
be made any statement in any
application, report, or document filed
pursuant to [the Exchange Act] or any
rule or regulation thereunder or any
undertaking contained in a registration
statement as provided in subsection (d)
of section 15, which statement was at
the time and in the light of the
circumstances under which it was made
false or misleading with respect to any
material fact, shall be liable to any
person (not knowing that such
statement was false or misleading) who,
in reliance upon such statement, shall
have purchased or sold a security at a
price which was affected by such
statement, for damages caused by such
reliance, unless the person sued shall
prove that he acted in good faith and
had no knowledge that such statement
127 Id.
128 15
U.S.C. 78b.
letter from the American Bar Association.
130 15 U.S.C. 78r.
131 See Exchange Act Section 13(p)(1)(C).
132 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d).
129 See
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was false or misleading.’’ 133 Is it
appropriate not to have the Conflict
Minerals Report subject to the Section
18 liability even if the elements of
Section 18 liability can be established?
Should we require the Conflict Minerals
Report to be filed for purposes of
Exchange Act Section 18, but permit an
issuer to elect not to incorporate it into
Securities Act filings?
49. Should the Conflict Minerals
Report be furnished annually on Form
8–K.134 Would that approach be
consistent with Exchange Act Section
13(p)(1)(A)? If so, should foreign private
issuers, which do not file Forms 8–K, be
permitted to submit the Conflict
Minerals Report either in their Form 20–
F or 40–F as applicable, or annually on
Form 6–K, at their election?
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3. Due Diligence Standard in the
Conflict Minerals Report
Our proposed rules would require
issuers to use due diligence regarding
the supply chain determinations in their
Conflict Minerals Report.135 Our
proposed rules would not, however,
dictate the standard for, or otherwise
provide guidance concerning, due
diligence that issuers must use in
making their supply chain
determinations. Instead, our proposed
rules would require issuers to disclose
the due diligence they used in making
their determinations, such as whether
they used any nationally or
internationally recognized standards or
guidance of supply chain due diligence.
The Conflict Minerals Provision
requires issuers to conduct due
diligence based on the provision’s
requirement that issuers describe their
due diligence on the source and chain
of custody of their conflict minerals.136
Also, the provision states that issuers
shall include an independent private
sector audit of the Conflict Minerals
Report as a critical component of due
diligence.137 Further, under Exchange
Act Section 13(p)(1)(C), the Commission
may determine an issuer’s independent
private sector audit or other due
diligence processes to be unreliable and,
under the terms of the Conflict Minerals
Provision, any Conflict Minerals Report
that relies on such an unreliable due
diligence process would not satisfy our
proposed rules.138 In light of these
133 Exchange
Act Section 18(a).
e.g., letter from American Bar
Association.
135 See new Item 4(a) of Form 10–K (as through
new Item 104(b)(1) of Regulation S–K), new Item
16(b)(1) of Form 20–F, and a new General
Instruction B(16)(b)(1) of Form 40–F.
136 Exchange Act Section 13(p)(1)(A)(i).
137 Exchange Act Section 13(p)(1)(B).
138 Exchange Act Section 13(p)(1)(C).
134 See,
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statutory provisions, our proposed rules
provide that an issuer’s Conflict
Minerals Report must include reliable
due diligence processes, and that due
diligence is required in making the
supply chain determinations in the
Conflict Minerals Report.
We note that we have received
suggestions that due diligence is
required in making the supply chain
determinations. One letter received
stated that a due diligence obligation
‘‘needs to be extended to the supply
chain.’’ 139 Two of the Congressional
sponsors of Section 1502 of the Act have
indicated their belief that the due
diligence requirement should not be
limited to determining whether the
smelter uses due diligence.140 An NGO
submitted to us a description of its
model supply chain due diligence
processes, which would require issuers
to perform due diligence on all aspects
of their supply chain, including the
supply chain determinations in their
Conflict Minerals Reports.141 In
addition, an industry group from the
precious metals industry indicated that
it would not be opposed to conducting
due diligence of its supply chains and,
in fact, that due diligence is already part
of its current business practice.142 We
note, however, that another industry
group submitted a letter to us expressing
concern about the feasibility of
implementing a due diligence
requirement, particularly with regard to
gold.143 This industry group pointed out
that applying due diligence
requirements to the gold supply chain
would be especially challenging because
the supply chain often begins with a
bullion produced by a refiner that
incorporates both newly mined and
recycled gold.144
We believe that the statutory
provision contemplates that issuers
must use due diligence in their supply
chain determinations. We do not
believe, however, that it would be
appropriate to prescribe any particular
guidance for conducting due diligence
because the conduct undertaken by a
reasonably prudent person may vary
139 Letter
from Howland Greene Consultants LLC.
letter from Senator Richard Durbin and
Representative Jim McDermott.
141 See attached materials to the memorandum of
the September 15, 2010 meeting of the staff of
Division of Corporation Finance met with Corinna
Gilfillan, Jonathan Grant, and Annie Dunnebacke of
Global Witness, available at, https://www.sec.gov/
comments/df-title-xv/specialized-disclosures/
specializeddisclosures-18.pdf.
142 See letter from International Precious Metals
Institute.
143 See letter from Tiffany & Co.
144 Letter from Jewelers Vigilance Committee.
140 See
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and evolve over time.145 Although we
are not proposing to establish any
particular conduct requirements, we
believe that due diligence must be
performed and information about what
conduct an issuer performed in its due
diligence regarding its supply chain
determinations is relevant. Our
proposed rules, therefore, would require
issuers to describe the due diligence
used in making these determinations. In
particular, we expect that an issuer
whose conduct conformed to a
nationally or internationally recognized
set of standards of, or guidance for, due
diligence regarding conflict minerals
supply chains 146 would provide
evidence that the issuer used due
diligence in making its supply chain
determinations.
If an issuer is unable to determine,
after a reasonable country of origin
inquiry, that its conflict minerals did
not originate in the DRC countries, that
issuer still would be required to submit
a Conflict Minerals Report and obtain an
independent private sector audit of that
Conflict Minerals Report. We note that
in such instances an issuer may not be
able to provide all the information
required by the Conflict Minerals
Report, such as its conflict minerals’
country of origin. We would, however,
expect such an issuer to provide as
much of the required information as
possible, such as a description of the
measures it took to exercise due
diligence on the source and chain of
custody of its conflict minerals.
In this regard, if an issuer is unable to
determine after a reasonable country of
origin inquiry that its conflict minerals
did not originate in the DRC countries,
the issuer would be required to exercise
due diligence in making its supply
chain determinations. Therefore, such
an issuer would be required to describe
its due diligence efforts regarding the
facilities used to process the conflict
145 For instance, the Organisation for Economic
Cooperation and Development (the ‘‘OECD’’) is
developing due diligence guidance for conflict
mineral supply chains. See Organisation for
Economic Cooperation and Development (the
‘‘OECD’’), Draft Due Diligence Guidance for
Responsible Supply Chains of Minerals from
Conflict-Affected and High-Risk Areas (2010),
available at, https://www.oecd.org/dataoecd/13/18/
46068574.pdf. Also, on November 30, 2009, the
United Nations Security Council adopted
Resolution 1896 that, among other matters,
extended and expanded the mandate of the United
Nations Group of Experts for the Democratic
Republic of the Congo to create recommendations
on due diligence guidelines for minerals originating
in the DRC. See United Nations Security Council
Resolution 1896 (2009) [S/RES/1896 (2009)].
146 See, e.g., OECD, Draft Due Diligence Guidance
for Responsible Supply Chains of Minerals from
Conflict-Affected and High-Risk Areas (2010),
available at, https://www.oecd.org/dataoecd/13/18/
46068574.pdf.
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minerals, the conflict minerals’ country
of origin, if it can be determined, and
the efforts to determine the mine or
location of origin with the greatest
possible specificity.
Request for Comment
50. Should our rules, as proposed,
require an issuer to use due diligence in
its supply chain determinations and the
other information required in a Conflict
Minerals Report? If so, should those
rules prescribe the type of due diligence
required and, if so, what due diligence
measures should our rules prescribe?
Alternatively, should we require only
that persons describe whatever due
diligence they used, if any, in making
their supply chain determinations and
their other conclusions in their Conflict
Minerals Report?
51. Should different due diligence
measures be prescribed for gold because
of any unique characteristics of the gold
supply chain? If so, what should those
measures entail?
52. Should our rules state that an
issuer is permitted to rely on the
reasonable representations of its
smelters or any other actor in the supply
chain,147 provided there is a reasonable
basis to believe the representations of
the smelters or other parties?
53. Is our approach to issuers that are
unable to determine that their products
did not originate in the DRC countries
appropriate?
54. Should our rules prescribe any
particular due diligence standards or
guidance?
55. Should our rules require that an
issuer use specific national or
international due diligence standards or
guidance, such as standards developed
by the OECD, the United Nations Group
of Experts for the DRC, or another such
organization? If so, should our rules
require the issuer to disclose which due
diligence standard or guidance it used?
Should we list acceptable national or
international organizations that have
developed due diligence standards or
guidance on which an issuer may rely?
Should our rules permit issuers to rely
on standards from federal agencies if
any such agencies develop applicable
rules?
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E. Time Periods
1. Furnishing of the Initial Disclosure
and Conflict Minerals Report
The Conflict Minerals Provision
requires issuers to provide their initial
147 In
the industry, tantalite-columbite, cassiterite,
and wolframite are ‘‘smelted’’ into their component
metals whereas gold is ‘‘refined.’’ Even so, both
processes are substantially similar. When we refer
to ‘‘smelting’’ those references are intended to
include the ‘‘refining’’ of gold as well.
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conflict minerals disclosure and, if
necessary, their initial Conflict Minerals
Report after their first full fiscal year
following the promulgation of our final
rules.148 Assuming we adopt rules in
April 2011, as required by the statutory
provision, a December 31 fiscal year-end
issuer would first have to provide
conflict minerals disclosure or a
Conflict Minerals Report after the end of
its December 31, 2012 fiscal year. An
issuer with a May 31 fiscal year-end,
however, would have to provide the
conflict minerals disclosure or a
Conflict Minerals Report in its annual
report for the fiscal year that
encompasses the period from June 1,
2011 through May 31, 2012.
Request for Comment
56. Should our rules, as proposed,
require that a complete fiscal year begin
and end before issuers are required to
provide their initial disclosure or
Conflict Minerals Report regarding their
conflict minerals?
57. If we require issuers to provide
their disclosure or reporting
requirements in their Exchange Act
annual reports, should we permit them
to file an amendment to the annual
report within a specified period of time
subsequent to the due date of the annual
report, similar to Article 12 schedules or
financial statements provided in
accordance with Regulation S–X Rule
3–09,149 to provide the conflict minerals
information? 150 If so, why and for
which issuers should our rules permit
such a delay? For example, should we
allow this delay only for smaller
reporting companies?
58. Should we phase in our rules and
permit certain issuers, such as smaller
reporting companies, to delay
compliance with the Conflict Minerals
Provision’s disclosure and reporting
obligations until a period after that
which is provided in the Exchange Act
Section 13(p)(1)(A)?
2. Time Period in Which Conflict
Minerals Must Be Disclosed or Reported
The Conflict Minerals Provision
requires issuers to disclose whether
their necessary conflict minerals
originated in the DRC countries ‘‘in the
year for which such reporting is
required.’’ 151 We believe the date that
the issuer takes possession of a conflict
mineral would determine which
reporting year an issuer would have to
148 See Exchange Act Section 13(p)(1)(A) (stating
that an issuer must ‘‘disclose annually, beginning
with the [issuer’s] first full fiscal year that begins
after the date of promulgation of [our] regulations’’).
149 17 CFR 210.3–09.
150 See letter from the American Bar Association.
151 Exchange Act Section 13(p)(1)(A).
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provide the required disclosure or
Conflict Minerals Report for its conflict
minerals. For example, if a December 31
fiscal year-end issuer takes possession
of the conflict minerals, or product
containing the conflict minerals, on
December 31, the issuer would have to
provide the required disclosure or a
Conflict Minerals Report for the current
year. However, if that same issuer did
not take possession of the minerals until
January 1, the issuer would not have to
provide the disclosure or a report until
the end of the year beginning that day
and ending on the subsequent December
31.
In an instance in which an issuer
contracts the manufacturing of a
product in which a conflict mineral is
necessary to the production of that
product, but the conflict mineral is not
included in the product, the issuer may
use the date it takes possession of the
product to determine which reporting
year the issuer would have to provide
the required disclosure or Conflict
Minerals Report for the conflict mineral
used to produce the product. For
example, if a December 31 fiscal yearend issuer takes possession on
December 31 of the product for which
a conflict mineral was necessary to
produce but that did not end up in the
product, the issuer would have to
provide the required disclosure or a
Conflict Minerals Report for the year
ended on that December 31. However, if
that same issuer did not take possession
of the product until the subsequent day,
January 1, the issuer would not have to
provide the disclosure or a report until
the end of the year beginning that
January 1 and ending on the subsequent
December 31.
Request for Comment
59. Is ‘‘possession’’ the proper
determining factor as to when issuers
should provide the required disclosure
or a Conflict Minerals Report regarding
a necessary conflict mineral? If not,
what would be a more appropriate test
and why?
60. Should our rules allow individual
issuers to establish their own criteria for
determining which reporting period to
include any required conflict minerals
disclosure or Conflict Minerals Report,
provided that the issuers are consistent
and clear with their criteria from yearto-year?
61. We note it is possible issuers may
have stockpiles of existing conflict
minerals that they previously obtained.
Do we adequately address issuers’
disclosure and reporting obligations
regarding their existing stockpiles of
conflict minerals? If not, how can we
address existing stockpiles of conflict
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minerals? Should our rules permit a
transition period so that issuers would
not have to provide any conflict
minerals disclosure or report regarding
any conflict mineral extracted before the
date on which our rules are adopted?
Alternatively, would the reasonable
country of origin inquiry standard for
determining the origin of the conflict
minerals and the due diligence standard
or guidance for determining the source
and chain of custody of the conflict
minerals that originated in the DRC
countries accomplish the same goal? For
example, should issuers be required to
inquire about the origin of their conflict
minerals extracted before the date on
which our rules are adopted? As another
example, should issuers file a Conflict
Minerals Report regarding conflict
minerals that originated in the DRC
countries before the date on which our
rules are adopted?
F. Thresholds, Alternatives,
Termination, Revisions, and Waivers
1. Materiality Threshold
As discussed above, the Conflict
Minerals Provision’s only limiting factor
is that the conflict minerals must be
‘‘necessary to the functionality or
production’’ of an issuer’s products.152
The provision has no materiality
thresholds for disclosure based on the
amount of conflict minerals an issuer
uses in its production processes.
Therefore, we are not proposing to
include a materiality threshold for the
disclosure or reporting requirements in
our proposed rules.
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Request for Comment
62. Should there be a de minimis
threshold in our rules based on the
amount of conflict minerals used by
issuers in a particular product or in
their overall enterprise? If so, what
would be a proper threshold amount?
Would this be consistent with the
Conflict Minerals Provision? 153
2. Recycled and Scrap Minerals
Our proposed rules would allow for
different treatment of conflict minerals
from recycled and scrap sources than
from mined sources due to the difficulty
of looking through the recycling or scrap
process to determine the origin of the
minerals. As suggested in a letter, we
would consider conflict minerals
‘‘recycled’’ that are reclaimed end-user
or post-consumer products, but we
152 Exchange
Act Section 13(p)(2)(B).
letter from Senator Richard J. Durbin and
Representative Jim McDermott, United States
Congress (stating that a de minimis rule would
create an overly generous loop-hole because the
weight of essential conflict minerals in many
products is very small).
153 See
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would not consider those minerals
‘‘recycled’’ if they are partially
processed, unprocessed, or a byproduct
from another ore.154 Given the difficulty
of looking through the recycling or scrap
process, we expect that issuers generally
will not know the origins of their
recycled or scrap conflict minerals, so
we believe it would be appropriate for
our proposed rules to require that
issuers using recycled or scrap conflict
minerals furnish a Conflict Minerals
Report subject to special rules. Under
our proposed rules,155 if issuers obtain
conflict minerals from a recycled or
scrap source, they may consider those
conflict minerals to be DRC conflict
free.156 We believe that including this
alternative approach in our proposed
rules is consistent with the Conflict
Minerals Provision because issuers
purchasing conflict minerals from
recycled or scrap sources would not
implicate the concerns of the
provision.157
Issuers whose conflict minerals
originated from recycled or scrap
sources would be required to disclose in
their annual report, under the ‘‘Conflict
Minerals Disclosure’’ heading, that their
conflict minerals were obtained from
recycled or scrap sources and that they
furnished a Conflict Minerals Report
regarding those recycled or scrap
minerals. Under our proposed rules,
issuers would state in their Conflict
Minerals Report that their recycled or
154 See
Multi-Stakeholder Group Letter.
new Items 104(b)(2) and (c)(4) of
Regulation S–K, new Items 16(b)(2) and (c)(4) of
Form 20–F, and new General Instructions
B(16)(b)(2) and (c)(4) of Form 40–F.
156 Because our proposed rules would
automatically classify recycled or scrap conflict
minerals DRC conflict free, issuers with products
containing such minerals would not need to
provide in the Conflict Minerals Report a
description of the recycled or scrap conflict
minerals’ processing facilities or country of origin,
nor would they be required to describe their efforts
to determine the mine or location of origin with the
greatest possible specificity.
157 See Section 1502(a) of the Act. See also, 156
Cong. Rec. S3816–17 (daily ed. May 17, 2010)
(statement of Sen. Durbin) (‘‘We can’t begin to solve
the problems of eastern Congo without addressing
where the armed groups are receiving their funding,
mainly from the mining of a number of key conflict
minerals. We, as a nation of consumers as well as
industry, have a responsibility to ensure that our
economic activity does not support such violence.
That is why I join with Senators Brownback and
Feingold to support the Congo conflict minerals
amendment, which is now pending on this bill.’’).
One of the provision’s sponsors, however, indicated
that the Conflict Minerals Provision was intended,
in part, to allow investors to make informed
decisions. See 156 Cong. Rec. S3865–66 (statement
of Sen. Feingold) (daily ed. May 18, 2010) (stating
that the provision would ‘‘enhance transparency
[and] will help the United States and our allies
more effectively deal with these complex problems,
at the same time that they will also help American
consumers and investors make more informed
decisions’’ [emphasis added]).
155 See
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scrap minerals are considered DRC
conflict free. In addition, such issuers
would describe the measures taken to
exercise due diligence in determining
that their conflict minerals were
recycled or scrap. Again, however, our
proposed rules would not specify the
due diligence required of such issuers.
Further, our proposed rules would not
define when a conflict mineral is
recycled or scrap. Instead, any issuer
seeking to use this alternative approach
would provide its reasons for believing
that the conflict mineral is from
recycled or scrap sources in its Conflict
Minerals Report, which would include
due diligence on the source of the
mineral.
A number of those that have
submitted letters indicated that our
rules should allow conflict minerals
from recycled or scrap sources to be
considered as not originating in the DRC
countries or as DRC conflict free.158 A
number of these letters primarily
discussed recycled gold.159 Other
letters, however, stated that our
proposed rules should exempt all
recycled or reclaimed conflict metals.160
Additionally, most of the letters that
expressed a view on a recycled and
scrap alternative approach indicated
that the approach should include a
certain level of due diligence in
determining that the conflict minerals
were derived from recycled or scrap
sources.161
Our proposed rules regarding recycled
and scrap conflict minerals would apply
to all conflict minerals. If recycled or
scrap minerals are mixed with new
minerals, the recycled and scrap
158 See, e.g. letters from Jewelers Vigilance
Committee, Howland Greene Consultants LLC,
International Precious Metals Institute, and the
National Association of Manufacturers.
159 See letters from Jewelers Vigilance Committee
(stating that recycled gold would be impossible to
trace, making an exemption appropriate) and
International Precious Metals Institute (stating that
‘‘[w]e also believe that recycled gold waste and
scrap should be deemed to be a conflict-free
source’’).
160 See letters from Howland Greene Consultants
LLC (stating that ‘‘[r]ecycling should be encouraged
and recognized as a legitimate way to classify a
listed metal as DRC Conflict Free’’) and the National
Association of Manufacturers (stating that our
proposed rules should exempt recycled or scrap
minerals because it ‘‘is impossible to track’’ the
source of these minerals ‘‘due to the various forms
of recycling and thousands of consolidators,
reclaims, and scrap dealers both domestic and
foreign’’ and because exempting recycled or scrap
minerals ‘‘does not contradict the congressional
intent’’ of the Conflict Minerals Provision).
161 See letters from Howland Greene Consultants
LLC (stating that recycled minerals should be
classified as DRC Conflict Free only ‘‘if specific
criteria are met’’) and International Precious Metals
Institute (stating that recycled gold waste and scrap
should be deemed to be a conflict-free source only
‘‘in the absence of particular geographical risk or
other red flags’’).
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alternative approach would apply only
to the portion of the minerals that are
recycled or scrap and the issuer would
be required to furnish a Conflict
Minerals Report regarding at least the
recycled or scrap minerals. If the
issuer’s new conflict minerals did not
originate in the DRC countries, that
Conflict Minerals Report would contain
only information regarding the recycled
or scrap minerals. If, however, the new
conflict minerals originated in the DRC
countries, or the issuer was unable to
determine that its new conflict minerals
did not originate in the DRC countries,
the Conflict Minerals Report would
include information regarding both the
new conflict minerals and the recycled
or scrap conflict minerals.
Request for Comment
63. Should our rules, as proposed,
include an alternative approach for
conflict minerals from recycled or scrap
sources as proposed? If so, should that
approach permit issuers with necessary
conflict minerals to classify those
minerals as DRC conflict free, as
proposed? Should we require, as
proposed, issuers using conflict
minerals from recycled or scrap sources
to furnish a Conflict Minerals Report,
including a certified independent
private sector audit, disclosing that their
conflict minerals are from these
sources? If not, why not?
64. Instead, should our rules require
issuers with recycled or scrapped
conflict minerals to undertake
reasonable inquiry to determine they are
recycled or scrapped and to disclose the
basis for their belief that their minerals
are, in fact, from these sources?
65. Should our rules, as proposed,
require that issuers use due diligence in
determining whether their conflict
minerals are from recycled or scrap
sources as proposed and file a Conflict
Minerals Report including an
independent private sector audit of that
report? If so, should our rules prescribe
the due diligence required? If our rules
should not require due diligence,
should our rules require any alternative
standard or guidance? If so, what
standard or guidance? Should our rules
define what constitutes recycled or
scrap conflict minerals? If so, what
would be an appropriate definition?
66. Should this treatment be limited
to gold, or should it apply to all conflict
minerals, as proposed?
67. Is our alternative approach to
recycled and scrap minerals
appropriate? Is there a significant risk
that conflict minerals that are not ‘‘DRC
conflict free’’ may be inappropriately
processed and ‘‘recycled’’ so as to take
advantage of this alternate approach?
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68. Should we allow exemptions to
the information required by smaller
reporting companies regarding their use
of recycled or scrap minerals? For
example, should we not require smaller
reporting to furnish a Conflict Minerals
Report regarding their recycled or scrap
minerals? As another example, if we
require smaller reporting companies to
furnish a Conflict Minerals Report with
respect to recycled or scrap minerals,
should we not require those issuers to
have such Conflict Minerals Reports
audited?
G. General Request for Comment
We request and encourage any
interested person to submit comments
on any aspect of our proposals, other
matters that might have an impact on
the amendments, and any suggestions
for additional changes. With respect to
any comments, we note that they are of
greatest assistance to our rulemaking
initiative if accompanied by supporting
data and analysis of the issues
addressed in those comments and by
alternatives to our proposals where
appropriate.
3. Termination, Revisions, and Waivers
III. Paperwork Reduction Act
The Conflict Minerals Provision states
that the Commission shall revise or
temporarily waive its conflict minerals
rules if the President transmits to the
Commission a determination that a
revision or waiver is in the national
security interest of the United States
and the President provides reasons for
this determination.162 However, any
exemption to the Conflict Minerals
Provision may last no longer than two
years from the date of the exemption’s
initial publication.163 Also, the Conflict
Minerals Provision’s disclosure and
reporting requirements shall terminate
when the President determines and
certifies to the appropriate
congressional committees that ‘‘no
armed groups continue to be directly
involved and benefitting from
commercial activity involving conflict
minerals.’’ 164 The Conflict Minerals
Provision may not, however, terminate
earlier than five years after the Act was
enacted.165 We plan to act in accordance
with these provisions should any of the
situations they describe occur. Our
proposed rules, however, would not
include these sections of the Conflict
Minerals Provision because we do not
believe that a rule to implement this
section is necessary at this time.
A. Background
The proposed amendments contain
‘‘collection of information’’ requirements
within the meaning of the Paperwork
Reduction Act of 1995 (the ‘‘PRA’’).166
We are submitting the proposed
amendments to the Office of
Management and Budget (the ‘‘OMB’’)
for review in accordance with the
PRA.167 The title for the collection of
information is:
(1) ‘‘Regulation S–K’’ (OMB Control
No. 3235–0071); 168
(2) ‘‘Form 10–K’’ (OMB Control No.
3235–0063);
(3) ‘‘Form 20–F’’ (OMB Control No.
3235–0288); and
(4) ‘‘Form 40–F’’ (OMB Control No.
3235–0381).
The regulation and forms were
adopted under the Securities Act and
the Exchange Act. The regulation and
forms set forth the disclosure
requirements for periodic reports and
registration statements filed by
companies to help shareholders make
informed investment and voting
decisions. The hours and costs
associated with preparing and filing the
form constitute reporting and cost
burdens imposed by each collection of
information. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid control number.
The proposed rules and form
amendments would implement Section
13(p) of the Exchange Act, which was
added by Section 1502 of the Act. As
discussed in detail above, the proposed
rules and form amendments would
require an issuer to provide statutorily-
Request for Comment
69. Should our rules address
specifically the Conflict Minerals
Provision’s revision, waiver, or
termination requirements? If so, how
should our rules address this?
162 See
Exchange Act Section 13(p)(3).
163 Id.
164 Section 1502(e)(4) of the Act defines the term
‘‘appropriate congressional committees’’ as the
Committee on Appropriations, the Committee on
Foreign Affairs, the Committee on Ways and Means,
and the Committee on Financial Services of the
House of Representatives and the Committee on
Appropriations, the Committee on Foreign
Relations, the Committee on Finance, and the
Committee on Banking, Housing, and Urban Affairs
of the Senate.
165 See Exchange Act Section 13(p)(4).
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166 44
U.S.C. 3501 et seq.
U.S.C. 3507(d) and 5 CFR 1320.11.
168 The paperwork burden from Regulation S–K is
imposed through the forms that are subject to the
disclosures in Regulation S–K and is reflected in
the analysis of those forms. To avoid a Paperwork
Reduction Act inventory reflecting duplicative
burdens, for administrative convenience we
estimate the burdens imposed by Regulation S–K to
be a total of one hour.
167 44
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mandated information regarding conflict
minerals that are necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by such an issuer. In this
regard, we are proposing to add new
disclosure and reporting requirements
to the above forms, which would be
substantially the same in each form.169
The same conflict minerals disclosure
requirements would apply to U.S. and
foreign issuers.
The proposed rules would require any
issuer filing reports under the Exchange
Act to disclose in its annual reports
whether conflict minerals that are
necessary to the functionality or
production of a product manufactured
or contracted to be manufactured by the
issuer originated in the DRC countries.
If so, the issuer would be required to
furnish as an exhibit to its annual report
a Conflict Minerals Report that includes
a description of the measures taken by
the issuer to exercise due diligence on
the source and chain of custody of those
minerals, which measures shall include
an independent private sector audit of
the Conflict Minerals Report that is
certified by the issuer. Also, the Conflict
Minerals Report would include a
description of the issuer’s products
manufactured or contracted to be
manufactured that are not DRC conflict
free, the identity of the independent
private sector auditor, the facilities used
to process the conflict minerals, the
country of origin of the conflict
minerals, and the efforts to determine
the mine or location of origin with the
greatest possible specificity.
These proposed rules would increase
the amount of information that certain
issuers must compile and disclose in
their forms and would increase the
disclosure burden in annual reports for
certain issuers. Issuers filing reports
under the Exchange Act that do not
have conflict minerals necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by those issuers would
have no disclosure or reporting
requirements under the rules, but they
would have the burden of determining
whether conflict minerals are necessary
to the functionality or production of
products they manufacture or contract
to manufacture. Under our proposed
rules implementing the Conflict
Minerals Provision, issuers that have
169 New Item 4(a) in the Form 10–K would require
issuers to furnish in the Form 10–K the information
located in new Item 104 of Regulation S–K, which
would set forth the new disclosure and reporting
requirements to be included in the Form 10–K. For
Forms 20–F and 40–F, the new disclosure and
reporting requirements are contained within the
form itself.
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conflict minerals necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by those issuers must
determine whether those conflict
minerals originated in the DRC
countries. Our proposed rules would
require issuers to conduct a reasonable
country of origin inquiry in determining
whether their conflict minerals
originated in the DRC countries. This
reasonable country of origin inquiry
could vary among issuers, but we
believe that issuers would generally
have to conduct a relatively thorough
investigation to meet this standard.
Therefore, we believe that the burden on
issuers to determine the origin of their
conflict minerals could be significant. If
an issuer determines, however, that its
conflict minerals did not originate in the
DRC countries, its subsequent
disclosure burden would be relatively
insignificant. Such an issuer would be
required to disclose in its annual report
and on its Web site only that its conflict
minerals did not originate in the DRC
countries and disclose in its annual
report the reasonable country of origin
inquiry it used to make this
determination.
Issuers with conflict minerals that
originated in the DRC countries, or
issuers that were unable to determine
that their conflict minerals did not
originate in the DRC countries, would
be required to furnish a Conflict
Minerals Report and would be required
to use due diligence in determining the
information required in that Conflict
Minerals Report. Our proposed rules
would require issuers to disclose, in
their Conflict Minerals Report, the
measures they took to exercise due
diligence on the source and chain of
custody of their conflict minerals.
Additionally, issuers would have to
disclose, based on their due diligence,
whether any of the products they
manufactured or contracted to be
manufactured are not DRC conflict free.
Also, issuers would be required to
disclose the facilities used to process
their conflict minerals, the country from
which their conflict minerals originated,
and the efforts to determine the mine or
location of origin with the greatest
possible specificity. Further, issuers
would have to obtain an independent
private sector audit of their Conflict
Minerals Report and include in the
Conflict Minerals Report a certification
that they obtained such an audit, the
identity of the auditor, and the audit
report. Finally, the issuer would be
required to post the Conflict Minerals
Report, including the audit report, on its
Internet Web site.
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The type of reasonable country of
origin inquiry and the due diligence
standard for determining this
information could vary among issuers.
Regardless, we expect that all issuers
with conflict minerals that originated in
the DRC countries, or issuers that were
unable to determine that their conflict
minerals did not originate in the DRC
countries, would have to conduct a
thorough investigation to meet the
reasonable country of origin inquiry and
due diligence standards, which could be
another significant burden on these
issuers. The burden would be greater on
issuers whose products contained
conflict minerals that were not ‘‘DRC
conflict free’’ because these issuers
would have to determine which of their
products contain conflict minerals that
are not ‘‘DRC conflict free,’’ whereas
issuers with only ‘‘DRC conflict free’’
minerals would not have make such a
determination. Compliance with the
proposed amendments by affected
issuers would be mandatory. The
disclosure and reports submitted by
issuers would not be kept confidential
and there would be no mandatory
retention period for the information
disclosed.
B. Burden and Cost Estimates Related to
the Proposed Amendments
The proposed rules and form
amendments would require, if adopted,
additional disclosure for an annual
report filed on Form 10–K, Form 20–F,
or Form 40–F by an issuer with
necessary conflict minerals, which
would increase the burden hour and
cost estimates for each of those forms.
For purposes of the PRA, we estimate
the total annual increase in the
paperwork burden for all affected
companies to comply with our proposed
collection of information requirements
to be approximately 153,864 of
company personnel time and to be
approximately $71,243,000 for the
services of outside professionals. These
estimates include the time and cost of
collecting the information, preparing
and reviewing disclosure, filing
documents, and retaining records.
In deriving our estimates, we
recognize that the burdens will likely
vary among individual companies based
on a number of factors, including the
size and complexity of their operations
and the number of products they
manufacture or contract to manufacture
and the number of those products that
contain conflict minerals. We believe
that some issuers will experience costs
in excess of this average in the first year
of compliance with the proposals and
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some issuers may experience less than
these average costs.170
We have based our estimates of the
effect that the adopted rules and form
amendments, if adopted, would have on
those collections of information as a
result of the required due diligence
process and independent private sector
audit of the Conflict Minerals Report
primarily on information that we have
obtained from various stakeholder
groups.
We do not expect all issuers’ conflict
minerals to have originated in the DRC
countries. The DRC accounts for
approximately 15% to 20% of the
world’s tantalum, and for considerably
smaller percentage of the other three
conflict minerals.171 Therefore, for the
purposes of the PRA, we assume that
only 20% of the 5,994 affected
issuers 172 will have to furnish an
audited Conflict Minerals Report, which
would be 1,199 issuers.
Although no entity has yet conducted
due diligence for its conflict minerals
supply chain or obtained an audit of
this due diligence, we obtained
estimates from one entity that works
with NGOs and one industry group of
possible costs associated with
conducting the due diligence and the
audit based on the preliminary
information they currently have. The
entity that works with NGOs has
estimated that the annual cost of
conducting the due diligence for the
four conflict minerals ranges between
$20 million and $25 million. An
industry group provided a much lower
range of between $8 million and $10
million to set up a mineral source
validation scheme. Although our rules
do not require issuers to use an
industry-wide due diligence process to
comply with their due diligence
obligations, we expect that most affected
issuers will contribute to and rely on an
industry wide due diligence process as
part of their overall compliance.173
170 See letter from the National Association of
Manufacturers (suggesting that any change to an
issuer’s supply chain computer systems ‘‘is likely to
range from $1 million to $25 million’’ per issuer
‘‘depending on the size and complexity of the
supply chain’’). We expect that the internal
collection burden will vary from company to
company depending on each company’s needs and
circumstances.
171 See Jessica Holzer, Retailers Fight to Excape
‘Conflict Minerals’ Law, The Wall Street Journal,
Dec. 2, 2010, at B1. The DRC also accounts for
approximately 4% of the world’s tin, see id., and
approximately 0.3% of global gold mine
production, see letter from Jewelers Vigilance
Committee (citing to GFMS Gold Survey 2010).
172 We estimate that approximately 5,551 Forms
10–K, 377 Forms 20–F, and 66 Forms 40–F will be
affected by the proposed amendments.
173 See Multi-Stakeholder Group Letter (stating
that, although individual issuers are responsible for
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Therefore, for purposes of the PRA, we
have averaged the highest and the
lowest estimates we received of the due
diligence costs to obtain an aggregate
estimate of $16.5 million 174 for the
1,199 issuers estimated to be required to
file Conflict Minerals Reports.
Issuers that are required to file
Conflict Minerals Reports must also
obtain and certify an audit of the
Conflict Minerals Report. One industry
group indicated that it preliminarily
estimates that each independent private
sector audit of the Conflict Minerals
Report will cost approximately $25,000
on average. We estimate that the 1,199
affected issuers’ $25,000 cost would
result in to an industry wide audit of
approximately $29,975,000. Therefore,
based on these figures, we estimate the
PRA burden for the audit and due
diligence requirements to the industry
would be approximately $46,475,000.175
We expect that the rules’ effect will be
higher during the first year of their
effectiveness, due to the initial costs of
creating minerals tracking systems, and
diminish in subsequent years.
We have derived the burden hour and
cost estimates for preparing the required
disclosure in the annual reports and for
determining when a registrant has
conflict minerals necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by the registrant by
estimating the total amount of time it
will take the company to prepare the
disclosure and make the determination.
We estimate that the disclosure
preparation for all affected registrants
will take 36 hours per Form 10–K (27
hours in-house personnel time and a
cost of approximately $3,600 for
professional services). We estimate that
for Forms 20–F and 40–F, the disclosure
preparation will also take 36 hours (9
hours in-house personnel time and a
cost of approximately $10,800 for
professional services).
We derived the above estimates by
estimating the average number of hours
it would take an issuer to prepare and
review the proposed disclosure
requirements. These estimates represent
the average burden for all companies,
both large and small.
When determining these estimates,
we have assumed that:
• For Form 10–K, 75% of the burden
of preparation is carried by the company
internally and that 25% of the burden
of the preparation is carried by outside
their own due diligence, an issuer ‘‘may rely on an
industry wide process where applicable and
appropriate’’).
174 ($25 million + $8 million)/2 = $16.5 million.
175 $16,500,000 + $29,975,000 = $46,475,000.
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professionals retained by the company
at an average cost of $400 per hour; and
• For Forms 20–F and 40–F, 25% of
the burden of preparation is carried by
the company internally and that 75% of
the burden of preparation is carried by
outside professionals retained by the
company at an average cost of $400 per
hour.
The portion of the burden carried by
outside professionals is reflected as a
cost, while the portion of the burden
carried by the company internally is
reflected in hours.
1. Form 10–K
For purposes of the PRA, we estimate
that, of the 13,545 Form 10–Ks filed
annually, approximately 5,551 are filed
by companies that would be affected by
the proposed rules and form
amendments.176 We further estimate
that the annual incremental paperwork
burden for the Forms 10–K as a result
of the proposed rule and form
amendments would be 27 burden hours
per affected form associated with the
company’s preparation of the
disclosure, and $19,983,600 177
associated with the cost of hiring
professionals to help prepare the
disclosure. In addition, we estimate for
these purposes that those issuers
required to submit a Conflict Minerals
Report would also expend a total of
$43,040,161 178 associated with the cost
of hiring professionals to conduct the
due diligence and the independent
private sector audit of the Conflict
Minerals Report.
2. Regulation S–K
While the proposed rule and form
amendments would make revisions to
Regulation S–K, the collection of
information requirements for that
regulation are reflected in the burden
hours estimated for Form 10–K. The
rules in Regulation S–K do not impose
any separate burden. Consistent with
historical practice, we are proposing to
retain an estimate of one burden hour to
Regulation S–K for administrative
convenience.
3. Form 20–F
For purposes of the PRA, we estimate
that, of the 942 Form 20–F annual
reports, approximately 377 are filed
176 We arrived at this number by estimating the
number of issuers that fall under all the SIC codes
that our staff believes most likely to manufacture or
contract to manufacture products with conflict
minerals necessary to the functionality or
production of products manufactured or contracted
to be manufactured by those issuers, and subtracted
from that figure the number of issuers that file
reports on Form 20–F and Form 40–F.
177 $3,600 × 5,551 = $19,983,600.
178 $46,475,000 × (5551/5994) = $43,040,161.
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each year by companies that would be
affected by the proposed rule and form
amendments.179 We estimate that the
annual incremental paperwork burden
for the Forms 20–F as a result of the
proposed rule and form amendments
would be nine burden hours per
affected form associated with the
company’s preparation of the
disclosure, and $4,071,600 180
associated with the cost of hiring
professionals to help prepare the
disclosure. In addition, we estimate for
these purposes that those issuers
required to prepare a Conflict Minerals
Reports would also expend a total of
$2,923,102 181 associated with the cost
of hiring professionals to conduct the
due diligence and the independent
private sector audit.
4. Form 40–F
For purposes of the PRA, we estimate
that, of the 205 Form 40–F annual
reports filed each year, approximately
66 are filed by companies that would be
affected by the proposed rule and form
amendments.182 We estimate that the
annual incremental paperwork burden
for the Forms 40–F as a result of the
proposed rule and form amendments
would be nine burden hours per
affected form associated with the
company’s preparation of the
disclosure, and $712,800 183 associated
with the cost of hiring professionals to
help prepare the disclosure. In addition,
we estimate for these purposes that
those issuers required to prepare a
Conflict Minerals Report would also
expend a total of $511,737 184 associated
with the cost of hiring professionals to
conduct the due diligence and the
independent private sector audit.
C. Summary of Proposed Changes to
Annual Compliance Burden in
Collection of Information
The following table illustrates the
estimated changes in annual compliance
burden in the collection of information
in hours and costs for Exchange Act
annual reports as a result of the
proposed rule and form amendments.
TABLE 1
Form
Number of
responses 185
Incremental
company
Incremental
professional
cost
10–K
20–F
40–F
5,551
377
66
149,877
3,393
594
$63,023,761
6,994,702
1,224,537
TABLE 2
Current annual
response 186
10–K .................
20–F .................
40–F .................
13,545
942
205
Current
burden hours
Increase in
burden hours
Proposed
burden hours
Current professional costs
Increase in
professional
costs
Proposed professional costs
(A)
Form
(B)
(C)=(A)+(B)
(D)
(E)
(F)=(D)+(E)
21,363,548
622,907
21,884
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D. Request for Comment
149,877
3,393
594
21,513,425
626,300
22,478
$2,848,473,000
743,089,980
26,260,500
$63,023,761
6,994,702
1,224,537
$2,911,496,761
750,084,682
27,485,037
We request comment on the accuracy
of our estimates. Pursuant to 44 U.S.C.
3506(c)(2)(B), the Commission solicits
comments to: (i) Evaluate whether the
proposed collections of information are
necessary for the proper performance of
the functions of the agency, including
whether the information will have
practical utility; (ii) evaluate the
accuracy of the Commission’s estimate
of burden of the proposed collection of
information; (iii) determine whether
there are ways to enhance the quality,
utility, and clarity of the information to
be collected; (iv) evaluate whether there
are ways to minimize the burden of the
collection of information on those who
are to respond, including through the
use of automated collection techniques
or other forms of information
technology; and (v) evaluate whether
the proposed amendments will have any
effects on any other collections of
information not previously identified in
this section.
In particular, we request comment
and supporting empirical data for
purposes of the PRA on whether the
proposed rule and form amendments:
• Will affect the burden hours and
costs required to produce the annual
reports on Forms 10–K, 20–F, and 40–
F; and
• If so, whether the resulting change
in the burden hours and costs required
to produce those Exchange Act annual
reports is the same as or different than
the estimated incremental burden hours
and costs proposed by the Commission.
Any member of the public may direct
to us any comments concerning the
accuracy of these burden estimates and
any suggestions for reducing these
burdens. Persons submitting comments
on the collection of information
requirements should direct the
comments to the Office of Management
and Budget, Attention: Desk Officer for
the Securities and Exchange
Commission, Office of Information and
Regulatory Affairs, Room 10102, New
Executive Office Building, Washington,
DC 20503, and should send a copy to
Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090, with reference to File No.
S7–40–10. Requests for materials
submitted to OMB by the Commission
with regard to these collections of
information should be in writing, refer
to File No. S7–40–10, and be submitted
to the Securities and Exchange
Commission, Office of Investor
Education and Advocacy, 100 F Street
NE., Washington, DC 20549–0213. OMB
is required to make a decision
concerning the collection of information
between 30 and 60 days after
publication of this release.
Consequently, a comment to OMB is
best assured of having its full effect if
OMB receives it within 30 days of
publication.
179 We arrived at this estimate by determining the
number of issuers that fall under all the SIC codes
that our staff believes are most likely to
manufacture or contract to manufacture products
with conflict minerals necessary to the functionality
or production of products manufactured or
contracted to be manufactured by those issuers that
file reports on Form 20–F.
180 $10,800 × 377 = $4,071,600.
× (377/5994) = $2,923,102.
arrived at this estimate by determining the
number of issuers that fall under all the SIC codes
that our staff believes are most likely to
manufacture or contract to manufacture products
with conflict minerals necessary to the functionality
or production of products manufactured or
contracted to be manufactured by those issuers that
file reports on Form 40–F.
× 66 = $712,800.
× (66/5994) = $511,737.
185 This number corresponds to the estimated
number of forms expected to be affected by the
proposed rules and form amendments.
186 The proposed rules and form amendments
would not change the number of annual responses.
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181 $46,475,000
182 We
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183 $10,800
184 $46,475,000
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IV. Cost-Benefit Analysis
Section 1502 of the Act amends the
Exchange Act by adding new Section
13(p),187 which requires the
Commission to promulgate disclosure
and reporting regulations regarding the
use of conflict minerals from the DRC
countries. In response to the
requirements of Exchange Act Section
13(p) as set forth in Section 1502 of the
Act, the Commission is proposing new
rules and form amendments that would
provide for the disclosure and reporting
of the use of conflict minerals from the
DRC countries. The proposed rules and
form amendments implement the
requirements in Section 1502 of the Act
and, as necessary or appropriate, require
additional disclosure in a manner that
we believe is consistent with Congress’s
intent.
First, Section 13(p)(1)(A) indicates
that the Conflict Minerals Provision
applies to a ‘‘person described,’’ who is
defined in Section 13(p)(2)(B) as one for
whom conflict minerals are necessary to
the functionality or production of a
product manufactured by that person.188
This provision could be read quite
broadly to apply to any business,
including individuals and companies
that are not subject to SEC reporting, so
long as conflict minerals are necessary
to the functionality or production of a
product manufactured by that entity or
individual. We believe that such a broad
reading of the provision is not
warranted, however, given the
provision’s background and its location
in the section of the Exchange Act that
pertains to reporting issuers.189 As a
result, our proposed rules would apply
only to issuers that file reports with the
Commission under the Exchange Act,
provided that conflict minerals are
necessary to the functionality or
production of a product manufactured
by any such an issuer.
While our proposed amendments
would not define specifically when a
conflict mineral is ‘‘necessary to the
functionality or production of a
product,’’ we intend our proposed rules
to provide that a conflict mineral is
‘‘necessary to the production of a
product’’ if a conflict mineral is
intentionally included in a product’s
production process and the conflict
mineral is necessary to that process,
even if that conflict mineral is not
ultimately included anywhere in the
final product. Our proposed
amendments would specify that,
although a conflict mineral is necessary
to the functionality or production of a
product manufactured or contracted to
be manufactured by the issuer, if that
conflict mineral was obtained from
recycled or scrap minerals, that mineral
would be considered DRC conflict free.
This approach for recycled or scrap
minerals is not included in the Conflict
Minerals Provision, but we believe it is
appropriate because such conflict
minerals would not be implicating the
concerns that prompted the enactment
of this statutory provision.190
Third, Section 13(p)(1)(A) indicates
that issuers must disclose whether their
necessary conflict minerals originated in
the DRC countries.191 The Conflict
Minerals Provision, however, is silent as
to how issuers would determine
whether their conflict minerals
originated in the DRC countries. Our
proposed amendments would indicate
that an issuer’s determination of
whether or not any of its necessary
conflict minerals originated in the DRC
countries would be required to be based
on a reasonable country of origin
inquiry into the minerals’ origins and, if
the issuer determines its necessary
conflict minerals did not originate in the
DRC countries, that the issuer would
have to disclose in the body of its
annual report the reasonable country of
origin inquiry it undertook to make its
determination and would have to
maintain reviewable business records to
support this determination.
Fourth, our proposed amendments
would specify where the Conflict
Minerals report required by Section
13(p)(1)(A) of the Exchange Act should
be provided.192 The statutory provision
does not indicate how issuers should
submit their Conflict Minerals Reports
to the Commission. Our proposed
amendments would require issuers with
necessary conflict minerals that
originated in the DRC countries to
furnish their Conflict Minerals Reports
as an exhibit to their annual report on
Form 10–K, Form 20–F, or Form 40–F,
as applicable. In addition, although the
Conflict Minerals Provision indicates
that the Conflict Minerals Report must
include an independent private sector
audit of such report submitted through
the Commission, it is unclear what
record of that independent private
sector audit an issuer must submit to the
Commission and how it must do so, if
at all. Our proposed amendments would
require issuers to furnish an audit report
of the independent private sector audit
as part of and in the same exhibit to the
annual report as the issuer’s Conflict
Minerals Report. Our proposed
187 See
190 See
188 See
191 See
Exchange Act Section 13(p).
supra note 12.
189 See supra note 38.
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supra note 157.
Exchange Act Section 13(p)(1)(A).
192 Id.
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amendments also specify the required
certification of the independent private
sector audit. Our proposed amendments
would require an issuer that furnishes a
Conflict Minerals Report to include a
statement in the body of its annual
report that the Conflict Minerals Report
is furnished as an exhibit to the annual
report, that the Conflict Minerals Report
and the certified audit report are
available on its Internet Web site, and
the Internet address of the Web site
where the Conflict Minerals Report and
audit report are located. Our proposed
amendments would also require that the
disclosure be posted on the issuer’s
Internet Web site at least until the issuer
files its subsequent annual report.
Finally, our proposed amendments
would require that the Conflict Minerals
Report be furnished with the
Commission, rather than filed. The
Conflict Minerals Provision indicates
that the report should be ‘‘submitted’’ to
us,193 but it does not indicate whether
the report should be filed or furnished.
Information that is furnished, rather
than filed, with us is not subject to
liability under Section 18 of the
Exchange Act. By requiring the Conflict
Minerals Report to be furnished with us,
we are subjecting such reports to less
liability than would exist if the reports
were filed with us. However, under
Exchange Act Section 13(p)(1)(C),
failure to comply with the Conflict
Minerals Provision would deem the
issuer’s due diligence process
‘‘unreliable’’ and, therefore, the Conflict
Minerals Report ‘‘shall not satisfy’’ our
proposed rules.194 Also, issuers that fail
to comply with our proposed rules
would be subject to liability for
violations of Exchange Act Sections
13(a) or 15(d), as applicable.195
The Commission is sensitive to the
costs and benefits imposed by the
proposed rules and form amendments.
The discussion below focuses on the
costs and benefits of the proposals made
by the Commission to implement the
Act within its permitted discretion,
rather than the costs and benefits of the
Act itself.
A. Benefits
Overall, we expect that our proposed
rules will have the benefit of furthering
Congress’s goal of deterring the
financing of armed groups in the DRC
countries through commercial activity
in conflict minerals. The proposed
rules, if adopted, would specify which
companies are covered by the disclosure
and reporting requirements in Section
193 See
Exchange Act Section 13(p)(1)(A).
Exchange Act Section 13(p)(1)(C).
195 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d).
194 See
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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules
1502 of the Act and the alternative
approach to disclosure for recycled or
scrap minerals. The proposed rules
would also specify the information that
reporting companies with necessary
conflict minerals would be required to
disclose. This specification would
benefit reporting companies by reducing
uncertainty about their compliance with
Commission rules.
Our proposal specifies the location of
the initial disclosure of conflict
minerals’ origin and the location of the
Conflict Minerals Report and should
make it easier for interested parties to
locate this information. In addition, our
proposal to require reporting companies
to furnish the independent private
sector audit report would make the
report easily accessible to interested
parties. Thus, market participants and
observers may benefit from the
increased disclosure and improved
reporting to the extent that they find
information about conflict mineral use
relevant to their decision making.
Additionally, our decision to require
issuers to furnish with the Commission
the independent private sector audit
report instead of filing it would free the
independent private sector auditors
preparing these reports from assuming
expert liability. Relative to the filing
option that we could have proposed,
this should decrease the cost to
independent private sector auditors of
providing such audits to conflict
minerals-reporting companies.
Depending on the state of competition
in the market for independent private
sector audits, the lower costs due to
auditors not being required to assume
expert liability could result in lower
audit fees, which in turn should
decrease conflict minerals-reporting
companies’ cost of compliance with the
statute.
We are proposing that reporting
companies covered by Section 1502 of
the Act use a reasonable country of
origin inquiry in determining whether
their conflict minerals originated in the
DRC countries and use due diligence in
making their supply chain
determinations. We have chosen not to
provide guidance on what would
constitute a ‘‘reasonable country of
origin inquiry.’’ Similarly, we have
chosen not to propose a specific
standard for due diligence. We believe
that these decisions should benefit
reporting issuers by allowing them the
flexibility to use the reasonable country
of origin inquiry and due diligence
standards that are best suited to their
circumstances. We believe that
disclosure of the inquiry performed and
the due diligence undertaken may
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benefit market participants if they are
interested in learning such information.
In addition, our proposed rules and
form amendments would provide that
conflict minerals obtained from recycled
or scrap sources would be considered
DRC conflict free. This should benefit
issuers by providing an alternative
approach for recycled or scrap minerals
and reduce their compliance costs with
the disclosure requirements in Section
1502 of the Act, particularly for recycled
or scrap minerals, the origins of which
are difficult to trace.
B. Costs
We anticipate that reporting
companies would incur costs in meeting
the additional disclosure required for
their Exchange Act annual reports under
Section 13(p) and the proposed rules
and form amendments. The
Commission’s proposal to require an
exhibit for the Conflict Minerals Report
and that reporting companies furnish
with the Commission the independent
private sector audit report as an exhibit
to their annual reports will result in
costs related to the preparation of such
exhibits. In addition, including
manufacturing companies, companies
contracting to manufacture products,
companies contracting for the
manufacture of products to sell under
their own brand name or a separately
established brand name, and mining
companies as ‘‘persons described’’
would result in a larger number of
companies incurring the disclosure
compliance costs, compared to an
interpretation that excluded some of
these companies. Not requiring auditors
to assume expert liability could increase
the costs to market participants and
other observers because auditors may
not have as strong incentives to ensure
their determinations are correct. Also,
the Commission’s proposal would
require issuers that determine following
a reasonable country of origin inquiry
that their conflict minerals did not
originate in the DRC countries must
keep reviewable records, which will
result in costs related to obtaining and
maintaining these records. Further, such
issuers would also incur costs in
disclosing the reasonable country of
origin inquiry in their annual reports.
However, as described above, we
believe these approaches are consistent
with the Conflict Minerals Provision.
If a reporting company chose to
incorporate by reference its independent
private sector audit report into a
Securities Act document, the
independent private sector auditor
would assume expert liability, if the
auditor consented to the inclusion of its
report. This would not be required
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80969
under our proposals but, if an issuer
chose to do so, this might increase the
cost to independent private sector
auditors of providing such audits to
issuers furnishing Conflict Minerals
Reports. Depending on the state of
competition in the market for
independent private sector audits, the
additional cost stemming from the
assumption of expert liability could be
passed on to issuers furnishing Conflict
Minerals Reporting in the form of higher
audit fees, which in turn would increase
these companies’ cost of compliance
with the statute, although, as noted,
issuers could avoid such costs by not
incorporating the audit report into their
Securities Act filings. In any event,
since this audit market is still in its
nascence, and issuers presumably
would not choose to incorporate the
report by reference, the above effects are
difficult to assess but are likely
insignificant.
C. Request for Comment
We request comment on the
disclosures and accuracy of our
estimates in this section.
V. Consideration of Burden on
Competition and Promotion of
Efficiency, Competition and Capital
Formation
Section 3(f) of the Exchange Act
requires the Commission, whenever it
engages in rulemaking and is required to
consider or determine if an action is
necessary or appropriate in the public
interest, also to consider whether the
action will promote efficiency,
competition, and capital formation.196
Section 23(a)(2) of the Exchange Act
also requires the Commission, when
adopting rules under the Exchange Act,
to consider the impact that any new rule
would have on competition.197 In
addition, Section 23(a)(2) prohibits the
Commission from adopting any rule that
would impose a burden on competition
not necessary or appropriate in
furtherance of the purposes of the
Exchange Act.198
The Commission is proposing the new
rules and form amendments discussed
in this release to implement the
requirements of Exchange Act Section
13(p) as set forth in Section 1502 of the
Act. We believe that our proposed
rulemaking would have a different
impact on competition in different
industries. In industries where most or
all companies are subject to disclosure
or reporting requirements under the
statute, we believe anti-competitive
196 15
197 15
U.S.C. 78c(f).
U.S.C. 78w(a)(2).
198 Id.
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effects to be unlikely. In industries
where not all or only a few companies
are subject to the disclosure or reporting
requirements, issuers that must provide
disclosure or furnish Conflict Mineral
Reports would incur competitive costs
because of our disclosure and reporting
requirements and clarifications.
Although the costs to perform the
investigative work required and, if
necessary, the independent private
sector audit fees could increase the
disclosure and reporting compliance
costs for issuers that provide disclosure
or furnish Conflict Minerals Reports
versus companies who do not provide
disclosure or furnish such reports, the
net effect on competition would depend
on how these costs compare to the
benefits that companies obtain by using
conflict minerals from the DRC
countries, such as lower input costs.
Anti-competitive effects might be of
larger magnitude in industries where
the proportion of companies not
covered by the Exchange Act Section
13(p) is larger. For instance, mining
issuers might suffer a competitive
disadvantage with respect to mining
companies that are not required to
provide disclosure or Conflict Minerals
Reports but use DRC minerals, such as
U.S. private mining companies or
foreign mining companies, because the
issuers would be required to incur
investigative, disclosure, and reporting
costs as a result of the statute and our
rules.
We are proposing to require issuers to
furnish the Conflict Minerals Report
with the Commission instead of filing it
and have it included in Exchange Act
reports and Securities Act registration
statements. This requirement may limit
the costs to, and the potential negative
impact on, capital formation. We are not
currently aware of any effects on
efficiency or capital formation, but we
seek comment on whether there are any
such effects.
Request for Comment
70. We request comment on whether
the proposed rules, if adopted, would
promote efficiency, competition, and
capital formation or have an impact or
burden on competition. Commentators
are requested to provide empirical data
and other factual support for their view,
if possible.
VI. Initial Regulatory Flexibility Act
Analysis
This Initial Regulatory Flexibility Act
Analysis199 relates to proposed rules
and form amendments to implement
199 This analysis has been prepared in accordance
with 5 U.S.C. 603.
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Section 13(p) of the Exchange Act,
which concerns certain disclosure and
reporting obligations of issuers with
conflict minerals necessary to the
functionality or production of any
product manufactured or contracted to
be manufactured by those issuers. As set
forth by Section 13(p), an issuer with
such necessary conflict minerals must
disclose whether those minerals
originated in the DRC countries and, if
so, must submit to the Commission a
Conflict Minerals Report.
A. Reasons for, and Objectives of, the
Proposed Action
The proposed rule and form
amendments are designed to implement
the requirements of Section 1502 of the
Act. Specifically, the proposed rules
and form amendments would require all
issuers with necessary conflict minerals
to disclose in their annual reports
whether those conflict minerals
originated in the DRC countries. Issuers
with necessary conflict minerals that
originate in the DRC countries, or that
are unable to determine that their
necessary conflict minerals did not
originate in the DRC countries, must
provide the conflict minerals disclosure
specified by our rules in their Exchange
Act annual reports.
Any issuer with necessary conflict
minerals that did originate in the DRC
countries, or that is unable to determine
that its necessary conflict minerals did
not originate in DRC countries, also
must furnish as an exhibit to its
Exchange Act annual reports a Conflict
Minerals Report, which requires the
issuer to describe the measures it has
taken to exercise due diligence on the
source and chain of custody of such
minerals, which measures shall include
an certified independent private sector
audit that shall constitute a critical
component of due diligence. The
Conflict Minerals Report must include a
description of the products
manufactured or contracted to be
manufacture that are not DRC conflict
free, the identification of the
independent private sector auditor, and
the disclosure of the facilities used to
process the conflict minerals, the
country of origin of the conflict
minerals, and the efforts to determine
the mine or location of origin with the
greatest possible specificity. Also,
issuers shall make available to the
public on their Internet Web sites their
Conflict Minerals Reports.
B. Legal Basis
We are proposing the rule and form
amendments contained in this
document under the authority set forth
in Sections 6, 7, 10, and 19(a) of the
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Fmt 4701
Sfmt 4702
Securities Act, and Sections 12, 13, 15,
and 23(a) of the Exchange Act.
C. Small Entities Subject to the
Proposed Amendments
The proposals would affect small
entities that file annual reports with the
Commission under the Exchange Act,
and that have conflict minerals
necessary to the functionality or
production of products they
manufacture or contract to manufacture.
Exchange Act Rule 0–10(a) 200 defines
an issuer to be a ‘‘small business’’ or
‘‘small organization’’ for purposes of the
Regulatory Flexibility Act if it had total
assets of $5 million or less on the last
day of its most recent fiscal year. We
believe that the proposals would affect
small entities with necessary conflict
minerals as defined under Section 13(p).
We estimate that there are
approximately 793 companies to which
conflict minerals are necessary and that
may be considered small entities.
D. Reporting, Recordkeeping, and Other
Compliance Requirements
The proposed rule and form
amendments would add to the annual
disclosure requirements of companies
with necessary conflict minerals,
including small entities, by requiring
them to comply with the disclosure and
reporting obligations under Section
13(p) and provide certain additional
disclosure in their Exchange Act annual
reports. Among other matters, that
information must include, as applicable:
• Disclosure as to whether conflict
minerals necessary to the functionality
or production of a product
manufactured or contracted to be
manufacture by an issuer did originate
in the DRC countries; and, if so,
• A Conflict Minerals Report
furnished as an exhibit to the annual
report, which includes a certified
independent private sector audit report.
• Reviewable business records
regarding any determination that an
issuer’s conflict minerals did not
originate in the DRC countries.
The same disclosure and reporting
requirements would apply to U.S. and
foreign issuers. We are proposing to
amend Form 10–K and Regulation S–K
to require domestic issuers to provide
the conflict minerals information.
Because Regulation S–K does not
directly apply to Forms 20–F and 40–
F,201 we propose to amend those forms
to include the same disclosure
200 17
CFR 240.0–10(a).
Form 20–F may be used by any foreign
private issuer, Form 40–F is only available to a
Canadian issuer that is eligible to participate in the
U.S.-Canadian Multijurisdictional Disclosure
System (‘‘MJDS’’).
201 While
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requirements for issuers that are foreign
private issuers.202
E. Duplicative, Overlapping, or
Conflicting Federal Rules
We believe there are no federal rules
that duplicate, overlap or conflict with
the proposed rules.
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F. Significant Alternatives
The Regulatory Flexibility Act directs
us to consider significant alternatives
that would accomplish the stated
objectives, while minimizing any
significant adverse impact on small
entities. In connection with the
proposals, we considered the following
alternatives:
(1) Establishing different compliance
or reporting requirements which take
into account the resources available to
smaller entities;
(2) Exempting smaller entities from
coverage of the disclosure requirements,
or any part thereof;
(3) The clarification, consolidation, or
simplification of disclosure for small
entities; and
(4) Use of performance standards
rather than design standards.
We believe that separate disclosure
requirements for small entities that
would differ from the proposed
reporting requirements, or exempting
them from those requirements, would
not achieve the disclosure objectives of
Section 13(p). The proposed rules are
designed to implement the conflict
minerals disclosure and reporting
requirements of Section 13(p). That
statutory section applies to all issuers
with necessary conflict minerals,
regardless of size. However, the
reasonable country of origin inquiry
standard for determining whether
conflict minerals originated in the DRC
countries and the due diligence
standard necessary for making the
supply chain determinations in the
Conflict Minerals Report are
performance standards and would vary
based on the facts and circumstances of
each individual issuer. We have
requested comment as to whether we
should provide an exemption for
smaller reporting companies and
whether doing so would be consistent
with the statute.
The proposed rules would require
clear disclosure about the source and
chain of custody of an issuer’s necessary
conflict minerals, which may result in
increased transparency about the origin
of those minerals. The proposed
requirement to disclose the information
202 Proposed Item 16 under Part II of Form 20–
F and proposed General Instruction B(16) of Form
40–F.
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in the body of and as an exhibit to an
issuer’s Exchange Act annual report
may simplify the process of submitting
the proposed conflict minerals
disclosure and Conflict Minerals
Reports. In addition, furnishing the
Conflict Minerals Reports and the audit
reports as exhibits would simplify the
search and retrieval of this information
regarding issuers, including small
entities, for investors and other
interested persons.
We have otherwise used design rather
than performance standards in
connection with the proposed
amendments because, based on our past
experience, we believe the proposed
amendments would be more useful if
there were specific disclosure
requirements. In addition, the specific
disclosure requirements in the proposed
amendments would promote consistent
and comparable disclosure among all
issuers with necessary conflict minerals.
G. Solicitation of Comment
We encourage the submission of
comments with respect to any aspect of
this Initial Regulatory Flexibility
Analysis. In particular, we request
comments regarding:
• How the proposed amendments can
achieve their objective while lowering
the burden on small entities;
• The number of small entity
companies that may be affected by the
proposed amendments;
• Whether small entity companies
should be exempt from the rule;
• The existence or nature of the
potential impact of the proposed
amendments on small entity companies
discussed in the analysis; and
• How to quantify the impact of the
proposed amendments.
Respondents are asked to describe the
nature of any impact and provide
empirical data supporting the extent of
the impact. Such comments will be
considered in the preparation of the
Final Regulatory Flexibility Analysis, if
the proposed rule amendments are
adopted, and will be placed in the same
public file as comments on the proposed
amendments themselves.
VII. Small Business Regulatory
Enforcement Fairness Act
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (‘‘SBREFA’’),203 a rule is ‘‘major’’ if
it has resulted, or is likely to result in:
• An annual effect on the economy of
$100 million or more;
• A major increase in costs or prices
for consumers or individual industries;
or
203 Public Law 104–121, Title II, 110 Stat. 857
(1996).
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80971
• Significant adverse effects on
competition, investment or innovation.
Request for Comment
71. We request comment on whether
our proposals would be a ‘‘major rule’’
for purposes of SBREFA. We solicit
comment and empirical data on:
• The potential effect on the U.S.
economy on an annual basis;
• Any potential increase in costs or
prices for consumers or individual
industries; and
• Any potential effect on competition,
investment or innovation.
VIII. Statutory Authority and Text of
The Proposed Amendments
The amendments described in this
release are being proposed under the
authority set forth in Sections 6, 7 10,
19(a), and 28 of the Securities Act, as
amended, and Sections 12, 13, 15(d),
23(a), and 36 of the Exchange Act, as
amended.
List of Subjects 17 CFR Parts 229 and
249
Reporting and recordkeeping
requirements, Securities.
Text of The Proposed Amendments
For the reasons set out in the
preamble, the Commission proposes to
amend title 17, chapter II, of the Code
of Federal Regulations as follows:
PART 229—STANDARD
INSTRUCTIONS FOR FILING FORMS
UNDER SECURITIES ACT OF 1933,
SECURITIES EXCHANGE ACT OF 1934
AND ENERGY POLICY AND
CONSERVATION ACT OF 1975—
REGULATION S–K
1. The authority citation for part 229
continues to read in part as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j,
77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26),
77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n,
78o, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–9,
80a–20, 80a–29, 80a–30, 80a–31(c), 80a–37,
80a–38(a), 80a–39, 80b–11, and 7201 et seq.;
and 18 U.S.C. 1350, unless otherwise noted.
*
*
*
*
*
2. Add § 229.104 to read as follows:
§ 229.104 (Item 104) Conflict minerals
disclosure.
(a) If any conflict minerals, as defined
by paragraph (c)(3) of this section, are
necessary to the functionality or
production of a product manufactured
or contracted to be manufactured by the
registrant in the year covered by the
annual report, the registrant must
disclose in its annual report under a
separate heading entitled ‘‘Conflict
Minerals Disclosure’’ whether any of
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these conflict minerals originated in the
Democratic Republic of the Congo or an
adjoining country, as defined by
paragraph (c)(1) of this section or that
the registrant is not able to determine
that its conflict minerals did not
originate in the Democratic Republic of
the Congo or an adjoining country. The
registrant’s determination of whether or
not any of these conflict minerals
originated in the Democratic Republic of
the Congo or an adjoining country, or its
inability to determine that these conflict
minerals did not originate in the
Democratic Republic of the Congo or an
adjoining country, must be based on its
reasonable country of origin inquiry. If
the registrant determines that its conflict
minerals necessary to the functionality
or production of a product
manufactured or contracted to be
manufactured by it did not originate in
the Democratic Republic of the Congo or
an adjoining country, the registrant
must make that disclosure available on
its Internet Web site and must also
disclose this determination in its annual
report under the separate ‘‘Conflict
Minerals Disclosure’’ heading along with
the reasonable country of origin inquiry
it undertook to make its determination,
that its disclosure is located on its
Internet Web site, and the address of
that Internet Web site. The disclosure
must remain on the registrant’s Internet
Web site at least until the registrant files
its subsequent annual report. Also, the
registrant must maintain reviewable
business records to support any such
negative determination.
(b) If any conflict minerals necessary
to the functionality or production of a
product manufactured or contracted to
be manufactured by the registrant
originated in the Democratic Republic of
the Congo or an adjoining country, if the
registrant is unable to determine that
such conflict minerals did not originate
in the Democratic Republic of the Congo
or an adjoining country, or if such
conflict minerals came from recycled or
scrap sources, the registrant must:
(1) Furnish a Conflict Minerals Report
as an exhibit to its annual report with
the following information:
(i) A description of the measures
taken by the registrant to exercise due
diligence on the source and chain of
custody of the conflict minerals or to
exercise due diligence in determining
that the conflict minerals came from
recycled or scrap sources, which shall
include but not be limited to a certified
independent private sector audit of the
Conflict Minerals Report, conducted in
accordance with standards established
by the Comptroller General of the
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United States, that shall constitute a
critical component of the registrant’s
due diligence in establishing the source
and chain of custody of the conflict
minerals or that the conflict minerals
came from recycled or scrap sources;
(ii) A certification by the registrant
that it obtained such an independent
private sector audit;
(iii) A description of any of the
registrant’s products manufactured or
contracted to be manufactured
containing conflict minerals that are not
‘‘DRC conflict free,’’ as defined in
paragraph (c)(4) of this section, the
facilities used to process those conflict
minerals, the country of origin of those
conflict minerals, and the efforts to
determine the mine or location of origin
with the greatest possible specificity;
and
(iv) The audit report prepared by the
independent private sector auditor,
which identifies the entity that
conducted the audit.
(2) In addition to the disclosures
required by paragraph (a) of this section,
disclose under the separate ‘‘Conflict
Minerals Disclosure’’ heading in the
annual report that the registrant has
furnished a Conflict Minerals Report as
an exhibit to the annual report; that the
Conflict Minerals Report and the
certified independent private sector
audit report are available on its Internet
Web site; and the Internet address of its
Internet Web site where the Conflict
Minerals Report and audit report are
located.
(3) Make the Conflict Minerals Report,
including the certified audit report,
available to the public by posting the
text of the report on its Internet Web
site. The text of the Conflict Minerals
Report must remain on the registrant’s
Internet Web site at least until the
registrant files its subsequent annual
report.
(c) For the purposes of this section,
the following definitions apply:
(1) Adjoining country. The term
adjoining country means a country that
shares an internationally recognized
border with the Democratic Republic of
the Congo.
(2) Armed group. The term armed
group means an armed group that is
identified as a perpetrator of serious
human rights abuses in the most
recently issued annual Country Reports
on Human Rights Practices under
sections 116(d) and 502B(b) of the
Foreign Assistance Act of 1961 (22
U.S.C. 2151n(d) and 2304(b)) relating to
the Democratic Republic of the Congo or
an adjoining country for the year the
annual report is due.
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(3) Conflict mineral. The term conflict
mineral means:
(i) Columbite-tantalite (coltan),
cassiterite, gold, wolframite, or their
derivatives; or
(ii) Any other mineral or its
derivatives determined by the Secretary
of State to be financing conflict in the
Democratic Republic of the Congo or an
adjoining country.
(4) DRC conflict free. The term DRC
conflict free means that a product does
not contain conflict minerals that
directly or indirectly finance or benefit
armed groups in the Democratic
Republic of the Congo or an adjoining
country. Conflict minerals that a
registrant is unable to determine did not
originate in the Democratic Republic of
the Congo or an adjoining country are
not ‘‘DRC conflict free.’’ Conflict
minerals that a registrant obtains from
recycled or scrap sources are considered
DRC conflict free.
Instructions to Item 104
(1) A registrant that files reports with
the Commission under Sections 13(a)
(15 U.S.C. 78m(a)) or 15(d) (15 U.S.C.
78o(d)) of the Exchange Act, for whom
conflict minerals are necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by that registrant, shall
provide the information required by this
item. A registrant that mines conflict
minerals would be considered to be
manufacturing those minerals for the
purpose of this item.
(2) The information required by this
Item shall not be deemed to be ‘‘filed’’
with the Commission or subject to the
liabilities of section 18 of the Exchange
Act (15 U.S.C. 78r), except to the extent
that the registrant specifically
incorporates the information by
reference into a document filed under
the Securities Act or the Exchange Act.
The disclosure required by this Item
need not be provided in any filings
other than an annual report on Form
10–K (§ 249.310 of this chapter). Such
information will not be deemed to be
incorporated by reference into any filing
under the Securities Act or the
Exchange Act, except to the extent that
the registrant specifically incorporates it
by reference.
3. Amend § 229.601 in the exhibit
table to add entry (96) and add
paragraph (b)(96) to read as follows:
§ 229.601
(Item 601) Exhibits.
(a) * * *
Exhibit Table * * *
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EXHIBIT TABLE
Securities Act Forms
S–1
(36)
(96)
(97)
(98)
*
*
through (95) [Reserved] .......
Conflict Minerals Report .......
[Reserved] ............................
[Reserved] ............................
N/A
..........
N/A
N/A
*
*
*
*
(b) * * *
(96) Report on conflict minerals from
the Democratic Republic of the Congo or
an Adjoining Country. The report
required by Item 104(b)(1) of Regulation
S–K, if applicable.
*
*
*
*
*
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
4. The authority citation for part 249
continues to read in part as follows:
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
5. Amend Form 20–F (referenced in
§ 249.220f) by adding Item 16 and by
adding paragraph 16 to the Instructions
as to Exhibits.
The addition reads as follows:
Note: The text of Form 20–F does not, and
this amendment will not, appear in the Code
of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 20–F
*
*
*
*
*
*
*
PART II
*
*
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Item 16. Conflict Minerals Disclosure
(a) If any conflict minerals, as defined
by paragraph (c)(3) of this Item, are
necessary to the functionality or
production of a product manufactured
or contracted to be manufactured by the
registrant in the year covered by the
annual report, the registrant must
disclose in its annual report under a
separate heading entitled ‘‘Conflict
Minerals Disclosure’’ whether any of
these conflict minerals originated in the
Democratic Republic of the Congo or an
adjoining country, as defined by
paragraph (c)(1) of this Item, or that the
registrant is not able to determine that
its conflict minerals did not originate in
VerDate Mar<15>2010
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S–8
S–11
F–1
F–3
F–4 3
10
8–K 5
10–D
10–Q
10–K
N/A
..........
N/A
N/A
N/A
..........
N/A
N/A
*
N/A
..........
N/A
N/A
N/A
..........
N/A
N/A
*
N/A
..........
N/A
N/A
N/A
..........
N/A
N/A
N/A
..........
N/A
N/A
*
N/A
..........
N/A
N/A
N/A
..........
N/A
N/A
*
N/A
..........
N/A
N/A
N/A
X
N/A
N/A
*
*
*
S–4 3
S–3
N/A
..........
N/A
N/A
Jkt 223001
Exchange Act Forms
the Democratic Republic of the Congo or
an adjoining country. The registrant’s
determination of whether or not any of
these conflict minerals originated in the
Democratic Republic of the Congo or an
adjoining country, or its inability to
determine that these conflict minerals
did not originate in the Democratic
Republic of the Congo or an adjoining
country, must be based on its reasonable
country of origin inquiry. If the
registrant determines that its conflict
minerals necessary to the functionality
or production of a product
manufactured or contracted to be
manufactured by it did not originate in
the Democratic Republic of the Congo or
an adjoining country, the registrant
must make that disclosure available on
its Internet Web site and must also
disclose this determination in its annual
report under the separate ‘‘Conflict
Minerals Disclosure’’ heading along with
the reasonable country of origin inquiry
it undertook to make its determination,
that its disclosure is located on its
Internet Web site, and the address of
that Internet Web site. The disclosure
must remain on the registrant’s Internet
Web site at least until the registrant files
its subsequent annual report. Also, the
registrant must maintain reviewable
business records to support any such
negative determination.
(b) If any conflict minerals necessary
to the functionality or production of a
product manufactured or contracted to
be manufactured by the registrant
originated in the Democratic Republic of
the Congo or an adjoining country, if the
registrant is unable to determine that
such conflict minerals did not originate
in the Democratic Republic of the Congo
or an adjoining country, or if such
conflict minerals came from recycled or
scrap sources, the registrant must:
(1) Furnish a Conflict Minerals Report
as an exhibit to its annual report with
the following information:
(i) A description of the measures
taken by the registrant to exercise due
diligence on the source and chain of
custody of the conflict minerals or to
exercise due diligence in determining
that the conflict minerals came from
PO 00000
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Fmt 4701
Sfmt 4702
recycled or scrap sources, which shall
include but not be limited to a certified
independent private sector audit of the
Conflict Minerals Report, conducted in
accordance with standards established
by the Comptroller General of the
United States, that shall constitute a
critical component of the registrant’s
due diligence in establishing the source
and chain of custody of the conflict
minerals or that the conflict minerals
came from recycled or scrap sources;
(ii) A certification by the registrant
that it obtained such an independent
private sector audit;
(iii) A description of any of the
registrant’s products manufactured or
contracted to be manufactured
containing conflict minerals that are not
‘‘DRC conflict free,’’ as defined in
paragraph (c)(4) of this Item, the
facilities used to process those conflict
minerals, the country of origin of those
conflict minerals, and the efforts to
determine the mine or location of origin
with the greatest possible specificity;
and
(iv) The audit report prepared by the
independent private sector auditor,
which identifies the entity that
conducted the audit.
(2) In addition to the disclosures
required by paragraph (a) of this Item,
disclose under the separate ‘‘Conflict
Minerals Disclosure’’ heading in the
annual report that the registrant has
furnished a Conflict Minerals Report as
an exhibit to the annual report; that the
Conflict Minerals Report and the
certified independent private sector
audit report are available on its Internet
Web site; and the Internet address of its
Internet Web site where the Conflict
Minerals Report and audit report are
located.
(3) Make the Conflict Minerals Report,
including the certified audit report,
available to the public by posting the
text of the report on its Internet Web
site. The text of the Conflict Minerals
Report must remain on the registrant’s
Internet Web site at least until the
registrant files its subsequent annual
report.
(c) For the purposes of this Item, the
following definitions apply:
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(1) Adjoining country. The term
adjoining country means a country that
shares an internationally recognized
border with the Democratic Republic of
the Congo.
(2) Armed group. The term armed
group means an armed group that is
identified as a perpetrator of serious
human rights abuses in the most
recently issued annual Country Reports
on Human Rights Practices under
sections 116(d) and 502B(b) of the
Foreign Assistance Act of 1961 (22
U.S.C. 2151n(d) and 2304(b)) relating to
the Democratic Republic of the Congo or
an adjoining country for the year the
annual report is due.
(3) Conflict mineral. The term conflict
mineral means:
(i) columbite-tantalite (coltan),
cassiterite, gold, wolframite, or their
derivatives; or
(ii) any other mineral or its
derivatives determined by the Secretary
of State to be financing conflict in the
Democratic Republic of the Congo or an
adjoining country.
(4) DRC conflict free. The term DRC
conflict free means that a product does
not contain conflict minerals that
directly or indirectly finance or benefit
armed groups in the Democratic
Republic of the Congo or an adjoining
country. Conflict minerals that a
registrant is unable to determine did not
originate in the Democratic Republic of
the Congo or an adjoining country are
not ‘‘DRC conflict free.’’ Conflict
minerals that a registrant obtains from
recycled or scrap sources are considered
DRC conflict free.
Instructions to Item 16
(1) Item 16 applies only to annual
reports, and does not apply to
registration statements on Form 20–F. A
registrant must provide the information
required in Item 16 beginning with the
annual report that it files for its first full
fiscal year beginning after [April 15,
2011].
(2) A registrant that files reports with
the Commission under Sections 13(a)
(15 U.S.C. 78m(a)) or 15(d) (15 U.S.C.
78o(d)) of the Exchange Act, for whom
conflict minerals are necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by that registrant, shall
provide the information required by this
item. A registrant that mines conflict
minerals would be considered to be
manufacturing those minerals for the
purpose of this item.
(3) The information required by this
Item shall not be deemed to be ‘‘filed’’
with the Commission or subject to the
liabilities of section 18 of the Exchange
Act (15 U.S.C. 78r), except to the extent
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18:22 Dec 22, 2010
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that the registrant specifically
incorporates the information by
reference into a document filed under
the Securities Act or the Exchange Act.
The disclosure required by this Item
need not be provided in any filings
other than an annual report on Form
20–F (§ 249.220f of this chapter). Such
information will not be deemed to be
incorporated by reference into any filing
under the Securities Act or the
Exchange Act, except to the extent that
the registrant specifically incorporates it
by reference.
*
*
*
*
*
Instructions as to Exhibits
*
*
*
*
*
16. The Conflict Minerals Report
required by Item 16 of this Form, if
applicable.
*
*
*
*
*
6. Amend Form 40–F (referenced in
§ 249.240f) by adding paragraph (16) to
General Instruction B as follows:
Note: The text of Form 40–F does not, and
this amendment will not, appear in the Code
of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 40–F
*
*
*
*
*
GENERAL INSTRUCTIONS
*
*
*
*
*
B. Information To Be Filed on This
Form
*
*
*
*
*
(16) Conflict Minerals Disclosure
(a) If any conflict minerals, as defined
by paragraph (c)(3) of this Instruction,
are necessary to the functionality or
production of a product manufactured
or contracted to be manufactured by the
registrant in the year covered by the
annual report, the registrant must
disclose in its annual report under a
separate heading entitled ‘‘Conflict
Minerals Disclosure’’ whether any of
these conflict minerals originated in the
Democratic Republic of the Congo or an
adjoining country, as defined by
paragraph (c)(1) of this Instruction, or
that the registrant is not able to
determine that its conflict minerals did
not originate in the Democratic Republic
of the Congo or an adjoining country.
The registrant’s determination of
whether or not any of these conflict
minerals originated in the Democratic
Republic of the Congo or an adjoining
country, or its inability to determine
that these conflict minerals did not
PO 00000
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originate in the Democratic Republic of
the Congo or an adjoining country, must
be based on its reasonable country of
origin inquiry. If the registrant
determines that its conflict minerals
necessary to the functionality or
production of a product manufactured
or contracted to be manufactured by it
did not originate in the Democratic
Republic of the Congo or an adjoining
country, the registrant must make that
disclosure available on its Internet Web
site and must also disclose this
determination in its annual report under
the separate ‘‘Conflict Minerals
Disclosure’’ heading along with the
reasonable country of origin inquiry it
undertook to make its determination,
that its disclosure is located on its
Internet Web site, and the address of
that Internet Web site. The disclosure
must remain on the registrant’s Internet
Web site at least until the registrant files
its subsequent annual report. Also, the
registrant must maintain reviewable
business records to support any such
negative determination.
(b) If any conflict minerals necessary
to the functionality or production of a
product manufactured or contracted to
be manufactured by the registrant
originated in the Democratic Republic of
the Congo or an adjoining country, if the
registrant is unable to determine that
such conflict minerals did not originate
in the Democratic Republic of the Congo
or an adjoining country, or if such
conflict minerals came from recycled or
scrap sources, the registrant must:
(1) Furnish a Conflict Minerals Report
as an exhibit to its annual report with
the following information:
(i) a description of the measures taken
by the registrant to exercise due
diligence on the source and chain of
custody of the conflict minerals or to
exercise due diligence in determining
that the conflict minerals came from
recycled or scrap sources, which shall
include but not be limited to a certified
independent private sector audit of the
Conflict Minerals Report, conducted in
accordance with standards established
by the Comptroller General of the
United States, that shall constitute a
critical component of the registrant’s
due diligence in establishing the source
and chain of custody of the conflict
minerals or that the conflict minerals
came from recycled or scrap sources;
(ii) a certification by the registrant
that it obtained such an independent
private sector audit;
(iii) a description of any of the
registrant’s products manufactured or
contracted to be manufactured
containing conflict minerals that are not
‘‘DRC conflict free,’’ as defined in
paragraph (c)(4) of this Instruction, the
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facilities used to process those conflict
minerals, the country of origin of those
conflict minerals, and the efforts to
determine the mine or location of origin
with the greatest possible specificity;
and
(iv) the audit report prepared by the
independent private sector auditor,
which identifies the entity that
conducted the audit.
(2) In addition to the disclosures
required by paragraph (a) of this
Instruction, disclose under the separate
‘‘Conflict Minerals Disclosure’’ heading
in the annual report that the registrant
has furnished a Conflict Minerals Report
as an exhibit to the annual report; that
the Conflict Minerals Report and the
certified independent private sector
audit report are available on its Internet
Web site; and the Internet address of its
Internet Web site where the Conflict
Minerals Report and audit report are
located.
(3) Make the Conflict Minerals Report,
including the certified audit report,
available to the public by posting the
text of the report on its Internet Web
site. The text of the Conflict Minerals
Report must remain on the registrant’s
Internet Web site at least until the
registrant files its subsequent annual
report.
(c) For the purposes of this
Instruction, the following definitions
apply:
(1) Adjoining country. The term
adjoining country means a country that
shares an internationally recognized
border with the Democratic Republic of
the Congo.
(2) Armed group. The term armed
group means an armed group that is
identified as a perpetrator of serious
human rights abuses in the most
recently issued annual Country Reports
on Human Rights Practices under
sections 116(d) and 502B(b) of the
Foreign Assistance Act of 1961 (22
U.S.C. 2151n(d) and 2304(b)) relating to
the Democratic Republic of the Congo or
an adjoining country for the year the
annual report is due.
VerDate Mar<15>2010
18:22 Dec 22, 2010
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80975
(3) Conflict mineral. The term conflict
mineral means:
(i) columbite-tantalite (coltan),
cassiterite, gold, wolframite, or their
derivatives; or
(ii) any other mineral or its
derivatives determined by the Secretary
of State to be financing conflict in the
Democratic Republic of the Congo or an
adjoining country.
(4) DRC conflict free. The term DRC
conflict free means that a product does
not contain conflict minerals that
directly or indirectly finance or benefit
armed groups in the Democratic
Republic of the Congo or an adjoining
country. Conflict minerals that a
registrant is unable to determine did not
originate in the Democratic Republic of
the Congo or an adjoining country are
not ‘‘DRC conflict free.’’ Conflict
minerals that a registrant obtains from
recycled or scrap sources are considered
DRC conflict free.
the extent that the registrant specifically
incorporates the information by
reference into a document filed under
the Securities Act or the Exchange Act.
The disclosure required by this
Instruction need not be provided in any
filings other than an annual report on
Form 40–F (§ 249.240f of this chapter).
Such information will not be deemed to
be incorporated by reference into any
filing under the Securities Act or the
Exchange Act, except to the extent that
the registrant specifically incorporates it
by reference.
*
*
*
*
*
7. Amend Form 10–K (referenced in
§ 249.310) by adding Item 4(a) as
follows:
Notes to Paragraph (16) of General
Instruction B
(1) Paragraph (16) of General
Instruction B applies only to annual
reports, and does not apply to
registration statements on Form 40–F. A
registrant must provide the information
required in paragraph (16) beginning
with the annual report that it files for its
first full fiscal year beginning after
[April 15, 2011].
(2) A registrant that files reports with
the Commission under Sections 13(a)
(15 U.S.C. 78m(a)) or 15(d) (15 U.S.C.
78o(d)) of the Exchange Act, for whom
conflict minerals are necessary to the
functionality or production of a product
manufactured or contracted to be
manufactured by that registrant, shall
provide the information required by this
Instruction. A registrant that mines
conflict minerals would be considered
to be manufacturing those minerals for
the purpose of this Instruction.
(3) The information required by this
Instruction shall not be deemed to be
‘‘filed’’ with the Commission or subject
to the liabilities of section 18 of the
Exchange Act (15 U.S.C. 78r), except to
SECURITIES AND EXCHANGE
COMMISSION
PO 00000
Frm 00029
Fmt 4701
Sfmt 9990
Note: The text of Form 10–K does not, and
this amendment will not, appear in the Code
of Federal Regulations.
UNITED STATES
Washington, DC 20549
FORM 10–K
*
*
*
*
*
*
*
*
PART I
*
*
Item 4. Specialized Disclosures
(a) Furnish the information required
by Item 104 of Regulation S–K
(§ 229.104 of this chapter).
Instruction
A registrant must provide the
information required in Item 4
beginning with the annual report that it
files for its first full fiscal year beginning
after [April 15, 2011].
*
*
*
*
*
By the Commission.
Dated: December 15, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–31940 Filed 12–22–10; 8:45 am]
BILLING CODE 8011–01–P
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[Federal Register Volume 75, Number 246 (Thursday, December 23, 2010)]
[Proposed Rules]
[Pages 80948-80975]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31940]
[[Page 80947]]
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Part III
Securities and Exchange Commission
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17 CFR Parts 229 and 249
Conflict Minerals; Proposed Rule
Federal Register / Vol. 75 , No. 246 / Thursday, December 23, 2010 /
Proposed Rules
[[Page 80948]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229 and 249
[Release No. 34-63547; File No. S7-40-10]
RIN 3235-AK84
Conflict Minerals
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: We are proposing changes to the annual reporting requirements
of issuers that file reports pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934 to implement Section 1502 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act. The proposed
rules would require any issuer for which conflict minerals are
necessary to the functionality or production of a product manufactured,
or contracted to be manufactured, by that issuer to disclose in the
body of its annual report whether its conflict minerals originated in
the Democratic Republic of the Congo or an adjoining country. If so,
that issuer would be required to furnish a separate report as an
exhibit to its annual report that includes, among other matters, a
description of the measures taken by the issuer 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 issuer's report
conducted in accordance with standards established by the Comptroller
General of the United States. Further, any issuer furnishing such a
report would be required, in that report, to certify that it obtained
an independent private sector audit of its report, provide the audit
report, and make its reports available to the public on its Internet
Web site.
DATES: Comments should be received on or before January 31, 2011.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed.shtml);
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-40-10 on the subject line; or
Use the Federal Rulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-40-10. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and copying in the Commission's
Public Reference Room 100 F Street, NE., Washington, DC 20549-1090, on
official business days between the hours of 10 a.m. and 3 p.m. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: John Fieldsend, Special Counsel in the
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430, 100 F Street, NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: The Commission is proposing to add a new
Item 104 to Regulation S-K,\1\ revise Item 601 of Regulation S-K,\2\
and amend Form 20-F,\3\ Form 40-F,\4\ and Form 10-K \5\ under the
Securities Exchange Act of 1934 (the ``Exchange Act'').\6\
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\1\ 17 CFR 229.10 et seq.
\2\ 17 CFR 229.601.
\3\ 17 CFR 249.220f.
\4\ 17 CFR 249.240f.
\5\ 17 CFR 249.310.
\6\ 15 U.S.C. 78a et seq.
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Table of Contents
I. Background and Summary
A. Statutory Requirements
B. Overview of Proposed Rules
II. Discussion
A. Conflict Minerals
B. Step One--Determining Issuers Covered by the Conflict
Minerals Provision
1. Issuers That File Reports Under the Exchange Act
2. ``Manufacture'' and ``Contract to Manufacture'' Products
3. Mining Issuers as ``Manufacturing'' Issuers
4. When Conflict Minerals are ``Necessary'' to a Product
C. Step Two--Determining Whether Conflict Minerals Originated in
the DRC Countries and the Resulting Disclosure
1. Location of Disclosure
2. Standard for Disclosure
D. Step Three--Conflict Minerals Report's Content and Supply
Chain Due Diligence
1. Content of Conflict Minerals Report
2. Location and Furnishing of Conflict Minerals Report
3. Due Diligence Standard in the Conflict Minerals Report
E. Time Periods
1. Furnishing of the Initial Disclosure and Conflict Minerals
Report
2. Time Period in Which Conflict Minerals Must be Disclosed or
Reported
F. Thresholds, Alternatives, Termination, Revisions, and Waivers
1. Materiality Threshold
2. Recycled and Scrap Minerals
3. Termination, Revisions, and Waivers
G. General Request for Comment
III. Paperwork Reduction Act
A. Background
B. Burden and Cost Estimates Related to the Proposed Amendments
1. Form 10-K
2. Regulation S-K
3. Form 20-F
4. Form 40-F
C. Summary of Proposed Changes to Annual Compliance Burden in
Collection of Information
D. Request for Comment
IV. Cost-Benefit Analysis
A. Benefits
B. Costs
V. Consideration of Burden on Competition and Promotion of
Efficiency, Competition, and Capital Formation
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Reporting, Recordkeeping, and Other Compliance Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Solicitation of Comment
VII. Small Business Regulatory Enforcement Fairness Act
VIII. Statutory Authority and Text of The Proposed Rule and Form
Amendments
I. Background and Summary
A. Statutory Requirements
Section 1502 (the ``Conflict Minerals Provision'') of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Act'') \7\
amends the Exchange Act by adding new Section 13(p).\8\ The Commission
is required pursuant to new Section 13(p) to issue final rules
implementing Section 13(p) no later than 270 days after the date of
enactment, or April 15, 2011.\9\ Section 13(p) requires the Commission
to promulgate disclosure and reporting regulations regarding the use of
conflict minerals from the Democratic Republic
[[Page 80949]]
of the Congo (the ``DRC'') and adjoining countries (together the ``DRC
countries'').\10\ Section 1502(a) of the Conflict Minerals Provision,
which is titled ``Sense of the Congress on Exploitation and Trade of
Conflict Minerals Originating in the Democratic Republic of the
Congo,'' sets forth the background for this provision. In Section
1502(a), Congress provides that: ``It is the sense of the Congress 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 therein,
warranting the provisions of section 13(p) of the Securities Exchange
Act of 1934, as added by subsection (b).'' \11\
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\7\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
\8\ 15 U.S.C. 78m(p).
\9\ See Exchange Act Section 13(p)(1)(A).
\10\ The term ``adjoining country'' is defined in Section
1502(e)(1) of the Act as a country that shares an internationally
recognized border with the DRC.
\11\ Section 1502(a) of the Act.
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Section 13(p) mandates that the Commission promulgate regulations
requiring that a ``person described'' \12\ disclose annually whether
any ``conflict minerals'' \13\ that are ``necessary to the
functionality or production of a product manufactured by such person''
\14\ originated in the DRC countries,\15\ and make that disclosure
publicly available on the issuer's Internet Web site.\16\ If a person's
conflict minerals originated in the DRC countries, that person must
submit a report (the ``Conflict Minerals Report'') to the Commission
that includes a description of the measures taken by the person to
exercise due diligence on the minerals' source and chain of
custody.\17\ In general, undertaking due diligence involves performing
the investigative measures that a reasonably prudent person would
perform in the management of his or her own property. Under Section
13(p), the measures that must be taken to exercise due diligence
``shall include an independent private sector audit'' of the Conflict
Minerals Report that is conducted according to standards established by
the Comptroller General of the United States, in accordance with the
Commission's promulgated rules, in consultation with the Secretary of
State.\18\ The person submitting the Conflict Minerals Report must also
identify the independent private sector auditor \19\ and certify the
independent private sector audit.\20\
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\12\ The term ``person described'' is defined in Exchange Act
Section 13(p)(2) as one (1) who is required to file reports under
Sections 13(p)(1)(A), and (2) the conflict minerals are necessary to
the functionality or production of a product manufactured by such
person. Section 13(p)(1)(A) does not provide a definition but refers
back to Section 13(p)(2).
\13\ The term ``conflict mineral'' is defined in Section
1502(e)(4) of the 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.
\14\ Exchange Act Section 13(p)(2)(B).
\15\ Exchange Act Section 13(p)(1)(A).
\16\ See Exchange Act Section 13(p)(1)(E) (stating that each
issuer ``shall make available to the public on the Internet Web site
of such [issuer] the information disclosed under'' Exchange Act
Section 13(p)(1)(A)).
\17\ See Exchange Act Section 13(p)(1)(A)(i).
\18\ See id. (requiring in the Conflict Minerals Report ``a
description of the measures taken by the person to exercise due
diligence on the source and chain of custody of such [conflict]
minerals, which measures shall include an independent private sector
audit of such report''). The Conflict Minerals Provision assigns
certain responsibilities to other federal agencies. In developing
our proposed rules, our staff has consulted with the staff of these
other agencies, including the Government Accountability Office (the
``GAO''), which is headed by the Comptroller General, and the State
Department.
\19\ See Exchange Act Section 13(p)(1)(A)(ii) (stating that the
issuer must provide a description of the ``entity that conducted the
independent private sector audit in accordance with'' Exchange Act
Section 13(p)(1)(A)(i)'').
\20\ As noted in Exchange Act Section 13(p)(1)(B), if an issuer
is required to provide a Conflict Minerals Report that includes an
independent private sector audit, that issuer ``shall certify the
audit'' and that certified audit ``shall constitute a critical
component of due diligence in establishing the source and chain of
custody of such minerals.''
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Further, the Conflict Minerals Report must include a description of
the products manufactured or contracted to be manufactured that are not
``DRC conflict free,'' the facilities used to process the conflict
minerals, the country of origin of the conflict minerals, and ``the
efforts to determine the mine or location of origin with the greatest
possible specificity.'' \21\ The term ``DRC Conflict Free'' is defined
in Exchange Act Section 13(p)(1)(A)(ii) and Exchange Act Section
13(p)(1)(D) as products that do not contain conflict minerals that
``directly or indirectly finance or benefit armed groups'' in the DRC
countries.\22\ Each person must make their Conflict Minerals Report
available to the public on that person's Internet Web site.\23\
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\21\ See Exchange Act Section 13(p)(1)(A)(ii).
\22\ Id.; Exchange Act Section 13(p)(1)(D).
\23\ Exchange Act Section 13(p)(1)(E).
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B. Overview of Proposed Rules
Our proposed rules would apply to issuers who file reports with the
Commission under Exchange Act Sections 13(a) \24\ or 15(d) \25\ and for
which conflict minerals are ``necessary to the functionality or
production of a product manufactured'' or contracted to be manufactured
by such issuer.\26\ These issuers would be required to disclose, based
on their reasonable country of origin inquiry, in the body of their
annual reports whether their conflict minerals originated in the DRC
countries. If an issuer concludes that its conflict minerals did not
originate in the DRC countries, the issuer would disclose this
determination and the reasonable country of origin inquiry process it
used in reaching this determination in the body of its annual report.
Also, the issuer would be required to provide on its Internet Web site
its determination that its conflict minerals did not originate in the
DRC countries, disclose that this information is available on its Web
site and the Internet address of that site in the body of its annual
report, and maintain records demonstrating that its conflict minerals
did not originate in the DRC countries. If the issuer concludes that
its conflict minerals did originate in the DRC countries, or is unable
to conclude that its conflict minerals did not originate in the DRC
countries, the issuer would similarly disclose this conclusion, note
that the Conflict Minerals Report is furnished as an exhibit to the
annual report, furnish the Conflict Minerals Report, make available the
Conflict Minerals Report on its Internet Web site, disclose that the
Conflict Minerals Report is posted on its Internet Web site, and
provide the Internet address of that site.
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\24\ 15 U.S.C. 78m(a).
\25\ 15 U.S.C. 78o(d).
\26\ Exchange Act Section 13(p)(2)(B).
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As required by Section 13(p), our proposed rules would require that
an issuer provide, in its Conflict Minerals Report, a description of
the measures it had taken to exercise due diligence on the source and
chain of custody of its conflict minerals, which would have to include
a certified independent private sector audit of the Conflict Minerals
Report that identifies the auditor and is furnished as part of the
Conflict Minerals Report. Further, the issuer would be required to
include in the Conflict Minerals Report a description of its products
manufactured or contracted to be manufactured containing conflict
minerals that are not ``DRC conflict free,'' \27\ the facilities used
to process those conflict minerals, those conflict minerals' country of
origin, and the efforts to determine the mine or location of origin
with the greatest
[[Page 80950]]
possible specificity. The issuer would be required to exercise due
diligence in making these determinations in the Conflict Minerals
Report.
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\27\ The definition of the term ``DRC conflict free'' in our
proposed rules would be identical to the definition in Exchange Act
Sections 13(p)(1)(A)(ii) and 13(p)(1)(D).
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II. Discussion
The Conflict Minerals Provision establishes, and we are likewise
proposing, a disclosure requirement for conflict minerals that is
divided into three steps. The first step required by Section 1502 is
for the issuer to determine whether it is subject to the Conflict
Minerals Provision. An issuer is only subject to the Conflict Minerals
Provision if it is a ``person described,'' which the Conflict Minerals
Provision defines as one for whom ``conflict minerals are necessary to
the functionality or production of a product manufactured by such
person.'' \28\ If an issuer does not meet this definition, the issuer
would not be required to take any action, make any disclosures, or
submit any reports. If, however, an issuer meets this definition, that
issuer would move to the second step.
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\28\ Exchange Act Section 13(p)(2).
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The second step would require the issuer to determine after a
reasonable country of origin inquiry whether its conflict minerals
originated in the DRC countries. If the issuer determines that its
conflict minerals did not originate in the DRC countries, the issuer
would disclose this determination and the reasonable country of origin
inquiry it used in reaching this determination in the body of its
annual report.\29\ If, however, the issuer determines that its conflict
minerals did originate in the DRC countries, or if it is unable to
conclude that its conflict minerals did not originate in the DRC
countries, the issuer would disclose this conclusion in its annual
report and move to the third step.\30\
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\29\ The issuer also would be required to make available this
disclosure on its Internet Web site, disclose in its annual report
that the disclosure is posted on its Internet Web site, and disclose
the Internet address on which this disclosure is posted. Such an
issuer, however, would not have any further disclosure or reporting
obligations with regard to its conflict minerals.
\30\ The issuer also would be required make its Conflict
Minerals Report available to the public on its Internet Web site,
disclose in its annual report that the Conflict Minerals Report is
posted on its Internet Web site, and disclose the Internet address
on which the Conflict Minerals Report is posted.
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Finally, the third step under the Conflict Minerals Provision would
require an issuer with conflict minerals that originated in the DRC
countries, or an issuer that is unable to conclude that its conflict
minerals did not originate in the DRC countries, to furnish a Conflict
Minerals Report as described in greater detail below. As required by
Section 13(p)(1)(A)(ii), in the Conflict Minerals Report, the issuer
would be required to provide, among other information, a description of
any of its products that contain conflict minerals that it is unable to
determine did not ``directly or indirectly finance or benefit armed
groups'' in the DRC countries.\31\ The issuer would identify such
products by describing them as not ``DRC conflict free.'' If any of its
products contain conflict minerals that do not ``directly or indirectly
finance or benefit'' these armed groups, the issuer may describe such
products as ``DRC conflict free,'' whether or not the minerals
originated in the DRC countries.
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\31\ See Exchange Act Section 13(p)(1)(A)(ii).
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A. Conflict Minerals
The Conflict Minerals Provision defines the term ``conflict
mineral'' as cassiterite, columbite-tantalite, gold, wolframite, or
their derivatives, or any other minerals or their derivatives
determined by the Secretary of State to be financing conflict in the
DRC countries.\32\ Cassiterite is the metal ore that is most commonly
used to produce tin, which is used in alloys, tin plating, and solders
for joining pipes and electronic circuits.\33\ Columbite-tantalite is
the metal ore from which tantalum is extracted. Tantalum is used in
electronic components, including mobile telephones, computers,
videogame consoles, and digital cameras, and as an alloy for making
carbide tools and jet engine components.\34\ Gold is used for making
jewelry and, due to its superior electric conductivity and corrosion
resistance, is also used in electronic, communications, and aerospace
equipment.\35\ Finally, wolframite is the metal ore that is used to
produce tungsten, which is used for metal wires, electrodes, and
contacts in lighting, electronic, electrical, heating, and welding
applications.\36\ Based on the many uses of these minerals, we expect
the Conflict Minerals Provision to apply to many companies and
industries.
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\32\ Section 1502(e)(4) of the Act. Presently, the Secretary of
State has not designated any other mineral as a conflict mineral.
Therefore, the conflict minerals include only cassiterite,
columbite-tantalite, gold, wolframite, or their derivatives.
\33\ Tin Statistics and Information, U.S. Geological Survey.
available at, https://minerals.usgs.gov/minerals/pubs/commodity/tin/.
\34\ Niobium (Columbium) and Tantalum Statistics and
Information, U.S. Geological Survey, available at, https://minerals.usgs.gov/minerals/pubs/commodity/niobium.
\35\ Gold Statistics and Information, U.S. Geological Survey,
available at, https://minerals.usgs.gov/minerals/pubs/commodity/gold.
\36\ Tungsten Statistics and Information, U.S. Geological
Survey, available at, https://minerals.usgs.gov/minerals/pubs/commodity/tungsten.
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B. Step One--Determining Issuers Covered by the Conflict Mineral
Provision
1. Issuers That File Reports Under the Exchange Act
Our proposed rules would apply to any issuer that files reports
with the Commission under the Exchange Act, provided that the issuer is
a ``person described'' under the Conflict Minerals Provision. The
Conflict Minerals Provision defines a ``person described'' as one for
whom conflict minerals are ``necessary to the functionality or
production of a product manufactured by such person.'' \37\ We note
that the provision could be read to apply to any company, including
companies that are not subject to Commission reporting requirements, or
individuals, so long as conflict minerals are necessary to the
functionality or production of a product manufactured by that entity or
individual. Such a broad reading of the provision, however, does not
appear warranted given the provision's background and its location in
the section of the Exchange Act dealing with reporting issuers.\38\
Conversely, the Conflict Minerals Provision does not limit its
disclosure or reporting obligations to issuers of any particular size.
Again, the only limiting factor appears to be whether conflict minerals
are ``necessary to the functionality or production'' of an issuer's
products.\39\ Based on these considerations, we are not proposing to
include an exemption for smaller reporting companies, although we
request comment below on whether that would be appropriate.
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\37\ See supra note 12.
\38\ H.R. Rep. No. 111-517, Joint Explanatory Statement of the
Committee of Conference, Title XV, ``Conflict Minerals,'' at 879
(Conf. Rep.) (June 29, 2010) (``The conference report requires
disclosure to the SEC by all persons otherwise required to file with
the SEC for whom minerals originating in the Democratic Republic of
Congo and adjoining countries are necessary to the functionality or
production of a product manufactured by such person.''); 156 Cong.
Rec. S3978 (daily ed. May 19, 2010) (statement of Sen. Feingold)
(stating that the ``Brownback amendment was narrowly crafted'' and,
in discussing the provision, referring only to ``companies on the
U.S. stock exchanges''); 156 Cong. Rec. S3865-66 (daily ed. May 18,
2010) (stating that the Conflict Minerals Provision ``is a narrow
SEC reporting requirement'' and referring only to ``SEC reporting
requirements'' in discussing the provision); and 156 Cong. Rec.
S3816-17 (daily ed. May 17, 2010) (statement of Sen. Durbin)
(stating that the provision ``would require companies listed on the
New York Stock Exchange to disclose in their SEC filings'').
\39\ Exchange Act Section 13(p)(2)(B).
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We have received letters and other communications with a variety of
recommendations regarding the Conflict
[[Page 80951]]
Minerals Provision and our rulemaking,\40\ including those that
discussed what the provision's definition of a ``person described''
should be construed to mean. Specifically, one industry group
representative stated that the term was intended to apply solely to
persons who file periodic reports under Section 13(a)(2) of the
Exchange Act, although that representative indicates that the provision
is unclear as written.\41\ A separate individual who submitted a letter
to us stated that the provision's definition of the term is broad and
appears to cover more than only reporting issuers.\42\ Finally, another
issuer that submitted a letter to us indicated our rules should define
a ``person described'' in the broadest possible sense so that it
includes non-reporting companies.\43\ This issuer stated that, because
the provision's intent is to limit the exploitation and trade of
conflict minerals so as to prevent human rights abuses, and the
provision is not necessarily intended to protect investors, the scope
of the provision should include more than just reporting issuers.
Further, the issuer stated that applying our proposed rules only to
reporting issuers would unfairly burden reporting issuers and damage
their competitive position.
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\40\ To facilitate public input on the Act, the Commission has
provided a series of e-mail links, organized by topic, on its Web
site at https://www.sec.gov/spotlight/regreformcomments.shtml. The
public comments we have received on the topic of the Conflict
Minerals Provision are available on our Web site at https://www.sec.gov/comments/df-title-xv/specialized-disclosures/specializeddisclosures-8.pdf.
\41\ See letter from Jewelers Vigilance Committee.
\42\ See letter from Stuart P. Seidel, Esq. (stating that a
person described is ``not the usual SEC `issuer' requirement and
appears much broader'').
\43\ See letter from Tiffany & Co.
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We recognize there is some ambiguity as to whom the Conflict
Minerals Provision applies given that the Conflict Minerals Provision
states that the Commission shall promulgate regulations for any
``person described,'' \44\ and the provision states that a ``person is
described'' if ``conflict minerals are necessary to the functionality
or production of a product manufactured by such person.'' \45\
Therefore, the Conflict Minerals Provision could be interpreted to
apply to a wide range of private companies not previously subject to
our disclosure and reporting rules. However, given the provision's
legislative background, its statutory location, and the absence of
Congressional direction to apply these provisions to companies not
previously subject to those rules,\46\ we do not propose to extend the
rules beyond reporting companies. Also, even if we were to interpret
the provision in this manner, it is uncertain how the Commission could
administer such a program. Therefore, our proposed rules would apply
only to issuers that file reports with the Commission under Section
13(a) or Section 15(d) of the Exchange Act, although we request comment
on this question below.\47\ Consistent with the statutory language, our
rules would apply to domestic companies, foreign private issuers, and
smaller reporting companies. The statutory language does not suggest an
exemption for foreign private issuers or smaller reporting companies
and our proposal, therefore, would cover those issuers, although we
request comment on this question below.
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\44\ See Exchange Act Section 13(p)(1)(A).
\45\ See supra note 12.
\46\ See H.R. Rep. No. 111-517, Joint Explanatory Statement of
the Committee of Conference, Title XV, ``Conflict Minerals,'' at 879
(Conf. Rep.) (June 29, 2010) (``The conference report requires
disclosure to the SEC by all persons otherwise required to file with
the SEC for whom minerals originating in the Democratic Republic of
Congo and adjoining countries are necessary to the functionality or
production of a product manufactured by such person.'')
\47\ Section 13(a) requires issuers with classes of securities
registered under Section 12 of the Exchange Act to file periodic and
other reports. 15 U.S.C. 78l. Section 15(d) requires issuers with
effective registration statements under the Securities Act of 1933
(the ``Securities Act'') to file reports similar to Section 13(a)
for the fiscal year within which such registration statement became
effective. 15 U.S.C. 77a et seq. Therefore, if our proposed rules
did not include issuers required to file reports under Section
15(d), some issuers who file annual reports may not otherwise be
required to comply with our proposed conflict minerals rules.
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Request for Comment
1. Should our reporting standards, as proposed, apply to all
conflict minerals equally? \48\
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\48\ See the petition attached to the memorandum of the November
18, 2010 meeting with Chairman Mary L. Schapiro and with John
Prendergast and Darren Fenwick of The Enough Project, Sasha Lezhnev
of Grassroots Reconciliation Group, and Deborah R. Meshulam of DLA
Piper (calling on the Commission to promulgate rules that would
require equal reporting standards for all the conflict minerals),
available at, https://www.sec.gov/comments/df-title-xv/specialized-disclosures/specializeddisclosures-80.pdf.
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2. Should our rules, as proposed, apply to all issuers that file
reports under Sections 13(a) and 15(d) of the Exchange Act? If not, to
what issuers or other persons should our rules apply? Should we require
an issuer that has a class of securities exempt from Exchange Act
registration pursuant to Exchange Act Rule 12g3-2(b) \49\ to provide
the disclosure and reporting requirements in its home country annual
report or in a report on EDGAR? Would such an approach be consistent
with the Act? \50\
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\49\ 17 CFR 240.12g3-2(b). A foreign private issuer may claim
that exemption as long as it meets a foreign listing requirement,
publishes its material home country documents in English on its
Internet Web site or through another electronic information delivery
system that is generally available to the public in its primary
trading market, and otherwise is not required to file Exchange Act
reports. A foreign private issuer typically relies on the Rule 12g3-
2(b) exemption in order to establish an unlisted American Depositary
Receipt (``ADR'') facility for the issuance and trading of ADRs
through the over-the-counter market.
\50\ The Commission has not considered Rule 12g3-2(b)-exempt
companies to be subject to Exchange Act reporting and filing
requirements. Prior to the amendment to Rule 12g3-2(b) in 2008, we
required issuers claiming the Rule 12g3-2(b) exemption to furnish
paper copies of their material home country documents to the
Commission. The documents were deemed furnished and not filed under
the Exchange Act because they were subject to their home country,
and not Exchange Act, disclosure rules.
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3. Should we have an alternative interpretation of a ``person
described?''
4. Should our rules apply to foreign private issuers, as proposed?
Should we exempt such issuers and, if so, why and on what basis? Should
the rules otherwise be adjusted in some fashion for foreign private
issuers?
5. Would our proposed rules present undue costs to smaller
reporting companies? If so, how could we mitigate those costs? Also, if
our proposed rules present undue costs to smaller reporting companies,
do the benefits of making their conflict minerals information publicly
available justify these costs? Should our rules provide an exemption
for smaller reporting companies? Alternatively, should our rules
provide more limited disclosure and reporting obligations for smaller
reporting companies? If so, what should these limited requirements
entail? For example, should our rules require smaller reporting
companies to disclose, if true, that conflict minerals are necessary to
the functionality or production of their products but not require those
issuers to disclose whether those conflict minerals originated in the
DRC countries or to furnish a Conflict Minerals Report? Should our
rules provide for a delayed implementation date for smaller reporting
companies in order to provide them additional time to prepare for the
requirement and the benefit of observing how larger companies comply?
6. Should we require that all individuals and entities, regardless
of whether they are reporting issuers, private companies, or
individuals who manufacture products for which conflict minerals are
necessary to the functionality or production of the products, provide
the conflict minerals
[[Page 80952]]
disclosure and, if necessary, a Conflict Minerals Report? If so, how
would we oversee such a broad reporting system?
7. Would requiring compliance with our proposed rules only by
issuers filing reports under the Exchange Act unfairly burden those
issuers and place them at a significant competitive disadvantage
compared to companies that do not file reports with us? If so, how can
we lessen that impact?
8. General Instruction I to Form 10-K contains special provisions
for the omission of certain information by wholly-owned subsidiaries.
General Instruction J to Form 10-K contains special provisions for the
omission of certain information by asset-backed issuers. Should either
or both of these types of registrants be permitted to omit the proposed
conflict minerals disclosure in the annual reports on Form 10-K?
2. ``Manufacture'' and ``Contract To Manufacture'' Products
The Conflict Minerals Provision applies to any person for whom
conflict minerals are necessary to the functionality or production of a
product manufactured by that person.\51\ It appears, therefore, that
the Conflict Minerals Provision was not intended to apply to all
issuers, but was intended to apply only to issuers that manufacture
products. In this regard, our proposed rules would likewise apply to
reporting issuers that manufacture products.
---------------------------------------------------------------------------
\51\ See Exchange Act Section 13(p)(2)(B).
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We do not propose to define the term ``manufacture'' in our rules,
since we believe it is generally understood.\52\ We note that some of
those submitting letters in advance of this rulemaking have suggested
our proposed rules should define the term ``manufacturing'' with
greater specificity and have provided their views on this matter. One
non-governmental organization (``NGO'') stated that the term
``manufactured'' should be defined as the ``production, preparation,
assembling, combination, compounding, or processing of ingredients,
materials, and/or processes such that the final product has a name,
character, and use, distinct from the original ingredients, materials,
and/or processes.'' \53\ An industry group indicated that the term
manufacture should exempt issuers involved in the ``mining, processing,
refining, alloying, fabricating, importing, exporting or sale'' of gold
and those engaged in ``jewelry repairs or refurbishment, * * * setting
or re-setting diamonds or gemstones into mountings or * * * [the]
manufactur[ing of] individual custom jewelry pieces.'' \54\ We are not
proposing to define the term, but we request comment on that point
below.
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\52\ For example, the Second Edition of the Random House
Webster's Dictionary defines the term to include the ``making goods
or wares by hand or machinery, esp. on a large scale.'' Random House
Webster's Dictionary 403(2d ed. 1996).
\53\ See letter from The Enough Project.
\54\ See letter from Jewelers Vigilance Committee.
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One section of the Conflict Minerals Provision defines a ``person
described'' as one for which conflict minerals are ``necessary to the
functionality or production of a product manufactured by such a
person,'' \55\ while another section of the provision requires issuers
to describe ``the products manufactured or contracted to be
manufactured that are not DRC conflict free'' [emphasis added] in their
Conflict Mineral Reports.\56\ The absence of the phrase ``contract to
manufacture'' from the ``person described'' definition raises some
question as to whether the requirements apply equally to those who
manufacture products themselves and those who contract to have their
products manufactured by others. Based on the totality of the
provision, however, it appears that the legislative intent was for the
provision to apply both to issuers that directly manufacture products
and to issuers that contract the manufacturing of their products for
which conflict minerals are necessary to the functionality or
production of those products. Our proposed rules, therefore, would
apply equally to issuers that manufacture products and to issuers that
``contract to manufacture'' their products. We believe that this
approach would allow the ``contracted to be manufactured'' language to
have effect in the Conflict Minerals Report.
---------------------------------------------------------------------------
\55\ Exchange Act Section 13(p)(2)(B).
\56\ Exchange Act Section 13(p)(1)(A)(ii).
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With regard to what it means to ``contract to manufacture a
product,'' an industry group expressed concern that our rules could
include retailing issuers' private label goods.\57\ Two of the
Congressmen who sponsored Section 1502 have stated in a letter
submitted to us that rules implementing the provision should ``exempt
pure retailers'' from any reporting requirements.\58\ In this regard,
they suggested that the rules should clarify that retailers who sell
``pure `white label' products,'' products over which retailers have no
influence regarding their manufacture, would not be required to provide
information regarding any conflict minerals in those products. Also,
they indicated that the rules should include products that a retailer
``contracts to be manufactured or for which the retailer issues unique
product requirements.'' \59\
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\57\ See letter from National Retail Federation.
\58\ Letter from Senator Richard J. Durbin and Representative
Jim McDermott, United States Congress.
\59\ Id.
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We intend that our proposed rules would apply to issuers that
contract for the manufacturing of products over which they have any
influence regarding the manufacturing of those products. They also
would apply to issuers selling generic products under their own brand
name or a separate brand name that they have established, regardless of
whether those issuers have any influence over the manufacturing
specifications of those products, as long as an issuer has contracted
with another party to have the product manufactured specifically for
that issuer. We do not, however, propose that our rules would apply to
retail issuers that sell only the products of third parties if those
retailers have no contract or other involvement regarding the
manufacturing of those products, or if those retailers do not sell
those products under their brand name or a separate brand they have
established and do not have those products manufactured specifically
for them.
Request for Comment
9. Should we define the term ``manufacture?'' If so, how should we
define the term?
10. Should our rules, as proposed, apply both to issuers that
manufacture and issuers that contract to manufacture products in which
conflict minerals are necessary to the functionality or production of
those products?
11. Should we require a minimum level of influence, involvement, or
control over the manufacturing process before an issuer must comply
with our proposed rules? If so, how should we articulate the minimum
amount? Should we require issuers to have nominal, minimal,
substantial, total, or another level of control over the manufacturing
process before those issuers become subject to our rules? How would
those amounts be measured? Should we require that issuers must, at
minimum, mandate that the product be manufactured according to
particular specifications?
12. Is it appropriate to consider issuers who sell generic products
under their own labels or labels that they establish to be contracting
the manufacture of those products as long as those issuers have
contracted with other parties to have the products manufactured
specifically for them? If not, what would be a more appropriate
approach?
[[Page 80953]]
3. Mining Issuers as ``Manufacturing'' Issuers
As a separate but related issue, our proposed rules would consider
issuers that mine conflict minerals, including issuers that mine gold,
to be manufacturing those minerals, and issuers contracting for the
mining of conflict minerals to be contracting the manufacturing of
those minerals. In this regard, we have received input that our
proposed rules should not consider a gold mining issuer as
manufacturing or contracting to manufacture gold.\60\ Conversely,
another view expressed to us by an NGO was that our proposed rules
should consider mining commensurate with manufacturing or contracting
to manufacture.\61\ This NGO cited to and quoted from the United States
Controlled Substances Act,\62\ which includes mining under the
definition of manufacturing. We are proposing in an instruction to our
proposed rules \63\ that mining issuers should be considered to be
manufacturing conflict minerals when they extract those minerals.\64\
We do, however, request comment on this point below.
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\60\ See letter from Jewelers Vigilance Committee (stating that
our proposed ``rules should make clear that the mining, processing,
refining, alloying, fabricating, importing, exporting or sale of
gold does not constitute `manufacture' '').
\61\ See letter from The Enough Project.
\62\ 21 U.S.C.A. 802(15), the United States Controlled
Substances Act, which defines the term ``manufacture'' as the
production, preparation, propagation, compounding, or processing of
a drug or other substance, either directly or indirectly or by
extraction from substances of natural origin'').
\63\ New Item 4(a) of Form 10-K (through new Instruction 1 to
Item 104 of Regulation S-K), new Instruction 2 to Item 16 of Form
20-F, and new Instruction 2 to General Instruction B(16) of Form 40-
F.
\64\ See Industry Guide 7 [17 CFR 229.802(g)] (implying that
companies may ``produce'' minerals from a mining reserve).
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Request for Comment
13. Is it appropriate for our rules, as proposed, to consider
reporting issuers that are mining companies as ``persons described''
under Section 1502? Does the extraction of conflict minerals from a
mine constitute ``manufacturing'' or ``contracting to manufacture'' a
``product'' such that mining issuers should be subject to our rules?
14. Alternatively, should a mining issuer not be viewed as
manufacturing a product under our rules unless it engages in additional
processes to refine and concentrate the extracted minerals into salable
commodities or otherwise changes the basic composition of the extracted
minerals?
15. If so, what transformative processes, if any, should mining
issuers be permitted to perform on conflict minerals before our
proposed rules should consider them to be manufacturing products to
which conflict minerals are necessary?
4. When Conflict Minerals are ``Necessary'' to a Product
The Conflict Minerals Provision requires the Commission to
promulgate regulations requiring that any ``person described'' disclose
annually whether conflict minerals that are ``necessary'' originated in
the DRC countries and, if so, submit to the Commission a Conflict
Minerals Report.\65\ The provision further states that a ``person is
described'' if ``conflict minerals are necessary to the functionality
or production of a product manufactured by such person.'' \66\ The
provision, however, provides no additional explanation or guidance as
to the meaning of this phrase. Likewise, we do not propose to define
when a conflict mineral is necessary to the functionality or production
of a product. We are, however, requesting comment on whether our rules
should define this phrase and, if so, how.
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\65\ Exchange Act Section 13(p)(1)(A).
\66\ Exchange Act Section 13(p)(2)(B).
---------------------------------------------------------------------------
We have received differing input as to when a conflict mineral
should be considered necessary to the functionality or production of a
product for purposes of the Conflict Minerals Provision. One NGO stated
that the term ``necessary'' should be interpreted broadly and, at a
minimum, include conflict minerals that are ``intentionally added,''
``closely related,'' or ``directly essential'' to the production of a
product.\67\ That NGO indicated also that a conflict mineral is
necessary when it is ``required for the financial success or
marketability of the product.'' \68\ Further, the NGO affirmed that it
believes that our proposed rules should exempt any product that
contains naturally occurring trace amount of conflict minerals.\69\ Two
of the Congressional sponsors of Section 1502 indicated that ``it is
the policy of Section 1502 to require transparency of all sourcing of
conflict minerals'' from the DRC countries, so they believe the
provision was intended ``to include all uses of conflict minerals
coming from DRC--except those that are `naturally occurring' or
`unintentionally included' in the product.'' \70\
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\67\ Letter from The Enough Project.
\68\ Id.
\69\ Id.
\70\ Letter from Senator Richard J. Durbin and Representative
Jim McDermott, United States Congress.
---------------------------------------------------------------------------
While we are not proposing to define ``necessary to the
functionality or production,'' we note that if a mineral is necessary,
the product is covered without regard to the amount of the mineral
involved.\71\ Further, we intend our proposed rules to include products
if the conflict mineral is intentionally included in a product's
production process and is necessary to that process, even if that
conflict mineral is not ultimately included anywhere in the final
product.\72\ On the other hand, conflict minerals necessary to the
functionality or production of a physical tool or machine used to
produce a product would not be considered necessary to the production
of the product even if that tool or machine is necessary to producing
the product. For example, if an automobile containing no conflict
minerals is produced using a wrench that contains conflict minerals
necessary to the functionality or production of that wrench, we would
not consider the conflict minerals in that wrench necessary to the
production of the automobile.
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\71\ See discussion infra Part II.F.1.
\72\ See letter from Senator Richard J. Durbin and
Representative Jim McDermott, United States Congress (``All users of
conflict minerals that originate from the Democratic Republic of the
Congo an adjoining countries that are not naturally occurring * * *
or are a purely unintentional byproduct * * * need to be subject to
reporting and transparency.'').
---------------------------------------------------------------------------
Request for Comment
16. Should our rules define the phrase ``necessary to the
functionality or production of a product,'' or is that phrase
sufficiently clear without a definition? If our rules should define the
phrase, how should it be defined?
17. If we were to define this phrase, should we delineate it to
mean that a conflict mineral would be necessary to a product's
functionality only if the conflict mineral is necessary to the
product's basic function? If so, should we define the term ``basic
function'' and, if so, how should we define that term? Should we define
the term to include components of a product if those components are
necessary to the product's basic function such that a conflict mineral
would be considered necessary to the functionality of a product if the
conflict mineral is necessary to the functionality of any of the
product's components that are required for that product's basic
function? For example, if the only conflict minerals in an automobile
are contained in the automobile's radio, should our proposed rules
consider those conflict minerals necessary to the automobile's
functionality even if the
[[Page 80954]]
automobile's basic function is for transportation? If that radio is
marketed and sold with the automobile, should our proposed rules
consider the conflict minerals that are isolated in the radio necessary
to the functionality of the automobile? Alternatively, should such a
definition consider only conflict minerals isolated in an automobile
component required specifically for the automobile's basic function as
necessary for the functionality of the automobile?
18. If we were to define the phrase ``necessary to the
functionality,'' should we delineate it to mean that a conflict mineral
would be necessary to a product's functionality if the conflict mineral
is included in a product for any reason because that conflict mineral
would be contributing to the product's economic utility? Does the fact
that, if a conflict mineral is not ``necessary'' it, axiomatically,
could be excluded from the product or the manufacturing process support
such a broad reading?
19. Should we define the phrase to indicate that, as one letter
suggested, a conflict mineral should be considered necessary when
``[t]he conflict mineral is intentionally added to the product; or
[t]he conflict mineral is used by the [issuer] for the production of a
product and such mineral is purchased in mineral form by the [issuer]
and used by the [issuer] in the production of the final product but
does not appear in the final product; and [t]he conflict mineral is
essential to the product's use or purpose; or [t]he conflict mineral is
required for the marketability of the product?'' \73\
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\73\ See letter submitted by Patricia Jurewicz on November 18,
2010 (the ``Multi-Stakeholder Group Letter'') (representing a
consortium of NGOs, large issuers, and socially responsible
institutional investors).
---------------------------------------------------------------------------
20. Should we delineate the phrase ``necessary to the production''
to mean that a conflict mineral would be necessary to a product's
production only if the conflict mineral is intentionally included in a
product's production process even if that conflict mineral is not
ultimately included in the final product because it was removed or
washed away prior to the completion of the production process? Should
we consider conflict minerals necessary to the production of a product
if they are not contained in the product but they are necessary to the
functionality or production of a physical tool or machine used to
produce a product? Should we consider such conflict minerals necessary
to the production of a product if the tool or machine used to produce
the product was manufactured for the purpose of producing the product?
Would such an approach cover too broad a group of tools or machines?
Should we limit such an approach to certain kinds of tools or machines,
and if so, which ones? Should we be more specific and provide, as a
letter recommended, that a conflict mineral is necessary to a product's
production only if it is ``used by [an issuer] for the production of a
product and such mineral is purchased in mineral form by the [issuer]
and used by the [issuer] in the production of the final product but
does not appear in the final product?'' \74\
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\74\ See id.
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21. Should we delineate the phrase ``necessary to the production''
so that our rules would not consider conflict minerals occurring
naturally in a product or conflict minerals that are purely an
unintentional byproduct of the product as necessary to the production
of that product?
C. Step Two--Determining Whether Conflict Minerals Originated in the
DRC Countries and the Resulting Disclosure
If conflict minerals are necessary to the functionality or
production of a product manufactured by that issuer, the Conflict
Minerals Provision requires an issuer to disclose whether those
conflict minerals originated in the DRC countries.\75\ If they did not
originate in the DRC countries, the statute requires the issuer to make
available that disclosure on its Internet Web site, but does not
require the issuer to submit anything further to the Commission. If,
however, any of the issuer's conflict minerals originated in the DRC
countries, the provision requires the issuer to submit to the
Commission a Conflict Minerals Report for the portion of its conflict
minerals that originated in the DRC countries, and make that report
available on its Internet Web site.
---------------------------------------------------------------------------
\75\ Exchange Act Section 13(p)(1)(A).
---------------------------------------------------------------------------
The rules we are proposing would require an issuer to disclose
whether its conflict minerals originated in the DRC countries. Under
our proposed rules, an issuer would be required to make a reasonable
country of origin inquiry as to whether its conflict minerals
originated in the DRC countries, but our proposed rules would not set
forth what constitutes a reasonable country of origin inquiry. If,
after a reasonable country of origin inquiry, an issuer concludes that
any of its conflict minerals did not originate in the DRC countries,
the issuer would be required to disclose this in the body of the annual
report and on its Internet Web site.\76\ Also, the issuer would be
required to disclose in the body of the annual report the Internet
address on which the disclosure is posted and retain the information on
the Web site at least until the issuer's subsequent annual report is
filed with the Commission. Further, the issuer would be required to
disclose in the body of its annual report the reasonable country of
origin inquiry it undertook to determine that its conflict minerals did
not originate in the DRC countries and maintain reviewable business
records to support its determination.\77\ The issuer, however, would
not be required to make any other disclosures with regard to its
conflict minerals that did not originate in the DRC countries.
---------------------------------------------------------------------------
\76\ See Exchange Act Section 13(p)(1)(E). The issuer would be
required to keep this information on its Internet Web site until it
filed is subsequent annual report.
\77\ See Multi-Stakeholder Group Letter (suggesting that
entities subject to the Conflict Minerals Provision be required to
maintain reviewable business records to support a negative
determination).
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Under our proposed rules, if an issuer determines through its
reasonable country of origin inquiry that any of its conflict minerals
originated in the DRC countries, or if the issuer is unable to
determine after a reasonable country of origin inquiry that any such
conflict minerals did not originate in the DRC countries, our proposed
rules would require the issuer to disclose this in the body of the
annual report and disclose that the Conflict Minerals Report is
furnished as an exhibit to the annual report. Additionally, the issuer
would be required to make available its Conflict Minerals Report on its
Internet Web site, disclose in the body of its annual report that the
Conflict Minerals Report is posted online, and disclose in the body of
its annual report the Internet address on which the Conflict Minerals
Report is located.\78\ We note, however, that under our proposal such
an issuer would only have to post the Conflict Minerals Report on its
Internet Web site and would not have to post any of the disclosures it
provides in the body of its annual report.\79\
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\78\ See Exchange Act Section 13(p)(1)(E).
\79\ We recognize that there may be instances in which an issuer
determines that its products contain a mixed assortment of conflict
minerals, such that some did not originate in the DRC countries,
some originated in the DRC countries, some have minerals that the
issuer cannot determine did not originate in the DRC countries, or
any combination thereof. If an issuer can determine which conflict
minerals did not originate in the DRC countries, it would not have
to provide a Conflict Minerals Report regarding those minerals.
However, the issuer would still be required to file a Conflict
Minerals Report for the minerals that originated in the DRC
countries or that the issuer was unable to determine did not
originate in the DRC countries.
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[[Page 80955]]
1. Location of Disclosure
Our proposed rules would require disclosure about conflict minerals
in an issuer's annual report on Form 10-K for a domestic issuer, Form
20-F for a foreign private issuer, and Form 40-F for an eligible
Canadian issuer. Section 1502 requires issuers to disclose information
about their conflict minerals annually, but does not otherwise specify
where this disclosure must be located, either in terms of which form or
in terms of where within a particular form. Our proposed rules would
require this disclosure in the existing Form 10-K, Form 20-F, or Form
40-F annual report because issuers are already required to file these
reports so this approach should be less burdensome than requiring a
separate annual report to be filed. Further, to facilitate locating the
conflict minerals disclosure within the annual report without over-
burdening investors with extensive information about conflict minerals
in the body of the report, our proposed rules would require issuers to
include brief conflict minerals disclosure under a separate heading
entitled, ``Conflict Minerals Disclosure,'' and the more extensive,
information in a separate exhibit to the annual report, if required.
To implement Section 1502 of the Act, we are proposing to add new
Item 4(a) of Form 10-K (which references new Item 104(a) of Regulation
S-K), new Item 16(a) of Form 20-F, and a new General Instruction
B(16)(a) of Form 40-F. These rules would require that an issuer
disclose in its annual report under a separate heading, entitled
``Conflict Minerals Disclosure,'' its determination as to whether any
of its conflict minerals originated in the DRC countries, based on its
reasonable country of origin inquiry, and, for its conflict minerals
that do not originate in the DRC countries, a brief description of the
reasonable country of origin inquiry it conducted in making such a
determination. Our proposed rules would not require an issuer who
determines that its conflict minerals did not originate in the DRC
countries, based on its reasonable country of origin inquiry, to
provide any further disclosures.
We are also proposing that an issuer include brief additional
disclosure in the body of the annual report if the issuer's conflict
minerals originated in the DRC countries or if the issuer cannot
determine that its conflict minerals did not originate in the DRC
countries, based on its reasonable country of origin inquiry. We
propose to add new Item 4(a) of Form 10-K, new Item 104(b)(2) of
Regulation S-K, new Item 16(b)(2) of Form 20-F, and new General
Instruction B(16)(b)(2) and Form 40-F to implement this additional
disclosure. These proposed requirements would require an issuer to
disclose that its conflict minerals originated in the DRC countries, or
that it is unable to conclude that its conflict minerals did not
originate in the DRC countries, that its Conflict Minerals Report has
been furnished as an exhibit to the annual report, that the Conflict
Minerals Report, including the certified independent private sector
audit, is publicly available on the issuer's Internet Web site, and the
issuer's Internet address on which the Conflict Minerals Report and
audit report are located. As noted above, we are proposing this
approach to facilitate access to the conflict minerals information by
placing it o
