Companies around the world are anxiously waiting for the US Securities and Exchange Commission (SEC) to issue its conflict minerals rule. It is the rule that will require companies to determine whether their products contain metals sourced from mines located in conflict areas of the Democratic Republic of the Congo and adjoining countries.
The SEC issued a proposed rule in late 2010, but they have yet to issue a final rule.
Why the delay and when can companies expect a final rule?
The SEC was forced to delay their final rule after it became apparent the rule would be difficult to implement and that some rule-making flexibility was required. The authorizing legislation doesn’t allow the SEC much wiggle-room and that has frustrated companies and slowed regulators.
Here are some key issues that the SEC is still pondering:
Manufacturer supply chain issues. Companies want the SEC to take into account the realities of today’s global supply chains. The intent is to have manufacturers trace the metal in their products to the mines from which it was sourced. The problem is that most companies currently only have direct contact with a first tier supplier or a company immediately upstream from themselves. Components are typically sourced from multiple countries and manufacturers.
Companies want the SEC to take into account the lack of transparency in the electronics supply chain and the challenges faced by manufacturers in tracing conflict minerals. They want the SEC to allow companies making a good faith but unsuccessful effort to trace the source of their conflict minerals to report their status as “indeterminate.”
Allowing a phase-in period. Companies want a “phase-in” period. More time is needed to develop effective and reliable mine/smelter verification (audit) programs. Reliable programs don’t exist for all regulated metals, and the ones that do are still a work in process. Companies also want an exemption for mined ore already at a smelter, and for minerals in products already in supplier inventories. Without such an exemption, companies would be forced to report all products of unknown origin as containing conflict minerals.
Allowing an exemption for recycled minerals. Companies want the SEC to exempt recycled and reclaimed metals. They claim downstream users have no ability to trace the origin of the original minerals given the various forms of recycling and the thousands of domestic and foreign consolidators and scrap dealers. The intent of Congress was to regulate ore and metal made directly from minerals mined in the DRC and adjoining countries. Exempting recycled or reclaimed metals, they argue, would not contradict congressional intent.
Allowing a de minimis exception. Conflict minerals are used in products in varying quantities and for various purposes. Manufacturers point out that it is not cost effective to trace the minerals in every product in which they are used. They want the SEC to establish a de minimis quantity for which reporting is not required.
The US Securities and Exchange Commission is not providing a lot of information on what the final rule will look like or when we can expect it, but statements made by SEC chairman Mary Schapiro during a March 6, 2012 congressional budgeting hearing provide some insight:
The commission is working to finalize the adoption [of a final rule] and I’m hopeful in the next couple of months, it will be done... We will have a phase-in period, I don't know how long, that will... give sufficient time for some of the supply chain due diligence mechanisms to be developed and put in place... I don't believe a de minimis exception is possible under the statute. But the rule will try to give latitude and flexibility in some areas that I think will be helpful to different kinds of businesses in order to comply.
The earliest expected date for a final conflict minerals rule is June 2012. The industry hopes the delay provides the SEC the time it needs to consider how to best handle key industry issues and concerns. Human rights groups point out that the problem of rebel-controlled mines continues. They want a rule as soon as possible.
How do you feel about the delay?
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