More than two years after the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, the US Securities and Exchange Commission has issued rules on the act's conflict minerals provision.
The provision is intended to encourage companies to do more to make sure the tantalum, tungsten, tin, and gold in their products do not come from illegal sales of materials from mines in the Democratic Republic of Congo (DRC). Those sales are believed to be financing rebels in the country's civil war, a war in which millions have died. An anti-genocide group, the Enough Project, links the Congo violence to the use of these minerals in consumer electronics products such as cellphones, computers, and TVs.
According to a recent KPMG summary, the final rule requires a company that uses these minerals to annually disclose information about their origin. If the company knows, or has reason to believe, that the minerals may have originated in the DRC or an adjoining country, or that they may not be from scrap or recycled sources, the company is required to perform due diligence on the source and chain of custody, and to submit a report on that due diligence to the SEC.
The rule applies to public companies that trade on a major US exchange, which means it will affect almost 6,000 domestic and foreign issuers. Nonpublic companies that are part of the public company's supply chain may also be affected.
However, it appears that the SEC heeded industry lobbying to delay full implementation of the law. According to an article in Supply Chain Brain, for the next two to four years (depending on the size of the company), those subject to the rule can simply identify their products as “DRC conflict undeterminable,” which relieves them of the requirement to get an independent audit of their conflict minerals reports.
A Tulane University study conducted last fall, which drew on data gathered by the Association Connecting Electronics Industries (IPC), assessed the costs of implementing the rule to be almost $8 billion, more than 100 times greater than the SEC's original estimate.
“The Tulane study underscores the need for the SEC to be conscious of the high costs of implementation,” said Tony Hilvers, IPC vice president of industry programs. “The SEC must utilize all reasonable options to lessen the burden of implementation, the most important of which is a phasing-in of the regulations to allow industry the time to work with their complex global supply chains to develop traceability and compliance data.”
This fall, the IPC has scheduled a series of seminars in Boston, San Francisco, and Chicago to help explain the requirements of the new rule. (For more information, contact the IPC's Fern Abrams at .)
The final SEC rule is available through this link.