As 2017 winds down, interest and activity related to the annual SEC conflict minerals filings is heating up. Here is a short reality check for what you should be thinking and doing.
To begin with, Dodd-Frank Section 1502 and the SEC rules requiring the Form SD/Conflict Minerals Report are still in place and remain in effect as of today. Although SEC Commissioner Michael Piwowar issued a statement of non-enforcement earlier this year, that does not change the fact that the legal obligation to file remains intact. Legislation to eliminate Section 1502 was passed by Congress but has not yet been approved by the Senate or sent to the President for signature. Issuers should continue their conflict minerals RCOI, due diligence and Form SD filing preparation activities.
Issuers may still choose to use specific determination wording, or use none at all. However, should an issuer elect to use the words “DRC Conflict Free” to describe one or more product, an Independent Private Sector Audit (IPSA) must be performed by a qualified non-CPA or CPA audit firm. In researching the CY2016 SEC filings, Development International found nine issuers that classified at least one product as “DRC Conflict Free” in their Conflict Minerals Reports (CMR) but did not file an IPSA. We do not recommend that as a filing approach.
In general, issuers should be following the same path and procedures as last year – nothing has changed from a practical filing perspective, including the content requirements for the Form SD and CMR. By now, the following should be underway or completed at a minimum:
- Previously identified program improvements
- Overall program reviews, if desired. We continue to see interest in, and are conducting, program reviews
- Product screening
- Supplier screening/identification
There continue to be differing views on the timing for supplier outreach activities. Some issuers elect to request supplier CMRTs before the end of the calendar year; some wait until the calendar year is over. Suppliers may not necessarily have their own assessments, due diligence and CMRTs completed early, and delays are common.
There is also a lingering difference of opinion about including smelter/refiner lists in the CMR. We strongly believe it is a requirement to include the list in the filing.
Confusion remains about the Country of Origin as well. The countries listed in the CFSI audited smelter/refiner lists are the countries where the smelters are located. That is NOT the country where “the rocks come out of the ground”, which is what is meant by the country of origin. An often overlooked element of due diligence is ensuring that countries of origin provided by suppliers are plausible countries of origin, meaning they have known ore reserves or active mining. Several countries that are not plausible were listed in CY2016 CMRs.
Filers should also consider countries and entities that are sanctioned by the US Department of Treasury Office of Foreign Asset Control (OFAC) when reviewing countries of origin. Although this is not an issue related to conflict minerals, it is not a matter to be unresolved and reported in a legal filing.
When reviewing the smelter/refiner list from your suppliers, some form of due diligence is required for facilities that are not listed as a facility audited by CFSI or one of the programs with which CFSI has a mutual recognition agreement. Those facilities cannot be ignored simply because they are not on the list of audited smelters/refiners.
As in past years, we continue to support many companies with all aspects of their conflict minerals processes, filings and IPSAs. Please don’t hesitate to contact us with any questions.