Tag Archives: DRC Conflict Free

Surprise – You Are DRC Conflict Free!

As more companies complete their conflict minerals Reasonable Country of Origin Inquiry (RCOI) and smelter/refiner verification for their CY2015 SEC disclosures, many are surprised to find diminishing data gaps and uncertainties prevalent in previous years.  Information is better, widely available and more smelters/refiners have been audited.  Generally speaking, this is good news.  But it creates a conundrum for some issuers who might not have expected this development yet, especially given the status of the legal challenge to the SEC’s conflict minerals disclosure rules.  What’s the problem, you may be asking.  It all comes down to how you summarize the information.

Let’s begin our trip Down The Rabbit Hole.

A product can be classified as “DRC Conflict Free” (using that term for ease of discussion) as a result of the RCOI or from subsequent due diligence.  When RCOI processes conclude that the company has no reason to believe that any necessary 3TG in a product may have originated from Covered Countries, or that the necessary 3TG originated from 100% recycled or scrap materials, the product(s) is/are “DRC Conflict Free” because no materials originate from Covered Countries.  In this case, the filing issuer must only submit a Form SD and no Independent Private Sector Audit (IPSA) is required.

If the RCOI indicates that some necessary 3TG may have originated from a Covered Country and did not originate from 100% recycled or scrap materials, additional due diligence is required.  Two outcomes of the due diligence are generally possible – (1) confirmation that 3TG may have originated (or did indeed originate) from a Covered Country, or (2) a finding that the initial RCOI indication was incorrect and the 3TG did not originate from a Covered Country after all.  In the second outcome, the relevant materials/products are considered “DRC Conflict Free” as discussed in the above paragraph. See Final Release, pages 151 – 152, and Section (c) of Item 1.01 – Conflict Minerals Disclosure and Report.  In the case of the first outcome, filing issuer must submit a Conflict Minerals Report (CMR) in addition to the Form SD.  This is the situation where a smelter/refiner sources from a Covered Country but doing so does not fund or benefit armed groups as verified by the Conflict Free Sourcing Program (CFSP) or similar programs.

Because of the NAM v. SEC lawsuit, issuers filing the SEC conflict minerals disclosure are not compelled to provide specific conclusionary or determination wording in CY2015 CMRs.  Any such wording in a CMR is voluntary, but where the phrase “DRC Conflict Free” is used – or the status is strongly implied – an IPSA is required*.  Don’t forget, the determinations (or lack thereof) are to be made at the product level, not the company level.  Aggregating different product determinations to come up with an “averaged” (or diluted) determination for the entire company is not appropriate, which itself adds to the complexity.  The CMR does not need to include the product names/descriptions for products that are “DRC Conflict Free”, nor must the CMR  include the list of smelters/refiners associated with “DRC Conflict Free” products.  See Final Release, pages 183 and 194, and Section (c)(2) of Item 1.01 – Conflict Minerals Disclosure and Report.

To sum it up – if due diligence confirms that at least one product contains 3TG that may have originated (or did indeed originate) from Covered Countries AND is “DRC Conflict Free”, then you must choose how to approach your CMR language for the product(s).

  • If you voluntarily use the words “DRC Conflict Free” in the CMR for any product(s), then an IPSA must be conducted.  But the CMR does not have to include names/descriptions for the product(s), nor must the CMR include a list of smelters/refiners associated with the product(s).
  • If you do not to use the words “DRC Conflict Free” in the CMR for any product(s), then no IPSA is required.  But the CMR must include names/descriptions for the product(s) and the list of smelters/refiners associated with the product(s).

Technically speaking, the IPSA is limited to applicable CMR wording specific to only the DRC Conflict Free products, but practically speaking, the due diligence framework design and measures undertaken will most likely be company-level processes rather than product-level processes.  We expect in reality, an IPSA will typically have a company-level scope.

Finally, we are frequently asked how to balance SEC filing language with customer requirements for being Conflict Free.  The answer is actually simple – you probably don’t need to.  Customers generally rely on the technical information submitted directly to them, for instance through a CMRT, rather than what is filed with the SEC.  Some customers may cross-reference the two, but that isn’t very likely given that everyone faces the same filing deadline.  And companies sophisticated enough to do this are very likely to be sophisticated enough to understand the differences.

Please feel free to call us with any questions.


* Again, the IPSA is not required for Form SD-only filers, even if the phrase “DRC Conflict Free” is used.  The IPSA is only applicable to CMRs.

The Conflict Minerals IPSA Trigger May Be Delayed

UPDATES: We discussed this with the SEC staff, who agreed with the position described below, citing the language of the April 29, 2014 stay – “Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.”  However, in those cases where an issuer is planning for an IPSA, we strongly recommend reading this important information.


There has plenty of coverage on the legal twists and turns of the National Association of Manufacturers (NAM) lawsuit against the Securities and Exchange Commission’s conflict minerals disclosures. The latest filing by NAM, dated December 29, 2014, is available here and provides a brief summary of the legal issues.  As of this writing, the SEC has not issued any further guidance or interpretations concerning the disclosure, and the April 29, 2014 administrative stay of the requirement to use the specific product determination phrases remains intact. Therefore any use of the “magic words” (as we call them) is still voluntary.

Because the wording was not required for 2013, 50% of filers who conducted due diligence (and therefore filed a CMR) chose not to use any of the magic words. Of the remaining issuers, 22% did not file a CMR and the rest (27%) did choose to use “DRC Conflict Undeterminable”. These figures are based on our study of the 2013 filings.

Against this background, issuers face the end of the two-year temporary category (“DRC Conflict Undeterminable”) this year along with the associated deferral of certain filing requirements and the Independent Private Sector Audit (IPSA). And like much else in the realm of conflict minerals, this leads to ambiguity and confusion on an important matter: given the current suspension of the mandate to use the term “DRC Conflict Undeterminable”,  does the deferral actually end?

The relevant language of the Instructions to Item 1.01 (page 354 of the final release) states:

Beginning with the third or fifth reporting year calendar year, as applicable, a registrant with products manufactured or contracted to be manufactured that are “DRC Conflict Undeterminable” must describe those products have having not been found to be “DRC Conflict Free” and must provide the information required in paragraph (c) of this item including the audit report.

For last year’s filing, some issuers looked to Item 1.01(c)(1)(iii) (page 347) when crafting their CMR content and chose to exclude certain elements tied to “DRC Conflict Undeterminable”. This instruction applies only to products classified as “DRC Conflict Undeterminable” and required disclosure of steps taken, or that will be taken, “to mitigate the risk that [the issuer’s] necessary conflict minerals benefit armed groups, including any steps to improve its due diligence.”  Where the words  “DRC Conflict Undeterminable” were not used by the issuer to describe products, a description of due diligence improvements was not required.

Is it not reasonable that the same logic would apply to the language describing the temporary deferral expiration?  Time will tell.  At the same time, we are seeing a much greater demand from customers to have their publicly-traded suppliers obtain an IPSA for the 2014 filing.  On one hand, we see the IPSA deadline being pushed a year ahead of the requirements, and on the other hand we see the possibility of the deadline extending beyond the 2014 filing year.


Should You Have Your Conflict Minerals RCOI Validated?

Now that the inaugural conflict minerals disclosures have been filed with the SEC, and those filings also made public on company websites, expectations have been raised on the adequacy, accuracy and certainty of the information for 2014.   Our recent post on DRC Conflict Free determinations got us thinking – how comfortable will issuers be in making a DRC Conflict Free determination based only on their Reasonable Country of Origin Inquiry (RCOI)?  How can the executive who signs the Form SD ease their concerns or anxiety about putting their name on the form?

In our view, CY2014 claims of “DRC Conflict Free”, while voluntary, will be put under a microscope by customers, NGOs and certainly the media.  Filers making the claim based on their RCOI only (i.e., determining that none of their conflict minerals originated from the Covered Countries, or originates from 100% scrap/recycled materials) will be scrutinized even more due to a general perception that this is a loophole for companies to avoid effort, cost and information disclosure.

Companies anticipating claiming DRC Conflict Free status because none of their conflict minerals originates from the Covered Countries, or 100% originates from scrap/recycled materials should seriously consider having an independent program review/assessment to support such a claim.

This type of program review is not mandated, and is not contemplated by the SEC’s disclosure requirement, but can significantly strengthen company claims and determinations.  Different from the Independent Private Sector Audit (IPSA) that is required for a DRC Conflict Free determination after full  due diligence, an RCOI program assessment can be more flexible.   The IPSA focuses on conformity of the processes to criteria, whereas the RCOI assessment would evaluate and validate the results and validity of the RCOI efforts to directly support the determination.

For us, however, such an assessment is nothing new.  As part of our conflict minerals program assessments, we conduct detailed reviews and evaluations of the programs, processes and results – as well as the information on which the company relies.

If you want to substantiate your RCOI claims, contact us via our website or call 678-200-5220.