What is the Dodd-Frank Act Section 1502?
Dodd-Frank Section 1502 was enacted by the US Congress in 2010, responding to concerns over the sale of conflict minerals used to finance regional conflicts in the Democratic Republic of the Congo (DRC) and nine adjoining countries (“Covered Countries”). Section 1502 requires public companies to disclose any use of minerals sourced from mining operations in these conflict regions. The ruling applies to all SEC “issuers” (including foreign issuers) that manufacture or contract to manufacture products where conflict minerals are necessary to the functionality or production of the product.
What are the “Covered Countries”?
The ten countries are the Democratic Republic of the Congo (DRC), Central Africa Republic, The Republic of the Congo, Tanzania, Burundi, South Sudan, Zambia, Rwanda, Angola, and Uganda.
What level of disclosure does the SEC require you to report?
The US Securities and Exchange Commission (SEC) final rule provides a three-step procedure for determining the level of disclosure you are required to provide about your products:
- Determine if your products contain conflict minerals - Dodd-Frank Section 1502 defines “conflict minerals” as cassiterite, columbite-tantalite, gold and wolframite, as well as their derivatives. Section 1502 applies to manufactured products that contain conflict minerals deemed “necessary” to the functionality of your manufactured product or the product production process. Most private label retailers are exempt.
- Conduct a "Reasonable Country of Origin Inquiry" (RCOI) to determine the source of your conflict minerals - This inquiry is conducted in order to determine whether conflict minerals used in your production or the production process originated in any of the Covered Countries. You are not required to exercise due diligence if these conflict minerals are not from the Covered Countries, or are derived from recycled or scrap sources; however, you must file an annual disclosure report via SEC Form SD, describing the RCOI you used to determine your “conflict free” status.
- Exercise Due Diligence to determine if you are directly or indirectly financing armed groups - Due diligence is required if conflict minerals are “necessary” to your operation, are not from recycled or scrap sources, and originated in the Covered Countries. Due diligence is the process of determining whether your minerals directly or indirectly financed or benefited armed groups. In this case, you must file a Conflict Minerals Report as an exhibit to Form SD.
What regulatory deadlines exist for conflict minerals reporting audits?
The SEC is granting a temporary provision period for companies to establish necessary traceability systems in the Covered Countries. If during this period, you find it is "undeterminable" whether your product or production process contains conflict minerals, you must disclose your result findings and describe the measures you have taken to exercise due diligence on the source and chain of custody of your conflict minerals. This grace period ends in 2016 for large companies and in 2018 for small companies. After the grace period, IPSAs are required for companies who determine they have conflict minerals from the Covered Countries.
Which frameworks are acceptable for performing Due Diligence?
The final rule requires that due diligence be conducted using a nationally or internationally recognized due diligence framework (e.g., 2011 Organization for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas).