SEC passes conflict minerals rule; impact unclear
August 27, 2012
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Washington, D.C.--The Securities and Exchange Commission voted 3-2 on Wednesday morning to implement the “conflict” minerals provision of the Dodd-Frank Act. The provision requires publicly traded companies to determine and disclose if they use minerals, including gold and tungsten, that originated in the Democratic Republic of the Congo or one of nine neighboring countries and financed or benefitted armed groups there.
The provision dictates that companies that use any of the designated minerals conduct a country of origin inquiry on their minerals or use minerals that are from scrap and recycled sources.
If the company knows or has reason to believe its minerals didn’t come from one of these countries or are from scrap and recycled sources, then it must disclose that determination to the SEC, describe the inquiry it undertook to obtain the information, and post the inquiry on its website, an SEC fact sheet on the provision states.
However, if the company knows or has reason to believe its minerals may have originated in one of these countries and are not from scrap or recycled materials, it must undertake “due diligence” on the source and its mineral chain of custody and file a Conflict Minerals Report.
The report involves obtaining an independent, private-sector audit and then disclosing publicly whether its minerals are DRC conflict-free or not.
There is a phase-in period of two years (four years for smaller companies) in which companies simply can state that the origin of their minerals is undetermined while they work to trace their supply chains. They do not have to conduct an audit.
Companies’ first reports are due on May 31, 2014, for the 2013 calendar year, and annually on May 31 every year thereafter.
The regulation does not include companies that don’t have direct control over the manufacturing of their products. In addition, existing stocks of refined gold are exempt if they are outside of the supply chain--meaning they have been fully refined or are located outside the DRC and adjoining countries--prior to Jan. 31, 2013.
As reported by National Jeweler back in July, after several delays, the SEC set a date of Aug. 22 to vote on the provision.
It is a rule that was attached to the Dodd-Frank Wall Street Reform and Consumer Protection Act to try to stem human rights violations in that area of Africa. President Barack Obama signed the act into law in 2010.
Since the passage of the law, industry organizations, including the JVC and JA, had been lobbying for certain changes to the rules, including the partial exemption of companies that use recycled or scrap metals.
The JVC and JA issued statements this week that they are still working to determine exactly what the passage of the final rule--which is some 232 pages in length-- will mean for the jewelry industry. Both organizations said, though, that they expect the impact to be felt throughout the jewelry industry supply chain, not just by the companies required to report to the SEC.
The JA also noted that compliance is expected to be “difficult and costly.”
The National Retail Federation (NRF) issued a similar statement on Wednesday, noting that it was “too soon to determine the full impact of the regulations on retailers.”
“It’s very important that a distinction be made between a retailer that is acting as a manufacturer and has control over what is in a product and the vast majority who do not,” the NRF’s Jonathan Gold said.
Environmental group Earthworks issued a statement lauding passage of the law, but said it was “weakened” by the phase-in period and the exclusion of companies that are not considered to have direct control over their product manufacture, an exclusion that likely will include large chain retailers such as Walmart.
“We are disappointed about the free pass that’s been given to big-box stores and other large retailers,” Earthworks’ Payal Sampat said. “These companies have tight control over their manufacturers when it comes to product cost and quality. Why, then, are they off the hook when it comes to human rights violations or corruption?”