UPDATE 5/5/14: The SEC has released an amendment to the disclosure rule that postpones compliance reporting only for the portion of the regulation questioned by the Circuit Court ruling. Click through to learn more.
In response to the recent uncertainty over the conflict minerals rule, the Securities and Exchange Commission (SEC), released a statement unequivocally defending the integrity of the rule and reinforcing the continued expectation for full company compliance by June 2, 2014.
“Subject to the guidance below and any further action that may be taken either by the Commission or a court, the Division (of Corporate Finance) expects companies to file any reports required under rule 13p-1 on or before the due date.”
RSN and its investor colleagues welcome this statement in light of the confusion surrounding the recent D. C. Circuit Court of Appeals opinion and the suggested stay of the rule by Commissioners Daniel M. Gallagher (R) and Michael S. Piwowar (R). As a group of concerned investors, we issued an open letter expressing our concerns with some aspects of the opinion two weeks ago.
The SEC statement justifiably rejects the requested stay, ensuring that the reports will go forward as planned. The request is completely unwarranted considering issuers’ main obligations under the conflict minerals rule remain intact. Furthermore, Keith Higgins, SEC Division of Corporate Finance Director, adequately acknowledged the one minor terminology change in his statement.
Higgins directly addressed any confusion regarding the implications that the court’s decision would have on compliance by explicitly identifying the amended report expectations following the ruling. These include:
- If the company has products that fall within the scope of Items 1.01(c)(2) or 1.01(c)(2)(i) of Form SD, it would not have to identify the products as “DRC conflict undeterminable.”
- No company is required to describe its products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’ or ‘DRC conflict undeterminable.’
Other than these minor exceptions, the rule and the according compliance requirements remain intact. A stay of the rule would unnecessarily halt all of the work companies have been implementing to meet the June 2, 2014 reporting deadline. The SEC has already received the first issuer filing last week.
This statement rightfully confirms companies’ continued obligation to report on due diligence activities undertaken in compliance with the rule. Investors look forward to reviewing issuer submissions as an important milestone for increased disclosure of hidden risks in corporate supply chains.