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New SEC guidance on conflict minerals disclosure

The Securities and Exchange Commission on Monday issued guidance on the conflict-minerals disclosure requirements contained in the Dodd-Frank Act.

The SEC’s answers to frequently-asked questions from registered companies focused on the scope of corporate disclosure requirements in conflict-minerals reports and the role of independent auditors.

Some of their responses included:

  • An issuer that mines conflict minerals would not be considered to be manufacturing them for purposes of the rule. That includes milling, smelting or transporting the minerals, all of which are not covered by the rule.
  • The issuer must determine the origin of conflict minerals and make disclosures about them, for itself and its subsidiaries. An issuer that specifies that its logo (or other identifier) be etched into a generic product that is manufactured by a third party outside its supply chain, however, is not considered to be ‘contracting to manufacture’ the product.
  • An issuer that manufactures or contracts to manufacture a package or container that contains a conflict mineral — or uses such a container/package to transport its product — does not trigger the conflict minerals rule. The packaging or container is not considered part of the product.

The same is true of the tools and machines used to make one’s products. Even if they contain conflict minerals, they are not deemed to be part of the product, and are not covered by the rule. (Editor’s note: As our experts have said, it is best practice, even if not mandatory, to disclose more than a company needs to in these scenarios, if the company can take reasonable steps to do so.)

  • An auditor must perform an independent private sector audit (IPSA) of an issuer’s conflict minerals report. The auditors must meet the applicable requirements under the Government Accountability Office’s Yellow Book.
  • During the temporary transition period (four years for smaller companies and two years for all others), the company is not required to have an IPSA of its Conflict Minerals Report if any of their products have been described as ‘DRC [Democratic Republic of the Congo] conflict undeterminable.’ The transition period applies for two reporting calendar years after the final rule’s effective date of November 13, 2012.
  • The IPSA’s scope of review does not include attesting to the completeness or reasonableness of the issuer’s due diligence. Instead, the scope is limited an opinion as to whether the issuer’s due diligence measures conform to national or international standards, and whether the issuer’s description of the due diligence performed is consistent with what was actually undertaken.

The guidance issued on Monday may be found here. It follows up on preliminary answers to frequently-asked questions provided by the SEC on May 30, 2013, which can be accessed here.


Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

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