Dodd-Frank Wall Street Reform and Consumer Protection Act Frequently Asked Questions
April 7, 2014 (Questions 13-21)
May 30, 2013 (Questions 1-12)
NOTE: Some of the following Frequently Asked Questions may be superseded by the Commission's Partial Stay of the Conflict Minerals Rule, May 2, 2014, and by the Statement of the Division of Corporation Finance on the Conflict Minerals Decision, April 29, 2014.
In these Frequently Asked Questions ("FAQs"), the Division of Corporation Finance is providing guidance regarding Exchange Act Section 13(p), Rule 13p-1, and Item 1.01 of Form SD relating to disclosure regarding the use of conflict minerals from the Democratic Republic of the Congo ("DRC") or adjoining countries. Please refer to Release No. 34-67716 (August 22, 2012) for further information concerning the Section 13(p) rule. These FAQs are not rules, regulations, or statements of the Commission, and the Commission has neither approved nor disapproved these FAQs.
(1) Question:
Rule 13p-1 states that “[e]very registrant that files reports with the Commission under Sections 13(a) (15 U.S.C. 78m(a)) or 15(d) (15 U.S.C. 78o(d)) of the Exchange Act, having conflict minerals that are necessary to the functionality or production of a product manufactured or contracted by that registrant to be manufactured, shall file a report on Form SD within the period specified in that Form disclosing the information required by the applicable items of Form SD as specified in that Form (17 CFR 249b.400).” Does this requirement apply to any issuer that files reports with the Commission under Exchange Act Sections 13(a) or 15(d), including voluntary filers?
Answer:
Yes. The rule applies to all issuers that file reports with the Commission under Exchange Act Sections 13(a) or 15(d), whether or not the issuer is required to file such reports. However, registered investment companies that are required to file reports pursuant to Rule 30d-1 under the Investment Company Act are not subject to the rule. See General Instruction C to Form SD.
(2) Question:
Instruction 1 to Item 1.01 of Form SD states that an issuer that mines conflict minerals would not be considered to be manufacturing those minerals for purposes of the rule. Does this Instruction exclude all of the activities customarily associated with mining from the rule? For example, gold mining of lower grade ore often involves, in addition to mining the ore, transporting the mined ore to a processing facility; crushing and milling the ore; mixing crushed/milled ore with cyanide solution; floating cyanide mixture through a leaching circuit; extracting gold from a leached circuit; melting leached gold, which is often referred to as smelting, into ingots or bars, which are often referred to as doré gold; and transporting the doré gold to refinery for refining process.
Answer:
Yes. An issuer that only engages in those activities customarily associated with mining, including gold mining of lower grade ore, is not considered to be manufacturing those minerals.
(3) Question:
If the product that has conflict minerals necessary to its functionality or production is manufactured by a consolidated subsidiary of an issuer rather than directly by the issuer, is the issuer subject to the rule?
Answer:
Yes. An issuer must determine the origin of conflict minerals, and make any required disclosures regarding conflict minerals, for itself and all of its consolidated subsidiaries.
(4) Question:
Is an issuer that specifies that its logo be etched into a generic product that is manufactured by a third party considered to be “contracting to manufacture” the product?
Answer:
No. The Commission in the adopting release stated that an issuer is not considered to be “contracting to manufacture” a generic product if its actions involve no more than “affixing its brand, marks, logo, or label to a generic product manufactured by a third party.” Etching or otherwise marking a generic product that is manufactured by a third party, with a logo, serial number, or other identifier is not considered to be “contracting to manufacture.”
(5) Question:
If a product manufactured by an issuer or contracted by an issuer to be manufactured contains a conflict mineral solely because the conflict mineral is in a “generic” component included in the product, does the issuer need to conduct a reasonable country of origin inquiry regarding the origin of the conflict mineral in the generic component? We note that the issuer has not contracted to manufacture the generic component.
Answer:
Yes. An issuer would be required to conduct a reasonable country of origin inquiry with respect to conflict minerals included in generic components included in products it manufactures or contracts to manufacture. In this regard, there is no distinction between the components of a product that an issuer directly manufactures or contracts to manufacture and the “generic” ones it purchases to include in a product.
(6) Question:
An issuer manufactures or contracts to manufacture a package or container that contains a conflict mineral, and the issuer uses the package or container in the display, transport, or sale of a product the issuer also manufactures or contracts to have manufactured. Would a conflict mineral necessary to the functionality or production of the package or container also be considered necessary to the functionality or production of the product under the rule? What if the container or packaging is necessary to preserve the product until the time the product is purchased or used?
Answer:
No. Only a conflict mineral that is contained in the product would be considered “necessary to the functionality or production” of the product. The packaging or container sold with a product is not considered to be part of the product. Once the consumer starts to use a product, the packaging is generally discarded. This conclusion is true even if a product’s package or container is necessary to preserve the usability of that product up to and following the product’s purchase. If, however, an issuer manufactures and sells packaging or containers independent of the product, the packaging or containers, in that circumstance, would be considered a product.
(7) Question:
Are issuers that manufacture or contract for the manufacturing of equipment they use in providing a service they sell required to report on the conflict minerals in that equipment? For example, are issuers that operate cruise lines required to file reports regarding the conflict minerals in the cruise ships they manufacture or contract to have manufactured?
Answer:
No. The staff would not object if issuers did not file reports on Form SD regarding the conflict minerals in the equipment that they manufacture or contract to have manufactured if that equipment is used for the service provided by the issuer and the equipment is retained by the service provider, is required to be returned to the service provider, or is intended to be abandoned by the customer following the terms of the service. Item 1.01(a) of Form SD requires issuers only to report on conflict minerals that are necessary to the functionality or production of “products” they manufacture or contract to have manufactured, and the staff does not interpret equipment used to provide services to be “products” under the rule.
(8) Question:
An issuer manufactures or contracts to have manufactured tools, machines, or other equipment for it to use in the manufacture of products, and those tools, machines, or other equipment contain conflict minerals. If the issuer after using those tools, machines, or other equipment subsequently sells such equipment, is the issuer required to file a report on Form SD regarding the conflict minerals in such equipment?
Answer:
No. The tools, machines, or other equipment are not products of that issuer, and the staff will not view their later entry into the stream of commerce as transforming them into products of that issuer.
(9) Question:
Item 1.01(c)(2) of Form SD requires an issuer that manufactures products or contracts for products to be manufactured that have not been found to be “DRC conflict free” or that are “DRC conflict undeterminable” to provide a description of those products. What type of product description is required for such products? Does an issuer need to describe such products using model numbers? Does an issuer need to say specifically that the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable”?
Answer:
As the Commission noted in the adopting release, the rule permits an issuer to describe its products based on its own facts and circumstances because the issuer is in the best position to know its products and to describe them in terms commonly understood within its industry. An issuer is not required to describe its products using model numbers. Regardless of the manner by which an issuer describes its products, however, the description in the Conflict Minerals Report filed with Form SD must state clearly that the products “have not been found to be ‘DRC conflict free’” or are “DRC conflict undeterminable,” as applicable.
(10) Question:
If an issuer determines that the products it manufactures or contracts to manufacture contain conflict minerals from the Democratic Republic of the Congo or an adjoining country, but the products are “DRC conflict free,” is that issuer required to file a Form SD with a Conflict Minerals Report and obtain an independent private sector audit of the Conflict Minerals Report?
Answer:
Yes. The issuer, however, is not required to disclose the products containing those conflict minerals in its Conflict Minerals Report or provide certain other disclosures specified in Item 1.01(c)(2) of Form SD because those products are “DRC conflict free.”
(11) Question:
Instruction 3 to Item 1.01 of Form SD permits an issuer that acquires or otherwise obtains control over a company that manufactures or contracts to manufacture products with conflict minerals necessary to the functionality or production of those products that previously had not been obligated to provide a specialized disclosure report for those minerals to report on the acquired company’s products beginning with the first reporting calendar year that begins no sooner than eight months after the effective date of the acquisition. Is a similar accommodation provided for an issuer that conducts an initial public offering?
Answer:
Yes. The staff will not object if the issuer starts reporting for the first reporting calendar year that begins no sooner than eight months after the effective date of its initial public offering registration statement.
(12) Question:
Does the failure to timely file a Form SD regarding conflict minerals cause an issuer to lose eligibility to use Form S-3?
Answer:
No. In determining eligibility for use of Form S-3, the requirement that the registrant has filed in a timely manner all reports and materials required to be filed during the prior twelve calendar months refers only to Exchange Act Section 13(a) or 15(d) reports and Exchange Act Section 14(a) and 14(c) materials. See Compliance and Disclosure Interpretation Question 115.04 under Securities Act Forms. Form SD regarding conflict minerals is required to be filed under Exchange Act Section 13(p). Therefore, the filing of Form SD regarding conflict minerals does not impact an issuer’s eligibility to use Form S-3.
(13) Question:
May an auditor that is not a certified public accountant perform the independent private sector audit (“IPSA”) of an issuer’s Conflict Minerals Report pursuant to the Performance Audit provisions in the U.S. Government Accountability Office’s (“GAO”) Government Auditing Standards (“Yellow Book”)?
Answer:
Yes, if the applicable requirements are met. Section 1502 of the Dodd-Frank Act requires the IPSA of an issuer’s Conflict Minerals Report to be conducted in accordance with standards established by the GAO. The GAO staff has informed the Commission staff that the Yellow Book is applicable to the IPSA of the Conflict Minerals Report, and that, in addition to the general provisions of the Yellow Book, auditors are permitted to use either the provisions for Attestation Engagements or Performance Audits. According to the Yellow Book, although Attestation Engagements require that auditors be licensed certified public accountants, Performance Audits allow auditors, including auditors other than certified public accountants, to perform audits if they meet the applicable requirements under the Yellow Book, which can be found at www.gao.gov/yellowbook. Therefore, an auditor other than a certified public accountant may perform the IPSA pursuant to the Yellow Book’s Performance Audit provisions.
(14) Question:
If, after exercising due diligence on the source and chain of custody of its conflict minerals, an issuer determines that at least one of its products may be described as “DRC conflict undeterminable,” is the issuer required to obtain an IPSA of its Conflict Minerals Report during the temporary transition period (four years for smaller reporting companies and two years for all other issuers)?
Answer:
No. The Commission stated in the adopting release that, during the transition period, issuers with products that may be described as “DRC conflict undeterminable” are not required to obtain an IPSA of their “Conflict Minerals Report.” If any of an issuer’s products are “DRC conflict undeterminable” during this period, the issuer is not required to obtain an IPSA of its Conflict Minerals Report.
(15) Question:
If an issuer does not obtain an IPSA of its Conflict Minerals Report because one of its products is “DRC conflict undeterminable,” may it describe any of its other products as “DRC conflict free” in its Conflict Minerals Report?
Answer:
No. An issuer is not required, under the rule, to describe any qualifying products as “DRC conflict free” in its Conflict Minerals Report. The Commission stated in the adopting release, however, that an issuer may choose in its Conflict Minerals Report to describe its products with conflict minerals sourced from the DRC or its adjoining countries as “DRC conflict free” if the issuer is able to determine that the conflict minerals in those products did not finance or benefit armed groups in that region based on its due diligence. The rule defines due diligence as including an IPSA of the Conflict Minerals Report. Therefore, to be able to describe qualifying products in its Conflict Minerals Report as “DRC conflict free,” an issuer must have obtained an IPSA.
(16) Question:
During the temporary transition period, an issuer has products that it manufactured or contracted to have manufactured with conflict minerals that are necessary to the functionality or production of those products. Each product is composed of a number of conflict minerals from different sources. In its Conflict Minerals Report, how should the issuer describe any particular product based upon the various combinations of conflict minerals in the product?
Answer:
During the temporary transition period, if an issuer has a product that would qualify as “DRC conflict free” except that the product contains a conflict mineral that the issuer is unable to determine did not originate in the DRC or an adjoining country, or is unable to determine did not directly or indirectly finance or benefit armed groups in those countries, the issuer may not describe that product as “DRC conflict free.” Both during and after the temporary transition period, however, if an issuer determines that a product contains a conflict mineral that did finance or benefit armed groups in the DRC or an adjoining country, it must describe that product as “having not been found to be ‘DRC conflict free.’”
(17) Question:
Does the scope of the IPSA include the completeness or reasonableness of the issuer’s due diligence, including with respect to which products the issuer described as “DRC conflict free” or “having not been found to be ‘DRC conflict free,’” or which suppliers are covered by the due diligence measures?
Answer:
No. The IPSA scope is limited to the IPSA objective provided in the rule. The IPSA objective is to express an opinion or conclusion as to whether the design of the issuer’s due diligence measures as set forth in, and with respect to the period covered by, the issuer’s Conflict Minerals Report is in conformity, in all material respects, with the criteria set forth in the nationally or internationally recognized due diligence framework used by the issuer, and whether the issuer’s description of the due diligence measures it performed as set forth in the Conflict Minerals Report, with respect to the period covered by the report, is consistent with the due diligence process that the issuer undertook. The IPSA is not required to cover any matter beyond that objective, including the completeness or reasonableness of the due diligence measures actually performed. The following diagram demonstrates the two distinct parts of the IPSA objective.
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As shown, the objective is to compare A to B and C to D. Any other comparison would be outside the IPSA scope. |
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(18) Question:
The nationally or internationally recognized due diligence framework used by an issuer may include procedures for obtaining information about a conflict mineral’s country of origin. If so, this aspect of the nationally or internationally recognized due diligence framework would encompass the reasonable country of origin inquiry requirement under the rule. In that situation, would the IPSA also include the issuer’s reasonable country of origin inquiry?
Answer:
No. The IPSA does not need to include the reasonable country of origin inquiry because, under the rule, that inquiry is a distinct step separate from the due diligence process. As a result, the independent private sector auditor need only opine on whether the design of the issuer’s due diligence framework is in accordance with the portion of the nationally or internationally recognized due diligence framework beginning after the country of origin determination. With regard to the second part of the IPSA objective, the issuer’s conflict minerals report is required to describe the due diligence measures it undertook. As such, the independent private sector auditor need only opine on whether the issuer actually performed the due diligence measures described in the report after the issuer determined it had reason to believe its conflict minerals may have originated in the DRC or an adjoining country.
(19) Question:
A product manufactured by an issuer or contracted by an issuer to be manufactured includes some conflict minerals from recycled or scrap sources, which would not require the issuer to file a Conflict Minerals Report. It also includes conflict minerals not from recycled or scrap sources, which would require the issuer to file a Conflict Minerals Report. Must the issuer provide the required disclosures about the conflict minerals from recycled or scrap sources in the Conflict Minerals Report? Would the IPSA of the Conflict Minerals Report include the conflict minerals from recycled or scrap sources?
Answer:
If the issuer determines that any conflict minerals in its product came from recycled or scrap sources, the issuer must include in the body of its specialized disclosure report on Form SD the required disclosures for those conflict minerals. The issuer must also file a Conflict Minerals Report as an exhibit to the Form SD that includes a description of the due diligence it performed and any other required disclosures about its conflict minerals that are not from recycled or scrap sources. The Conflict Minerals Report would not need to include the disclosures for the conflict minerals from recycled or scrap sources. An issuer is only required to obtain an IPSA of its Conflict Minerals Report and not of the disclosures contained in the body of its Form SD.
(20) Question:
The second part of the IPSA objective is to express an opinion or conclusion as to whether the issuer’s description of the due diligence measures it performed, as set forth in the Conflict Minerals Report, with respect to the period covered by the report, is consistent with the due diligence process that the issuer undertook. The “period covered by the report” is the calendar year. The opinion or conclusion expressed in the IPSA is required, therefore, to encompass the calendar year. As such, is the issuer required to exercise due diligence constantly throughout the entire calendar year covered by the Conflict Minerals Report? Could the issuer’s due diligence measures described in the Conflict Minerals Report extend beyond the calendar year?
Answer:
An issuer’s due diligence measures must apply to the conflict minerals in products manufactured during the calendar year. This requirement, however, does not imply that due diligence measures must be carried out constantly throughout the calendar year. It is also possible that the issuer’s due diligence measures may begin before or extend beyond the calendar year.
(21) Question:
The IPSA objective is to express an opinion or conclusion as to whether the design of the issuer’s due diligence measures as set forth in, and with respect to the period covered by, the issuer’s Conflict Minerals Report is in conformity, in all material respects, with the criteria set forth in the nationally or internationally recognized due diligence framework used by the issuer, and whether the issuer’s description in the Conflict Minerals Report of the due diligence measures it performed with respect to the period covered by the report is consistent with the due diligence process that the issuer undertook. Although the rule requires that the issuer include in its Conflict Minerals Report a description of the due diligence it exercised, it does not require a separate description of the design of its due diligence framework. The rule indicates, however, that the auditor must express an opinion or conclusion as to the design of the issuer’s due diligence measures “as set forth in” the Conflict Minerals Report. Does the rule require that an issuer provide a full description of the design of its due diligence in its Conflict Minerals Report?
Answer:
No. The rule does not require an issuer to include a full description of the design of its due diligence in the Conflict Minerals Report. Under the rule, however, the due diligence measures undertaken that are the subject of the second part of the IPSA must be described in the Conflict Minerals Report, and the description must be in sufficient detail for the auditor to be able to form an opinion or conclusion about whether the description in the Conflict Minerals Report is consistent with the process the issuer actually performed.
http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm
Last Reviewed or Updated: May 2, 2014