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“Reporting Under the Conflict Mineral Rules”

Middle-Market Legal Toolbox Blog By Kenneth V. Hallett

The term “conflict minerals” has become important in the public company world. Conflict minerals are cassiterite (tin), columbite-tantalite, gold, wolframite (tungsten), or their derivatives. Under the Dodd-Frank Act of 2010, public companies will soon be required to disclose the origin of conflict minerals used in their (or their subsidiaries’) manufacturing processes, if they were sourced in the Democratic Republic of Congo or nearby areas. Congress was concerned that the use of conflict minerals was financing terrorist activities in that region and used public company disclosure as a tool to express its concern.

You may ask why conflict minerals is a topic for a blog entry for the middle market generally, when the requirement applies only to public companies. Whether or not you are public, if you supply parts, ingredients, or goods that a public company uses in the manufacturing of its own products, you are in the supply chain that public companies need to “diligence” for their disclosures. This is the case whether you supply those items to the public company itself or are in a different level of a supply chain that ultimately leads to a public company. While procedures vary from company to company, they almost invariably will require some sort of certification or confirmation from companies in the supply chain as to the source of any “conflict minerals” used. Therefore, if you are any part of such a supply chain, you likely will be asked to make a certification, and may need in turn to do your own diligence, including asking your suppliers the same kind of sourcing information. Even though the disclosure requirement does not apply to a non-public company, you nevertheless may indirectly be caught in the compliance burden.

The first reporting under the conflict mineral rules will be in early 2014, for 2013 activities. Public companies are now rapidly gearing up to be in a position to make their disclosures, so if you are a supplier of items that include conflict minerals, you will likely be contacted soon as the information is being obtained.

How should you respond? From a business perspective and as a practical matter, keeping good relationships with your customers will mean that you should take these requests seriously. These disclosures are important to the ultimate public company customer, so even if you are tempted to ignore them, there likely will be follow-up. In fact, some commentators (such as Al Bredenberg) recommend that companies subject to the reporting requirements find new suppliers, if current suppliers are not cooperating. Also as a practical matter, you may need to prepare to make similar inquiries of your suppliers, so that you can adequately confirm or certify compliance to your customers. In addition, to minimize their disclosure burdens, some public companies have now adopted policies that they will not do business with companies that utilize Congo-sourced conflict minerals or cannot confirm the origin of such minerals. Therefore, if you are in a supply chain to a public company and you make or supply items that contain conflict minerals, you should be planning now how to respond, and how to make any further inquiries of your own.

Originally published on Middle-Market Legal Toolbox Blog, May 14, 2013