WASHINGTON -- The US Securities and Exchange Commission has adopted a final rule requiring companies to publicly disclose their use of conflict minerals that originate in the Democratic Republic of the Congo or an adjoining country.

SEC Chairman Mary Schapiro said the agency has incorporated many changes from the proposed rule that are designed to address concerns about the regulation’s costs.

Under the final rule companies that file reports with the SEC under the Securities and Exchange Act of 1934, whether foreign or domestic, will have to use a new Form SD to disclose their use of tantalum, tin, gold or tungsten originating in the DRC or an adjoining country if those minerals are necessary to the functionality or production of a product they manufacture or contract to manufacture. Subject companies will have to comply with this rule for calendar year 2013 and the first reports will be due May 31, 2014. Future reports covering the previous calendar year will be due annually on May 31. Click here for a copy of the final rule, which has not yet been published in the Federal Register.

Contracting to Manufacture. According to an SEC fact sheet, a company is considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. This determination is based on facts and circumstances, taking into account the degree of influence a company exercises over the product’s manufacturing. A company will not be deemed to have influence over manufacturing if it merely affixes its brand, marks, logo or label to a generic product manufactured by a third party; services, maintains or repairs a product manufactured by a third party; or specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product.

Non-Originating Minerals. The fact sheet adds that under this final rule a company that uses any of the designated minerals is required to conduct a reasonable country of origin inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources. If the inquiry determines that the company either (a) knows the minerals did not originate in the covered countries or are from scrap or recycled sources or (b) has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources, then the company must disclose its determination and provide a brief description of the inquiry it undertook and the results on Form SD. The company also is required to make its description publicly available on its Web site and provide the Internet address of that site on Form SD.

Originating Minerals. If the inquiry determines that the company knows or has reason to believe both (a) that the minerals may have originated in the covered countries and (b) that the minerals may not be from scrap or recycled sources, then the company must undertake due diligence on the source and chain of custody of its conflict minerals and file a conflict minerals report (CMR) as an exhibit to Form SD. The company also is required to make the CMR publicly available on its Web site and provide the Internet address of that site on Form SD.

Conflict-Free Determinations. The SEC states that if a company determines that its products are “DRC conflict free” (i.e., the minerals may originate from the covered countries but did not finance or benefit armed groups) it must undertake the following audit and certification requirements: obtain an independent private sector audit of its CMR, certify that it obtained such an audit, include the audit report as part of the CMR, and identify the auditor. If a company’s products have not been found to be “DRC conflict free” the company must describe the following in its CMR in addition to the audit and certification requirements: the products manufactured or contracted to be manufactured that have not been found to be “DRC conflict free,” the facilities used to process the conflict minerals in those products, the country of origin of the conflict minerals in those products, and the efforts to determine the mine or location of origin with the greatest possible specificity.

Conflict Status Undeterminable. For a temporary two-year period (four years for smaller reporting companies), if the company is unable to determine whether the minerals in its products originated in the covered countries or financed or benefited armed groups in those countries, those products will be considered “DRC conflict undeterminable” and the company must describe the following in its CMR: products manufactured or contracted to be manufactured that are “DRC conflict undeterminable,” the facilities used to process the conflict minerals in those products (if known), the country of origin of the conflict minerals in those products (if known), the efforts to determine the mine or location of origin with the greatest possible specificity, and the steps the company has taken or will take, if any, since the end of the period covered in its most recent CMR to mitigate the risk that its necessary conflict minerals benefit armed groups, including any steps to improve due diligence.

For those products that are “DRC conflict undeterminable,” the company is not required to obtain an independent private sector audit of the CMR regarding the conflict minerals in those products.

Recycled or Scrap Due Diligence. If a company’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the company’s products containing such minerals are considered “DRC conflict free.” If a company cannot reasonably conclude after its inquiry that its gold is from recycled or scrap sources, it will be required to undertake due diligence in accordance with the OECD Due Diligence Guidance and get an audit of its CMR. Currently, gold is the only conflict mineral with a nationally or internationally recognized due diligence framework for determining whether it is recycled or scrap. For the other three minerals, if a company cannot reasonably conclude after its inquiry that its minerals are from recycled or scrap sources, until a due diligence framework is developed the company is required to describe the due diligence measures it exercised in determining that its conflict minerals are from recycled or scrap sources in its CMR. It is not, however, required to obtain an independent private sector audit regarding such conflict minerals.

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