Yesterday the Division of Corporate Finance of the Securities and Exchange Commission issued its much-anticipated guidance regarding its conflict minerals rule, stating that, with the limited exception of provisions recently struck down by a federal appeals court as unconstitutional, companies are expected to comply with all aspects of the rule. In a decision issued on April 14, 2014, by the U.S. Court of Appeals for the District of Columbia Circuit, the court rejected all challenges to the rule other than those regarding the requirement for companies to disclose to the SEC and on their websites their products that are not found to be "DRC conflict free" (see our client alert summarizing that decision). The Division's statement confirms that the bulk of the conflict minerals rule—including the analysis of minerals that are necessary to the functionality or production of a product, the reasonable country of origin inquiry, the separate chain of custody due diligence requirements, and the filing of conflict minerals reports—remains applicable to companies for the upcoming filing deadline of June 2, 2014.
In keeping with the court's decision, which was based on constitutional prohibitions of compelled speech under the First Amendment, the Division stated that:
[N]o company is required to describe its products as "DRC conflict free," having "not been found to be 'DRC conflict free,'" or "DRC conflict undeterminable." If a company voluntarily elects to describe any of its products as "DRC conflict free" in its Conflict Minerals Report, it would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as required by the rule. Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as "DRC conflict free" in its Conflict Minerals Report.
As the Division noted, the D.C. Circuit's decision is technically not binding until seven days after the disposition of any potential appeal by the SEC of the case, which will likely be after the initial compliance deadline under the rule. As a result, the SEC will likely issue or propose formal rule making to address the now-invalidated portions of the rule only after the court proceedings are complete, but there may be further interim guidance from the Division. The full text of the Division's statement is available at http://www.sec.gov/.
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