Aug.SEC Approves Conflict Mineral , Payment Disclosure Rules
AT TODAY’S OPEN MEETING, the Securities and Exchange Commission (SEC) approved two rules regarding disclosure and reporting obligations with respect to the use of conflict minerals and payments to foreign governments by resource extraction issuers. The SEC approved both rules which implement requirements from Sections 1502 and 1504 of the Dodd-Frank Act.
Please note that the SEC vote on proposed rules under the JOBS Act that would eliminate the prohibition against general solicitation and general advertising in securities offerings was rescheduled to August 29.
Section 1502: Specialized Disclosure for Companies’ Use of Conflict Minerals: Vote 3-2 (Paredes, Gallagher) – Fact Sheet
SEC Chairman Mary Schapiro said the SEC incorporated “many changes” after receiving a number of comments about the proposed rules economic cost. Schapiro noted that the SEC has revised the guidance regarding issuer determination of whether they manufacture or contract to manufacture products that contain conflict minerals that are necessary to the production or functionality of the issuer’s product.
The final rule also incorporates comments revising the proposal’s treatment of recycled and scrap minerals. Under the final rule, issuers are not automatically required to conduct due diligence of their supply chain and file a conflict minerals report, and recycled and scrap conflict minerals will be treated like other minerals. Only after the issuer determines that the minerals originated “or may have originated in the covered countries,” or if the issuer has reason to believe the minerals may not be recycled or scrap, will the issuer be required to conduct due diligence.
Regarding due diligence, the final rule also incorporates comments that allow issuers to describe the products containing the minerals as “conflict undeterminable” rather than “conflict free” for two years if issuers are unable to determine the source of their conflict minerals after conducting due diligence. Smaller issuers may use the classification for up to four years.
The SEC determined that the initial cost of compliance for U.S. companies would be $3 billion to $4 billion, and ongoing cost of compliance would range from $206 million to $609 million.
Commissioners Troy Paredes and Daniel Gallagher both opposed the rule. Paredes said the SEC has “no expertise when it comes to the humanitarian goal of ending the atrocities that besiege the [Democratic Republic of Congo].” Gallagher said he had “serious doubt about the efficacy of using securities laws to affect social policy aims.”
Section 1504: Disclosure of Payments by Resource Extraction Issuers to U.S. or Foreign Governments: Vote 2-1 (Gallagher) – Fact Sheet
SEC Chairman Schapiro and Commissioner Paredes recused themselves from voting.
Commissioner Elisse Walter said the new rules leave the term “project” undefined. However, Walter said the SEC has provided guidance in the rule indicating the Commission’s view on what a “project” should be.
The rules also state that companies would not have to report payments unless they breach the $100,000 threshold. Exemptions for reporting “confidential or competitively sensitive information” were not included in the rules. The rules also excluded exemptions for instances where a company reporting may violate foreign laws.
The SEC found the initial cost of compliance would range from $44 million to $1 billion. After receiving qualitative comments on costs, the SEC said the initial compliance costs will likely be closer to $1 billion. Ongoing compliance costs would range from $200 million to $400 million.
Gallagher again dissented and repeated that the SEC “is not the right tool for this social policy exercise.” He said the $100,000 threshold “reflects a decision to exclude nothing.”
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AT TODAY’S OPEN MEETING, the Securities and Exchange Commission (SEC) approved two rules regarding disclosure and reporting obligations with respect to the use of conflict minerals and payments to foreign governments by resource extraction issuers. The SEC approved both rules which implement requirements from Sections 1502 and 1504 of the Dodd-Frank Act.
Please note that the SEC vote on proposed rules under the JOBS Act that would eliminate the prohibition against general solicitation and general advertising in securities offerings was rescheduled to August 29.
Section 1502: Specialized Disclosure for Companies’ Use of Conflict Minerals: Vote 3-2 (Paredes, Gallagher) – Fact Sheet
SEC Chairman Mary Schapiro said the SEC incorporated “many changes” after receiving a number of comments about the proposed rules economic cost. Schapiro noted that the SEC has revised the guidance regarding issuer determination of whether they manufacture or contract to manufacture products that contain conflict minerals that are necessary to the production or functionality of the issuer’s product.
The final rule also incorporates comments revising the proposal’s treatment of recycled and scrap minerals. Under the final rule, issuers are not automatically required to conduct due diligence of their supply chain and file a conflict minerals report, and recycled and scrap conflict minerals will be treated like other minerals. Only after the issuer determines that the minerals originated “or may have originated in the covered countries,” or if the issuer has reason to believe the minerals may not be recycled or scrap, will the issuer be required to conduct due diligence.
Regarding due diligence, the final rule also incorporates comments that allow issuers to describe the products containing the minerals as “conflict undeterminable” rather than “conflict free” for two years if issuers are unable to determine the source of their conflict minerals after conducting due diligence. Smaller issuers may use the classification for up to four years.
The SEC determined that the initial cost of compliance for U.S. companies would be $3 billion to $4 billion, and ongoing cost of compliance would range from $206 million to $609 million.
Commissioners Troy Paredes and Daniel Gallagher both opposed the rule. Paredes said the SEC has “no expertise when it comes to the humanitarian goal of ending the atrocities that besiege the [Democratic Republic of Congo].” Gallagher said he had “serious doubt about the efficacy of using securities laws to affect social policy aims.”
Section 1504: Disclosure of Payments by Resource Extraction Issuers to U.S. or Foreign Governments: Vote 2-1 (Gallagher) – Fact Sheet
SEC Chairman Schapiro and Commissioner Paredes recused themselves from voting.
Commissioner Elisse Walter said the new rules leave the term “project” undefined. However, Walter said the SEC has provided guidance in the rule indicating the Commission’s view on what a “project” should be.
The rules also state that companies would not have to report payments unless they breach the $100,000 threshold. Exemptions for reporting “confidential or competitively sensitive information” were not included in the rules. The rules also excluded exemptions for instances where a company reporting may violate foreign laws.
The SEC found the initial cost of compliance would range from $44 million to $1 billion. After receiving qualitative comments on costs, the SEC said the initial compliance costs will likely be closer to $1 billion. Ongoing compliance costs would range from $200 million to $400 million.
Gallagher again dissented and repeated that the SEC “is not the right tool for this social policy exercise.” He said the $100,000 threshold “reflects a decision to exclude nothing.”