On January 31, 2017, the SEC’s Acting Chairman, Michael Piwowar, issued a public statement (available here) that he has directed the Commission’s Staff to reconsider whether the Staff’s prior guidance on conflict minerals disclosures (previously published in April 2014 and available here) is still appropriate and evaluate whether additional relief may be appropriate.
By way of background, the SEC’s conflict minerals disclosure rules – Exchange Act Rule 13p-1 and Form SD – were challenged shortly after adoption. Ultimately, the Court of Appeals for the D.C. Circuit in National Association of Manufacturer’s et al. v. SEC et al. held that certain of the disclosures required by the SEC’s conflict minerals rule violated the First Amendment. Specifically, the Court of Appeals held that Section 13(p) and Rule 13p-1 (the “Rule”) “violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and state on their website that any of their products have not been found to be ‘DRC conflict free.’”
Shortly thereafter, the Corporation Finance Division Director at the time, Keith Higgins, issued a public statement providing guidance that companies will be afforded some flexibility in how they describe products in their Conflict Minerals Reports. The guidance explained that companies are not required to affirmatively describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict indeterminable.” However, if a company voluntarily elects to describe any of its products as “DRC conflict free”, then the company would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as otherwise required.
Piwowar goes on in his statement to provide several general observations regarding the current state of affairs surrounding the Rule. Specifically, Piwowar notes that the litigation relating to the Rule is ongoing, the Staff’s prior guidance in this area remains in effect, and the temporary transition period relating to the Rule has expired. Specifically, the reporting period beginning January 1, 2017, will be the first reporting period in which all (emphasis added) issuers subject to the Rule’s disclosure requirements, including smaller reporting companies, are unable to take advantage of the transition period afforded to companies when the Rule was first adopted. Lastly, Piwowar solicits public comment on all aspects of the Rule and related guidance, which can be submitted directly through a link on the public statement page (available here).