Implementing the SEC’s New Rules Requiring Disclosure of the Use of Conflict Minerals & of Payment Disclosures by Resource Extraction Issuers

Ronald J. Klein, Partner, 
Holland & Knight LLP

• Conflict minerals compliance is a “Top 10 issue for 2013″ for general counsels: Understanding why and how to comply with the new requirements is a senior management issue that must be implemented thoroughly, responsibly, and effectively.
• What Information must be Disclosed and Scope of the Required Disclosures: The SEC’s rule obligates companies to understand the total chain of custody and supply-chain of minerals in their products. Understanding what the relevant players and legislators intended when drafting and implementing the rules is for the implementation of a successful compliance program.
• What other companies/industry groups are doing already: A number of industry groups and companies are setting best-practices that can help your company or association reduce compliance costs.
• How to respond to public relations activities associated with the rules: Companies will not only have to strengthen internal and B2B communications processes; but they must be able to anticipate, understand, and act-upon PR opportunities and challenges that the conflict-minerals rule may present.
• How to utilize these rules for strategic marketing and Corporate Social Responsibility efforts: New rules often require new compliance and internal systems. Companies will gain a competitive advantage by considering this an opportunity to integrate their compliance program into cross-functional marketing, sales, government relations, and CSR efforts.

Jerry J. Burgdoerfer, Partner & Co-Chair Securities, 
Jenner & Block LLP

• Can a company quickly determine if it is subject to these requirements—What are the threshold questions?
• How are special situations such as acquisitions, joint ventures and other investments implicated by these requirements?
• If a company is subject to the requirements, what is the level of due diligence it must do, practically?
• If a company is subject to the requirements, are the filings burdensome?
• How can a company set up an ongoing compliance program?

Jane C. Luxton, Partner, 
Pepper Hamilton LLP

• The Dodd-Frank Act SEC conflict minerals rule evolved in the context of a larger international movement focused on supply chain transparency as a tool to achieve humanitarian goals, using “name and shame” approaches to discourage human trafficking in numerous countries and violent human rights abuses in central Africa. Other countries, international regimes, and states have also moved ahead on these issues, including the European Union, Canada, and the Organisation for Economic Cooperation and Development, and it is important for businesses in a global market to understand these differing programs and obligations, some of which are still under development.
• The SEC’s final rule deliberately avoided defining some key terms, leaving “gray areas” that require interpretation. The rule’s rejection of a de minimis exemption has also made compliance more challenging.
• Compliance approaches are proliferating throughout industry sectors, and companies need to be aware of the implications of these differences for harmonization of their diligence efforts.
• As businesses trace their materials through the upstream supply chain, they may discover problems that fall under other statutory schemes, such as the Foreign Corrupt Practices Act and UK Anti-Bribery Act. These laws carry potentially significant criminal penalties, and companies must be prepared to deal appropriately with exposure risks that may emerge during the conflict minerals compliance process.
  Although the rule has been challenged in court and will be reviewed on an expedited basis, businesses face competitive, customer, and legal risks if they fail to gear up now for compliance.