Conflict Minerals

Federal RegisterSep 12, 2012

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

[Release No. 34-67716; File No. S7-40-10]

RIN 3235-AK84

Conflict Minerals

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

We are adopting a new form and rule pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the use of conflict minerals. Section 1502 added Section 13(p) to the Securities Exchange Act of 1934, which requires the Commission to promulgate rules requiring issuers with conflict minerals that are necessary to the functionality or production of a product manufactured by such person to disclose annually whether any of those minerals originated in the Democratic Republic of the Congo or an adjoining country. If an issuer's conflict minerals originated in those countries, Section 13(p) requires the issuer to submit a report to the Commission that includes a description of the measures it took to exercise due diligence on the conflict minerals' source and chain of custody. The measures taken to exercise due diligence must include an independent private sector audit of the report that is conducted in accordance with standards established by the Comptroller General of the United States. Section 13(p) also requires the issuer submitting the report to identify the auditor and to certify the audit. In addition, Section 13(p) requires the report to include a description of the products manufactured or contracted to be manufactured that are not “DRC conflict free,” the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin. Section 13(p) requires the information disclosed by the issuer to be available to the public on its Internet Web site.

DATES:

Effective Date:

November 13, 2012.

Compliance Date:

Issuers must comply with the final rule for the calendar year beginning January 1, 2013 with the first reports due May 31, 2014.

FOR FURTHER INFORMATION CONTACT:

John Fieldsend, Special Counsel in the Office of Rulemaking, Division of Corporation Finance, at (202) 551-3430, 100 F Street NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

We are adopting new Rule 13p-1

and new Form SD

under the Securities Exchange Act of 1934 (“Exchange Act”).

17 CFR 240.13p-1.

17 CFR 249.448.

15 U.S.C. 78a

et seq.

Table of Contents

I. Background and Summary

A. Statutory Provision

B. Summary of the Proposed Rules

C. Summary of Comments on the Proposed Rules

D. Summary of Changes to the Final Rule

E. Flowchart Summary of the Final Rule

II. Discussion of the Final Rule

A. “Conflict Minerals” Definition

1. Proposed Rules

2. Comments on the Proposed Rules

3. Final Rule

B. Step One—Issuers Covered by the Conflict Mineral Provision

1. Issuers That File Reports Under the Exchange Act

a. Proposed Rules

b. Comments on the Proposed Rules

i. Issuers that File Reports Under Sections 13(a) and 15(d) of the Exchange Act

ii. Smaller Reporting Companies

iii. Foreign Private Issuers

c. Final Rule

2. “Manufacture” and “Contract To Manufacture” Products

a. Proposed Rules

b. Comments on the Proposed Rules

i. “Manufacture”

ii. “Contract To Manufacture”

c. Final Rule

i. “Manufacture”

ii. “Contract To Manufacture”

3. Mining Issuers as “Manufacturing” Issuers

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

4. When Conflict Minerals Are “Necessary” to a Product

a. Proposed Rules

b. Comments on the Proposed Rules

i. “Necessary to the Functionality”

ii. “Necessary to the Production”

iii.

De Minimis

Threshold

c. Final Rule

i. Contained in the Product

ii. Intentionally Added

iii. “Necessary to the Functionality”

iv. “Necessary to the Production”

De Minimis

Threshold

C. Location, Status, and Timing of Conflict Minerals Information

1. Location of Conflict Minerals Information

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

2. “Filing” of Conflict Minerals Information

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

3. Uniform Reporting Period

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

4. Time Period for Providing Conflict Minerals Information

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

5. Conflict Minerals Already in the Supply Chain

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

6. Timing of Implementation

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

D. Step Two—Determining Whether Conflict Minerals Originated in the Democratic Republic of the Congo or Adjoining Countries and the Resulting Disclosure

1. Reasonable Country of Origin Inquiry

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

2. Disclosures in the Body of the Specialized Disclosure Report

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

E. Step Three—Conflict Minerals Report's Content and Supply Chain Due Diligence

1. Content of the Conflict Minerals Report

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

2. Due Diligence Standard in the Conflict Minerals Report

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

3. Independent Private Sector Audit Requirements

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

i. Auditing Standards

ii. Auditor Independence

iii. Audit Objective

4. Recycled and Scrap Minerals

a. Proposed Rules

b. Comments on the Proposed Rules

c. Final Rule

i. Definition of “Recycled and Scrap Sources”

ii. Due Diligence for Conflict Minerals From “Recycled and Scrap Sources”

F. Other Matters

III. Economic Analysis

A. Introduction

B. Benefits and Costs Resulting From the Mandatory Reporting Requirement

1. Benefits

2. Cost Estimates in the Comment Letters

a. General Comments

b. Specific Comments

i. Manufacturing Industry Association Comments

ii. Electronic Interconnect Industry Association Comments

iii. University Group Comments

iv. Environmental Consultancy Company Comments

v. Other Specific Comments

C. Benefits and Costs Resulting From Commission's Exercise of Discretion

1. Reasonable Country of Origin Inquiry

2. Information in the Specialized Disclosure Report

3. “DRC Conflict Undeterminable”

4. “Contract To Manufacture”

5. Nationally or Internationally Recognized Due Diligence Framework (Including Gold)

6. Liability for the Audit and Audit Certifications

7. Audit Objective

8. Conflict Minerals From Recycled and Scrap Sources

9. Conflict Minerals “Outside the Supply Chain”

10. Conflict Mineral Derivatives

11. Method and Timing of Disclosure on Form SD

12. “Necessary to the Functionality or Production”

13. Categories of Issuers

14. Not Including Mining Issuers as Manufacturing Issuers

D. Quantified Assessment of Overall Economic Effects

IV. Paperwork Reduction Act

A. Background

B. Summary of the Comment Letters

C. Revisions to PRA Reporting and Cost Burden Estimates

1. Estimate of Conducting Due Diligence, Including the Audit

2. Estimate of Preparing the Disclosure

3. Revised PRA Estimate

V. Final Regulatory Flexibility Act Analysis

A. Reasons for, and Objectives of, the Final Action

B. Significant Issues Raised by Public Comments

C. Small Entities Subject to the Final Rule

D. Reporting, Recordkeeping, and Other Compliance Requirements

E. Agency Action To Minimize Effect on Small Entities

VI. Statutory Authority and Text of the Final Rule

I. Background and Summary

A. Statutory Provision

On December 15, 2010, we proposed a number of amendments to our rules

to implement the requirements of Section 1502 (“Conflict Minerals Statutory Provision”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”),

relating to new disclosure and reporting obligations by issuers concerning “conflict minerals”

that originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country

(together with the DRC, the “Covered Countries”).

Section 1502 amended the Exchange Act by adding new Section 13(p).

New Exchange Act Section 13(p) requires us to promulgate disclosure and reporting regulations regarding the use of conflict minerals from the Covered Countries.

Conflict Minerals, Release No. 34-63547 (Dec. 15, 2010) [75 FR 80948] (the “Proposing Release”).

Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

The term “conflict mineral” is defined in Section 1502(e)(4) of the Act as (A) columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted); or their derivatives; or (B) any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.

The term “adjoining country” is defined in Section 1502(e)(1) of the Act as a country that shares an internationally recognized border with the DRC, which presently includes Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia.

In the Proposing Release, we referred to the DRC and its adjoining countries as the “DRC Countries.” In this release, we use the term “Covered Countries” instead. Both terms have the same meaning. For consistency within this release, there are instances when we refer to the text of the Proposing Release and use the term “Covered Countries” instead of “DRC Countries,” which was used in the Proposing Release.

15 U.S.C. 78m(p).

See

Exchange Act Section 13(p)(1)(A). This Exchange Act Section requires that the Commission promulgate rules no later than 270 days after the date of enactment.

As reflected in the title of Section 1502(a), which states the “Sense of the Congress on Exploitation and Trade of Conflict Minerals Originating in the Democratic Republic of the Congo,” in enacting the Conflict Minerals Statutory Provision, Congress intended to further the humanitarian goal of ending the extremely violent conflict in the DRC, which has been partially financed by the exploitation and trade of conflict minerals originating in the DRC. This section explains that the exploitation and trade of conflict minerals by armed groups is helping to finance the conflict and that the emergency humanitarian crisis in the region warrants the disclosure requirements established by Exchange Act Section 13(p).

See

Section 1502(a) of the Act (“It is the sense of the Congress that the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual- and gender-based violence, and contributing to an emergency humanitarian situation therein, warranting the provisions of section 13(p) of the Securities Exchange Act of 1934, as added by subsection (b).”).

Similarly, the legislative history surrounding the Conflict Minerals Statutory Provision, and earlier legislation addressing the trade in conflict minerals, reflects Congress's motivation to help end the human rights abuses in the DRC caused by the conflict.

Other parts of the Conflict Minerals Statutory Provision also point to the fact that Congress intended to promote peace and security.

For example, the Conflict Minerals Statutory Provision states that once armed groups no longer continue to be directly involved and benefiting from commercial activity involving conflict minerals, the President may take action to terminate the provision.

To accomplish the goal of helping end the human rights abuses in the DRC caused by the conflict, Congress chose to use the securities laws disclosure requirements to bring greater public awareness of the source of issuers' conflict minerals and to promote the exercise of due diligence on conflict mineral supply chains. By doing so, we

understand Congress's main purpose to have been to attempt to inhibit the ability of armed groups in the Covered Countries to fund their activities by exploiting the trade in conflict minerals. Reducing the use of such conflict minerals is intended to help reduce funding for the armed groups contributing to the conflict and thereby put pressure on such groups to end the conflict. The Congressional object is to promote peace and security in the Covered Countries.

The Congo conflict has been an issue raised in the United States Congress for a number of years. For example, in the 109th Congress, then-Senator Sam Brownback, along with Senator Richard J. Durbin and then-Senator Barack Obama, among others, co-sponsored S. 2125, the Democratic Republic of Congo Relief, Security, and Democracy Promotion Act of 2006.

See

Public Law 109-456 (Dec. 22, 2006) (stating that the National Security Strategy of the United States, dated September 17, 2002, concludes that disease, war, and desperate poverty in Africa threatens the United States' core value of preserving human dignity and threatens the United States' strategic priority of combating global terror). The legislation committed the United States to work toward peace, prosperity, and good governance in the Congo. As another example, in the 110th Congress, then-Senator Brownback and Senator Durbin introduced S. 3058, the Conflict Coltan and Cassiterite Act, which would have prohibited the importation of certain products containing columbite-tantalite or cassiterite that was mined or extracted in the DRC by groups that committed serious human rights and other violations.

See

S. 3058, 110th Cong. (2008). As a further example, in the 111th Congress, then-Senator Brownback introduced S. 891, the Congo Conflict Minerals Act of 2009.

See

S. 891, 111th Cong. (2009). This bill would have required U.S.-registered companies selling products using conflict minerals to disclose annually to the Commission the country of origin of these minerals and, if the country of origin was one of the Covered Countries, to disclose the mine of origin. Additionally, later in the 111th Congress, then-Senator Brownback sponsored S.A. 2707, which was similar to S. 891.

See

S.A. 2707, 111th Cong. (2009). We note also that the Democratic Republic of Congo Relief, Security, and Democracy Promotion Act of 2006 states that the National Security Strategy of the United States, dated September 17, 2002, concludes that disease, war, and desperate poverty in Africa threatens the United States' core value of preserving human dignity and threatens the United States' strategic priority of combating global terror.

See

Pub. L. 109-456 (Dec. 22, 2006).

See also U.S. Gov't Accountability Office, GAO-12-763, Conflict Minerals Disclosure rule: SEC's Actions and Stakeholder-Developed Initiatives

(Jul. 2012) (discussing the Democratic Republic of Congo Relief, Security, and Democracy Promotion Act of 2006),

available at http://www.gao.gov/products/GAO-12-763

See

Section 1502(d)(2)(A) of the Act (stating that two years after enactment of the Act and annually thereafter, “the Comptroller General of the United States shall submit to the appropriate congressional committees a report that includes” an “assessment of the effectiveness” of the Conflict Minerals Statutory Provision “in promoting peace and security” in the Covered Countries).

See

Exchange Act Section 13(p)(4) (stating that the provision “shall terminate on the date on which the President determines and certifies to the appropriate congressional committees * * * that no armed groups continue to be directly involved and benefitting from commercial activity involving conflict minerals”).

See

Exchange Act Section 1502(c)(1)(B)(i) (stating that the Secretary of State, in consultation with the Administrator of the United States Agency for International Development, shall submit to Congress a plan to “promote peace and security” in the Covered Countries).

Congress chose to use the securities laws disclosure requirements to accomplish its goals. In addition, one of the co-sponsors of the provision noted in a floor statement that the provision will “enhance transparency” and “also help American consumers and investors make more informed decisions.”

Also, as discussed throughout the release, a number of commentators on our rule proposal, including co-sponsors of the legislation and other members of Congress, have indicated that the Conflict Minerals Statutory Provision will provide information that is material to an investor's understanding of the risks in an issuer's reputation and supply chain.

See

156

Cong. Rec.

S3976 (daily ed. May 19, 2010) (statement of Sen. Feingold) (“Mr. President, I am pleased to be an original cosponsor of two amendments to the Restoring American Financial Stability Act that seek to ensure there is greater transparency around how international companies are addressing issues of foreign corruption and violent conflict that relate to their business. Creating these mechanisms to enhance transparency will help the United States and our allies more effectively deal with these complex problems, at the same time that they will also help American consumers and investors make more informed decisions.”).

See, e.g.,

letters from Aditi Mohapatra of Calvert Asset Management Company, Inc. on behalf of 49 investors, including the Social Investment Forum and Interfaith Center of Corporate Responsibility (Mar. 2, 2011) (“SIF I”); Boston Common Asset Management, LLC, Calvert Asset Management Co., Inc., Interfaith Center on Corporate Responsibility, Jesuit Conference of the United States, Marianist Province of the US, Mercy Investment Services, Inc., Missionary Oblates of Mary Immaculate, Responsible Sourcing Network, Sustainalytics, Trillium Asset Management, and Tri-State Coalition for Responsible Investment (Feb. 1, 2012) (“SIF II”); Calvert Investments (Oct. 18, 2011) (“Calvert”); General Board of Pension and Health Benefits of The United Methodist Church (Mar. 7, 2011) (“Methodist Pension”); State Board of Administration of Florida (Feb. 3, 2011) (“FRS”); and Teachers Insurance and Annuity Association and College Retirement Equities Fund (Mar. 2, 2011) (“TIAA-CREF”).

See also

letters from Catholic Relief Services (Feb. 8, 2011) (“CRS I”) (“We submit these comments with the hope the SEC will consider the need of investors to access information to make sound business decisions that reflect both their social and their financial concerns.”); Enough Project (Mar. 31, 2011) (“Enough Project II”) (stating that advancing the “goal of resolving a humanitarian crisis that continues to cause countless deaths and unimaginable suffering” is “of great interest to many, including investors”); Senator Richard J. Durbin and Representative Jim McDermott (Feb. 28, 2011) (“Sen. Durbin/Rep. McDermott”) (suggesting that the provision's purposes were both to end conflict in the DRC and to provide current information for investors, and the latter purpose is identical to the purpose of requiring the disclosure of other information in an issuer's the periodic reports) and Senator Patrick Leahy, Senator Christopher Coons, Congressman Howard Berman, Congressman Jim McDermott, Congressman Donald Payne, Congressman Gregory Meeks, and Congressmember Karen Bass (Feb. 16, 2012) (“Sen. Leahy

et al.

”) (asserting that an issuer's conflict minerals information is “critical to both investors and to capital formation” because “when a publicly traded company relies on an unstable black market for inputs essential to manufacturing its products it is of deep material interest to investors”).

Exchange Act Section 13(p) mandates that we promulgate regulations requiring that a “person described”

disclose annually whether any “conflict minerals” that are “necessary to the functionality or production of a product manufactured by such person”

originated in the Covered Countries, and make that disclosure publicly available on the issuer's Internet Web site.

If such a person's conflict minerals originated in the Covered Countries, that person must submit a report (“Conflict Minerals Report”) to us that includes a description of the measures taken by the person to exercise due diligence on the minerals' source and chain of custody.

Under Exchange Act Section 13(p), the measures taken to exercise due diligence “shall include an independent private sector audit” of the Conflict Minerals Report that is conducted according to standards established by the Comptroller General of the United States, in accordance with our promulgated rules, in consultation with the Secretary of State.

The person submitting the Conflict Minerals Report must also identify the independent private sector auditor

and certify the independent private sector audit.

The term “person described” is defined in Exchange Act Section 13(p)(2) as one who is required to file reports under Exchange Act Section 13(p)(1)(A), and for whom the conflict minerals are necessary to the functionality or production of a product manufactured by such person. Exchange Act Section 13(p)(1)(A) does not provide a definition but refers back to Exchange Act Section 13(p)(2).

Exchange Act Section 13(p)(2)(B).

See

Exchange Act Section 13(p)(1)(E) (stating that each issuer “shall make available to the public on the Internet Web site of such [issuer] the information disclosed under” Exchange Act Section 13(p)(1)(A)).

See

Exchange Act Section 13(p)(1)(A)(i).

See id.

(requiring in the Conflict Minerals Report “a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such [conflict] minerals, which measures shall include an independent private sector audit of such report”). The Conflict Minerals Statutory Provision assigns certain responsibilities to other federal agencies. In developing our proposed rules, our staff has consulted with the staff of these other agencies in developing our proposed rules. These agencies include, including the Government Accountability Office (the “GAO”), which is headed by the Comptroller General of the United States, and the United States Department of State.

See

Exchange Act Section 13(p)(1)(A)(ii) (stating that the issuer must provide a description of the “entity that conducted the independent private sector audit in accordance with” Exchange Act Section 13(p)(1)(A)(i)”).

As noted in Exchange Act Section 13(p)(1)(B), if an issuer is required to provide a Conflict Minerals Report that includes an independent private sector audit, that issuer “shall certify the audit” and that certified audit “shall constitute a critical component of due diligence in establishing the source and chain of custody of such minerals.”

Further, according to Exchange Act Section 13(p), the Conflict Minerals Report must include “a description of the products manufactured or contracted to be manufactured that are not DRC conflict free,”

the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and “the efforts to determine the mine or location of origin with the greatest possible specificity.”

Also, Exchange Act Section 13(p) dictates that each person described “shall make available to the public on the Internet Web site of such person” the conflict minerals information required by Exchange Act Section 13(p)(1)(A).

The term “DRC conflict free” is defined in Exchange Act Section 13(p)(1)(A)(ii) and Exchange Act Section 13(p)(1)(D). Exchange Act Section 13(p)(1)(A)(ii) defines “DRC conflict free” as “the products that do not contain minerals that directly or indirectly finance or benefit armed groups in the” Covered Countries. Similarly, Exchange Act Section 13(p)(1)(D) defines “DRC conflict free” as products that do “not contain conflict minerals that directly or indirectly finance or benefit armed groups in the” Covered Countries. We note that the definitions in the two sections are slightly different in that Exchange Act Section 13(p)(1)(A)(ii) refers to “minerals” without any limitation, whereas Exchange Act Section 13(p)(1)(D) refers specifically to “conflict minerals.” We believe, based on the totality of the Conflict Minerals Statutory Provision, that “DRC conflict free” is meant to refer only to “conflict minerals,” as that term is defined in Section 1502(e)(4) of the Act, that directly or indirectly finance or benefit armed groups in the Covered Countries, and not to all minerals that directly or indirectly finance or benefit armed groups in the Covered Countries.

See

Exchange Act Section 13(p)(1)(A)(ii).

See

Exchange Act Section 13(p)(1)(E).

B. Summary of the Proposed Rules

We proposed rules to apply to certain issuers that file reports with us under Exchange Act Sections 13(a)

or 15(d).

Based on the Conflict Minerals Statutory Provision, we proposed a disclosure requirement for conflict minerals that would divide into three

steps. The first step would have required an issuer to determine whether it was subject to the Conflict Minerals Statutory Provision. An issuer would have only been subject to the Conflict Minerals Statutory Provision if it was a reporting issuer for which conflict minerals were “necessary to the functionality or production of a product manufactured”

or contracted to be manufactured by such person. If an issuer did not meet that definition, the issuer was not required to take any action, make any disclosures, or submit any reports. If, however, an issuer met this definition, that issuer would move to the second step.

15 U.S.C. 78m(a).

15 U.S.C. 78o(d).

Exchange Act Section 13(p)(2).

The second step would have required the issuer to determine after a reasonable country of origin inquiry whether its conflict minerals originated in the Covered Countries. If the issuer determined that its conflict minerals did not originate in the Covered Countries, the issuer was to disclose this determination and the reasonable country of origin inquiry it used in reaching this determination in the body of its annual report. The issuer also would have been required to provide on its Internet Web site its determination that its conflict minerals did not originate in the Covered Countries, disclose in its annual report that the disclosure was posted on its Internet Web site, and disclose the Internet address on which this disclosure was posted. It would further have been required to maintain records demonstrating that its conflict minerals did not originate in the Covered Countries. Such an issuer would not have any further disclosure or reporting obligations with regard to its conflict minerals.

If, however, the issuer determined that its conflict minerals did originate in the Covered Countries, if it was unable to conclude that its conflict minerals did not originate in the Covered Countries, or if it determined that its conflict minerals were from recycled or scrap sources, the issuer would have been required to disclose this conclusion in its annual report. Also, the issuer would have been required to note that the Conflict Minerals Report, which included the certified independent private sector audit report, was furnished as an exhibit to the annual report; furnish the Conflict Minerals Report; make available the Conflict Minerals Report on its Internet Web site; disclose that the Conflict Minerals Report was posted on its Internet Web site; and provide the Internet address of that site. This issuer would then have moved to the third step.

Finally, the third step would have required an issuer with conflict minerals that originated in the Covered Countries, or an issuer that was unable to conclude that its conflict minerals did not originate in the Covered Countries, to furnish a Conflict Minerals Report. The proposed rules would have required an issuer to provide, in its Conflict Minerals Report, a description of the measures it had taken to exercise due diligence on the source and chain of custody of its conflict minerals, which would have included a certified independent private sector audit of the Conflict Minerals Report that identified the auditor and was furnished as part of the Conflict Minerals Report. Further, the issuer would have been required to include in the Conflict Minerals Report a description of its products manufactured or contracted to be manufactured containing conflict minerals that it was unable to determine did not “directly or indirectly finance or benefit armed groups” in the Covered Countries. The issuer would identify such products by describing them in the Conflict Mineral Report as not “DRC conflict free.”

If any of its products contained conflict minerals that did not “directly or indirectly finance or benefit” these armed groups, the issuer would be permitted to describe such products in the Conflict Mineral Report as “DRC conflict free” whether or not the minerals originated in the Covered Countries. In addition, the issuer would have been required to disclose in the Conflict Minerals Report the facilities used to process those conflict minerals, those conflict minerals' country of origin, and the efforts to determine the mine or location of origin with the greatest possible specificity.

The definition of the term “DRC conflict free” in our proposed rules would be identical to the definition in Exchange Act Section 13(p)(1)(D).

The proposed rules would have allowed for different treatment of conflict minerals from recycled and scrap sources. An issuer with such conflict minerals would have been required to furnish a Conflict Minerals Report that described the measures taken to exercise due diligence in determining that its conflict minerals were from recycled or scrap sources and to provide the reasons for believing, based on its due diligence, that its conflict minerals were from recycled or scrap sources. Such an issuer would also have been required to obtain a certified independent private sector audit of the Conflict Minerals Report.

C. Summary of Comments on the Proposed Rules

The Proposing Release requested comment on a variety of significant aspects of the proposed rules. The original comment period in the Proposing Release was to end on January 31, 2011. Prior to that date, however, we received requests for an extension of time for public comment on the proposal to allow for, among other matters, the collection of information and to improve the quality of responses.

On January 28, 2011, we extended the comment period for the proposal from January 31, 2011 to March 2, 2011.

Additionally, in response to suggestions from commentators,

we held a public roundtable on October 18, 2011 (“SEC Roundtable”) at which invited participants, including investors, affected issuers, human rights organizations, and other stakeholders, discussed their views and provided input on issues related to our required rulemaking.

In conjunction with the SEC Roundtable, we requested further comment.

We received approximately 420 individual comment letters in response to the proposed rules, with approximately 145 of those letters being received after the SEC Roundtable, and over 40 letters regarding the Conflict Minerals Statutory Provision prior to the

proposed rules.

We also received approximately 13,400 form letters from those supporting “promptly” implementing a “strong” final rule regarding the Conflict Minerals Statutory Provision,

with approximately 9,700 of those letters requesting some specific requirements in the final rule,

and two petitions supporting the proposed amendments with an aggregate of over 25,000 signatures.

See

letters from Advanced Medical Technology Association, Aerospace Industries Association, American Association of Exporters and Importers, American Automotive Policy Council, Business Alliance for Customs Modernization, IPC—Association Connecting Electronics Industries Joint Industry Group, National Association of Manufacturers, National Electrical Manufacturers Association, National Foreign Trade Council, National Retail Federation, Retail Industry Leaders Association, Semiconductor Equipment and Materials International, TechAmerica, USA*ENGAGE, and U.S. Chamber of Commerce (Dec. 16, 2010) (“Advanced Medical Technology Association

et al.

”); Jewelers Vigilance Committee, American Gem Society, Manufacturing Jewelers & Suppliers of America, Jewelers of America, and Fashion Jewelry & Accessories Trade Association (Jan. 10, 2011) (“JVC

et al.

I”); National Mining Association (Jan. 3, 2011) (“NMA I”); National Stone, Sand Gravel Association (Jan. 13, 2011) (“NSSGA”); Representative Spencer Bachus (Jan. 25, 2011) (“Rep. Bachus”); Robert D. Hormats, Under Secretary of State for Economic, Energy, and Agricultural Affairs, and Maria Otero, Democracy and Global Affairs (Jan. 25, 2011) (“State I”); and World Gold Council (Jan. 7, 2011) (“WGC I”).

Conflict Minerals, Release No. 34-63793 (Jan. 28, 2011) [76 FR 6110].

See, e.g.,

letter from United States Chamber of Commerce (Feb. 28, 2011) (“Chamber I”).

See

Press Release, Securities and Exchange Commission, SEC Announces Agenda and Panelists for Roundtable on Conflict Minerals (Oct. 14, 2011),

available at

http://www.sec.gov/news/press/2011/2011-210.htm

Roundtable on Issues Relating to Conflict Minerals, Release No. 34-65508 (Oct. 7, 2011) [76 FR 63573].

To facilitate public input on rulemaking required by the Act, the Commission provided a series of email links, organized by topic, on its Web site at

http://www.sec.gov/spotlight/regreformcomments.shtml

. The comments relating to the Conflict Minerals Statutory Provision are located at

http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specialized-disclosures.shtml

(“Pre-Proposing Release Web site”). These comments were received before we made public the Proposing Release or proposed rules and are separate from the comments we received after we published the Proposing Release and proposed rules, which are located at

http://www.sec.gov/comments/s7-40-10/s74010.shtml

(“Post-Proposing Release Web site”). Many commentators provided comments on both the pre- and post-Proposing Release Web sites. Generally, our references to comment letters refer to the comments on the post-Proposing Release Web site. When we refer to a comment letter from the Pre-Proposing Release Web site, however, we make that clear in the footnote.

See

form letters A (urging us to institute “strong rules”), B (urging that the final rule not allow the legislation's intent to be compromised and to keep the “LEGISLATION STRONG” (emphasis in original)), E (indicating “deep disappointment and concern” that the final rule had not been adopted, and urging us to “release a strong, final rule”), F (urging us to “promptly issue strong final regulations”), G (stating that delays in adopting a final rule will “significantly hinder progress toward a legitimate mining sector in eastern” DRC, and urging us to “urgently release final regulations on conflict minerals”), H (calling on us to “release a strong, final rule as soon as possible”), and I (urging us to “issue strong final rules as soon as possible”).

See

form letters A (stating that the final rule should, among other requirements, include gold and metals mining companies, apply to all possible companies, require that conflict minerals disclosures be filed, include strong and defined due diligence, and define recycled metals as 100% post-consumer metals), G (stating that the final rule should “incorporate the UN Group of Experts and OECD due diligence guidelines' concept of mitigation”), H (stating that the final rule should, among other requirements, reject any delays or phased-in implementation, adopt the “OECD due diligence standard,” have equal reporting for all conflict minerals, include all companies regardless of size, define terms narrowly, define the reasonable country of origin inquiry, have issuers file reports, and not include a

de minimis

category for conflict minerals), and I (stating that the final rule must, among other requirements, reject an indeterminate origin category, define the reasonable country of origin standard, and adopt the “OECD Due Diligence standard”).

The comment letters came from corporations, professional associations, human rights and public policy groups, bar associations, auditors, institutional investors, investment firms, United States and foreign government officials,

and other interested parties and stakeholders. In general, most commentators supported the human rights objectives of the Conflict Minerals Statutory Provision and the proposed rules.

As discussed in greater detail throughout this release, however, many of these commentators provided recommendations for revising the proposed rules and suggested modifications or alternatives to the proposal. Only a few commentators generally opposed the Conflict Minerals Statutory Provision and/or our adoption of any rule based on the provision.

One commentator recommended that the proposed rules be withdrawn entirely “and that the potential costs, supply chain complexities, and other practical obstacles to implementation be more fully analyzed before new rules are proposed.”

Among the foreign officials to provide comment letters was the DRC's Minister of Mines.

See

letters from Martin Kabwelulu, Minister of Mines, Democratic Republic of the Congo (July 15, 2011) (“DRC Ministry of Mines I”); Martin Kabwelulu, Minister of Mines, Democratic Republic of the Congo (Oct. 15, 2011) (“DRC Ministry of Mines II”); and Martin Kabwelulu, Minister of Mines, Democratic Republic of the Congo (Nov. 8, 2011) (“DRC Ministry of Mines III”).

See, e.g.,

letters from Advanced Medical Technology Association, American Apparel & Footwear Association, American Association of Exporters and Importers, Consumer Electronics Association, Consumer Electronics Retailers Coalition, Emergency Committee for American Trade, IPC-Association Connecting Electronics Industries, Joint Industry Group, National Association of Manufacturers, National Foreign Trade Council, National Retail Federation, Retail Industry Leaders Association, TechAmerica, and USA Engage (Mar. 2, 2011) (“Industry Group Coalition I”) (stating its “support [for] the underlying goal of Sec. 1502 to prevent the atrocities occurring” in the Covered Countries); American Bar Association (Jun. 20, 2011) (“ABA”) (stating that it “supports and endorses the humanitarian efforts to end the armed conflict in the eastern Democratic Republic of the Congo”); Chamber I (stating that it “supports the fundamental goal, as embodied in Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (`Dodd-Frank Act'), of preventing the exploitation of conflict minerals for the purpose of financing human rights violations within the Democratic Republic of Congo”); National Association of Manufacturers (Mar. 2, 2011) (“NAM I”) (stating its “support the underlying goal of Sec. 1502 to address the atrocities occurring in the” Covered Countries); and World Gold Council (Feb. 28, 2011) (“WGC II”) (stating that it “believes it is important to state [its] support for the humanitarian goals of Section 1502”).

See, e.g.,

letters from Michael Beggs (Jan. 12, 2012) (“Beggs”), Charles Blakeman (Oct. 9, 2011) (“Blakeman I”), Gary P. Bradley (Sept. 19, 2011) (“Bradley”), Joseph Cummins (Dec. 20, 2011) (“Cummins”), Walter Grail (Oct. 1, 2011) (“Grail”), Kirtland C. Griffin (Jun. 16, 2011) (“Griffin”), Clark Grey Howell (Sep. 20, 2011) (“Howell”), Edward Lynch (Dec. 16, 2011) (“Lynch”), and Melanie Matthews (Sep. 19, 2011) (“Matthews”).

See

letter from Chamber I.

See also

letters from Chamber II (reiterating the withdrawal request from its initial comment letter and requesting we open a second comment period regarding the proposed rules), Chamber III (requesting that we allow companies additional time for commenting on the proposed rules), and United States Chamber of Commerce (Jul. 11, 2012) (“Chamber IV”) (requesting that we re-propose the rule and re-open the comment period).

Also, although they may have offered their support of the human rights concerns underlying the Conflict Minerals Statutory Provision and the proposed rules, some commentators were concerned about potentially negative effects of the Conflict Minerals Statutory Provision and the resulting rule. In this regard, some of those commentators argued that the provision and/or rule could lead to a

de facto

boycott or embargo on conflict minerals from the Covered Countries,

other of these commentators suggested that the

provision and/or rule could compel speech in a manner that violates the First Amendment,

and at least one such commentator indicated that the final rule would adversely affect employment in the United States.

One commentator, however, suggested that there could be some “business benefits” from complying with the final rule beyond the humanitarian benefits discussed by Congress.

This commentator argued that such benefits could include eliminating any competitive disadvantage to companies already engaged in ensuring their conflict mineral purchases do not fund conflict in the DRC, providing an opportunity to improve a company's existing risk management and supply chain management, stimulating innovation, supporting companies' requests for conflict minerals information from suppliers through legal mandate, and preparing companies to meet a new generation of expectations for greater supply chain transparency and accountability.

See, e.g.,

letters from AngloGold Ashanti Limited (Jan. 31, 2011) (“AngloGold”), Bureau d'Etudes Scientifiques et Techiques (Dec. 26, 2011) (“BEST II”), Competitive Enterprise Institute (Mar. 2, 2011) (“CEI I”), Competitive Enterprise Institute (Aug. 22, 2011) (“CEI II,”), Fédération des Enterprises du Congo (Oct. 28, 2011) (“FEC II”), Générale des Coopératives Minières du Sud Kivu (Apr. 8, 2011) (“Gecomiski”), IPC—Association Connecting Electronics Industries (Mar. 2, 2011) (“IPC I”), ITRI Ltd. (Feb. 25, 2011) (“ITRI II”), London Bullion Market Association (Mar. 2, 2011) (“LBMA I”), London Bullion Market Association (Aug. 5, 2011) (“LBMA II”), Minister of Energy and Minerals of the United Republic of Tanzania (May 23, 2011) (“Tanzania I”), Ministry of Mines and Energy of the Republic of Burundi (May 12, 2011) (“Burundi”), North Kivu Artisanal Mining Cooperatives Representative (Mar. 1, 2011) (“Comimpa”), Pact Inc. (Mar. 2, 2011) (“Pact I”), Pact Inc. (Oct. 13, 2011) (“Pact II”), Representative Christopher J. Lee (Feb. 3, 2011) (“Rep. Lee”), Société Minière du Maniema SPRL (Mar. 21, 2012) (“Somima”), Verizon Communications (Jun. 24, 2011) (“Verizon”), and WGC II.

But see

letters from Enough Project (Mar. 2, 2011) (“Enough Project I”) (“Enough notes that critics of the legislation are quick to predict that private sector investors and companies may walk away from the Congo if faced with meaningful due diligence and reporting requirements. On the contrary, Congo's mineral reserves are too great for world markets to ignore.”), International Corporate Accountability Roundtable (Aug. 24, 2011) (“ICAR II”) (recognizing that “[c]ritics of the law are arguing that whatever its intentions, it will in practice end the trade in minerals mined in the east of Congo,” and that, although “mineral exports from the region have dropped significantly in recent months, and that this has forced many artisanal miners to seek alternative livelihoods,” which “has serious implications for miners and their families,” the “downturn stems from a six month suspension of mining and trading activities imposed by the Congolese government and an overly restrictive interpretation of Dodd Frank by industry associations” and the “idea that the current hiatus is a permanent shut-down of the trade is misplaced, however.”), Andrew Matheson (Oct. 26, 2011) (“Matheson II”) (“No such embargo exists, nor is an embargo contemplated by the multi‐stakeholder group, the EICC/GeSI initiative, or ITRI. Import statistics show that minerals continue to be sourced in substantial volumes from the DRC, for example tantalum ores going into China.”), and Sen. Durbin/Rep. McDermott (“NGO experts in Congo note that only approximately one percent of the Congolese workforce depends on mining, so even if a de facto ban came to pass—which we doubt—the economic impact would not be as great as commonly assumed.”).

See, e.g.,

letters from Taiwan Semiconductor Manufacturing Company Ltd. (Jan. 27, 2011) (“Taiwan Semi”), Tiffany & Co. (Feb. 22, 2011) (“Tiffany”), and Washington Legal Fund (Mar. 30, 2011) (“WLF”).

See

letter from Rep. Lee (“Ultimately, these new regulations may cost U.S. jobs and send them overseas.”).

See

letter from Green Research (Jan. 27, 2012) (“Green II”).

See also

letter from Green Research (Oct. 29, 2011) (“Green I”) (stating that, although “[i]t seems clear that, by most accounting, there are costs of compliance” of the Conflict Minerals Statutory Provision, “there are benefits as well”).

See id.

We have reviewed and considered all of the comments that we received relating to the rulemaking. The final rule reflects changes from the proposed rules made in response to many of these comments. As discussed throughout this release, we are adopting final rules designed to provide flexibility to issuers to reduce their compliance costs. At the same time, our final rules retain the requirements from our proposed rules that create the disclosure regime mandated by Congress by means of Exchange Act reporting requirements. We discuss our revisions with respect to each proposed rule amendment in more detail throughout this release.

D. Summary of Changes to the Final Rule

We are adopting a three-step process, as proposed, but some of the mechanisms within the three steps have been modified in response to comments. We recognize that the final rule will impose significant compliance costs on companies who use or supply conflict minerals, and in modifying the rule we tried to reduce the burden of compliance in areas in which we have discretion while remaining faithful to the language and intent of the Conflict Minerals Statutory Provision that Congress adopted. A flowchart presenting a general overview of the conflict minerals rule that we are adopting is included following the end of this section. The chart is intended merely as a guide, however, and issuers should refer to the rule text and the preamble's more complete narrative description for the requirements of the rule.

The first step continues to be for an issuer to determine whether it is subject to the requirements of the Conflict Minerals Statutory Provision. Pursuant to the Conflict Minerals Statutory Provision, the Commission is required to promulgate regulations requiring certain conflict minerals disclosures by any “person described,” which, under the Conflict Minerals Statutory Provision, includes one for whom “conflict minerals are necessary to the functionality or production of a product manufactured by such person”.

As in our proposal, under the final rule this includes issuers whose conflict minerals are necessary to the functionality or production of a product manufactured or contracted by that issuer to be manufactured.

If an issuer does not meet this definition, the issuer is not required to take any action, make any disclosures, or submit any reports under the final rule. If, however, an issuer meets this definition, that issuer moves to the second step.

Exchange Act Section 13(p)(2).

See

Exchange Act Section 13(p)(1)(ii) (requiring a person described to include a description of certain of the person's products that were manufactured by the person, or were contracted by the person to be manufactured).

In the final rule, some aspects of the first step differ from the proposed rules based on comments we received. Consistent with the proposal, the final rule does not define the phrases “contract to manufacture,” “necessary to the functionality” of a product, and “necessary to the production” of a product. In response to comments, however, we provide additional guidance for issuers to consider regarding whether those phrases apply to them.

The guidance states that whether an issuer will be considered to “contract to manufacture” a product depends on the degree of influence it exercises over the materials, parts, ingredients, or components to be included in any product that contains conflict minerals or their derivatives. An issuer will not be considered to “contract to manufacture” a product if it does no more than take the following actions: (1) The issuer specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product (unless it specifies or negotiates taking these actions so as to exercise a degree of influence over the manufacturing of the product that is practically equivalent to contracting on terms that directly relate to the manufacturing of the product); (2) the issuer affixes its brand, marks, logo, or label to a generic product manufactured by a third party; or (3) the issuer services, maintains, or repairs a product manufactured by a third party.

In the Proposing Release, although we did not provide guidance for the other phrases, we provided some guidance for the phrase “necessary to the production” of a product. As discussed below, we are revising the guidance for this phrase.

Similarly, the determination of whether a conflict mineral is deemed “necessary to the functionality” or “necessary to the production” of a product depends on the issuer's particular facts and circumstances, as discussed in more detail below. But to assist issuers in making their determination, we provide guidance for issuers. In determining whether a conflict mineral is “necessary to the functionality” of a product, an issuer should consider: (1) Whether the conflict mineral is intentionally added to the product or any component of the product and is not a naturally-occurring by-product; (2) whether the conflict mineral is necessary to the product's generally expected function, use, or purpose; and (3) if conflict mineral is incorporated for purposes of ornamentation, decoration or embellishment, whether the primary purpose of the product is ornamentation or decoration.

In determining whether a conflict mineral is “necessary to the production” of a product, an issuer should consider: (1) Whether the conflict mineral is intentionally included in the product's production process, other than if it is included in a tool, machine, or equipment used to produce the product (such as computers or power lines); (2) whether the conflict mineral is included in the product; and (3) whether the conflict mineral is necessary to produce the product. In this regard, we are modifying our guidance from the proposal such that, for a conflict mineral to be considered “necessary to the production” of a product, the mineral must be both contained in the product and necessary to the product's production. We do not consider a conflict mineral “necessary to the production” of a product if the conflict mineral is used as a catalyst, or

in a similar manner in another process, that is necessary to produce the product but is not contained in that product.

Further, in a change from the proposal and in response to comments suggesting that including mining would expand the statutory mandate, the final rule does not treat an issuer that mines conflict minerals as manufacturing those minerals unless the issuer also engages in manufacturing. Additionally, the final rule exempts any conflict minerals that are “outside the supply chain” prior to January 31, 2013. Under the final rule, conflict minerals are “outside the supply chain” if they have been smelted or fully refined or, if they have not been smelted or fully refined, they are outside the Covered Countries. In response to comments, the final rule allows issuers that obtain control over a company that manufactures or contracts for the manufacturing of products with necessary conflict minerals that previously had not been obligated to provide a specialized disclosure report for those minerals to delay reporting on the acquired company's products until the end of the first reporting calendar year that begins no sooner than eight months after the effective date of the acquisition.

As suggested by commentators, the final rule modifies the proposal as to the location, timing, and status of any conflict minerals disclosures and any Conflict Minerals Report. The final rule requires an issuer to provide the conflict minerals disclosures that would have been in the body of the annual report in the body of a new specialized disclosure report on a new form, Form SD. An issuer required to provide a Conflict Minerals Report will provide that report as an exhibit to the specialized disclosure report. Additionally, based on comments that it will reduce the burdens on supply chain participants, the final rule requires that the conflict minerals information in the specialized disclosure report and/or in the Conflict Minerals Report cover the calendar year from January 1 to December 31 regardless of the issuer's fiscal year end, and the specialized disclosure report covering the prior year must be provided each year by May 31. Further, in a change from the proposal, urged by multiple commentators, the final rule requires Form SD, including the conflict minerals information therein and any Conflict Minerals Report submitted as an exhibit to the form, to be “filed” under the Exchange Act and thereby subject to potential Exchange Act Section 18 liability. The proposal would have required the information to be “furnished.”

The second step continues to require an issuer to conduct a reasonable country of origin inquiry regarding the origin of its conflict minerals. Consistent with the proposal, and the position of certain commentators,

the final rule does not prescribe the actions for a reasonable country of origin inquiry that are required, as the required inquiry depends on each issuer's facts and circumstances. However, in a change from the proposed rules, to clarify the scope of the required inquiry as requested by certain other commentators,

the final rule provides general standards applicable to the inquiry. Specifically, the final rule provides that, to satisfy the reasonable country of origin inquiry requirement, an issuer must conduct an inquiry regarding the origin of its conflict minerals that is reasonably designed to determine whether any of its conflict minerals originated in the Covered Countries or are from recycled or scrap sources, and must perform the inquiry in good faith. The final rule requires an issuer that determines that its conflict minerals did not originate in the Covered Countries or did come from recycled or scrap sources to disclose in its specialized disclosure report its determination and in its specialized disclosure report briefly describe the reasonable country of origin inquiry it used in reaching the determination and the results of the inquiry. The requirement for an issuer to briefly describe its inquiry and the results of the inquiry is a change from the disclosure required in the proposed rules.

Some commentators agreed that, to allow for greater flexibility, the reasonable country of origin inquiry standard should either not be defined or that only general guidance should be provided.

See, e.g.,

letters from Apparel & Footwear Association (Mar. 2, 2011) (“AAFA”); AngloGold; ArcelorMittal (Oct. 31, 2011) (“ArcelorMittal”); Industry Group Coalition I; IPC I; Information Technology Industry Council (Feb. 24, 2011) (“ITIC I”); International Precious Metals Institute (Jan. 19, 2011) (“IPMI I”); Jewelers Vigilance Committee, American Gem Society, Manufacturing Jewelers & Suppliers of America, Jewelers of America, and Fashion Jewelry & Accessories Trade Association (Mar. 2, 2011) (“JVC

et al.

II”); NAM I, Retail Industry Leaders Association and Consumer Electronics Retailers Coalition (Mar. 2, 2011) (“RILA-CERC”); Semiconductor Industry Association (Mar. 2, 2011) (“Semiconductor”); SIF I; TriQuint Semiconductor, Inc. (Jan. 26, 2011) (“TriQuint I”); and WGC II.

Some commentators argued that either the reasonable country of origin inquiry standard should be defined or that there should specific guidance regarding the standard.

See, e.g.,

letters from Business Roundtable (Mar. 2, 2011) (“Roundtable”), CRS I, Department of State (Mar. 24, 2011) (“State II”), EARTHWORKS' No Dirty Gold Campaign (Mar. 2, 2011) (“Earthworks”), Enough Project I, Ethical Metalsmiths (Feb. 28, 2011) (“Metalsmiths”), General Board of Church and Society of the United Methodist Church (Apr. 19, 2012) (“Methodist Board”), Global Witness (Feb. 28, 2011) (“Global Witness I”), Howland Greene Consultants LLC (Jan. 28, 2011) (“Howland”), International Conference of the Great Lakes Region (Jan. 31, 2011) (“ICGLR”), National Association of Evangelicals (Feb. 17, 2012) (“Evangelicals”), New York City Bar Association (Jan. 31, 2011) (“NYCBar I”), New York City Bar Association (Feb. 8, 2012) (“NYCBar II”), Personal Care Products Council (Mar. 1, 2011) (“PCP”), Presbyterian Church USA (Feb. 23, 2012) (“Presbyterian Church II”), Semiconductor Equipment and Materials International (Feb. 15, 2011) (“SEMI”), Sen. Durbin/Rep. McDermott, Tantalum-Niobium International Study Center (Jan. 27, 2011) (“TIC”), Twenty-four organizations of the Multi-Stakeholder Group (Mar. 2, 2011) (“MSG I”), and World Evangelical Alliance (Feb. 17, 2012) (“Evangelical Alliance”).

Also, in a change from the proposal, the final rule modifies the trigger for determining whether or not an issuer is required to proceed to step three under the rule. The proposed rules would have required an issuer to conduct due diligence on the source and chain of custody of its conflict minerals and provide a Conflict Minerals Report if, based on its reasonable country of origin inquiry, it determined that its conflict minerals originated in the Covered Countries or was unable to determine that its conflict minerals did not originate in the Covered Countries, or if its conflict minerals came from recycled or scrap sources. Under the final rule, an issuer must exercise due diligence on the source and chain of custody of its conflict minerals and provide a Conflict Minerals Report if, based on its reasonable country of origin inquiry, the issuer knows that it has necessary conflict minerals that originated in the Covered Countries and did not come from recycled or scrap sources, or if the issuer has reason to believe that its necessary conflict minerals may have originated in the Covered Countries and may not have come from recycled or scrap sources.

As an exception to this requirement, however, an issuer that must conduct due diligence because, based on its reasonable country of origin inquiry, it has reason to believe that its necessary conflict minerals may have originated in the Covered Countries and may not have come from recycled or scrap sources is not required to submit a Conflict Minerals Report if, during the exercise of its due diligence, it determines that its conflict minerals did not, in fact, originate in the Covered Countries, or it determines that its conflict minerals did, in fact, come from recycled or scrap sources. Such an issuer is still required to submit a specialized disclosure report disclosing its determination and briefly describing its inquiry and its due diligence efforts and the results of that inquiry and due diligence efforts, which should demonstrate why the issuer believes that the conflict minerals did not originate in the Covered Countries

or that they did come from recycled or scrap sources. On the other hand, if, based on its reasonable country of origin inquiry, an issuer has no reason to believe that its conflict minerals may have originated in the Covered Countries, or, based on its reasonable country of origin inquiry, an issuer reasonably believes that its conflict minerals are from recycled or scrap sources, the issuer is not required to move to step three. In another change from the proposal, the final rule does not require an issuer to retain reviewable business records to support its reasonable country of origin conclusion, although maintenance of appropriate records may be useful in demonstrating compliance with the final rule, and may be required by any nationally or internationally recognized due diligence framework applied by an issuer.

As noted above, if the issuer knows that it has necessary conflict minerals that originated in the Covered Countries, or if the issuer has reason to believe that its necessary conflict minerals may have originated in the Covered Countries and may not have come from recycled or scrap sources, the issuer must move to the third step. The third step, consistent with the proposal, requires such an issuer to exercise due diligence on the source and chain of custody of its conflict minerals and provide a Conflict Minerals Report describing its due diligence measures, among other matters. As noted above, however, the final rule requires an issuer to provide its Conflict Minerals Report as an exhibit to its specialized disclosure report on Form SD, instead of as an exhibit to its annual report on Form 10-K, Form 20-F, or Form 40-F, as proposed.

Generally, the content of the Conflict Minerals Report is substantially similar to the proposal. One modification from the proposal, based on comments we received, is that the final rule requires an issuer to use a nationally or internationally recognized due diligence framework, if such a framework is available for the specific conflict mineral. We are persuaded by commentators that doing so will enhance the quality of an issuer's due diligence, promote comparability of the Conflict Minerals Reports of different issuers, and provide a framework by which auditors can assess an issuer's due diligence.

This requirement should make the rule more workable and less costly than if no framework was specified. Presently, it appears that the only nationally or internationally recognized due diligence framework available is the due diligence guidance approved by the Organisation for Economic Co-operation and Development (“OECD”).

The proposed rules would not have required the use of a particular due diligence framework, but the Proposing Release indicated that an issuer whose conduct conformed to a nationally or internationally recognized set of standards of, or guidance for, due diligence regarding its conflict minerals supply chain would provide evidence that the issuer used due diligence in its Conflict Minerals Report.

See OECD, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

(2011),

available at

http://www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/46740847.pdf

As proposed, the final rule requires an independent private sector audit of an issuer's Conflict Minerals Report. However, in response to comments, we modified the proposal such that the final rule specifies an audit objective. The audit's objective is to express an opinion or conclusion as to whether the design of the issuer's due diligence measures as set forth in the Conflict Minerals Report, with respect to the period covered by the report, is in conformity with, in all material respects, the criteria set forth in the nationally or internationally recognized due diligence framework used by the issuer, and whether the issuer's description of the due diligence measures it performed as set forth in the Conflict Minerals Report, with respect to the period covered by the report, is consistent with the due diligence process that the issuer undertook. Also, consistent with the proposal, the final rule refers to the audit standards established by the GAO. The GAO staff has indicated to our staff that the GAO does not intend to establish new standards for the Conflict Minerals Report audit. Instead, the GAO plans to look to its existing Government Auditing Standards (“GAGAS”), which is commonly referred to as “the Yellow Book.”

See U.S. Gov't Accountability Office, GAO-12-331G, Government Auditing Standards 2011 Revision

(Dec. 2011),

available at

http://www.gao.gov/assets/590/587281.pdf

Unlike the proposed rule, which would have required descriptions in the Conflict Minerals Report of an issuer's products that “are not `DRC conflict free,'” where “DRC conflict free” means that they “do not contain minerals that directly or indirectly finance or benefit armed groups in the” Covered Countries, the final rule requires descriptions in the Conflict Minerals Report of an issuer's products “that have not been found to be `DRC conflict free.'” We believe this change will lead to more accurate disclosure.

As suggested by a number of commentators, the final rule also modifies the proposal by providing a temporary transition period for two years for all issuers and four years for smaller reporting companies.

During this period, issuers may describe their products as “DRC conflict undeterminable” if they are unable to determine that their minerals meet the statutory definition of “DRC conflict free” for either of two reasons: First, they proceeded to step three based upon the conclusion, after their reasonable country of origin inquiry, that they had conflict minerals that originated in the Covered Countries and, after the exercise of due diligence, they are unable to determine if their conflict minerals financed or benefited armed groups in the Covered Countries; or second, they proceeded to step three based upon the conclusion, after their reasonable country of origin inquiry, that they had a reason to believe that their necessary conflict minerals may have originated in the Covered Countries and may not have come from recycled or scrap sources and the information they gathered as a result of their subsequently required exercise of due diligence failed to clarify the conflict minerals' country of origin, whether the conflict minerals financed or benefited armed groups in those countries, or whether the conflict minerals came from recycled or scrap sources. These issuers will have already conducted a reasonable country of origin inquiry, and their undeterminable status would be based on the information they were able to gather from their exercise of due diligence. However, if these products also contain conflict minerals that the issuer knows directly or indirectly financed or benefited armed groups in the Covered Countries, the issuer may not describe those products as “DRC conflict undeterminable.” Also, during the transition period, issuers with products that may be described as “DRC conflict undeterminable” are not required to have their Conflict Minerals Report audited. Such issuers, however, must still file a Conflict Minerals Report describing their due diligence, and must additionally describe the steps they have taken or will take, if any, since the end of the period covered in their most recent prior Conflict Minerals Report, to mitigate the risk that their necessary conflict minerals benefit armed groups,

including any steps to improve their due diligence.

“Smaller reporting company” is defined in Rule 12b-2 [17 CFR 240.12b-2] under the Exchange Act.

This temporary provision will apply for the first two reporting calendar years after effectiveness of the final rule for all issuers that are not smaller reporting companies, and for the first four reporting calendar years after effectiveness of the final rule for smaller reporting companies. We believe it is appropriate to allow a two-year temporary period, in recognition that, as commentators noted, the processes for tracing conflict minerals through the supply chain must develop further to make such determinations for the issuer community at large. Also, we believe it is appropriate to allow an additional two years to this temporary period for smaller reporting companies because, as commentators noted, smaller companies may face disproportionally higher burdens than larger companies and a longer temporary period may help alleviate some of those burdens. After the four-year period for smaller reporting companies and two-year period for all other issuers, issuers that have proceeded to step three but are unable to determine that their conflict minerals did not originate in the Covered Countries or are unable to determine that their conflict minerals that originated in the Covered Countries did not directly or indirectly finance or benefit armed groups must describe their products containing those conflict minerals as not having been found to be “DRC conflict free.”

Unlike the proposed rules, the final rule requires issuers with necessary conflict minerals exercising due diligence regarding whether their conflict minerals are from recycled or scrap sources to conform the due diligence to a nationally or internationally recognized due diligence framework, if one is available for a particular recycled or scrap conflict mineral. A gold supplement to the OECD's due diligence guidance has been approved by the OECD.

This gold supplement is presently the only nationally or internationally recognized due diligence framework for any conflict mineral from recycled or scrap sources of which we are aware. Therefore, we anticipate that issuers will use the OECD gold supplement to conduct their due diligence for recycled or scrap gold. We are not aware that the OECD or any other body has a similar recycled or scrap due diligence framework for the other conflict minerals. Issuers with conflict minerals without a nationally or internationally recognized due diligence framework are still required to exercise due diligence in determining that their conflict minerals were from recycled or scrap sources. The due diligence that must be exercised regarding such conflict minerals focuses only on whether those conflict minerals are from recycled or scrap sources. In such circumstances where a nationally or internationally recognized due diligence framework becomes available for any such conflict mineral, issuers will be required to utilize that framework in exercising due diligence to determine that conflict minerals are from recycled or scrap sources.

See OECD, Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Supplement on Gold

(2012),

available at http://www.oecd.org/corporate/guidelinesformultinationalenterprises/FINAL%20Supplement%20on%20Gold.pdf

E. Flowchart Summary of the Final Rule

BILLING CODE 8011-01-P

ER12SE12.000

BILLING CODE 8011-01-C

II. Discussion of the Final Rule

A. “Conflict Minerals” Definition

1. Proposed Rules

The Conflict Minerals Statutory Provision defines the term “conflict mineral” as cassiterite, columbite-tantalite, gold, wolframite, or their derivatives, or any other minerals or their derivatives determined by the Secretary of State to be financing conflict in the Covered Countries.

We used the same definition of this term in the proposed rules. As we discussed in the Proposing Release, cassiterite is the metal ore that is most commonly used to produce tin, which is used in alloys, tin plating, and solders for joining pipes and electronic circuits.

Columbite-tantalite is the metal ore from which tantalum is extracted. Tantalum is used in electronic components, including mobile telephones, computers, videogame consoles, and digital cameras, and as an alloy for making carbide tools and jet engine components.

Gold is used for making jewelry and is used in electronic, communications, and aerospace equipment.

Finally, wolframite is the metal ore that is used to produce

tungsten, which is used for metal wires, electrodes, and contacts in lighting, electronic, electrical, heating, and welding applications.

Based on the many uses of these minerals, we expect the Conflict Minerals Statutory Provision to apply to many companies and industries and, thereby, the final rule to apply to many issuers.

Section 1502(e)(4) of the Act. Presently, the Secretary of State has not designated any other mineral as a conflict mineral. Therefore, the conflict minerals include only cassiterite, columbite-tantalite, gold, wolframite, or their derivatives.

Tin Statistics and Information,

U.S. Geological Survey, available at http://minerals.usgs.gov/minerals/pubs/commodity/tin/.

Niobium (Columbium) and Tantalum Statistics and Information,

U.S. Geological Survey, available at http://minerals.usgs.gov/minerals/pubs/commodity/niobium.

Gold Statistics and Information,

U.S. Geological Survey, available at http://minerals.usgs.gov/minerals/pubs/commodity/gold.

Tungsten Statistics and Information,

U.S. Geological Survey, available at http://minerals.usgs.gov/minerals/pubs/commodity/tungsten.

2. Comments on the Proposed Rules

Several commentators requested that the final rule set forth the specific conflict derivatives that would trigger the rule's disclosure and reporting obligations.

Many of these commentators recommended that the final rule limit the derivatives of columbite-tantalite, cassiterite, and wolframite to tantalum, tin, and tungsten, respectively,

unless the State Department determines subsequently that additional specific minerals or their derivatives are financing or benefitting armed groups.

One of these commentators pointed out that such a limit is appropriate because, although conflict minerals have other derivatives, tantalum, tin, and tungsten are the only economically significant derivatives of the conflict minerals.

For example, one commentator noted that oxygen and iron are derivatives of wolframite that could be subject to the final rule, but wolframite is not currently a significant commercial source for oxygen or iron.

Another commentator noted that niobium is a derivative of columbite-tantalite that, absent clarification to the contrary, could be subject to the final rule as well.

Some commentators, however, asserted that the final rule should not solely be limited to tantalum, tin, tungsten, or gold.

See, e.g.,

letters from American AAFA, Global Tungsten & Powders Corp. (Mar. 1, 2011) (“Global Tungsten I”), Industry Group Coalition I, IPC I, IPC—Association Connecting Electronics Industries (Nov. 1, 2011) (“IPC II”), Materion Corporation (Nov. 1, 2011) (“Materion”), National Retail Federation (Nov. 1, 2011) (“NRF II”), PCP, Robert W. Row (Jan. 18, 2011) (“Row”), SEMI, and Society of the Plastics Industry Inc. (Nov. 9, 2011) (“SPI”).

Gold is produced in its metallic form and has no derivatives.

See, e.g.,

letters from AAFA, IPC II, NRF II, PCP, and SPI.

See

letters from IPC II and NRF II.

See also

Transcript of SEC Roundtable, Section 0039 Lines 9-10 (“MR. MATHESON: The economic interest is in the three Ts plus gold.”).

See

letter from SEMI.

See

letter from Row.

See, e.g.,

letters from BC Investment Management Corporation (Mar. 28, 2011) (“BCIMC”) and Save the Congo (Nov. 1, 2011) (“Save”).

One commentator recommended that the definition of “conflict mineral” not include organic metal compounds formed from a conflict mineral metal derivative, such as tin and tungsten, because these substances are no longer metals or alloys and “use of these chemical compounds is too attenuated from the original source of the mineral.”

According to the commentator, these organometallic compounds, which include catalysts, stabilizers, and polymerization aids, are commodity chemicals used in the production of raw materials such as silicones, polyurethanes, vinyls, and polyesters. For example, the commentator noted that tin is used in a reaction with chlorine gas, after which the intermediate tin tetrachloride compound undergoes further chemical reactions with any number of organic substrates to produce an organotin compound with the final compounds becoming substances such as stannous octoate, monobutyl tin trichloride, and dioctyltin dilaurate. These substances contain tin but have several organic groups chemically bound to the tin nucleus and are compounds that are materially and chemically distinct from metallic tin. According to the commentator, the use of organotin in many manufacturing sectors has not yet been recognized by manufacturers, supply chains, or regulators, which may increase costs of the final rule if organic tin compounds are included in the definition of “conflict minerals.”

See

letter from SPI.

In addition, a number of commentators recommended that the final rule selectively use the term “conflict mineral” because not doing so would unfairly stigmatize the four minerals and unjustifiably hurt some companies' reputations.

These commentators noted that the term “conflict mineral” in the proposed rules provides no clear distinction between the four named minerals and their derivatives that did not benefit or finance armed groups, and those that did finance or benefit armed groups. Specifically, one of these commentators noted, “refer[ring] to all cassiterite, wolframite, gold, and tantalum in the world, regardless of its origin and relationship to conflict actors” as “conflict minerals,” imposes “a reputational taint on these entire industries,” and “makes it highly challenging for companies in these industries to communicate effectively with investors and the public.”

Commentators suggested that we limit the final rule's definition of “conflict minerals” only to minerals that financed or benefited armed groups and that the final rule use another name to describe minerals that did not finance or benefit armed groups, such as “potential conflict minerals,” “suspect conflict minerals,” “subject minerals,” or “covered minerals.”

Additionally, for the same reasons, some commentators indicated that the final rule should change the names of the required headings from “Conflict Minerals Disclosure” to “Country of Origin Disclosure” and change the name of the Conflict Minerals Report to “Report on Minerals Sourced from Central Africa.”

See, e.g.,

letters from Advanced Medical Technology Association (Feb. 28, 2011) (“AdvaMed I”), Barrick Gold Corporation (Feb. 28, 2011) (“Barrick Gold”), Cleary Gottlieb Steen & Hamilton LLP (Mar. 2, 2011) (“Cleary Gottlieb”), Global Tungsten I, JVC

et al.

II, Malaysia Smelting Corporation (Jan. 26, 2011) (“MSC I”), National Association of Manufacturers (Nov. 1, 2011) (“NAM III”), Niotan Inc. (Jan. 30, 2011) (“Niotan I”), Niotan Inc. (Mar. 21, 2011) (“Niotan II”), National Mining Association (Mar. 2, 2011) (“NMA II”), SEMI, Tanzania I, TIC, and WGC II.

See also

MJB Consulting (Apr. 28, 2011) (“MJB I”) (arguing that the Conflict Minerals Statutory Provision is unclear as to whether the definition of “conflict minerals” refers to columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, per se, originating from the Covered Countries, or columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives originating from the Covered Countries and that do not directly or indirectly finance or benefit armed groups in the Covered Countries).

See

letter from Niotan II.

See

letters from Cleary Gottlieb, Niotan II, SEMI, and TIC.

See

letters from Barrick Gold and Niotan I.

3. Final Rule

After considering the comments, we are revising the proposal in the final rule. We are clarifying our position as to which derivatives are conflict minerals, which appears consistent with the views of various stakeholders,

including at least one co-sponsor of the legislation and other members of Congress.

As a commentator suggested, our failure in the proposal to specify the 3T derivatives (tantalum, tin, and tungsten, which are known as the “3Ts”) would have introduced too much ambiguity in our rule,

which would have expanded the Conflict Mineral Provision's reach, cost, and complexity without increasing its effectiveness.

The term “conflict mineral” in the final rule is defined to include cassiterite, columbite-tantalite, gold, wolframite, and their derivatives, which are limited to the 3Ts, unless the Secretary of State determines that additional derivatives are financing conflict in the Covered Countries, in which case they are also considered “conflict minerals;” or any other minerals or their derivatives determined by the Secretary of State to be financing conflict in the Covered Countries.

See, e.g.,

letter from H.E. Ambassador Liberata Mulamula, International Conference on the Great Lakes Region, Angel Gurría, Secretary-General, Organisation for Economic Co-operation and Development, and Fred Robarts, Coordinator, United Nations Group of Experts on the Democratic Republic of the Congo (Jul. 29, 2011) (“OECD I”) (“We consider that the OECD and UN GoE due diligence recommendations, as integrated into the framework of the ICGLR Regional Initiative against the Illegal Exploitation of Natural Resources and the Regional Certification Mechanism, can be used by persons subject to Section 1502 of the Dodd-Frank Act (“issuers”) to reliably determine whether the tin, tantalum, tungsten or gold in their products originate from the DRC or adjoining countries, and if so, to determine the facilities used to process those minerals, the country of origin, and the mine or location of origin with the greatest possible specificity, and describe the products manufactured or contracted to be manufactured that are not DRC conflict free.”);

OECD, Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, 12 (2011), available at http://www.oecd.org/daf/internationalinvestment/

guidelinesformultinationalenterprises/46740847.pdf

(discussing due diligence as a basis for responsible global supply chain management of “tin, tantalum, tungsten, their ores and mineral derivates, and gold”); Final Report of the United Nations Group of Experts on the Democratic Republic of the Congo, Nov. 29, 2010 [S/2010/596] (stating that relevant individuals and entities should establish effective systems of control and transparency over the mineral supply chain, the nature of which will vary according to the mineral being traded, with the gold supply chain exhibiting characteristics different to those for tin, tantalum, and tungsten, and according to the position of the individual or entity in the supply chain); Enough Project,

From Mine to Mobile Phone: The Conflict Minerals Supply Chain

(Nov. 10, 2009)

available at http://www.enoughproject.org/files/publications/minetomobile.pdf

(indicating its desire to increase transparency in the supply chains for tin, tantalum, and tungsten, or the 3Ts, as well as gold, which are key elements of electronics products including cell phones and personal computers and are the principal source of revenue for armed groups and military units that prey on civilians in eastern Congo, and the 3Ts are produced from mineral ores, including tin from cassiterite, tungsten from wolframite, and tantalum from columbite-tantalite, known throughout Congo as coltan); and Global Witness,

Do No Harm: Excluding conflict minerals from the supply chain,

2 (July 2010),

available at http://www.globalwitness.org/sites/default/files/pdfs/do_no_harm_global_witness.pdf

(stating that “the warring parties [in the DRC] finance themselves via control of most of the mines in [eastern DRC] that produce tin, tantalum and tungsten ores and gold”).

See also

State Department,

Statement Concerning Implementation of Section 1502 of the Dodd-Frank Legislation Concerning Conflict Minerals Due Diligence,

1 (July 15, 2011),

available at http://www.state.gov/documents/organization/168851.pdf

(noting that the State Department “is undertaking a number of actions to address the problem of conflict minerals—or the exploitation and trade of gold, columbite-tantalite (coltan), cassiterite (tin), wolframite (tungsten), or their derivatives—sourced from the eastern” DRC that have “helped to fuel the conflict in the eastern DRC”).

See

letters from Representative Mark E. Amodei (Dec. 20, 2011) (“Rep. Amodei”) (referring to “tungsten”); Representatives Howard L. Berman, Donald M. Payne, and Christopher H. Smith (Nov. 8, 2010) (Pre-Proposing Release Web site) (“Rep. Berman

et al.

pre-proposing”) (“Section 1502 was designed to limit the ability of armed groups in the Democratic Republic of Congo (DRC) to profit from the illicit mining of tin ore, coltan, gold, and other mineral resources that eventually end up in computers, cell phones, and other products.”); Representatives Howard L. Berman, Donald M. Payne, Jim McDermott, Karen Bass, and Barney Frank (Sep. 23, 2011) (“Rep. Berman

et al.”

); Representative Renee L. Ellmers (Dec. 13, 2011) (“Rep. Ellmers”) (referring to “tungsten”); Rep. Lee (referring to gold, tin, tantalum, and tungsten as “conflict minerals,” by stating that “[f]or years, minerals such as gold and other raw materials commonly used to produce tin, tantalum, and tungsten have been mined and sold illegally by rebel groups in parts of the Democratic Republic of the Congo (DRC) and neighboring countries,” and that “[t]hese `conflict minerals' have fueled decades of fighting in central Africa.”); Representative Tim Murphy (Dec. 29, 2011) (“Rep. Murphy”) (referring to “tungsten”); and Senator Barbara Boxer, Senator John Boozman, Senator Christopher A. Coons, Senator Patrick J. Leahy, Senator Frank R. Lautenberg, and Senator Jeff Merkley (Oct. 18, 201) (“Sen. Boxer

et al.

I”) (“The purpose of Sec. 1502 is to create transparency and accountability in the mineral supply chain in the DRC. Minerals from the DRC—which include tin, tantalum, tungsten and gold—are commonly used in products such as cellphones, laptops and jewelry.”).

See

letter from SEMI.

See

letters from IPC II and NRF II.

Additionally, despite the suggestion by certain commentators that we limit the definition of the term “conflict mineral” to minerals that financed or benefited armed groups, the final rule continues to use the term “conflict mineral” to refer to columbite-tantalite, cassiterite, gold, wolframite, and their derivatives, and any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Covered Countries whether or not they actually financed or benefited armed groups. We believe this approach is appropriate because it is consistent with the use of that term in the Conflict Minerals Statutory Provision and to change the definition of the term for the final rule could cause confusion among interested parties between the use of the term in the statutory provision and the use of the term in the final rule. However, issuers whose conflict minerals did not finance or benefit armed groups may describe their products containing those minerals as “DRC conflict free” in their specialized disclosure report, provided that the issuer is able to determine on the basis of due diligence conducted in accordance with a nationally or internationally recognized due diligence framework that such products are “DRC conflict free” as defined in the final rule.

B. Step One—Issuers Covered by the Conflict Mineral Provision

1. Issuers That File Reports Under the Exchange Act

a. Proposed Rules

As we discussed in the Proposing Release, we recognize there is some ambiguity as to whom the Conflict Minerals Statutory Provision applies given that the provision states that the Commission shall promulgate regulations for any “person described”

and that a “person is described” if “conflict minerals are necessary to the functionality or production of a product manufactured by such person.”

Therefore, the Conflict Minerals Statutory Provision could be interpreted to apply to a wide range of private companies not previously subject to our disclosure and reporting rules. Given the provision's legislative background, its statutory location, and the absence of Congressional direction to apply the provision to companies not previously subject to those rules,

however, we believe the more appropriate interpretation is that the rules apply only to issuers that file reports with the Commission under Section 13(a) or Section 15(d) of the Exchange Act, and that is what we proposed.

Also, consistent with the statutory language, our proposed rules would have applied equally to domestic companies, foreign private issuers, and smaller reporting companies.

See

Exchange Act Section 13(p)(1)(A).

See

Exchange Act Section 13(p)(2)(B).

See

H.R. Rep. No. 111-517, Joint Explanatory Statement of the Committee of Conference, Title XV, “Conflict Minerals,” at 879 (Conf. Rep.) (June 29, 2010) (“The conference report requires disclosure to the SEC by all persons otherwise required to file with the SEC for whom minerals originating in the Democratic Republic of Congo and adjoining countries are necessary to the functionality or production of a product manufactured by such person.”).

Exchange Act Section 13(a) requires issuers with classes of securities registered under Exchange Act Section 12 [15 U.S.C. 78l] to file periodic and other reports.

See

15 U.S.C. 78m. Exchange Act Section 15(d) requires issuers with effective registration statements under the Securities Act of 1933 (the “Securities Act”) to file reports similar to Exchange Act Section 13(a) for the fiscal year within which such registration statement became effective.

See

15 U.S.C. 78n. Therefore, if our proposed rules did not include issuers required to file reports under Exchange Act Section 15(d), some issuers who file annual reports may not otherwise be required to comply with our proposed conflict minerals rules.

b. Comments on the Proposed Rules

i. Issuers That File Reports Under Sections 13(a) and 15(d) of the Exchange Act

Many commentators addressing the issue agreed with the proposal that the final rule should apply to issuers that file reports under Sections 13(a) and 15(d) of the Exchange Act and not to private companies or individuals.

Some of these and other commentators acknowledged, however, that not including individuals and private companies in the final rule could unfairly burden Sections 13(a) and 15(d) issuers and put them at a competitive disadvantage by increasing their costs.

On the other hand, some of these commentators noted that not including private companies and individuals in the final rule may not unduly burden Sections 13(a) and 15(d) issuers because the commercial pressure on private companies by issuers that need this information for their reports and by the public in general demanding that issuers make this information available could be sufficient enough for the private companies to provide voluntarily their conflict minerals information as standard practice.

Another commentator argued that the effects of the final rule on competition “are likely to be benign.”

This commentator asserted that “conflict minerals disclosure costs will not increase the cost of being a publicly traded company by a significant percentage” and that being able to declare a company's products as “DRC conflict free” could become a competitive advantage.

Further, in response to our request for comment in the Proposing Release, all four commentators that discussed the issue agreed that an issuer with a class of securities exempt from Exchange Act registration pursuant to Exchange Act Rule 12g3-2(b)

should not be subject to the final rule.

One commentator recommended “that entities with Over-The-Counter American Depository Receipts (OTC ADRS) that file an annual report with the SEC should also be required to file a `Conflict Minerals Disclosure' report.”

See, e.g.,

letters from AngloGold; Arkema, Inc. (Mar. 1, 2011) (“Arkema”); Calvert; Cleary Gottlieb; Communications and Information Network Association of Japan, Japan Auto Parts Industries Association, Japan Business Machine and Information System Industries Association, Japan Electronics and Information Technology Industries Association, The Japan Electrical Manufacturers' Association, Japan Machinery Center for Trade and Investment (Mar. 2, 2011) (“Japanese Trade Associations”); CRS I; Earthworks; Howland; IPC I; JVC

et al.

II; KEMET Corporation (Nov. 1, 2011) (“Kemet”); PCP; Rockefeller Financial Asset Management (Mar. 1, 2011) (“Rockefeller”); SIF I; State II; TIC; and TriQuint I.

See, e.g.,

letters from Howland, IPC I, ITIC I, NMA II, National Retail Federation (Mar. 2, 2011) (“NRF I”); TIC; and TriQuint I.

Letter from Howland (noting that “private companies (non reporters) will likely need to provide the same [conflict minerals] information to their customers who will need the information for their reports,” and that providing conflict minerals information is “likely” to “become a de facto standard similar to RoHS (EU Restriction of hazardous Substances) for electronics”) and TIC (“Further, provided that the regulations apply to large and small issuers, they will form a critical mass which will, in practice, create sufficient commercial pressure on private companies and individuals who manufacture products involving potential conflict materials. Noncompliant companies will be unable to withstand the political and consumer pressures. Accordingly, there is no need for the SEC to seek to expand its jurisdiction.”).

See

letter from Green II.

Id.

17 CFR 240.12g3-2(b).

See

Cleary Gottlieb, JVC

et al.

II, New York State Bar Association (Mar. 1, 2011) (“NY State Bar”), and SIF I.

See

letter from Calvert.

Some commentators stated that the final rule should not necessarily require private companies to submit to us their conflict minerals information, but the final rule should provide mechanisms that allow private companies to report voluntarily on their conflict minerals in a manner similar to Sections 13(a) and 15(d) issuers,

which could include working with other agencies that regulate non-reporting companies to have those agencies require their filers to provide similar conflict minerals information.

Moreover, the State Department commented that it would encourage private companies not subject to the final rule to disclose voluntarily conflict minerals information.

Other commentators disagreed with the proposed rules and indicated that the final rule should apply to more than just issuers that file reports under Sections 13(a) and 15(d) of the Exchange Act.

A comment letter submitted jointly by two of the co-sponsors of the legislation stated that their “intent was for the requirements of Section 1502 to apply to all companies that fall under the jurisdiction of the SEC, including those who issue classes of securities otherwise exempt from reporting.”

See

letters from Earthworks and TriQuint I.

See

letter from TriQuint I.

See

letter from State II.

See, e.g.,

letters from Catholic Charities Diocese of Houma-Thibodaux (Apr. 21, 2011) (“Catholic Charities”), International Corporate Accountability Roundtable and Global Witness (Nov. 1, 2011) (“ICAR

et al.

II”), ITIC I, NRF I, Sen. Durbin/Rep. McDermott, Sisters of Good Shepherd (Apr. 8, 2011) (“Good Shepherd”), TIC, and Tiffany.

See

letter from Sen. Durbin/Rep. McDermott.

ii. Smaller Reporting Companies

Many commentators agreed that the final rule, as we proposed, should not exempt smaller reporting companies.

In this regard, one commentator noted that, although there would be additional costs for smaller reporting companies to comply with the rules, the increased costs will apply also to larger companies.

Another commentator asserted that compliance costs for small issuers “will be relatively modest” due to their smaller scale and lower complexity of their businesses.

One commentator did not believe that the proposed rules would impose higher costs on smaller companies significant enough to justify an exemption because smaller reporting companies would have fewer products to track than a larger company, which would decrease their compliance costs.

100

The commentator based its belief on the fact that, although it was a small human rights group with a modest budget, it regularly undertakes field investigations and supply chain research that is very similar to the due diligence measures it recommended the Commission adopt. According to this commentator, if it is able to perform due diligence with a small staff, so too can a smaller reporting company.

See, e.g.,

letters from BCIMC, Calvert, CRS I, Earthworks, Global Witness I, Howland, IPC I, JVC

et al.

II, Rockefeller, Sen. Durbin/Rep. McDermott, SIF I, State II, TIAA-CREF, TIC, and TriQuint I.

See

letter from Howland.

See

letter from Green II.

See also

letter from ICAR

et al.

II (stating that “because these issuers are smaller, it stands to reason that they will have fewer products that contain conflict minerals, thus reducing the amount of products that must undergo a reasonable country of origin inquiry and supply chain due diligence”).

100

See

letter from Global Witness I.

Some commentators noted that exempting smaller reporting companies from the final rule could increase the burdens on larger reporting companies because the larger reporting companies may be less able to require their smaller reporting company suppliers to provide the conflict minerals information needed by the larger reporting companies.

101

One of these commentators noted also that permitting limited disclosure and reporting obligations for smaller companies is unlikely to reduce significantly their burdens because larger companies would likely impose contractual obligations on them to track and provide their conflict minerals information for the larger companies.

102

101

See, e.g.,

letters from IPC I and TriQuint I.

102

See

letters from IPC I.

Other commentators supported exempting smaller reporting companies because these companies would be less

able to compel their suppliers to provide conflict minerals information due to their lack of leverage,

103

and because it would be more expensive for smaller reporting companies to comply with the rule relative to their revenues than for other companies.

104

However, one commentator argued that, although such issuers may lack leverage, this disadvantage may be reduced through the influence exerted over their suppliers by larger issuers that use the same supplier base and that have more leverage to request such information.

105

Some commentators argued that smaller reporting companies should be allowed to phase-in the rules or that the implementation date of the final rule should be deferred for them.

106

103

See, e.g.,

letters from ABA, JVC

et al.

II, and Society of Corporate Secretaries and Governance Professionals (Mar. 3, 2011) (“Corporate Secretaries I”).

104

See

letter from Corporate Secretaries I and Howland.

105

See

letter from Green II.

106

See, e.g.,

letters from ABA, Howland, and JVC

et al.

II.

iii. Foreign Private Issuers

A number of commentators believed that the final rule should not exempt foreign private issuers.

107

As one commentator noted,

108

exempting foreign private issuers from the final rule could increase domestic issuers' burdens by making it very difficult for them to compel their foreign private issuer suppliers to provide conflict minerals information. As another commentator noted,

109

exempting foreign private issuers from the final rule could also result in a competitive disadvantage for domestic issuers because foreign private issuers would not be subject to the final rule. Further, this commentator indicated that not exempting foreign private issuers could actually motivate foreign companies to advocate for similar conflict minerals regulations in their home jurisdictions to reduce any competitive disadvantages they may have with companies from their jurisdictions that do not register with us. Finally, the commentator suggested that exempting foreign private issuers may hurt conflict minerals supply chain transparency, which would be contrary to the intent of Congress.

107

See, e.g.,

letters from AngloGold, BCIMC, Calvert, CRS I, Earthworks, Global Witness I, Howland, JVC

et al.

II, NEI Investments (Mar. 2, 2011) (“NEI”), NY State Bar, SIF I, State II, TIAA-CREF, TriQuint I, WGC II, and WLF.

108

See

letter from TriQuint I.

109

See

letter from NEI.

Only one commentator, a foreign private issuer, stated specifically that foreign private issuers should be exempt from the final rule.

110

This commentator argued that any Congressional intent to give laws extraterritorial effect must be clearly expressed and stated, which the Conflict Minerals Statutory Provision fails to do. Also, the commentator noted that the proposed rules would violate international principles of diplomatic comity and could put diplomats from countries with foreign private issuers in jeopardy. Another commentator suggested that, if the final rule would cause “more than an insignificant number of foreign private issuers to leave the U.S. markets or not to enter the U.S. markets,” we should consider exempting all or some foreign private issuers from the final rule.

111

A further commentator stated that, although it recommended that the final rule not exempt foreign private issuers, it expects that the final rule “will represent just one more strong disincentive for such issuers to access the U.S. markets.”

112

110

See

letter from Taiwan Semi.

111

See

letter from ABA.

112

See

letter from NY State Bar.

c. Final Rule

After considering the comments, we are adopting the final rule as proposed. Therefore, the final rule applies to any issuer that files reports with the Commission under Section 13(a) or Section 15(d) of the Exchange Act, including domestic companies, foreign private issuers, and smaller reporting companies. We believe the statutory language is clear on this point and believe that it only applies to issuers that file reports with the Commission under Section 13(a) or Section 15(d) of the Exchange Act. There is no clear indication that Congress intended to cover issuers other than those that file such reports. Although we appreciate the views expressed in the comment letter submitted jointly by two of the co-sponsors of the legislation,

113

the legislative history only refers to companies that file with or report to the Commission or that are listed on a United States stock exchange.

114

The location of the statute adopted by Congress in the section of the Exchange Act dealing with reporting issuers reflects a more limited scope, as well.

115

113

See

letter from Sen. Durbin/Rep. McDermott.

114

See

Cong. Rec.

S3976 (daily ed. May 19, 2010) (statement of Sen. Feingold) (stating that the “Brownback amendment was narrowly crafted” and, in discussing the provision, referring only to “companies on the U.S. stock exchanges”); 156

Cong. Rec.

S3865-66 (daily ed. May 18, 2010) (stating that the Conflict Minerals Statutory Provision “is a narrow SEC reporting requirement” and referring only to “SEC reporting requirements” in discussing the provision); and 156

Cong. Rec.

S3816-17 (daily ed. May 17, 2010) (statement of Sen. Durbin) (stating that the provision “would require companies listed on the New York Stock Exchange to disclose in their SEC filings”).

115

See

Exchange Act Section 13 entitled “Periodical and Other Reports.”

The statute is silent with respect to any distinction among issuers based on the issuer's size or domesticity. Although not specifically in the context of smaller reporting companies or foreign private issuers, some commentators suggested that we use our general exemptive authority under Exchange Act Section 36(a)

116

to exempt certain classes of companies from full and immediate compliance with the disclosures required by the Conflict Minerals Statutory Provision.

117

The only limiting factor in the Conflict Minerals Statutory Provision itself as to the type of issuer to which it applies is based on whether conflict minerals are “necessary to the functionality or production” of products manufactured or contracted by the issuer to be manufactured.

118

Moreover, Congress included a specific provision for Commission revisions and waivers to the reporting obligation that requires the President to determine such waiver or revision to be in the national security interest and limits such a Commission exemption to two years. In our view, the high standard set for this statutory waiver, as well as its limited duration, evinces a congressional intent for the Conflict Minerals Statutory Provision to apply broadly and exempting large categories of issuers would be inconsistent with this intent. We also recognize that section 1502 is not simply a disclosure obligation for issuers, but a comprehensive legislative scheme that contemplates coordinated

action by a number of federal agencies aimed at making public information about conflict minerals from the Covered Countries.

119

We are concerned that any broad categories of exemptions would be inconsistent with this scheme and the statutory objective of reducing the use of conflict minerals from the Covered Countries that contribute to conflict.

120

Congress chose to pursue this goal through the implementation of a comprehensive disclosure regime. In order to allow the provision to have the effect we understand Congress intended, we believe our rules must be consistent with the statutory language and not exempt broad categories of issuers from its application. Thus, we are not exempting smaller reporting companies or foreign private issuers.

116

15 U.S.C. 78mm(a) (“[T]he Commission, by rule, regulation, or order, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of this chapter or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.”).

117

See, e.g.,

letters from Davis Polk & Wardwell LLP (Mar. 2, 2011) (“Davis Polk”); National Cable & Telecommunications Association (Oct. 31, 2011) (“NCTA”); Representatives Spencer Bachus, Gary G. Miller, Chairman, Robert J. Dold, and Steve Stivers (Jul. 28, 2011) (“Rep. Bachus

et al.

”) Verizon; and Wilmer Cutler Pickering Hale and Dorr LLP Hale on behalf of IPC (Jun. 2, 2011) (“WilmerHale”).

118

Exchange Act Section 13(p)(2)(B).

119

Sections 1502(c) and (d) of the Act. We recognize that Congress also required the Comptroller General to periodically report on, among other things, publicly available information regarding persons who are “not required to file reports * * * pursuant to Section 13(p)(1)(A)” and who manufacture products for which “conflict minerals are necessary to the functionality or production.” Section 1502(d)(2)(C). We interpret this provision to require reporting by the Comptroller General on persons—such as private companies not subject to our disclosure and reporting rules—who are not subject to the requirements of the Conflict Minerals Statutory Provision even though conflict minerals may be necessary to the functionality or production of their products. Any issuers that receive waivers or revisions pursuant to Section 13(p)(3) would also be included.

120

See

letters from Global Witness I and State II and Transcript of SEC Roundtable on Conflict Minerals, Section 141 (Oct. 18, 2011) (Statement of Tim Mohin),

available at

http://www.sec.gov/spotlight/conflictminerals/conflictmineralsroundtable101811-transcript.txt

(stating that although no single company working alone can determine whether minerals in its products supported armed groups, large and small companies working together can make such a determination),

id.

at 22 (Statement of Bennett Freeman) (arguing that all companies across the value and supply chain should be covered by the rule because disclosures by all companies are important to investors).

See also

id.

at 62, 92, and 103 (Statements of Andrew Matheson, Benedict S. Cohen, and Representative James McDermott, respectively) (assuming that small issuers would be covered by the rule).

Additionally, it is unclear whether exempting smaller reporting companies in particular would significantly reduce their burdens because smaller reporting companies could still be required to track and provide their conflict minerals information for larger issuers.

121

Moreover, to the extent there are benefits to smaller companies from an exemption, such an exemption could increase the burden on larger companies that rely on smaller reporting company suppliers to provide conflict minerals information needed by the larger reporting companies.

121

See

letters from IPC I.

Further, as discussed in greater detail below, the final rule temporarily will permit all issuers that are unable to determine that their conflict minerals did not originate in the Covered Countries or that are unable to determine that their conflict minerals that originated in the Covered Countries did not directly or indirectly finance or benefit armed groups to describe their products as “DRC conflict undeterminable,” and temporarily will not require such issuers to obtain an independent private sector audit of their Conflict Minerals Report with respect to those minerals. This temporary accommodation will be available to all issuers for the first two years of reporting under the final rule. The final rule extends that period for smaller reporting companies for an additional two years, providing a temporary four-year provision for smaller reporting companies. This approach is consistent with some commentators' recommendations as to the applicability of the reporting requirement to smaller reporting companies.

122

See

letter from Howland (stating that, although “[t]here will be additional costs that may be proportionally higher for small companies, but increased costs will also apply to large firms,” a way that the final rule can “mitigate the cost is to phase in the acceptable level of rigor for due diligence over several years and based on company size”).

See also

letter from JVC

et al.

II (stating that, “[w]ith respect to smaller reporting companies, it is reasonable to assume that the costs of compliance may disproportionately harm them by comparison with any concomitant benefit in achieving the statutory goals, since these companies lack the leverage to pressure suppliers and smelters to certify regarding the source of a particular conflict mineral,” so “we believe it would be appropriate to allow smaller reporting companies even more time in which to adapt the results of these broader global initiatives to their individual facts and circumstances”).

Similarly, we are not exempting foreign private issuers because we do not believe that it would give effect to Congressional intent of the provision. As commentators noted, exempting foreign private issuers could make it difficult for issuers to compel their foreign private issuer suppliers to provide conflict minerals information, result in a competitive disadvantage for domestic issuers, and hurt conflict minerals supply chain transparency.

123

Also, we note that including foreign private issuers in the final rule does not give the Conflict Minerals Statutory Provision an extraterritorial effect because it applies only to foreign private issuers that enter the securities markets of the United States.

123

See

letters from NEI and TriQuint I.

2. “Manufacture” and “Contract to Manufacture” Products

a. Proposed Rules

The Conflict Minerals Statutory Provision applies to any person for whom conflict minerals are necessary to the functionality or production of a product manufactured by that person. The proposed rules would likewise have applied to reporting persons for whom conflict minerals are necessary to the functionality or production of products they manufacture. We did not define the term “manufacture” in the proposed rules, because we believed the term to be generally understood.

124

For example, the Second Edition of the Random House Webster's Dictionary defines the term to include the “making goods or wares by hand or machinery, esp. on a large scale.”

Random House Webster's Dictionary 403

(2d ed. 1996).

In addition, based on the text of the Conflict Minerals Statutory Provision as well as statutory intent, the proposed rules would also have applied to issuers that contract to manufacture products. As discussed in the Proposing Release, one section of the Conflict Minerals Statutory Provision defines a “person described” as one for which conflict minerals are “necessary to the functionality or production of a product manufactured by such a person,”

125

while another section of the provision requires an issuer to describe “the products manufactured or

contracted to be manufactured

that are not DRC conflict free” [emphasis added] in its Conflict Mineral Report.

126

The absence of the phrase “contract to manufacture” from the “person described” definition raised some question as to whether the requirements apply equally to those who manufacture products themselves and those who contract to have their products manufactured by others. Based on the totality of the provision, however, we expressed in the Proposing Release our belief that the legislative intent was for the provision to apply both to issuers that directly manufacture products and to issuers that contract the manufacturing of their products for which conflict minerals are necessary to the functionality or production of those products. The proposed rules, therefore, would have applied equally to issuers that manufacture products and to issuers that “contract to manufacture” their products. We noted that this approach would allow the “contracted to be manufactured” language to have effect in the Conflict Minerals Report.

125

Exchange Act Section 13(p)(2)(B).

126

Exchange Act Section 13(p)(1)(A)(ii).

In the Proposing Release, we explained that the proposed rules would apply to issuers that contract for the manufacturing of products over which they had any influence regarding the manufacturing of those products. As proposed, they also would have applied to issuers selling generic products under their own brand name or a separate

brand name that they had established, regardless of whether those issuers had any influence over the manufacturing specifications of those products, as long as an issuer had contracted with another party to have the product manufactured specifically for that issuer. We did not, however, propose that the rules would apply to retail issuers that sell only the products of third parties if those retailers had no contract or other involvement regarding the manufacturing of those products, or if those retailers did not sell those products under their brand name or a separate brand they had established and did not have those products manufactured specifically for them.

b. Comments on the Proposed Rules

i. “Manufacture”

Many commentators agreed with the proposed rules that the final rule should not define the term “manufacture” because that term is generally understood.

127

Many other commentators, however, believed that the final rule should define the term,

128

and most of these commentators provided their recommendations for the definition. A number of commentators indicated that the definition should mirror the North American Industry Classification System (“NAICS”),

129

which classifies entities as manufacturers if they engage in the mechanical, physical, or chemical transformation of materials, substances, or components into new products from raw materials that are products of agriculture, forestry, fishing, mining, or quarrying.

127

See, e.g.,

letters from ABA, Global Witness I, Howland, NYCBar I, NYCBar II, State II, TIC, and United States Steel Corporation (Mar. 4, 2011) (“US Steel”).

128

See, e.g.,

letters from American Association of Exporters and Importers (Jan. 21, 2011) (“AAEI”); AngloGold; Columban Center for Advocacy and Outreach, Leadership Conference of Women Religious, Sisters of Mercy of the Americas—Institute Justice Team, Missionary Oblates, and Maryknoll Office for Global Concerns (Mar. 2, 2011) (“Columban Center

et al.

”); CTIA—The Wireless Association (Mar. 1, 2011) (“CTIA”); Earthworks; Enough Project I; International Corporate Accountability Roundtable, Enough Project, and Global Witness (Sep. 23, 2011) (“ICAR

et al.

I”); Metalsmiths; NAM I; NEI; NMA II; RILA-CERC; SIF I; TriQuint I; and WGC II.

129

See

letters from AAEI, AngloGold, BCE Inc. (Oct. 31, 2011) (“BCE”), Canadian Wireless Telecommunications Association (Oct. 28, 2011) (“CWTA”), CTIA, NAM I, NCTA, NMA II, RILA-CERC, and WGC II.

Some commentators stated that the final rule should define the term inclusively or broadly so as to include all steps in the supply chain, from mining to manufacturing the product, because otherwise it would become exponentially more difficult for manufacturing issuers downstream in the supply chain to comply with the final rule.

130

One commentator indicated that the term should include all steps from mining, refining, and production to the importing, exporting, or sale of ingredients, materials, and/or processes.

131

A few commentators indicated that the final rule should provide a definition consistent with the U.S. Controlled Substances Act, which includes the production, preparation, assembling, propagation, combination, compounding, or processing of a drug or other substance, either directly or indirectly or by extraction from substances of natural origin.

132

One of these commentators stated that such a consistent definition would include the “production, preparation, assembling, combination, compounding, or processing of ingredients, materials, and/or processes such that the final product has a name, character, and use, distinct from the original ingredients, materials, and/or processes.”

133

One commentator asserted that the definition should include any entity “involved in the process of changing a product * * * from one form to another.”

134

One commentator suggested that the definition “should be tailored only to include OEM's and those who design and specify bills of materials for products with control over the procurement or fabrication of the same products' bill of materials and specification of the constituent materials of the components.”

135

One commentator urged us to provide clear guidance indicating that real estate development does not constitute manufacturing.

136

130

See

letters from Columban Center

et al.,

Metalsmiths, and TriQuint I.

131

See

letter from Earthworks.

132

See

letters from Enough Project I and SIF I.

133

See

letter from Enough Project I (citing to its earlier letter submitted Sep. 24, 2010 on the Pre-Proposing Release Web site).

134

See

letter from Jeffrey Trott (Jan. 31, 2011) (“Trott”).

135

See

letter from Retail Industry Leaders Association (Nov. 1, 2011) (“RILA”).

136

See

letter from National Association of Real Estate Investment Trusts (Nov. 23, 2011) (“NAREIT”).

ii. “Contract to Manufacture”

Not all commentators agreed on whether the final rule should include an issuer that contracts to manufacture a product. However, many commentators that agreed that the final rule should include an issuer that contracts to manufacture a product, or did not agree but argued in the alternative, recommended that an issuer should be required to have some amount of control or influence over the manufacturing process before the final rule considers that issuer to be contracting to manufacture a product.

137

A number of commentators suggested the level of control necessary to be considered contracting to manufacture a product under the final rule. In this regard, some commentators suggested that only an issuer with direct, close, active, and/or substantial involvement or control in the sourcing of materials, parts, ingredients, or components to be included in its products or in the manufacturing of those products should meet the minimum control threshold necessary to be considered contracting to manufacture a product.

138

One commentator recommended that an issuer should be considered to be contracting to manufacture a product only if it exercises “a sufficient level of influence, involvement or control over the process to be able to control, in a meaningful manner, the use of conflict minerals, or to evaluate and influence the use of conflict minerals.”

139

Some commentators asserted that the minimum control threshold should be met only if the issuer explicitly specifies the inclusion of conflict minerals in the product.

140

Another commentator advised that the contracting activities that should trigger conflict minerals reporting should include designing the product, controlling the approved materials or vendor lists for the product, and including the issuer's name on the product.

141

137

See, e.g.,

letters from AdvaMed I, AT&T Inc. (Mar. 9, 2011) (“AT&T”), Chamber I, Cleary Gottlieb, Consumer Electronics Retailers Coalition (Nov. 1, 2011) (“CERC”), Industry Group Coalition I, IPC I, IPC II, JVC

et al.

II, NAM I, NCTA, Niotan I, NMA II, NRF I, NRF II, PCP, RILA, Roundtable, SEMI, TIAA-CREF, and TriQuint I.

138

See

letters from AT&T, CERC, Corporate Secretaries I, CTIA, JVC

et al.

II, NCTA, NRF I, RILA, and Verizon.

139

See

letter from ABA.

140

See

letters from NAM I and SEMI.

141

See

letter from TriQuint I.

Some of these commentators, as well as others, asserted that an issuer should not be considered to meet the control threshold to the extent that the product is not manufactured to meet an issuer's custom specifications, but rather is manufactured to meet industry-standard specifications common to the issuer's competitors generally.

142

For example, a group of jewelry industry commentators argued in one letter that a jewelry retail issuer ordering products from jewelry manufacturers should not be considered contracting to manufacture for those products if the retail issuer specifies only weight, karat, or other indicators of

quality.

143

As another example, a mobile phone service provider asserted that it should not be considered contracting to manufacture its mobile phones even though it specifies to its manufacturers that the phones must be compatible with their networks and have certain cosmetic design requirements.

144

142

See

letters from AngloGold, AT&T, BCE, JVC

et al.

II, NCTA, and RILA-CERC.

143

See

letter from JVC

et al.

II.

144

See

letter from AT&T.

See also

letter from BCE (stating that the commentator, a distributor of a wide range of telecommunications and electronic products supplied by hundreds of manufacturers, “exerts no substantial control over the design or the technical features of those products or any control, direct or indirect, over the supply chains, which may be quite complex, of such manufacturers,” and its “sole input into the manufacturing process relates to providing brand name manufacturers with certain technical specifications to ensure compliance with applicable Canadian regulatory standards or to requesting special product features, cosmetic in nature, to meet Canadian consumer market demands”).

Some commentators suggested that the final rule should not consider an issuer to be contracting to manufacture products if the issuer is selling products under its own brands, labels, trademarks, or licenses if it had little or no influence in manufacturing those products.

145

Other commentators recommended that the final rule should consider such issuers to be contracting to manufacture those products.

146

One commentator asserted that generic products should be held to the same standard as branded products and that the final rule should avoid using any definitions that create a perverse incentive for an issuer to work with special purpose entities designed to follow the technical requirements of the law but evade its intent.

147

Another commentator suggested that the final rule should apply to issuers selling generic products under their own name or a separate brand name, but not to retailers who do not do so and have no influence over the manufacturing of products they sell.

148

145

See

letters from AT&T, BCE, Cleary Gottlieb, CTIA, Industry Group Coalition I, JVC

et al.

II, NAM I, NCTA, and NRF I.

146

See

letters from Enough Project I, Howland, NEI, SIF I, State II, and TriQuint I.

147

See

letter from AxamTrade (Feb. 10, 2011) (“Axam”).

148

See

letter from NYCBar II.

Some commentators recommended that an issuer should be considered to be contracting to manufacture a product only if the issuer has a direct contractual relationship with the manufacturer of the product to be sold by the issuer, the issuer has substantial control over the manufacturer and the material specifications of the product and specifies the conflict minerals to be used in the product, the product will be manufactured exclusively for the issuer, and the product will be sold by the issuer under its own brand name or a brand name owned by the issuer or exclusively licensed to the issuer by the owner of the brand.

149

One of these commentators went on to assert that an issuer should not be considered to be exerting “substantial control” over manufacturing by “merely attaching a brand label to a generic good, contracting for the exclusive distribution of goods, or specifying the form, fit or function of a product,” and should not be considered to be contracting to manufacture a product solely by “attaching a brand label to a generic good, contracting for the exclusive distribution of goods, or specifying the form, fit or function of a product.”

150

149

See

letters from CERC and RILA.

150

See

letter from RILA.

Other commentators stressed that the final rule should not apply to any issuer contracting to manufacture its products.

151

These commentators argued generally that the statute does not include an issuer that contracts to manufacture its products because the phrase does not appear in the subsection of the Conflict Minerals Statutory Provision discussing a “person described.” Instead, the phrase appears only in the subsection that describes the disclosures required in a Conflict Minerals Report. Therefore, Congress's intent in including the phrase was only to ensure that a manufacturer otherwise subject to the Conflict Minerals Statutory Provision could not intentionally evade its reporting obligation merely by distancing itself, through contracting, from the manufacturing process.

152

151

See, e.g.,

letters from BCE, CERC, CTIA, Davis Polk, NCTA, RILA-CERC, TIC, and United States Telecom Association (Mar. 2, 2011) (“US Telecom”).

152

See

letters from AT&T, CTIA, and RILA-CERC.

c. Final Rule

i. “Manufacture”

After considering the comments, we are modifying the proposed rules, in part. The final rule, as proposed, applies to any issuer for which conflict minerals are necessary to the functionality or production of a product manufactured or contracted by that issuer to be manufactured. The final rule does not define the term “manufacture” because we continue to believe, as discussed in the Proposing Release, that the term is generally understood. We note, however, that we do not consider an issuer that only services, maintains, or repairs a product containing conflict minerals to be “manufacturing” a product;

153

this interpretation is not a change from the Proposing Release, but a clarification in response to comments.

154

153

See

letter from JVC

et al.

II (commenting that “certain assembly and repair functions commonly performed by jewelry retailers” should not be defined as manufacturing).

154

See, e.g.,

letter from ABA (commenting that the Commission “should, either in the final rule or in the corresponding adopting release, provide additional guidance as to activities that will not be considered to be the manufacturing of a product for the purposes of the rule”).

We believe narrowing or expanding the definition of “manufacture” as suggested by some commentators would be inconsistent with the language and framework of Section 1502. For example, the NAICS definition, which a number of commentators suggested, appears to exclude any issuer that manufactures a product by assembling that product out of materials, substances, or components that are not in raw material form. Such a definition would exclude large categories of issuers that manufacture products through assembly, such as certain auto and electronics manufacturers, whom we believe are intended to be covered by the Conflict Minerals Statutory Provision. As another example, the manufacturing definition put forth by one commentator appears to include “importing, exporting, or sale of conflict minerals,”

155

which would expand the definition to include issuers that clearly do not manufacture products. Also, many of the other suggested definitions simply expound upon the generally understood meaning of the term, which we do not believe we need to define.

155

See

letter from Earthworks.

ii. “Contract to Manufacture”

Consistent with the proposal, the final rule applies to any issuer for which conflict minerals are necessary to the functionality or production of a product contracted by that issuer to be manufactured, including conflict minerals in a component of a product. In general, the question of whether an issuer contracts to manufacture a product will depend on the degree of influence exercised by the issuer on the manufacturing of the product based on the individual facts and circumstances surrounding an issuer's business and industry. The final rule does not define when an issuer contracts to manufacture a product because, although we believe this concept is intuitive at a basic level, after considering comments and attempting to develop a precise definition, we concluded that, for “contract to manufacture” to cover issuers operating in the wide variety of the impacted industries and structured

in various manners, any definition of that term would be so complicated as to be unworkable. We do, however, provide guidance below on some general principles that we believe are relevant in determining whether an issuer should be considered to be contracting to manufacture a product.

As a threshold matter, consistent with the proposal, we believe the statutory intent to include issuers that contract to manufacture their products is clear based on the statutory obligation for issuers to describe in their Conflict Minerals Reports products that are manufactured and contracted to be manufactured that do not meet the definition of “DRC conflict free.”

156

We recognize that commentators asserted that the statute does not include an issuer that contracts to manufacture its products and that the sole intent behind including the phrase in the provision was to keep manufacturers from intentionally evading reporting requirements by contracting the manufacturing of their products to third parties. Nonetheless, Exchange Act Section 13(p)(1)(A)(ii) requires issuers that must file a Conflict Minerals Report to describe their “products manufactured

or contracted to be manufactured

that are not DRC conflict free” (emphasis added). In our view, the inclusion of products that are “contracted to be manufactured” in this requirement indicates that Congress intended the Conflict Mineral Statutory Provision to apply to such products, and including issuers who contract to manufacture their products in the scope of the rule effectuates this intent. We believe our reading is more consistent with the statute than the alternative reading—that Congress required a description of products that were “contracted to be manufactured” and were not “DRC conflict free,” but did not require issuers that contracted to manufacture products to determine whether a Conflict Minerals Report was required to be filed. This would be internally inconsistent. It would significantly undermine the purpose of the statutory provision to fail to apply it to issuers that contract to manufacture their products.

156

See

Exchange Act Section 13(p)(1)(A)(ii).

As another threshold matter, we believe the phrase “contract to manufacture” captures manufacturers that contract the manufacturing of components of their products. Generally, we believe that manufacturing issuers that contract the manufacturing of certain components of their products should, for purposes of the Conflict Minerals Statutory Provision, be viewed as responsible for the conflict minerals in those products to the same extent as if they manufactured the components themselves. We believe it is inconsistent with the Conflict Minerals Statutory Provision to allow these manufacturers to avoid the final rule's requirements by contracting out the manufacture of components in their products that contain conflict minerals. As two of the co-sponsors of the Conflict Minerals Statutory Provision noted, “[m]any companies use component parts from any one of several suppliers when assembling their products” to “help drive down the price for parts through competition,” but “[i]t is of paramount importance that this business model choice not be used as a rationale to avoid reporting and transparency.”

157

See

letter from Senator Richard J. Durbin and Representative Jim McDermott (Oct. 4, 2010) (Pre-Proposing Release Web site) (“Sen. Durbin/Rep. McDermott pre-proposing”).

In the proposal, we expressed our belief that an issuer that does not manufacture a product itself but that has “any” influence over the product's manufacturing should be considered to be contracting to manufacture that product. Also, we expressed our belief that an issuer that offers a generic product under its own brand name or a separate brand name should be considered to be contracting to manufacture that product so long as the issuer had contracted to have the product manufactured specifically for itself. We had believed that these issuers should have been considered to be contracting those products to be manufactured because the issuers would implicitly influence the manufacturing of the products. However, we are persuaded by commentators that this level of control set forth in the Proposing Release was “overbroad” and “confusing” and would impose on such an issuer “significant,” “unrealistic,” and “costly” burdens.

158

See, e.g.,

letters from ABA, AT&T, Corporate Secretaries I, Davis Polk, and Verizon.

See also

letter from NRF I (stating that our proposed approach would be “draconian”).

Consistent with our approach in the Proposing Release, we believe that “contract to manufacture” is intended to include issuers that have some actual influence over the manufacturing of their products. However, we have modified our view as to the circumstances under which an issuer is considered to be contracting to manufacture a product. An issuer is considered to be contracting to manufacture a product depending on the degree of influence it exercises over the materials, parts, ingredients, or components to be included in any product that contains conflict minerals or their derivatives. The degree of influence necessary for an issuer to be considered to be contracting to manufacture a product is based on each issuer's individual facts and circumstances. However, based on comments we received, we believe an issuer should not be viewed for the purposes of the Conflict Minerals Statutory Provision as contracting to manufacture a product if its actions involve no more than:

(a) Specifying or negotiating contractual terms with a manufacturer that do not directly relate to the manufacturing of the product, such as training or technical support, price, insurance, indemnity, intellectual property rights, dispute resolution, or other like terms or conditions concerning the product, unless the issuer specifies or negotiates taking these actions so as to exercise a degree of influence over the manufacturing of the product that is practically equivalent to contracting on terms that directly relate to the manufacturing of the product; or

(b) Affixing its brand, marks, logo, or label to a generic product manufactured by a third party; or

For example, we agree with commentators that an issuer that is a service provider that specifies to a manufacturer that a cell phone it will purchase from that manufacturer to sell at retail must be able to function on a certain network does not in-and-of-itself exert sufficient influence to “contract to manufacture” the phone for purposes of the final rule. Under the proposed rules, however, such an issuer may have reached the “any” influence threshold. Conversely, we do not agree with commentators that an issuer must have “substantial” influence or control over the manufacturing of a product before the issuer is considered to be contracting to manufacture that product.

159

Such a standard would significantly limit the coverage of the Conflict Minerals Statutory Provision for issuers that contract to manufacture products, and we do not believe that such a narrow scope is consistent with the intent of the Conflict Minerals Statutory Provision. For example, if there are specifications made by an issuer to a manufacturer that it contracts with for the inclusion of a particular conflict mineral in the product, the

issuer might not be viewed as exerting “substantial” influence on the overall manufacturing of the product. However, we would view such an issuer as covered under the final rule as contracting to manufacture the product. In addition, we disagree with commentators that suggested that the final rule should apply only to issuers that explicitly specify that conflict minerals be included in their products.

160

We believe this is too narrow an interpretation of the statutory provision and, read in this manner, the statute would be illogical. For example, as commentators argued, Congress inserted “contract to manufacture” in the disclosure of products to prevent manufacturers from skirting the disclosure requirements by contracting to manufacture certain products. However, if “contract to manufacture” is not included in the definition of “person described,” an issuer may evade the statute by contracting its manufacturing to a third party. Therefore, an issuer would never be required to disclose its minerals because the issuer would not qualify for steps two and three.

159

See, e.g.,

letters from AT&T, Corporate Secretaries I, CTIA, JVC

et al.

II, NRF I, and Verizon.

160

See, e.g.,

letters from NAM I and SEMI.

Moreover, in contrast to our approach in the Proposing Release, we do not consider an issuer to be contracting to manufacture a product for the purposes of our rule solely if it offers a generic product under its own brand name or a separate brand name without additional involvement by the issuer. We are persuaded by commentators that such an issuer would not necessarily exert a sufficient degree of influence on the manufacturer to be considered as contracting to manufacture the product for purposes of the Conflict Minerals Statutory Provision. As one commentator noted, it seems that such a relationship between an issuer and manufacturer is better characterized as one in which the manufacturer is using the issuer as a “sales channel” as opposed to one in which the issuer is “outsourcing manufacturing to” the manufacturer.

161

Such a relationship limits the issuer's influence on the product's manufacturing to the extent that it puts the issuer in a similar position to that of a pure retailer. One commentator noted that the purposes of the Conflict Minerals Statutory Provision are not served by classifying such an issuer as contracting to manufacture a product.

162

We agree. However, an issuer with generic products that include its brand name or a separate brand name and that has involvement in the product's manufacturing beyond only including such brand name would need to consider all of the facts and circumstances in determining whether its influence reaches such a degree so as to be considered contracting to manufacture that product.

161

See

letter from AT&T.

162

See

letter from Cleary Gottlieb.

3. Mining Issuers as “Manufacturing” Issuers

a. Proposed Rules

Under the proposed rules, we would have considered an issuer that mines conflict minerals to be manufacturing those minerals and an issuer contracting for the mining of conflict minerals to be contracting for the manufacture of those minerals. In this regard, we proposed in an instruction to the rules that mining issuers be considered to be manufacturing conflict minerals when they extract those minerals.

163

We did, however, request comment on this point.

163

See

Industry Guide 7 [17 CFR 229.802(g)] (implying that companies may “produce” minerals from a mining reserve).

b. Comments on the Proposed Rules

A number of commentators stated specifically that the final rule should consider any issuer that mines conflict minerals as “manufacturing” those conflict minerals as “products.”

164

A few commentators noted that mining issuers should be included as manufacturers because they begin the conflict minerals supply chain and other reporting issuers must rely on them for information.

165

As such, without the final rule including mining issuers, other issuers would have a very difficult time complying with the rules, which would eliminate transparency from the supply chain and undermine the provision.

166

164

See, e.g.,

letters from Bario-Neal Jewelry (Mar. 1, 2011) (“Bario-Neal”); Brilliant Earth, Inc. (Feb. 28, 2011) (“Brilliant Earth”); CRS I; Earthworks; Electronics TakeBack Coalition (Mar. 2, 2011) (“TakeBack”); Enough Project I; Enough Project (Nov. 2, 2011) (“Enough Project IV”); Global Tungsten I; Hacker Jewelers, Designers & Goldsmiths, Inc. (Mar. 1, 2011) (“Hacker Jewelers”); Hoover & Strong, Inc. (Mar. 1, 2011) (“Hoover & Strong”); ICAR

et al.

I; NEI; Niotan I; NYCBar I; SIF I; State II; TIAA-CREF; TriQuint I; and U.S. Steel.

165

See

letters from Global Witness I and TriQuint I (noting that mining companies do, in fact, engage in a transformative process such that they transform natural resources into ores, which should be considered “manufacturing”).

166

See

letter from Enough Project I.

Other commentators indicated that the final rule should not treat mining issuers as manufacturers of the conflict minerals they extract.

167

Some of these commentators argued that the final rule should incorporate the NAICS definition of “manufacturing,” which they noted does not include mining as a type of manufacturing activity.

168

Certain commentators noted that mining of conflict minerals, especially gold, shares no characteristics with the manufacturing of products.

169

Finally, some commentators asserted that Congress did not intend to include mining issuers as manufacturers based on previous versions of the Conflict Minerals Statutory Provision, legislative statements, and a plain reading of the statute.

170

As some of these commentators noted, the Conflict Minerals Statutory Provision was preceded by other legislative proposals that were drafted to include mining issuers, but the Conflict Minerals Statutory Provision was not drafted in such a manner.

171

One such commentator indicated that these previous bills “explicitly applied not only to companies using covered minerals in their manufacturing processes, but also to persons engaged in `the commercial exploration, extraction, importation, exportation, or sale' of the covered minerals.”

172

According to the commentator, the fact that Congress chose not to include extraction activities in the Conflict Minerals Statutory Provision demonstrates that Congress's intent was not to have the Conflict Minerals Statutory Provision include mining as manufacturing.

167

See, e.g.,

letters from ABA, AngloGold, Barrick Gold, Cleary Gottlieb, ITRI Ltd. (Jan. 27, 2011) (“ITRI I”), NAM III, NMA II, Vale S.A. (Mar. 3, 2011) (“Vale”), and WGC II.

168

See

letters from AngloGold and WGC II.

169

See

letters from AngloGold and Barrick Gold.

170

See

letters from AngloGold, NMA II, National Mining Association (Nov. 1, 2011) (“NMA III”), and Vale.

171

See, e.g.,

letters from AngloGold and NMA II.

172

Letter from NMA II (referring to S. 891 and S.A. 2707 (2009)).

c. Final Rule

After considering the comments, we are modifying the proposal. We do not consider an issuer that mines or contracts to mine conflict minerals to be manufacturing or contracting to manufacture those minerals unless the issuer also engages in manufacturing, whether directly or indirectly through contract, in addition to mining. In this regard, we do not believe that mining is “manufacturing” based on a plain reading of the provision. We agree with the commentators concerned that the statutory language does not explicitly include mining anywhere in the Conflict Minerals Statutory Provision and including mining would expand the statutory mandate. The Conflict Minerals Statutory Provision does not specifically refer to mining and, as one

commentator noted, “[t]o extend the terms `manufacture' of a `product' to include the mining of conflict minerals contorts the plain meaning of those terms.”

173

See

letter from AngloGold.

As discussed by commentators, legislative history demonstrates that Congress did not intend to include issuers that solely mine conflict minerals in the Conflict Minerals provision because it removed references to such activities from prior versions of the provision. For example, one commentator in two comment letters noted that prior versions of the Conflict Minerals Statutory Provision explicitly applied to anyone either using covered minerals in their manufacturing processes or engaging in “the commercial exploration, extraction, importation, exportation or sale of the covered minerals.”

174

However, the final version of the Conflict Minerals Statutory Provision omits any reference to extraction-related activities and refers solely to manufacturing.

175

As this commentator stated, Congress's omission of mining activities evidences its intent “to address the manufacturing of goods which use or contain, as opposed to the extracting and processing of, the covered minerals.”

176

Therefore, based on both the plain reading of the provision and the legislative history of the provision, we are persuaded that it would be inconsistent with the language in the Conflict Minerals Statutory Provision to include mining issuers as manufacturing issuers under the final rule unless the mining issuer engages in manufacturing, either directly or through contract, in addition to mining.

174

See

letters from NMA II and NMA III. These letters discuss two legislative proposals introduced in the Senate in 2009 that were similar to the Conflict Minerals Statutory Provision.

See

Congo Conflict Minerals Act of 2009, S. 891, 111th Cong. (2009) and S.A. 2707, 111th Cong. (2009). Both of these earlier conflict minerals proposals explicitly applied to companies using conflict minerals in their manufacturing processes and also to persons engaged in “the commercial exploration, extraction, importation, exportation, or sale” of conflict minerals.

175

See

letters from NMA II.

176

Id.

4. When Conflict Minerals Are “Necessary” to a Product

The Conflict Minerals Statutory Provision requires us to promulgate regulations requiring that any “person described” disclose annually whether conflict minerals that are “necessary” originated in the Covered Countries and, if so, submit to us a Conflict Minerals Report.

177

The provision further states that a “person is described” if “conflict minerals are necessary to the functionality or production of a product manufactured by such person.”

178

The provision, however, provides no additional explanation or guidance as to the meaning of “necessary to the functionality or production of a product.” Likewise, we did not propose to define when a conflict mineral is necessary to the functionality or production of a product. We did, however, request comment on whether and how our rules should define this phrase and we provided some guidance as to the meaning of “necessary to the production of a product.”

177

Exchange Act Section 13(p)(1)(A).

178

Exchange Act Section 13(p)(2)(B).

a. Proposed Rules

Although we did not propose to define “necessary to the functionality or production” in the rules, we noted in the Proposing Release that, if a mineral is necessary, the product was included within the scope of the rules without regard to the amount of the mineral involved. Further, we indicated in the Proposing Release that a conflict mineral would be considered necessary to the production of a product if the conflict mineral was intentionally included in a product's production process and was necessary to that process, even if that conflict mineral was not ultimately included anywhere in the product. On the other hand, as proposed, a conflict mineral necessary to the functionality or production of a physical tool or machine used to produce a product would not be considered necessary to the production of that product, even if that tool or machine was necessary to producing the product. For example, if an automobile containing no conflict minerals was produced using a wrench that contains or was itself produced using conflict minerals necessary to the functionality or production of that wrench, the proposed rules would not consider the conflict minerals in that wrench necessary to the production of the automobile.

That the conflict minerals must be “necessary to the functionality or production” of an issuer's products is the only limiting factor in the Conflict Minerals Statutory Provision.

179

The provision has no materiality thresholds for disclosure based on the amount of conflict minerals an issuer uses in its manufacturing processes. Therefore, we did not propose to include a materiality threshold for the disclosure or reporting requirements in the proposed rules. We did, however, request comment in the Proposing Release as to whether there should be a

de minimis

threshold in our rules based on the amount of conflict minerals used by an issuer in a particular product or in its overall enterprise and, if so, whether such a threshold would be consistent with the Conflict Minerals Statutory Provision.

179

Exchange Act Section 13(p)(2)(B).

b. Comments on the Proposed Rules

Many commentators suggested that the final rule explicitly define the phrase, “necessary to the functionality or production of a product,”

180

while other commentators indicated that the final rule should not define the phrase.

181

Several commentators suggested possible definitions.

182

One commentator noted that manufacturers make certain deliberate choices about products, such as how they look, function, perform, cost, or are supplied, so when there has been a choice to incorporate conflict minerals into a product, the final rule should consider the conflict minerals “necessary” to the product because the designer has deemed them to be so.

183

Another commentator was concerned that the proposed rules did not provide any guidance as to either the phrase “necessary to the functionality or production” or the term “product.”

184

As such, this commentator noted that the proposed rules could apply to financial products that are backed by gold or other mineral commodities, such as futures contracts for gold bullion, shares in mutual funds that invest in gold mining stocks, or gold bullion storage agreements with vault services providers.

180

See, e.g.,

letters from CRS I, Davis Polk, Earthworks, Enough Project I, FRS, Howland, ICAR

et al.

I, MSG I, NRF I, PCP, Give Peace A Deadline (Jan. 21, 2011) (“Peace”), SEMI, SIF I, TIC, Tiffany, TriQuint I, and US Steel.

181

See, e.g.,

letters from Cleary Gottlieb, Global Witness I, ITIC I, State II, and WGC II.

182

See, e.g.,

letters from AAEI, AAFA, Bario-Neal, Brilliant Earth, CRS I, Davis Polk, Earthworks, Enough Project I, Hacker Jewelers, Hoover & Strong, Howland, MSG I, NAM I, Niotan I, NMA II, NRF I, PCP, Peace, SEMI, Sen. Durbin/Rep. McDermott, SIF I, TIAA-CREF, TIC, TriQuint I, and US Steel.

183

See

letter from Matheson II.

184

See

letter from Tiffany.

i. “Necessary to the Functionality”

A number of different commentators indicated that a conflict mineral should be considered “necessary to the functionality” of a product if that conflict mineral is intentionally added to the product.

185

Of these commentators, however, many were open to other potential requirements. For example, many commentators

suggested further requirements in addition to, or instead of, being intentionally added before a conflict mineral should be considered “necessary to the functionality” of a product. Many of these commentators indicated that a conflict mineral must be intentionally added and/or necessary either for the product's use, purpose, or marketability, financial success, or some combination thereof.

186

A few commentators asserted that a conflict mineral must be intentionally added and essential to the product's function.

187

One commentator stated that a conflict mineral must be intentionally added and have a concentration in the product that exceeds 1,000 ppm per homogeneous material.

188

185

See, e.g.,

letters from AAEI, Bario-Neal, Brilliant Earth, Hacker Jewelers, Hoover & Strong, Howland, ITIC I, NRF I, NYCBar II, SEMI, Sen. Durbin/Rep. McDermott, TIAA-CREF, and WGC II.

186

See, e.g.,

letters from AAEI, Bario-Neal, Brilliant Earth, Earthworks, Enough Project I, Hacker Jewelers, Hoover & Strong, MSG I, Peace, and SIF I, and TIAA-CREF.

187

See, e.g.,

letters from Howland, NAM I, and NRF I.

188

See

letter from TriQuint I.

Only a few commentators proposed guidance as to when a conflict mineral would be considered “intentionally added” to a product, and they differed on when a conflict mineral should be considered “intentionally added.” One commentator stated that a conflict mineral should not be considered intentionally added if it was unilaterally included in a sub-component acquired by the issuer from a sub-contractor.

189

Two of the co-sponsors of the Conflict Minerals Statutory Provision, however, took the opposite position and stated that a conflict mineral should be considered intentionally added if it is intentionally added in sub-components that an issuer contracts to manufacture through third parties or subsidiaries.

190

Several commentators agreed that a conflict mineral occurring naturally in a product should not be considered intentionally added to that product.

191

189

See

letter from SEMI.

190

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