Conflict Minerals: New Developments and Preparing for 2015 Disclosures

Transcription

1 Conflict Minerals: New Developments and Preparing for 2015 Disclosures ACC Environmental & Sustainability Legal Quick Hit Lauren Hopkins April 9, 2015 Beveridge & Diamond, P.C. 2015

2 Number of issuers who filed Form SDs in ,315 Number of issuers who filed CMRs in ,013 SEC s estimated compliance costs $3 - $4 billion Amount SEC has spent developing and defending the rule $2.75 million, 20,000+ staff hours Amount SEC issuers spent on compliance & implementation $710 million or $545,000/issuer 2

3 SEC Conflict Minerals Rule: Refresher Supply Chain Inquiry u Reasonable country of origin inquiry (RCOI) for conflict minerals (gold and derivatives tin, tantalum and tungsten, or 3TG ) u Conduct heightened due diligence à OECD Guidance if sourcing from DRC region Form of Disclosure Form Specialized Disclosure (SD) only u Summary of RCOI Form SD plus Conflict Minerals Report u Summary of due diligence u Information on products, facilities, countries, and efforts to determine mine or location of origin u Steps to improve due diligence u Independent private sector audit 3

4 Example: Approach to Implementation Contract language Conflict Minerals Policy Establish Supplier Expectations Company Management Systems Develop internal process document Notify and train suppliers Follow-up inquiries with suppliers Supplier request letters / CMRT Supply Chain Inquiry Data Analysis & Disclosure Review of reported facilities Review of reported countries 4

5 Moving Pieces: What to Watch Litigation Audit Conflict Minerals Disclosure SEC Guidance NGO Activity 5

6 Litigation: NAM v. SEC Conflict Minerals Decision (D.C. Cir. Apr. 2014) Not found to be DRC conflict free descriptor held unconstitutional Remainder of rule upheld Meat Labeling Decision (D.C. Cir. Jul. 2014) Clarified applicability of more deferential standard of review Where government mandated disclosure is purely factual and uncontroversial Rehearing of Conflict Minerals Decision (granted Nov. 2014) Will determine whether more deferential standard should have been applied Key issue briefed: is the descriptor purely factual and uncontroversial? 6

7 SEC: Partial Stay Issued May 2014 in response to D.C. Cir. decision u Comply with and address portions of the rule that the Court upheld u No company is required to describe its products using the SEC descriptors DRC conflict free not found to be DRC conflict free, or DRC conflict undeterminable u Independent private sector audit (IPSA) not required unless a company voluntarily elects to describe a product as DRC conflict free in Conflict Minerals Report Stay remains in effect pending outcome of judicial review (or further guidance from SEC) 7

8 Litigation: Possible Near-Term Outcomes Descriptor not purely factual and uncontroversial Correct standard of review applied in Apr decision Holding of unconstitutionality left intact Descriptor is purely factual and uncontroversial Incorrect standard of review applied in Apr decision Possible reversal of holding based on more deferential standard of review Other contingencies Second rehearing by the full en banc court? Petition for certiorari to U.S. Supreme Court? Remand to district court for final resolution 8

9 Litigation: Substantive Implications Must directly resolve the constitutional issue: What language (if any) will companies be required to use to characterize products or results of due diligence? Resolution may have even broader implications: Certain disclosure requirements are tied to product descriptions / characterizations Audit requirement (as drafted in SEC Rule) scheduled to kick-in beginning in 2015 reporting year for large companies Changes to conflict minerals statutory provision 9

10 Other Developments and Considerations Additional SEC FAQ guidance u Possible (but unconfirmed) release of ~ 10 new FAQs u Timing and content uncertain NGO expectations for disclosures u Active organizations on conflict minerals include Responsible Sourcing Network and the Enough Project u White Paper (2013) and Shortlist (2014) outline a number of beyond-compliance expectations European Union Initiative u Elements of 2014 proposal: voluntary self-certification for smelters/refiners and EU importers of 3TG metals (not products containing them); scope broader than DRC region u Proceeding in EU legislative process; hundreds of amendments proposed u Timing: effective mid-2016 (earliest projection) 10

11 Key Dates & Deadlines SEC Actions DC Circuit Actions SEC Issues Partial Stay of Conflict Minerals Rule DC Circuit Issues Decision in NAM v. SEC Awaiting Possible SEC Guidance Awaiting Possible D.C. Cir. Action Possible EU Action? Company Deadlines Filing Deadline for RY 1 Disclosures Filing Deadline for RY 2 Disclosures (June 1, 2015) Transition Period End of Transition for Large Companies End of Transition for Small Companies 11

12 What should companies be doing now? If you are not an SEC issuer (but are in the supply chain of an SEC issuer) u Ensure you have provided any requested information on use / sourcing of conflict minerals to customers/issuers u Stand by for any last-minute follow-ups or questions u Begin preparing for customer/issuer expectations for the 2015 reporting year (2016 disclosure) 12

13 What should companies be doing now? If you are an SEC issuer Finalize results of RCOI / due diligence and prepare disclosure u Key drafting decisions: product descriptions, facility information, and countries of origin u Consider organization of report as a tool to control audit scope in future years Map out stages of internal review between now and filing deadline u Substance: changes since last year, potential for external scrutiny, late-breaking developments u Logistics: signature, filing, website posting Consider potentially related risk areas u Sanctions, labor/human trafficking issues, consistency with other corporate transparency initiatives, other reputational or legal risks Watch closely for litigation developments or SEC guidance that may impact disclosures 13

14 Beveridge & Diamond Conflict Minerals Team Paul Hagen Principal Washington, DC Russ LaMotte Principal Washington, DC Lauren Hopkins Associate San Francisco, CA Graham Zorn Associate Washington, DC

15 Thank You! Lauren Hopkins Associate San Francisco, CA This presentation is not intended as, nor is it a substitute for, legal advice. You should consult with legal counsel for advice specific to your circumstances. This presentation may be considered lawyer advertising under applicable laws regarding electronic communications. 15