80948 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

1 17 CFR 229.10 et seq. 

2 17 CFR 229.601. 

3 17 CFR 249.220f. 

4 17 CFR 249.240f. 

5 17 CFR 249.310. 

6 15 U.S.C. 78a et seq. 

7Public Law 111–203, 124 Stat. 1376 (July 21, 

2010). 

8 15 U.S.C. 78m(p). 

9See Exchange Act Section 13(p)(1)(A). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 229 and 249 

[Release No. 34–63547; File No. S7–40–10] 

RIN 3235–AK84 

Conflict Minerals 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: We are proposing changes to 

the annual reporting requirements of 

issuers that file reports pursuant to 

Sections 13(a) or 15(d) of the Securities 

Exchange Act of 1934 to implement 

Section 1502 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act. The proposed rules would require 

any issuer for which conflict minerals 

are necessary to the functionality or 

production of a product manufactured, 

or contracted to be manufactured, by 

that issuer to disclose in the body of its 

annual report whether its conflict 

minerals originated in the Democratic 

Republic of the Congo or an adjoining 

country. If so, that issuer would be 

required to furnish a separate report as 

an exhibit to its annual report that 

includes, among other matters, a 

description of the measures taken by the 

issuer to exercise due diligence on the 

source and chain of custody of its 

conflict minerals. These due diligence 

measures would include, but would not 

be limited to, an independent private 

sector audit of the issuer’s report 

conducted in accordance with standards 

established by the Comptroller General 

of the United States. Further, any issuer 

furnishing such a report would be 

required, in that report, to certify that it 

obtained an independent private sector 

audit of its report, provide the audit 

report, and make its reports available to 

the public on its Internet Web site. 

DATES: Comments should be received on 

or before January 31, 2011. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–40–10 on the subject line; 

or 

• Use the Federal Rulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–40–10. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for Web site viewing and 

copying in the Commission’s Public 

Reference Room 100 F Street, NE., 

Washington, DC 20549–1090, on official 

business days between the hours of 

10 a.m. and 3 p.m. All comments 

received will be posted without change; 

we do not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

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: The 

Commission is proposing to add a new 

Item 104 to Regulation S–K,1 revise Item 

601 of Regulation S–K,2 and amend 

Form 20–F,3 Form 40–F,4 and Form 10– 

K 5 under the Securities Exchange Act of 

1934 (the ‘‘Exchange Act’’).6

Table of Contents 

I. Background and Summary 

A. Statutory Requirements 

B. Overview of Proposed Rules 

II. Discussion 

A. Conflict Minerals 

B. Step One—Determining Issuers Covered 

by the Conflict Minerals Provision 

1. Issuers That File Reports Under the 

Exchange Act 

2. ‘‘Manufacture’’ and ‘‘Contract to 

Manufacture’’ Products 

3. Mining Issuers as ‘‘Manufacturing’’ 

Issuers 

4. When Conflict Minerals are ‘‘Necessary’’ 

to a Product 

C. Step Two—Determining Whether 

Conflict Minerals Originated in the DRC 

Countries and the Resulting Disclosure 

1. Location of Disclosure 

2. Standard for Disclosure 

D. Step Three—Conflict Minerals Report’s 

Content and Supply Chain Due Diligence 

1. Content of Conflict Minerals Report 

2. Location and Furnishing of Conflict 

Minerals Report 

3. Due Diligence Standard in the Conflict 

Minerals Report 

E. Time Periods 

1. Furnishing of the Initial Disclosure and 

Conflict Minerals Report 

2. Time Period in Which Conflict Minerals 

Must be Disclosed or Reported 

F. Thresholds, Alternatives, Termination, 

Revisions, and Waivers 

1. Materiality Threshold 

2. Recycled and Scrap Minerals 

3. Termination, Revisions, and Waivers 

G. General Request for Comment 

III. Paperwork Reduction Act 

A. Background 

B. Burden and Cost Estimates Related to 

the Proposed Amendments 

1. Form 10–K 

2. Regulation S–K 

3. Form 20–F 

4. Form 40–F 

C. Summary of Proposed Changes to 

Annual Compliance Burden in 

Collection of Information 

D. Request for Comment 

IV. Cost-Benefit Analysis 

A. Benefits 

B. Costs 

V. Consideration of Burden on Competition 

and Promotion of Efficiency, 

Competition, and Capital Formation 

VI. Initial Regulatory Flexibility Act Analysis 

A. Reasons for, and Objectives of, the 

Proposed Action 

B. Legal Basis 

C. Small Entities Subject to the Proposed 

Amendments 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

E. Duplicative, Overlapping, or Conflicting 

Federal Rules 

F. Significant Alternatives 

G. Solicitation of Comment 

VII. Small Business Regulatory Enforcement 

Fairness Act 

VIII. Statutory Authority and Text of The 

Proposed Rule and Form Amendments 

I. Background and Summary 

A. Statutory Requirements 

Section 1502 (the ‘‘Conflict Minerals 

Provision’’) of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (the ‘‘Act’’) 7 amends the Exchange 

Act by adding new Section 13(p).8 The 

Commission is required pursuant to 

new Section 13(p) to issue final rules 

implementing Section 13(p) no later 

than 270 days after the date of 

enactment, or April 15, 2011.9 Section 

13(p) requires the Commission to 

promulgate disclosure and reporting 

regulations regarding the use of conflict 

minerals from the Democratic Republic 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80949 

10The 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. 

11Section 1502(a) of the Act. 

12The term ‘‘person described’’ is defined in 

Exchange Act Section 13(p)(2) as one (1) who is 

required to file reports under Sections 13(p)(1)(A), 

and (2) the conflict minerals are necessary to the 

functionality or production of a product 

manufactured by such person. Section 13(p)(1)(A) 

does not provide a definition but refers back to 

Section 13(p)(2). 

13The term ‘‘conflict mineral’’ is defined in 

Section 1502(e)(4) of the Act as (A) columbitetantalite, 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 DRC countries. 

14Exchange Act Section 13(p)(2)(B). 

15Exchange Act Section 13(p)(1)(A). 

16See 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)). 

17See Exchange Act Section 13(p)(1)(A)(i). 

18See 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 

Provision assigns certain responsibilities to other 

federal agencies. In developing our proposed rules, 

our staff has consulted with the staff of these other 

agencies, including the Government Accountability 

Office (the ‘‘GAO’’), which is headed by the 

Comptroller General, and the State Department. 

19See 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)’’). 

20As 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.’’ 

21See Exchange Act Section 13(p)(1)(A)(ii). 

22 Id.; Exchange Act Section 13(p)(1)(D). 

23Exchange Act Section 13(p)(1)(E). 

24 15 U.S.C. 78m(a). 

25 15 U.S.C. 78o(d). 

26Exchange Act Section 13(p)(2)(B). 

27The definition of the term ‘‘DRC conflict free’’ 

in our proposed rules would be identical to the 

definition in Exchange Act Sections 13(p)(1)(A)(ii) 

and 13(p)(1)(D). 

of the Congo (the ‘‘DRC’’) and adjoining 

countries (together the ‘‘DRC 

countries’’).10 Section 1502(a) of the 

Conflict Minerals Provision, which is 

titled ‘‘Sense of the Congress on 

Exploitation and Trade of Conflict 

Minerals Originating in the Democratic 

Republic of the Congo,’’ sets forth the 

background for this provision. In 

Section 1502(a), Congress provides that: 

‘‘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).’’ 11

Section 13(p) mandates that the 

Commission promulgate regulations 

requiring that a ‘‘person described’’ 12

disclose annually whether any ‘‘conflict 

minerals’’ 13 that are ‘‘necessary to the 

functionality or production of a product 

manufactured by such person’’ 14

originated in the DRC countries,15 and 

make that disclosure publicly available 

on the issuer’s Internet Web site.16 If a 

person’s conflict minerals originated in 

the DRC countries, that person must 

submit a report (the ‘‘Conflict Minerals 

Report’’) to the Commission that 

includes a description of the measures 

taken by the person to exercise due 

diligence on the minerals’ source and 

chain of custody.17 In general, 

undertaking due diligence involves 

performing the investigative measures 

that a reasonably prudent person would 

perform in the management of his or her 

own property. Under Section 13(p), the 

measures that must be 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 

the Commission’s promulgated rules, in 

consultation with the Secretary of 

State.18 The person submitting the 

Conflict Minerals Report must also 

identify the independent private sector 

auditor 19 and certify the independent 

private sector audit.20

Further, 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.’’ 21 The 

term ‘‘DRC Conflict Free’’ is defined in 

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

Exchange Act Section 13(p)(1)(D) as 

products that do not contain conflict 

minerals that ‘‘directly or indirectly 

finance or benefit armed groups’’ in the 

DRC countries.22 Each person must 

make their Conflict Minerals Report 

available to the public on that person’s 

Internet Web site.23

B. Overview of Proposed Rules 

Our proposed rules would apply to 

issuers who file reports with the 

Commission under Exchange Act 

Sections 13(a) 24 or 15(d) 25 and for 

which conflict minerals are ‘‘necessary 

to the functionality or production of a 

product manufactured’’ or contracted to 

be manufactured by such issuer.26 These 

issuers would be required to disclose, 

based on their reasonable country of 

origin inquiry, in the body of their 

annual reports whether their conflict 

minerals originated in the DRC 

countries. If an issuer concludes that its 

conflict minerals did not originate in the 

DRC countries, the issuer would 

disclose this determination and the 

reasonable country of origin inquiry 

process it used in reaching this 

determination in the body of its annual 

report. Also, the issuer would be 

required to provide on its Internet Web 

site its determination that its conflict 

minerals did not originate in the DRC 

countries, disclose that this information 

is available on its Web site and the 

Internet address of that site in the body 

of its annual report, and maintain 

records demonstrating that its conflict 

minerals did not originate in the DRC 

countries. If the issuer concludes that its 

conflict minerals did originate in the 

DRC countries, or is unable to conclude 

that its conflict minerals did not 

originate in the DRC countries, the 

issuer would similarly disclose this 

conclusion, note that the Conflict 

Minerals Report is 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 is posted 

on its Internet Web site, and provide the 

Internet address of that site. 

As required by Section 13(p), our 

proposed rules would require that an 

issuer 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 to 

include a certified independent private 

sector audit of the Conflict Minerals 

Report that identifies the auditor and is 

furnished as part of the Conflict 

Minerals Report. Further, the issuer 

would be required to include in the 

Conflict Minerals Report a description 

of its products manufactured or 

contracted to be manufactured 

containing conflict minerals that are not 

‘‘DRC conflict free,’’ 27 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 

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80950 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

28Exchange Act Section 13(p)(2). 

29The issuer also would be required to make 

available this disclosure on its Internet Web site, 

disclose in its annual report that the disclosure is 

posted on its Internet Web site, and disclose the 

Internet address on which this disclosure is posted. 

Such an issuer, however, would not have any 

further disclosure or reporting obligations with 

regard to its conflict minerals. 

30The issuer also would be required make its 

Conflict Minerals Report available to the public on 

its Internet Web site, disclose in its annual report 

that the Conflict Minerals Report is posted on its 

Internet Web site, and disclose the Internet address 

on which the Conflict Minerals Report is posted. 

31See Exchange Act Section 13(p)(1)(A)(ii). 

32Section 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, columbitetantalite, gold, wolframite, or their derivatives. 

33Tin Statistics and Information, U.S. Geological 

Survey. available at, http://minerals.usgs.gov/ 

minerals/pubs/commodity/tin/. 

34Niobium (Columbium) and Tantalum Statistics 

and Information, U.S. Geological Survey, available 

at, http://minerals.usgs.gov/minerals/pubs/ 

commodity/niobium. 

35 Gold Statistics and Information, U.S. Geological 

Survey, available at, http://minerals.usgs.gov/ 

minerals/pubs/commodity/gold. 

36Tungsten Statistics and Information, U.S. 

Geological Survey, available at, http:// 

minerals.usgs.gov/minerals/pubs/commodity/ 

tungsten. 

37See supra note 12. 

38H.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.’’); 156 Cong. Rec. 

S3978 (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 

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’’). 

39Exchange Act Section 13(p)(2)(B). 

possible specificity. The issuer would 

be required to exercise due diligence in 

making these determinations in the 

Conflict Minerals Report. 

II. Discussion 

The Conflict Minerals Provision 

establishes, and we are likewise 

proposing, a disclosure requirement for 

conflict minerals that is divided into 

three steps. The first step required by 

Section 1502 is for the issuer to 

determine whether it is subject to the 

Conflict Minerals Provision. An issuer is 

only subject to the Conflict Minerals 

Provision if it is a ‘‘person described,’’ 

which the Conflict Minerals Provision 

defines as one for whom ‘‘conflict 

minerals are necessary to the 

functionality or production of a product 

manufactured by such person.’’ 28 If an 

issuer does not meet this definition, the 

issuer would not be required to take any 

action, make any disclosures, or submit 

any reports. If, however, an issuer meets 

this definition, that issuer would move 

to the second step. 

The second step would require the 

issuer to determine after a reasonable 

country of origin inquiry whether its 

conflict minerals originated in the DRC 

countries. If the issuer determines that 

its conflict minerals did not originate in 

the DRC countries, the issuer would 

disclose this determination and the 

reasonable country of origin inquiry it 

used in reaching this determination in 

the body of its annual report.29 If, 

however, the issuer determines that its 

conflict minerals did originate in the 

DRC countries, or if it is unable to 

conclude that its conflict minerals did 

not originate in the DRC countries, the 

issuer would disclose this conclusion in 

its annual report and move to the third 

step.30

Finally, the third step under the 

Conflict Minerals Provision would 

require an issuer with conflict minerals 

that originated in the DRC countries, or 

an issuer that is unable to conclude that 

its conflict minerals did not originate in 

the DRC countries, to furnish a Conflict 

Minerals Report as described in greater 

detail below. As required by Section 

13(p)(1)(A)(ii), in the Conflict Minerals 

Report, the issuer would be required to 

provide, among other information, a 

description of any of its products that 

contain conflict minerals that it is 

unable to determine did not ‘‘directly or 

indirectly finance or benefit armed 

groups’’ in the DRC countries.31 The 

issuer would identify such products by 

describing them as not ‘‘DRC conflict 

free.’’ If any of its products contain 

conflict minerals that do not ‘‘directly or 

indirectly finance or benefit’’ these 

armed groups, the issuer may describe 

such products as ‘‘DRC conflict free,’’ 

whether or not the minerals originated 

in the DRC countries. 

A. Conflict Minerals 

The Conflict Minerals 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 DRC 

countries.32 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.33 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.34 Gold is used for making 

jewelry and, due to its superior electric 

conductivity and corrosion resistance, is 

also used in electronic, 

communications, and aerospace 

equipment.35 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.36 Based on the 

many uses of these minerals, we expect 

the Conflict Minerals Provision to apply 

to many companies and industries. 

B. Step One—Determining Issuers 

Covered by the Conflict Mineral 

Provision 

1. Issuers That File Reports Under the 

Exchange Act 

Our proposed rules would apply to 

any issuer that files reports with the 

Commission under the Exchange Act, 

provided that the issuer is a ‘‘person 

described’’ under the Conflict Minerals 

Provision. The Conflict Minerals 

Provision defines a ‘‘person described’’ 

as one for whom conflict minerals are 

‘‘necessary to the functionality or 

production of a product manufactured 

by such person.’’ 37 We note that the 

provision could be read to apply to any 

company, including companies that are 

not subject to Commission reporting 

requirements, or individuals, so long as 

conflict minerals are necessary to the 

functionality or production of a product 

manufactured by that entity or 

individual. Such a broad reading of the 

provision, however, does not appear 

warranted given the provision’s 

background and its location in the 

section of the Exchange Act dealing 

with reporting issuers.38 Conversely, the 

Conflict Minerals Provision does not 

limit its disclosure or reporting 

obligations to issuers of any particular 

size. Again, the only limiting factor 

appears to be whether conflict minerals 

are ‘‘necessary to the functionality or 

production’’ of an issuer’s products.39

Based on these considerations, we are 

not proposing to include an exemption 

for smaller reporting companies, 

although we request comment below on 

whether that would be appropriate. 

We have received letters and other 

communications with a variety of 

recommendations regarding the Conflict 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80951 

40To facilitate public input on the Act, the 

Commission has provided a series of e-mail links, 

organized by topic, on its Web site at http:// 

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

The public comments we have received on the topic 

of the Conflict Minerals Provision are available on 

our Web site at http://www.sec.gov/comments/dftitle-xv/specialized-disclosures/ 

specializeddisclosures-8.pdf. 

41See letter from Jewelers Vigilance Committee. 

42See letter from Stuart P. Seidel, Esq. (stating 

that a person described is ‘‘not the usual SEC 

‘issuer’ requirement and appears much broader’’). 

43See letter from Tiffany & Co. 

44See Exchange Act Section 13(p)(1)(A). 

45See supra note 12. 

46See 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.’’) 

47Section 13(a) requires issuers with classes of 

securities registered under Section 12 of the 

Exchange Act to file periodic and other reports. 15 

U.S.C. 78l. Section 15(d) requires issuers with 

effective registration statements under the 

Securities Act of 1933 (the ‘‘Securities Act’’) to file 

reports similar to Section 13(a) for the fiscal year 

within which such registration statement became 

effective. 15 U.S.C. 77a et seq. Therefore, if our 

proposed rules did not include issuers required to 

file reports under Section 15(d), some issuers who 

file annual reports may not otherwise be required 

to comply with our proposed conflict minerals 

rules. 

48See the petition attached to the memorandum 

of the November 18, 2010 meeting with Chairman 

Mary L. Schapiro and with John Prendergast and 

Darren Fenwick of The Enough Project, Sasha 

Lezhnev of Grassroots Reconciliation Group, and 

Deborah R. Meshulam of DLA Piper (calling on the 

Commission to promulgate rules that would require 

equal reporting standards for all the conflict 

minerals), available at, http://www.sec.gov/ 

comments/df-title-xv/specialized-disclosures/ 

specializeddisclosures-80.pdf. 

49 17 CFR 240.12g3–2(b). A foreign private issuer 

may claim that exemption as long as it meets a 

foreign listing requirement, publishes its material 

home country documents in English on its Internet 

Web site or through another electronic information 

delivery system that is generally available to the 

public in its primary trading market, and otherwise 

is not required to file Exchange Act reports. A 

foreign private issuer typically relies on the Rule 

12g3–2(b) exemption in order to establish an 

unlisted American Depositary Receipt (‘‘ADR’’) 

facility for the issuance and trading of ADRs 

through the over-the-counter market. 

50The Commission has not considered Rule 

12g3–2(b)-exempt companies to be subject to 

Exchange Act reporting and filing requirements. 

Prior to the amendment to Rule 12g3–2(b) in 2008, 

we required issuers claiming the Rule 12g3–2(b) 

exemption to furnish paper copies of their material 

home country documents to the Commission. The 

documents were deemed furnished and not filed 

under the Exchange Act because they were subject 

to their home country, and not Exchange Act, 

disclosure rules. 

Minerals Provision and our 

rulemaking,40 including those that 

discussed what the provision’s 

definition of a ‘‘person described’’ 

should be construed to mean. 

Specifically, one industry group 

representative stated that the term was 

intended to apply solely to persons who 

file periodic reports under Section 

13(a)(2) of the Exchange Act, although 

that representative indicates that the 

provision is unclear as written.41 A 

separate individual who submitted a 

letter to us stated that the provision’s 

definition of the term is broad and 

appears to cover more than only 

reporting issuers.42 Finally, another 

issuer that submitted a letter to us 

indicated our rules should define a 

‘‘person described’’ in the broadest 

possible sense so that it includes nonreporting companies.43 This issuer 

stated that, because the provision’s 

intent is to limit the exploitation and 

trade of conflict minerals so as to 

prevent human rights abuses, and the 

provision is not necessarily intended to 

protect investors, the scope of the 

provision should include more than just 

reporting issuers. Further, the issuer 

stated that applying our proposed rules 

only to reporting issuers would unfairly 

burden reporting issuers and damage 

their competitive position. 

We recognize there is some ambiguity 

as to whom the Conflict Minerals 

Provision applies given that the Conflict 

Minerals Provision states that the 

Commission shall promulgate 

regulations for any ‘‘person 

described,’’ 44 and the provision states 

that a ‘‘person is described’’ if ‘‘conflict 

minerals are necessary to the 

functionality or production of a product 

manufactured by such person.’’ 45

Therefore, the Conflict Minerals 

Provision could be interpreted to apply 

to a wide range of private companies not 

previously subject to our disclosure and 

reporting rules. However, given the 

provision’s legislative background, its 

statutory location, and the absence of 

Congressional direction to apply these 

provisions to companies not previously 

subject to those rules,46 we do not 

propose to extend the rules beyond 

reporting companies. Also, even if we 

were to interpret the provision in this 

manner, it is uncertain how the 

Commission could administer such a 

program. Therefore, our proposed rules 

would apply only to issuers that file 

reports with the Commission under 

Section 13(a) or Section 15(d) of the 

Exchange Act, although we request 

comment on this question below.47

Consistent with the statutory language, 

our rules would apply to domestic 

companies, foreign private issuers, and 

smaller reporting companies. The 

statutory language does not suggest an 

exemption for foreign private issuers or 

smaller reporting companies and our 

proposal, therefore, would cover those 

issuers, although we request comment 

on this question below. 

Request for Comment 

1. Should our reporting standards, as 

proposed, apply to all conflict minerals 

equally? 48

2. Should our rules, as proposed, 

apply to all issuers that file reports 

under Sections 13(a) and 15(d) of the 

Exchange Act? If not, to what issuers or 

other persons should our rules apply? 

Should we require an issuer that has a 

class of securities exempt from 

Exchange Act registration pursuant to 

Exchange Act Rule 12g3–2(b) 49 to 

provide the disclosure and reporting 

requirements in its home country 

annual report or in a report on EDGAR? 

Would such an approach be consistent 

with the Act? 50

3. Should we have an alternative 

interpretation of a ‘‘person described?’’ 

4. Should our rules apply to foreign 

private issuers, as proposed? Should we 

exempt such issuers and, if so, why and 

on what basis? Should the rules 

otherwise be adjusted in some fashion 

for foreign private issuers? 

5. Would our proposed rules present 

undue costs to smaller reporting 

companies? If so, how could we mitigate 

those costs? Also, if our proposed rules 

present undue costs to smaller reporting 

companies, do the benefits of making 

their conflict minerals information 

publicly available justify these costs? 

Should our rules provide an exemption 

for smaller reporting companies? 

Alternatively, should our rules provide 

more limited disclosure and reporting 

obligations for smaller reporting 

companies? If so, what should these 

limited requirements entail? For 

example, should our rules require 

smaller reporting companies to disclose, 

if true, that conflict minerals are 

necessary to the functionality or 

production of their products but not 

require those issuers to disclose whether 

those conflict minerals originated in the 

DRC countries or to furnish a Conflict 

Minerals Report? Should our rules 

provide for a delayed implementation 

date for smaller reporting companies in 

order to provide them additional time to 

prepare for the requirement and the 

benefit of observing how larger 

companies comply? 

6. Should we require that all 

individuals and entities, regardless of 

whether they are reporting issuers, 

private companies, or individuals who 

manufacture products for which conflict 

minerals are necessary to the 

functionality or production of the 

products, provide the conflict minerals 

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80952 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

51See Exchange Act Section 13(p)(2)(B). 

52For 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). 

53See letter from The Enough Project. 

54See letter from Jewelers Vigilance Committee. 55Exchange Act Section 13(p)(2)(B). 56Exchange Act Section 13(p)(1)(A)(ii). 57See letter from National Retail Federation. 58Letter from Senator Richard J. Durbin and 

Representative Jim McDermott, United States 

Congress. 59 Id. 

disclosure and, if necessary, a Conflict 

Minerals Report? If so, how would we 

oversee such a broad reporting system? 

7. Would requiring compliance with 

our proposed rules only by issuers filing 

reports under the Exchange Act unfairly 

burden those issuers and place them at 

a significant competitive disadvantage 

compared to companies that do not file 

reports with us? If so, how can we 

lessen that impact? 

8. General Instruction I to Form 10– 

K contains special provisions for the 

omission of certain information by 

wholly-owned subsidiaries. General 

Instruction J to Form 10–K contains 

special provisions for the omission of 

certain information by asset-backed 

issuers. Should either or both of these 

types of registrants be permitted to omit 

the proposed conflict minerals 

disclosure in the annual reports on 

Form 10–K? 

2. ‘‘Manufacture’’ and ‘‘Contract To 

Manufacture’’ Products 

The Conflict Minerals Provision 

applies to any person for whom conflict 

minerals are necessary to the 

functionality or production of a product 

manufactured by that person.51 It 

appears, therefore, that the Conflict 

Minerals Provision was not intended to 

apply to all issuers, but was intended to 

apply only to issuers that manufacture 

products. In this regard, our proposed 

rules would likewise apply to reporting 

issuers that manufacture products. 

We do not propose to define the term 

‘‘manufacture’’ in our rules, since we 

believe it is generally understood.52 We 

note that some of those submitting 

letters in advance of this rulemaking 

have suggested our proposed rules 

should define the term ‘‘manufacturing’’ 

with greater specificity and have 

provided their views on this matter. One 

non-governmental organization (‘‘NGO’’) 

stated that the term ‘‘manufactured’’ 

should be defined as 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.’’ 53 An industry group 

indicated that the term manufacture 

should exempt issuers involved in the 

‘‘mining, processing, refining, alloying, 

fabricating, importing, exporting or sale’’ 

of gold and those engaged in ‘‘jewelry 

repairs or refurbishment, * * * setting 

or re-setting diamonds or gemstones 

into mountings or * * * [the] 

manufactur[ing of] individual custom 

jewelry pieces.’’ 54 We are not proposing 

to define the term, but we request 

comment on that point below. 

One section of the Conflict Minerals 

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,’’ 55 while another 

section of the provision requires issuers 

to describe ‘‘the products manufactured 

or contracted to be manufactured that 

are not DRC conflict free’’ [emphasis 

added] in their Conflict Mineral 

Reports.56 The absence of the phrase 

‘‘contract to manufacture’’ from the 

‘‘person described’’ definition raises 

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, it appears 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. Our proposed rules, therefore, 

would apply equally to issuers that 

manufacture products and to issuers 

that ‘‘contract to manufacture’’ their 

products. We believe that this approach 

would allow the ‘‘contracted to be 

manufactured’’ language to have effect 

in the Conflict Minerals Report. 

With regard to what it means to 

‘‘contract to manufacture a product,’’ an 

industry group expressed concern that 

our rules could include retailing issuers’ 

private label goods.57 Two of the 

Congressmen who sponsored Section 

1502 have stated in a letter submitted to 

us that rules implementing the 

provision should ‘‘exempt pure 

retailers’’ from any reporting 

requirements.58 In this regard, they 

suggested that the rules should clarify 

that retailers who sell ‘‘pure ‘white label’ 

products,’’ products over which retailers 

have no influence regarding their 

manufacture, would not be required to 

provide information regarding any 

conflict minerals in those products. 

Also, they indicated that the rules 

should include products that a retailer 

‘‘contracts to be manufactured or for 

which the retailer issues unique product 

requirements.’’ 59

We intend that our proposed rules 

would apply to issuers that contract for 

the manufacturing of products over 

which they have any influence 

regarding the manufacturing of those 

products. They also would apply to 

issuers selling generic products under 

their own brand name or a separate 

brand name that they have established, 

regardless of whether those issuers have 

any influence over the manufacturing 

specifications of those products, as long 

as an issuer has contracted with another 

party to have the product manufactured 

specifically for that issuer. We do not, 

however, propose that our rules would 

apply to retail issuers that sell only the 

products of third parties if those 

retailers have no contract or other 

involvement regarding the 

manufacturing of those products, or if 

those retailers do not sell those products 

under their brand name or a separate 

brand they have established and do not 

have those products manufactured 

specifically for them. 

Request for Comment 

9. Should we define the term 

‘‘manufacture?’’ If so, how should we 

define the term? 

10. Should our rules, as proposed, 

apply both to issuers that manufacture 

and issuers that contract to manufacture 

products in which conflict minerals are 

necessary to the functionality or 

production of those products? 

11. Should we require a minimum 

level of influence, involvement, or 

control over the manufacturing process 

before an issuer must comply with our 

proposed rules? If so, how should we 

articulate the minimum amount? 

Should we require issuers to have 

nominal, minimal, substantial, total, or 

another level of control over the 

manufacturing process before those 

issuers become subject to our rules? 

How would those amounts be 

measured? Should we require that 

issuers must, at minimum, mandate that 

the product be manufactured according 

to particular specifications? 

12. Is it appropriate to consider 

issuers who sell generic products under 

their own labels or labels that they 

establish to be contracting the 

manufacture of those products as long 

as those issuers have contracted with 

other parties to have the products 

manufactured specifically for them? If 

not, what would be a more appropriate 

approach? 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80953 

60See letter from Jewelers Vigilance Committee 

(stating that our proposed ‘‘rules should make clear 

that the mining, processing, refining, alloying, 

fabricating, importing, exporting or sale of gold 

does not constitute ‘manufacture’ ’’). 

61See letter from The Enough Project. 

62 21 U.S.C.A. 802(15), the United States 

Controlled Substances Act, which defines the term 

‘‘manufacture’’ as the production, preparation, 

propagation, compounding, or processing of a drug 

or other substance, either directly or indirectly or 

by extraction from substances of natural origin’’). 

63New Item 4(a) of Form 10–K (through new 

Instruction 1 to Item 104 of Regulation S–K), new 

Instruction 2 to Item 16 of Form 20–F, and new 

Instruction 2 to General Instruction B(16) of Form 

40–F. 

64See Industry Guide 7 [17 CFR 229.802(g)] 

(implying that companies may ‘‘produce’’ minerals 

from a mining reserve). 

65Exchange Act Section 13(p)(1)(A). 

66Exchange Act Section 13(p)(2)(B). 

67Letter from The Enough Project. 

68 Id. 

69 Id. 

70Letter from Senator Richard J. Durbin and 

Representative Jim McDermott, United States 

Congress. 

71See discussion infra Part II.F.1. 

72See letter from Senator Richard J. Durbin and 

Representative Jim McDermott, United States 

Congress (‘‘All users of conflict minerals that 

originate from the Democratic Republic of the 

Congo an adjoining countries that are not naturally 

occurring * * * or are a purely unintentional 

byproduct * * * need to be subject to reporting and 

transparency.’’). 

3. Mining Issuers as ‘‘Manufacturing’’ 

Issuers 

As a separate but related issue, our 

proposed rules would consider issuers 

that mine conflict minerals, including 

issuers that mine gold, to be 

manufacturing those minerals, and 

issuers contracting for the mining of 

conflict minerals to be contracting the 

manufacturing of those minerals. In this 

regard, we have received input that our 

proposed rules should not consider a 

gold mining issuer as manufacturing or 

contracting to manufacture gold.60

Conversely, another view expressed to 

us by an NGO was that our proposed 

rules should consider mining 

commensurate with manufacturing or 

contracting to manufacture.61 This NGO 

cited to and quoted from the United 

States Controlled Substances Act,62

which includes mining under the 

definition of manufacturing. We are 

proposing in an instruction to our 

proposed rules 63 that mining issuers 

should be considered to be 

manufacturing conflict minerals when 

they extract those minerals.64 We do, 

however, request comment on this point 

below. 

Request for Comment 

13. Is it appropriate for our rules, as 

proposed, to consider reporting issuers 

that are mining companies as ‘‘persons 

described’’ under Section 1502? Does 

the extraction of conflict minerals from 

a mine constitute ‘‘manufacturing’’ or 

‘‘contracting to manufacture’’ a ‘‘product’’ 

such that mining issuers should be 

subject to our rules? 

14. Alternatively, should a mining 

issuer not be viewed as manufacturing 

a product under our rules unless it 

engages in additional processes to refine 

and concentrate the extracted minerals 

into salable commodities or otherwise 

changes the basic composition of the 

extracted minerals? 

15. If so, what transformative 

processes, if any, should mining issuers 

be permitted to perform on conflict 

minerals before our proposed rules 

should consider them to be 

manufacturing products to which 

conflict minerals are necessary? 

4. When Conflict Minerals are 

‘‘Necessary’’ to a Product 

The Conflict Minerals Provision 

requires the Commission to promulgate 

regulations requiring that any ‘‘person 

described’’ disclose annually whether 

conflict minerals that are ‘‘necessary’’ 

originated in the DRC countries and, if 

so, submit to the Commission a Conflict 

Minerals Report.65 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.’’ 66 The provision, 

however, provides no additional 

explanation or guidance as to the 

meaning of this phrase. Likewise, we do 

not propose to define when a conflict 

mineral is necessary to the functionality 

or production of a product. We are, 

however, requesting comment on 

whether our rules should define this 

phrase and, if so, how. 

We have received differing input as to 

when a conflict mineral should be 

considered necessary to the 

functionality or production of a product 

for purposes of the Conflict Minerals 

Provision. One NGO stated that the term 

‘‘necessary’’ should be interpreted 

broadly and, at a minimum, include 

conflict minerals that are ‘‘intentionally 

added,’’ ‘‘closely related,’’ or ‘‘directly 

essential’’ to the production of a 

product.67 That NGO indicated also that 

a conflict mineral is necessary when it 

is ‘‘required for the financial success or 

marketability of the product.’’ 68 Further, 

the NGO affirmed that it believes that 

our proposed rules should exempt any 

product that contains naturally 

occurring trace amount of conflict 

minerals.69 Two of the Congressional 

sponsors of Section 1502 indicated that 

‘‘it is the policy of Section 1502 to 

require transparency of all sourcing of 

conflict minerals’’ from the DRC 

countries, so they believe the provision 

was intended ‘‘to include all uses of 

conflict minerals coming from DRC— 

except those that are ‘naturally 

occurring’ or ‘unintentionally included’ 

in the product.’’ 70

While we are not proposing to define 

‘‘necessary to the functionality or 

production,’’ we note that if a mineral is 

necessary, the product is covered 

without regard to the amount of the 

mineral involved.71 Further, we intend 

our proposed rules to include products 

if the conflict mineral is intentionally 

included in a product’s production 

process and is necessary to that process, 

even if that conflict mineral is not 

ultimately included anywhere in the 

final product.72 On the other hand, 

conflict minerals 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 the 

product even if that tool or machine is 

necessary to producing the product. For 

example, if an automobile containing no 

conflict minerals is produced using a 

wrench that contains conflict minerals 

necessary to the functionality or 

production of that wrench, we would 

not consider the conflict minerals in 

that wrench necessary to the production 

of the automobile. 

Request for Comment 

16. Should our rules define the phrase 

‘‘necessary to the functionality or 

production of a product,’’ or is that 

phrase sufficiently clear without a 

definition? If our rules should define the 

phrase, how should it be defined? 

17. If we were to define this phrase, 

should we delineate it to mean that a 

conflict mineral would be necessary to 

a product’s functionality only if the 

conflict mineral is necessary to the 

product’s basic function? If so, should 

we define the term ‘‘basic function’’ and, 

if so, how should we define that term? 

Should we define the term to include 

components of a product if those 

components are necessary to the 

product’s basic function such that a 

conflict mineral would be considered 

necessary to the functionality of a 

product if the conflict mineral is 

necessary to the functionality of any of 

the product’s components that are 

required for that product’s basic 

function? For example, if the only 

conflict minerals in an automobile are 

contained in the automobile’s radio, 

should our proposed rules consider 

those conflict minerals necessary to the 

automobile’s functionality even if the 

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80954 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

73See letter submitted by Patricia Jurewicz on 

November 18, 2010 (the ‘‘Multi-Stakeholder Group 

Letter’’) (representing a consortium of NGOs, large 

issuers, and socially responsible institutional 

investors). 

74See id. 

75Exchange Act Section 13(p)(1)(A). 

76See Exchange Act Section 13(p)(1)(E). The 

issuer would be required to keep this information 

on its Internet Web site until it filed is subsequent 

annual report. 

77See Multi-Stakeholder Group Letter (suggesting 

that entities subject to the Conflict Minerals 

Provision be required to maintain reviewable 

business records to support a negative 

determination). 

78See Exchange Act Section 13(p)(1)(E). 

79We recognize that there may be instances in 

which an issuer determines that its products 

contain a mixed assortment of conflict minerals, 

such that some did not originate in the DRC 

countries, some originated in the DRC countries, 

some have minerals that the issuer cannot 

determine did not originate in the DRC countries, 

or any combination thereof. If an issuer can 

determine which conflict minerals did not originate 

in the DRC countries, it would not have to provide 

a Conflict Minerals Report regarding those minerals. 

However, the issuer would still be required to file 

a Conflict Minerals Report for the minerals that 

originated in the DRC countries or that the issuer 

was unable to determine did not originate in the 

DRC countries. 

automobile’s basic function is for 

transportation? If that radio is marketed 

and sold with the automobile, should 

our proposed rules consider the conflict 

minerals that are isolated in the radio 

necessary to the functionality of the 

automobile? Alternatively, should such 

a definition consider only conflict 

minerals isolated in an automobile 

component required specifically for the 

automobile’s basic function as necessary 

for the functionality of the automobile? 

18. If we were to define the phrase 

‘‘necessary to the functionality,’’ should 

we delineate it to mean that a conflict 

mineral would be necessary to a 

product’s functionality if the conflict 

mineral is included in a product for any 

reason because that conflict mineral 

would be contributing to the product’s 

economic utility? Does the fact that, if 

a conflict mineral is not ‘‘necessary’’ it, 

axiomatically, could be excluded from 

the product or the manufacturing 

process support such a broad reading? 

19. Should we define the phrase to 

indicate that, as one letter suggested, a 

conflict mineral should be considered 

necessary when ‘‘[t]he conflict mineral 

is intentionally added to the product; or 

[t]he conflict mineral is used by the 

[issuer] for the production of a product 

and such mineral is purchased in 

mineral form by the [issuer] and used by 

the [issuer] in the production of the 

final product but does not appear in the 

final product; and [t]he conflict mineral 

is essential to the product’s use or 

purpose; or [t]he conflict mineral is 

required for the marketability of the 

product?’’ 73

20. Should we delineate the phrase 

‘‘necessary to the production’’ to mean 

that a conflict mineral would be 

necessary to a product’s production 

only if the conflict mineral is 

intentionally included in a product’s 

production process even if that conflict 

mineral is not ultimately included in 

the final product because it was 

removed or washed away prior to the 

completion of the production process? 

Should we consider conflict minerals 

necessary to the production of a product 

if they are not contained in the product 

but they are necessary to the 

functionality or production of a physical 

tool or machine used to produce a 

product? Should we consider such 

conflict minerals necessary to the 

production of a product if the tool or 

machine used to produce the product 

was manufactured for the purpose of 

producing the product? Would such an 

approach cover too broad a group of 

tools or machines? Should we limit 

such an approach to certain kinds of 

tools or machines, and if so, which 

ones? Should we be more specific and 

provide, as a letter recommended, that 

a conflict mineral is necessary to a 

product’s production only if it is ‘‘used 

by [an issuer] for the production of a 

product and such mineral is purchased 

in mineral form by the [issuer] and used 

by the [issuer] in the production of the 

final product but does not appear in the 

final product?’’ 74

21. Should we delineate the phrase 

‘‘necessary to the production’’ so that 

our rules would not consider conflict 

minerals occurring naturally in a 

product or conflict minerals that are 

purely an unintentional byproduct of 

the product as necessary to the 

production of that product? 

C. Step Two—Determining Whether 

Conflict Minerals Originated in the DRC 

Countries and the Resulting Disclosure 

If conflict minerals are necessary to 

the functionality or production of a 

product manufactured by that issuer, 

the Conflict Minerals Provision requires 

an issuer to disclose whether those 

conflict minerals originated in the DRC 

countries.75 If they did not originate in 

the DRC countries, the statute requires 

the issuer to make available that 

disclosure on its Internet Web site, but 

does not require the issuer to submit 

anything further to the Commission. If, 

however, any of the issuer’s conflict 

minerals originated in the DRC 

countries, the provision requires the 

issuer to submit to the Commission a 

Conflict Minerals Report for the portion 

of its conflict minerals that originated in 

the DRC countries, and make that report 

available on its Internet Web site. 

The rules we are proposing would 

require an issuer to disclose whether its 

conflict minerals originated in the DRC 

countries. Under our proposed rules, an 

issuer would be required to make a 

reasonable country of origin inquiry as 

to whether its conflict minerals 

originated in the DRC countries, but our 

proposed rules would not set forth what 

constitutes a reasonable country of 

origin inquiry. If, after a reasonable 

country of origin inquiry, an issuer 

concludes that any of its conflict 

minerals did not originate in the DRC 

countries, the issuer would be required 

to disclose this in the body of the 

annual report and on its Internet Web 

site.76 Also, the issuer would be 

required to disclose in the body of the 

annual report the Internet address on 

which the disclosure is posted and 

retain the information on the Web site 

at least until the issuer’s subsequent 

annual report is filed with the 

Commission. Further, the issuer would 

be required to disclose in the body of its 

annual report the reasonable country of 

origin inquiry it undertook to determine 

that its conflict minerals did not 

originate in the DRC countries and 

maintain reviewable business records to 

support its determination.77 The issuer, 

however, would not be required to make 

any other disclosures with regard to its 

conflict minerals that did not originate 

in the DRC countries. 

Under our proposed rules, if an issuer 

determines through its reasonable 

country of origin inquiry that any of its 

conflict minerals originated in the DRC 

countries, or if the issuer is unable to 

determine after a reasonable country of 

origin inquiry that any such conflict 

minerals did not originate in the DRC 

countries, our proposed rules would 

require the issuer to disclose this in the 

body of the annual report and disclose 

that the Conflict Minerals Report is 

furnished as an exhibit to the annual 

report. Additionally, the issuer would 

be required to make available its 

Conflict Minerals Report on its Internet 

Web site, disclose in the body of its 

annual report that the Conflict Minerals 

Report is posted online, and disclose in 

the body of its annual report the Internet 

address on which the Conflict Minerals 

Report is located.78 We note, however, 

that under our proposal such an issuer 

would only have to post the Conflict 

Minerals Report on its Internet Web site 

and would not have to post any of the 

disclosures it provides in the body of its 

annual report.79

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80955 

80See Exchange Act Section 13(p)(1)(E), which is 

entitled ‘‘Information Available to the Public’’ and 

states that ‘‘[e]ach person described under 

paragraph (2) shall make available to the public on 

the Internet Web site of such person the information 

disclosed by such person under subparagraph (A).’’ 81Sections 1502, 1503, and 1504 of the Act. 

1. Location of Disclosure 

Our proposed rules would require 

disclosure about conflict minerals in an 

issuer’s annual report on Form 10–K for 

a domestic issuer, Form 20–F for a 

foreign private issuer, and Form 40–F 

for an eligible Canadian issuer. Section 

1502 requires issuers to disclose 

information about their conflict 

minerals annually, but does not 

otherwise specify where this disclosure 

must be located, either in terms of 

which form or in terms of where within 

a particular form. Our proposed rules 

would require this disclosure in the 

existing Form 10–K, Form 20–F, or 

Form 40–F annual report because 

issuers are already required to file these 

reports so this approach should be less 

burdensome than requiring a separate 

annual report to be filed. Further, to 

facilitate locating the conflict minerals 

disclosure within the annual report 

without over-burdening investors with 

extensive information about conflict 

minerals in the body of the report, our 

proposed rules would require issuers to 

include brief conflict minerals 

disclosure under a separate heading 

entitled, ‘‘Conflict Minerals Disclosure,’’ 

and the more extensive, information in 

a separate exhibit to the annual report, 

if required. 

To implement Section 1502 of the 

Act, we are proposing to add new Item 

4(a) of Form 10–K (which references 

new Item 104(a) of Regulation S–K), 

new Item 16(a) of Form 20–F, and a new 

General Instruction B(16)(a) of Form 40– 

F. These rules would require that an 

issuer disclose in its annual report 

under a separate heading, entitled 

‘‘Conflict Minerals Disclosure,’’ its 

determination as to whether any of its 

conflict minerals originated in the DRC 

countries, based on its reasonable 

country of origin inquiry, and, for its 

conflict minerals that do not originate in 

the DRC countries, a brief description of 

the reasonable country of origin inquiry 

it conducted in making such a 

determination. Our proposed rules 

would not require an issuer who 

determines that its conflict minerals did 

not originate in the DRC countries, 

based on its reasonable country of origin 

inquiry, to provide any further 

disclosures. 

We are also proposing that an issuer 

include brief additional disclosure in 

the body of the annual report if the 

issuer’s conflict minerals originated in 

the DRC countries or if the issuer cannot 

determine that its conflict minerals did 

not originate in the DRC countries, 

based on its reasonable country of origin 

inquiry. We propose to add new Item 

4(a) of Form 10–K, new Item 104(b)(2) 

of Regulation S–K, new Item 16(b)(2) of 

Form 20–F, and new General Instruction 

B(16)(b)(2) and Form 40–F to implement 

this additional disclosure. These 

proposed requirements would require 

an issuer to disclose that its conflict 

minerals originated in the DRC 

countries, or that it is unable to 

conclude that its conflict minerals did 

not originate in the DRC countries, that 

its Conflict Minerals Report has been 

furnished as an exhibit to the annual 

report, that the Conflict Minerals 

Report, including the certified 

independent private sector audit, is 

publicly available on the issuer’s 

Internet Web site, and the issuer’s 

Internet address on which the Conflict 

Minerals Report and audit report are 

located. As noted above, we are 

proposing this approach to facilitate 

access to the conflict minerals 

information by placing it outside the 

body of the annual report. 

The Conflict Minerals Provision 

requires that each issuer make its 

Conflict Minerals Report available to the 

public on the issuer’s Internet Web 

site.80 Consistent with the statute, we 

are proposing that new Item 104(b)(3) of 

Regulation S–K, new Item 16(b)(3) of 

Form 20–F, and new General Instruction 

B(16)(b)(3) of Form 40–F require an 

issuer to make such a report, including 

the certified audit report, available to 

the public by posting the text of the 

report on its Internet Web site. Our 

proposed rules would require that the 

text of the Conflict Minerals Report 

remain on the issuer’s Web site at least 

until it files its subsequent annual 

report. Although we would require an 

issuer that furnishes a Conflict Minerals 

Report to provide some disclosures in 

the body of its annual report regarding 

that report, we would not require that 

issuer to post this disclosure on its Web 

site. We believe this is appropriate 

because any information disclosed in 

the body of the annual report would 

also be included in the Conflict 

Minerals Report, which would be 

required to be posted on the issuer’s 

Internet Web site. 

Request for Comment 

22. Should we require issuers to 

provide the conflict minerals disclosure 

and reporting requirements mandated 

under Section 13(p) in its Exchange Act 

annual report, as proposed? Should we 

require, or permit, the conflict minerals 

disclosure to be included in a new, 

separate form furnished annually on 

EDGAR, rather than adding it to Form 

10–K, Form 20–F, and Form 40–F? 

Would requiring issuers to disclose the 

information in a separate annual report 

be consistent with Section 13(p)? 

Should we develop a separate annual 

report to be filed on EDGAR that 

includes all of the specialized 

disclosures mandated by the DoddFrank Act? 81 What would be the 

benefits or burdens of such a form for 

investors or issuers with necessary 

conflict minerals? 

23. Should we require some brief 

disclosure in the body of the annual 

report, as proposed? 

24. Should our rules provide that, 

rather than be included in the body of 

the annual report, all required 

information would be set forth in the 

Conflict Minerals Report that would be 

furnished as an exhibit to the annual 

report? 

25. Instead, should all required 

information, including the Conflict 

Minerals Report, be included in the 

body of the annual report? 

26. Should issuers with necessary 

conflict minerals that did not originate 

in the DRC countries be required to 

disclose any information other than as 

proposed? For example, should we 

require such an issuer to disclose the 

countries from which its conflict 

minerals originated? 

27. Should we, as proposed, require 

issuers to describe the reasonable 

country of origin inquiry they used in 

making their determination that their 

conflict minerals did not originate in the 

DRC countries? Is a separately captioned 

section in the body of the annual report 

the appropriate place for this 

disclosure? 

28. Should we require, as proposed, 

that an issuer maintain reviewable 

business records if it determines that its 

conflict minerals did not originate in the 

DRC countries? Are there other means of 

verifying an issuer’s determination that 

its minerals did not originate in the DRC 

countries? Should we specify for how 

long issuers would be required to 

maintain these records? For example, 

should we require issuers to maintain 

records for one year, five years, 10 years, 

or another period of time? 

29. Should we require the disclosure 

in an issuer’s annual report to be 

provided in an interactive data format? 

Why or why not? Would investors find 

interactive data to be a useful tool to 

easily find the information provided? If 

so, what format would be most 

appropriate for providing standardized 

data disclosure? For example, should 

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80956 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

82See letter from the Social Investment Forum. 

83This determination would not be based on 

whether an issuer considers it reasonable to 

undertake to determine the origin of all its conflict 

minerals as a whole. 

84See Multi-Stakeholder Group Letter. 85See letter from The Enough Project. 86 Id. 87Letter from Global Witness. 88Letter from Jewelers Vigilance Committee. 89We note that the comments submitted by the 

Jewelers Vigilance Committee refer only to gold. 90Letter from Jewelers Vigilance Committee. 

91See Multi-Stakeholder Group Letter. 

92See Management’s Report on Internal Control 

Over Financial Reporting, Release No. 33–8762 

(Dec. 20, 2006) [71 FR 77635] (stating that the 

‘‘Commission has long held that ‘reasonableness’ is 

not an ‘absolute standard of exactitude for corporate 

records’ ’’ (citing to Foreign Corrupt Practices Act of 

1977, Release No. 34–17500 (Jan. 20, 1981) [46 FR 

11544]) and that ‘‘the terms ‘reasonable,’ 

‘reasonably’ and ‘reasonableness’ in the context of 

Section 404 [of the Sarbanes-Oxley Act of 2002, 15 

U.S.C. 7262] implementation do not imply a single 

conclusion or methodology, but encompass the full 

range of appropriate potential conduct, conclusions 

or methodologies upon which an issuer may 

reasonably base its decisions’’). This release also 

cites to the Foreign Corrupt Practices Act (the 

‘‘FCPA’’), 15 U.S.C. 78m(b)(7) and Exchange Act 

Section 13(b)(7), which states that ‘‘the terms 

the format be eXtensible Business 

Reporting Language (XBRL), as one 

letter recommended,82 or should the 

format be eXtensible Markup Language 

(XML)? 

30. Should we require issuers to 

briefly disclose in the body of their 

annual reports the contents of the 

Conflict Minerals Report? If so, how 

much of the information in the Conflict 

Minerals Report should we require 

issuers to disclose? 

31. Should we require an issuer to 

post its audit report on its Internet Web 

site, as proposed? 

32. Should we require, as proposed, 

that an issuer post its Conflict Minerals 

Report and its audit report on its 

Internet Web site at least until it files its 

subsequent annual report? If not, how 

long should an issuer keep this 

information posted on its Internet Web 

site? 

2. Standard for Disclosure 

We are proposing rules that would 

require issuers to disclose, based on 

their reasonable country of origin 

inquiry, whether their necessary conflict 

minerals originated in the DRC 

countries or that they are unable to 

determine, after such a reasonable 

country of origin inquiry, that their 

conflict minerals did not originate in the 

DRC countries. Our proposed rules 

would not specify what constitutes a 

reasonable country of origin inquiry. 

Instead, the proposed rules would 

require an issuer that determined its 

conflict minerals did not originate in the 

DRC countries to disclose its reasonable 

country of origin inquiry in making its 

determination. 

Under our proposal, the reliability of 

any inquiry would be based solely on 

whether the information used provides 

a reasonable basis for an issuer to be 

able to trace the origin of any particular 

conflict mineral it uses.83 For example, 

it would not satisfy our proposed rules 

for an issuer to conclude that it is 

unreasonable for it to attempt to 

determine the origin of its conflict 

minerals solely because of the large 

amount of conflict minerals it uses in its 

products or the large number of its 

products that include conflict minerals. 

Instead, that issuer would be required to 

make a reasonable country of origin 

inquiry as to the origin of all of its 

conflict minerals that are necessary to 

the functionality or production of its 

products that it manufactures or 

contracts to be manufactured to 

determine whether those conflict 

minerals originated in the DRC 

countries. 

A multi-stakeholder group suggested a 

similar approach. This group 

recommended that our proposed rules 

require an issuer to make a reasonable 

inquiry into whether its conflict 

minerals originated in the DRC 

countries, provide a stated basis for any 

determination that the source and origin 

of the conflict minerals was not in the 

DRC countries, and maintain auditable 

business records to support a negative 

determination.84 Similarly, in a separate 

submission, an NGO stated that our 

proposed rules should require issuers to 

conduct ‘‘a sufficient inquiry to enable 

them to have a reasonable basis to state 

whether necessary conflict minerals do 

or do not originate in the DRC or an 

adjoining country.’’ 85 In this regard, that 

NGO also indicated that our proposed 

rules should require that the issuer 

‘‘disclose the basis for any determination 

that necessary conflict minerals did not 

originate in the DRC or an adjoining 

country.’’ 86

Others who submitted letters, 

however, have suggested different 

standards for determining whether an 

issuer’s conflict minerals originated in 

the DRC countries. A different NGO 

stated that our proposed rules should 

require issuers to ‘‘conduct sufficient 

due diligence to enable them to 

determine accurately whether conflict 

minerals do or do not originate from the 

DRC or an adjoining country.’’ 87 An 

industry group indicated that our 

proposed rules should require issuers to 

use due diligence in determining 

whether their conflict minerals 

originated in the DRC countries.88 The 

letter from that industry group stated, 

however, that it is not possible for 

issuers in every instance to determine 

definitively the origins of certain 

conflict minerals,89 so it suggested that 

our proposed rules ‘‘should thus create 

a mechanism by which entities can 

make a disclosure stating ‘no evidence 

of DRC or adjoining country origin.’ ’’ 90

We recognize the possibility that 

issuers who have conducted a 

reasonable country of origin inquiry 

may nonetheless not be able to 

determine with absolute accuracy the 

origins of their conflict minerals. We do 

not believe, however, that it is 

appropriate for our rules to permit 

issuers to satisfy their country of origin 

disclosure requirement by concluding 

that there is ‘‘no evidence’’ that their 

conflict minerals originated in the DRC 

countries and, thereby, not be required 

to provide any further information 

regarding their conflict minerals. Such 

an allowance might encourage issuers to 

conduct poorly planned or executed 

inquiries. Therefore, under our 

proposed rules such an issuer would 

still be required to file a Conflict 

Minerals Report and, therefore, would 

be required to exercise a greater level of 

investigation into the source and chain 

of custody of its conflict minerals. As 

discussed in greater detail below, we 

would permit issuers who cannot 

determine the origins of their conflict 

minerals, based on their reasonable 

country of origin inquiry, to disclose 

that they are unable to determine that 

their conflict minerals did not originate 

in the DRC countries. This approach is 

similar to one recommended by a multistakeholder group, which indicated that, 

if an issuer ‘‘is unable to determine the 

origin of the minerals specified in the 

statute after making a reasonable 

country of origin inquiry, the [issuer] 

should be required to submit’’ a Conflict 

Minerals Report.91

We believe that conducting a 

reasonable country of origin inquiry 

before disclosing whether an issuer’s 

conflict minerals originated in the DRC 

countries is appropriate. However, our 

proposed rules would not state what 

that reasonable country of origin inquiry 

would entail because we believe that 

necessarily would depend on the 

issuer’s particular facts and 

circumstances. In this regard, we note 

that the reasonable country of origin 

inquiry requirement is not meant to 

suggest that issuers would have to 

determine with absolute certainty 

whether their conflict minerals 

originated in the DRC countries, as the 

Commission has often stated that a 

reasonableness standard is not the same 

as an absolute standard.92

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80957 

‘reasonable assurances’ and ‘reasonable detail’ 

mean such level of detail and degree of assurance 

as would satisfy prudent officials in the conduct of 

their own affairs.’’ The release further cites to the 

conference committee report on amendments to the 

FCPA, Cong. Rec. H2116 (daily ed. Apr. 20, 1988), 

which states the reasonableness ‘‘standard ‘does not 

connote an unrealistic degree of exactitude or 

precision,’ ’’ but instead ‘‘‘contemplates the 

weighing of a number of relevant factors, including 

the cost of compliance.’ ’’ 

93See Multi-Stakeholder Group Letter. 

94 Id. 

95Exchange Act Section 13(p)(1)(A)(i). 

96Exchange Act Section 13(p)(1)(B). 

We note that conducting the 

reasonable country of origin inquiry 

could be less exhaustive than the due 

diligence discussed below. We believe 

that this disparity in how the standards 

are characterized reflects the language 

in the Conflict Minerals Provision. 

Initially, the provision requires issuers 

to determine whether their conflict 

minerals originated in the DRC 

countries. After making this 

determination, only issuers with 

conflict minerals that originated in the 

DRC countries or issuers that cannot 

determine their minerals did not 

originate in the DRC countries must 

submit to the Commission the Conflict 

Minerals Report, which describes, 

among other matters, the issuer’s due 

diligence exercised on the source and 

chain of custody of its conflict minerals. 

It appears, therefore, that the provision 

was not intended to require the same 

investigation for determining whether 

conflict minerals originated in the DRC 

countries and for determining the 

source and chain of custody of those 

conflict minerals that originate in the 

DRC countries. 

We believe that the steps necessary to 

constitute a reasonable country of origin 

inquiry will depend on the available 

infrastructure at a given point in time. 

Presently, we do not believe there is any 

single or exclusive manner for issuers to 

conduct this inquiry. However, one way 

we would view an issuer as satisfying 

the reasonable country of origin inquiry 

standard is if it received reasonably 

reliable representations from the facility 

at which its conflict minerals were 

processed that those conflict minerals 

did or did not originate in the DRC 

countries. These representations could 

come either directly from that facility or 

indirectly through the issuer’s suppliers, 

but the issuer would have to reasonably 

believe these representations to be true 

based upon the facts and circumstances. 

For example, one way that an issuer 

could reasonably rely on a facility’s 

representations regarding the source of 

its conflict minerals is if the smelter was 

identified as one that processes only 

‘‘DRC conflict free’’ minerals under 

recognized national or international 

standards after receiving an 

independent third party audit of the 

source and chain of custody of the 

conflict minerals it processes. It is 

important to note, however, that 

although reliance on smelter 

certifications and supplier declarations 

may be sufficient now due to our 

understanding of the current 

information systems in place to discover 

conflict minerals’ countries of origin, as 

these systems improve, the facts and 

circumstances surrounding what would 

be considered a reasonable country of 

origin inquiry may change. In other 

words, as systems improve, smelter 

certifications and supplier declarations 

may not satisfy a reasonable country of 

inquiry standard. 

In this regard, we note a letter 

submitted to us by a multi-stakeholder 

group that discussed a similar approach, 

which referred to a ‘‘compliant 

smelter.’’ 93 The multi-stakeholder group 

stated that it would prefer a ‘‘supplier 

declaration approach’’ to sourcing 

conflict minerals, which would ‘‘consist 

of having direct and component 

suppliers and others in the supply chain 

take reasonable means to assure that all 

the tin, tantalum, tungsten, and/or gold 

in their materials/products are sourced 

from a compliant smelter.’’ The group 

stated further that a smelter would be 

‘‘compliant’’ if it meets the requirements 

of an individual or industry wide audit 

process that stipulates the collection, 

disclosure, and efforts made to obtain 

certain information.94

Request for Comment 

33. Is a reasonable country of origin 

inquiry standard an appropriate 

standard for determining whether an 

issuer’s conflict minerals originated in 

the DRC countries for purposes of our 

rules implementing the Conflict 

Minerals Provision? If not, what other 

standard would be appropriate? Rather 

than requiring a reasonable country of 

origin inquiry as proposed, should our 

rules mandate that the standard for 

making the supply chain 

determinations, as set forth in Exchange 

Act Sections 13(p)(1)(A)(i) and (ii) (and 

described below), also applies to the 

determination as to whether an issuer’s 

conflict minerals originated in the DRC 

countries? Should we provide 

additional guidance about what would 

constitute a reasonable country of origin 

inquiry in determining whether conflict 

minerals originated in the DRC 

countries? 

34. Should we not require any type of 

inquiry? For example, would it be 

appropriate and consistent with the 

Conflict Minerals Provision to permit an 

issuer to make no inquiry, so long as it 

disclosed that fact? 

35. Should issuers be able to rely on 

reasonably reliable representations from 

their processing facilities, either directly 

or indirectly through their suppliers, to 

satisfy the reasonable country of origin 

inquiry standard? If so, should we 

provide additional guidance regarding 

what would constitute reasonably 

reliable representations and what type 

of guidance should we provide? If not, 

what would be a more appropriate 

requirement? 

36. Should any qualifying or 

explanatory language be allowed in 

addition to or instead of the reasonable 

country of origin inquiry standard, as 

proposed, regarding whether issuers’ 

conflict minerals originated in the DRC 

countries? For example, should issuers 

be able to state that none of their 

conflict minerals originated in the DRC 

countries ‘‘to the best of their 

knowledge’’ or that ‘‘they are not aware’’ 

that any conflict minerals originated in 

the DRC countries? 

D. Step Three—Conflict Minerals 

Report’s Content and Supply Chain Due 

Diligence 

The Conflict Minerals Provision 

requires any issuer determining that its 

necessary conflict minerals originated in 

the DRC countries to submit to the 

Commission a Conflict Minerals Report 

that includes, among other matters, a 

description of the measures taken by the 

issuer to exercise due diligence on the 

source and chain of custody of its 

conflict minerals, which measures ‘‘shall 

include an independent private sector 

audit’’ of the Conflict Minerals Report.95

In this regard, the Conflict Minerals 

Provision states that the issuer 

submitting the Conflict Minerals Report 

‘‘shall certify the audit * * * that is 

included in such report’’ and such a 

certified audit ‘‘shall constitute a critical 

component of due diligence in 

establishing the source and chain of 

custody of such minerals.’’ 96

In order to implement these 

requirements, our proposed rules would 

require issuers that determined that 

their necessary conflict minerals 

originated in the DRC countries and 

those that are unable to determine that 

their conflict minerals did not originate 

in the DRC countries to exercise due 

diligence on the source and chain of 

custody of their conflict minerals and 

describe the due diligence they 

exercised. After exercising due diligence 

to make their Conflict Minerals Report 

determinations, issuers would be 

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80958 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

97 In this release, we refer to the issuer 

determinations required by Exchange Act Sections 

13(p)(1)(A)(i) and (ii) regarding the source and 

chain of custody of the issuer’s conflict minerals, 

its products manufactured or contracted to be 

manufactured that are not DRC conflict free, its 

conflict minerals’ country of origin, the facilities 

used to process its conflict minerals, and the efforts 

to determine the mine or location of origin with the 

greatest possible specificity as the issuer’s ‘‘supply 

chain determinations.’’ We recognize, of course, that 

issuers that are unable to determine that their 

conflict minerals did not originate in the DRC 

countries would not know their minerals’ country 

of origin and may not know their minerals 

processing facility. 

98See Exchange Act Section 13(p)(1)(A)(i). 

99These rules would be included in proposed 

Item 104(b)(1)(i) of Regulation S–K, proposed Item 

16(b)(1)(i) of Form 20–F, and proposed General 

Instruction B(16)(b)(1)(i) of Form 40–F. 

100See Exchange Act Sections 13(p)(1)(A)(i) and 

13(p)(1)(B). 

101See Exchange Act Section 13(p)(1)(A). We note 

that, under the Conflict Minerals Provision, the 

Comptroller General establishes the appropriate 

standards for the independent private sector audit. 

Staff of the GAO has informed our staff that they 

preliminarily believe no new standards need to be 

promulgated, but rather auditing standards that are 

part of the Government Auditing Standards, such as 

the standards for Attestation Engagements or the 

standards for Performance Audits will be 

applicable. See GAO–07–731G. The GAO staff has 

not indicated whether and, if so, what evaluation 

criteria are required for an Attestation Engagement. 

102See new Item 4(a) of Form 10–K (referring to 

new Item 104(b)(1)(i) of Regulation S–K), new Item 

16(b)(1)(i) of Form 20–F, and new General 

Instruction B(16)(b)(1)(i) of Form 40–F. Exchange 

Act Section 13(p)(1)(A)(i) states that a Conflict 

Minerals Report must include ‘‘a description of the 

measures taken by the person to exercise due 

diligence on the source and chain of custody of 

such minerals, which measures shall include an 

independent private sector audit of such report 

submitted through the Commission that is 

conducted in accordance with standards 

established by the Comptroller General of the 

United States, in accordance with the rules 

promulgated by the Commission, in consultation 

with the Secretary of State.’’ Exchange Act Section 

13(p)(1)(B) defines the term ‘‘Certification’’ as 

follows: ‘‘The person submitting a report under 

subparagraph (A) shall certify the audit described 

in clause (i) of such subparagraph that is included 

in such report. Such a certified audit shall 

constitute a critical component of due diligence in 

establishing the source and chain of custody of such 

minerals.’’ 

103Exchange Act Section 13(p)(1)(B). 

104Alternatively, one could interpret this 

language to mean that an issuer must ensure that 

the audit it obtained is accurate, but such an 

interpretation would appear to mean that an issuer 

must review the audit of its Conflict Minerals 

Report, which the issuer created originally. We are 

not proposing this approach since it appears 

redundant. 

105These rules would be included under 

proposed Item 104(b)(1)(ii) of Regulation S–K, 

proposed Item 16(b)(1)(ii) of From 20–F, and 

proposed General Instruction B(16)(b)(1)(ii) of Form 

40–F. 

106See Exchange Act Section 13(p)(1)(A)(ii), 

which states that a Conflict Minerals Report must 

include, among other matters, ‘‘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.’’ 

107These rules would be included under 

proposed Item 104(b)(1)(iii) of Regulation S–K, 

proposed Item 16(b)(1)(iii) of Form 20–F, and 

proposed General Instruction B(16)(b)(1)(iii) of 

Form 40–F. 

108 If any products contain conflict minerals that 

did not originate in the DRC countries and conflict 

minerals that the issuer is unable to determine did 

not originate in the DRC countries, the issuer would 

be required to classify those products as not ‘‘DRC 

conflict free.’’ Similarly, if any of an issuer’s 

products contain conflict minerals that did not 

originate in the DRC countries, that the issuer is 

unable to determine did not originate in the DRC 

countries, or that originated in the DRC countries 

but did not directly or indirectly finance or benefit 

armed groups in the DRC countries, and also 

contain conflict minerals that originated in the DRC 

countries and that directly or indirectly financed or 

benefited armed groups in the DRC countries, the 

issuer must classify those products as not ‘‘DRC 

conflict free.’’ 

109We recognize that such issuers would not be 

able to provide the country of origin of those 

minerals. 

required to describe their products that 

are not ‘‘DRC conflict free,’’ the country 

of origin of those conflict minerals, the 

facilities used to process those conflict 

minerals, and the efforts to determine 

the mine or location of origin with the 

greatest possible specificity.97

Additionally, our proposed rules would 

require all issuers furnishing a Conflict 

Minerals Report to certify that they 

obtained an independent private sector 

audit of the report and furnish as part 

of the Conflict Minerals Report the audit 

report of the independent private sector 

auditor. 

1. Content of Conflict Minerals Report 

As required by the Conflict Minerals 

Provision,98 our proposed rules would 

require issuers to exercise due diligence 

on the source and chain of custody of 

their conflict minerals and to describe 

those due diligence measures in their 

Conflict Minerals Reports.99 Moreover, 

consistent with the Conflict Minerals 

Provision,100 we are proposing to 

require that the description of the 

measures taken by issuers to exercise 

due diligence on the source and chain 

of custody of their conflict minerals 

include a certified independent private 

sector audit conducted in accordance 

with the standards established by the 

Comptroller General of the United 

States.101 The proposed rules also state 

that the audit would constitute a critical 

component of due diligence.102 To 

implement the Conflict Minerals 

Provision’s requirement that issuers 

‘‘certify the audit,’’ 103 we are proposing 

that issuers be required to certify that 

they obtained an independent private 

sector audit of their Conflict Minerals 

Report,104 and we are proposing that 

issuers provide this certification in that 

report.105 Further, as required by the 

Conflict Minerals Provision,106 we are 

proposing that our rules require 

descriptions, in the Conflict Minerals 

Report, of issuers’ products that are not 

‘‘DRC conflict free,’’ the facilities used to 

process those conflict minerals, the 

country of origin of those conflict 

minerals, and the efforts to determine 

the mine or location of origin with the 

greatest possible specificity.107

An issuer that is required to furnish 

a Conflict Minerals Report because it is 

unable to determine that its conflict 

minerals did not originate in the DRC 

countries must also provide this 

information. We recognize that such an 

issuer may not be able to determine 

with certainty whether any of its 

products are or are not ‘‘DRC conflict 

free,’’ insofar as their initial efforts to 

determine the origin of the conflict 

minerals in those products under the 

reasonable country of origin inquiry was 

inconclusive and their subsequent due 

diligence on the source and chain of 

custody of such minerals was also 

inconclusive. Consistent with Section 

13(p)(1)(A)(ii), we would require such 

an issuer to describe all of its products 

that contain such conflict minerals and 

to identify these products as not ‘‘DRC 

conflict free’’ 108 since the issuer would 

not be able to establish that the minerals 

did not directly or indirectly finance or 

benefit armed groups in the DRC 

countries. Also, such issuers would be 

required to describe, to the extent 

known after conducting due diligence, 

the facilities used to process those 

conflict minerals and the efforts to 

determine the mine or location of origin 

with the greatest possible specificity.109

An issuer may provide additional 

disclosure explaining, for example, that 

although these products are labeled as 

not ‘‘DRC conflict free’’ in compliance 

with our rules implementing the 

Conflict Minerals Provision, the issuer 

has been unable to determine the source 

of the conflict minerals, including 

whether the conflict minerals in these 

products benefited or financed armed 

groups in the DRC countries. 

An issuer’s description of any of its 

products that are not ‘‘DRC conflict free’’ 

should be based on its individual facts 

and circumstances so that the 

description sufficiently identifies the 

products or categories of products. For 

example, an issuer may disclose each 

model of a product containing conflict 

minerals that are not ‘‘DRC conflict 

free,’’ each category of a product 

containing conflict minerals that are not 

‘‘DRC conflict free,’’ the specific 

products containing conflict minerals 

that are not ‘‘DRC conflict free’’ that were 

produced during a specific time period, 

that all its products contain conflict 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80959 

110See Exchange Act Sections 13(p)(1)(A)(ii) and 

13(p)(1)(D). 

111 22 U.S.C. 2151n(d) and 2304(b). 

112Section 1502(e)(3) of the Act. 

113These rules would be included in proposed 

Item 4(a) of Form 10–K (through Item 104(b)(1)(iv) 

of Regulation S–K), proposed Item 16(b)(1)(iv) of 

From 20–F, and proposed General Instruction 

B(16)(b)(1)(iv) of Form 40–F. Having our proposed 

rules require the issuer to identify the certified 

independent private sector auditor would satisfy 

Exchange Act Section 13(p)(1)(A)(ii), which states 

that the issuer must provide a description of ‘‘the 

entity that conducted the independent private 

sector audit in accordance with clause (i).’’ 

114See Rule 436 of Regulation C [17 CFR 

230.436]. 

115See the petition attached to the memorandum 

of the November 18, 2010 meeting with Chairman 

Mary L. Schapiro and with John Prendergast and 

Darren Fenwick of The Enough Project, Sasha 

Lezhnev of Grassroots Reconciliation Group, and 

Deborah R. Meshulam of DLA Piper, available at, 

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

specialized-disclosures/specializeddisclosures80.pdf. 

minerals that are not ‘‘DRC conflict 

free,’’ or another such description 

depending on the issuer’s facts and 

circumstances. 

The Conflict Minerals Provision uses 

the phrase ‘‘facilities used to process the 

conflict minerals,’’ which would appear 

to refer to the smelter or refinery 

through which the issuer’s minerals 

passed. We note also that the Conflict 

Minerals Provision states that products 

are ‘‘DRC conflict free’’ when those 

products do not contain conflict 

minerals that directly or indirectly 

finance or benefit armed groups.110

Section 1502(e)(3) of the Act defines the 

term ‘‘armed group’’ as ‘‘an armed group 

that is identified as perpetrators of 

serious human rights abuses in the 

annual Country Reports on Human 

Rights Practices under sections 116(d) 

and 502B(b) of the Foreign Assistance 

Act of 1961,’’ 111 as it relates to the DRC 

countries.112 Our proposed rule 

includes a cross reference to that 

definition to provide guidance to 

issuers. 

Our proposed rules would require 

issuers to furnish, as part of their 

Conflict Minerals Report, the audit 

report prepared by the independent 

private sector auditor and to specifically 

identify that auditor.113 While one 

might read the statutory language to 

suggest that only the issuer’s 

certification of the audit, and not the 

audit report itself, is required to be 

submitted, we preliminarily believe that 

approach is not the better reading of the 

Conflict Minerals Provision. As noted 

above, the Conflict Minerals Provision 

emphasizes that the independent audit 

is a ‘‘critical component of due 

diligence.’’ In light of the importance of 

this audit report to our new reporting 

requirements and the statutory 

language, we are proposing to require 

that the audit report be furnished with 

the Conflict Minerals Report. 

Although we are proposing that the 

audit report be furnished with the 

Conflict Minerals Report, new Item 4(a) 

of Form 10–K (referring to new 

Instruction 2 to Item 104 of Regulation 

S–K), new Instruction 3 to Item 16 of 

Form 20–F, and new Instruction 3 to 

General Instruction B(16) of Form 40–F 

would state that the Conflict Minerals 

Report, which would include the audit 

report, would not be deemed to be 

incorporated by reference into any filing 

under the Securities Act or the 

Exchange Act, except to the extent that 

the issuer specifically incorporates it by 

reference. For example, if an issuer 

incorporates by reference its annual 

report into a Securities Act registration 

statement, that issuer would not be 

automatically incorporating the Conflict 

Minerals Report into the Securities Act 

document. Therefore, in such a 

situation, the independent private sector 

auditor would not assume expert 

liability and the issuer would not,114

therefore, have to file a consent from 

that auditor unless the issuer 

specifically incorporates by reference 

the Conflict Minerals Report into the 

Securities Act registration statement. 

Request for Comment 

37. Should our rules, as proposed, 

require issuers that are unable to 

determine the origin of their conflict 

minerals to label their products that 

contain such minerals as not ‘‘DRC 

conflict free’’? Is this approach 

consistent with the Conflict Minerals 

Provision’’? Would it be more 

appropriate to allow such issuers to 

label such products differently, such as 

‘‘May Not Be DRC Conflict Free’’? Would 

having a separate category for products 

that contain such unknown origin 

minerals be consistent with the Conflict 

Minerals Provision? Would the 

proposed approach be confusing for 

readers, or can issuers sufficiently 

address any confusion by including 

supplemental disclosure for those 

products that contain minerals of 

unknown origin? 

38. Should our rules, as proposed, 

permit issuers to describe their products 

that contain conflict minerals that do 

not qualify as being DRC conflict free or 

that may not qualify as being DRC 

conflict free based on their individual 

facts and circumstances? If not, how 

should we require issuers to describe 

their products that contain conflict 

minerals that do not qualify as being 

DRC conflict free? If an issuer had 

hundreds or thousands of products that 

were not DRC conflict free, would the 

report provide overwhelming 

information? Would it be unduly 

expensive to produce? 

39. Should our rules, as proposed, 

require issuers to disclose the facilities, 

countries of origin, and efforts to find 

the mine or location of origin only for 

its conflict minerals that do not qualify 

as DRC conflict free, and not for all of 

its conflict minerals? Alternatively, 

should we require issuers to disclose the 

facilities, countries of origin, and efforts 

to find the mine or location of origin for 

all of its conflict minerals regardless of 

whether those conflict minerals do not 

qualify as DRC conflict free? 

40. Should our rules require issuers to 

disclose the mine or location of origin 

of their conflict minerals with the 

greatest possible specificity in addition 

to requiring issuers, as proposed, to 

describe the efforts to determine the 

mine or location of origin with the 

greatest possible specificity? If so, how 

should we prescribe how the location is 

described? 

41. As suggested in a submission,115

should our rules require issuers to 

include information on the capacity of 

each mine they source from along with 

the weights and dates of individual 

mineral shipments? 

42. We are proposing that an issuer 

‘‘certify the audit’’ by certifying that it 

obtained such an audit. Should we 

further specify the nature of the 

certification? We are not proposing that 

anyone sign this certification. Should 

our rules require issuers to have the 

audit’s certification signed? If so, who 

should be required to sign the 

certification? Also, if we revise our 

proposal to require an individual to 

sign, should the individual who signs 

the certification sign it in his or her 

capacity within the company or on 

behalf of the company? What liability 

should our rules assign to the individual 

who signs the certification? 

43. Should our rules, as proposed, 

require an issuer to furnish its 

independent private sector audit report 

as part of its Conflict Minerals Report? 

Are there other ways to give effect to the 

Conflict Minerals Provision’s 

requirement of Section 13(p)(1)(B) that 

the issuer ‘‘certify the audit * * * that 

is included in’’ [emphasis added] the 

Conflict Minerals Report? Would 

investors find the audit report useful? 

How would the potential liability for a 

furnished audit report affect the cost 

and availability of such audit services? 

44. Should our rules provide that, as 

proposed, the independent private 

sector audit report furnished as an 

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80960 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

116Our proposed rules would require that issuers 

furnish their Conflict Minerals Report as Exhibit 96 

to their annual reports. 

117See the Securities and Exchange Commission’s 

Internet Web site, ‘‘Researching Public Companies 

Through EDGAR: A Guide for Investors,’’ available 

at: http://www.sec.gov/investor/pubs/ 

edgarguide.htm. 

118 Item 601(96) of Regulation S–K would state, 

‘‘The report required by Item 104(b) of Regulation 

S–K, if applicable.’’ Also, Paragraph 16 in the 

‘‘Instructions as to Exhibits’’ section to Form 20–F 

would state, ‘‘The Conflict Minerals Report required 

by Item 16 of this Form, if applicable.’’ Further, our 

proposed rules would revise the Exhibit Table in 

Item 601 of Regulation S–K. 

119 Item 601(32)(ii) of Regulation S–K [17 CFR 

229.601(b)(32)]. 

120 17 CFR 240.13a–14(b). 

121 17 CFR 240.15d–14(b). 

122 18 U.S.C. 1350. 

123 17 CFR 229.407(d). 

124 17 CFR 229.407(e)(5). 

125See Exchange Act Section 13(p)(1)(A). 

126See supra note 11. A co-sponsor of the 

Conflict Minerals Provision stated that the 

disclosure of an issuer’s conflict minerals 

information would help investors make a more 

informed decision. See 156 Cong. Rec. S3865–66 

(statement of Sen. Feingold) (daily ed. May 18, 

2010) (stating that ‘‘[c]reating 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.’’) 

127 Id. 

128 15 U.S.C. 78b. 

129See letter from the American Bar Association. 

130 15 U.S.C. 78r. 

131See Exchange Act Section 13(p)(1)(C). 

132 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d). 

exhibit to an issuer’s annual report not 

be deemed to be incorporated by 

reference into any filing under the 

Securities Act or the Exchange Act, 

except to the extent that the issuer 

specifically incorporates it by reference? 

Is this audit report qualitatively 

different from other experts’ reports for 

which consent is required under our 

rules? 

45. Are there other ways we should 

treat the audit report under our rules to 

balance the interests of receiving a high 

quality audit and not unnecessarily 

increasing potential liability and costs? 

2. Location and Furnishing of Conflict 

Minerals Report 

As noted above, we are proposing 

rules that require a Conflict Minerals 

Report to be furnished as an exhibit to 

an issuer’s annual report on Form 10– 

K, Form 20–F, or Form 40–F, as 

applicable.116 By requiring issuers to 

furnish their Conflict Minerals Report as 

an exhibit to the annual report, our 

proposed rules would enable anyone 

accessing the Commission’s Electronic 

Data Gathering, Analysis, and Retrieval 

system (the ‘‘EDGAR’’ system) 117 to 

determine quickly whether an issuer 

furnished a Conflict Minerals Report 

with its annual report. Specifically, 

proposed Item 4(a) of Form 10–K 

(through Item 104 to Regulation S–K), 

Item 16 to Form 20–F, and General 

Instruction B(16) to Form 40–F would 

require an issuer to furnish its Conflict 

Minerals Report as an exhibit to its 

annual report. Also, our proposed rules 

would further revise Regulation S–K 

and Form 20–F to include a new 

Paragraph (96) of Item 601(b) and a new 

Paragraph 16 to the ‘‘Instructions as to 

Exhibits’’ section of Form 20–F to 

provide additional instructions 

specifically for their exhibits under Item 

601 and Paragraph 16, respectively. The 

text of Item 601(b)(96) and Paragraph 16 

would be substantially similar and only 

would reference Item 104 and Item 16, 

respectively.118

Under our proposed rules, an issuer’s 

Conflict Minerals Report, which would 

include the independent private sector 

audit report, would not be ‘‘filed’’ for 

purposes of Section 18 of the Exchange 

Act and would, thus, not be subject to 

the liability of that section of the 

Exchange Act unless the issuer states 

explicitly that the Conflict Minerals 

Report and the independent private 

sector audit report are filed under the 

Exchange Act. Instead, these documents 

would only be furnished to the 

Commission. These documents, 

therefore, would be treated in the same 

manner as other furnished disclosures, 

such as the certifications required to be 

submitted as exhibit 32 119 to Exchange 

Act documents under Rule 13a–14(b) 120

or Rule 15d–14(b) 121 and Section 1350 

of Chapter 63 of Title 18 of the United 

States Code,122 the Audit Committee 

Report required by Item 407(d) of 

Regulation S–K,123 and the 

Compensation Committee Report 

required by Item 407(e)(5) of Regulation 

S–K.124 Similarly, our proposed rules 

would not consider the Conflict 

Minerals Report and the independent 

private sector audit report incorporated 

by reference into any filing under the 

Securities Act or the Exchange Act, 

except to the extent that the issuer 

specifically incorporates them by 

reference into the documents. 

We believe this approach is not 

inconsistent with the Conflict Minerals 

Provision, which provides that an issuer 

must ‘‘submit’’ the Conflict Minerals 

Report, and does not otherwise mandate 

that the information be filed with the 

Commission.125 Further, we 

preliminarily believe this approach is 

appropriate in light of the nature and 

purpose of this disclosure as set forth in 

Section 1502(a) of the Act.126 It appears 

that the nature and purpose of the 

Conflict Minerals Provision is for the 

disclosure of certain information to help 

end the emergency humanitarian 

situation in the eastern DRC that is 

financed by the exploitation and trade 

of conflict minerals originating in the 

DRC countries,127 which is qualitatively 

different from the nature and purpose of 

the disclosure of information that has 

been required under the periodic 

reporting provisions of the Exchange 

Act.128 Finally, we note that we have 

received input indicating that our 

proposed rules should allow issuers to 

furnish their conflict minerals 

disclosures and Conflict Minerals 

Reports, as applicable.129

Although the Conflict Minerals Report 

would not be subject to Section 18 

liability,130 we note that under 

Exchange Act Section 13(p)(1)(C), 

failure to comply with the Conflict 

Minerals Provision would deem the 

issuer’s due diligence process 

‘‘unreliable’’ and, therefore, the Conflict 

Minerals Report ‘‘shall not satisfy’’ our 

proposed rules.131 In this regard, issuers 

that fail to comply with our proposed 

rules would be subject to liability for 

violations of Exchange Act Sections 

13(a) or 15(d), as applicable.132

Request for Comment 

46. Should we, as proposed, require 

the Conflict Minerals Report to be 

furnished as an exhibit to the issuer’s 

annual report? If not, how should it be 

provided? 

47. Should we require the Conflict 

Minerals Report to be filed as an exhibit, 

rather than furnished, which would 

affect issuers’ liability under the 

Exchange Act or under the Securities 

Act (if any such issuer incorporates by 

reference its annual report into a 

Securities Act registration statement)? 

48. Under Exchange Act Section 18, 

‘‘Any person who shall make or cause to 

be made any statement in any 

application, report, or document filed 

pursuant to [the Exchange Act] or any 

rule or regulation thereunder or any 

undertaking contained in a registration 

statement as provided in subsection (d) 

of section 15, which statement was at 

the time and in the light of the 

circumstances under which it was made 

false or misleading with respect to any 

material fact, shall be liable to any 

person (not knowing that such 

statement was false or misleading) who, 

in reliance upon such statement, shall 

have purchased or sold a security at a 

price which was affected by such 

statement, for damages caused by such 

reliance, unless the person sued shall 

prove that he acted in good faith and 

had no knowledge that such statement 

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133Exchange Act Section 18(a). 

134See, e.g., letter from American Bar 

Association. 

135See new Item 4(a) of Form 10–K (as through 

new Item 104(b)(1) of Regulation S–K), new Item 

16(b)(1) of Form 20–F, and a new General 

Instruction B(16)(b)(1) of Form 40–F. 

136Exchange Act Section 13(p)(1)(A)(i). 

137Exchange Act Section 13(p)(1)(B). 

138Exchange Act Section 13(p)(1)(C). 

139Letter from Howland Greene Consultants LLC. 

140See letter from Senator Richard Durbin and 

Representative Jim McDermott. 

141See attached materials to the memorandum of 

the September 15, 2010 meeting of the staff of 

Division of Corporation Finance met with Corinna 

Gilfillan, Jonathan Grant, and Annie Dunnebacke of 

Global Witness, available at, http://www.sec.gov/ 

comments/df-title-xv/specialized-disclosures/ 

specializeddisclosures-18.pdf. 

142See letter from International Precious Metals 

Institute. 

143See letter from Tiffany & Co. 

144Letter from Jewelers Vigilance Committee. 

145For instance, the Organisation for Economic 

Cooperation and Development (the ‘‘OECD’’) is 

developing due diligence guidance for conflict 

mineral supply chains. See Organisation for 

Economic Cooperation and Development (the 

‘‘OECD’’), Draft Due Diligence Guidance for 

Responsible Supply Chains of Minerals from 

Conflict-Affected and High-Risk Areas (2010), 

available at, http://www.oecd.org/dataoecd/13/18/ 

46068574.pdf. Also, on November 30, 2009, the 

United Nations Security Council adopted 

Resolution 1896 that, among other matters, 

extended and expanded the mandate of the United 

Nations Group of Experts for the Democratic 

Republic of the Congo to create recommendations 

on due diligence guidelines for minerals originating 

in the DRC. See United Nations Security Council 

Resolution 1896 (2009) [S/RES/1896 (2009)]. 

146See, e.g., OECD, Draft Due Diligence Guidance 

for Responsible Supply Chains of Minerals from 

Conflict-Affected and High-Risk Areas (2010), 

available at, http://www.oecd.org/dataoecd/13/18/ 

46068574.pdf. 

was false or misleading.’’ 133 Is it 

appropriate not to have the Conflict 

Minerals Report subject to the Section 

18 liability even if the elements of 

Section 18 liability can be established? 

Should we require the Conflict Minerals 

Report to be filed for purposes of 

Exchange Act Section 18, but permit an 

issuer to elect not to incorporate it into 

Securities Act filings? 

49. Should the Conflict Minerals 

Report be furnished annually on Form 

8–K.134 Would that approach be 

consistent with Exchange Act Section 

13(p)(1)(A)? If so, should foreign private 

issuers, which do not file Forms 8–K, be 

permitted to submit the Conflict 

Minerals Report either in their Form 20– 

F or 40–F as applicable, or annually on 

Form 6–K, at their election? 

3. Due Diligence Standard in the 

Conflict Minerals Report 

Our proposed rules would require 

issuers to use due diligence regarding 

the supply chain determinations in their 

Conflict Minerals Report.135 Our 

proposed rules would not, however, 

dictate the standard for, or otherwise 

provide guidance concerning, due 

diligence that issuers must use in 

making their supply chain 

determinations. Instead, our proposed 

rules would require issuers to disclose 

the due diligence they used in making 

their determinations, such as whether 

they used any nationally or 

internationally recognized standards or 

guidance of supply chain due diligence. 

The Conflict Minerals Provision 

requires issuers to conduct due 

diligence based on the provision’s 

requirement that issuers describe their 

due diligence on the source and chain 

of custody of their conflict minerals.136

Also, the provision states that issuers 

shall include an independent private 

sector audit of the Conflict Minerals 

Report as a critical component of due 

diligence.137 Further, under Exchange 

Act Section 13(p)(1)(C), the Commission 

may determine an issuer’s independent 

private sector audit or other due 

diligence processes to be unreliable and, 

under the terms of the Conflict Minerals 

Provision, any Conflict Minerals Report 

that relies on such an unreliable due 

diligence process would not satisfy our 

proposed rules.138 In light of these 

statutory provisions, our proposed rules 

provide that an issuer’s Conflict 

Minerals Report must include reliable 

due diligence processes, and that due 

diligence is required in making the 

supply chain determinations in the 

Conflict Minerals Report. 

We note that we have received 

suggestions that due diligence is 

required in making the supply chain 

determinations. One letter received 

stated that a due diligence obligation 

‘‘needs to be extended to the supply 

chain.’’ 139 Two of the Congressional 

sponsors of Section 1502 of the Act have 

indicated their belief that the due 

diligence requirement should not be 

limited to determining whether the 

smelter uses due diligence.140 An NGO 

submitted to us a description of its 

model supply chain due diligence 

processes, which would require issuers 

to perform due diligence on all aspects 

of their supply chain, including the 

supply chain determinations in their 

Conflict Minerals Reports.141 In 

addition, an industry group from the 

precious metals industry indicated that 

it would not be opposed to conducting 

due diligence of its supply chains and, 

in fact, that due diligence is already part 

of its current business practice.142 We 

note, however, that another industry 

group submitted a letter to us expressing 

concern about the feasibility of 

implementing a due diligence 

requirement, particularly with regard to 

gold.143 This industry group pointed out 

that applying due diligence 

requirements to the gold supply chain 

would be especially challenging because 

the supply chain often begins with a 

bullion produced by a refiner that 

incorporates both newly mined and 

recycled gold.144

We believe that the statutory 

provision contemplates that issuers 

must use due diligence in their supply 

chain determinations. We do not 

believe, however, that it would be 

appropriate to prescribe any particular 

guidance for conducting due diligence 

because the conduct undertaken by a 

reasonably prudent person may vary 

and evolve over time.145 Although we 

are not proposing to establish any 

particular conduct requirements, we 

believe that due diligence must be 

performed and information about what 

conduct an issuer performed in its due 

diligence regarding its supply chain 

determinations is relevant. Our 

proposed rules, therefore, would require 

issuers to describe the due diligence 

used in making these determinations. In 

particular, we expect that an issuer 

whose conduct conformed to a 

nationally or internationally recognized 

set of standards of, or guidance for, due 

diligence regarding conflict minerals 

supply chains 146 would provide 

evidence that the issuer used due 

diligence in making its supply chain 

determinations. 

If an issuer is unable to determine, 

after a reasonable country of origin 

inquiry, that its conflict minerals did 

not originate in the DRC countries, that 

issuer still would be required to submit 

a Conflict Minerals Report and obtain an 

independent private sector audit of that 

Conflict Minerals Report. We note that 

in such instances an issuer may not be 

able to provide all the information 

required by the Conflict Minerals 

Report, such as its conflict minerals’ 

country of origin. We would, however, 

expect such an issuer to provide as 

much of the required information as 

possible, such as a description of the 

measures it took to exercise due 

diligence on the source and chain of 

custody of its conflict minerals. 

In this regard, if an issuer is unable to 

determine after a reasonable country of 

origin inquiry that its conflict minerals 

did not originate in the DRC countries, 

the issuer would be required to exercise 

due diligence in making its supply 

chain determinations. Therefore, such 

an issuer would be required to describe 

its due diligence efforts regarding the 

facilities used to process the conflict 

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80962 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

147 In the industry, tantalite-columbite, cassiterite, 

and wolframite are ‘‘smelted’’ into their component 

metals whereas gold is ‘‘refined.’’ Even so, both 

processes are substantially similar. When we refer 

to ‘‘smelting’’ those references are intended to 

include the ‘‘refining’’ of gold as well. 

148See Exchange Act Section 13(p)(1)(A) (stating 

that an issuer must ‘‘disclose annually, beginning 

with the [issuer’s] first full fiscal year that begins 

after the date of promulgation of [our] regulations’’). 

149 17 CFR 210.3–09. 

150See letter from the American Bar Association. 

151Exchange Act Section 13(p)(1)(A). 

minerals, the conflict minerals’ country 

of origin, if it can be determined, and 

the efforts to determine the mine or 

location of origin with the greatest 

possible specificity. 

Request for Comment 

50. Should our rules, as proposed, 

require an issuer to use due diligence in 

its supply chain determinations and the 

other information required in a Conflict 

Minerals Report? If so, should those 

rules prescribe the type of due diligence 

required and, if so, what due diligence 

measures should our rules prescribe? 

Alternatively, should we require only 

that persons describe whatever due 

diligence they used, if any, in making 

their supply chain determinations and 

their other conclusions in their Conflict 

Minerals Report? 

51. Should different due diligence 

measures be prescribed for gold because 

of any unique characteristics of the gold 

supply chain? If so, what should those 

measures entail? 

52. Should our rules state that an 

issuer is permitted to rely on the 

reasonable representations of its 

smelters or any other actor in the supply 

chain,147 provided there is a reasonable 

basis to believe the representations of 

the smelters or other parties? 

53. Is our approach to issuers that are 

unable to determine that their products 

did not originate in the DRC countries 

appropriate? 

54. Should our rules prescribe any 

particular due diligence standards or 

guidance? 

55. Should our rules require that an 

issuer use specific national or 

international due diligence standards or 

guidance, such as standards developed 

by the OECD, the United Nations Group 

of Experts for the DRC, or another such 

organization? If so, should our rules 

require the issuer to disclose which due 

diligence standard or guidance it used? 

Should we list acceptable national or 

international organizations that have 

developed due diligence standards or 

guidance on which an issuer may rely? 

Should our rules permit issuers to rely 

on standards from federal agencies if 

any such agencies develop applicable 

rules? 

E. Time Periods 

1. Furnishing of the Initial Disclosure 

and Conflict Minerals Report 

The Conflict Minerals Provision 

requires issuers to provide their initial 

conflict minerals disclosure and, if 

necessary, their initial Conflict Minerals 

Report after their first full fiscal year 

following the promulgation of our final 

rules.148 Assuming we adopt rules in 

April 2011, as required by the statutory 

provision, a December 31 fiscal year-end 

issuer would first have to provide 

conflict minerals disclosure or a 

Conflict Minerals Report after the end of 

its December 31, 2012 fiscal year. An 

issuer with a May 31 fiscal year-end, 

however, would have to provide the 

conflict minerals disclosure or a 

Conflict Minerals Report in its annual 

report for the fiscal year that 

encompasses the period from June 1, 

2011 through May 31, 2012. 

Request for Comment 

56. Should our rules, as proposed, 

require that a complete fiscal year begin 

and end before issuers are required to 

provide their initial disclosure or 

Conflict Minerals Report regarding their 

conflict minerals? 

57. If we require issuers to provide 

their disclosure or reporting 

requirements in their Exchange Act 

annual reports, should we permit them 

to file an amendment to the annual 

report within a specified period of time 

subsequent to the due date of the annual 

report, similar to Article 12 schedules or 

financial statements provided in 

accordance with Regulation S–X Rule 

3–09,149 to provide the conflict minerals 

information? 150 If so, why and for 

which issuers should our rules permit 

such a delay? For example, should we 

allow this delay only for smaller 

reporting companies? 

58. Should we phase in our rules and 

permit certain issuers, such as smaller 

reporting companies, to delay 

compliance with the Conflict Minerals 

Provision’s disclosure and reporting 

obligations until a period after that 

which is provided in the Exchange Act 

Section 13(p)(1)(A)? 

2. Time Period in Which Conflict 

Minerals Must Be Disclosed or Reported 

The Conflict Minerals Provision 

requires issuers to disclose whether 

their necessary conflict minerals 

originated in the DRC countries ‘‘in the 

year for which such reporting is 

required.’’ 151 We believe the date that 

the issuer takes possession of a conflict 

mineral would determine which 

reporting year an issuer would have to 

provide the required disclosure or 

Conflict Minerals Report for its conflict 

minerals. For example, if a December 31 

fiscal year-end issuer takes possession 

of the conflict minerals, or product 

containing the conflict minerals, on 

December 31, the issuer would have to 

provide the required disclosure or a 

Conflict Minerals Report for the current 

year. However, if that same issuer did 

not take possession of the minerals until 

January 1, the issuer would not have to 

provide the disclosure or a report until 

the end of the year beginning that day 

and ending on the subsequent December 

31. 

In an instance in which an issuer 

contracts the manufacturing of a 

product in which a conflict mineral is 

necessary to the production of that 

product, but the conflict mineral is not 

included in the product, the issuer may 

use the date it takes possession of the 

product to determine which reporting 

year the issuer would have to provide 

the required disclosure or Conflict 

Minerals Report for the conflict mineral 

used to produce the product. For 

example, if a December 31 fiscal yearend issuer takes possession on 

December 31 of the product for which 

a conflict mineral was necessary to 

produce but that did not end up in the 

product, the issuer would have to 

provide the required disclosure or a 

Conflict Minerals Report for the year 

ended on that December 31. However, if 

that same issuer did not take possession 

of the product until the subsequent day, 

January 1, the issuer would not have to 

provide the disclosure or a report until 

the end of the year beginning that 

January 1 and ending on the subsequent 

December 31. 

Request for Comment 

59. Is ‘‘possession’’ the proper 

determining factor as to when issuers 

should provide the required disclosure 

or a Conflict Minerals Report regarding 

a necessary conflict mineral? If not, 

what would be a more appropriate test 

and why? 

60. Should our rules allow individual 

issuers to establish their own criteria for 

determining which reporting period to 

include any required conflict minerals 

disclosure or Conflict Minerals Report, 

provided that the issuers are consistent 

and clear with their criteria from yearto-year? 

61. We note it is possible issuers may 

have stockpiles of existing conflict 

minerals that they previously obtained. 

Do we adequately address issuers’ 

disclosure and reporting obligations 

regarding their existing stockpiles of 

conflict minerals? If not, how can we 

address existing stockpiles of conflict 

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152Exchange Act Section 13(p)(2)(B). 

153See letter from Senator Richard J. Durbin and 

Representative Jim McDermott, United States 

Congress (stating that a de minimis rule would 

create an overly generous loop-hole because the 

weight of essential conflict minerals in many 

products is very small). 

154See Multi-Stakeholder Group Letter. 

155See new Items 104(b)(2) and (c)(4) of 

Regulation S–K, new Items 16(b)(2) and (c)(4) of 

Form 20–F, and new General Instructions 

B(16)(b)(2) and (c)(4) of Form 40–F. 

156Because our proposed rules would 

automatically classify recycled or scrap conflict 

minerals DRC conflict free, issuers with products 

containing such minerals would not need to 

provide in the Conflict Minerals Report a 

description of the recycled or scrap conflict 

minerals’ processing facilities or country of origin, 

nor would they be required to describe their efforts 

to determine the mine or location of origin with the 

greatest possible specificity. 

157See Section 1502(a) of the Act. See also, 156 

Cong. Rec. S3816–17 (daily ed. May 17, 2010) 

(statement of Sen. Durbin) (‘‘We can’t begin to solve 

the problems of eastern Congo without addressing 

where the armed groups are receiving their funding, 

mainly from the mining of a number of key conflict 

minerals. We, as a nation of consumers as well as 

industry, have a responsibility to ensure that our 

economic activity does not support such violence. 

That is why I join with Senators Brownback and 

Feingold to support the Congo conflict minerals 

amendment, which is now pending on this bill.’’). 

One of the provision’s sponsors, however, indicated 

that the Conflict Minerals Provision was intended, 

in part, to allow investors to make informed 

decisions. See 156 Cong. Rec. S3865–66 (statement 

of Sen. Feingold) (daily ed. May 18, 2010) (stating 

that the provision would ‘‘enhance transparency 

[and] 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’’ [emphasis added]). 

158See, e.g. letters from Jewelers Vigilance 

Committee, Howland Greene Consultants LLC, 

International Precious Metals Institute, and the 

National Association of Manufacturers. 

159See letters from Jewelers Vigilance Committee 

(stating that recycled gold would be impossible to 

trace, making an exemption appropriate) and 

International Precious Metals Institute (stating that 

‘‘[w]e also believe that recycled gold waste and 

scrap should be deemed to be a conflict-free 

source’’). 

160See letters from Howland Greene Consultants 

LLC (stating that ‘‘[r]ecycling should be encouraged 

and recognized as a legitimate way to classify a 

listed metal as DRC Conflict Free’’) and the National 

Association of Manufacturers (stating that our 

proposed rules should exempt recycled or scrap 

minerals because it ‘‘is impossible to track’’ the 

source of these minerals ‘‘due to the various forms 

of recycling and thousands of consolidators, 

reclaims, and scrap dealers both domestic and 

foreign’’ and because exempting recycled or scrap 

minerals ‘‘does not contradict the congressional 

intent’’ of the Conflict Minerals Provision). 

161See letters from Howland Greene Consultants 

LLC (stating that recycled minerals should be 

classified as DRC Conflict Free only ‘‘if specific 

criteria are met’’) and International Precious Metals 

Institute (stating that recycled gold waste and scrap 

should be deemed to be a conflict-free source only 

‘‘in the absence of particular geographical risk or 

other red flags’’). 

minerals? Should our rules permit a 

transition period so that issuers would 

not have to provide any conflict 

minerals disclosure or report regarding 

any conflict mineral extracted before the 

date on which our rules are adopted? 

Alternatively, would the reasonable 

country of origin inquiry standard for 

determining the origin of the conflict 

minerals and the due diligence standard 

or guidance for determining the source 

and chain of custody of the conflict 

minerals that originated in the DRC 

countries accomplish the same goal? For 

example, should issuers be required to 

inquire about the origin of their conflict 

minerals extracted before the date on 

which our rules are adopted? As another 

example, should issuers file a Conflict 

Minerals Report regarding conflict 

minerals that originated in the DRC 

countries before the date on which our 

rules are adopted? 

F. Thresholds, Alternatives, 

Termination, Revisions, and Waivers 

1. Materiality Threshold 

As discussed above, the Conflict 

Minerals Provision’s only limiting factor 

is that the conflict minerals must be 

‘‘necessary to the functionality or 

production’’ of an issuer’s products.152

The provision has no materiality 

thresholds for disclosure based on the 

amount of conflict minerals an issuer 

uses in its production processes. 

Therefore, we are not proposing to 

include a materiality threshold for the 

disclosure or reporting requirements in 

our proposed rules. 

Request for Comment 

62. Should there be a de minimis 

threshold in our rules based on the 

amount of conflict minerals used by 

issuers in a particular product or in 

their overall enterprise? If so, what 

would be a proper threshold amount? 

Would this be consistent with the 

Conflict Minerals Provision? 153

2. Recycled and Scrap Minerals 

Our proposed rules would allow for 

different treatment of conflict minerals 

from recycled and scrap sources than 

from mined sources due to the difficulty 

of looking through the recycling or scrap 

process to determine the origin of the 

minerals. As suggested in a letter, we 

would consider conflict minerals 

‘‘recycled’’ that are reclaimed end-user 

or post-consumer products, but we 

would not consider those minerals 

‘‘recycled’’ if they are partially 

processed, unprocessed, or a byproduct 

from another ore.154 Given the difficulty 

of looking through the recycling or scrap 

process, we expect that issuers generally 

will not know the origins of their 

recycled or scrap conflict minerals, so 

we believe it would be appropriate for 

our proposed rules to require that 

issuers using recycled or scrap conflict 

minerals furnish a Conflict Minerals 

Report subject to special rules. Under 

our proposed rules,155 if issuers obtain 

conflict minerals from a recycled or 

scrap source, they may consider those 

conflict minerals to be DRC conflict 

free.156 We believe that including this 

alternative approach in our proposed 

rules is consistent with the Conflict 

Minerals Provision because issuers 

purchasing conflict minerals from 

recycled or scrap sources would not 

implicate the concerns of the 

provision.157

Issuers whose conflict minerals 

originated from recycled or scrap 

sources would be required to disclose in 

their annual report, under the ‘‘Conflict 

Minerals Disclosure’’ heading, that their 

conflict minerals were obtained from 

recycled or scrap sources and that they 

furnished a Conflict Minerals Report 

regarding those recycled or scrap 

minerals. Under our proposed rules, 

issuers would state in their Conflict 

Minerals Report that their recycled or 

scrap minerals are considered DRC 

conflict free. In addition, such issuers 

would describe the measures taken to 

exercise due diligence in determining 

that their conflict minerals were 

recycled or scrap. Again, however, our 

proposed rules would not specify the 

due diligence required of such issuers. 

Further, our proposed rules would not 

define when a conflict mineral is 

recycled or scrap. Instead, any issuer 

seeking to use this alternative approach 

would provide its reasons for believing 

that the conflict mineral is from 

recycled or scrap sources in its Conflict 

Minerals Report, which would include 

due diligence on the source of the 

mineral. 

A number of those that have 

submitted letters indicated that our 

rules should allow conflict minerals 

from recycled or scrap sources to be 

considered as not originating in the DRC 

countries or as DRC conflict free.158 A 

number of these letters primarily 

discussed recycled gold.159 Other 

letters, however, stated that our 

proposed rules should exempt all 

recycled or reclaimed conflict metals.160

Additionally, most of the letters that 

expressed a view on a recycled and 

scrap alternative approach indicated 

that the approach should include a 

certain level of due diligence in 

determining that the conflict minerals 

were derived from recycled or scrap 

sources.161

Our proposed rules regarding recycled 

and scrap conflict minerals would apply 

to all conflict minerals. If recycled or 

scrap minerals are mixed with new 

minerals, the recycled and scrap 

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80964 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

162See Exchange Act Section 13(p)(3). 

163 Id. 

164Section 1502(e)(4) of the Act defines the term 

‘‘appropriate congressional committees’’ as the 

Committee on Appropriations, the Committee on 

Foreign Affairs, the Committee on Ways and Means, 

and the Committee on Financial Services of the 

House of Representatives and the Committee on 

Appropriations, the Committee on Foreign 

Relations, the Committee on Finance, and the 

Committee on Banking, Housing, and Urban Affairs 

of the Senate. 

165See Exchange Act Section 13(p)(4). 

166 44 U.S.C. 3501 et seq. 

167 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

168The paperwork burden from Regulation S–K is 

imposed through the forms that are subject to the 

disclosures in Regulation S–K and is reflected in 

the analysis of those forms. To avoid a Paperwork 

Reduction Act inventory reflecting duplicative 

burdens, for administrative convenience we 

estimate the burdens imposed by Regulation S–K to 

be a total of one hour. 

alternative approach would apply only 

to the portion of the minerals that are 

recycled or scrap and the issuer would 

be required to furnish a Conflict 

Minerals Report regarding at least the 

recycled or scrap minerals. If the 

issuer’s new conflict minerals did not 

originate in the DRC countries, that 

Conflict Minerals Report would contain 

only information regarding the recycled 

or scrap minerals. If, however, the new 

conflict minerals originated in the DRC 

countries, or the issuer was unable to 

determine that its new conflict minerals 

did not originate in the DRC countries, 

the Conflict Minerals Report would 

include information regarding both the 

new conflict minerals and the recycled 

or scrap conflict minerals. 

Request for Comment 

63. Should our rules, as proposed, 

include an alternative approach for 

conflict minerals from recycled or scrap 

sources as proposed? If so, should that 

approach permit issuers with necessary 

conflict minerals to classify those 

minerals as DRC conflict free, as 

proposed? Should we require, as 

proposed, issuers using conflict 

minerals from recycled or scrap sources 

to furnish a Conflict Minerals Report, 

including a certified independent 

private sector audit, disclosing that their 

conflict minerals are from these 

sources? If not, why not? 

64. Instead, should our rules require 

issuers with recycled or scrapped 

conflict minerals to undertake 

reasonable inquiry to determine they are 

recycled or scrapped and to disclose the 

basis for their belief that their minerals 

are, in fact, from these sources? 

65. Should our rules, as proposed, 

require that issuers use due diligence in 

determining whether their conflict 

minerals are from recycled or scrap 

sources as proposed and file a Conflict 

Minerals Report including an 

independent private sector audit of that 

report? If so, should our rules prescribe 

the due diligence required? If our rules 

should not require due diligence, 

should our rules require any alternative 

standard or guidance? If so, what 

standard or guidance? Should our rules 

define what constitutes recycled or 

scrap conflict minerals? If so, what 

would be an appropriate definition? 

66. Should this treatment be limited 

to gold, or should it apply to all conflict 

minerals, as proposed? 

67. Is our alternative approach to 

recycled and scrap minerals 

appropriate? Is there a significant risk 

that conflict minerals that are not ‘‘DRC 

conflict free’’ may be inappropriately 

processed and ‘‘recycled’’ so as to take 

advantage of this alternate approach? 

68. Should we allow exemptions to 

the information required by smaller 

reporting companies regarding their use 

of recycled or scrap minerals? For 

example, should we not require smaller 

reporting to furnish a Conflict Minerals 

Report regarding their recycled or scrap 

minerals? As another example, if we 

require smaller reporting companies to 

furnish a Conflict Minerals Report with 

respect to recycled or scrap minerals, 

should we not require those issuers to 

have such Conflict Minerals Reports 

audited? 

3. Termination, Revisions, and Waivers 

The Conflict Minerals Provision states 

that the Commission shall revise or 

temporarily waive its conflict minerals 

rules if the President transmits to the 

Commission a determination that a 

revision or waiver is in the national 

security interest of the United States 

and the President provides reasons for 

this determination.162 However, any 

exemption to the Conflict Minerals 

Provision may last no longer than two 

years from the date of the exemption’s 

initial publication.163 Also, the Conflict 

Minerals Provision’s disclosure and 

reporting requirements shall terminate 

when 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.’’ 164 The Conflict Minerals 

Provision may not, however, terminate 

earlier than five years after the Act was 

enacted.165 We plan to act in accordance 

with these provisions should any of the 

situations they describe occur. Our 

proposed rules, however, would not 

include these sections of the Conflict 

Minerals Provision because we do not 

believe that a rule to implement this 

section is necessary at this time. 

Request for Comment 

69. Should our rules address 

specifically the Conflict Minerals 

Provision’s revision, waiver, or 

termination requirements? If so, how 

should our rules address this? 

G. General Request for Comment 

We request and encourage any 

interested person to submit comments 

on any aspect of our proposals, other 

matters that might have an impact on 

the amendments, and any suggestions 

for additional changes. With respect to 

any comments, we note that they are of 

greatest assistance to our rulemaking 

initiative if accompanied by supporting 

data and analysis of the issues 

addressed in those comments and by 

alternatives to our proposals where 

appropriate. 

III. Paperwork Reduction Act 

A. Background 

The proposed amendments contain 

‘‘collection of information’’ requirements 

within the meaning of the Paperwork 

Reduction Act of 1995 (the ‘‘PRA’’).166

We are submitting the proposed 

amendments to the Office of 

Management and Budget (the ‘‘OMB’’) 

for review in accordance with the 

PRA.167 The title for the collection of 

information is: 

(1) ‘‘Regulation S–K’’ (OMB Control 

No. 3235–0071); 168

(2) ‘‘Form 10–K’’ (OMB Control No. 

3235–0063); 

(3) ‘‘Form 20–F’’ (OMB Control No. 

3235–0288); and 

(4) ‘‘Form 40–F’’ (OMB Control No. 

3235–0381). 

The regulation and forms were 

adopted under the Securities Act and 

the Exchange Act. The regulation and 

forms set forth the disclosure 

requirements for periodic reports and 

registration statements filed by 

companies to help shareholders make 

informed investment and voting 

decisions. The hours and costs 

associated with preparing and filing the 

form constitute reporting and cost 

burdens imposed by each collection of 

information. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number. 

The proposed rules and form 

amendments would implement Section 

13(p) of the Exchange Act, which was 

added by Section 1502 of the Act. As 

discussed in detail above, the proposed 

rules and form amendments would 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80965 

169New Item 4(a) in the Form 10–K would require 

issuers to furnish in the Form 10–K the information 

located in new Item 104 of Regulation S–K, which 

would set forth the new disclosure and reporting 

requirements to be included in the Form 10–K. For 

Forms 20–F and 40–F, the new disclosure and 

reporting requirements are contained within the 

form itself. 

mandated information regarding conflict 

minerals that are necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by such an issuer. In this 

regard, we are proposing to add new 

disclosure and reporting requirements 

to the above forms, which would be 

substantially the same in each form.169

The same conflict minerals disclosure 

requirements would apply to U.S. and 

foreign issuers. 

The proposed rules would require any 

issuer filing reports under the Exchange 

Act to disclose in its annual reports 

whether conflict minerals that are 

necessary to the functionality or 

production of a product manufactured 

or contracted to be manufactured by the 

issuer originated in the DRC countries. 

If so, the issuer would be required to 

furnish as an exhibit to its annual report 

a Conflict Minerals Report that includes 

a description of the measures taken by 

the issuer to exercise due diligence on 

the source and chain of custody of those 

minerals, which measures shall include 

an independent private sector audit of 

the Conflict Minerals Report that is 

certified by the issuer. Also, the Conflict 

Minerals Report would include a 

description of the issuer’s products 

manufactured or contracted to be 

manufactured that are not DRC conflict 

free, the identity of the independent 

private sector auditor, 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. 

These proposed rules would increase 

the amount of information that certain 

issuers must compile and disclose in 

their forms and would increase the 

disclosure burden in annual reports for 

certain issuers. Issuers filing reports 

under the Exchange Act that do not 

have conflict minerals necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by those issuers would 

have no disclosure or reporting 

requirements under the rules, but they 

would have the burden of determining 

whether conflict minerals are necessary 

to the functionality or production of 

products they manufacture or contract 

to manufacture. Under our proposed 

rules implementing the Conflict 

Minerals Provision, issuers that have 

conflict minerals necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by those issuers must 

determine whether those conflict 

minerals originated in the DRC 

countries. Our proposed rules would 

require issuers to conduct a reasonable 

country of origin inquiry in determining 

whether their conflict minerals 

originated in the DRC countries. This 

reasonable country of origin inquiry 

could vary among issuers, but we 

believe that issuers would generally 

have to conduct a relatively thorough 

investigation to meet this standard. 

Therefore, we believe that the burden on 

issuers to determine the origin of their 

conflict minerals could be significant. If 

an issuer determines, however, that its 

conflict minerals did not originate in the 

DRC countries, its subsequent 

disclosure burden would be relatively 

insignificant. Such an issuer would be 

required to disclose in its annual report 

and on its Web site only that its conflict 

minerals did not originate in the DRC 

countries and disclose in its annual 

report the reasonable country of origin 

inquiry it used to make this 

determination. 

Issuers with conflict minerals that 

originated in the DRC countries, or 

issuers that were unable to determine 

that their conflict minerals did not 

originate in the DRC countries, would 

be required to furnish a Conflict 

Minerals Report and would be required 

to use due diligence in determining the 

information required in that Conflict 

Minerals Report. Our proposed rules 

would require issuers to disclose, in 

their Conflict Minerals Report, the 

measures they took to exercise due 

diligence on the source and chain of 

custody of their conflict minerals. 

Additionally, issuers would have to 

disclose, based on their due diligence, 

whether any of the products they 

manufactured or contracted to be 

manufactured are not DRC conflict free. 

Also, issuers would be required to 

disclose the facilities used to process 

their conflict minerals, the country from 

which their conflict minerals originated, 

and the efforts to determine the mine or 

location of origin with the greatest 

possible specificity. Further, issuers 

would have to obtain an independent 

private sector audit of their Conflict 

Minerals Report and include in the 

Conflict Minerals Report a certification 

that they obtained such an audit, the 

identity of the auditor, and the audit 

report. Finally, the issuer would be 

required to post the Conflict Minerals 

Report, including the audit report, on its 

Internet Web site. 

The type of reasonable country of 

origin inquiry and the due diligence 

standard for determining this 

information could vary among issuers. 

Regardless, we expect that all issuers 

with conflict minerals that originated in 

the DRC countries, or issuers that were 

unable to determine that their conflict 

minerals did not originate in the DRC 

countries, would have to conduct a 

thorough investigation to meet the 

reasonable country of origin inquiry and 

due diligence standards, which could be 

another significant burden on these 

issuers. The burden would be greater on 

issuers whose products contained 

conflict minerals that were not ‘‘DRC 

conflict free’’ because these issuers 

would have to determine which of their 

products contain conflict minerals that 

are not ‘‘DRC conflict free,’’ whereas 

issuers with only ‘‘DRC conflict free’’ 

minerals would not have make such a 

determination. Compliance with the 

proposed amendments by affected 

issuers would be mandatory. The 

disclosure and reports submitted by 

issuers would not be kept confidential 

and there would be no mandatory 

retention period for the information 

disclosed. 

B. Burden and Cost Estimates Related to 

the Proposed Amendments 

The proposed rules and form 

amendments would require, if adopted, 

additional disclosure for an annual 

report filed on Form 10–K, Form 20–F, 

or Form 40–F by an issuer with 

necessary conflict minerals, which 

would increase the burden hour and 

cost estimates for each of those forms. 

For purposes of the PRA, we estimate 

the total annual increase in the 

paperwork burden for all affected 

companies to comply with our proposed 

collection of information requirements 

to be approximately 153,864 of 

company personnel time and to be 

approximately $71,243,000 for the 

services of outside professionals. These 

estimates include the time and cost of 

collecting the information, preparing 

and reviewing disclosure, filing 

documents, and retaining records. 

In deriving our estimates, we 

recognize that the burdens will likely 

vary among individual companies based 

on a number of factors, including the 

size and complexity of their operations 

and the number of products they 

manufacture or contract to manufacture 

and the number of those products that 

contain conflict minerals. We believe 

that some issuers will experience costs 

in excess of this average in the first year 

of compliance with the proposals and 

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80966 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

170See letter from the National Association of 

Manufacturers (suggesting that any change to an 

issuer’s supply chain computer systems ‘‘is likely to 

range from $1 million to $25 million’’ per issuer 

‘‘depending on the size and complexity of the 

supply chain’’). We expect that the internal 

collection burden will vary from company to 

company depending on each company’s needs and 

circumstances. 

171See Jessica Holzer, Retailers Fight to Excape 

‘Conflict Minerals’ Law, The Wall Street Journal, 

Dec. 2, 2010, at B1. The DRC also accounts for 

approximately 4% of the world’s tin, see id., and 

approximately 0.3% of global gold mine 

production, see letter from Jewelers Vigilance 

Committee (citing to GFMS Gold Survey 2010). 

172We estimate that approximately 5,551 Forms 

10–K, 377 Forms 20–F, and 66 Forms 40–F will be 

affected by the proposed amendments. 

173See Multi-Stakeholder Group Letter (stating 

that, although individual issuers are responsible for 

their own due diligence, an issuer ‘‘may rely on an 

industry wide process where applicable and 

appropriate’’). 

174 ($25 million + $8 million)/2 = $16.5 million. 

175 $16,500,000 + $29,975,000 = $46,475,000. 

176We arrived at this number by estimating the 

number of issuers that fall under all the SIC codes 

that our staff believes most likely to manufacture or 

contract to manufacture products with conflict 

minerals necessary to the functionality or 

production of products manufactured or contracted 

to be manufactured by those issuers, and subtracted 

from that figure the number of issuers that file 

reports on Form 20–F and Form 40–F. 

177 $3,600 × 5,551 = $19,983,600. 

178 $46,475,000 × (5551/5994) = $43,040,161. 

some issuers may experience less than 

these average costs.170

We have based our estimates of the 

effect that the adopted rules and form 

amendments, if adopted, would have on 

those collections of information as a 

result of the required due diligence 

process and independent private sector 

audit of the Conflict Minerals Report 

primarily on information that we have 

obtained from various stakeholder 

groups. 

We do not expect all issuers’ conflict 

minerals to have originated in the DRC 

countries. The DRC accounts for 

approximately 15% to 20% of the 

world’s tantalum, and for considerably 

smaller percentage of the other three 

conflict minerals.171 Therefore, for the 

purposes of the PRA, we assume that 

only 20% of the 5,994 affected 

issuers 172 will have to furnish an 

audited Conflict Minerals Report, which 

would be 1,199 issuers. 

Although no entity has yet conducted 

due diligence for its conflict minerals 

supply chain or obtained an audit of 

this due diligence, we obtained 

estimates from one entity that works 

with NGOs and one industry group of 

possible costs associated with 

conducting the due diligence and the 

audit based on the preliminary 

information they currently have. The 

entity that works with NGOs has 

estimated that the annual cost of 

conducting the due diligence for the 

four conflict minerals ranges between 

$20 million and $25 million. An 

industry group provided a much lower 

range of between $8 million and $10 

million to set up a mineral source 

validation scheme. Although our rules 

do not require issuers to use an 

industry-wide due diligence process to 

comply with their due diligence 

obligations, we expect that most affected 

issuers will contribute to and rely on an 

industry wide due diligence process as 

part of their overall compliance.173

Therefore, for purposes of the PRA, we 

have averaged the highest and the 

lowest estimates we received of the due 

diligence costs to obtain an aggregate 

estimate of $16.5 million 174 for the 

1,199 issuers estimated to be required to 

file Conflict Minerals Reports. 

Issuers that are required to file 

Conflict Minerals Reports must also 

obtain and certify an audit of the 

Conflict Minerals Report. One industry 

group indicated that it preliminarily 

estimates that each independent private 

sector audit of the Conflict Minerals 

Report will cost approximately $25,000 

on average. We estimate that the 1,199 

affected issuers’ $25,000 cost would 

result in to an industry wide audit of 

approximately $29,975,000. Therefore, 

based on these figures, we estimate the 

PRA burden for the audit and due 

diligence requirements to the industry 

would be approximately $46,475,000.175

We expect that the rules’ effect will be 

higher during the first year of their 

effectiveness, due to the initial costs of 

creating minerals tracking systems, and 

diminish in subsequent years. 

We have derived the burden hour and 

cost estimates for preparing the required 

disclosure in the annual reports and for 

determining when a registrant has 

conflict minerals necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by the registrant by 

estimating the total amount of time it 

will take the company to prepare the 

disclosure and make the determination. 

We estimate that the disclosure 

preparation for all affected registrants 

will take 36 hours per Form 10–K (27 

hours in-house personnel time and a 

cost of approximately $3,600 for 

professional services). We estimate that 

for Forms 20–F and 40–F, the disclosure 

preparation will also take 36 hours (9 

hours in-house personnel time and a 

cost of approximately $10,800 for 

professional services). 

We derived the above estimates by 

estimating the average number of hours 

it would take an issuer to prepare and 

review the proposed disclosure 

requirements. These estimates represent 

the average burden for all companies, 

both large and small. 

When determining these estimates, 

we have assumed that: 

• For Form 10–K, 75% of the burden 

of preparation is carried by the company 

internally and that 25% of the burden 

of the preparation is carried by outside 

professionals retained by the company 

at an average cost of $400 per hour; and 

• For Forms 20–F and 40–F, 25% of 

the burden of preparation is carried by 

the company internally and that 75% of 

the burden of preparation is carried by 

outside professionals retained by the 

company at an average cost of $400 per 

hour. 

The portion of the burden carried by 

outside professionals is reflected as a 

cost, while the portion of the burden 

carried by the company internally is 

reflected in hours. 

1. Form 10–K 

For purposes of the PRA, we estimate 

that, of the 13,545 Form 10–Ks filed 

annually, approximately 5,551 are filed 

by companies that would be affected by 

the proposed rules and form 

amendments.176 We further estimate 

that the annual incremental paperwork 

burden for the Forms 10–K as a result 

of the proposed rule and form 

amendments would be 27 burden hours 

per affected form associated with the 

company’s preparation of the 

disclosure, and $19,983,600 177

associated with the cost of hiring 

professionals to help prepare the 

disclosure. In addition, we estimate for 

these purposes that those issuers 

required to submit a Conflict Minerals 

Report would also expend a total of 

$43,040,161 178 associated with the cost 

of hiring professionals to conduct the 

due diligence and the independent 

private sector audit of the Conflict 

Minerals Report. 

2. Regulation S–K 

While the proposed rule and form 

amendments would make revisions to 

Regulation S–K, the collection of 

information requirements for that 

regulation are reflected in the burden 

hours estimated for Form 10–K. The 

rules in Regulation S–K do not impose 

any separate burden. Consistent with 

historical practice, we are proposing to 

retain an estimate of one burden hour to 

Regulation S–K for administrative 

convenience. 

3. Form 20–F 

For purposes of the PRA, we estimate 

that, of the 942 Form 20–F annual 

reports, approximately 377 are filed 

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179We arrived at this estimate by determining the 

number of issuers that fall under all the SIC codes 

that our staff believes are most likely to 

manufacture or contract to manufacture products 

with conflict minerals necessary to the functionality 

or production of products manufactured or 

contracted to be manufactured by those issuers that 

file reports on Form 20–F. 

180 $10,800 × 377 = $4,071,600. 

181 $46,475,000 × (377/5994) = $2,923,102. 182We arrived at this estimate by determining the 

number of issuers that fall under all the SIC codes 

that our staff believes are most likely to 

manufacture or contract to manufacture products 

with conflict minerals necessary to the functionality 

or production of products manufactured or 

contracted to be manufactured by those issuers that 

file reports on Form 40–F. 

183 $10,800 × 66 = $712,800. 

184 $46,475,000 × (66/5994) = $511,737. 

185This number corresponds to the estimated 

number of forms expected to be affected by the 

proposed rules and form amendments. 

186The proposed rules and form amendments 

would not change the number of annual responses. 

each year by companies that would be 

affected by the proposed rule and form 

amendments.179 We estimate that the 

annual incremental paperwork burden 

for the Forms 20–F as a result of the 

proposed rule and form amendments 

would be nine burden hours per 

affected form associated with the 

company’s preparation of the 

disclosure, and $4,071,600 180

associated with the cost of hiring 

professionals to help prepare the 

disclosure. In addition, we estimate for 

these purposes that those issuers 

required to prepare a Conflict Minerals 

Reports would also expend a total of 

$2,923,102 181 associated with the cost 

of hiring professionals to conduct the 

due diligence and the independent 

private sector audit. 

4. Form 40–F 

For purposes of the PRA, we estimate 

that, of the 205 Form 40–F annual 

reports filed each year, approximately 

66 are filed by companies that would be 

affected by the proposed rule and form 

amendments.182 We estimate that the 

annual incremental paperwork burden 

for the Forms 40–F as a result of the 

proposed rule and form amendments 

would be nine burden hours per 

affected form associated with the 

company’s preparation of the 

disclosure, and $712,800 183 associated 

with the cost of hiring professionals to 

help prepare the disclosure. In addition, 

we estimate for these purposes that 

those issuers required to prepare a 

Conflict Minerals Report would also 

expend a total of $511,737 184 associated 

with the cost of hiring professionals to 

conduct the due diligence and the 

independent private sector audit. 

C. Summary of Proposed Changes to 

Annual Compliance Burden in 

Collection of Information 

The following table illustrates the 

estimated changes in annual compliance 

burden in the collection of information 

in hours and costs for Exchange Act 

annual reports as a result of the 

proposed rule and form amendments. 

TABLE 1 

Form Number of 

responses 185

Incremental 

company 

Incremental 

professional 

cost 

10–K 5,551 149,877 $63,023,761 

20–F 377 3,393 6,994,702 

40–F 66 594 1,224,537 

TABLE 2 

Form 

Current annual 

response 186 Current 

burden hours 

Increase in 

burden hours 

Proposed 

burden hours 

Current professional costs 

Increase in 

professional 

costs 

Proposed professional costs 

(A) (B) (C)=(A)+(B) (D) (E) (F)=(D)+(E) 

10–K ................. 13,545 21,363,548 149,877 21,513,425 $2,848,473,000 $63,023,761 $2,911,496,761 

20–F ................. 942 622,907 3,393 626,300 743,089,980 6,994,702 750,084,682 

40–F ................. 205 21,884 594 22,478 26,260,500 1,224,537 27,485,037 

D. Request for Comment 

We request comment on the accuracy 

of our estimates. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits 

comments to: (i) Evaluate whether the 

proposed collections of information are 

necessary for the proper performance of 

the functions of the agency, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of burden of the proposed collection of 

information; (iii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; (iv) evaluate whether there 

are ways to minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of automated collection techniques 

or other forms of information 

technology; and (v) evaluate whether 

the proposed amendments will have any 

effects on any other collections of 

information not previously identified in 

this section. 

In particular, we request comment 

and supporting empirical data for 

purposes of the PRA on whether the 

proposed rule and form amendments: 

• Will affect the burden hours and 

costs required to produce the annual 

reports on Forms 10–K, 20–F, and 40– 

F; and 

• If so, whether the resulting change 

in the burden hours and costs required 

to produce those Exchange Act annual 

reports is the same as or different than 

the estimated incremental burden hours 

and costs proposed by the Commission. 

Any member of the public may direct 

to us any comments concerning the 

accuracy of these burden estimates and 

any suggestions for reducing these 

burdens. Persons submitting comments 

on the collection of information 

requirements should direct the 

comments to the Office of Management 

and Budget, Attention: Desk Officer for 

the Securities and Exchange 

Commission, Office of Information and 

Regulatory Affairs, Room 10102, New 

Executive Office Building, Washington, 

DC 20503, and should send a copy to 

Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090, with reference to File No. 

S7–40–10. Requests for materials 

submitted to OMB by the Commission 

with regard to these collections of 

information should be in writing, refer 

to File No. S7–40–10, and be submitted 

to the Securities and Exchange 

Commission, Office of Investor 

Education and Advocacy, 100 F Street 

NE., Washington, DC 20549–0213. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this release. 

Consequently, a comment to OMB is 

best assured of having its full effect if 

OMB receives it within 30 days of 

publication. 

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80968 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

187See Exchange Act Section 13(p). 188See supra note 12. 189See supra note 38. 

190See supra note 157. 

191See Exchange Act Section 13(p)(1)(A). 

192 Id. 

193See Exchange Act Section 13(p)(1)(A). 

194See Exchange Act Section 13(p)(1)(C). 

195 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d). 

IV. Cost-Benefit Analysis 

Section 1502 of the Act amends the 

Exchange Act by adding new Section 

13(p),187 which requires the 

Commission to promulgate disclosure 

and reporting regulations regarding the 

use of conflict minerals from the DRC 

countries. In response to the 

requirements of Exchange Act Section 

13(p) as set forth in Section 1502 of the 

Act, the Commission is proposing new 

rules and form amendments that would 

provide for the disclosure and reporting 

of the use of conflict minerals from the 

DRC countries. The proposed rules and 

form amendments implement the 

requirements in Section 1502 of the Act 

and, as necessary or appropriate, require 

additional disclosure in a manner that 

we believe is consistent with Congress’s 

intent. 

First, Section 13(p)(1)(A) indicates 

that the Conflict Minerals Provision 

applies to a ‘‘person described,’’ who is 

defined in Section 13(p)(2)(B) as one for 

whom conflict minerals are necessary to 

the functionality or production of a 

product manufactured by that person.188

This provision could be read quite 

broadly to apply to any business, 

including individuals and companies 

that are not subject to SEC reporting, so 

long as conflict minerals are necessary 

to the functionality or production of a 

product manufactured by that entity or 

individual. We believe that such a broad 

reading of the provision is not 

warranted, however, given the 

provision’s background and its location 

in the section of the Exchange Act that 

pertains to reporting issuers.189 As a 

result, our proposed rules would apply 

only to issuers that file reports with the 

Commission under the Exchange Act, 

provided that conflict minerals are 

necessary to the functionality or 

production of a product manufactured 

by any such an issuer. 

While our proposed amendments 

would not define specifically when a 

conflict mineral is ‘‘necessary to the 

functionality or production of a 

product,’’ we intend our proposed rules 

to provide that a conflict mineral is 

‘‘necessary to the production of a 

product’’ if a conflict mineral is 

intentionally included in a product’s 

production process and the conflict 

mineral is necessary to that process, 

even if that conflict mineral is not 

ultimately included anywhere in the 

final product. Our proposed 

amendments would specify that, 

although a conflict mineral is necessary 

to the functionality or production of a 

product manufactured or contracted to 

be manufactured by the issuer, if that 

conflict mineral was obtained from 

recycled or scrap minerals, that mineral 

would be considered DRC conflict free. 

This approach for recycled or scrap 

minerals is not included in the Conflict 

Minerals Provision, but we believe it is 

appropriate because such conflict 

minerals would not be implicating the 

concerns that prompted the enactment 

of this statutory provision.190

Third, Section 13(p)(1)(A) indicates 

that issuers must disclose whether their 

necessary conflict minerals originated in 

the DRC countries.191 The Conflict 

Minerals Provision, however, is silent as 

to how issuers would determine 

whether their conflict minerals 

originated in the DRC countries. Our 

proposed amendments would indicate 

that an issuer’s determination of 

whether or not any of its necessary 

conflict minerals originated in the DRC 

countries would be required to be based 

on a reasonable country of origin 

inquiry into the minerals’ origins and, if 

the issuer determines its necessary 

conflict minerals did not originate in the 

DRC countries, that the issuer would 

have to disclose in the body of its 

annual report the reasonable country of 

origin inquiry it undertook to make its 

determination and would have to 

maintain reviewable business records to 

support this determination. 

Fourth, our proposed amendments 

would specify where the Conflict 

Minerals report required by Section 

13(p)(1)(A) of the Exchange Act should 

be provided.192 The statutory provision 

does not indicate how issuers should 

submit their Conflict Minerals Reports 

to the Commission. Our proposed 

amendments would require issuers with 

necessary conflict minerals that 

originated in the DRC countries to 

furnish their Conflict Minerals Reports 

as an exhibit to their annual report on 

Form 10–K, Form 20–F, or Form 40–F, 

as applicable. In addition, although the 

Conflict Minerals Provision indicates 

that the Conflict Minerals Report must 

include an independent private sector 

audit of such report submitted through 

the Commission, it is unclear what 

record of that independent private 

sector audit an issuer must submit to the 

Commission and how it must do so, if 

at all. Our proposed amendments would 

require issuers to furnish an audit report 

of the independent private sector audit 

as part of and in the same exhibit to the 

annual report as the issuer’s Conflict 

Minerals Report. Our proposed 

amendments also specify the required 

certification of the independent private 

sector audit. Our proposed amendments 

would require an issuer that furnishes a 

Conflict Minerals Report to include a 

statement in the body of its annual 

report that the Conflict Minerals Report 

is furnished as an exhibit to the annual 

report, that the Conflict Minerals Report 

and the certified audit report are 

available on its Internet Web site, and 

the Internet address of the Web site 

where the Conflict Minerals Report and 

audit report are located. Our proposed 

amendments would also require that the 

disclosure be posted on the issuer’s 

Internet Web site at least until the issuer 

files its subsequent annual report. 

Finally, our proposed amendments 

would require that the Conflict Minerals 

Report be furnished with the 

Commission, rather than filed. The 

Conflict Minerals Provision indicates 

that the report should be ‘‘submitted’’ to 

us,193 but it does not indicate whether 

the report should be filed or furnished. 

Information that is furnished, rather 

than filed, with us is not subject to 

liability under Section 18 of the 

Exchange Act. By requiring the Conflict 

Minerals Report to be furnished with us, 

we are subjecting such reports to less 

liability than would exist if the reports 

were filed with us. However, under 

Exchange Act Section 13(p)(1)(C), 

failure to comply with the Conflict 

Minerals Provision would deem the 

issuer’s due diligence process 

‘‘unreliable’’ and, therefore, the Conflict 

Minerals Report ‘‘shall not satisfy’’ our 

proposed rules.194 Also, issuers that fail 

to comply with our proposed rules 

would be subject to liability for 

violations of Exchange Act Sections 

13(a) or 15(d), as applicable.195

The Commission is sensitive to the 

costs and benefits imposed by the 

proposed rules and form amendments. 

The discussion below focuses on the 

costs and benefits of the proposals made 

by the Commission to implement the 

Act within its permitted discretion, 

rather than the costs and benefits of the 

Act itself. 

A. Benefits 

Overall, we expect that our proposed 

rules will have the benefit of furthering 

Congress’s goal of deterring the 

financing of armed groups in the DRC 

countries through commercial activity 

in conflict minerals. The proposed 

rules, if adopted, would specify which 

companies are covered by the disclosure 

and reporting requirements in Section 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80969 

196 15 U.S.C. 78c(f). 

197 15 U.S.C. 78w(a)(2). 

198 Id. 

1502 of the Act and the alternative 

approach to disclosure for recycled or 

scrap minerals. The proposed rules 

would also specify the information that 

reporting companies with necessary 

conflict minerals would be required to 

disclose. This specification would 

benefit reporting companies by reducing 

uncertainty about their compliance with 

Commission rules. 

Our proposal specifies the location of 

the initial disclosure of conflict 

minerals’ origin and the location of the 

Conflict Minerals Report and should 

make it easier for interested parties to 

locate this information. In addition, our 

proposal to require reporting companies 

to furnish the independent private 

sector audit report would make the 

report easily accessible to interested 

parties. Thus, market participants and 

observers may benefit from the 

increased disclosure and improved 

reporting to the extent that they find 

information about conflict mineral use 

relevant to their decision making. 

Additionally, our decision to require 

issuers to furnish with the Commission 

the independent private sector audit 

report instead of filing it would free the 

independent private sector auditors 

preparing these reports from assuming 

expert liability. Relative to the filing 

option that we could have proposed, 

this should decrease the cost to 

independent private sector auditors of 

providing such audits to conflict 

minerals-reporting companies. 

Depending on the state of competition 

in the market for independent private 

sector audits, the lower costs due to 

auditors not being required to assume 

expert liability could result in lower 

audit fees, which in turn should 

decrease conflict minerals-reporting 

companies’ cost of compliance with the 

statute. 

We are proposing that reporting 

companies covered by Section 1502 of 

the Act use a reasonable country of 

origin inquiry in determining whether 

their conflict minerals originated in the 

DRC countries and use due diligence in 

making their supply chain 

determinations. We have chosen not to 

provide guidance on what would 

constitute a ‘‘reasonable country of 

origin inquiry.’’ Similarly, we have 

chosen not to propose a specific 

standard for due diligence. We believe 

that these decisions should benefit 

reporting issuers by allowing them the 

flexibility to use the reasonable country 

of origin inquiry and due diligence 

standards that are best suited to their 

circumstances. We believe that 

disclosure of the inquiry performed and 

the due diligence undertaken may 

benefit market participants if they are 

interested in learning such information. 

In addition, our proposed rules and 

form amendments would provide that 

conflict minerals obtained from recycled 

or scrap sources would be considered 

DRC conflict free. This should benefit 

issuers by providing an alternative 

approach for recycled or scrap minerals 

and reduce their compliance costs with 

the disclosure requirements in Section 

1502 of the Act, particularly for recycled 

or scrap minerals, the origins of which 

are difficult to trace. 

B. Costs 

We anticipate that reporting 

companies would incur costs in meeting 

the additional disclosure required for 

their Exchange Act annual reports under 

Section 13(p) and the proposed rules 

and form amendments. The 

Commission’s proposal to require an 

exhibit for the Conflict Minerals Report 

and that reporting companies furnish 

with the Commission the independent 

private sector audit report as an exhibit 

to their annual reports will result in 

costs related to the preparation of such 

exhibits. In addition, including 

manufacturing companies, companies 

contracting to manufacture products, 

companies contracting for the 

manufacture of products to sell under 

their own brand name or a separately 

established brand name, and mining 

companies as ‘‘persons described’’ 

would result in a larger number of 

companies incurring the disclosure 

compliance costs, compared to an 

interpretation that excluded some of 

these companies. Not requiring auditors 

to assume expert liability could increase 

the costs to market participants and 

other observers because auditors may 

not have as strong incentives to ensure 

their determinations are correct. Also, 

the Commission’s proposal would 

require issuers that determine following 

a reasonable country of origin inquiry 

that their conflict minerals did not 

originate in the DRC countries must 

keep reviewable records, which will 

result in costs related to obtaining and 

maintaining these records. Further, such 

issuers would also incur costs in 

disclosing the reasonable country of 

origin inquiry in their annual reports. 

However, as described above, we 

believe these approaches are consistent 

with the Conflict Minerals Provision. 

If a reporting company chose to 

incorporate by reference its independent 

private sector audit report into a 

Securities Act document, the 

independent private sector auditor 

would assume expert liability, if the 

auditor consented to the inclusion of its 

report. This would not be required 

under our proposals but, if an issuer 

chose to do so, this might increase the 

cost to independent private sector 

auditors of providing such audits to 

issuers furnishing Conflict Minerals 

Reports. Depending on the state of 

competition in the market for 

independent private sector audits, the 

additional cost stemming from the 

assumption of expert liability could be 

passed on to issuers furnishing Conflict 

Minerals Reporting in the form of higher 

audit fees, which in turn would increase 

these companies’ cost of compliance 

with the statute, although, as noted, 

issuers could avoid such costs by not 

incorporating the audit report into their 

Securities Act filings. In any event, 

since this audit market is still in its 

nascence, and issuers presumably 

would not choose to incorporate the 

report by reference, the above effects are 

difficult to assess but are likely 

insignificant. 

C. Request for Comment 

We request comment on the 

disclosures and accuracy of our 

estimates in this section. 

V. Consideration of Burden on 

Competition and Promotion of 

Efficiency, Competition and Capital 

Formation 

Section 3(f) of the Exchange Act 

requires the Commission, whenever it 

engages in rulemaking and is required to 

consider or determine if an action is 

necessary or appropriate in the public 

interest, also to consider whether the 

action will promote efficiency, 

competition, and capital formation.196

Section 23(a)(2) of the Exchange Act 

also requires the Commission, when 

adopting rules under the Exchange Act, 

to consider the impact that any new rule 

would have on competition.197 In 

addition, Section 23(a)(2) prohibits the 

Commission from adopting any rule that 

would impose a burden on competition 

not necessary or appropriate in 

furtherance of the purposes of the 

Exchange Act.198

The Commission is proposing the new 

rules and form amendments discussed 

in this release to implement the 

requirements of Exchange Act Section 

13(p) as set forth in Section 1502 of the 

Act. We believe that our proposed 

rulemaking would have a different 

impact on competition in different 

industries. In industries where most or 

all companies are subject to disclosure 

or reporting requirements under the 

statute, we believe anti-competitive 

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80970 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

199This analysis has been prepared in accordance 

with 5 U.S.C. 603. 

200 17 CFR 240.0–10(a). 

201While Form 20–F may be used by any foreign 

private issuer, Form 40–F is only available to a 

Canadian issuer that is eligible to participate in the 

U.S.-Canadian Multijurisdictional Disclosure 

System (‘‘MJDS’’). 

effects to be unlikely. In industries 

where not all or only a few companies 

are subject to the disclosure or reporting 

requirements, issuers that must provide 

disclosure or furnish Conflict Mineral 

Reports would incur competitive costs 

because of our disclosure and reporting 

requirements and clarifications. 

Although the costs to perform the 

investigative work required and, if 

necessary, the independent private 

sector audit fees could increase the 

disclosure and reporting compliance 

costs for issuers that provide disclosure 

or furnish Conflict Minerals Reports 

versus companies who do not provide 

disclosure or furnish such reports, the 

net effect on competition would depend 

on how these costs compare to the 

benefits that companies obtain by using 

conflict minerals from the DRC 

countries, such as lower input costs. 

Anti-competitive effects might be of 

larger magnitude in industries where 

the proportion of companies not 

covered by the Exchange Act Section 

13(p) is larger. For instance, mining 

issuers might suffer a competitive 

disadvantage with respect to mining 

companies that are not required to 

provide disclosure or Conflict Minerals 

Reports but use DRC minerals, such as 

U.S. private mining companies or 

foreign mining companies, because the 

issuers would be required to incur 

investigative, disclosure, and reporting 

costs as a result of the statute and our 

rules. 

We are proposing to require issuers to 

furnish the Conflict Minerals Report 

with the Commission instead of filing it 

and have it included in Exchange Act 

reports and Securities Act registration 

statements. This requirement may limit 

the costs to, and the potential negative 

impact on, capital formation. We are not 

currently aware of any effects on 

efficiency or capital formation, but we 

seek comment on whether there are any 

such effects. 

Request for Comment 

70. We request comment on whether 

the proposed rules, if adopted, would 

promote efficiency, competition, and 

capital formation or have an impact or 

burden on competition. Commentators 

are requested to provide empirical data 

and other factual support for their view, 

if possible. 

VI. Initial Regulatory Flexibility Act 

Analysis 

This Initial Regulatory Flexibility Act 

Analysis199 relates to proposed rules 

and form amendments to implement 

Section 13(p) of the Exchange Act, 

which concerns certain disclosure and 

reporting obligations of issuers with 

conflict minerals necessary to the 

functionality or production of any 

product manufactured or contracted to 

be manufactured by those issuers. As set 

forth by Section 13(p), an issuer with 

such necessary conflict minerals must 

disclose whether those minerals 

originated in the DRC countries and, if 

so, must submit to the Commission a 

Conflict Minerals Report. 

A. Reasons for, and Objectives of, the 

Proposed Action 

The proposed rule and form 

amendments are designed to implement 

the requirements of Section 1502 of the 

Act. Specifically, the proposed rules 

and form amendments would require all 

issuers with necessary conflict minerals 

to disclose in their annual reports 

whether those conflict minerals 

originated in the DRC countries. Issuers 

with necessary conflict minerals that 

originate in the DRC countries, or that 

are unable to determine that their 

necessary conflict minerals did not 

originate in the DRC countries, must 

provide the conflict minerals disclosure 

specified by our rules in their Exchange 

Act annual reports. 

Any issuer with necessary conflict 

minerals that did originate in the DRC 

countries, or that is unable to determine 

that its necessary conflict minerals did 

not originate in DRC countries, also 

must furnish as an exhibit to its 

Exchange Act annual reports a Conflict 

Minerals Report, which requires the 

issuer to describe the measures it has 

taken to exercise due diligence on the 

source and chain of custody of such 

minerals, which measures shall include 

an certified independent private sector 

audit that shall constitute a critical 

component of due diligence. The 

Conflict Minerals Report must include a 

description of the products 

manufactured or contracted to be 

manufacture that are not DRC conflict 

free, the identification of the 

independent private sector auditor, and 

the disclosure of 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, 

issuers shall make available to the 

public on their Internet Web sites their 

Conflict Minerals Reports. 

B. Legal Basis 

We are proposing the rule and form 

amendments contained in this 

document under the authority set forth 

in Sections 6, 7, 10, and 19(a) of the 

Securities Act, and Sections 12, 13, 15, 

and 23(a) of the Exchange Act. 

C. Small Entities Subject to the 

Proposed Amendments 

The proposals would affect small 

entities that file annual reports with the 

Commission under the Exchange Act, 

and that have conflict minerals 

necessary to the functionality or 

production of products they 

manufacture or contract to manufacture. 

Exchange Act Rule 0–10(a) 200 defines 

an issuer to be a ‘‘small business’’ or 

‘‘small organization’’ for purposes of the 

Regulatory Flexibility Act if it had total 

assets of $5 million or less on the last 

day of its most recent fiscal year. We 

believe that the proposals would affect 

small entities with necessary conflict 

minerals as defined under Section 13(p). 

We estimate that there are 

approximately 793 companies to which 

conflict minerals are necessary and that 

may be considered small entities. 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

The proposed rule and form 

amendments would add to the annual 

disclosure requirements of companies 

with necessary conflict minerals, 

including small entities, by requiring 

them to comply with the disclosure and 

reporting obligations under Section 

13(p) and provide certain additional 

disclosure in their Exchange Act annual 

reports. Among other matters, that 

information must include, as applicable: 

• Disclosure as to whether conflict 

minerals necessary to the functionality 

or production of a product 

manufactured or contracted to be 

manufacture by an issuer did originate 

in the DRC countries; and, if so, 

• A Conflict Minerals Report 

furnished as an exhibit to the annual 

report, which includes a certified 

independent private sector audit report. 

• Reviewable business records 

regarding any determination that an 

issuer’s conflict minerals did not 

originate in the DRC countries. 

The same disclosure and reporting 

requirements would apply to U.S. and 

foreign issuers. We are proposing to 

amend Form 10–K and Regulation S–K 

to require domestic issuers to provide 

the conflict minerals information. 

Because Regulation S–K does not 

directly apply to Forms 20–F and 40– 

F,201 we propose to amend those forms 

to include the same disclosure 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80971 

202Proposed Item 16 under Part II of Form 20– 

F and proposed General Instruction B(16) of Form 

40–F. 

203Public Law 104–121, Title II, 110 Stat. 857 

(1996). 

requirements for issuers that are foreign 

private issuers.202

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

We believe there are no federal rules 

that duplicate, overlap or conflict with 

the proposed rules. 

F. Significant Alternatives 

The Regulatory Flexibility Act directs 

us to consider significant alternatives 

that would accomplish the stated 

objectives, while minimizing any 

significant adverse impact on small 

entities. In connection with the 

proposals, we considered the following 

alternatives: 

(1) Establishing different compliance 

or reporting requirements which take 

into account the resources available to 

smaller entities; 

(2) Exempting smaller entities from 

coverage of the disclosure requirements, 

or any part thereof; 

(3) The clarification, consolidation, or 

simplification of disclosure for small 

entities; and 

(4) Use of performance standards 

rather than design standards. 

We believe that separate disclosure 

requirements for small entities that 

would differ from the proposed 

reporting requirements, or exempting 

them from those requirements, would 

not achieve the disclosure objectives of 

Section 13(p). The proposed rules are 

designed to implement the conflict 

minerals disclosure and reporting 

requirements of Section 13(p). That 

statutory section applies to all issuers 

with necessary conflict minerals, 

regardless of size. However, the 

reasonable country of origin inquiry 

standard for determining whether 

conflict minerals originated in the DRC 

countries and the due diligence 

standard necessary for making the 

supply chain determinations in the 

Conflict Minerals Report are 

performance standards and would vary 

based on the facts and circumstances of 

each individual issuer. We have 

requested comment as to whether we 

should provide an exemption for 

smaller reporting companies and 

whether doing so would be consistent 

with the statute. 

The proposed rules would require 

clear disclosure about the source and 

chain of custody of an issuer’s necessary 

conflict minerals, which may result in 

increased transparency about the origin 

of those minerals. The proposed 

requirement to disclose the information 

in the body of and as an exhibit to an 

issuer’s Exchange Act annual report 

may simplify the process of submitting 

the proposed conflict minerals 

disclosure and Conflict Minerals 

Reports. In addition, furnishing the 

Conflict Minerals Reports and the audit 

reports as exhibits would simplify the 

search and retrieval of this information 

regarding issuers, including small 

entities, for investors and other 

interested persons. 

We have otherwise used design rather 

than performance standards in 

connection with the proposed 

amendments because, based on our past 

experience, we believe the proposed 

amendments would be more useful if 

there were specific disclosure 

requirements. In addition, the specific 

disclosure requirements in the proposed 

amendments would promote consistent 

and comparable disclosure among all 

issuers with necessary conflict minerals. 

G. Solicitation of Comment 

We encourage the submission of 

comments with respect to any aspect of 

this Initial Regulatory Flexibility 

Analysis. In particular, we request 

comments regarding: 

• How the proposed amendments can 

achieve their objective while lowering 

the burden on small entities; 

• The number of small entity 

companies that may be affected by the 

proposed amendments; 

• Whether small entity companies 

should be exempt from the rule; 

• The existence or nature of the 

potential impact of the proposed 

amendments on small entity companies 

discussed in the analysis; and 

• How to quantify the impact of the 

proposed amendments. 

Respondents are asked to describe the 

nature of any impact and provide 

empirical data supporting the extent of 

the impact. Such comments will be 

considered in the preparation of the 

Final Regulatory Flexibility Analysis, if 

the proposed rule amendments are 

adopted, and will be placed in the same 

public file as comments on the proposed 

amendments themselves. 

VII. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),203 a rule is ‘‘major’’ if 

it has resulted, or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment or innovation. 

Request for Comment 

71. We request comment on whether 

our proposals would be a ‘‘major rule’’ 

for purposes of SBREFA. We solicit 

comment and empirical data on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment or innovation. 

VIII. Statutory Authority and Text of 

The Proposed Amendments 

The amendments described in this 

release are being proposed under the 

authority set forth in Sections 6, 7 10, 

19(a), and 28 of the Securities Act, as 

amended, and Sections 12, 13, 15(d), 

23(a), and 36 of the Exchange Act, as 

amended. 

List of Subjects 17 CFR Parts 229 and 

249 

Reporting and recordkeeping 

requirements, Securities. 

Text of The Proposed Amendments 

For the reasons set out in the 

preamble, the Commission proposes to 

amend title 17, chapter II, of the Code 

of Federal Regulations as follows: 

PART 229—STANDARD 

INSTRUCTIONS FOR FILING FORMS 

UNDER SECURITIES ACT OF 1933, 

SECURITIES EXCHANGE ACT OF 1934 

AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975— 

REGULATION S–K 

1. The authority citation for part 229 

continues to read in part as follows: 

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 

77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 

77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 

78o, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–9, 

80a–20, 80a–29, 80a–30, 80a–31(c), 80a–37, 

80a–38(a), 80a–39, 80b–11, and 7201 et seq.; 

and 18 U.S.C. 1350, unless otherwise noted. 

* * * * * 

2. Add § 229.104 to read as follows: 

§ 229.104 (Item 104) Conflict minerals 

disclosure. 

(a) If any conflict minerals, as defined 

by paragraph (c)(3) of this section, are 

necessary to the functionality or 

production of a product manufactured 

or contracted to be manufactured by the 

registrant in the year covered by the 

annual report, the registrant must 

disclose in its annual report under a 

separate heading entitled ‘‘Conflict 

Minerals Disclosure’’ whether any of 

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80972 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

these conflict minerals originated in the 

Democratic Republic of the Congo or an 

adjoining country, as defined by 

paragraph (c)(1) of this section or that 

the registrant is not able to determine 

that its conflict minerals did not 

originate in the Democratic Republic of 

the Congo or an adjoining country. The 

registrant’s determination of whether or 

not any of these conflict minerals 

originated in the Democratic Republic of 

the Congo or an adjoining country, or its 

inability to determine that these conflict 

minerals did not originate in the 

Democratic Republic of the Congo or an 

adjoining country, must be based on its 

reasonable country of origin inquiry. If 

the registrant determines that its conflict 

minerals necessary to the functionality 

or production of a product 

manufactured or contracted to be 

manufactured by it did not originate in 

the Democratic Republic of the Congo or 

an adjoining country, the registrant 

must make that disclosure available on 

its Internet Web site and must also 

disclose this determination in its annual 

report under the separate ‘‘Conflict 

Minerals Disclosure’’ heading along with 

the reasonable country of origin inquiry 

it undertook to make its determination, 

that its disclosure is located on its 

Internet Web site, and the address of 

that Internet Web site. The disclosure 

must remain on the registrant’s Internet 

Web site at least until the registrant files 

its subsequent annual report. Also, the 

registrant must maintain reviewable 

business records to support any such 

negative determination. 

(b) If any conflict minerals necessary 

to the functionality or production of a 

product manufactured or contracted to 

be manufactured by the registrant 

originated in the Democratic Republic of 

the Congo or an adjoining country, if the 

registrant is unable to determine that 

such conflict minerals did not originate 

in the Democratic Republic of the Congo 

or an adjoining country, or if such 

conflict minerals came from recycled or 

scrap sources, the registrant must: 

(1) Furnish a Conflict Minerals Report 

as an exhibit to its annual report with 

the following information: 

(i) A description of the measures 

taken by the registrant to exercise due 

diligence on the source and chain of 

custody of the conflict minerals or to 

exercise due diligence in determining 

that the conflict minerals came from 

recycled or scrap sources, which shall 

include but not be limited to a certified 

independent private sector audit of the 

Conflict Minerals Report, conducted in 

accordance with standards established 

by the Comptroller General of the 

United States, that shall constitute a 

critical component of the registrant’s 

due diligence in establishing the source 

and chain of custody of the conflict 

minerals or that the conflict minerals 

came from recycled or scrap sources; 

(ii) A certification by the registrant 

that it obtained such an independent 

private sector audit; 

(iii) A description of any of the 

registrant’s products manufactured or 

contracted to be manufactured 

containing conflict minerals that are not 

‘‘DRC conflict free,’’ as defined in 

paragraph (c)(4) of this section, the 

facilities used to process those conflict 

minerals, the country of origin of those 

conflict minerals, and the efforts to 

determine the mine or location of origin 

with the greatest possible specificity; 

and 

(iv) The audit report prepared by the 

independent private sector auditor, 

which identifies the entity that 

conducted the audit. 

(2) In addition to the disclosures 

required by paragraph (a) of this section, 

disclose under the separate ‘‘Conflict 

Minerals Disclosure’’ heading in the 

annual report that the registrant has 

furnished a Conflict Minerals Report as 

an exhibit to the annual report; that the 

Conflict Minerals Report and the 

certified independent private sector 

audit report are available on its Internet 

Web site; and the Internet address of its 

Internet Web site where the Conflict 

Minerals Report and audit report are 

located. 

(3) Make the Conflict Minerals Report, 

including the certified audit report, 

available to the public by posting the 

text of the report on its Internet Web 

site. The text of the Conflict Minerals 

Report must remain on the registrant’s 

Internet Web site at least until the 

registrant files its subsequent annual 

report. 

(c) For the purposes of this section, 

the following definitions apply: 

(1) Adjoining country. The term 

adjoining country means a country that 

shares an internationally recognized 

border with the Democratic Republic of 

the Congo. 

(2) Armed group. The term armed 

group means an armed group that is 

identified as a perpetrator of serious 

human rights abuses in the most 

recently issued annual Country Reports 

on Human Rights Practices under 

sections 116(d) and 502B(b) of the 

Foreign Assistance Act of 1961 (22 

U.S.C. 2151n(d) and 2304(b)) relating to 

the Democratic Republic of the Congo or 

an adjoining country for the year the 

annual report is due. 

(3) Conflict mineral. The term conflict 

mineral means: 

(i) Columbite-tantalite (coltan), 

cassiterite, gold, wolframite, or their 

derivatives; or 

(ii) 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. 

(4) DRC conflict free. The term DRC 

conflict free means that a product does 

not contain conflict minerals that 

directly or indirectly finance or benefit 

armed groups in the Democratic 

Republic of the Congo or an adjoining 

country. Conflict minerals that a 

registrant is unable to determine did not 

originate in the Democratic Republic of 

the Congo or an adjoining country are 

not ‘‘DRC conflict free.’’ Conflict 

minerals that a registrant obtains from 

recycled or scrap sources are considered 

DRC conflict free. 

Instructions to Item 104 

(1) A registrant that files reports with 

the Commission under Sections 13(a) 

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

78o(d)) of the Exchange Act, for whom 

conflict minerals are necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by that registrant, shall 

provide the information required by this 

item. A registrant that mines conflict 

minerals would be considered to be 

manufacturing those minerals for the 

purpose of this item. 

(2) The information required by this 

Item shall not be deemed to be ‘‘filed’’ 

with the Commission or subject to the 

liabilities of section 18 of the Exchange 

Act (15 U.S.C. 78r), except to the extent 

that the registrant specifically 

incorporates the information by 

reference into a document filed under 

the Securities Act or the Exchange Act. 

The disclosure required by this Item 

need not be provided in any filings 

other than an annual report on Form 

10–K (§ 249.310 of this chapter). Such 

information will not be deemed to be 

incorporated by reference into any filing 

under the Securities Act or the 

Exchange Act, except to the extent that 

the registrant specifically incorporates it 

by reference. 

3. Amend § 229.601 in the exhibit 

table to add entry (96) and add 

paragraph (b)(96) to read as follows: 

§ 229.601 (Item 601) Exhibits. 

(a) * * * 

Exhibit Table * * * 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80973 

EXHIBIT TABLE

Securities Act Forms Exchange Act Forms 

S–1 S–3 S–4 3 S–8 S–11 F–1 F–3 F–4 3 10 8–K5 10–D 10–Q 10–K 

*******

(36) through (95) [Reserved] ....... N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

(96) Conflict Minerals Report ....... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... X 

(97) [Reserved] ............................ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

(98) [Reserved] ............................ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

* * * * * 

(b) * * * 

(96) Report on conflict minerals from 

the Democratic Republic of the Congo or 

an Adjoining Country. The report 

required by Item 104(b)(1) of Regulation 

S–K, if applicable. 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

4. The authority citation for part 249 

continues to read in part as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; and 18 U.S.C. 1350, unless otherwise 

noted. 

* * * * * 

5. Amend Form 20–F (referenced in 

§ 249.220f) by adding Item 16 and by 

adding paragraph 16 to the Instructions 

as to Exhibits. 

The addition reads as follows: 

Note: The text of Form 20–F does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

UNITED STATES 

SECURITIES AND EXCHANGE 

COMMISSION 

Washington, DC 20549 

FORM 20–F 

* * * * * 

PART II 

* * * * * 

Item 16. Conflict Minerals Disclosure 

(a) If any conflict minerals, as defined 

by paragraph (c)(3) of this Item, are 

necessary to the functionality or 

production of a product manufactured 

or contracted to be manufactured by the 

registrant in the year covered by the 

annual report, the registrant must 

disclose in its annual report under a 

separate heading entitled ‘‘Conflict 

Minerals Disclosure’’ whether any of 

these conflict minerals originated in the 

Democratic Republic of the Congo or an 

adjoining country, as defined by 

paragraph (c)(1) of this Item, or that the 

registrant is not able to determine that 

its conflict minerals did not originate in 

the Democratic Republic of the Congo or 

an adjoining country. The registrant’s 

determination of whether or not any of 

these conflict minerals originated in the 

Democratic Republic of the Congo or an 

adjoining country, or its inability to 

determine that these conflict minerals 

did not originate in the Democratic 

Republic of the Congo or an adjoining 

country, must be based on its reasonable 

country of origin inquiry. If the 

registrant determines that its conflict 

minerals necessary to the functionality 

or production of a product 

manufactured or contracted to be 

manufactured by it did not originate in 

the Democratic Republic of the Congo or 

an adjoining country, the registrant 

must make that disclosure available on 

its Internet Web site and must also 

disclose this determination in its annual 

report under the separate ‘‘Conflict 

Minerals Disclosure’’ heading along with 

the reasonable country of origin inquiry 

it undertook to make its determination, 

that its disclosure is located on its 

Internet Web site, and the address of 

that Internet Web site. The disclosure 

must remain on the registrant’s Internet 

Web site at least until the registrant files 

its subsequent annual report. Also, the 

registrant must maintain reviewable 

business records to support any such 

negative determination. 

(b) If any conflict minerals necessary 

to the functionality or production of a 

product manufactured or contracted to 

be manufactured by the registrant 

originated in the Democratic Republic of 

the Congo or an adjoining country, if the 

registrant is unable to determine that 

such conflict minerals did not originate 

in the Democratic Republic of the Congo 

or an adjoining country, or if such 

conflict minerals came from recycled or 

scrap sources, the registrant must: 

(1) Furnish a Conflict Minerals Report 

as an exhibit to its annual report with 

the following information: 

(i) A description of the measures 

taken by the registrant to exercise due 

diligence on the source and chain of 

custody of the conflict minerals or to 

exercise due diligence in determining 

that the conflict minerals came from 

recycled or scrap sources, which shall 

include but not be limited to a certified 

independent private sector audit of the 

Conflict Minerals Report, conducted in 

accordance with standards established 

by the Comptroller General of the 

United States, that shall constitute a 

critical component of the registrant’s 

due diligence in establishing the source 

and chain of custody of the conflict 

minerals or that the conflict minerals 

came from recycled or scrap sources; 

(ii) A certification by the registrant 

that it obtained such an independent 

private sector audit; 

(iii) A description of any of the 

registrant’s products manufactured or 

contracted to be manufactured 

containing conflict minerals that are not 

‘‘DRC conflict free,’’ as defined in 

paragraph (c)(4) of this Item, the 

facilities used to process those conflict 

minerals, the country of origin of those 

conflict minerals, and the efforts to 

determine the mine or location of origin 

with the greatest possible specificity; 

and 

(iv) The audit report prepared by the 

independent private sector auditor, 

which identifies the entity that 

conducted the audit. 

(2) In addition to the disclosures 

required by paragraph (a) of this Item, 

disclose under the separate ‘‘Conflict 

Minerals Disclosure’’ heading in the 

annual report that the registrant has 

furnished a Conflict Minerals Report as 

an exhibit to the annual report; that the 

Conflict Minerals Report and the 

certified independent private sector 

audit report are available on its Internet 

Web site; and the Internet address of its 

Internet Web site where the Conflict 

Minerals Report and audit report are 

located. 

(3) Make the Conflict Minerals Report, 

including the certified audit report, 

available to the public by posting the 

text of the report on its Internet Web 

site. The text of the Conflict Minerals 

Report must remain on the registrant’s 

Internet Web site at least until the 

registrant files its subsequent annual 

report. 

(c) For the purposes of this Item, the 

following definitions apply: 

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80974 Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 

(1) Adjoining country. The term 

adjoining country means a country that 

shares an internationally recognized 

border with the Democratic Republic of 

the Congo. 

(2) Armed group. The term armed 

group means an armed group that is 

identified as a perpetrator of serious 

human rights abuses in the most 

recently issued annual Country Reports 

on Human Rights Practices under 

sections 116(d) and 502B(b) of the 

Foreign Assistance Act of 1961 (22 

U.S.C. 2151n(d) and 2304(b)) relating to 

the Democratic Republic of the Congo or 

an adjoining country for the year the 

annual report is due. 

(3) Conflict mineral. The term conflict 

mineral means: 

(i) columbite-tantalite (coltan), 

cassiterite, gold, wolframite, or their 

derivatives; or 

(ii) 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. 

(4) DRC conflict free. The term DRC 

conflict free means that a product does 

not contain conflict minerals that 

directly or indirectly finance or benefit 

armed groups in the Democratic 

Republic of the Congo or an adjoining 

country. Conflict minerals that a 

registrant is unable to determine did not 

originate in the Democratic Republic of 

the Congo or an adjoining country are 

not ‘‘DRC conflict free.’’ Conflict 

minerals that a registrant obtains from 

recycled or scrap sources are considered 

DRC conflict free. 

Instructions to Item 16 

(1) Item 16 applies only to annual 

reports, and does not apply to 

registration statements on Form 20–F. A 

registrant must provide the information 

required in Item 16 beginning with the 

annual report that it files for its first full 

fiscal year beginning after [April 15, 

2011]. 

(2) A registrant that files reports with 

the Commission under Sections 13(a) 

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

78o(d)) of the Exchange Act, for whom 

conflict minerals are necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by that registrant, shall 

provide the information required by this 

item. A registrant that mines conflict 

minerals would be considered to be 

manufacturing those minerals for the 

purpose of this item. 

(3) The information required by this 

Item shall not be deemed to be ‘‘filed’’ 

with the Commission or subject to the 

liabilities of section 18 of the Exchange 

Act (15 U.S.C. 78r), except to the extent 

that the registrant specifically 

incorporates the information by 

reference into a document filed under 

the Securities Act or the Exchange Act. 

The disclosure required by this Item 

need not be provided in any filings 

other than an annual report on Form 

20–F (§ 249.220f of this chapter). Such 

information will not be deemed to be 

incorporated by reference into any filing 

under the Securities Act or the 

Exchange Act, except to the extent that 

the registrant specifically incorporates it 

by reference. 

* * * * * 

Instructions as to Exhibits 

* * * * * 

16. The Conflict Minerals Report 

required by Item 16 of this Form, if 

applicable. 

* * * * * 

6. Amend Form 40–F (referenced in 

§ 249.240f) by adding paragraph (16) to 

General Instruction B as follows: 

Note: The text of Form 40–F does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

UNITED STATES 

SECURITIES AND EXCHANGE 

COMMISSION 

Washington, DC 20549 

FORM 40–F 

* * * * * 

GENERAL INSTRUCTIONS 

* * * * * 

B. Information To Be Filed on This 

Form 

* * * * * 

(16) Conflict Minerals Disclosure 

(a) If any conflict minerals, as defined 

by paragraph (c)(3) of this Instruction, 

are necessary to the functionality or 

production of a product manufactured 

or contracted to be manufactured by the 

registrant in the year covered by the 

annual report, the registrant must 

disclose in its annual report under a 

separate heading entitled ‘‘Conflict 

Minerals Disclosure’’ whether any of 

these conflict minerals originated in the 

Democratic Republic of the Congo or an 

adjoining country, as defined by 

paragraph (c)(1) of this Instruction, or 

that the registrant is not able to 

determine that its conflict minerals did 

not originate in the Democratic Republic 

of the Congo or an adjoining country. 

The registrant’s determination of 

whether or not any of these conflict 

minerals originated in the Democratic 

Republic of the Congo or an adjoining 

country, or its inability to determine 

that these conflict minerals did not 

originate in the Democratic Republic of 

the Congo or an adjoining country, must 

be based on its reasonable country of 

origin inquiry. If the registrant 

determines that its conflict minerals 

necessary to the functionality or 

production of a product manufactured 

or contracted to be manufactured by it 

did not originate in the Democratic 

Republic of the Congo or an adjoining 

country, the registrant must make that 

disclosure available on its Internet Web 

site and must also disclose this 

determination in its annual report under 

the separate ‘‘Conflict Minerals 

Disclosure’’ heading along with the 

reasonable country of origin inquiry it 

undertook to make its determination, 

that its disclosure is located on its 

Internet Web site, and the address of 

that Internet Web site. The disclosure 

must remain on the registrant’s Internet 

Web site at least until the registrant files 

its subsequent annual report. Also, the 

registrant must maintain reviewable 

business records to support any such 

negative determination. 

(b) If any conflict minerals necessary 

to the functionality or production of a 

product manufactured or contracted to 

be manufactured by the registrant 

originated in the Democratic Republic of 

the Congo or an adjoining country, if the 

registrant is unable to determine that 

such conflict minerals did not originate 

in the Democratic Republic of the Congo 

or an adjoining country, or if such 

conflict minerals came from recycled or 

scrap sources, the registrant must: 

(1) Furnish a Conflict Minerals Report 

as an exhibit to its annual report with 

the following information: 

(i) a description of the measures taken 

by the registrant to exercise due 

diligence on the source and chain of 

custody of the conflict minerals or to 

exercise due diligence in determining 

that the conflict minerals came from 

recycled or scrap sources, which shall 

include but not be limited to a certified 

independent private sector audit of the 

Conflict Minerals Report, conducted in 

accordance with standards established 

by the Comptroller General of the 

United States, that shall constitute a 

critical component of the registrant’s 

due diligence in establishing the source 

and chain of custody of the conflict 

minerals or that the conflict minerals 

came from recycled or scrap sources; 

(ii) a certification by the registrant 

that it obtained such an independent 

private sector audit; 

(iii) a description of any of the 

registrant’s products manufactured or 

contracted to be manufactured 

containing conflict minerals that are not 

‘‘DRC conflict free,’’ as defined in 

paragraph (c)(4) of this Instruction, the 

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Federal Register / Vol. 75, No. 246 / Thursday, December 23, 2010 / Proposed Rules 80975 

facilities used to process those conflict 

minerals, the country of origin of those 

conflict minerals, and the efforts to 

determine the mine or location of origin 

with the greatest possible specificity; 

and 

(iv) the audit report prepared by the 

independent private sector auditor, 

which identifies the entity that 

conducted the audit. 

(2) In addition to the disclosures 

required by paragraph (a) of this 

Instruction, disclose under the separate 

‘‘Conflict Minerals Disclosure’’ heading 

in the annual report that the registrant 

has furnished a Conflict Minerals Report 

as an exhibit to the annual report; that 

the Conflict Minerals Report and the 

certified independent private sector 

audit report are available on its Internet 

Web site; and the Internet address of its 

Internet Web site where the Conflict 

Minerals Report and audit report are 

located. 

(3) Make the Conflict Minerals Report, 

including the certified audit report, 

available to the public by posting the 

text of the report on its Internet Web 

site. The text of the Conflict Minerals 

Report must remain on the registrant’s 

Internet Web site at least until the 

registrant files its subsequent annual 

report. 

(c) For the purposes of this 

Instruction, the following definitions 

apply: 

(1) Adjoining country. The term 

adjoining country means a country that 

shares an internationally recognized 

border with the Democratic Republic of 

the Congo. 

(2) Armed group. The term armed 

group means an armed group that is 

identified as a perpetrator of serious 

human rights abuses in the most 

recently issued annual Country Reports 

on Human Rights Practices under 

sections 116(d) and 502B(b) of the 

Foreign Assistance Act of 1961 (22 

U.S.C. 2151n(d) and 2304(b)) relating to 

the Democratic Republic of the Congo or 

an adjoining country for the year the 

annual report is due. 

(3) Conflict mineral. The term conflict 

mineral means: 

(i) columbite-tantalite (coltan), 

cassiterite, gold, wolframite, or their 

derivatives; or 

(ii) 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. 

(4) DRC conflict free. The term DRC 

conflict free means that a product does 

not contain conflict minerals that 

directly or indirectly finance or benefit 

armed groups in the Democratic 

Republic of the Congo or an adjoining 

country. Conflict minerals that a 

registrant is unable to determine did not 

originate in the Democratic Republic of 

the Congo or an adjoining country are 

not ‘‘DRC conflict free.’’ Conflict 

minerals that a registrant obtains from 

recycled or scrap sources are considered 

DRC conflict free. 

Notes to Paragraph (16) of General 

Instruction B 

(1) Paragraph (16) of General 

Instruction B applies only to annual 

reports, and does not apply to 

registration statements on Form 40–F. A 

registrant must provide the information 

required in paragraph (16) beginning 

with the annual report that it files for its 

first full fiscal year beginning after 

[April 15, 2011]. 

(2) A registrant that files reports with 

the Commission under Sections 13(a) 

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

78o(d)) of the Exchange Act, for whom 

conflict minerals are necessary to the 

functionality or production of a product 

manufactured or contracted to be 

manufactured by that registrant, shall 

provide the information required by this 

Instruction. A registrant that mines 

conflict minerals would be considered 

to be manufacturing those minerals for 

the purpose of this Instruction. 

(3) The information required by this 

Instruction shall not be deemed to be 

‘‘filed’’ with the Commission or subject 

to the liabilities of section 18 of the 

Exchange Act (15 U.S.C. 78r), except to 

the extent that the registrant specifically 

incorporates the information by 

reference into a document filed under 

the Securities Act or the Exchange Act. 

The disclosure required by this 

Instruction need not be provided in any 

filings other than an annual report on 

Form 40–F (§ 249.240f of this chapter). 

Such information will not be deemed to 

be incorporated by reference into any 

filing under the Securities Act or the 

Exchange Act, except to the extent that 

the registrant specifically incorporates it 

by reference. 

* * * * * 

7. Amend Form 10–K (referenced in 

§ 249.310) by adding Item 4(a) as 

follows: 

Note: The text of Form 10–K does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

UNITED STATES 

SECURITIES AND EXCHANGE 

COMMISSION 

Washington, DC 20549 

FORM 10–K 

* * * * * 

PART I 

* * * * * 

Item 4. Specialized Disclosures 

(a) Furnish the information required 

by Item 104 of Regulation S–K 

(§ 229.104 of this chapter). 

Instruction 

A registrant must provide the 

information required in Item 4 

beginning with the annual report that it 

files for its first full fiscal year beginning 

after [April 15, 2011]. 

* * * * * 

By the Commission. 

Dated: December 15, 2010. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–31940 Filed 12–22–10; 8:45 am] 

BILLING CODE 8011–01–P 

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