27 November 2012
On 22 August 2012, the U.S. Securities Exchange Commission (the “SEC”) adopted a final rule (the “Rule”) pursuant to the directives of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) compelling certain companies with U.S. securities reporting obligations (“Reporting Companies”) to assess and disclose their use of “conflict minerals,” consisting of certain metals (including tin, titanium, tungsten and gold) originating from certain targeted sources supporting conflict in the Democratic Republic of Congo (DRC) or adjoining countries (together with the DRC, the “Covered Countries”). This article evaluates the impact of the Rule on these Asian manufacturers.
While directly applicable to Reporting Companies, the Rule indirectly imposes obligations on manufacturers throughout the supply chain with customers that are Reporting Companies. We anticipate that such customers may make widely divergent requests of their Asian suppliers, especially given the lack of guidance regarding how compliance with the Rule will be determined. To prepare for such requests from its customers, a supplier should:
- evaluate its upstream materials contracts to ensure that it understands and can substantiate whether any conflict minerals issues need to be raised with its upstream suppliers, which may necessitate documenting existing materials or other supply arrangements;
- implement a consistent approach to responding to requests from customers seeking information regarding conflicts minerals, including ensuring that requests (and responses) are reasonable, accurate and not overly broad;
- develop a uniform method of responding to requests, while ensuring contractual protections with upstream suppliers as well as customers when giving such responses, to minimize the possibility of and liability for inaccuracies; and
- consider the potential impact on confidential information related to the manufacturing or supply chain process, including price-sensitive information and supplier identity that may be revealed in the Reporting Company’s SEC filings.