It’s January 2017, and some believe it will be the last year for the SECs conflict minerals rule.

Political and Legislative Environment

President Trump’s inclination to roll back regulation reduces or even eliminates the likelihood of a Presidential veto of any Congressional action to repeal Section 1502 of the Dodd-Frank Act and the SECs conflict minerals rule.

In 2016, the U. S. House of Representatives passed H.R.5485, the Financial Services and General Government Appropriations Act (for fiscal year 2017), which included a provision to defund the implementation or enforcement of the SECs conflict minerals rule.  Defunding the enforcement of the conflict minerals rule would be largely a symbolic gesture because the SEC has taken few public steps to administer the rule since 2015 and hasn’t pursued any enforcement action regarding it.  In early 2016, it decided not to seek Supreme Court review of the Second Circuit decision that found elements of the rule to be unconstitutional.

Also in 2016, the “Financial CHOICE Act”  was introduced  in the U.S. House of Representatives.  If passed, it would (among other things) repeal Section 1502 (conflict minerals) of the Dodd-Frank Act.

But, even if one of these bills becomes law, it would not “un-ring” the conflict minerals bell.

Attention to Responsible 3TG Sourcing Likely to Continue

For most companies covered by the rule, their conflict minerals due diligence programs are up and running and have been incorporated into their day-to-day operations. If the conflict minerals rule were repealed, of course, companies would no longer file Form SDs.  But many (depending on industry) would continue to perform due diligence on their 3TG in response to customer demands.  This due diligence — as outlined by the OECD Guidance — includes supplier engagement, management systems, and addressing supply chain risks.  Some companies would continue to publish reports of some kind, posting them on their websites or including them as part of other corporate social responsibility disclosure. Even if the SECs conflict minerals rule were repealed, commercial pressure requiring companies to know and control the origin and chain of custody of their raw materials and products is likely to continue – and even grow.  That commercial pressure could expand to include other minerals in addition to 3TG.

In addition, the EUs conflict minerals regulation will soon start to impact European importers and will focus on all “conflict-affected and high-risk areas” throughout the globe, not just the Democratic Republic of Congo and adjoining countries.  The voices of NGOs and activists are more numerous and their influence has grown significantly over the last few years.  Market leaders in the electronics and automotive industries have made significant progress toward supply chain transparency with respect to the 3TG in their products.  Consumers (especially millenials) will continue to expect responsible sourcing.

It is possible that eliminating the SECs conflict minerals rule could motivate and energize NGOs, socially responsible investors, activists and other stakeholders further.  After any repeal, they would not be hemmed in by the specific provisions of an existing US rule.

But, even if repeal were to occur, we don’t know when it would become effective. So, don’t take your foot off the accelerator.  Instead:

• continue to implement your conflict minerals due diligence program

• be in communication with your customers

• prepare your conflict minerals filing

Considerations For Calendar Year 2016 Reporting

As you work toward your calendar year 2016 reporting, keep the following considerations in mind:

• The Form SD filing for calendar year 2016 could be the last conflict minerals report filed.  If it is, it would be your last opportunity, via the Form SD vehicle,  to tell your story about your due diligence and supply chain transparency efforts.

• Pursuant to the guidance in the April 2014 SEC Statement, IPSAs are still not required unless you choose to make a claim in your conflict minerals report that a product is DRC conflict-free.  It is almost inconceivable that the SEC would take any action to change that guidance before the May 31, 2017 filing deadline.

• If you confirm to a customer that you meet its requirements (to be DRC conflict-free or to disengage from all suspect smelters or refiners in your supply chains), you will need to be careful about what you say in your report or you could trigger the requirement for an IPSA.

• Remember to demonstrate your efforts in all 5 areas of the framework expressed in the OECD Guidance.

• Groups that prepare ratings and rankings expect companies’ actions and results to improve year on year.

• Even if the SECs conflict minerals rule is repealed, it is likely that NGOs and activists will continue to view sourcing due diligence as “required.” They will continue to prepare reports, scores, and analysis of 3TG policies, procedures, and disclosure.

• NGOs and activists have already signaled their belief that the specific actions called for by the OECD Guidance continue to develop over time.

• You should continue to focus on the OECD Guidance as the source for and expression of those increasing expectations.

In short, work toward reaching conclusions about the source and chain of custody of the 3TG in your products and actively manage your supply chain with responsible sourcing of 3TG in mind.