Contrary to what a half-hearted Google search might suggest, President Donald Trump did not repeal the Securities and Exchange Commission’s conflict minerals rule. Nor has the Commission backed away from a forthcoming filing deadline.

The rule remains in (nearly) full effect. Disclosures for the 2016 reporting year are still due by May 31, a fact that officials from the Division of Corporation Finance stressed at the recent “SEC Speaks” conference in Washington D.C.

If there was confusion about the fast-approaching disclosure deadline, blame the grand tradition of political “trial balloons.”

Back in February, a purported presidential memorandum was leaked. Anyone with even a passing interest in the rule—as a reporter, corporate counsel, trade association, or activist investor—could easily get their hands on a copy of what appeared to be a soon-to-drop document.

Then … nothing. The memo, weeks later, has yet to reemerge as a Trump Administration edict.

Under the SEC’s conflict minerals rule, a mandate found in Section 1502 of the Dodd-Frank Act, public companies are required to track the source of tantalum, tin, gold, and tungsten in their supply chains. It is an effort to reduce the use of minerals that are mined in the Democratic Republic of the Congo and adjoining countries. The associated mining financially benefits militia groups that are destabilizing the region and are guilty of numerous atrocities.

There was, however, an exit strategy. The Dodd-Frank Act gave the President authority to order that the SEC temporarily waive the rule’s requirements for a period of up to two years upon “a reasoned determination that the waiver is in the national security interest of the United States.”

That concession to the Executive Branch was at the heart of the mysterious Trump Administration memorandum. “Mounting evidence shows that the disclosure requirements contained in the conflict minerals rule have instead caused harm to some parties in the DRC and have thereby contributed to instability in the region and threatened the national security interest of the U.S.,” it said.

The memo, had it become official, would have required that the State Department and Treasury Department propose an alternative plan. “To respond to unintended consequences, a more effective means of addressing the problems of the DRC and adjoining countries would be a targeted approach that focuses on specific companies known to be engaging in illegal activities that contribute to the financing of armed groups [committing] human rights abuses in central Africa,” it said. “The proposal should take a targeted approach that focuses on breaking the link between commodities and armed groups in the DRC and adjoining countries.”

Why did that plan never become official and binding? Only White House insiders know for sure. There have been no statements to suggest it was a hoax or rough draft released in error. There are several reasons, however, why pulling the memo would have been politically savvy.

The furor and legal setbacks that accompanied the Trump Administration’s “travel ban” for predominately Muslim nations was not only a distraction, but perhaps also a lesson that a hastily drafted memo was not sufficient for achieving the policy goal. One might imagine a federal judge hard-pressed to consider either domestic compliance costs or decades-old DRC instability to be an immediate threat to national security, at least as the short-on-details memorandum was drafted.

Other efforts are also underway that might do the job without presidential interference.

House Financial Services Chairman Jeb Hensarling has filed, once again, the Financial CHOICE Act Bill, with a provision to repeal the conflict minerals rule. There is also the resolution of a lawsuit brought against the SEC’s rule by the National Association of Manufacturers, U.S. Chamber of Commerce, and the Business Roundtable.

In November 2015, the U.S. Court of Appeals for the D.C. Circuit denied requests from the SEC and Amnesty International for an en banc rehearing—one argued before a full complement of the court’s judges—of an earlier decision that found aspects of the rule to be unconstitutional. Specifically, the Court took issue with disclosures and audits that would force companies to declare whether their products do or don’t use the spotlighted Congolese minerals.

The SEC declined an opportunity to petition the Supreme Court for a review of the appellate court’s decision, choosing instead to maintain post-lawsuit guidance that still mandated Form SD disclosures and supply chain due diligence, but no longer required companies to define themselves as “DRC conflict free,” “DRC conflict undeterminable,” or “not found to be DRC conflict free.” An independent private sector audit is no longer needed unless a company voluntarily declares a product or products as “DRC conflict free.”

“It is interesting that all of these things are happening, but the clock keeps ticking and we are marching toward the deadline. Keep doing what you are doing, don’t take your foot off the accelerator, and make sure you are doing everything you need to make this filing.”

Dynda Thomas, Partner, Squire Patton Boggs

The final chapter came earlier this month. Both the SEC and plaintiffs agreed to “no further proceedings,” and the Court is free to enter a final judgment. That means the SEC’s prior guidance, a concession to First Amendment concerns, will likely be made a permanent stipulation of the rule.

As for the SEC, as it awaits new commissioners and a confirmed chairman, it could do some of the heavy lifting for the Trump Administration.

On Jan. 31, Acting SEC Chairman Michael Piwowar directed SEC staff to reconsider whether its conflict minerals guidance is still appropriate and whether any additional relief is needed. He reopened a 45-day public comment period, through March 15.

As would be expected, the call for comments energized both supporters and critics of the rulemaking.

The conflict minerals rule “is the result of special interest groups successfully lobbying for disclosure rules to achieve social and political goals wholly divorced from the purpose of the federal securities laws and the Commission’s mission,” wrote the Committee on Securities Law of the Business Law Section of the Maryland State Bar Association. Even if the rule is accomplishing, or could accomplish, some of the goals it was intended to, or is otherwise having a positive impact, “that does not change the fact that it is not an appropriate use of the Exchange Act.”

A wholly different view comes from Trillium Asset Management, an independent investment adviser exclusively focused on sustainable and responsible investing. It has $2.2 billion in assets under management.

It is suggested that the disclosures are indeed material in nature. “Investors are incorporating these disclosures into their investment decision-making process. How well a company manages its conflict minerals program can act as a marker of how well it manages key supply chain managements functions,” wrote Susan Baker, vice president of shareholder advocacy.

“Substantial evidence shows that the conflict minerals rule has exacerbated the humanitarian crisis on the ground in the Democratic Republic of the Congo,” the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness wrote. “The reports public companies are mandated to file also contribute to information overload and create further disincentives for businesses to go public or remain public companies.”

If the rulemaking remains in place, the Center urged the SEC to consider various actions and modifications:

Form an interagency working group with the State Department to study the complex technical, humanitarian, diplomatic, and geopolitical issues associated with the rule.

Provide that a reporting company is only subject to the rule to the extent it exercises a significant level of direct control over the manufacturing of its products, which would help ensure that the rule applies in situations where conflict minerals may be material to a company’s business.

In light of the lack of a disclosure, have information furnished rather than filed.

Implement safe harbor and de minimis standards.

Provide a more definite statement that scrap and recycled sources are out of scope.

Simplify required reporting on Form SD.

“Despite the massive effort put in by NAM [the National Association of Manufacturers] [to get] companies to comply fully with the rule, the effort has proved largely futile,” wrote Linda Dempsey, vice president of international economic affairs for the National Association of Manufacturers. “Many manufacturers are forced to rely almost entirely on the due diligence of their suppliers for sourcing information, given that these minerals oftentimes represent only a small part of a final product that is not directly sourced by the issuing company. Issuers, therefore, have limited or no influence on suppliers, particularly those that are farther down the supply chain.”

The EU's new conflict minerals regulation

Then following is a guide, published in the European Union, regarding its forthcoming conflict minerals regulation for those involved in the trade of tin, tungsten, tantalum, or gold.
The regulation will mean changes for you and your business, whether you: import minerals or metals; smelt or refine them; or own a due diligence scheme.
And you can start preparing now. Here's what you need to know.
For everyone involved in the trade in tin, tantalum and tungsten and gold
 The EU regulation focuses on conflict- affected or high-risk areas.
It defines these as: areas in a state of armed conflict, or fragile post-conflict areas, or areas with weak or non-existent governance and security, such as failed states; and in all cases, areas with widespread and systematic violations of international law, including human rights abuses.
The European Commission is preparing guidelines to help firms identify conflict-affected and high-risk areas. The guidelines should be ready by the end of 2017.
The Commission will also ask external experts to provide a list of conflict- affected and high-risk areas. It will be indicative, not exhaustive, and regularly updated.
This list will also include useful information for companies carrying out due diligence. It should be ready in 2019.
If you import tin, tantalum, tungsten, and gold into the EU
Carrying out due diligence
From 1 January 2021, EU importers of tin, tantalum, tungsten, and gold will have to carry out due diligence on their supply chain.
In other words, they will have to check where the minerals and metals they import have been mined and processed responsibly.
This is to make sure the minerals and metals they are buying or selling are not funding armed groups or security forces in areas of conflict.
The new EU Conflict Minerals Regulation includes a list of the minerals and metals covered.
This regulation does not apply to: EU importers who import less than a certain amount; and recycled metals or stocks created before 1 February 2013.
The regulation covers both individuals and companies.
A five-step framework to follow
EU importers of tin, tantalum, tungsten and gold will have to carry out checks on their supply chain by following a five-step framework.
This is set out in a document called "Due Diligence Guidance for Responsible Supply Chains from Conflict-Affected and High-Risk Areas."
Experts at the Organisation for Economic Co-operation and Development (OECD), a group of 35 developed countries, drew up the guidance.
The OECD Guidance requires an importer to follow the five steps listed below.
Establish strong company management systems.
Identify and assess risk in the supply chain.
Design and implement a strategy to respond to identified risks.
Carry out an independent third-party audit of supply chain due diligence.
Report annually on supply chain due diligence.
For smelters and refiners inside and outside the EU
Indirectly, the regulation affects smelters and refiners of tin, tantalum, tungsten and gold, both inside and outside the EU. This is because EU importers of minerals and metals will need to make sure they source from responsible smelters and refiners.
The Commission will produce a 'global list of responsible smelters and refiners' that are deemed to fulfill the requirements of the regulation.
The list will include responsible smelters and refiners that apply supply chain due diligence schemes which the European Commission recognizes.
For supply chain due diligence scheme owners
A supply chain due diligence scheme (also known as an 'industry scheme') is a set of voluntary procedures, tools and mechanisms, for carrying out supply chain due diligence. Governments, industry associations or other organizations can own, develop and oversee such schemes.
Owners of these schemes can apply to the European Commission to have their schemes recognized as equivalent to the five-step requirements set out in the regulation.
Source: European Commission

RCS Global, a supply chain audit and advisory group, asked: What does the future look like if the rule is repealed?

“It’s certainly true that some industries are likely to stop meeting [its] obligations, but for others, such as the electronics sector, the genie is out of the bottle and responsible sourcing commitments are slowly but surely becoming the norm, rather than the exception,” it wrote. The cost of non-compliance needs to be pointed out, “including loss of brand reputation, including through supply chain activism and press coverage as is evident in the cobalt sector presently, legal challenges, and an inability to meet demands of an increasingly sophisticated and aware group of investors and consumers.”

The Global Reporting Initiative, better known as GRI, is an international, independent organization with reporting standards that are among the world’s most widely used for sustainability reporting and disclosure. The conflict minerals rule, Chief Executive Tim Mohin wrote, “sets a worldwide precedent for regulation on supply chain due diligence” and “helped enhance the corporate transparency culture.”

Among similar, global efforts: the Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains of 2015; the U.K. Modern Slavery Bill of 2015; the French Duty of Care Law of 2016; the EU Conflict Minerals Regulation; the Dutch Child Labor Due Diligence Law; the Australian Modern Slavery Law; and the Swiss Responsible Business Initiative.

That international focus is why U.S. companies may find it difficult to shake off domestic requirements.

On March 16, for example, the European Parliament voted to approve its version of a conflict minerals rule. It is the final step prior to the Council of the European Union issuing effectiveness. Compliance and reporting requirements take effect on Jan. 1, 2021. 

The EU regulation applies to those who import various forms of tin, tantalum, tungsten, or gold into Member States. Minimum thresholds are defined in the rule. It includes various due diligence and disclosure obligations, consistent with OECD Guidance.  

Covered entities are required to: establish strong company management systems; identify and assess risk in the supply chain; design and implement a strategy to respond to identified risks; carry out an independent third-party audit of supply chain due diligence; and report annually on supply chain due diligence.

The international climate should be an ongoing consideration for multinational companies, says Michael Littenberg, a partner with law firm Ropes and Gray.

“For many companies, CSR compliance is going to come down to the [highest] common denominator,” he says. “If you want to sell to certain customers, are providing products to commercial customers, or you want to go into certain countries that have mandatory CSR requirements, you are going to need to meet those demands.”

The vast majority of U.S. companies shouldn’t have any obligations under the forthcoming EU regulation. “Where it becomes a little tricky for some very large companies, however, is that there are some that import their own raw materials into the EU for manufacturing operations.”

As long as they are downstream undertakings, whether they are manufacturing everything in house or buying some of the components, they are not importers of raw 3TG and are not covered by the regulation.

“With that [being] said, even though there is no mandatory obligation on downstream undertakings, the EU Is going to encourage voluntary compliance,” Littenberg says. “[The EU] it is going to encourage them to put in place processes and procedures to source responsibly and trace the source of 3TGs in their products.”

Among the actions EU officials have discussed, is having a handbook to assist companies who want to voluntarily comply. “They are also talking about having some sort of a public database where responsible sourcing disclosures could be housed from companies volunteering their disclosures,” Littenberg said.

A reminder for companies from Dynda Thomas, a partner at law firm Squire Patton Boggs: Stay the course.=

“Right now, it is the middle of March and the SEC’s deadline is end of May. Companies had better be in the midst of preparing for that,” she says. “We don’t know whether any action will be taken, or when it would be effective.”

“It is interesting that all of these things are happening, but the clock keeps ticking and we are marching toward the deadline,” she adds. “Keep doing what you are doing, don’t take your foot off the accelerator, and make sure you are doing everything you need to make this filing.”

“This may be the last filing, Thomas notes, “so keep in mind that this may be the one that is out there for posterity. It is your last opportunity to have something with the SEC if it is repealed.”