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From Securities Regulation Daily, April 7, 2017

SEC will not require due diligence under conflicts mineral rule

By Anne Sherry, J.D.

Following the final ruling earlier in the week declaring certain disclosure requirements of the SEC’s conflict minerals rule unconstitutional, the Division of Corporation Finance has announced that it will not recommend enforcement action if companies only file a partial disclosure under the rule. The updated statement excuses even those companies subject to Item 1.01(c) of Form SD from the due diligence and disclosure requirements under that paragraph.

In a statement, Acting Chairman Michael Piwowar wrote, "The primary function of the extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals … is to enable companies to make the disclosure found to be unconstitutional." Piwowar added that until regulatory uncertainties are resolved, "it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c)."

If a reasonable country of origin inquiry reveals that necessary conflict minerals originated in the DRC or an adjoining country, or if the registrant has other reason to so believe, Item 1.01(c) requires it to exercise due diligence on the source and chain of custody of its conflict mineral. The result of that inquiry informs whether the registrant must report that any of its products "have not been found to be ‘DRC conflict free.’" It is this disclosure requirement that the D.C. Circuit struck down as violating the First Amendment. The decision left open the question whether Dodd-Frank itself requires this description, or only the SEC’s implementing rule.

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