About BRASS FABRICATORS COUNCIL

Sec “Conflict Minerals Rule”

Congress directed the Securities and Exchange Commission (SEC) to develop a “Conflict Minerals” rule in the Dodd-Frank “Wall Street Reform and Consumer Protection Act” of 2010, Section 1502.  The SEC finalized its rule on August 22, 2012.  The purpose of the rule is to discourage the use of the four minerals: tin, tantalum, tungsten or gold, from mines in the Democratic Republic of the Congo (DRC) or surrounding countries when those mines are contributing to violence in the region by financing armed groups.

The final rule only applies directly to companies required to report to the SEC under Sections 13(a) or 15(d) of the Exchange Act.  Even if a company determines that the rule will not directly apply to it,  the company may likely still bear an indirect impact if its downstream users are directly covered by the rule.  Regardless of whether Council member companies are covered directly by the rule, they intend to follow the rule’s requirements for reporting on “conflict minerals” to provide their customers with the information necessary for them to comply.

The final rule will apply to products containing any of the four conflict minerals if the minerals are “necessary to the functionality or production” of the product or products manufactured.  In a significant departure from its original proposal, the SEC ultimately determined that “intentionally adding” a mineral to the product was an appropriate measure of whether the mineral is necessary to the functionality or production of the product.  The Council considers this to mean that alloys containing trace elements of a conflict mineral as contaminants and impurities do not cause that product to fall under the requirements of the rule.

The Council followed the development of this rule closely and responded to the SEC’s request for comments, raising several critical issues related to the inability to trace the origin of conflict minerals in recycled scrap.  The Council is pleased that the SEC responded to our comments and recognized that it is impossible to trace the source of conflict minerals in scrap.  The original proposal would have required a Conflict Minerals Report (CMR), due diligence and third-party audits for all recycled or scrap sources of conflict minerals.  In the final rule requires  users of scrap only to conduct a “reasonable inquiry” procedure to confirm that the conflict minerals come from scrap sources.

Of the four metals, Council members use only tin  as an alloying element in some of the alloys that are produced. Most of the tin in these alloys is sourced from the post-industrial or post-consumer scrap that is melted as part of the casting operation to produce new material.  Council member companies are establishing “reasonable inquiry” procedures to establish that any conflict minerals in their products originate from recycled material when in fact that is the case.

When Council member companies find it necessary to purchase small amounts of virgin alloying metal, it is normally sourced as metallic tin in “master alloys” purchased from master alloy manufacturers that obtain the alloying metal from refiners and smelters.  The Council is investigating established tracking mechanisms, such as the Electronics Industry Citizenship Coalition (EICC) Conflict Free Smelter Program, that can provide methods to determine sourcing of the virgin minerals in their products to insure that they are DRC conflict-free.

The SEC plans to provide additional guidance in the near future, which hopefully will further clarify the law’s requirements.  The Council is continuing to work with the SEC to ensure the industry has a clear understanding of the rule.