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Manufacturing and Wholesale Distribution: A Step Toward Implementation: Federal Court Upholds SEC’s “Conflict Minerals” Rule



Judge Robert Wilkins of the U.S. District Court for the District of Columbia upheld a new rule that would require publicly traded manufacturers to disclose whether their products contain “conflict minerals” from the Democratic Republic of the Congo (DRC) or an adjoining country.

The “conflict minerals” provision rule, known as Section 1502 and mandated as part of the Dodd-Frank Act, states that beginning in early 2013, publicly traded manufacturing companies must disclose if they are using any gold, tin, tungsten, or tantalum in their products that may have originated from the DRC or neighboring countries. Manufacturers must also provide proof that they carried out due diligence to ensure that these products were not funding armed groups operating in the area who are reportedly responsible for labor and human rights abuses.

Last October, the National Association of Manufacturers, U.S. Chamber of Commerce, and the Business Roundtable brought the case against the SEC, claiming the conflict mineral rule would be too costly to follow and that forcing companies to make certain disclosures violated the companies' First Amendment free speech rights.

Some manufacturers have tried to persuade the SEC to exempt them from having to meet the terms of the disclosures if the products only contain a trace amount of the minerals, but the SEC responded that it was required by a mandate from Congress to adopt the rule without exceptions.

The plaintiffs in this case have until August 22, 2013 to file an appeal, although companies must comply with the new “conflict minerals” rule for the calendar year beginning January 2013. First reports are due May 31, 2014.

What Does CohnReznick Think?
CohnReznick suggests that manufacturers continue their compliance efforts to ready themselves for the first report due under the Conflict Minerals Rule. The first report is due May 31, 2014. While this compliance date is not until next year, given the time requirements and complexities involved in meeting the requirements, it is prudent and advisable that manufacturers act now. Accordingly, companies should go ahead and start the compliance process —including contacting vendors, determining scope, policies, procedures, and framework development and ultimate implementation and review of data.

For more information, please contact Alan Wolfson, Manufacturing and Wholesale Distribution Practice Leader, at 646-254-7416.
For information on CohnReznick’s Manufacturing and Wholesale Distribution Industry Practice, please visit our website.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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