Conflict Minerals: Corp Fin Taking Notes?

Regulations on “Conflict Minerals”, and the section of the Dodd-Frank Act that gave rise to those rules, have seen a fair amount of controversy over the past two years. In a dramatic move, on August 18, 2015 the US Court of Appeals reaffirmed its earlier decision that Rule 13p-1 (that requires companies to state whether they are DRC Conflict Free or DRC Not Conflict Free) violates the First Amendment. The SEC is expected to further challenge the court decision, but the timeline is unknown.

Notwithstanding the legal challenges, companies are required to comply with and file SEC Form SD. Until now there has been limited indication that the Division of Corporation Finance was reviewing Conflict Minerals disclosure.

However on February 2nd, 2016, Deere & Co, a manufacturer of farming and forestry equipment (“John Deere”), received a comment letter that questioned whether any conflict minerals disclosed in the company’s 2014 Form SD originated from Sudan.

In your letter to us dated April 11, 2013, you discussed contacts with Sudan and Syria. As you are aware, Sudan and Sudan [sic] are designated by the State Department as state sponsors of terrorism and subject to U.S. economic and export controls. Your Form 10-K does not provide disclosure about contacts with Sudan or Syria. Your Conflict Minerals Report dated June 2, 2014 and filed with the SEC states that you determined that certain conflict minerals necessary to the production or functionality of your equipment may have originated in the Covered Countries, which include Sudan. Please describe to us the nature and extent of your past, current and anticipated contacts with Sudan and Syria since your 2013 letter, whether through subsidiaries, affiliates, distributors, resellers or other direct or indirect arrangements. You should describe any products, services, technology or components you have provided to Sudan and Syria, directly or indirectly, and any agreements, commercial arrangements, or other contacts with the government of those countries or entities they control.

In response, the company stated that the Office of Foreign Assets Control (OFAC) granted the company a license to sell certain agricultural equipment to Sudan. There were no additional contacts with the countries subject to US export controls.

A couple SEC comment letters have referenced conflict minerals generally, but this is the first one we’ve seen that explicitly refers to Form SD. This comment letter is a reminder that the intelligence received from Form SD goes well beyond technical compliance with the Conflict Mineral rules. The disclosures in Form SD can be an integral part of a company’s financial reporting. Inconsistencies between Form SD and other pieces of corporate reporting may prompt regulators to ask questions.