language to suggest that only the issuer's certification of the audit,
and not the audit report itself, is required to be submitted, we
preliminarily believed that approach was not the better reading of the
Conflict Minerals Statutory Provision. As noted above, the Conflict
Minerals Statutory Provision emphasizes that the independent audit is a
``critical component of due diligence.'' In light of the importance of
this audit report to the proposed reporting requirements and the
statutory language, we proposed to require that the audit report be
furnished with the Conflict Minerals Report.
---------------------------------------------------------------------------

    \499\ Our proposal to require the issuer to identify the
certified independent private sector auditor would satisfy Exchange
Act Section 13(p)(1)(A)(ii), which states that the issuer must
provide a description of ``the entity that conducted the independent
private sector audit in accordance with clause (i).''
---------------------------------------------------------------------------

    Proposed Item 4(a) of Form 10-K (referring to proposed Instruction
2 to Item 104 of Regulation S-K), proposed Instruction 3 to Item 16 of
Form 20-F, and proposed Instruction 3 to General Instruction B(16) of
Form 40-F would have provided that the Conflict Minerals Report, which
would include the audit report, would not be deemed to be incorporated
by reference into any filing under the Securities Act or the Exchange
Act, except to the extent that the issuer specifically incorporated it
by reference. For example, if an issuer incorporated by reference its
annual report into a Securities Act registration statement, that issuer
would not also automatically incorporate the Conflict Minerals Report
into that Securities Act document. Also, in such a situation, the
independent private sector auditor would not have assumed expert
liability and the issuer would not,\500\ therefore, have been required
to file a consent from that auditor unless the issuer specifically
incorporated by reference the Conflict Minerals Report into the
Securities Act registration statement.
---------------------------------------------------------------------------

    \500\ See Rule 436 of Regulation C [17 CFR 230.436].
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    A number of commentators agreed with the proposed rules'
requirement that an issuer unable to determine that its conflict
minerals did not originate in the Covered Countries be required to
describe its products as not ``DRC conflict free'' in its Conflict
Minerals Report.\501\ In one comment letter, five senators stated that
Congress did not intend for the Conflict Minerals Statutory Provision
to allow issuers to report that the origins of their conflict minerals
was undeterminable.\502\ Instead, the letter argued that Congress
``intended and directed'' the final rule to require that, if an issuer
``cannot affirm that the minerals are `conflict-free,' the only other
conclusion that could be reported would be that the product may contain
materials that directly or indirectly finance armed groups in the
DRC.'' \503\ In another comment letter, members of Congress asserted
that conflict minerals information that does ``not clearly list a
company's activities and rules allowing a category of `indeterminate'
would undermine congressional intent.'' \504\
---------------------------------------------------------------------------

    \501\ See, e.g., letters from CRS I, Earthworks, Evangelical
Alliance, Evangelicals, Howland, Methodist Board, NEI, Presbyterian
Church II, Rep. Berman et al., Sen. Boxer et al. II, Sen. Durbin/
Rep. McDermott, State II, and World Vision II.
    \502\ See letter from Sen. Boxer et al. II.
    \503\ Id.
    \504\ See letter from Sen. Leahy et al.
---------------------------------------------------------------------------

    Other commentators indicated, however, that the final rule should
not require an issuer unable to determine that its conflict minerals
did not originate in the Covered Countries to state that its conflict
minerals are not ``DRC conflict free'' either on a temporary or
permanent basis.\505\ Some commentators who are members of Congress
requested that we consider, as an alternative to the proposed rules,
``phasing-in implementation to allow for materials of indeterminate
origin currently in the supply chain to be properly classified.'' \506\
In another letter, members of Congress suggested that the final rule
create a temporary classification for minerals of an indeterminate
origin that would exempt companies with such minerals from the
requirement to provide a Conflict Minerals Report.\507\ Some
commentators suggested that such issuers should be required to state
that its products with such conflict minerals are not ``DRC conflict
free'' after a certain number of years.\508\ Some commentators asserted
that the proposed rules would violate the First Amendment because,
among other reasons, the rules would compel speech that is not of a
commercial nature, which is different from other corporate disclosures,
and would require some issuers, such as those unable to determine that
their conflict minerals did not originate in the Covered Countries, to
provide false, stigmatizing information.\509\
---------------------------------------------------------------------------

    \505\ See, e.g., letters from AdvaMed I, Cleary Gottlieb, IPC I,
ITRI I, JVC et al. II, NAM I, NAM III, Rep. Bachus et al., Rep.
Critz, Rep. Ellmers, Rep. Murphy, TIAA-CREF, Tiffany, TriQuint I,
and WGC II.
    \506\ See letters from Rep. Critz, Rep. Ellmers, and Rep.
Murphy.
    \507\ See letter from Rep. Bachus et al.
    \508\ See letters from IPC I, SIF I, TIAA-CREF, and TriQuint I.
    \509\ See letters from Taiwan Semi, Tiffany, and WLF.
---------------------------------------------------------------------------

    Some commentators urged that an issuer unable to determine that its
conflict minerals did not originate in the Covered Countries should not
be required to submit a Conflict Minerals Report that is audited by an
independent private sector auditor.\510\ As one commentator asserted,
the provision ``does not require an issuer that has been unable to
determine (after proper inquiry) the source of its conflict minerals *
* * to provide a Conflict Minerals Report,'' because the ``statute uses
the phrase `in cases in which such conflict minerals did originate in
[a DRC country],' as the trigger for providing a Conflict Minerals
Report'' (emphasis and bracket in original).\511\
---------------------------------------------------------------------------

    \510\ See, e.g., letters from AngloGold, Cleary Gottlieb, NAM I,
and Tiffany.
    \511\ See letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    One commentator, in two separate letters, disagreed with this
position, however, and stated that any issuer that is unable to
determine that its conflict minerals did not originate in the Covered
Countries must be required to submit an audited Conflict Minerals
Report to support its conclusion.\512\ Another commentator recommended
that the final rule allow issuers to provide annual, unaudited conflict
minerals disclosure that would identify the issuer's products that the
issuer ``reasonably believes may contain `conflict minerals;' ''
indicate that the origin of these minerals is indeterminate and explain
why the minerals origin is indeterminate; identify and disclose the
issuer's involvement in any governmental, semi-governmental, and
private sector diligence initiatives; and describe the measures the
issuer has undertaken to develop a management

due diligence system covering its supply chain for each conflict
mineral.\513\ One commentator asserted that investors would have
``insufficient material information to evaluate a company's supply
chain risk'' if the final rule allowed issuers to declare their
conflict minerals from an indeterminate origin ``without describing the
steps they have taken to make their determination,'' and recommended
that the final rule ``require reporting to be sufficiently detailed to
inform investors of the steps an issuer has taken to determine whether
the minerals the issuer purchases come from the DRC or an adjoining
country.'' \514\
---------------------------------------------------------------------------

    \512\ See letters from NYCBar I (``We also believe the rules
should require reporting firms that cannot, after due diligence,
determine the origin of the materials used in their products to
submit a Conflict Minerals Report and an independent audit of such
report to ensure such issuers cannot easily avoid their obligations
and disclosure requirements prescribed by these rules.'') and NYCBar
II (``The rules should require reporting firms that cannot, after
due diligence, determine the origin of the materials used in their
products to submit a Conflict Minerals Report and an independent
audit of such report to ensure such issuers cannot easily avoid
their obligations and disclosure requirements prescribed by the
rules.'').
    \513\ See letter from Signet.
    \514\ See letter from SIF II.
---------------------------------------------------------------------------

    Although we did not propose to require any type of physical label
on a product, one commentator stated that it is essential for the final
rule to mandate that an issuer with products containing conflict
minerals that did not finance or benefit an armed group label those
products as ``DRC conflict free.'' \515\ Many commentators, however,
remarked that an issuer should not be required to physically label its
products.\516\ Some commentators asserted that an issuer should be
permitted to describe its products as ``DRC conflict free'' only if the
issuer sources its conflict minerals in those products from the Covered
Countries and those conflict minerals did not finance or benefit armed
groups.\517\ Another commentator added specifically that products
should be labeled as ``DRC conflict free'' only if either they are not
from the Covered Countries or do not directly or indirectly support
armed groups in the Covered Countries.\518\ Also, all commentators that
discussed the subject agreed that the final rule should, as proposed,
allow issuers to provide additional disclosure in describing any of
their products that have not been found to be ``DRC conflict free''
\519\
---------------------------------------------------------------------------

    \515\ See, e.g., letter from Catholic Relief Services of St.
Cloud, Minnesota (Apr. 14, 2011) (``CRS I--St. Cloud'').
    \516\ See, e.g., letters from Columban Center et al., Howland,
Industry Group Coalition I, ITIC I, Japanese Trade Associations, MSG
I, NAM I, and SIF I.
    \517\ See letters from ITRI III, MSG I, and SIF I.
    \518\ See letter from State II.
    \519\ See letters from Howland, IPC I, NMA II, SEMI, TriQuint I,
and WGC II.
---------------------------------------------------------------------------

    A number of commentators mentioned that the final rule should, as
proposed, require an issuer to disclose the facilities, countries of
origin, and efforts to determine the mine or location of origin only
for its conflict minerals that directly or indirectly financed or
benefited armed groups in the Covered Countries.\520\ A few
commentators suggested that all issuers with conflict minerals
originating in the Covered Countries, including issuers with conflict
minerals that did not directly or indirectly finance or benefit armed
groups in the Covered Countries and issuers with conflict minerals that
did directly or indirectly finance or benefit armed groups in the
Covered Countries, should be required to disclose the facilities,
countries of origin, and efforts to determine the mine or location of
origin of those conflict minerals.\521\ Two commentators further
recommended that all issuers with conflict minerals, regardless of
whether the minerals originated within or without of the Covered
Countries, should be required to disclose the facilities, countries of
origin, and efforts to determine the mine or location of origin of
those conflict minerals.\522\
---------------------------------------------------------------------------

    \520\ See, e.g., letter from AngloGold, Barrick Gold, Cleary
Gottlieb, Howland, IPC I, JVC et al. II, NAM I, NMA II, and WGC II.
    \521\ See letters from MSG I, NEI, SIF I, and TriQuint I.
    \522\ See letters from Earthworks and Trott.
---------------------------------------------------------------------------

    Some commentators agreed that the final rule should, as proposed,
require an issuer to disclose only the efforts to determine the
conflict minerals' mine or location of origin with the greatest
possible specificity.\523\ Other commentators suggested going further
and requiring an issuer to disclose the actual mine or location of
origin with the greatest possible specificity.\524\ Still other
commentators argued that the final rule should not require issuers to
include specific supply chain information, such as conflict mineral
sources, quantities, transit routes, or store houses because such
disclosures could hurt an issuer's competitive advantage or subject the
issuer or its employees to violence.\525\ Alternatively, these
commentators recommended that the rule allow for generic descriptions
or approximate geographic locations or permit an issuer to redact
sensitive or secure information.\526\
---------------------------------------------------------------------------

    \523\ See, e.g., letters from AngloGold, Barrick Gold, JVC et
al. II, NAM I, TriQuint I, and WGC II.
    \524\ See, e.g., letters from CRS I, Howland, ICGLR, NEI, State
II (acknowledging that, as a best practices approach, an issuer
should make every effort to include specific information regarding
the mine), TakeBack, and Trott (stating that the final rule should
require an issuer to provide as much information as possible
regarding its conflict minerals' mine or location of origin).
    \525\ See letters from Barrick Gold, Global Tungsten II, IPMI I,
NMA II, NMA III, and TIC.
    \526\ See letters from Barrick Gold, NMA II, and TIC.
---------------------------------------------------------------------------

    A number of commentators indicated that an issuer should, as
proposed, ``certify the audit'' by certifying that it obtained an
independent private sector audit.\527\ Many of these commentators, plus
some others, remarked that these certifications should either not be
signed or, if they are required to be signed, be signed by the issuer
or by an individual on behalf of the issuer and not in any individual
capacity.\528\ In contrast, one commentator recommended that an
issuer's senior management or executive officers in some manner certify
the independent private sector audit,\529\ another commentator asserted
that it is ``essential that there be CEO level involvement in the
filing of the disclosures in order to make sure that companies do not
simply `game the system,' '' \530\ and a further commentator argued
that the ``certification of an audit will make little sense unless the
signatories verify on a quarterly basis that certain minimal standards
have been maintained by the auditors.'' \531\ One commentator asserted
that certifying the audit is unnecessary because the audit report will
be submitted to the Commission in the Conflict Minerals Report.\532\
This commentator and another stated that requiring an issuer to certify
the audit would prevent an issuer from stating that its products are
``DRC conflict free'' because no issuer could be so certain of that
conclusion that its officers would certify the audit.\533\ One
commentator suggested that no liability should be assigned to
individuals that may sign the certifications ``unless the situation
involves a knowing and willful intent to mislead.'' \534\
---------------------------------------------------------------------------

    \527\ See, e.g., letters from Barrick Gold, Cleary Gottlieb,
Ford, ICGLR, ITIC I, NAM I, NY State Bar, and WGC II.
    \528\ See, e.g., letters from AngloGold, Barrick Gold, Cleary
Gottlieb, Ford, Howland, JVC et al. II, NAM I, NEI, and WGC II.
    \529\ See letter from Grant Thornton LLP (Mar. 2, 2011) (``Grant
Thornton'').
    \530\ See letter from TakeBack.
    \531\ See letter from SARW.
    \532\ See letter from TIC.
    \533\ See letters from Teggeman and TIC.
    \534\ See letters from Cleary Gottlieb and NMA II.
---------------------------------------------------------------------------

    Some commentators agreed that the audit report should, as proposed,
be included as part of the Conflict Minerals Report.\535\ Other
commentators recommended that an issuer's audit report should not be
submitted as part of the Conflict Minerals Report because such a
requirement would increase audit costs without providing comparable
benefits.\536\ Certain commentators opposed having to make the audit
report public and suggested instead that issuers provide the audit

report to the Commission confidentially, allow for sensitive portions
to be redacted, or provide it to the Commission with the Commission
making it available to the public only in hardcopy form at the
Commission's headquarters.\537\ Similarly, one commentator objected to
requiring an issuer to post the audit report on the issuer's Internet
Web site as long as the Conflict Minerals Report describes the audit
report,\538\ whereas another commentator argued that the final rule
should require an issuer to post the audit report on an issuer's Web
site.\539\
---------------------------------------------------------------------------

    \535\ See, e.g., letters from Howland, NEI, and Sen. Durbin/Rep.
McDermott.
    \536\ See letters from AngloGold and WGC II.
    \537\ See, e.g., letters from Barrick Gold, Materials Management
Corporation (Jan. 13, 2011) (``Materials I''), NAM I, and NMA II.
    \538\ See letter from ITIC I.
    \539\ See letter from Columban Center et al.
---------------------------------------------------------------------------

    Some commentators indicated that, as proposed, an audit report
should not be deemed incorporated by reference into any filing under
the Securities Act or Exchange Act unless the issuer specifically
incorporates the audit into such a filing.\540\ A few commentators
further suggested that an auditor should not be considered an
``expert'' under Rule 436 of the Securities Act and recommended that
audit reports submitted in subsequent years be able to build off prior
audit reports to eliminate duplicative work and, thereby, reduce
costs.\541\ One commentator went further and suggested that any issuer
with a recognized supply chain tracking process should not be required
to obtain an audit of its Conflict Minerals Report.\542\
---------------------------------------------------------------------------

    \540\ See, e.g., letters from Barrick Gold, Cleary Gottlieb,
Corporate Secretaries I, NY State Bar, and WGC II.
    \541\ See letters from NY State Bar and WGC II.
    \542\ See letter from TIC.
---------------------------------------------------------------------------

    Some commentators requested that the final rule define how an
issuer would ``directly or indirectly finance or benefit an armed
group.'' \543\ Some of these commentators and others recommended that
the Country Reports not be the basis for the Commission's final rule
because those reports are not sufficiently specific with respect to
which groups it labels as ``armed groups'' such that it is unclear
whether the DRC army would be considered an ``armed group.'' \544\ For
example, one commentator submitted an article arguing that the Conflict
Minerals Statutory Provision ``targets units of the Congolese army as
much as it does militias precisely because the army is comprised
largely of ex-rebels, is the major player in the conflict minerals
trade and regularly commits appalling crimes against the civilian
population.'' \545\ Another commentator, however, stated that if the
final rule defined ``armed group'' using the Country Reports, it would
exclude the ex-militia groups that joined the DRC armed forces but
continue to contribute to conflict and commit human rights
violations.\546\ One commentator recommended that the final rule define
``armed group'' using the OECD's definition for that term.\547\ Another
commentator suggested that the final rule apply only to issuers that
are ``directly funding the conflict (or who knowingly indirectly fund
the conflict).'' \548\ One commentator recommended that the final rule
define ``indirect financing'' of an armed group to include ``[a]ny way
in which an illegitimate armed group profits from the mining, sale,
transportation or taxation of minerals or mineral derivatives.'' \549\
Some commentators asserted that the final rule should clarify the
definition of an ``armed group'' or disclose the steps issuers must
take to verify whether their conflict minerals benefited armed
groups.\550\ Other commentators suggested that the definition of
``armed group'' in the final rule should not refer to the ``most
recently issued'' version of the Country Reports ``for the year the
annual report is due'' because the most recently issued version of the
Country Reports may not be published for the year the annual report is
due.\551\
---------------------------------------------------------------------------

    \543\ See, e.g., letters from NMA II, Peace, and WGC II.
    \544\ See letters from ITRI I, NMA II, NYCBar I, and Peace. See
also letter from NYCBar II (stating specifically that the final rule
should include ``the Congolese military (FARDC) in its definition of
`armed group''').
    \545\ See letter from ICAR II.
    \546\ See letter from Save.
    \547\ See letter from Pact II.
    \548\ See letter from CEI I.
    \549\ See letter from Peace.
    \550\ See, e.g., letters from CRS I--St. Cloud, ITRI I, NMA II,
NYCBar I, Peace, and TIC.
    \551\ See, e.g., letters from ITRI I and TIC.
---------------------------------------------------------------------------

c. Final Rule
    The final rule requires any issuer that, after its reasonable
country of origin inquiry, knows that its conflict minerals originated
in the Covered Countries and did not come from recycled or scrap
sources to provide a Conflict Minerals Report that includes a
description of the measures the issuer has taken to exercise due
diligence on the source and chain of custody of those conflict
minerals. It also requires an issuer that, after its reasonable country
of origin inquiry, had reason to believe that its minerals may have
originated in the Covered Countries and may not have come from recycled
or scrap sources and, after the exercise of due diligence, still has
reason to believe that its minerals may have originated in the Covered
Countries and may not have come from recycled or scrap sources, to
provide a Conflict Minerals Report that includes a description of the
measures the issuer has taken to exercise due diligence on the source
and chain of custody of those conflict minerals.
    Additionally, in circumstances in which an independent private
sector audit is required, the final rule requires, as proposed, that an
issuer include a certified independent private sector audit conducted
in accordance with the standards established by the Comptroller General
of the United States as part of its due diligence on the source and
chain of custody of its conflict minerals. Further, the final rule
states that, as proposed, the audit constitutes a critical component of
due diligence. To implement the Conflict Minerals Statutory Provision's
requirement that issuers ``certify the audit,'' \552\ as proposed, an
issuer must certify that it obtained an independent private sector
audit of its Conflict Minerals Report and include that certification in
the Conflict Minerals Report.\553\ While we did not specify this in the
Proposing Release or proposed rules, in response to commentators'
concerns, the final rule clarifies that the issuer's audit
certification need not be signed by an officer. Instead, the
certification takes the form of a statement in the Conflict Minerals
Report that the issuer obtained an independent private sector audit.
---------------------------------------------------------------------------

    \552\ Exchange Act Section 13(p)(1)(B).
    \553\ We are not adopting the alternative interpretation of the
Conflict Minerals Statutory Provision that an issuer must ensure
that the audit it obtained is accurate. The Conflict Minerals Report
contains management's assertions related to compliance with this
rule; the third-party audit is designed to attest to certain of
those assertions. Given this relationship, there does not appear to
be a need to have management assert to the accuracy of the audit.
---------------------------------------------------------------------------

    The final rule also requires, unless an issuer's products are ``DRC
conflict free,'' the Conflict Minerals Report to include a description
of the facilities used to process those conflict minerals, the country
of origin of those conflict minerals, and the efforts to determine the
mine or location of origin with the greatest possible specificity. As
noted in the Proposing Release, we believe that the phrase in the
Conflict Minerals Statutory Provision, ``facilities used to process the
conflict minerals,'' refers to the smelter or refinery through which
the issuer's minerals pass. One commentator pointed out that smelting
and refining processes are not similar.\554\ Smelting refers to the

conversion of the mineral ore into its metal form, but the metal still
contains many impurities that must be removed by refining the metal.
Columbite-tantalite, cassiterite, and wolframite are mined only as ores
and are smelted into their metal derivatives. Gold, however, is mined
in its metallic form because it is found that way naturally. Therefore,
gold does not have to be smelted into a metal, but does have to be
refined to remove any impurities. In both instances, however, we
recognize that as a practical matter it is very difficult, if not
impossible, to trace conflict minerals to their mine or other location
of origin after columbite-tantalite, cassiterite, and wolframite have
been smelted initially and after gold has been refined initially other
than through the smelter or refinery.
---------------------------------------------------------------------------

    \554\ Letter from ITRI I. In the Proposing Release, we stated
that columbite-tantalite, cassiterite, and wolframite are smelted
into their component metals whereas gold is refined, and we
indicated that both processes are substantially similar such that,
when we would refer to smelting a conflict mineral, those references
were intended to include the refining of gold.
---------------------------------------------------------------------------

    Exchange Act Section 13(p)(1)(A)(ii) also requires an issuer with
conflict minerals originating in the Covered Countries to submit a
Conflict Minerals Report that includes a description of the issuer's
products ``that are not DRC conflict free.'' \555\ The Conflict
Minerals Statutory Provision does not define ``not DRC conflict free,''
but instead defines ``DRC conflict free.'' \556\ Products are
considered ``DRC conflict free'' under Exchange Act Section
13(p)(1)(A)(ii) if they ``do not contain minerals that directly or
indirectly finance or benefit armed groups in the'' Covered Countries.
(Emphasis added).\557\ As discussed above, under the proposed rules'
approach, an issuer with a product containing conflict minerals of an
undeterminable origin cannot know that its product is ``DRC conflict
free;'' that is, the issuer cannot know that its product ``do[es] not
contain conflict minerals that directly or indirectly finance or
benefit armed groups in the'' Covered Countries, so the issuer would
have to describe the product as ``not `DRC conflict free.' ''
---------------------------------------------------------------------------

    \555\ See Exchange Act Section 13(p)(1)(A)(ii).
    \556\ See id. and Exchange Act Section 13(p)(1)(D).
    \557\ Exchange Act Section 13(p)(1)(A)(ii). Also, although
similar, the definition of ``DRC conflict free'' under Exchange Act
Section 13(p)(1)(D) is slightly different than the definition under
Exchange Act Section 13(p)(1)(A)(ii). Exchange Act Section
13(p)(1)(D) states that ``a product may be labeled as `DRC conflict
free' if the product does not contain minerals that directly or
indirectly finance or benefit armed groups in the'' Covered
Countries.
---------------------------------------------------------------------------

    A commentator raised concerns that this approach could lead to
incorrect and misleading disclosures and could unfairly punish
companies that lack complete visibility into their supply chains.\558\
The commentator noted that it could turn out that, upon further
investigation of the minerals' origins, the minerals were not from the
Covered Countries or did not finance or benefit armed groups, in which
case the products made with solely those minerals would be ``DRC
conflict free.'' Of course, we are concerned that any disclosure
requirement results in accurate disclosure. At the same time, we are
cognizant of our responsibility to fulfill Congress's directive in
Section 1502 and to remain faithful to the language of the statute, and
promulgating rules that provide an incentive for issuers to avoid
determining the origins of the conflict minerals that they use could
undermine the reporting system that Congress has established in Section
13(p) of the Exchange Act. Accordingly, we have modified the final rule
to address the commentator's concerns while remaining faithful to the
language and intent of the statute.
---------------------------------------------------------------------------

    \558\ See letter from Tiffany.
---------------------------------------------------------------------------

    As described above, during a temporary period, instead of requiring
issuers that have proceeded to step three that are unable to determine
that their conflict minerals did not originate in the Covered
Countries, that their conflict minerals that originated in the Covered
Countries did not directly or indirectly finance or benefit armed
groups, or that their conflict minerals came from recycled or scrap
sources to describe their products as ``not `DRC conflict free,' '' the
final rule permits such issuers to describe products containing those
conflict minerals as ``DRC conflict undeterminable.'' An issuer with
products that are ``DRC conflict undeterminable'' is required to
exercise due diligence on the source and chain of custody of its
conflict minerals and submit a Conflict Minerals Report describing its
due diligence; the steps it has taken or will take, if any, since the
end of the period covered in its most recent prior Conflict Minerals
Report to mitigate the risk that its necessary conflict minerals
benefit armed groups, including any steps to improve its due diligence;
the country of origin of the conflict minerals, if known; the
facilities used to process the conflict minerals, if known; and the
efforts to determine the mine or location of origin with the greatest
possible specificity, if applicable.\559\ Such an issuer is not,
however, required to obtain an independent private sector audit of that
Conflict Minerals Report. We are permitting this temporary category to
address concerns of many industry commentators that supply chain due
diligence mechanisms have not yet been established; \560\ and,
therefore, many issuers will not be able to readily determine whether
their conflict minerals did not originate in the Covered Countries, did
not finance or benefit armed groups, or did come from recycled or scrap
sources. This temporary category should allow issuers time to establish
supply chain due diligence mechanisms to determine whether their
minerals originated in the Covered Countries, directly or indirectly
financed or benefited armed groups in the Covered Countries, or came
from recycled or scrap sources.
---------------------------------------------------------------------------

    \559\ We recognize that an issuer that is unable to determine
the origin of its conflict minerals, or unable to determine whether
its conflict minerals came from recycled or scrap sources, may not
also be able to determine the processing facility of those conflict
minerals and will not be able to determine the minerals' country of
origin. Therefore, these issuers only have to describe the
processing facilities if they are known to the issuer and do not
have to disclose the country of origin. Also, an issuer that is
unable to determine whether its conflict minerals came from recycled
or scrap sources does not have to describe its efforts to determine
the mine or location of origin with the greatest possible
specificity because issuers with conflict minerals from recycled or
scrap sources are not required to determine the mine or location of
origin.
    \560\ See, e.g., letters from CTIA, FEC I, JVC et al. II, NAM
III, NRF I, Roundtable, and WilmerHale.
---------------------------------------------------------------------------

    This additional time should also decrease the possibility that
issuers that might ultimately be able to determine that their necessary
minerals did not originate in the Covered Countries, did not finance or
benefit armed groups, or came from recycled or scrap sources would
initially be required to report that their products have not been found
to be ``DRC conflict free'' simply because they had not yet been able
to determine the minerals' origins or whether they were from recycled
or scrap sources. By decreasing this possibility, the temporary
category will lead to more accurate disclosure. We believe this
approach will allow the final rule to more appropriately target the
population of issuers from which Congress intended to require this
disclosure and will allow time for processes to be put in place so that
issuers may be able to determine the origin of their conflict minerals.
    The ``undeterminable'' reporting alternative, however, is only
permitted temporarily. For all issuers, this alternative will be
permitted during the first two reporting cycles following the
effectiveness of the final rule, which includes the specialized
disclosure reports for 2013 through 2014. For smaller reporting
companies, this alternative will be permitted during the first four
reporting cycles following the

effectiveness of the final rule, which includes the specialized
disclosure reports for 2013 through 2016. Beginning with the third
reporting period, from January 1, 2015 to December 31, 2015, for all
issuers and the fifth reporting period, from January 1, 2017 to
December 31, 2017, for smaller reporting companies, every such issuer
will have to describe products in its Conflict Minerals Report as
having ``not been found to be `DRC conflict free.''' Also, issuers will
be required to make such a disclosure even if they proceed to step
three and are unable to determine that their conflict minerals did not
originate in the Covered Countries, that their conflict minerals that
originated in the Covered Countries did not directly or indirectly
finance or benefit armed groups, or that their conflict minerals came
from recycled or scrap sources. These issuers will also be required to
provide an independent private sector audit of their Conflict Minerals
Report.\561\
---------------------------------------------------------------------------

    \561\ As noted below, an issuer exercising due diligence to
determine whether a conflict mineral is from a recycled or scrap
source is not required to obtain an independent private sector audit
of its Conflict Minerals Report, regarding that conflict mineral, if
there is no nationally or internationally recognized due diligence
framework for that recycled or scrap conflict mineral.
---------------------------------------------------------------------------

    While this disclosure is required after the temporary period, even
when issuers are unable to determine the origin of their conflict
minerals, we have changed the language of the disclosure from the
proposal to address concerns raised about the accuracy of the
disclosure required in these circumstances. In our view, it is accurate
to describe such products as having ``not been found to be `DRC
conflict free.' '' ``DRC conflict free'' is a defined term in the
statute, meaning that the product ``do[es] not contain conflict
minerals that directly or indirectly finance or benefit armed groups in
the'' Covered Countries. An issuer that does not know that its conflict
minerals did not originate in the Covered Countries, that its conflict
minerals that originated in the Covered Countries did not finance or
benefit armed groups, or that the minerals came from recycled or scrap
sources cannot accurately state that its conflict minerals have been
found to meet this definition; therefore, its products have not been
found to be ``DRC conflict free'' as defined in the statute.
    Additionally, under the final rule, as proposed, issuers can add
disclosure or clarification. This allows issuers to include the
statutory definition of ``DRC conflict free'' in the disclosure to make
clear that ``DRC conflict free'' has a very specific meaning, or to
otherwise address their particular situation.\562\ We also believe that
the revised disclosure that the products ``have not been found to be
`DRC conflict free' '' mitigates concerns expressed by some
commentators that the Proposing Release's specific required language,
``are not `DRC conflict free,' '' would impose an unfair stigma,
particularly on issuers that did not know whether their minerals
directly or indirectly financed or benefited armed groups in the
Covered Countries.
---------------------------------------------------------------------------

    \562\ For example, in addition to the disclosure in the Conflict
Minerals Report, the issuer could state: ``The following is a
description of our products that have not been found to be ``DRC
conflict free'' (where `DRC conflict free' is defined under the
federal securities laws to mean that a product does not contain
conflict minerals necessary to the functionality or production of
that product that directly or indirectly finance or benefit armed
groups in the Democratic Republic of the Congo or an adjoining
country).'' Alternatively, an issuer that is still unable to
determine the origin of some of its conflict minerals after the two-
year or four-year period, might state: ``We have been unable to
determine the origins of some of our conflict minerals. Because we
cannot determine the origins of the minerals, we are not able to
state that products containing such minerals do not contain conflict
minerals that directly or indirectly finance or benefit armed groups
in the Democratic Republic of the Congo or an adjoining country.
Therefore, under the federal securities laws we must describe the
products containing such minerals as having not been found to be
`DRC conflict free.' Those products are listed below.''
---------------------------------------------------------------------------

    Although it does not appear that any individual commentator
suggested the exact approach we are adopting, this approach
incorporates suggestions from various commentators. One commentator
recommended that we adopt a ``phase-in or transitional approach in
order to address the substantial practical difficulties issuers
currently face in seeking to trace the origins of conflict minerals
included in their products and to determine if these minerals are or
are not `DRC conflict free.' '' \563\ This commentator's recommendation
was for the final rule to include a phase-in period through 2014 in
which any issuer with conflict minerals for which the issuer was unable
to determine their origin would describe the conflict minerals as from
an ``indeterminate source'' and would be permitted, instead of
providing a Conflict Minerals Report, to disclose its conflict minerals
policy and provide a statement that, due to the lack of current
infrastructure, it is not possible to determine the origin of its
conflict minerals. The commentator recommended that the ``indeterminate
source'' category would be available only through 2014. Another
commentator recommended that the final rule allow a similar phase-in
period through 2014 in which issuers would be permitted to use an
``unknown determination'' category in which such issuers would be
required only to disclose their conflict minerals policy, reasonable
country of origin inquiry, and the conflict minerals used in their
supply chain.\564\
---------------------------------------------------------------------------

    \563\ See letter from WilmerHale.
    \564\ See letter from AdvaMed I.
---------------------------------------------------------------------------

    Other commentators recommended similar temporary approaches for
conflict minerals when an issuer could not determine the origin of its
conflict minerals.\565\ In this regard, one commentator noted that,
``requiring issuers that are unable to determine that the conflict
mineral in their products did not originate in the Covered Countries to
submit a Conflict Minerals Report providing the required information
that is available to them, is reasonable.'' \566\ Also, one commentator
recognized that, during the initial period after the rule is finalized,
it expected that some conflict minerals would be of unknown origin, and
issuers with those conflict minerals should, among other information,
disclose ``any progress made in the reporting year toward determination
of origin.'' \567\ Finally, some commentators suggested that smaller
reporting companies should be allowed to phase-in or that the
implementation of the final rule should be deferred for them.\568\
---------------------------------------------------------------------------

    \565\ See, e.g., letters from TIAA-CREF (``Where the source of
minerals cannot be confirmed, we believe it would be most accurate
to allow companies to use indeterminate language such as `may not be
DRC conflict free,' but not language that would suggest a
presumption that minerals would be conflict free absent specific
evidence to the contrary. Moreover, over time the information
systems necessary to trace these minerals will likely improve. We
suggest that, after a reasonable time interval, the SEC consider
reviewing whether a higher standard might be warranted.'') and
TriQuint I (recommending that the final rule ``allow companies to
label their products as `May Not Be DRC Conflict Free' until such a
time when it is expected that companies will be able to purchase
processed conflict minerals from smelters that have been validated
as `DRC conflict free' '').
    \566\ See letter from ABA.
    \567\ See letter from SIF I.
    \568\ See, e.g., letters from Howland and JVC et al. II.
---------------------------------------------------------------------------

    Based on the comments we have received, we believe that permitting
all issuers to describe their products as ``DRC conflict
undeterminable'' for a two-year period is appropriate to allow viable
tracking systems to be put in place in the Covered Countries and
throughout supply chains and avoid a de-facto embargo on conflict
minerals from the Covered Countries. We also believe that allowing this
category for a two-year period will avoid a situation in which
virtually all issuers would describe their products as having not

been found to be ``DRC conflict free,'' simply because they could not
determine the origin of their conflict minerals, which would render
that disclosure less meaningful.\569\ Similarly, we believe that
allowing smaller reporting companies four years to describe their
products as ``DRC conflict undeterminable'' is appropriate because
these issuers may lack the leverage to obtain detailed information
regarding the source of a particular conflict mineral.\570\
---------------------------------------------------------------------------

    \569\ See, e.g., letters from AdvaMed I, ITIC I, and ITRI II.
    \570\ See letters from ABA, Corporate Secretaries I, and JVC et
al. II. But see letter from Green II (arguing that, although smaller
reporting companies may lack leverage, this disadvantage may be
reduced through the influence exerted over their suppliers by larger
issuers that use the same supplier base and that have more leverage
to request such information.).
---------------------------------------------------------------------------

    We do not, however, believe that a permanent ``DRC conflict
undeterminable'' category would be consistent with the language in the
statute, and we believe it would undermine the overall goals of Section
1502. Such an approach might create incentives for issuers not to
exercise care in identifying the origins of their necessary conflict
minerals. Also, we do not believe that, after the temporary reporting
period, the number of issuers that would describe their products as
having not been found to be ``DRC conflict free'' would be so
substantial as to render the disclosure meaningless because, based on
our review of the comments, it appears that there should be systems in
place at that time on which issuers could rely to determine whether
their conflict minerals originated in the Covered Countries and, if so,
whether they contributed to conflict. Overall, we believe that the
change from ``not `DRC conflict free' '' to having ``not been found to
be `DRC conflict free,' '' the ability to add additional explanation
and disclosure, and the periods for the ``DRC conflict undeterminable''
category will provide issuers who are initially unable to determine
that their conflict minerals did not originate in the Covered Countries
or unable to determine that their conflict minerals that originated in
the Covered Countries did not directly or indirectly finance or benefit
armed groups in the Covered Countries means to make their disclosure
while still accomplishing the goals that Congress intended when it
required the disclosure of products that are not ``DRC conflict free.''
    We believe that this approach also responds to the First Amendment
concerns raised by the commentators. As to the concern that the rule
impermissibly compels speech that is not of a commercial nature, we
presume that Congress acted constitutionally when it passed the
statute.\571\ And, as discussed above, we believe that the changes made
in the final rule mitigate the concern that the rule compels speech
that may be false or unfairly stigmatizing for some issuers. The
requirement that issuers that know or have reason to believe that their
conflict minerals may have originated in the Covered Countries but that
cannot determine the origin or cannot determine whether they financed
or benefited armed groups state that their products have not been found
to be ``DRC conflict free'' compels an accurate disclosure in light of
the statutory definition of ``DRC conflict free.'' Moreover, the use of
this revised language, the ability of issuers to add additional
explanation and disclosure, and the provision of a temporary
``undeterminable'' period all represent accommodations to ensure that
the rule is appropriately tailored to lessen the impact on First
Amendment interests while still accomplishing Congress's objective.
---------------------------------------------------------------------------

    \571\ See Nebraska v. EPA, 331 F.3d 995, 997 (DC Cir. 2003)
(``Agencies do not ordinarily have jurisdiction to pass on the
constitutionality of federal statutes.'') (citing Thunder Basin Coal
Co. v. Reich, 510 U.S. 200, 215 (1994)); Todd v. SEC, 137 F.2d 475,
478 (6th Cir. 1943) (same); William J. Haberman, 53 SE.C. 1024, 1029
n.14 (1998) (``[W]e have no power to invalidate the very statutes
that Congress has directed us to enforce.'') (citing Milton J.
Wallace, 45 SE.C. 694, 697 (1975); Walston & Co., 5 SE.C. 112, 113
(1939)).
---------------------------------------------------------------------------

    We note that many commentators appeared to believe that the
proposed rules would require that an issuer physically label its
products as ``DRC conflict free'' or not ``DRC conflict free.'' \572\
Although we used the term ``label'' in the Proposing Release, we did so
in the context of the disclosure required in the annual report. The
final rule does not require a physical label on any product. Instead,
the final rule requires that an issuer describe in its Conflict
Minerals Reports any products that have not been found to be ``DRC
conflict free,'' as defined in the final rule. Also, consistent with
the proposal, the final rule permits issuers the flexibility to
describe their products based on each issuer's individual facts and
circumstances. We believe this flexibility is important because, as one
commentator noted, an issuer is in the best position to know its
products and to describe them in terms commonly understood within its
industry.\573\ Also, to remedy any confusion in the Proposing Release,
an issuer with products that are ``DRC conflict free'' does not have to
describe those products in the Conflict Minerals Report in any manner.
An issuer with such products may describe them in its specialized
disclosure report as ``DRC conflict free'' if it chooses to do so,
provided, the products do not contain any conflict minerals that
directly or indirectly financed or benefited armed groups in the
Covered Countries.
---------------------------------------------------------------------------

    \572\ See, e.g., letters from Howland, Industry Group Coalition
I, Japanese Trade Associations, MSG I, NAM I, and SIF I.
    \573\ See letter from WGC II.
---------------------------------------------------------------------------

    The Conflict Minerals Statutory Provision requires the State
Department to ``produce a map of mineral-rich zones, trade routes, and
areas under the control of armed groups'' in the Covered
Countries.\574\ Also, the Conflict Minerals Statutory Provision
requires the State Department to submit to Congress a strategy to
address the linkages between human rights abuses, armed groups, mining
of conflict minerals, and commercial products that contains a ``plan to
provide guidance to commercial entities seeking to exercise due
diligence on and formalize the origin and chain of custody of conflict
minerals used in their products and on their suppliers to ensure that
conflict minerals used in the products of such suppliers do not
directly or indirectly finance armed conflict or result in labor or
human rights violations.'' \575\ Some commentators have suggested that
we delay the implementation of the final rule until the State
Department's map and/or strategy have been published,\576\ or that we
should allow an issuer to rely on the State Department's map for its
conflict minerals information.\577\
---------------------------------------------------------------------------

    \574\ Section 1502(c)(2) of the Act.
    \575\ Section 1502(c)(1) of the Act.
    \576\ See, e.g., letters from Barrick Gold, Corporate
Secretaries I, NRF I, and WGC II.
    \577\ See, e.g., letters from AngloGold and NRF I.
---------------------------------------------------------------------------

    The State Department has published a conflict minerals map
already.\578\ Also, we understand that the State Department has
developed guidance for commercial entities seeking to exercise due
diligence on and formalize the origin and chain of custody of conflict
minerals used in their products and on their suppliers.\579\ Even so,
it does not

appear that either the State Department's map or guidance is necessary
for complying with the final rule. First, it does not appear that
Congress intended that they be necessary to comply with our rule. The
map and guidance requirements are located in a part of Section 1502
that is not incorporated into the Exchange Act and that part of Section
1502 is directed solely to agencies other than the Commission.\580\
Therefore, although they may be related to our final rule, it does not
appear that the map and guidance were intended to have direct impact on
the rule.
---------------------------------------------------------------------------

    \578\ See State Department, Humanitarian Information Unit,
Democratic Republic of the Congo Mineral Exploitation by Armed
Groups Map (Jun. 14, 2011), available at https://hiu.state.gov/Products/DRC_MineralExploitation_2010Jun28_HIU_U182.pdf.
    \579\ See State Department, Bureau of Economic, Energy, and
Business Affairs, Statement Concerning Implementation of Section
1502 of the Dodd-Frank Legislation Concerning Conflict Minerals Due
Diligence (July 15, 2011), available at http://www.state.gov/e/eb/diamonds/docs/168632.htm.
    \580\ The map and guidance requirements are in Section 1502(c)
of the Act, but only Section 1502(b) of the Act actually amends the
Exchange Act and directs the Commission to promulgate rules.
---------------------------------------------------------------------------

    Also, we do not believe that an issuer must rely solely on the
State Department's map or guidance for determining whether its conflict
minerals contributed to conflict in the Covered Countries because other
resources are available. For example, as discussed above, the OECD has
developed an internationally recognized system of due diligence that an
issuer can use as guidance in exercising its due diligence. The OECD's
due diligence guidance does not rely on or incorporate the State
Department map and guidance referenced in the Conflict Minerals
Statutory Provision in determining the steps an issuer must take to
exercise due diligence. However, as discussed above, due to the stage
of development of the supply chain tracing mechanisms, we recognize
that there are concerns about obtaining this information reliably in
the near term. Therefore, we are providing this targeted and temporary
period in the final rule.
    The final rule requires, as proposed, an issuer with conflict
minerals that originated in the Covered Countries to determine whether
those minerals directly or indirectly financed or benefited armed
groups in the Covered Countries. The Conflict Minerals Statutory
Provision states that products are ``DRC conflict free'' when those
products do not contain conflict minerals that ``directly or indirectly
finance or benefit armed groups'' in the Covered Countries.\581\
Section 1502(e)(3) of the Act defines the term ``armed group'' as ``an
armed group that is identified as perpetrators of serious human rights
abuses in the annual Country Reports on Human Rights Practices under
sections 116(d) and 502B(b) of the Foreign Assistance Act of 1961,''
\582\ as they relate to the Covered Countries.\583\ The final rule
includes, as proposed, a cross reference to that definition to provide
guidance to issuers. This cross reference, however, removes the phrases
``most recently issued'' and ``for the year the annual report is due''
to address the concerns of commentators.\584\ The final rule mirrors
the Conflict Minerals Statutory Provision in its definition of ``armed
group'' and does not include any extraneous phrases that were included
in the proposal.
---------------------------------------------------------------------------

    \581\ See Exchange Act Sections 13(p)(1)(A)(ii) and 13(p)(1)(D).
    \582\ 22 U.S.C. 2151n(d) and 2304(b).
    \583\ Section 1502(e)(3) of the Act.
    \584\ See, e.g., letters from ITRI I and TIC.
---------------------------------------------------------------------------

    The Conflict Minerals Statutory Provision assigns to the State
Department the authority to identify perpetrators of serious human
rights abuses in that agency's annual Country Reports, and we lack the
authority and expertise to provide further guidance or qualify the
State Department's conclusions in this area. We note that some
commentators indicated that we should consider products containing
conflict minerals obtained from mines not controlled by armed groups
when purchased to be considered ``DRC conflict free'' even if those
mines subsequently come under the control of armed groups.\585\ We
agree and consider products ``DRC conflict free'' if, when the conflict
minerals contained in those products are purchased and transported
through the supply chain from the mine to the issuer, those conflict
minerals do not directly or indirectly finance or benefit armed groups
in the Covered Countries, even if some point in that supply chain
subsequently becomes controlled by an armed group. For example, if an
issuer's conflict minerals are purchased from a mine that does not
directly or indirectly finance or benefit armed groups in the Covered
Countries when they are purchased, but the next day that mine is taken
over by an armed group and the armed group takes the money previously
provided to the miner from the issuer to purchase the conflict minerals
that already left the mine, the products containing those conflict
minerals may be considered ``DRC conflict free,'' even though the money
used to purchase the conflict minerals does, in fact, benefit that
armed group subsequently.
---------------------------------------------------------------------------

    \585\ See, e.g., letters from AAEI, IPC I, and NRF I.
---------------------------------------------------------------------------

2. Due Diligence Standard in the Conflict Minerals Report
    We have interpreted the Conflict Minerals Statutory Provision as
requiring an issuer to exercise due diligence based on the provision's
requirement that an issuer describe the due diligence it exercised on
the source and chain of custody of its conflict minerals.\586\ In
addition, the provision requires that an issuer include an independent
private sector audit of the Conflict Minerals Report as a ``critical
component of due diligence.'' \587\ Under Exchange Act Section
13(p)(1)(C), the Commission may determine an issuer's independent
private sector audit or other due diligence processes to be unreliable
and any Conflict Minerals Report that relies on such unreliable due
diligence process would not satisfy the statute's reporting
requirement.\588\
---------------------------------------------------------------------------

    \586\ Exchange Act Section 13(p)(1)(A)(i).
    \587\ Exchange Act Section 13(p)(1)(B).
    \588\ Exchange Act Section 13(p)(1)(C).
---------------------------------------------------------------------------

a. Proposed Rules
    The proposed rules would have required an issuer to use due
diligence regarding the supply chain determinations \589\ in its
Conflict Minerals Report. Other than requiring that the due diligence
be reliable, the proposed rules would not have dictated the standard
for, or otherwise provided guidance concerning, the due diligence that
an issuer would be required to use in making such determinations.
Instead, the proposed rules would have required an issuer to disclose
the due diligence it used in making its determinations, such as whether
it used any nationally or internationally recognized standards or
guidance for supply chain due diligence.
---------------------------------------------------------------------------

    \589\ We refer to the ``supply chain determinations'' as an
issuer's determinations regarding the source and chain of custody of
its conflict minerals, the facilities used to process those
minerals, the country of origin of those minerals, and the efforts
to determine the mine or location of origin with the greatest
possible specificity.
---------------------------------------------------------------------------

    In the Proposing Release, we noted our belief that the statutory
provision contemplates that an issuer must use due diligence in its
supply chain determinations. Although we did not propose to establish
any particular conduct requirements, we believed that due diligence
would be required to be exercised and information about what conduct
the issuer exercised in its due diligence regarding its supply chain
determinations was relevant to determine the extent of the issuer's due
diligence. As proposed, the rules, therefore, would require issuers to
describe the due diligence used in making these determinations. In
particular, we noted that we would have expected that an issuer whose
conduct conformed to a nationally or internationally recognized set of
standards of, or guidance for, due diligence regarding its conflict
minerals supply chain determinations would provide evidence that it
used due

diligence in making those determinations.
b. Comments on the Proposed Rules
    Some commentators believed that the Conflict Minerals Statutory
Provision expressly requires an issuer to exercise due diligence on the
source and chain of custody of its conflict minerals.\590\ One
commentator noted that nothing in the statute gives us explicit
authority to develop due diligence guidance.\591\ Another commentator
asserted that Congress intended the Conflict Minerals Statutory
Provision to require due diligence only on the source and chain of
custody of conflict minerals mined in the DRC and on the transportation
routes through which such minerals pass in countries adjoining the
DRC.\592\ This commentator claimed that Congress did not intend for the
Conflict Minerals Statutory Provision to require due diligence on the
source and chain of custody of minerals mined in the adjoining
countries and recommended that the final rule not require such due
diligence.
---------------------------------------------------------------------------

    \590\ See, e.g., letters from NEI (``We agree that issuers
should be required to use due diligence, as proposed.''),
Presbyterian Church USA (Feb. 15, 2012) (``Presbyterian Church I'')
(stating that the Conflict Minerals Statutory Provision ``requires
due diligence''), Sen. Durbin/Rep. McDermott (stating that ``Section
1502 requires companies to exercise strict due diligence to
determine the source of conflict minerals in their products''), and
State II (``It is unclear how a reasonable conflict minerals
determination can be made without due diligence given the complexity
of the region and the risk of fraud.'').
    \591\ See letter from TriQuint I. This commentator suggested
that the Commission work with other government agencies to establish
rules that govern what due diligence processes are reliable.
    \592\ See letter from Minister of Energy and Minerals of the
United Republic of Tanzania (May 23, 2011) (``Tanzania II'').
---------------------------------------------------------------------------

    Many commentators supported our proposal to not prescribe any
specific due diligence requirements and allow an issuer to have
flexibility in developing its due diligence measures based on the
issuer's own facts and circumstances.\593\ A number of these
commentators, however, suggested that the final rule provide guidance
as to what would be considered acceptable due diligence.\594\ Many
other commentators recommended that the final rule provide a definition
of or prescribe specific guidance for any required due diligence.\595\
Some of these commentators reasoned that the final rule should
prescribe a specific due diligence standard so that an issuer will be
unable to ``engage in a type of `forum shopping''' for the least
burdensome standard and so that each issuer's due diligence measures
will be consistent, accurate, and reliable.\596\ Other commentators
suggested that the final rule should prescribe a safe harbor for an
issuer's conduct allowing an issuer to avoid any undue or impractical
requirements set forth by independent private sector auditors.\597\
While we did not propose to require satisfaction of a particular set of
standards, we requested comment on whether we should.
---------------------------------------------------------------------------

    \593\ See, e.g., letters from AAEI, AngloGold, Cleary Gottlieb,
Industry Group Coalition Group I, IPC I, ITIC I, ITRI I, Japanese
Trade Associations, NAM I, NEI, Niotan II, NMA II, NRF I, RILA,
RILA-CERC, RMA, Roundtable, Sen. Durbin/Rep. McDermott, TriQuint I,
and WGC II.
    \594\ See, e.g., letters from AAEI, Cleary Gottlieb, Earthworks,
Howland, IPC I, ITIC I, ITRI I, NAM I, NEI, NMA II, NRF I, RILA,
Sen. Durbin/Rep. McDermott, and WGC II.
    \595\ See, e.g., letters from Arkema, Earthworks, Enough Project
I, CENCO I, CODSIA, Global Witness I, Howland, ICAR et al. II,
Materials I, Andrew Matheson (Mar. 2, 2011) (``Matheson I''), MSG I,
NYCBar I, Rep. Berman et al., SEMI, SIF I, State I, State II, and
WGC et al. I.
    \596\ See letters from Global Witness I and ICAR et al. II.
    \597\ See, e.g., letters from ArcelorMittal, Chamber I, ITIC I,
Materials I, NAM I, NRF I, and RILA.
---------------------------------------------------------------------------

    A number of commentators suggested that the final rule should refer
to, incorporate, or require the use of national or international
standards or guidance in some manner, such as accepting an issuer's due
diligence as reliable if that issuer used a national or international
standard or guidance, considering national or international due
diligence standards or guidance when developing the final rule, or
requiring an issuer to use a national or international due diligence
framework for that due diligence to be considered reliable.\598\ Some
commentators did not believe the final rule should require that an
issuer use any particular national or international due diligence
standard.\599\ Other commentators recommended against incorporating
voluntary international standards, such as the OECD due diligence
framework, into the final rule or suggested that we identify and assess
the potential latent risks and/or impacts to industry and auditors
related to codifying voluntary industry standards, such as the OECD due
diligence framework, into the final rule.\600\ Some commentators
specifically referenced the due diligence framework developed by the
OECD in discussing what they believed the final rule should consider as
acceptable due diligence.\601\ One commentator recommended that the
final rule not only refer to the OECD due diligence framework, but also
should require issuers to disclose the steps that they took to complete
the OECD due diligence.\602\
---------------------------------------------------------------------------

    \598\ See, e.g., letters from Arkema, CODSIA, Earthworks, Enough
Project I, Global Witness I, Howland, ICAR et al. II, IPC I, ITIC I,
ITRI I, Matheson I, MSG I, NEI, NYCBar I, Rep. Berman et al., SEMI,
Sen. Durbin/Rep. McDermott, SIF I, State I, State II, WGC II, and
WGC et al. I.
    \599\ See, e.g., letters from Cleary Gottlieb, NAM I, NMA II,
and WGC II.
    \600\ See letters from Auditing Roundtable, Inc. (Oct. 31, 2011)
(``ARI'') and Board of Environmental, Health & Safety Auditor
Certifications (Oct. 31, 2011) (``BEAC'').
    \601\ See, e.g., letters from Arkema, Boeing, CODSIA,
Earthworks, Enough Project I, Evangelical Alliance, Evangelicals,
Global Witness I, ICAR et al. II, ITRI I, ITRI IV, Matheson I,
Methodist Board, MSG I, NEI, NYCBar I, NYCBar II, Presbyterian
Church II, Rep. Berman et al., Sen. Durbin/Rep. McDermott, SEMI, SIF
I, SIF II, State I, State II, and WGC II, and WGC et al. I.
    \602\ See letter from SIF II.
---------------------------------------------------------------------------

    Some commentators recommended that a due diligence standard should
not require an absolute standard of care.\603\ Instead, these
commentators suggested either a ``reasonable care'' or a ``commercially
practicable efforts'' standard that would encompass contractual
obligations, risk-based programs, and industry-wide processes, but not
necessarily include the identification of all the parties in the supply
chain or the determination of every mineral used for manufactured
items. Some commentators recommended that an issuer's due diligence
should be presumed reliable if the issuer performs some or all of the
following steps: uses information from an industry-wide process,
creates a conflict minerals policy that requires conflict-mineral free
provisions in all contracts, conducts supply chain risk assessments,
requires suppliers to push policies upstream and transmit information
downstream, establishes policies and procedures to remediate instances
of non-conformity of policy, obtains independent third party audits,
and publishes its supply chain findings.\604\ Similarly, other
commentators indicated that due diligence should be presumed reliable
if these conditions are met, but only if the issuer requires upstream
and downstream due diligence and describes that due diligence.\605\
Other commentators suggested that the due diligence standard in the
final rule should be commensurate with the issuer's position in the
supply chain such that the due diligence requirement for an issuer
would be less rigorous the

farther that issuer's position in the supply chain is from the mine or
other location of origin.\606\
---------------------------------------------------------------------------

    \603\ See, e.g., letters from AAEI, Chamber I, CRS I, Industry
Group Coalition I, ITIC I, and NAM I.
    \604\ See, e.g., letters from AAEI, Global Witness I, Industry
Coalition Group II, NAM I, and NRF I. These steps are similar to the
steps in the Annex I of the OECD's due diligence guidance.
    \605\ See, e.g., letters from Earthworks, Enough Project I, MSG
I, and SIF I. The upstream and downstream due diligence that would
be required by these commentators is similar to the upstream and
downstream due diligence described in the Supplement on Tin,
Tantalum, and Tungsten to the OECD's due diligence guidance.
    \606\ See letters from CERC, Chamber I, ITIC I, NRF I, and RILA.
---------------------------------------------------------------------------

    In the Proposing Release, we requested comment as to whether the
final rule should prescribe different due diligence measures for gold
because of any unique characteristics of the gold supply chain. In
response, most commentators that discussed this point agreed that the
due diligence required for gold should be the same as the due diligence
required for the other three conflict minerals.\607\ Two commentators,
however, stated that gold is unique among the four conflict minerals so
the due diligence requirements for it should be different than for the
other minerals.\608\ As discussed above, a few commentators further
recommended that the final rule permit issuers to exclude certain
information from public dissemination regarding the storage and
transportation routes of gold for security reasons.\609\
---------------------------------------------------------------------------

    \607\ See, e.g., letters from Earthworks, Global Witness I, ITRI
I, SIF I, and State II.
    \608\ See letters from AngloGold and WGC II.
    \609\ See letters from NMA II, NAM III, and WGC II.
---------------------------------------------------------------------------

    In the Proposing Release, we also requested comment as to whether
the final rule should state that an issuer is permitted to rely on the
reasonable representations of its smelters or any other actor in the
supply chain, provided there is a reasonable basis to believe the
representations of the smelters or other parities. A number of
commentators suggested, in response, that the final rule should allow
an issuer to rely on reasonable representations from suppliers and/or
smelters in satisfying their due diligence requirement.\610\ Some of
these commentators, however, explained that such written
representations must be accompanied by additional processes, such as
industry-wide smelter verification programs, before they could be
relied upon.\611\ One commentator recommended that the final rule
should allow due diligence to be satisfied if an issuer includes
obligations in its supply contracts and receives reasonable
representations from its suppliers regarding the conflict-free nature
of the minerals.\612\
---------------------------------------------------------------------------

    \610\ See, e.g., letters from AngloGold, Global Witness I,
Howland, IPC I, ITIC I, Japanese Trade Associations, JVC et al. II,
Kemet, NEI, NMA II, RILA-CERC, RMA, Roundtable, SEMI, Sen. Durbin/
Rep. McDermott, State II, Taiwan Semi, and WGC II.
    \611\ See letters from Global Witness I, Howland, ITIC I, JVC et
al. II (stating that written representations would not have to be
accompanied by additional processes ``until such time as reliable
smelter/refiner certification and due diligence systems can be
implemented''), Kemet, NMA II, RMA, Sen. Durbin/Rep. McDermott, and
State II.
    \612\ See letter from Roundtable.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are revising the final rule. The
final rule requires that an issuer describe the due diligence it
exercised in determining the source and chain of custody of its
conflict minerals. The final rule requires that an issuer's due
diligence follow a nationally or internationally recognized due
diligence framework. We are persuaded by commentators that requiring an
issuer to use a nationally or internationally recognized due diligence
framework that is relevant to the audit objectives and permits
consistent assessment of the subject matter will provide an independent
private sector auditor with a structure by which to assess an issuer's
due diligence, which we believe should make the rule more workable and
less costly than if no framework was specified. We are also persuaded
by commentators that requiring the use of nationally or internationally
recognized due diligence framework will enhance the quality of an
issuer's due diligence and will promote comparability of the Conflict
Minerals Reports of different issuers. Also, we believe that requiring
such due diligence will provide issuers with a degree of certainty and,
as one commentator noted, ``ameliorate the risk that a due diligence
process will later be judged to be unreliable.'' \613\
---------------------------------------------------------------------------

    \613\ See letter from NAM I.
---------------------------------------------------------------------------

    The OECD's ``Due Diligence Guidance for Responsible Supply Chains
of Minerals from Conflict-Affected and High-Risk Areas'' \614\
satisfies our criteria and may be used as a framework for purposes of
satisfying the final rule's requirement that an issuer exercise due
diligence in determining the source and chain of custody of its
conflict minerals. As one commentator noted, the OECD is an
international organization with 34 member countries, including the
United States, that works internationally with governments and
businesses and approved its due diligence guidance as the ``the result
of a collaborative initiative among governments, international
organizations, civil society organizations, and industry participants
to promote accountability and transparency in the supply chain of
minerals from conflict-affected and high-risk areas.'' \615\ A comment
letter submitted by the OECD in conjunction with the United Nations
Group of Experts on the Democratic Republic of the Congo (``Group of
Experts'') and the International Conference on the Great Lakes Region
(``ICGLR'') indicated that the OECD due diligence guidance was
``adopted as an OECD Recommendation by forty one OECD and non-OECD
countries meeting at ministerial level on 25 May 2011 under the
chairmanship of U.S. Secretary of State Hillary Rodham Clinton.'' \616\
The final rule does not mandate that an issuer use any particular
nationally or internationally recognized due diligence framework, such
as the OECD's due diligence guidance, in recognition of the fact that
other evaluation standards may develop that satisfy the intent of the
Conflict Minerals Statutory Provision. However, to satisfy the
requirements of the final rule, the nationally or internationally
recognized due diligence framework used by the issuer must have been
established by a body or group that has followed due-process
procedures, including the broad distribution of the framework for
public comment, and be consistent with the criteria standards in GAGAS
established by the GAO.
---------------------------------------------------------------------------

    \614\ OECD, Due Diligence Guidance for Responsible Supply Chains
of Minerals from Conflict-Affected and High-Risk Areas (2011),
available at http://www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/46740847.pdf.
    \615\ See letter from Global Witness I.
    \616\ See letter from OECD I.
---------------------------------------------------------------------------

    As a related matter, one commentator stated that the final rule
should clarify whether an issuer has to describe generally its due
diligence processes or whether issuers have to describe specifically
purchase contracts associated with particular conflict minerals in
their products.\617\ We believe an issuer's description of its due
diligence should be based on the individual issuer's facts and
circumstances. In this regard, if an issuer's due diligence process is
relatively consistent throughout its supply chain, the issuer could
satisfy the requirements by generally describing its due diligence. We
recognize, however, that an issuer may use different due diligence
processes for different aspects of its supply chain. For example, an
issuer using the OECD due diligence guidance may use different due
diligence processes for tin, tantalum, and tungsten as compared with
that for gold. If an issuer exercises significantly different due
diligence processes for different aspects of its supply chain, such as
with separate conflict minerals or products, that issuer should
describe how they are different.
---------------------------------------------------------------------------

    \617\ See letter from ITIC I.
---------------------------------------------------------------------------

    As we note above, a number of commentators recommended that the
final rule allow an issuer to rely on

reasonable representations from suppliers and/or smelters in satisfying
their due diligence requirement,\618\ whereas other commentators argued
that written representations should not be able to satisfy due
diligence by themselves.\619\ The final rule requires that an issuer's
due diligence follow a nationally or internationally recognized due
diligence framework. Therefore, whether an issuer may rely on
reasonable representations from suppliers and/or smelters in satisfying
its due diligence requirement will be dependent on the nationally or
internationally recognized due diligence framework.
---------------------------------------------------------------------------

    \618\ See, e.g., letters from AngloGold, Global Witness I,
Howland, IPC I, ITIC I, Japanese Trade Associations, JVC et al. II,
NEI, NMA II, RILA-CERC, RMA, SEMI, State II, Taiwan Semi, and WGC
II.
    \619\ See letters from Global Witness I, Howland, ITIC I, and
RMA.
---------------------------------------------------------------------------

3. Independent Private Sector Audit Requirements
a. Proposed Rules
    Consistent with the Conflict Minerals Statutory Provision, we
proposed that the description of the measures taken by an issuer to
exercise due diligence on the source and chain of custody of its
conflict minerals include a certified independent private sector audit
conducted in accordance with the standards established by the
Comptroller General of the United States.\620\ Under the Conflict
Minerals Statutory Provision, the GAO is to establish the appropriate
standards for the independent private sector audit. Therefore, we did
not include any auditing standards in the proposed rules or discuss
such standards in the Proposing Release.
---------------------------------------------------------------------------

    \620\ See Exchange Act Section 13(p)(1)(A)(i).
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    A number of commentators indicated that the final rule must clarify
the independent private sector audit's criteria, objectives, and
standards.\621\ One commentator was concerned that, if neither the
Comptroller General nor the Commission required uniform objectives and
standards, the audits would not be useful because they would lack any
comparability.\622\ Some commentators remarked that the Comptroller
General or the Commission must delineate suitable criteria for the
measurement and presentation of the information in the Conflict
Minerals Report, including the elements of the Conflict Minerals Report
subject to the audit, so as to provide an audit framework that would
aid both issuers and auditors.\623\ Such criteria would provide the
basis for the auditor to measure the information provided by the
issuer, and this criteria should be objective, measurable, complete,
and relevant.\624\ Commentators noted, however, that the criteria would
differ based on the objective of the audit. For example, the criteria
for evaluating whether an issuer is correct in concluding that its
products are ``DRC conflict free'' are different from the criteria for
determining whether the issuer's process for determining whether its
products are ``DRC conflict free'' is sufficient.\625\
---------------------------------------------------------------------------

    \621\ See, e.g., letters from American Institute of Certified
Public Accountants (Mar. 1, 2011) (``AICPA I''), American Institute
of Certified Public Accountants (Nov. 17, 2011) (``AICPA II''),
Barrick Gold, BEAC, Calvert, Deloitte, The Elm Consulting Group
International LLC (Mar. 1, 2011) (``Elm''), Ernst & Young LLP (Mar.
2, 2011) (``E&Y''), Grant Thornton (recommending that the Commission
establish a ``working group to support the Comptroller General in
the development of the appropriate form of engagement, including the
criteria to be used to evaluate the subject matter and the opinion
(or conclusion) to be expressed thereon''), Hileman Consulting,
ICGLR, IPC II, KPMG LLP (Mar. 2, 2011) (``KPMG''), MSG III, NEI,
NYCBar I, WGC II.
    \622\ See letter from WGC II.
    \623\ See, e.g., letters from Deloitte and KPMG.
    \624\ See letters from Deloitte and Grant Thornton.
    \625\ See letters from AICPA I and Grant Thornton.
---------------------------------------------------------------------------

    Commentators from the accounting profession and others recommended
that the final rule clearly state the objective of the audit and the
subject matter to be audited.\626\ Some of these commentators
identified possible audit objectives, including: whether management's
description of the procedures and controls performed in an issuer's due
diligence process are fairly described in the Conflict Minerals Report;
\627\ whether the design of an issuer's due diligence process described
in the Conflict Minerals Report conforms to a recognized standard of
due diligence; \628\ whether management's description of an issuer's
due diligence process in its Conflict Minerals Report is accurate, the
results of that process are fairly stated, and the issuer has
evaluated/identified the upstream and downstream due diligence
processes; \629\ whether the design of the due diligence process
described in the Conflict Minerals Report conforms to a recognized a
standard and whether the process was sufficiently effective; \630\
whether the issuer's conclusion regarding the source and chain of
custody of its conflict minerals is accurate; \631\ and whether the
issuer appropriately included in the report all its products described
as not ``DRC conflict free.'' \632\ Generally, commentators recommended
that the final rule not require an audit objective to include a
determination as to whether an issuer's due diligence process was
effective or that any conclusion based on that due diligence process
was accurate, because that would be very challenging and expensive to
undertake.\633\
---------------------------------------------------------------------------

    \626\ See letters from AICPA I, AICPA II, Barrick Gold, Grant
Thornton, IPC II, KPMG, MSG III, and SIF II.
    \627\ See letters from AICPA I, AICPA II, Grant Thornton, and
KPMG.
    \628\ See letters from AICPA I, AICPA II, IPC II, and KPMG.
Commentators also observed that this second objective would require
the final rule to provide a clear due diligence standard against
which an auditor could compare the issuer's due diligence process.
    \629\ See letter from MSG III (noting, however, that the audit
scope should not include verification of the ultimate conclusions of
the Conflict Minerals Report, only that the process was applied as
described). See also letter from SIF II (stating that the audit of
the Conflict Minerals Report should include a ``review of management
systems and processes, and of conclusions reached'').
    \630\ See letter from AICPA I.
    \631\ See letters from AICPA I and KPMG.
    \632\ See id.
    \633\ See, e.g., letters from AICPA I, AICPA II, Deloitte, ITIC
I, KPMG, MSG III, and Roundtable.
---------------------------------------------------------------------------

    Additionally, some commentators indicated that the Comptroller
General or the Commission must identify the acceptable auditing
standards for firms to use when auditing an issuer's Conflict Minerals
Report.\634\ In this regard, as some commentators noted,\635\ the
Proposing Release stated that the staff of the GAO informed our staff
of its preliminary view that no new audit standards need to be
promulgated. Therefore, the audit of the Conflict Minerals Report would
be performed under GAGAS, and auditors could use either the provisions
for Attestation Engagements or Performance Audits in GAGAS.\636\
However, as commentators noted, in addition to certain substantive
differences between the two standards in GAGAS, only a licensed
certified public accountant or person working with a certified public
accounting firm or governmental auditing organization may perform an
Attestation Engagement.\637\ Similarly, commentators noted that
Performance Audits are not required to be conducted by certified public
accountants, but auditors using the Performance Audit standard would
still need to satisfy certain qualification requirements under GAGAS,
such as continuing professional education requirements, quality control
measures, and

independent peer reviews.\638\ In this regard, to increase the pool of
auditors and thereby reduce costs, some commentators recommended that
the final rule allow auditors to use the Performance Audit standard
under GAGAS.\639\ Some of these commentators recommended that auditors
that are not certified public accountants could satisfy GAGAS's
Performance Audit qualification requirements by receiving a
professional certification relating to environmental, health, and
safety auditing from organizations that certify auditors by requiring
that an auditor meet certain standards, such as having a code of
conduct, committing to a code of ethics and rigorous practices,
engaging in continuing professional development and education, being
subjected to review, and other provisions to maintain a high caliber of
expertise.\640\ One commentator suggested that the final rule should
allow any auditor to perform the audit as long as it was knowledgeable
and able to meet the requirements of the OECD's criteria for the
competence of auditors.\641\ Other commentators noted, however, that
the OECD's criteria for the competence of auditors are inadequate
because they fail to provide any guidance as to how this would be
assured.\642\ Another commentator recommended that the final rule
should delineate specific requirements for the accreditation and
selection of auditors but did not provide any suggested
requirements.\643\
---------------------------------------------------------------------------

    \634\ See letters from AICPA I, Deloitte, E&Y, Elm, and KPMG.
    \635\ See, e.g., letters from Barrick Gold and E&Y.
    \636\ See letters from AICPA I, AICPA II, BEAC, Deloitte, E&Y,
Elm, Grant Thornton, and MSG III.
    \637\ See, e.g., letters from AICPA I and BEAC.
    \638\ See letter from Deloitte and BEAC.
    \639\ See, e.g., letters from ArcelorMittal, ARI, BEAC, Hileman
Consulting, IPC II, and MSG III.
    \640\ See letters from BEAC and Hileman Consulting.
    \641\ See letter from NYCBar I.
    \642\ See letter from ARI and BEAC.
    \643\ See letter from ICGLR.
---------------------------------------------------------------------------

    Several commentators asserted that the final rule should clarify
the independence standards for auditors.\644\ Some of these
commentators \645\ recommended that the final rule state that
performing the independent private sector audit of the Conflict
Minerals Report is not inconsistent with the Commission's auditor
independence requirements in Rule 2-01 of Regulation S-X.\646\ One
commentator noted, however, that the OECD's independence requirements
prohibit a Conflict Minerals Report auditor from having provided any
other service for the issuer within a 24-month period.\647\ Similarly,
two other commentators asserted that the statement in the proposed
rules and the Conflict Minerals Statutory Provision that the
independent private sector audit would be considered a ``critical
component of due diligence'' could create confusion regarding the
application of our auditor independence requirements in Rule 2-01 of
Regulation S-X.\648\
---------------------------------------------------------------------------

    \644\ See, e.g., letters from AICPA I, Deloitte, E&Y, Grant
Thornton, Hileman Consulting, and KPMG.
    \645\ See letters from AICPA I, Deloitte, and E&Y.
    \646\ 17 CFR 210.2-01.
    \647\ See letter from KPMG.
    \648\ See letters from E&Y and Grant Thornton.
---------------------------------------------------------------------------

c. Final Rule
i. Auditing Standards
    As noted above, the GAO staff has indicated to our staff that the
GAO does not intend to develop new standards for the independent
private sector audit of the Conflict Minerals Report. As we noted in
the Proposing Release, GAO staff informed our staff that existing GAGAS
standards,\649\ such as the standards for Attestation Engagements or
the standards for Performance Audits will be applicable.\650\ The GAO
staff has also indicated to our staff that the GAGAS Performance
Standards could be used by the auditor to express a conclusion as to
whether the design of the issuer's due diligence measures are in
conformity with the criteria set forth in a nationally or
internationally recognized due diligence framework used by the issuer,
such as the OECD's ``Due Diligence Guidance for Responsible Supply
Chains of Minerals from Conflict-Affected and High-Risk Areas,'' and
whether the issuer's description of the due diligence measures it
performed, as set forth in the Conflict Minerals Report, with respect
to the period covered by the report, is consistent with the due
diligence process that the issuer undertook. Therefore, unless the GAO
makes some formal pronouncement, it appears that any auditor of the
Conflict Minerals Report will need to conduct the audit using the
standards set forth in GAGAS. Because the Conflict Minerals Statutory
Provision provides that the audit standards are to be established by
the GAO, the GAO is responsible for matters pertaining to the audit
standards, including questions or concerns about the application of
such standards.
---------------------------------------------------------------------------

    \649\ See U.S. Gov't Accountability Office, GAO-12-331G,
Government Auditing Standards 2011 Revision (Dec. 2011), available
at http://www.gao.gov/assets/590/587281.pdf.
    \650\ The GAGAS Attestation Engagement standards, in Chapter
3.75, require that auditors be ``licensed certified public
accountants, persons working for a licensed certified public
accounting firm or for a government auditing organization, or
licensed accountants in states that have multi-class licensing
systems that recognize licensed accountants other than certified
public accountants.'' Unlike the GAGAS Attestation Engagement
standards, the GAGAS Performance Audit standards allow auditors
other than certified public accountants to perform a Performance
Audit.
---------------------------------------------------------------------------

ii. Auditor Independence
    Similarly, entities performing an independent private sector audit
of the Conflict Minerals Report must comply with any independence
standards established by the GAO, and any questions regarding
applicability of GAGAS on this point should be directed to the GAO. We
are not adopting any additional independence requirements. Also, the
independence required for the independent private sector audit of the
Conflict Minerals Report is not the same as the OECD's independence
requirement for auditors conducting audits of conflict mineral
smelters.
    We acknowledge commentators' requests to clarify how our own
independence requirements would apply to an accountant that performed
both the independent private sector audit of the Conflict Minerals
Report and an engagement (e.g., the audit of the financial statements
of an issuer) subject to the independence requirements in Rule 2-01 of
Regulation S-X.\651\ The independent private sector audit of the
Conflict Minerals Report is specifically described in the Act as
constituting a ``critical component'' of the registrant's due diligence
process,\652\ which commentators were concerned may suggest the auditor
would perform work that would impair independence. Despite this
language, the Conflict Minerals Statutory Provision only requires an
audit and no other functions that may imperil independence, such as
``management functions'' described in Rule 2-01(c)(4)(vi) of Regulation
S-X. Therefore, we do not believe that it would be inconsistent with
the independence requirements in Rule 2-01 of Regulation S-X if the
independent public accountant also performs the independent private
sector audit of the Conflict Minerals Report. The engagement to perform
the independent private sector audit of the Conflict Minerals Report
would nevertheless be considered a ``non-audit service'' subject to the
pre-approval requirements

of Rule 2-01(c)(7) of Regulation S-X. In addition, the fees related to
the independent private sector audit of the Conflict Minerals Report
would need to be included in the ``All Other Fees'' category of the
principal accountant fee disclosures.\653\ If the accountant were to
provide services that extended beyond the scope of the independent
private sector audit of the Conflict Minerals Report, the accountant
would need to consider whether those services were inconsistent with
Rule 2-01 of Regulation S-X.
---------------------------------------------------------------------------

    \651\ Rule 2-01 of Regulation S-X [17 CFR 210.2-01].
    \652\ Exchange Act Section 13(p)(1)(A)(i), as added by Section
1502 of the Act, states that the independent private sector audit of
the conflict minerals report is included in the ``measures taken by
the [issuer] to exercise due diligence on the source and chain of
custody of such minerals.'' Exchange Act Section 13(p)(1)(B) further
provides that the audit must be certified by the issuer and states
that the certified audit ``is a critical component of due diligence
in establishing the source and chain of custody of such minerals.''
These provisions make clear that the independent private sector
audit is one step in management's due diligence process.
    \653\ See Item 9(e)(4) of Schedule 14A [17 CFR 240.14a-101].
Registrants also are required to describe the nature of the services
comprising the fees disclosed under the ``All Other Fees'' category.
As such, the independent private sector audit of the Conflict
Mineral Report should be included in that description.
---------------------------------------------------------------------------

iii. Audit Objective
    We agree with commentators that the final rule should clearly state
the objective of the Conflict Minerals Statutory Provision's
independent private sector audit and the subject matter to be audited
to provide a basis for the auditor to measure the information provided
by the issuer. Therefore, the final rule specifies an audit objective.
The final rule states that the audit's objective is to express an
opinion or conclusion as to whether the design of the issuer's due
diligence framework as set forth in the Conflict Minerals Report, with
respect to the period covered by the report, is in conformity with, in
all material respects, the criteria set forth in the nationally or
internationally recognized due diligence framework used by the issuer,
and whether the issuer's description of the due diligence measures it
performed as set forth in the Conflict Minerals Report, with respect to
the period covered by the report, is consistent with the due diligence
process that the issuer undertook.
    The Conflict Minerals Statutory Provision requires an issuer to
submit a Conflict Mineral Report that includes ``a description of the
measures taken by the [issuer] to exercise due diligence on the source
and chain of custody of its conflict minerals, which measurers shall
include an independent private sector audit of such report,'' \654\ and
``a description of the products manufactured or contracted to be
manufactured that are not DRC conflict free.'' \655\ We recognize that
the final rule does not require an audit of the entire Conflict
Minerals Report. We believe, however, that it is appropriate for the
final rule to limit the audit only to the sections of the Conflict
Minerals Report that discuss the design of the issuer's due diligence
framework and the due diligence measures the issuer performed because
the provision's requirement for an issuer to obtain an independent
private sector audit is located in the provision's subsection relating
to due diligence.\656\
---------------------------------------------------------------------------

    \654\ Exchange Act Section 13(p)(1)(A)(i).
    \655\ Exchange Act Section 13(p)(1)(A)(ii).
    \656\ See Exchange Act Section 13(p)(1)(A)(i).
---------------------------------------------------------------------------

    The audit requirement is not discussed in the subsequent subsection
that requires a description in the Conflict Minerals Report of the
issuer's products manufactured or contracted to be manufactured that
are ``not DRC conflict free,'' \657\ and the final rule does not
require an audit of that information. We note that the objective we are
adopting differs significantly from the objectives of other audits
required by our rules.\658\ Nonetheless, in light of the statutory
structure, as well as concerns about the costs that could arise from a
requirement to audit the conclusion about the conflict minerals' status
or take other approaches,\659\ we have concluded that the audit
objective should be limited in this manner. We recognize that an audit
objective requiring an auditor to express an opinion or conclusion as
to whether the design of the issuer's due diligence measures as set
forth in the Conflict Minerals Report, with respect to the period
covered by the report, is in conformity with, in all material respects,
the criteria set forth in the nationally or internationally recognized
due diligence framework used by the issuer, and whether the issuer's
description of the due diligence measures it performed as set forth in
the Conflict Minerals Report, with respect to the period covered by the
report, is consistent with the due diligence process that the issuer
undertook, is not as comprehensive as an audit objective requiring an
auditor to express an opinion or conclusion as to whether the due
diligence measures were effective, or to express an opinion or
conclusion as to whether or not the issuer's necessary conflict
minerals are ``DRC conflict free,'' which are more similar to audit
objectives in our other rules. However, we believe that the audit is
still meaningful because investors and other users will have some
assurance from an independent third party that the issuer's due
diligence framework, as set forth in the Conflict Minerals Report, is
designed in conformity with the relevant nationally or internationally
recognized due diligence framework. Further, we believe it is necessary
and appropriate to require the audit to address whether the issuer
actually performed the due diligence measures that it represents that
it performed in the Conflict Minerals Report, so that the audit also
addresses, in a cost efficient manner, the actual performance of the
due diligence and not just the design, as well as provides independent
third party confirmation that the work described was performed.
---------------------------------------------------------------------------

    \657\ See Exchange Act Section 13(p)(1)(A)(ii).
    \658\ The objective of the ordinary audit of financial
statements by the independent auditor is the expression of an
opinion on the fairness with which they present, in all material
respects, financial position, results of operations, and its cash
flows in conformity with generally accepted accounting principles.
See paragraph .01 of AU sec. 110, Responsibilities and Functions of
the Independent Auditor. The auditor's objective in an audit of
internal control over financial reporting is to express an opinion
on the effectiveness of the company's internal control over
financial reporting, as a part of which the auditor should test the
design effectiveness of controls, as well as the operating
effectiveness of controls. See paragraphs 3, 42, and 44 of Auditing
Standard No. 5, An Audit of Internal Control over Financial
Reporting That Is Integrated With An Audit of Financial Statements.
    \659\ See, e.g., letters from AICPA I, Deloitte, and KPMG.
---------------------------------------------------------------------------

4. Recycled and Scrap Minerals
a. Proposed Rules
    As proposed, the rules would allow for different treatment of
conflict minerals from recycled and scrap sources than from original
sources due to the difficulty of looking through the recycling or scrap
process to determine the mine or other location of origin of the
minerals. Given this difficulty, we expected that an issuer generally
would not know the origins of its recycled or scrap conflict minerals,
so we believed it would be appropriate for the proposed rules to
require that an issuer using recycled or scrap conflict minerals
furnish a Conflict Minerals Report subject to special rules. Under the
proposed rules, if an issuer obtained conflict minerals from a recycled
or scrap source, it would have been required to consider the products
containing or produced with those conflict minerals to be ``DRC
conflict free.'' \660\
---------------------------------------------------------------------------

    \660\ Because the proposed rules would have automatically
classified recycled or scrap conflict minerals as ``DRC conflict
free,'' issuers with products containing such minerals would not
have needed to provide in the Conflict Minerals Report a description
of the recycled or scrap conflict minerals' processing facilities or
country of origin, nor would they have been required to describe
their efforts to determine the mine or location of origin with the
greatest possible specificity.
---------------------------------------------------------------------------

    As proposed, an issuer with conflict minerals that originated from
recycled or scrap sources would have been required to disclose in its
annual report, under the ``Conflict Minerals Disclosure'' heading, that
its conflict minerals were obtained from recycled or

scrap sources and that it furnished a Conflict Minerals Report
regarding those recycled or scrap minerals. Also, under the proposed
rules, an issuer would have been required to state that its products
containing or produced with recycled or scrap minerals in the Conflict
Minerals Report were considered ``DRC conflict free.'' In addition,
such an issuer would have described the measures taken to exercise due
diligence in determining that its conflict minerals were recycled or
scrap and obtain an independent private sector audit of that report.
    We did not propose to define when a conflict mineral is from
recycled or scrap sources. Instead, any issuer seeking to use this
alternative approach would describe the measures it took to exercise
due diligence in determining that the conflict minerals came from
recycled or scrap sources. The Proposing Release stated, however, that
we would consider conflict minerals to be ``recycled'' if they are
reclaimed end-user or post-consumer products, but we would not consider
those minerals ``recycled'' if they are partially processed,
unprocessed, or a byproduct from another ore.\661\
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    \661\ As we noted in the Proposing Release, the proposed rules
regarding recycled and scrap conflict minerals would apply to all
conflict minerals equally. If recycled or scrap minerals were mixed
with new minerals, the recycled and scrap alternative approach would
apply to only the portion of the minerals that were recycled or
scrap and the issuer would be required to furnish a Conflict
Minerals Report regarding at least the recycled or scrap minerals.
If the issuer's new conflict minerals did not originate in the
Covered Countries, that Conflict Minerals Report would contain only
information regarding the recycled or scrap minerals. If, however,
the new conflict minerals originated in the Covered Countries, or
the issuer was unable to determine that its new conflict minerals
did not originate in the Covered Countries, the Conflict Minerals
Report would include information regarding both the new conflict
minerals and the recycled or scrap conflict minerals.
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b. Comments on the Proposed Rules
    Commentators offered a wide variety of views on the appropriate
approach to conflict minerals from recycled or scrap sources. A number
of commentators stated that they either agreed with the recycled and
scrap alternative reporting requirements, as proposed, or agreed with
some type of recycled and scrap alternative reporting requirements or
exemption, although some of these commentators did not necessarily
discuss the mechanics of such reporting alternatives.\662\ Some
commentators indicated that they supported, as proposed, alternative
recycled or scrap reporting that requires an issuer to perform due
diligence in determining that the conflict minerals were, in fact, from
recycled and scrap sources and to submit a Conflict Minerals Report
describing the due diligence exercised that includes an audit of the
report.\663\ A number of commentators believed that the final rule
should require that an issuer only conduct the equivalent of a
reasonable country of origin inquiry, instead of due diligence, to
determine whether its conflict minerals were from recycled or scrap
sources.\664\ Also, some of these and other commentators stated
explicitly that an issuer should not be required to submit a Conflict
Minerals Report and/or an audit of its recycled or scrap conflict
minerals.\665\ Other commentators, including a number of members of
Congress, recommended that the final rule exempt conflict minerals from
recycled or scrap sources.\666\
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    \662\ See, e.g., letters from AAEI, AAFA, CRS I, Global Tungsten
I, Global Witness I, Japanese Trade Associations, MSC I, NRF I, Ohio
Precious Metals (Mar. 2, 2011) (``OPM''), PCP, Representative Jason
Altmire (Mar. 23, 2012) (``Rep. Altmire''), Rep. Amodei, Rep. Bachus
et al., Rep. Critz, Rep. Ellmers, Representative Steven LaTourette
(Jun. 13, 2012) (``Rep. LaTourette''), Representative Robert E.
Latta (May 16, 2012) (``Rep. Latta''), Rep. Murphy, Representatives
Tim Murphy and Peter J. Visclosky (Aug. 2, 2012) (``Reps. Murphy and
Visclosky''), Representative James B. Renacci (Mar. 6, 2012) (``Rep.
Renacci''), Representative Bill Shuster (Mar. 12, 2012) (``Rep.
Shuster''), Representative Patrick J. Toomey (Apr. 12, 2012) (``Rep.
Toomey''), Representative Stephen A. Womack (Dec. 23, 2011) (``Rep.
Womack''), RMA, SEMI, Senator Mark Pryor (Mar. 19, 2012) (``Sen.
Pryor''), and US Steel.
    \663\ See, e.g., letters from Bario-Neal, Brilliant Earth,
Earthworks, Enough Project I, Enough Project IV, Hacker Jewelers,
ICAR et al. II, Howland, SIF I, and TIAA-CREF.
    \664\ See, e.g., letters from AdvaMed I, Advanced Medical
Technology Association (Nov. 1, 2011) (``AdvaMed II''), AngloGold,
Global Tungsten II, Industry Group Coalition I, ITIC I, ITRI I, ITRI
IV, JVC et al. II, LBMA I, Metalor Technologies USA (Feb. 25, 2011)
(``Metalor''), NMA I, RJC I, United States Chamber of Commerce (Nov.
29, 2011) (``Chamber III''), and WGC II.
    \665\ See, e.g., letters from AdvaMed I, AdvaMed II,
ArcelorMittal, Copper & Brass Fabricators Council, Inc. (Mar. 2,
2011) (``Copper & Brass''), Global Tungsten II, IPC I, IPC II, ITIC
I, ITRI I, ITRI III, ITRI IV, JVC et al. II, JVC et al. III,
Materials I, NAM I, Rep. Altmire, Rep. Amodei, Rep. Bachus et al.,
Rep. Ellmers, Rep. Murphy, Rep. Shuster, Sen. Pryor, Specialty Steel
Industry of North America (Mar. 2, 2011) (``SSINA''), Tiffany, and
WGC II. See also letter from Rep. Critz (stating that we should
consider ``reconfiguring the auditing requirement as it relates to
recycled scrap materials'').
    \666\ See, e.g., letters from Rep. Altmire, Rep. Murphy, Reps.
Murphy and Visclosky (recommending exempting recycled or scrap steel
that contains conflict minerals), Rep. Renacci, Rep. Shuster, Rep.
Toomey, Rep. Womack, and Sen. Pryor.
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    Other commentators stated that the final rule should require due
diligence but not a Conflict Minerals Report, not require a Conflict
Minerals Report but require an audit of the inquiry into whether the
conflict minerals are from recycled or scrap sources, require a
``reliable process'' to determine whether the conflict minerals are
from recycled or scrap sources, or not require that an issuer provide
any information other than a statement that the conflict minerals are
from recycled or scrap sources.\667\ Some commentators agreed that
products with conflict minerals from recycled and scrap sources should
be considered ``DRC conflict free,'' as proposed.\668\ Other
commentators indicated that the final rule should require an issuer
with products containing conflict minerals from recycled or scrap
sources to label those products with a name other than ``DRC conflict
free,'' such as ``recycled'' or ``scrap'' products.\669\
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    \667\ See, e.g., letters from Cleary Gottlieb, JVC et al. II,
MSG I, and NEI.
    \668\ See, e.g., letters from Copper & Brass, JVC et al. II, MSG
I, NEI, NMA II, SIF I, SSINA, TIAA-CREF, and WGC II.
    \669\ See, e.g., letters from CRS I, Global Witness I, and State
II.
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    Some commentators stated that the more the alternative reporting
approach for conflict minerals from recycled or scrap sources resembles
our approach for newly mined conflict minerals the greater the risk of
creating a disincentive for a manufacturers to use conflict minerals
from recycled or scrap sources.\670\ As one of these commentators
asserted, without certain alternative reporting requirements for
issuers with conflict minerals from recycled or scrap sources, such
minerals ``would be doomed for burial in a land fill until mined anew
under a different authority having jurisdiction,'' which would be a
``clear waste'' of conflict minerals that ``cannot contribute to new
suffering in the DRC even though its disposition regarding past
suffering may not be clear.'' \671\ According to this commentator, ``it
is possible that dishonest people may find a way to pass new material
off as recycled,'' but this possibility ``does not outweigh the very
obvious benefit of using recycled products and materials.'' \672\ In
this regard, other commentators argued that requiring issuers to
provide the reason they determined that their conflict minerals came
from recycled or scrap sources, including the due diligence processes
they used in making their determination, would offset the reduced
burden provided by the exemption.\673\
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    \670\ See, e.g., letters from Copper & Bass, Global Tungsten I,
RMA, SEMI, and SSINA.
    \671\ See letter from SEMI.
    \672\ See id.
    \673\ See letters from Rep. LaTourette and Rep. Latta.
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    One commentator suggested that an issuer should be able to describe
a product as using recycled or scrap minerals if a majority of the
minerals used in the product are from recycled or

scrap sources or a combination of recycled, scrap, and newly mined
conflict minerals because it would be impossible to determine whether
all the minerals in a product were from recycled or scrap sources.\674\
Another commentator recommended that the final rule should allow an
issuer to describe its products as ``DRC conflict free'' if a majority
of the conflict minerals in those products are from recycled or scrap
sources.\675\ One commentator asserted that tolled material (scrap,
second life-cycle materials, or ores processed into raw materials
suitable for use in the manufacture of products) received from
processing facilities or suppliers should be treated as conflict free
if the original material supplied was conflict free.\676\ A number of
other commentators suggested that the final rule allow an issuer to
designate the origin of any recycled or scrap conflict minerals as the
country in which those minerals were generated and collected or
otherwise initially submitted into the recycling or scrap supply chain,
which is consistent with the United States customs law.\677\ Also,
commentators agreed that the alternative reporting requirements for
recycled and scrap minerals should apply to all conflict minerals and
issuers equally.\678\
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    \674\ See letter from AngloGold.
    \675\ See letter from WGC II.
    \676\ See letter from Global Tungsten II.
    \677\ See, e.g., letters from IPMI I, LBMA I, Metalor, NMA II,
and RJC I.
    \678\ See, e.g., letters from Howland, IPC I, ITRI I, and NEI.
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    Many commentators discussed the Proposing Release's statement that
we would consider conflict minerals to be from a recycled or scrap
sources if those minerals are reclaimed end-user or post-consumer
products but would not consider those minerals ``recycled'' if they are
partially processed, unprocessed, or a byproduct from another ore. Some
of these commentators recommended that the final rule expand this
statement to match the OECD's definition of recycled and scrap minerals
or explicitly adopt the OECD's definition in the final rule.\679\
Likewise, certain commentators recommended that the final rule clarify
that we would consider conflict minerals from recycled or scrap sources
to include scrap processed metals created during product manufacturing,
which is part of the OECD definition.\680\ These commentators, however,
were concerned that the Proposing Release did not consider partially
processed materials as being recycled, because they believed that such
a definition would exclude industrial scrap, sometimes referred to as
``new'' scrap, generated by downstream manufacturers from the treatment
given to recycled minerals.\681\
---------------------------------------------------------------------------

    \679\ See, e.g., letters from Global Witness I, MSG I, and SIF
I.
    \680\ See, e.g., letters from Copper & Brass and SSINA.
    \681\ Id.
---------------------------------------------------------------------------

    Some commentators provided alternative definitions for recycled and
scrap minerals. One commentator stated that the final rule should
define a recycled or scrap conflict mineral as ``a conflict mineral or
a conflict mineral derivative that is within, or has been reclaimed
from, a used product that was collected directly from the last product
end user, or that was collected from a municipal waste stream.'' \682\
Other commentators indicated that conflict minerals should be
considered recycled or scrap only if they have been through a cycle of
production and application.\683\ A further commentator suggested that
the final rule adopt, in substantial part, the Environmental Protection
Agency's definition of solid waste for our definition of conflict
minerals from recycled or scrap sources, with the related exclusions
and definitions of various scrap materials.\684\ One commentator
recommended that we incorporate the Electronic Industry Citizenship
Coalition's (``EICC'') definition of ``scrap'' for tantalum as the
definition for scrap in the final rule.\685\ Certain commentators
sought to limit the definition of recycled and scrap minerals to 100%
post-consumer metals.\686\ Some commentators suggested a definition
that would include reclaimed materials from the manufacture of
downstream products that incorporate those metals, processes utilizing
those metals, or end-user or post-consumer products, which would not
include minerals partially processed, materials from the partially
processed minerals, or materials from intermediate stages of the
smelting and refining process.\687\ One commentator recommended that
the final rule consider as conflict minerals from recycled or scrap
sources, ``not only * * * post-consumer scrap, but also * * * scrap
that is the result of an industrial process.'' \688\
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    \682\ See letter from SEMI (defining a ``used product'' as ``a
product that, prior to recycling or disposal, is commercially sold
or otherwise distributed to a buyer not in the commercial chain of
distribution and used for some period of time'').
    \683\ See letters from Global Tungsten I and RMA.
    \684\ See letter from Elm.
    \685\ See letter from H.C. Starck GmbH (Jul. 27, 2011)
(``Starck'').
    \686\ See, e.g., letters from Bario-Neal, Brilliant Earth,
Earthworks, Metalsmiths, Hacker Jewelers, and TakeBack.
    \687\ See letters from ITRI I, JGI, and Solutions.
    \688\ See letter from ArcelorMittal.
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    Additionally, some commentators provided recommendations
specifically for treating conflict minerals in jewelry, coins, and bars
as recycled or scrap. One such commentator stated that conflict
minerals from discarded consumer jewelry should be considered recycled
or scrap.\689\ Another commentator argued that any definition of
recycled and scrap gold should grandfather gold bars and gold coins
produced before the effective date of the final rule and exclude
sludges, slimes, flue dust, carbon fines, slag, and other by-products
from consideration as conflict minerals.\690\ Conversely, other
commentators stated that the definition of conflict minerals from
recycled or scrap sources should include only those conflict minerals
from post-consumer products and not include any jewelry unsold or not
previously owned as end-use products by consumers.\691\ Also, some of
these commentators indicated that gold coins and bars should not be
classified as recycled or scrap \692\ because, as some of these
commentators stated, they do not represent a clear consumer end-of-life
product and are less identifiable as not newly-mined gold.\693\
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    \689\ See letter from JVC et al. II.
    \690\ See letter from NMA II.
    \691\ See, e.g., letters from Brilliant Earth, Bario-Neal,
Earthworks, Enough Project I, Hacker Jewelers, ICAR et al. II, and
TakeBack
    \692\ See, e.g., letters from Brilliant Earth, Bario-Neal,
Enough Project I, Hacker Jewelers, ICAR et al. II, and TakeBack.
    \693\ See letter from Enough Project I and ICAR et al. II.
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c. Final Rule
    We are revising the proposal's treatment of conflict minerals from
recycled and scrap sources in the final rule. We agree with
commentators that it is appropriate to provide alternative treatment
for such conflict minerals so that the final rule does not provide a
disincentive for using conflict minerals from recycled and scrap
sources. However, we also want to include safeguards to prevent issuers
from claiming to use conflict minerals from recycled and scrap sources
when that is not the case. We believe, as certain commentators
noted,\694\ requiring an issuer with necessary conflict minerals to
conduct an inquiry similar to the reasonable country of origin inquiry
to determine whether its minerals are from

recycled or scrap sources is an appropriate way to balance these
concerns.\695\ Under the final rule, if an issuer has reason to
believe, as a result of its reasonable country of origin inquiry, that
its conflict minerals may not have been from recycled or scrap sources,
it must exercise due diligence. The issuer would then be required to
provide a Conflict Minerals Report if it is unable to determine that
the conflict minerals came from recycled or scrap sources.
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    \694\ See, e.g., letters from AdvaMed I, AdvaMed II, AngloGold,
Global Tungsten II, Industry Group Coalition I, ITIC I, ITRI I, ITRI
IV, JVC et al. II, LBMA I, Metalor, NMA I, RJC I, Chamber III, and
WGC II.
    \695\ Because we envision these inquiries to be similar, we use
the term ``reasonable country of origin inquiry'' to refer to an
issuer's inquiry into both the conflict minerals' country of origin
and whether the minerals are from recycled or scrap sources.
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    We believe this approach for any issuer with conflict minerals from
recycled or scrap sources is consistent with the Conflict Minerals
Statutory Provision. The provision was intended to affect the
``exploitation and trade of conflict minerals originating in the
Democratic Republic of the Congo [that] is helping to finance conflict
characterized by extreme levels of violence in the eastern Democratic
Republic of the Congo.'' \696\ As noted by some commentators, however,
armed groups in the Covered Countries are financed and benefit from the
extraction and illegal taxation of newly mined conflict minerals and
their transport, not the use of recycled or scrap conflict
minerals.\697\ No further revenue or other benefit will be provided to
the armed groups from any transaction involving the conflict minerals
from recycled or scrap sources because the armed groups ``have already
extracted their revenue and do not stand to gain with [their] use or
sale.'' \698\
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    \696\ See Section 1502(a) of the Act.
    \697\ See letters from AAEI and Global Tungsten I.
    \698\ See letter from AAEI. See also OECD, OECD Due Diligence
Guidance for Responsible Supply Chains of Minerals from Conflict-
Affected and High-Risk Areas, 7 n.2 (2011), available at http://www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/46740847.pdf (stating that
metals ``reasonably assumed to be recycled are excluded from the
scope of this'' guidance) and OECD, Due Diligence Guidance for
Responsible Supply Chains of Minerals from Conflict-Affected and
High-Risk Areas: Supplement on Gold, 28 n.34 (2012), available at
http://www.oecd.org/corporate/guidelinesformultinationalenterprises/FINAL%20Supplement%20on%20Gold.pdf (stating that ``[r]ecycled
material is not itself a concern for contributing to conflict,
however, recycled material is a potential means of laundering gold
that has been mined in conflict-affected and high-risk areas in
order to hide its origin'').
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    In this regard, we believe it is appropriate, as proposed, to allow
an issuer, if it wishes, to describe its products containing conflict
minerals from recycled or scrap sources as ``DRC conflict free.'' As
one commentator explained, the ``intent of the statute is to provide
investors with information about whether minerals used in manufacturing
processes may contribute to the ongoing conflict in the DRC,'' \699\
and it is ``comfortable that legitimate recycled post-consumer or scrap
minerals do not contribute to the crisis and can be therefore
identified as `DRC conflict free.' '' \700\ We are aware that the