Companies are asking for flexibility in regulators' approach in defining the terminology used to capture the reporting requirements under the Conflict Minerals Rule. They argued that if definitions used in the rule are too specific, such as the crucial country of origin element required in the reporting, it will only serve to complicate reporting processes and delay companies' readiness to comply with the rule.

Another concern raised by Irma Villarreal, chief securities counsel and assistant corporate secretary at Kraft Foods is the broad manner in which the rule was written that made food manufacturers such as Kraft be included in the reporting and due diligence processes only, because the company is using packaging, marketing, and promotional materials made with traces of the minerals in question.

In addition, she said Kraft had over 100,000 suppliers and they in turn have suppliers of their own. "Respectfully this is not something we can turn on a dime and start doing in 2012. It is going to take us some time. We don't have the ability to talk to 100,000 suppliers to ensure what and who has conflict minerals," she said.

In the roundtable discussion organized by the Securities and Exchange Commission on October 18, market participants and investor groups focused on the complexity of the reporting requirements set forth by the rule. It requires companies who are engaged in the business, whether directly or indirectly, in certain minerals to identify use of conflict minerals in their businesses. If such minerals are present in their products, companies will have to complete due diligence processes and disclose in their annual report in a separate exhibit the country of origin of the mineral. The report must be audited by an independent auditor, and companies are subject to the reporting and auditing requirement annually.

The rule will ban U.S. corporations' use of minerals such as gold, tantalums, tungsten, and coltan mined from the region of DRC. Section 1502 of the Dodd-Frank Act requires the SEC to establish rulemaking and implement the disclosure reporting requirements for supply chain transparency. The rule was proposed last year and the comment period ended in March of this year. More than 250 comments were received from the public with questions and suggestions to the SEC.

Companies earlier strongly cautioned the SEC to slow down and scale back its proposal, as they argued that the language used in the rule may cause unintended consequences such as subjecting companies that have minimum use of these minerals to the extensive reporting requirements. They say it will be costly and difficult to put into practice, as these minerals can be used in minuscule amounts and are almost impossible to track.

Other concerns raised by panelists include the difficulties in finding reliable structure in the DRC to track supply chains, a lack of relationship between refineries and mines to capture data relating to country of origins, and issues with information accuracy. The burden of additional reporting requirement was also raised at the meeting.

Sandy Merber, counsel at General Electric Company, who was also a roundtable panelist, asked the SEC to consider allowing companies the flexibility in the design of reports used to disclose conflict minerals used as an exhibit in annual reports. He said the flexibility will allow companies to report in a more effective and efficient manner instead of using a standard template. He also asked the regulator to consider the inclusion of a safe-harbor provision for companies who have acted in good faith in fulfilling their reporting obligations.

Meanwhile, Villarreal suggested the required report be filed in a separate filing from 10-K, dubbed as Form CM by Villarreal. She also suggested that the SEC set a different deadline to the filing of the report.

Rule in Practice

Michael Littenberg, a partner at law firm Schulte Roth & Zabel ,says many of the issues raised by panelists at the discussion stemmed from the complicated supply chains most companies have. “If you have never mapped out your supply chain and its components, that is going to be the threshold problem,” he says. He predicted that a lot of companies will have issues with their suppliers and vendors that do not have the supply chain information required by the rule.

Currently, there is no guide for companies to pinpoint definitively if a particular product they are using contained traces of minerals subject to the Conflict Mineral Rule. In order for companies to address their compliance with the rule, they will have to create an internal conflict mineral compliance team to focus on the issue, he says. “Create a team consisting of representatives from manufacturing, engineering, procurement, legal, and finance. Get input from people who know the supply chain,” he says.

Littenberg said the SEC expects a total of 6,000 companies to be affected when the rule comes into effect. “If they cannot determine the country of origin of the minerals used, they will be subject to the rule,” he says.