SEC Adopts New Form SD for Specialized Dislosure Report

The SEC has approved new rules on August 22 to implement Sections 1502 and 1504 of the Dodd-Frank Act and govern disclosure about an issuer's use of conflict minerals that originate in the Democratic Republic of Congo or an adjoining country and disclosure of payments by resource extraction issuers made to the U.S. or foreign governments.  Companies are required to provide this disclosure on a new form to be filed with the SEC called Form SD.  The new rules become effective 60 days after publication in the Federal Register.

Dodd-Frank directed the SEC to issue rules requiring certain companies to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are “necessary to the functionality or production of a product” manufactured by those companies.  If a company that files annual reports under the 1934 Act knows or has reason to believe that the minerals may have originated in the covered countries, or knows or has reason to believe that the minerals may not be from scrap or recycled sources, it must conduct due diligence on the source and chain of custody of its conflict minerals and file a conflict minerals report as an exhibit to the Form SD. The conflict minerals report must be provided on company Web sites and the Internet address must be provided on Form SD.

Dodd-Frank also directed the SEC to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by companies engaged in the development of oil, natural gas, or minerals.  Under new 1934 Act Section 13(q), the types of payments related to commercial development activities that need to be disclosed include: 

• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.  In all, approximately 1,100 issuers will be affected.  A resource extraction issuer would be required to file Form SD no later than 150 days after the end of its fiscal year beginning with fiscal years ending after September 30, 2013.  For the first report, issuers may provide a partial report which includes only those payments made after 9/30/13. 

The SEC intends new Form SD to be used equally for the two separate disclosure requirements (relating to conflict minerals and resource extraction payments) and potentially others that would benefit from placement in a specialized disclosure form.  The final rules will require resource extraction issuers to include a brief statement in the body of Form SD and to present the detailed payment information in an exhibit to the form using the XBRL interactive data standard.  Because the XBRL exhibit will be automatically rendered into a readable form available on EDGAR, the SEC is not requiring a separate HTML or ASCII exhibit in addition to the XBRL exhibit.