Nightmare on D&O street — five pitfalls that can lead to significant damage to a company
For company directors, preventing a legal and regulatory fire from starting is always better than fighting the flames later. Sometimes however, these fires can originate from unexpected sources. Below, Ince & Co discusses five pitfalls where a lack of awareness and appropriate precaution can lead to significant damage to the company and personal exposure to legal costs for directors and/or their insurers.
Conflict Mineral Rule
The S1502 Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies listed on a US stock exchange and that use/produce/supply tin, tantalum, tungsten or gold in products in any way connected to the Democratic Republic of the Congo and adjoining countries to investigate and report the source of the mineral to the US government. The rule came into effect in November 2012 for all contracts entered into after 1 January 2013 with the first set of reports being produced by 31 May 2014. The objective is to give investors the option of whether they wish to invest in a company that uses these minerals as evidence from human rights groups has established the conflict in Congo is partially financed by the exploitation and trade of these minerals.
The US Securities Exchange Commission (SEC), which enforces the rule, recognises that the rule will ‘impose significant compliance costs on companies that use/produce/supply these minerals’. The report will need to be audited by an independent auditor and even if a company is able to identify that the minerals are not from the Congo/adjoining country, a ‘specialised disclosure report’ will still need to be filed to confirm the findings…
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