Form SD Supporting Statement.Final2019.01-27-2020

SUPPORTING STATEMENT
FOR THE PAPERWORK REDUCTION ACT INFORMATION COLLECTION
SUBMISSION FOR FORM SD

A.

JUSTIFICATION
1.

Circumstances Making the Collection of Information Necessary

The Securities and Exchange Commission (“Commission”) Rule 13p-1 under the
Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Form SD implement
Exchange Act Section 13(p). Section 1502 (“Conflict Minerals Statutory Provision”) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amends the
Exchange Act by adding Section 13(p), which relates to disclosure and reporting obligations by
issuers concerning “conflict minerals” that originated in the Democratic Republic of the Congo
(“DRC”) or an adjoining country (together with the DRC, the “Covered Countries”). Conflict
minerals defined in the Dodd-Frank Act as columbite-tantalite, cassiterite, gold, wolframite, or
their derivatives. Exchange Act Section 13(p) authorized the Commission to promulgate rules
regarding the disclosure of the use of conflict minerals from the Covered Countries.
Exchange Act Section 13(p) requires that a “person described” disclose annually whether
any “conflict minerals” that are “necessary to the functionality or production of a product
manufactured by such person” originated in the Covered Countries, and make that disclosure
publicly available on the issuer’s Internet website. If such a person’s conflict minerals originated
in the Covered Countries, that person must submit a report (“Conflict Minerals Report”) to the
Commission that includes a description of the measures taken by the person to exercise due
diligence on the minerals’ source and chain of custody.
Form SD is used to implement Section 13(q) of the Securities Exchange Act of 1934 (the
“Exchange Act”). Section 13(q) was added by Section 1504 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”). Section 13(q) requires the
Commission to issue rules requiring resource extraction issuers to include in an annual report
information relating to certain payments made by the issuer, a subsidiary of the issuer, or an
entity under the control of the issuer, to a foreign government or the federal government for the
purpose of the commercial development of oil, natural gas, or minerals. Section 13(q) requires a
resource extraction issuer to provide information about the type and total amount of certain
payments made for each project related to the commercial development of oil, natural gas, or
minerals, and the type and total amount of payments made to each government. In addition,
Section 13(q) requires a resource extraction issuer to provide information regarding those
payments in an interactive data format.
2.

Purpose and Use of the Information Collection

The purpose of the regulation is to implement Section 1502 of the Dodd-Frank Act that,
as discussed above, added Section 13(p) to the Exchange Act. Exchange Act Section 13(p)
requires the Commission to promulgate rules requiring issuers with conflict minerals that are
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necessary to the functionality or production of a product manufactured by such person to disclose
annually whether any of those minerals originated in the Covered Countries. Exchange Act Rule
13p-1 and Form SD require reporting issuers that manufacture products or contract to have
products manufactured that contain conflict minerals necessary to the functionality or production
of those products to conduct a reasonable inquiry into the origin of those conflict minerals.
Based on this inquiry, an issuer may have to conduct a more extensive inquiry that requires the
exercise of due diligence on the source and chain of custody of its conflict minerals. Depending
on the results of the due diligence, the issuer may have to describe the products containing
conflict minerals that have not been found to be “DRC conflict free” in a Conflict Minerals
Report that is filed as an exhibit to Form SD, a specialized disclosure form, and obtain an
independent private sector audit of the Conflict Minerals Report. The information collected on
Form SD may be used by interested parties to determine whether an issuer’s products contain
conflict minerals and, if so, the source and chain of custody of an issuer’s conflict minerals.
As discussed above, Section 13(q) requires the Commission to issue rules requiring
resource extraction issuers to include in an annual report information relating to any payment
made by the issuer, a subsidiary of the issuer, or an entity under the control of the issuer, to a
foreign government or the federal government for the purpose of the commercial development of
oil, natural gas, or minerals. A primary goal of such transparency is to help empower citizens of
those resource-rich countries to hold their governments accountable for the wealth generated by
those resources. To accomplish this goal, Congress created a disclosure regime in Exchange Act
Section 13(q) that would support the commitment of the U.S. federal government to international
transparency promotion efforts relating to the commercial development of oil, natural gas, or
minerals.
3.

Consideration Given to Information Technology

Form SD is filed electronically with the Commission using the Commission’s Electronic
Data Gathering, Analysis and Retrieval System (“EDGAR”).
4.

Duplication of Information

The Commission is not aware of any rules that conflict with or substantially duplicate the
final regulation.
5.

Reducing the Burden on Small Entities

Form SD can be used by all issuers that file reports with the Commission pursuant to
Exchange Act Sections 13(a) or 15(d) that have conflict minerals that are necessary to the
functionality or production of a product manufactured by the issuer or contracted by the issuer to
be manufactured. Generally, the requirements of the final regulation do not vary based on the
size of the issuer. Smaller reporting companies, however, are permitted to use the temporary
“DRC conflict undeterminable” transition period, if applicable, for four years instead of the twoyear transition period for all other issuers. The Commission believes that the final regulation
would affect small entities with necessary conflict minerals.

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6.

Consequences of Not Conducting Collection

To accomplish the goal of helping end the human rights abuses in the DRC caused by the
conflict, Congress chose to use the securities laws disclosure requirements to bring greater public
awareness of the source of issuers’ conflict minerals and to promote the exercise of due diligence
on conflict mineral supply chains. By doing so, the Commission understands Congress’s main
purpose to have been to attempt to inhibit the ability of armed groups in the Covered Countries
to fund their activities by exploiting the trade in conflict minerals. Reducing the use of such
conflict minerals is intended to help reduce funding for the armed groups contributing to the
conflict and thereby put pressure on such groups to end the conflict. The Congressional object is
to promote peace and security in the Covered Countries. Section 1502 amended the Exchange
Act by adding Section 13(p), which requires the Commission to promulgate disclosure and
reporting regulations regarding the use of conflict minerals from the Covered Countries. The
rule and form implement Exchange Act Section 13(p) by setting forth the conflict minerals
disclosure requirements for issuers. Failure to require the collection of information would
frustrate the statutory intent of Exchange Act Section 13(p) and Section 1502 of the Dodd-Frank
Act.
Congress elected to use the disclosure requirements in the federal securities laws to
increase the transparency of payments made by oil, natural gas, and mining companies to
governments for the purpose of the commercial development of their oil, natural gas, and
minerals. A primary goal of such transparency is to help empower citizens of those resource-rich
countries to hold their governments accountable for the wealth generated by those resources.
Failure to require the collection of information would frustrate the statutory intent of Section
1504 of the Dodd-Frank Act and Exchange Act Section 13(q).
7.

Special Circumstances

There are no special circumstances.
8.

Consultations with Persons Outside the Agency

No public comments were received during the 60-day comment period prior to OMB’s
review of this submission.
9.

Payment or Gift to Respondents

No payment or gift to respondents.
10.

Confidentiality

All documents filed with the Commission are public documents.

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11.

Sensitive Questions

Form SD has no information of a sensitive nature, including social security numbers, will
be required under this collection of information. The information collection collects basic
Personally Identifiable Information (PII) that may include name, telephone number and job title.
However, the agency has determined that the information collection does not constitute a system
of record for purposes of the Privacy Act. Information is not retrieved by a personal identifier. In
accordance with Section 208 of the E-Government Act of 2002, the agency has conducted a
Privacy Impact Assessment (PIA) of the EDGAR system, in connection with this collection of
information. The EDGAR PIA, published on January 29, 2016, is provided as a supplemental
document and is also available at https://www.sec.gov/privacy.
12/13. Estimate of Respondents Reporting Burden and Total Annualized Cost Burden
Table 1 Estimate paperwork burden under Form SD under Section 13(p) requirements
related to Form SD

Information
Collection
Title

A
Number of
responses

B
Burden
hours/form

C
Total burden
hours
AxB

D
Internal
issuer time
C x 0.75

Form SD

864

480.61265

415,249.3233

311,436.9972

E
External
professional
time
C x 0.25 x $400
103,812.332

Professional
costs

$41,524,932

Table 2.Estimated total paperwork burden under Sections 13(p) and 13(q) requirements
related to Form SD
Information
Collection
Title

A
Number
of
responses

Form SD

1,481

B
Burden
hours/form

476.11582

C
Total burden
hours
AxB

D
Internal
issuer time
C x 0.75

705,127.5294

528,845.6499

E
External
professional
time
C x 0.25 x
$400
176,281.88

F
Professional
costs

$113,012,752.

For purposes of the Paperwork Reduction Act (“PRA”, we estimate that Form SD takes
approximately 476.11582 hours per response to comply with the collection information
requirements of Sections 13(p) and 13(q) under the Exchange Act and is filed by 1,481 issuers.
Section 13(q), we estimate 75% of the hours per response is prepared internally by the issuers for
an annual total internal reporting burden is approximately 217,408.65 hours ([667 hours per
response x 425 responses] + [33.35 hours per response x 192 responses] x 0.75). When adding
this to existing internal reporting burden hours associated with complying with Section 13(p)
(See Table 1), the total internal reporting burden for Form SD is 528,845.6499 hours
(311,436.9972 + 217,408.65) (See Table 2). Also in connection with Section 13(q), we estimate
25% of the hours per response is prepared by outside professionals retained by the issuers at a
cost of $400 per hour. In addition, we estimate an initial compliance cost of $100,000 for IT
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consulting, training, and travel costs. These additional IT cost would not apply to 192 issuers that
we estimate would not bear the full costs of compliance, because those issuers would already
have IT systems in place to comply with foreign laws. Thus, we estimate a total cost burden for
the amendments of $71,487,820 ((667 hours per response x 425 responses) + (33.35 hours per
response x 192 responses)) x 0.25 x $400) + ($100,000 x 425)). When adding this to the existing
total cost burden associated with complying with Section 13(p), (See Table 1) the total cost
burden is $113,012,752 ($41,524,932) + $71,487,820). (See Table 2) For administrative
convenience, the presentation of the totals related to the paperwork burden hours have been
rounded to the nearest whole number and the cost totals have been rounded to the nearest dollar.
The cost estimate is made solely for the purpose of the Paperwork Reduction Act.
We derived our burden hour estimates by estimating the average number of hours it
would take an issuer to compile the necessary information and data, prepare and review
disclosure, file documents and retain records. In connection with rule amendments to the form,
we occasionally receive PRA estimates from public commenters about incremental burdens that
are used in our burden estimates. We believe that the actual burdens will likely vary among
individual issuers based on the nature of their operations. We further estimate that 75% of the
collection of information burden is carried by the issuers internally and that 25% of the burden of
preparation is carried by outside professionals retained by the company. In addition, we estimate
an hourly cost of $400 for outside legal and accounting services used in connection with public
company reporting. This estimate is based on our consultations with registrants and professional
firms who regularly assist registrants in preparing and filing disclosure documents with the
Commission. Our estimates reflect average burdens, and therefore, some companies may
experience costs in excess of our estimates and some companies may experience costs that are
lower than our estimates.
14.

Costs to Federal Government

The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to $102 million in fiscal year 2018, based on the Commission’s
computation of the value of staff time devoted to this activity and related overhead.
15.

Reason for Change in Burden

Table 3. Adjustment in Form SD estimated change in burden
IC
Title

Form
SD

Current Burden
Previously
Approved

Requested

Change

1,481

1,481

0

Annual Burden
(Hours) (0.75%)
Previously
Requested
Approved
601,315

528,846

Change
(72,469)

Annual Cost Burden
($)(0.25%)
Previously
Requested
Approved
113,011,660

113,012,752

Change
1,019

The decrease of 72,469 burden hours and the increase of $1,092 in cost burden is due to
an adjustment in how the burden hours and costs are calculated for purposes of the Paperwork
Reduction Act.
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16.

Information Collection Planned for Statistical Purposes

The information collection does not employ statistical methods.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of the form.
Including the expiration date on the electronic version of the form will result in increased costs,
because the need to make changes to the form may not follow the application’s scheduled
version release dates. The OMB control number will be displayed.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

There are no exceptions to certification for Paperwork Reduction Act submissions.
B.

STATISTICAL METHODS
The information collection does not employ statistical methods.

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