Beveridge & Diamond

California Bill Would Ban Companies Failing to Meet Conflict Mineral Disclosure Requirements from Bidding on State Contracts

Beveridge & Diamond, P.C., March 16, 2011

On February 18, 2011, California’s Senate Majority Leader Ellen Corbett introduced Senate Bill 861, which, if passed, would prohibit a company that fails to meet U.S. Securities and Exchange Commission (“SEC”) conflict mineral disclosure requirements from bidding on state contracts.  Under the proposed bill, any company that either reported false information in a conflict minerals report submitted to the SEC, filed an “unreliable determination,” or failed to file a conflict minerals report would not be allowed to bid on or submit a proposal for contracts with California state agencies for goods or services.

The proposed bill was referred to the Committee on Government Organization on March 10, 2011.  One concern with the proposed bill is that it is unclear what would constitute an “unreliable determination.”  Section 13(p)(1)(C) of the Securities and Exchange Act of 1934 (as amended) describes an unreliable determination as a conflict minerals report that “relies on a determination of an independent private sector audit . . . or other due diligence processes previously determined by the Commission to be unreliable.”  The SEC’s proposed regulations do little to clarify what types of audits or due diligence processes are considered unreliable. 

If you have questions regarding the Lacey Act amendments or how its requirements apply to your business, please contact Laura Duncan at (415) 262-4003,