Court Delivers Blow to Conflict Minerals Rule

On April 14, the United States Court of Appeals for the District of Columbia overturned a key provision of the Securities and Exchange Commission’s conflict minerals rule, arguing that compelling a company to declare its minerals conflict-free violates the First Amendment. 

The SEC rule, finalized on Aug. 22 in response to Sect. 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly traded firms to disclose whether they source conflict minerals—including gold and tungsten—from the Democratic Republic of the Congo and surrounding countries. 

The three-judge appeals court panel did concur with a lower-court decision that upheld the rule, agreeing that the SEC did not act “arbitrarily and capriciously” in designing it. But in a 2-to-1 decision, it ruled in favor of Sect. 1502 opponent National Association of Manufacturers (NAM), decreeing that the SEC provision creates “compelled speech.”

“It is far from clear whether the description at issue—whether a product is conflict-free—is factual and nonideological,” wrote Senior Circuit Judge A. Raymond Randolph in the majority opinion. “An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with [the term’s] assessment of its moral responsibility.”

The decision remanded the SEC rule to a lower court to address the First Amendment concerns.

The first reports were to be issued May 31. At press time, it was not clear whether that deadline stands, and legal analysts suggested that the SEC might issue a clarifying statement in the next few days in the light of this verdict.

In an opinion dissenting on the free-speech question, Judge Srikanth Srinivasan argued that since the full Court of Appeals is due to rule on a similar First Amendment claim regarding meat labeling, the panel should have held its ruling until that case was decided.

The ruling is “a major step backward for atrocity prevention in the Great Lakes region of Africa and corporate accountability in the United States,” said a statement from the Enough Project, an NGO that favors conflict mineral regulations. “Requiring companies to come clean about whether their materials fuel armed violence is constitutional and reflective of our intolerance as a society for turning a blind eye to human suffering.”

But the NAM and allied groups Business Roundtable and the U.S. Chamber of Commerce said they were pleased in a joint statement. “We understand the seriousness of the humanitarian situation in the Democratic Republic of the Congo and abhor the violence in that country, but this rule was not the appropriate way to address this problem,” the statement said.

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JCK News Director

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