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Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

Conflict Minerals Rule Survives Challenge

(CN) - A federal judge rejected a challenge from opponents of a new disclosure rule that targets manufacturers using "conflict minerals" from the Democratic Republic of Congo.

Congress ordered the Securities and Exchange Commission to enact the conflict minerals rule in 2010, warning regulators that American companies were fueling "an emergency humanitarian situation" in central Africa by using conflict minerals - tantalum, tin, tungsten and gold - in their products.

Under the rule, codified at Section 1502 of the Dodd-Frank Act, any company whose products include conflict minerals that are "necessary to the functionality or production" of the product must inform the commission whether those minerals originated in the DRC or an adjoining country.

Implicated companies must submit a report, known as a Form SD, to the SEC that includes a "description of the measures taken ... to exercise due diligence on the source and chain of custody of such minerals," and "a description of the products manufactured or contracted to be manufactured that are not DRC conflict free," according to the statute.

Companies must also explain "the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity."

The SEC purportedly expects companies to exercise due diligence if it spots any "red flags" indicating that the minerals it uses come from central Africa.

If such diligence shows that its minerals did indeed come from the region, the rule requires it to draft a Conflict Minerals Report and post it on its website.

Aside from the report, however, the rule does not require any type of label or disclosure on products themselves.

The National Association of Manufacturers, the U.S. Chamber of Commerce and Business Roundtable challenged virtually every facet of the rule in a federal complaint.

They first sought review from the D.C. Circuit, but that federal appeals court found that it lacked jurisdiction over SEC rules issued by Dodd-Frank.

U.S. District Judge Robert Wilkins, who received the transferred case in May 2013, granted the government summary judgment last week.

In addition to rejecting the challengers claims under the Administrative Procedures Act, Wilkins found that they failed to present a case under the First Amendment.

He said the rule "directly and materially advances the asserted government interest," and that it is a reasonable response to the humanitarian crisis in the Congo.

"Plaintiffs insist that the disclosure scheme infringes upon the First Amendment 'by compelling companies to publicly state on their own websites ... that certain of their products are 'not DRC conflict free,'" the 63-page opinion states.

"But in so arguing, plaintiffs distort the nature and extent of the disclosure requirements at issue," Wilkins added. "To be clear, all that Section 1502 and the final rule require is that companies publish copies of their Form SD's and/or conflict minerals reports-i.e., verbatim copies of disclosures already prepared for and filed with the Commission-on their websites. ... Neither Section 1502 nor the final rule requires companies to separately or conspicuously publish on their website a list of products that have not been found to be 'DRC conflict free,' as plaintiffs intimate, nor must companies physically label their products as such on the packaging itself. ... Rather, companies can comply with these disclosure requirements simply by making their conflict minerals disclosures available on the same webpage that houses other required SEC filings, such as annual reports, proxy statements, and other investor-related information."

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