US judges uphold ruling that conflict minerals reporting rule ‘violates First Amendment’

A panel of judges at the US Court of Appeals for the District of Columbia circuit has upheld its ruling that requiring companies to state that their products have “not been found to be ‘DRC conflict free’” is “unconstitutional”.

A panel of judges at the US Court of Appeals for the District of Columbia circuit has upheld its ruling that requiring companies to state that their products have “not been found to be ‘DRC conflict free’” is “unconstitutional”.

The requirement is part of section 1502 of the US Dodd-Frank Act, which states that US-listed companies must report on their use of conflict minerals to the Securities and Exchange Commission (SEC).

These include tin, tungsten, tantalum and gold, produced in the Democratic Republic of Congo (DRC) Great Lakes region of Africa.

The two-to-one ruling on August 18 followed a rehearing of the case challenging the conflict minerals reporting rule, originally brought by US Chamber of Commerce, National Association of Manufacturers (NAM) and Business Roundtable.

The SEC, and interveners Amnesty International, requested the rehearing. A ruling in April 2014 had found that section 1502 of the Dodd-Frank Act violated the first amendment of the US constitution – i.e. the right to freedom of speech – by compelling a reporting company to “confess blood on its hands”. 

The rehearing centred on a dispute over whether the reporting requirements constituted “purely factual and uncontroversial information”.

In their latest ruling, Senior Circuit Judges Sentelle and Randolph referred to the cost of compliance with the rule, estimated at $3 billion-$4 billion initially and $207 million-$609 million annually thereafter.

“[There is a] prospect that some companies will therefore boycott mineral suppliers having any connection to this region of Africa. How would that reduce the humanitarian crisis in the region?” they said.

“The idea must be that the forced disclosure regime will decrease the revenue of armed groups in the DRC and their loss of revenue will end or at least diminish the humanitarian crisis there. But there is a major problem with this idea – it is entirely unproven and rests on pure speculation.”

In the dissenting view, Circuit Judge Srinivasan stated that the law “is working as anticipated” as it is “reducing the money entering the country through the sale of conflict minerals”.

“The problem seen by some observers is that the law nonetheless has had unintended ripple effects For instance, some workers who lost their jobs because of the reduced demand for minerals occasioned by the law may have then turned around and joined armed groups in the region, adding to the strength of those groups,” he said.

“Those sorts of unintended, tertiary consequences should not form a basis for invalidating the rule.”

Commenting on the ruling, lawyers at Shearman and Sterling LLP said in a statement that, in effect, it means “nothing changes”.

“Unless the SEC changes the position it took following the DC Circuit’s first decision, companies should expect to continue to prepare their conflict minerals disclosure as they have in the past,” they said.

“With the rehearing before the DC Circuit concluded, and subject to any appeal or further litigation concerning the conflict minerals rule, the SEC Division of Corporation Finance may now be in a position to publish additional guidance.”

Claire Hack
chack@metalbulletin.com
Twitter: @clairehack_mb

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