Clarity over Dodd-Frank conflict minerals rule still lacking as corporates fight back

The legal dispute over whether US firms must comply with a rule from the Securities and Exchange Commission (SEC) requiring them to disclose whether or not minerals they use come from the war-torn Democratic Republic of Congo (DRC) is far from over. This is because a US appellate court, which effectively gutted the requirement last April, has approved an SEC request for another hearing on it.

The background to the dispute: The 2010 Dodd-Frank financial reform bill instructed the SEC to require US manufacturers to determine whether the minerals they source – among them gold, tin, tungsten and tantalum – came from the DRC. The SEC rule that emerged held that companies must label minerals that did not come from the DRC as “conflict free.” On the other hand, minerals that originated from the Congo had to be labelled as “not found to be DRC conflict free.”

But in April 2014, or two months before the SEC rule was to take effect, the National Association of Manufacturers (NAM) and the Chamber of Commerce halted its implementation via a legal challenge before the US court. In ruling against the SEC, the court agreed with the NAM/Chamber of Commerce that compelling companies to publicly state that certain products are “not found to be DRC conflict free” was a violation of their Constitutional right to free speech. Confusingly, the court upheld all other provisions of the SEC rule.This includes one that states that companies must undertake country-of-origin enquiries into the minerals they use in manufacturing and report on such efforts. Exactly what, however, they should report was left unclear as a result of the court’s strike-down of the rule’s disclosure requirement – namely whether the minerals sourced are from the DRC or not.

The court’s ruling was met with frustration among supporters of the SEC rule. “Things are completely in limbo. What we do know is that companies still have to report. What we don’t know is exactly what they have to report,” Forbes magazine quoted Holly Dranginis of the NGO The Enough Project as saying.

The SEC then asked the US appellate court to re-consider its ruling, and in late November, the court agreed. As 2014 drew to a close, lawyers for the SEC and the NAM/Chamber of Commerce filed supplemental briefs supporting their arguments for and against the rule, respectively.

According to a governance briefing from the US law firm Davis Polk, lawyers for the business groups are arguing against the SEC rule because it implies that companies which cannot confirm the origin of their minerals bear some responsibility for the DRC conflict. The SEC’s lawyers, the briefing says, counter that the rule as written does not deal at all with the question of responsibility for the conflict.