Following the issue of the SEC conflict minerals rule in 2012 several trade groups launched a challenge relating to uncertain cost-benefit analysis, discretionary choices made by the SEC, and the possibility that some requirements in the rule violate the First Amendment of the US Constitution. On 14th April 2014 the District of Columbia Court of Appeals rejected many of the arguments – except one – stating that; “The label “conflict free” is a metaphor that conveys moral responsibility for the Congo war….By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.” The Court remanded the case to the district court for further proceedings and did not halt the implementation of the Conflict Minerals Rule. It appears that all provisions other than the requirement for companies to state if a product is “not found to be DRC conflict free” remain valid although uncertainty remains. The trade groups could seek a halt of the Conflict Minerals Rule which would delay any required filings to SEC beyond the current June 2 deadline, the SEC could challenge the Court of Appeals’ decision, and/or the SEC might indicate that it expects reporting companies to file the required disclosure except for the “not been found to be ‘DRC conflict free'” product description. If referred to the district court, it is that body that would need to determine whether wording in the SEC’s rule, or the wording in the actual law, is at the root of the free speech problem. The appeals court appeared to question why the SEC is forcing companies to make statements condemning their own products and suggested that it might make more sense for the government to collect the data on conflict minerals and publish a list itself. ITRI notes that this could be a positive development since the labelling issue is contradictory to the widely supported concepts of progressive improvement under the OECD due diligence guidance, and the cause of one of the main concerns of risk within business that has lead to disengagement from conflict -free African supply sources. The text of the decision is available here.
“Not Conflict Free” Product Description Found to Violate US First Amendment
Apr 15, 2014