Despite repeated industry efforts, Court upholds important conflict minerals law

U.S. Court of Appeals denies industry’s request to delay Section 1502 of Dodd-Frank in third consecutive ruling upholding the law

Global Witness applauds the swift decision by the U.S. Court of Appeals for the D.C. Circuit denying the emergency motion by the National Association of Manufacturers (NAM), the U.S. Chamber of Commerce, and Business Roundtable to stay the conflict minerals rule. Despite industry groups’ best efforts to delay implementation, this decision reinforces the originally mandated June 2, 2014 reporting deadline, consistent with the new guidance issued by the Securities and Exchange Commission (SEC) that modifies the reporting requirements in accordance with the Court of Appeals’ April 14^th ruling.[1]

Section 1502 of the Dodd-Frank Act,known as the ‘conflict minerals provision,’ is a landmark piece of legislation that aims to break the links between eastern Democratic Republic of the Congo’s (DRC) vast mineral wealth and the abusive armed groups that prey on and profit from the region’s mineral trade. The provision requires U.S.-listed companies that use tin, tantalum, tungsten or gold to conduct due diligence on their supply chains and determine if their purchases fund armed groups in the DRC or an adjoining country.Section 1502 has already changed the way that many companies scrutinize their supply chains and has catalyzed important reforms in eastern DRC and neighboring countries.[2]

The Court of Appeals’ initial ruling, issued on April 14, 2014, upheld the majority of the SEC’srule to implement Section 1502. The court narrowly ruledthat the regulation’s requirement for companies to describe products as ‘not been found to be DRC conflict free’ is a violation of the First Amendment’s right to free speech by compelling specific corporate speech;this decision may be subject to further review by the entire Court of Appeals. However, the court’s ruling strongly upheld the law’s other disclosure requirements, which were not challenged by the industry groups and which can move forward without companies having to describe their products as DRC conflict free or not. 

“We are very encouraged by the Court’s decision to keep the filing deadline for the conflict minerals provision in place based on the fact that the Court of Appeals upheld the vast majority of the SEC rule for Section 1502,” said Corinna Gilfillan, Head of U.S. Office for Global Witness. “The First Amendment should not be used as an excuse to hide information that Congress has decided matters to regulators, consumers and investors.  Public disclosures are an important means of informing regulators, investors and consumers about what companies are doing to source their minerals responsibly from the Great Lakes region. ”

Global Witness urges the SEC to seek further review of the ruling on the First Amendment question by the entire Court of Appeals to protect consumers’ and investors’ right to information and to hold companies accountable to their stakeholders. The SEC should alsopublicly commit to uphold the original intent of the law, which requires independent private sector audits for all companies, and shouldreinstate this requirement.It is inconsistent with the statute for the audit requirement to be removed altogether, regardless of whether the Court’s First Amendment ruling stands. Companies can comply with the audit requirement without describing the conflict free status of their products. Congress has made clear that independent third party audits are important to guarantee the credibility of company due diligence reporting.

“The courtruled in favor of justice. Theattemptby NAM, Business Roundtable and the Chamber to delay the entire rule after the Court of Appeals issued its rulingwas shameless and desperate,” saidGlobal Witness Director Simon Taylor. “Industry’s request to stay the rules shows a callous disregard for the lives and wellbeing of the people in DRC and wasyet another endeavorto stall progress towards more transparent supply chains and global efforts to break the links between the minerals trade in the DRC and the operations of armed groups.”

Immediate implementation of the rule as upheld by the courtsis crucial to ensure that U.S.-listed companies take responsibility for their supply chains. Companies have a legal reporting obligation to the SEC in this regard, as well as a moral responsibility to showthat the metals they usedo not fuel conflict in the DRC.With the June 2^nd reporting deadline now two weeks away, Global Witness calls on companies to fully comply with Section 1502 and submit comprehensive reports that are audited.  Global Witness plans to monitor the substance and quality of the reports with a view to assessing the extent of company efforts to source minerals responsibly.

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For more information, please contact:

Corinna Gilfillan, Washington, DC

+1 202 621 6665, +1 202 725 8705

[email protected]

Sophia Pickles, London, UK

+44 (0)20 7492 5893

[email protected]