D.C. Appellate Court Issues Opinion on SEC’s Conflict Minerals Rule - Securities and Exchange Commission
On April 14th, the Court of Appeals for the D.C. Circuit issued its opinion in the challenge to the SEC’s Conflict Minerals Rule. We have reviewed the D.C. Court of Appeals decision and find that it leaves much of the SEC’s rule intact. It is specifically the requirement that companies describe products as not “DRC conflict free” in their SEC filings and on their website that the Court held constitutes “compelled speech” in violation of the First Amendment. In the words of the Court: “Products and minerals do not fight conflicts. The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted. . . . 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 of Appeals upheld the other elements of the SEC Final Rule, however, and rejected the petitioners’ arguments about the absence of a de minimis exception and the SEC’s application of the rule to companies that only contract to manufacture products. The decision therefore leaves intact the requirement for the issuer to conduct a “reasonable country of origin inquiry,” exercise “due diligence on the source and chain of custody of its conflict minerals” and file a conflict minerals report in the circumstances specified in the rule. Under the DC Circuit decision, however, an issuer cannot be required to describe its products as “not DRC conflict free” in its report. The Court of Appeals suggested that issuers use their own language to describe their products and also invited the SEC to consider publishing a centralized list of products that it believes are affiliated with the Congo war based on information that issuers submit.
The case could be consolidated and reheard en banc with the unrelated case related to meat labelling requirements that raises a similar First Amendment issue. It is also possible that the SEC could stay its rule until the appellate process is completed. As of this writing there has been no word yet from the SEC.