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SEC Conflict Minerals Rule Faces New Scrutiny Ahead of May Filing Deadline

A flurry of activity on conflict minerals in recent months has added new uncertainty to the long-simmering debate over the future of U.S. conflict minerals reporting requirements. The U.S. Securities and Exchange Commission (SEC) announced plans to reconsider its 2012 rule implementing Section 1502 of the Dodd-Frank Act and requested public comments on all aspects of the rule. President Donald Trump is reportedly considering a Presidential memorandum that could waive the SEC conflict minerals rule for up to two years based on national security interests.  Meanwhile, a legal challenge to the SEC rule is coming to a close, with the opinions of the U.S. Court of Appeals for the District of Columbia Circuit staying intact.  And in Congress, the specter of legislation seeking to fully or partially repeal Dodd-Frank (similar to bills that were introduced in the last Congress) remains.  The Senate Subcommittee on Africa and Global Health Policy is expected to schedule a hearing on the effects of Section 1502 on the Democratic Republic of the Congo (DRC) and the region in the near term.

The SEC’s conflict minerals rule remains in effect. Disclosures for the 2016 conflict minerals reporting period are due May 31, 2017.  The SEC’s 2014 partial stay also remains in effect, pending further SEC action or action by President Trump.  Under the stay, no company is required to describe its products using the SEC descriptors: “DRC conflict free,” “not found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.”  An independent private sector audit (IPSA) is not required unless a company voluntarily elects to describe a product as “DRC conflict free” in its conflict minerals reporting.

SEC Request for Comment

On January 31, 2017, acting SEC Chairman Michael S. Piwowar issued two statements regarding the conflict minerals rule. The statements are available here and here. The statements direct staff to “consider whether the 2014 guidance is still appropriate and whether any additional relief is appropriate in the interim.” The statement titled “Reconsideration of Conflict Minerals Rule Implementation” suggests that the current rule and general withdrawal from the region “may undermine U.S. national security interests by creating a vacuum filled by those with less benign interests.”  The statements requested comments on “all aspects of the rule and guidance.”  Comments were due to the SEC by March 17, 2017.  SEC staff will now review the comments received as part of the SEC’s consideration of potential changes to the rule or guidance.

Potential Presidential Action

A recent draft Presidential Memorandum indicates that the White House may seek to temporarily waive the requirements of the conflict minerals rule. Under the Dodd-Frank Act the SEC “shall revise or temporarily waive” the requirements of the conflict minerals rule if the President transmits to the SEC a determination that such revision or waiver is “in the national security interest of the United States and the President includes the reasons therefor;” and establishes a date within two years that the exemption expires.  15 U.S.C. § 78m(p)(3).

The draft Presidential Memorandum states that the conflict minerals rule has caused harm to some parties in the region, thereby contributing to instability in the region and threatening the national security interest of the United States. The draft Memorandum directs the SEC to temporarily waive the requirements of the conflict minerals rule for 2 years and directs the Secretaries of State and Treasury to propose a plan for addressing human rights violations and funding of armed groups in the Democratic Republic of the Congo or an adjoining country within 180 days of the Memorandum.

The draft Presidential Memorandum raises a number of questions without clear answers. For example, it is unclear whether or when the SEC would be required to act as directed by the Memorandum, and whether an SEC action would be subject to notice and comment rulemaking or judicial review.  Also unclear is how a temporary suspension of the SEC rule would affect efforts to incorporate conflict minerals reporting obligations into public and private procurement requirements or independent certifications such as EPEAT.  It is unclear when the Administration might move forward with a final memorandum.

Status of Litigation

On March 15, 2017 the parties to the legal challenge of the SEC’s conflict minerals rule requested that the U.S. District Court for the District of Columbia enter a final judgment in accordance with the decisions of the U.S. Court of Appeals for the District of Columbia Circuit. In an April 2014 opinion, the U.S. Court of Appeals for the District of Columbia Circuit struck down the portion of the rule that required issuers to describe their products as “not found to be DRC conflict free” because it compelled speech in violation of the First Amendment to the U.S. Constitution.  The SEC issued a partial stay of the rule later that month. The D.C. Circuit reaffirmed its decision in an August 2015 opinion, and remanded the case back to the U.S. District Court for the District of Columbia for further proceedings.  In October 2016, Judge Ketanji Brown Jackson was assigned to the case, but that court had taken no further action. The practical effect of the decision by the parties to request a final judgment from the District Court is that any further changes to the conflict minerals requirements would be left to the discretion of the SEC (unless Congress or the Administration take action first).

New EU Regulation Expected

In November 2016, the European Council and European Parliament came to a final agreement on the European Union’s own conflict minerals regulation.  The regulation, the first version of which was introduced in March 2014, establishes an approach that is fundamentally different than that under the Dodd-Frank Act and the SEC rule.  Unlike the U.S. scheme, supply chain due diligence requirements under the EU regulation do not extend to downstream users of the metals, including importers of products containing those metals, and instead focus entirely on mandatory due diligence requirements for importers of the minerals, metals, and their ores.  The geographic scope of the regulation also extends to conflict-affected and high-risk areas globally, extending beyond the DRC and adjoining countries covered by Dodd-Frank and the SEC rule.

The European Parliament recently voted to approve the regulation and it is expected to be formally approved by the Council before publication in the EU Official Journal later this spring. Importers will be covered by the new due diligence requirements as of January 1, 2021. The new EU requirements are likely to enhance due diligence on the sourcing of conflict minerals from the DRC and other regions.  Downstream users or importers of products containing tin, tantalum, tungsten or gold  would generally not be subject to the mandatory due diligence requirements, but the Commission is expected to include conflict minerals provisions in guidance that will set forth the topics to be covered in disclosures by companies covered under the EU Non-Financial Reporting Directive.

Other Initiatives and Upcoming Events

  • Multi-Stakeholder Forum on Responsible Mineral Supply Chains: This OECD conference is scheduled to take place in Paris from May 2-4, 2017. The meeting will provide the opportunity for a variety of stakeholders to discuss implementation of the OECD Due Diligence Guidance for Minerals, the ICGLR Regional Certification Mechanism, and other related initiatives.  For more information, see the OECD website.

  • Ongoing Development of new Due Diligence Guidance for Responsible Business Conduct: The OECD is currently developing a general Due Diligence Guidance for Responsible Business Conduct. The comment period closed on February 9, 2017.  Draft text and more information can be found at the OECD website.

© 2020 Beveridge & Diamond PC National Law Review, Volume VII, Number 81

TRENDING LEGAL ANALYSIS


About this Author

Paul E. Hagen Environmental Attorney Beveridge & Diamond Washington, DC
Principal

Paul helps clients navigate increasingly complex environmental requirements governing global supply chains and products across their life-cycle.

He works with leading companies to anticipate and comply with product-related environmental requirements in the U.S. and in key markets worldwide. He has represented U.S. business interests in the negotiation and implementation of regional and global environmental agreements that drive national legislation and the circular economy.

Extended Producer Responsibility (EPR) 

Paul advises companies on compliance...

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Lauren A. Hopkins Consumer Products Attorney Beveridge & Diamond San Francisco, CA
Office Managing Principal

Lauren’s practice focuses primarily on global product stewardship, responsible sourcing, and corporate sustainability.

She advises clients across a range of industry sectors on environmental, social and governance (ESG) disclosures, responsible sourcing of raw materials including “conflict minerals” and forest products, as well as human rights and labor issues in corporate operations and supply chains. She advises on issues including interpretation and implementation of the U.S. Securities and Exchange Commission’s conflict minerals rule, supply chain due diligence, and the preparation of conflict minerals disclosures. She also assists clients with supplier outreach and engagement and coordination with industry groups on conflict minerals requirements.

Lauren also provides strategic counseling to clients on corporate sustainability-related goals and initiatives, new products with environmental attributes, and submissions to sustainability ratings and rankings organizations. She advises on corporate social responsibility and supply chain environmental requirements more broadly including voluntary environmental reporting, paper sourcing and Lacey Act compliance, and human rights and labor issues in the supply chain. Her practice also extends to product-related environmental requirements such as material restrictions in the U.S. and Europe, worldwide product safety regulations, and product take-back and recycling. She is well-versed in California state-specific product issues, particularly those related to Proposition 65 and California Safer Consumer Products regulations.

Lauren has significant experience advising on federal, state and international regulation of environmental marketing and advertising claims. She regularly reviews marketing and advertising materials for the Firm’s clients in a variety of sectors, with particular emphasis on environmental claims relating to electronic products such as energy efficiency, design for recycling, reduced use of substances of concern, and product packaging and logistics. She also advises clients on the development of internal procedures and guidance documents for environmental claims and provides training on compliance with U.S. and worldwide environmental marketing restrictions.

Lauren has participated in several legal secondment arrangements, including for a Fortune 50 technology company, where she served in an “in-house” capacity advising daily on environmental regulatory compliance and litigation activities.

While attending law school at Vermont Law School, Lauren interned with the Vermont Agency of Natural Resources. At Yale University, Lauren wrote her master’s project on Kyoto Protocol implementation in Russia and participated in clinical projects with the Natural Resources Defense Council, Environmental Protection Agency, Defenders of Wildlife, and Connecticut Farmland Trust. 

415-262-4013
K. Russell LaMotte Environmental Attorney Beveridge & Diamond Washington, DC
Principal

Russ helps global companies navigate international environmental regulatory regimes and develop product compliance and market-access strategies.

He served for over ten years as an international lawyer at the United States Department of State, representing the U.S. Government in designing, negotiating, or implementing most of the major multilateral environmental and oceans agreements. His experience and representative matters include: 

Chemicals, Substances in Articles, and Product-Related Environmental Compliance

  • Advising chemicals, pesticides,...
202-789-6080
Megan L. Morgan Environmental & Business Attorney Beveridge & Diamond Baltimore, MD
Associate

Megan thrives on solving complex environmental problems and finding the most expedient and effective business-forward paths.

Her multi-disciplinary background—Masters of Business Administration, associate counsel at the Department of Veterans Affairs, judicial clerk for the Honorable Senior Judges of the District of Columbia Court of Appeals, and intern at multiple federal environmental agencies—ensures a well-rounded perspective in addressing both regulatory and adversarial issues for the firm’s corporate clients.

Corporate Responsibility and...

410-230-1343
Graham C. Zorn Environmental, Toxic Tort, Products Liability Litigation Attorney Beveridge & Diamond Washington, DC
Principal

Graham Zorn focuses his practice on environmental, toxic tort, and products liability litigation.

His representative experience includes extensive work on a series of complex products liability and toxic tort cases related to alleged groundwater, and litigation over lead in drinking water. He has represented individual businesses, trade associations, and municipalities in litigation, as well as in compliance, enforcement, and counseling matters involving the Clean Air Act, the Clean Water Act, CERCLA and other state and federal environmental statutes. He also counsels domestic and...

202-789-6024