Background information, compliance assistance and other resources on Conflict Minerals can be found here: Actio Conflict Mineral Public Library.
Conflict minerals are widely used in many industrial sectors such as electronics and communications, aerospace, automotive, jewelry, healthcare devices, and persified industrial manufacturing. That touches a lot of our supply chains.
So for those wondering about the status of the lawsuit against the SEC regarding the Conflict Minerals rule under the August 1012 Dodd-Frank law, below is a plain-English summary of the charges against the SEC. The SEC is expected to respond tomorrow, March 1, so it’s important to know what charges the SEC will be answering. Please read on.
In discussing a lawsuit against the SEC regarding the Conflict Minerals law, corporate attorney Dynda A. Thomas of Squire Sanders has this to say:
There can hardly be any disagreement with the stated goal of the SEC’s Conflict Minerals Rule. Congress directed the SEC to enact rules requiring disclosure about the use of conflict minerals because it believed that the exploitation and trade of conflict minerals from the DRC were helping to finance armed conflict there — conflict characterized by extraordinary levels of violence, including sexual- and gender-based violence. …
What’s wrong with the SEC conflict minerals rule
It’s worth mentioning that one unintended consequence of the SEC rule is that companies engage in “unofficial embargo” of materials from the area. Not wanting to expose themselves to conflict mineral risk, companies simply look for their raw materials elsewhere. According three Katten lawyers from the the ACC affiliated Lexicology group, the petitioners argue that the court should “strike down” the conflict minerals rule. These are the core reasons behind the lawsuit:
- the SEC failed to conduct a proper cost-benefit analysis — not only did not determine if the Congo and surrounding areas would measurably benefit from the rule but also did not determine whether costs to issuers were reasonable. While it’s not mandatory that legislation like this rule do a cost/benefit analysis in order to become law, according to its own internal rules, the SEC does have to study the costs and benefits; whether this was done sufficiently is unclear
- the SEC mistakenly interpreted the statute to apply to companies that do not manufacture any products; companies that “contract for the manufacture of products” should be considered separately
- the rule seems to create an impossible loop: it allows smaller issuers four years to create the infrastructure necessary to trace conflict minerals in their supply chain, while giving larger issuers only two years, despite acknowledging that many large issuers cannot meet their obligations under the rule without obtaining information from smaller companies
- the rule requires a violation of the First Amendment in its material disclosure requirements: requiring companies to describe their products as “not DRC conflict free,” even in circumstances in which a company is simply unable to trace their supply chains to determine their minerals’ origins, thereby possibly forcing companies to associate themselves falsely with groups engaged in human rights violations
- the rule wrongly (and vaguely) requires due diligence and a Conflict Minerals Report from companies that merely have a “reason to believe” their minerals “may have originated” in the covered region (rather than limiting the rule’s application to companies whose minerals “did originate” in the region)