Conflict Minerals Requirement Under Fire as Agencies Seek Input on Rule's Merits
This story appears in the April 17 print edition of Transport Topics.
The U.S. Securities and Exchange Commission and State Department are hoping to revise or eliminate an SEC rule requiring public companies to trace “conflict minerals” in their supply chains.
The agencies have begun seeking public comment on the matter.
The 2012 rule requires an estimated 6,000 public companies, including some truck makers and component suppliers, to conduct a “reasonable country-of- origin inquiry” and report annually whether there is “reason to believe” that their products are made using tantalum, tin, tungsten or gold that originated in the Democratic Republic of the Congo.
The four minerals or their derivatives have been determined by the U.S. secretary of state to be financing hostilities in the Democratic Republic of the Congo and nine countries surrounding the Congo.
The public comment requests are in part the result of an appeals court decision April 3, remanding a federal lawsuit back to the SEC because the court said the rule violates the First Amendment of the U.S. Constitution.
The lawsuit was filed in 2013 by the Chamber of Commerce, National Association of Manufacturers, Business Roundtable and others who have complained that the search requirements are a daunting task that could cost the public companies $8 billion or more.
As a result of the appeals court ruling, acting SEC Chairman Michael Piwowar on April 7 said he’s instructing the agency’s staff to begin work on a recommendation for future commission action.
“In light of the foregoing regulatory uncertainties, until these issues are resolved, it is difficult to conceive of a circumstance that would counsel in favor of enforcing filing form SD,” Piwowar said. The form SD is the document that public companies must file annually by the end of May reporting their search efforts and results to find conflict minerals in their supply chains. This year marks the third year of reporting.
On March 27, the State Department posted a request for comments on ways to “break the link between armed groups and minerals in the Africa Great Lakes Region.”
So far, only a few comments have been filed on the State Department’s website.
However, dozens of comments have been filed with SEC, many of them highly critical of the cost and staff time needed to conduct the search and compile reports.
The uncertainty surrounding the future of the rule has been amplified by statements of Trump administration officials that they have plans to rescind the conflict minerals requirements, a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama in July 2010.
A leaked draft of an executive order, first made public by the British newspaper The Guardian, has signaled the administration’s intention to roll back the conflict minerals rule, feeding speculation that its end is near.
The document calls for a “targeted approach” that focuses on specific companies known to be engaging in illegal actions that contributed to the funding of armed groups violating human rights in Central Africa.
“Mounting evidence shows that the disclosure requirements contained in the conflict minerals rule have instead caused harm to some parties in the Democratic Republic of the Congo and have thereby contributed to instability in the region and threatened the national security of the U.S.,” the draft executive order said.
Indeed, a 2016 annual Government Accountability Office report on the rule said companies have been challenged to locate conflict minerals in their supply chains, in part because their supply chains have been providing incomplete information.
“After an estimated 79% of the companies that filed a form SD performed due diligence, an estimated 67% of them reported they were unable to confirm the source of the conflict minerals in their products,” the report concluded. “About 97% of them reported that they could not determine whether the conflict minerals financed or benefited armed groups in the Democratic Republic of the Congo and adjoining countries.”
“What we have here is a legislated mandate and a rule of disclosure that the courts have held violates the First Amendment,” Tom Quaadman, vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, told Transport Topics. “What the SEC effectively did on Friday [April 7] was to allow companies to do a reasonable country- of-origin inquiry and not to go any further.”
Tanya Bolden, director of corporate responsibility for the Automobile Industry Action Group, said the State Department’s request for comments is a reflection of what the agency anticipated coming from the White House.
“As an industry, we’re just waiting to see what changes, if any, may be driven by an executive order, the SEC, or what have you.” said Bolden, whose group works with automobile manufacturers to comply with the rule.
