Feds Defend ‘Conflict Mineral’ Disclosure Rule in Court

The Securities and Exchange Commission took “numerous steps” to lessen the burdens imposed by a rule requiring that public companies search out and shed their supply chains of “conflict minerals,” according to an appeals court brief filed by SEC attorneys.

Recognizing that the rule  could be “quite costly,” the SEC rejected a suggested approach that would have required all affected issuers to use a legal standard of “due diligence,” instead using a “no reason to believe” standard that Central African conflict minerals were present in a company’s supply chain, the SEC said.

The SEC brief was filed Oct. 24 in response to an appeal of a July 23 lower federal court ruling that allowed the conflict-mineral rule to stand. Groups that challenged the SEC requirement on constitutional grounds included the National Association of Manufacturers, the U.S. Chamber of Commerce  and the Business Roundtable. Oral arguments in the case have not been  scheduled.

The business groups have said the rule is too costly, will not eliminate the humanitarian crisis in Africa and violates their privacy in requiring that they disclose factual information about their products.

Truck makers and suppliers have said they are among the industries hardest hit by the rule issued in response to provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010. The legislation uses securities disclosure law to bring greater public awareness of the source of conflict minerals that fuel civil war in the Democratic Republic of the Congo by “facilitating the purchase of small arms to commit abuses and reducing government revenues needed for increasing security and rebuilding the country.” 

The rule requires that companies examine their supply chains for traces of tantalum, tin, tungsten and gold from central Africa and to report their findings to the SEC starting next year.