November 16, 2015

Circuit Court Refuses SEC’s Request To Rehear Conflict Minerals Case

In a significant victory for the Metals Service Center Institute and its members and allies, the U.S. Circuit Court of Appeals for the District of Columbia last week rejected the U.S. Securities and Exchange Commission (SEC) and Amnesty International’s request to rehear a case involving the SEC’s conflict minerals rule. (As a reminder, the court previously found the rule violated reporting companies’ First Amendment rights.) 

It is now up to the SEC to decide how to proceed. The agency has until early February to file a petition with the U.S. Supreme Court to review the circuit court’s ruling or to return the case to the lower, district, court for further review. As National Law Review points out, either choice means that a conclusion to the legal challenge to this rule “is still a long way off.” (The National Association of Manufacturers and the U.S. Chamber of Commerce have led the legal challenges to the SEC’s rule, and MSCI has supported those efforts.) 

When it comes to the rule’s implementation, as the law firm Bryan Cave notes, the court’s rejection last week of the SEC’s petition means the status quo continues. Affected companies must continue to follow the SEC’s staff issued guidance from April 2014, which instructs companies to comply with the portions of the regulation that the court has upheld. Bryan Cave explains that means issuers must file timely reports “with the caveat” that they do not need to describe products as “DRC conflict free,” “DRC conflict undeterminable” or “not found to be ‘DRC conflict free.” The next reports are due in mid-2016. 

Additionally last week, the National Center for Policy Analysis (NCPA) released an issue briefing by Senior Fellow David Grantham outlining the costs of the conflict minerals regulation. The NCPA noted the regulation has cost affected companies $8 billion to comply with so far and that nearly 90 percent of these companies have had to hire additional staff to comply with the rule’s mandates. Despite these enormous burdens, the NCPA argues the rule has failed to achieve its stated goal: to reduce violence and conflict in the Democratic Republic of Congress. The report refers to an analysis by the University of Wisconsin, which found “that before Dodd-Frank rebels and miners had a shared interest in protecting the mines” but “after enactment, rebels [have] became roving bandits stealing funds where they could” and “drifting gangs increased conflict in many areas.” 

The NCPA also outlines the difficulty companies have had complying with the rule. It notes that, in 2014, approximately 67 percent of 1,321 companies affected by the rule could not determine the origin of the minerals they used in production while 43 percent couldn’t demonstrate how they determined the origin of those minerals. NCPA’s Grantham concludes, “The conflict minerals statute is a microcosm of the Dodd-Frank legislation: a costly regulatory monster which not only failed to accomplish its intended purpose, but hurt those it was supposed to help.”