SEC Tosses Up a Change in Conflict Minerals Rule Compliance

On April 3, 2017, the U.S. Securities and Exchange Commission (SEC) announced it would not recommend enforcement action for companies that disclose, but do not further investigate the usage of conflict minerals which may be from the Democratic Republic of Congo (DRC). According to the National Association of Corporate Directors, “Before the SEC announced their new ruling, companies that manufacture or contract to manufacture products using such minerals had previously been required to conduct extensive due diligence on its supply chain and make this diligence publicly known with a note that its products contained minerals which “have not been found to be ‘DRC conflict free.”’ However, following a series of partial losses in court, the SEC is backing off the rule for now.”[1]

The National Association of Manufacturers challenged the regulations on both procedural and constitutional grounds. Ultimately, the appeals court found that forcing companies to note whether or not their products are DRC conflict free was unconstitutional under the First Amendment. According to Reuters, “The court found part of it violated free speech rights of companies by forcing them to publicly state that their products were not conflict free.”[2] 

The SEC Chairman, Mike Piwowar, added that companies will not be required to conduct a due diligence review or an audit, which are both parts of the process used to determine the origins of the minerals. The conflict minerals rule was required by the 2010 Dodd- Frank Wall Street reform law and it is supported by many human rights activists that want companies to disclose any information to investors if their products contain these conflict minerals. Such as, tin, tungsten, gold or tantalum, which are the main minerals that are being mined from the Democratic Republic of Congo. These human right activists hope that by having companies disclose this information it will help shift the funding away from the rebel groups.

Companies will still need to file required forms to the SEC, do origin inquiries in good faith and are expected to disclose any information regarding conflict minerals to the SEC and the public. The SEC is developing enforcement recommendations regarding the rule. Companies should continue to exercise due diligence in order to confirm where conflict minerals originate.

Companies are also able to provide input to the SEC to make their views known regarding future enforcement.