Conflict minerals rule upheld by court

July 25, 2013

A federal judge upheld the U.S. Securities and Exchange Commission (SEC) rule meant to cut down on the use of minerals from conflict-torn Central Africa by forcing manufacturers to disclose whether their products contain "conflict minerals" from the Democratic Republic of Congo.

SEC promulgated the rule last year in an effort to comply with a congressional mandate tucked into the Dodd-Frank Wall Street reform legislation.
The decision by Judge Robert Wilkins of the U.S. District Court for the District of Columbia marks a rare victory for the Securities and Exchange Commission, which has suffered a losing streak in recent years over legal challenges to its rules, Reuters reported.

Groups including the U.S. Chamber of Commerce and the National Association of Manufacturers not only criticized the rule as "arbitrary and capricious" but also questioned its constitutionality on free speech grounds because of its disclosure requirements, Greenwire reported.

Championed by human rights groups, it requires publicly traded manufacturers to disclose whether any tantalum, tin, gold or tungsten in their products may have originated from the conflict-ridden Democratic Republic of Congo.

But critics say it will be nearly impossible to track minuscule amounts of such minerals and will also unfairly tarnish companies' reputations.
Companies had tried to convince the SEC to exempt them from having to comply with the disclosures if the products only contained a "de minimis" amount of the minerals.

The SEC countered that it was bound by a mandate from Congress to adopt the rule without exceptions.

Wilkins ruled that the SEC had essentially followed Congress’ lead in crafting the rule.

“Therefore, while Plaintiffs inveigh against the Commission's apparent disregard for its 'statutory mandate' in failing to assess whether the Conflict Minerals Rule would actually achieve the benefits Congress identified, this argument rests on a false premise," Wilkins wrote.

Wilkins also ruled against the industry's First Amendment challenge, saying the rule met an "intermediate scrutiny" test of congressional intent.
The U.S. Chamber and NAM originally sought relief in the U.S. Court of Appeals for the District of Columbia Circuit but transferred the case down to the district level.

Earlier this month, U.S. District Judge John Bates scrapped another SEC rule stemming from Dodd-Frank, this one requiring deep disclosure by mining and drilling companies of payments to governments.



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