Appeals Court Upholds Decision That Voids Part of SEC’s Conflict Minerals Rule

The U.S. Court of Appeals for the D.C. Circuit upheld a prior decision to void one of the SEC requirements under the conflict minerals rule. The voided section concerns disclosure requirements for companies offering products that depend on minerals from central African war zones for their functionality or production. The statute required companies to disclose products that have “not been found to be ‘DRC [Democratic Republic of Congo] conflict free.'” The court’s decision did not affect other requirements under the conflict minerals rule.

The Court found that the required disclosure was in violation of the First Amendment because it forced a company to make statements in terms that embarrassed it instead of requiring it to provide commercial information to a purchaser of the company’s products.

Lofchie Comment: In reaching its decision, the Court found it necessary to comment on the costs and benefits of the conflict minerals rule. In doing so, the Court noted that the SEC’s own estimates of the cost of the conflict minerals requirements were $3-4 billion initially and as much as $600 million a year thereafter (at page 14). Additionally, the Court found that the government was unable to demonstrate any benefit to parties in the Congo from the rule, and that substantial arguments indicated that the rule caused material injury to those whom it was intended to benefit (at page 16).

In short, the Court’s opinion may be read as a criticism of those who act with good intentions but without understanding the consequences of their actions. Even if one were to assume that the United States has a moral obligation to alleviate suffering in the Congo, it is obvious that there are more effective ways to do so than spending the billions of dollars that the conflict minerals rule requires to provide an uncertain benefit and, arguably, serious injury.

Coincidentally, the Appeals Court issued its decision on the same day that the GAO issued a report questioning the accuracy of any disclosures made with regard to conflict minerals given the poor quality of the available information about them. See GAO Report on SEC’s Conflict Minerals Rule.

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