WASHINGTON Jan 7 Two U.S. judges on Tuesday
raised concerns about a new rule that forces certain
manufacturers to disclose if their products contain minerals
from a war-torn part of Africa, questioning the rule's purpose
and whether it tramples companies' free speech.
The U.S. Securities and Exchange Commission was required to
draft the rule as part of the 2010 Dodd-Frank Wall Street reform
law. Human rights groups convinced lawmakers to tuck in the
provision, in an effort to empower consumers who want to avoid
products that encourage mining in areas gripped by rebel
violence and humanitarian conflict.
The measure requires companies to determine if certain types
of minerals, in products such as laptops and car parts, may have
originated from the Democratic Republic of the Congo (DRC)
The results of the inquiry into the minerals' origin also
must be disclosed to the SEC and posted on company websites.
The forceful questioning on Tuesday by a majority of the
three-panel U.S. Court of Appeals for the District of Columbia
Circuit was at times sympathetic to the concerns of three
business trade groups, including the U.S. Chamber of Commerce,
who challenged the SEC's "conflict minerals" rule.
The groups are seeking to have it overturned and rewritten
in a less strict form.
They argue the current rule imposes too many costs, goes
beyond congressional intent and violates First Amendment
freedoms by forcing companies to condemn their own products.
"This is a shame statute," said attorney Peter Keisler, a
partner at Sidley Austin who argued the case for the Chamber,
the Business Roundtable and the National Association of
Manufacturers. "This is a scarlet letter statute."
The free speech and congressional intent arguments took
center stage during the court hearing, with one judge saying the
rule forces companies to speak against their will, and another
worrying whether the rule could pave the way for even more
onerous corporate disclosures in the future.
"This is regulation of speech," said Judge David Sentelle,
who asked SEC attorney Tracey Hardin to read the Dodd-Frank
statute aloud and then told her the rule's disclosure
requirements appear to go beyond what the law requires.
"This is compelled speech," he added.
Judge A. Raymond Randolph, meanwhile, asked questions about
the objective of the rule, and whether it was intended to fuel
boycotts of products, convince investors not to buy stock in
certain companies or "stigmatize the companies."
Hardin told him the main goal of the measure is to "promote
peace and security" in the DRC region and increase public
awareness of the sourcing of the minerals, saying the trade of
tantalum, tin, gold or tungsten is "fueling and funding a
"There seems to be a slippery slope problem here," Randolph
said. "Under your First Amendment theory...could Congress say
that all companies now have to report the conditions under which
their products are manufactured overseas, what the pay rate is,
whether they are using child labor?"
"Is that the next step here?"
FIRST REPORT DUE SOON
Human rights groups say that the conflict minerals
regulation already has acted as a catalyst for reform of the
minerals trade in the region and prompted both U.S. and
Congolese companies to examine the sourcing policies in their
"The aggressive campaign led by the industry associations
against the law threatens this progress and indicates the
lengths the most powerful U.S. industry groups are prepared to
go to continue business as usual," said Global Witness, which
campaigns against environmental and human rights abuses, in a
written statement after the hearing.
The judges did not indicate a timeline for when they may
rule. Despite the pending litigation, the SEC is still planning
to require companies to submit their first conflict minerals
report for the year 2013 by the end of May.
Tuesday's case marks the second time that the SEC defended
the conflict minerals rule in federal court.
In July, a lower U.S. court upheld the rule, marking a rare
victory for the SEC, which over the last decade has lost
multiple legal challenges to its rules.
Should the SEC ultimately lose the case on appeal, it would
mark the third loss in a legal challenge to a Dodd-Frank
securities rule, and the second loss on a rule specifically
championed by humans rights groups.
The other Dodd-Frank rule, which was tossed out by a federal
court in July, forced oil, gas and mining companies to disclose
payments they make for resource projects to foreign governments.
The SEC decided not to appeal the judge's decision, and
instead opted to redraft the rule at a later date to address all
of the judge's concerns.
(Additional reporting by Stella Dawson; Editing by Karey Van
Hall and Bernadette Baum)