Many U.S. companies must soon disclose if their products are tainted by minerals often mined by slaves in central Africa. A federal appeals court panel has upheld most elements of the “conflict minerals rule,” which is a new corporate transparency regulation that can help consumers and investors, as well as people in slavery.
The rule was authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and formally issued by the Securities and Exchange Commission (SEC) in 2012. Publicly held companies must determine if their products contain tin, tungsten, tantalum or gold from mines that benefit armed groups in the eastern Democratic Republic of the Congo (DRC) and surrounding areas. The goal is to inform people who might want to avoid buying these products or investing in the companies that make them. Free the Slaves has demonstrated that slavery is common at mines producing these minerals.
Three business associations challenged the reporting requirement in court, saying the SEC did not conduct a proper cost-benefit analysis and the specific disclosure language violates corporate free-speech rights.
“The court affirmed the SEC’s right to require corporate human rights disclosures – roundly rejecting the arguments of business groups that the SEC rule was issued without the requisite cost-benefit analysis,” says FTS Program Director Karen Stauss. “In fact, the court declined to monetize the ‘benefits’ of the law, which it rightly pointed out involve lives saved and crimes averted.”
The court struck down one piece of the rule that requires companies to state when their products are not “DRC conflict free.”
“That component of the decision represents a potential setback for groups advocating for corporate disclosures on human rights, but not a fatal one,” Stauss says. “That part of the court’s opinion is fairly limited; the rest of the rule remains intact. The court upheld disclosure to investors.”
“Sustainable and responsible investors commend the court’s preservation of the conflict minerals reporting rule and its general support for the SEC’s authority,” the investment groups of the Responsible Sourcing Network said in a joint statement. “We applaud the companies that are already implementing comprehensive due diligence…and call on all covered issuers [of stock] to continue preparing the required disclosures, which remain essentially unaltered by the court’s opinion.”
Business advisors are telling clients to focus on compliance rather than resistance in court. “Conflict minerals requirements are here to stay,” according to Jane Luxton, a partner at the Washington law firm Clark Hill. The court decision on corporate free-speech rights “only delays the inevitable,” she wrote on the Corporate Social Responsibility Wire. The same information “will soon be widely available in the form of government reports,” Hill says.
The lawsuit against the conflict minerals rule was filed by the National Association of Manufacturers, the Business Roundtable and the U.S. Chamber of Commerce. It is one of several cases where businesses are asserting they have a constitutional right to not reveal negative aspects of their products to the public, according to Reuters. Another case, involving labels on meat, is headed to court in May. Experts say the ruling in that case could ultimately change the impact of the recent ruling on conflict minerals.
Read more about FTS programs in the DRC on our Congo webpage.