D.C. Circuit to Decide Validity of SEC Conflict Minerals Rule, But Companies Should Consider Preliminary Steps to Comply

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Industry groups are urging the U.S. Court of Appeals for the D.C. Circuit to reverse a July 23 district court decision (28 CCW 233, 7/31/13) and invalidate a rule issued by the U.S. Securities and Exchange Commission that imposes costly investigative and disclosure requirements on certain companies that use ‘‘conflict minerals’’ in the manufacturing process (28 CCW 262, 8/21/13). The district court held that the SEC had not acted arbitrarily or capriciously in promulgating the conflict minerals rule and that the disclosure requirement did not violate the First Amendment.

Due to the great effort and expense involved in complying with the rule, and the SEC’s recent poor track record in the D.C. Circuit, many companies have not begun their compliance efforts even though the first deadline for reporting under the rule is now less than eight months away. As we discuss below, the industry groups challenging the rule have mounted several strong arguments for its invalidation; nonetheless, in the light of the comprehensive district court decision, the chances of a successful challenge to the rule are 50/50 at best. In these circumstances, we believe that companies that have not yet done so should consider taking the preliminary informationgathering steps outlined below so that they will be better-positioned to comply with the rule’s initial May 31, 2014 disclosure deadline if the appellate court upholds the rule.

Originally published in Corporate Counsel Weekly Newsletter on 10/9/2013.

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