On July 23, 2013, the US District Court for the District of Columbia upheld the conflict minerals rules (the “Rules”) that require public companies to disclose whether “conflict minerals” are necessary to the functionality or production of products they manufacture or contract to be manufactured. In upholding the Rules, the court concluded that the Rules were not “arbitrary and capricious” and that a requirement to post disclosure on company websites does not violate the First Amendment of the US Constitution. The ruling comes as a welcome development for the Securities and Exchange Commission (the “SEC”) just weeks after the SEC’s most recent loss in a parallel legal challenge to the resource extraction payment rules, which raised similar concerns regarding the SEC’s failure to engage in proper cost benefit analysis and which also focused on Constitutional arguments.
What Conflict Minerals Rules Require -
Section 1502 of the of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the SEC to promulgate rules requiring certain publicly traded companies to disclose whether specified minerals are necessary to the functionality or production of products they manufacture or contract to be manufactured.3 The SEC adopted the Rules on August 22, 2012, and companies that file reports under Section 1 (a) or Section 15(d) of the Exchange Act, including companies that file annual reports with the SEC on Form 10-K, Form 20-F or Form 40-F, are required to comply with the Rules for the year ending December 31, 2013 by filing their conflict minerals disclosure, if required, on the new Form SD by May 31, 2014. “Conflict minerals” are defined as gold, cassiterite, columbite-tantalite and wolframite, and any other minerals or derivatives determined by the US Secretary of State to be financing conflict in the Democratic Republic of Congo (the “DRC”) and adjoining countries. Public companies subject to the Rules must make a “reasonable country of origin inquiry” to determine whether any of the conflict minerals in its productsoriginated in the DRC or adjoining countries and make a corresponding disclosure depending on the results of such inquiry.
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