Conflict Minerals Disclosure Rule Struck Down By Appeals Court

04/14/2014 07:20 pm ET | Updated Apr 15, 2014

WASHINGTON -- Business groups won a partial victory Monday when a U.S. appeals court struck down part of a regulation designed to discourage the trade in "conflict minerals" from war-torn parts of Africa.

The rule would have required public companies to disclose whether their products contain certain minerals that were mined in the eastern Democratic Republic of Congo, where warlords control much of the mineral trade. The U.S. Court of Appeals for the District of Columbia Circuit ruled that the disclosure requirement violates a company's right to free speech, by essentially forcing the company to criticize its own products.

Though the court struck down the public disclosure requirement, it upheld the basic premise of the conflict minerals regulation, which says that the Securities and Exchange Commission can order companies to monitor their global supply chains to determine whether their components are conflict-free. This has already caused a number of companies to start collecting their materials from sites other than the eastern Congo, say human rights groups.

Monday's decision was nevertheless a setback for human rights groups, which lobbied Congress to get the conflict minerals provision included in the 2010 Dodd-Frank financial reform law. The rule is enforced by the SEC, which regulates publicly traded companies.

Three of the nation's largest business lobbying groups filed a lawsuit in 2012 challenging the rule: the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers. They argued that the regulation was overly burdensome, costly and difficult to enforce.

Human rights groups, however, say that the regulations are already working to quell the trade in tungsten, gold, tin and tantalum from the eastern Congo, the proceeds of which help fund the rebel groups and warlords engaged in a brutal, ongoing struggle in that region. According to Sasha Lezhnev, a senior policy analyst at the human rights watchdog group the Enough Project, since the adoption of the conflict minerals rule, "over two-thirds of tin, tantalum and tungsten mines [in the Congo] are now free of armed groups."

While groups like the Enough Project are glad that the court upheld the regulation's basic premise, they argue that the public disclosure component was a crucial part of its enforcement mechanism. The prospect of negative public relations or consumer boycotts would have put far more pressure on companies to comply with the rule, the groups say, than enforcement alone.

"Consumers and investors are more aware than ever about conflict minerals, and will be holding companies accountable for what they are or are not doing on conflict minerals," Lezhnev said.

As of late Monday, none of the business groups involved in the case had issued a formal response to the ruling, telling reporters they needed time to review it before commenting.

“It’s critical that companies and the general public understand this ruling does not invalidate the conflict minerals rule altogether or even the majority of its reporting requirements," said Enough Project policy associate Holly Dragonis.

"The court found that only a very narrow part of the rule violates the first amendment, and it strongly supported many other aspects of the rule and its creation.”

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