US Court of Appeals Decision on US SEC Conflict Minerals Regulation

Yesterday, the U.S. Court of Appeals for the D.C. Circuit reaffirmed its April 2014 decision regarding the U.S. Securities and Exchange Commission (SEC) Conflict Minerals Rule: the requirement to describe products as having “not been found to be DRC conflict Free” violates the First Amendment.

The SEC asked for a re-hearing of the April 2014 decision after the Court upheld another federal regulation requiring companies to provide origin labels on meat products. Yesterday’s decision found that the meat labeling case is distinct from the Conflict Minerals Rule.

So how does this affect conflict minerals compliance activities for Reporting Year 2015?  The U.S. SEC has not commented on this decision or provided any additional guidance at this point in time. However, Schulte Roth & Zabel (SRZ) LLP provided some key-takeaways yesterday that may be helpful:

1. Similar to the April 2014 decision, yesterday’s ruling still largely upholds the majority of the SEC's Conflict Minerals Rule. Companies must still conduct Reasonable Country of Origin and Due Diligence activities and report their findings to the SEC.
2. The SEC’s April 29, 2014 Statement also still stands. Per this Statement, companies are not required to identify products as “DRC conflict free”, having “not been found to be DRC conflict free” or “DRC conflict undeterminable” in their annual filing. In addition, an Independent Private Sector Audit (IPSA) is not required unless a company chooses to describe one or more of their products as DRC conflict free in their filing.
3. Additional litigation may be forthcoming. SRZ commented that in light of the split decision yesterday, they feel it is likely SEC will seek a rehearing en banc. Assuming this occurs, it could take several months for the court to issue a decision on whether to grant a rehearing. These and subsequent proceedings could extend well beyond the next filing deadline (May 31, 2016). Thus, in SRZ’s opinion, yesterday’s decision makes it unlikely that the IPSA audit status will change before the next filing deadline -- audits will continue to be required only for those companies declaring one or more products as DRC conflict free.

However many companies will still ask when should they plan to have an Independent Private Sector Audit (IPSA) for conflict minerals given the uncertainty of the law. According to Lawrence Heim, Partner at Elm Sustainability Partners, planning and budgeting for an IPSA now will make compliance easier in the future.

For more information from Lawrence Heim and Michael Littenberg on Conflict Minerals Audits, there is a webinar “To Audit or Not to Audit?” hosted by Source Intelligence, Thursday, August 20th at 11AM - 12PM PDT. Click here reserve your seat.