The fight against corruption set the playbook for movements that aim at global legal change. First, pass a law in the U.S. Then leverage that law to create treaties and legislation that raise the expectations for businesses around the world. My last column showed how the “Publish What You Pay” movement deviated from that model when a court vacated the Securities and Exchange Commission’s revenue transparency rule for the natural resources sector. Now a court in Washington, D.C. has upheld the other Dodd-Frank social regulation—the section 1502 rule calling for responsible sourcing of Congolese minerals—leaving the blood minerals movement on track to repeat the historical triumph of anticorruption.
U.S. District Judge Robert Wilkins rejected every broad argument offered by Sidley Austin on behalf of the manufacturing and business lobbies. The judge was relaxed in his demands for a rulemaking cost-benefit analysis in the context of a social regulation, and found the SEC’s balance reasonable. Under the intermediate scrutiny test that the court applied, the objective of peace in Africa amply justified the compulsion of commercial speech. And in contrast to the Publish What You Pay decision, Wilkins accepted the SEC’s judgment that carving out an exemption (here, for de minimis use of conflict minerals) would undermine the statutory design. All three branches of the U.S. government accept that even a spot of blood is too much.
The policy cleared for takeoff is a worthy one. The Kimberley Process for governments to certify diamonds as conflict-free is among the most successful human rights experiments of the past generation. More broadly, the corporate duty of human rights due diligence in the U.N. Guiding Principles on Business and Human Rights (the “Ruggie rules”) is among the most innovative policy tools. Dodd-Frank section 1502 uses Ruggie’s standard tool to pursue ends similar to Kimberley, but by regulation rather than voluntary initiative. It requires manufacturers and contract manufacturers to conduct due diligence on the source and chain of custody of minerals from the Congolese region that have historically been commandeered by abusive militias, and are commonly used in smartphones. (I may have been the only one who noticed, but the section 1502 rule was coincidentally published on the same day as the iPhone 5.)
The biggest rap on Dodd-Frank section 1502 is that it may encourage companies to source minerals from other conflict zones. But the EU may soon solve that problem in the best way possible — by passing a minerals directive that applies to conflict zones worldwide. In this field, as in anticorruption, there is a regulatory race to the top, and the U.S. courts have not broken the virtuous cycle.
An appeal by industry to the D.C. Circuit remains a strong possibility. But with the industry’s first reporting obligations due in May 2014, SEC compliance expert Michael Littenberg of Schulte Roth & Zabel advises companies that they will run out of runway unless they put in place due diligence controls immediately. With any luck, your next iPhone will be blood-free.
This article originally appeared in The Am Law Litigation Daily.
