A drop of tin, a speck of gold. The tiniest trace of any so-called conflict mineral in a vast array of productseverything from buttons to cellphones to jet turbinesis now under the microscope of the U.S. Securities and Exchange Commission.
New SEC rules went into effect in January that will require about 6,000 publicly traded companies to report whether their products contain four conflict minerals from the Democratic Republic of the Congo, where warlords are using proceeds from the mineral sales to fund a horrific campaign of murder, rape and torture.
It's an initiative that the SEC, which generally spends little time considering foreign policy or human rights objectives, would probably not have chosen on its own; rather, the agency was directed to do so by Congress as part of the Dodd-Frank Act of 2010.
But the way the SEC has implemented the conflict-minerals rule has aroused vehement opposition from the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable, which on Jan. 16 together filed their opening brief in a suit challenging the regulations. The petitioners stress that this is one of the most expensive SEC rules in history, with initial compliance cost estimates ranging from $3 billion to $16 billion, that the agency failed to do a cost-benefit analysis, and that the rule might not even help the people of the Congo.
"Aghast" is how Thomas Quaadman, vice president of the U.S. Chamber Center for Capital Markets Competitiveness, described the reaction of member businesses to parts of the final rule.
The SEC and Amnesty International, an intervenor in the case, counter that the rule is the will of Congress, and that it stands as "an important tool to address the trade and exploitation of minerals that help fuel widespread human rights abuses," said Amnesty counsel Julie Murray, a staff attorney with Public Citizen Litigation Group.
As for the legion of lawyers and their clients on the sidelines, they're left calibrating how aggressively to move to comply with a rule that the U.S. Court of Appeals for the D.C. Circuit may well overturn, especially given the SEC's poor record when defending prior rules challenged on cost-benefit grounds.
Jane Luxton, a partner in Pepper Hamilton's environment and energy group, said some companies "remain in denial and are not doing anything about [compliance], in part because of the lawsuit, which they hope will come along and rescue them." Others, she continued, "are taking it seriously and focusing on how to get a handle on what's really in their products. A surprising number of people have never had a reason to do this kind of investigation. … Considering the difficulty of getting this information, I don't think anyone should be relaxing."
The SEC's new role as conflict-minerals cop stems from Section 1502 of the Dodd-Frank Act. The law doesn't ban companies from using the four conflict mineralstin, tantalum, tungsten and goldbut it does trigger unprecedented disclosure requirements.
A public company that uses any of the mineralseven a trace amountin any of its products must conduct a "reasonable country of origin inquiry" to determine the source. The minerals are used in a huge number of products, including automobiles, computers, light bulbs, ballpoint pens, thread and medical devices.