A federal judge on Wednesday upheld a U.S. Securities and Exchange Commission rule that will require about 6,000 publicly traded companies to report whether their products contain four so-called conflict minerals from the Democratic Republic of the Congo, where warlords use proceeds from the mineral sales to finance murder, rape and torture.
The National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable sued the SEC to block the rule, which they said might cost as much as $16 billion to implement. They argued that the disclosure requirement was arbitrary and capricious and violated companies’ First Amendment rights.
U.S. District Judge Robert Wilkins in Washington came down soundly on the SEC’s side, which he said had properly carried out the will of Congress in crafting the rule.
“The SEC rightly maintains that its role was not to ‘second-guess’ Congress’s judgment,” Wilkins wrote, “but to, instead, promulgate a rule that would promote the benefits Congress identified and that would hew closely to that congressional command.”
Nor was the judge persuaded that the SEC rule would improperly compel “burdensome and stigmatizing speech,” by making companies disclose on their websites whether their products are “DRC conflict-free,” as the plaintiffs asserted. “The nature of the product-specific disclosures, in particular, is reasonable and proportionate,” Wilkins wrote.
The SEC promulgated the conflict-mineral rules, which became final in January, based on Section 1502 of the Dodd-Frank Act of 2010. Congress told the SEC to develop disclosure rules for companies using four conflict minerals—tin, tantalum, tungsten and gold—from the Democratic Republic of the Congo and surrounding countries. The minerals are used in a huge number of products, including automobiles, computers, light bulbs, ballpoint pens, thread and medical devices.
The business groups originally filed suit in the U.S. Court of Appeals for the D.C. Circuit, but moved the case to district court on April 30 after the D.C. Circuit ruled it lacked jurisdiction over a direct challenge to a different SEC rule issued under Dodd-Frank.
Represented by a team from Sidley Austin led by Peter Keisler, the plaintiffs argued that the SEC violated the Administrative Procedure Act by failing to properly analyze the rule’s costs and benefits—a tactic that’s worked in the past. But this case was different, Wilkins found.
“The resulting benefits Plaintiffs accuse the Commission of ignoring relate to humanitarian objectives that Congress concluded would be achieved by the rulemaking, rather than some sort of economic objectives underlying the Commission’s rule,” Wilkins wrote [emphasis in the original]. “Simply put, there is no statutory support for Plaintiffs’ argument that the Commission was required to evaluate whether the Conflict Minerals Rule would actually achieve the social benefits Congress envisioned.”
He continued, “The Commission promulgated the Conflict Minerals Rule pursuant to an express, statutory directive from Congress, which was driven by Congress’s determination that the due diligence and disclosure requirements it enacted would help to promote peace and security in the DRC.”
Representatives of the Chamber and NAM released identical statements. “We are reviewing the court’s decision and our options going forward. We continue to believe this rule, while well intentioned, is unsupported by the Agency’s own record.”
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