Court rules against conflict mineral disclosure law

The US Court of Appeals ruled that the Securities and Exchange Commission (SEC) cannot compel firms to declare their products rely on raw materials sourced from war-torn parts of Africa.

Mining in Mwenga territory, South Kivu, DRC.
Image: Global Witness

A US appeals court has ruled that the Securities and Exchange Commission (SEC) cannot compel firms to declare their products rely on raw materials sourced from war-torn parts of Africa.

The SEC regulations are designed to help end the sale of minerals that have funded conflicts in and around the Democratic Republic of Congo, which have killed more than 5.4 million people since 1998. Helping to fund the violence has been the sale of gold and the minerals used to produce tin, tantalum, and tungsten. These metals are used inside electronic components in phones and laptops, as well as in vehicles and jewellery.

Tuesday's legal ruling was made in a case bought by three trade bodies, including the National Association of Manufacturers (NAM) - which represents 14,000 companies - including many IT hardware vendors.

The group challenged requirements under the 2010 Dodd-Frank Wall Street reform law - which requires firms to make efforts to audit their supply chains and be more transparent about where they source gold, tin, tantalum and tungsten from.

The NAM argues this SEC regulation could cost manufacturers $9 to $16 billion to implement, while not achieving the intended objective.

In response to the legal challenge bought by the NAM and its partners, the U.S. Court of Appeals for the District of Columbia Circuit declared on Tuesday that the SEC cannot force public companies to declare whether their products may contain conflict minerals because it violates their free speech.

Tuesday's ruling still upholds the majority of the SEC's conflict minerals rules, which came into effect last year.

Companies still must still audit their supply chains and file reports to the SEC with their findings, but are not required to state whether products are conflict free.

The decision on Tuesday is the second time that the three-judge panel has reviewed the regulator's conflict minerals rule.

While many tech firms are members of the body, a number have taken steps to back the SEC ruling. In 2012, in response to the legal challenge brought by the NAM and its partners, Dell, HP, Intel and Microsoft were among the tens of companies that signed a statement supporting the SEC legislation and committing to greater supply chain transparency.

Across all industries the majority of firms have blind spots in their supply chains. Earlier this year, an analysis by campaign group Global Witness found only 16 percent of companies knew the origin of minerals used to make their products. The study identified HP, Intel and Microsoft as being among the one fifth of the firms meeting the minimum requirements of the Dodd-Frank act. However, Amazon, Google, IBM and Oracle were assessed by Global Witness as not meeting the requirements of this US conflict minerals legislation at the time.

On Tuesday, Global Witness attacked this latest appeals court ruling for lessening public scrutiny of companies use of conflict minerals.

"This dangerous and damaging ruling could allow corporations to hide information they would prefer their consumers and investors not to know," said Zorka Milin, senior legal advisor at Global Witness.

"Today's decision affects not only the conflict minerals rule but could also be exploited by companies to bring legal challenges to other corporate transparency laws."