On April 14, 2014, the U.S. Court of Appeals for the District of Columbia concluded that the conflict minerals reporting requirement rule adopted by the Securities and Exchange Commission (SEC) and the statute that mandated it, Section 1502 of the Dodd-Street Wall Street Reform and Consumer Protection Act, violates the First Amendment.
Specifically, the court ruled that the final rule, "violate[s] the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have 'not been found to be 'DRC conflict free."
The decision, authored by Judge A. Raymond Randolph, said the label "requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups. By compelling an issuer to confess blood on its hands, the statute interferes with [the] exercise of freedom of speech under the First Amendment."
The SEC declined to comment on the ruling or provide any clarification on reporting leaving 6,000 issuers and their suppliers unsure of what to report by the May 31, 2014 deadline for calendar year 2013. In this interim period, companies are advised to maintain their compliance efforts because the court only ruled on one aspect of the final 356-page rule.
It is not immediately clear what this decision will mean in terms of 2014 conflict minerals reporting. The decision does not necessarily prevent the SEC from continuing to require reporting by companies going forward, with the exception of the requirement that companies designate products as "not DRC conflict free" if their diligence led to such a finding. The SEC will likely clarify the impact on 2014 filings in the near future. Pending any additional SEC guidance, companies subject to the rule should assume that the June 2, 2014 filing deadline will remain in effect.