You may have heard that the Securities and Exchange Commission (SEC) filed its initial brief in the lawsuit challenging its conflict mineral rules, which require U.S.-registered issuers to investigate and make public disclosures about the tin, tantalum, tungsten, and gold (“conflict minerals”) they use in their products. The conflict mineral rules are effective now (yes they are), and the first conflict minerals report covering 2013 will be filed in 2014. Unfortunately for the SEC, the D.C. Circuit Court of Appeals has not been very friendly towards the SEC and its rulemaking efforts in the recent past.
The lawsuit was filed by the National Association of Manufacturers, Chamber of Commerce of the United States of America and Business Roundtable and claims that, among other things, the SEC egregiously underestimated the costs and benefits of the rules, including whether the rules would create any benefits at all for the people of the Democratic Republic of Congo (DRC). The suit also alleges that the conflict mineral rules violate the First Amendment by compelling companies to describe their products as “not…found to be ‘DRC conflict free’” when in fact the companies are simply unable to trace their minerals back to their country of origin and have no basis to believe their minerals are actually financing DRC human rights abuses in any way. By forcing companies to associate themselves falsely with grave human rights abuses, the rule compels speech in violation of the First Amendment according to the several plaintiffs.
In its brief, the SEC claimed that it appropriately considered the economic effects of the rule and reasonably accepted Congress’s determination that the disclosure requirements would achieve the desired social benefits. The SEC also claimed that its adoption of the reasonable country of origin inquiry was reasonable and that it conducted a thorough quantitative analysis of the costs of the final rule.
To paraphrase the SEC, because Congress required it to adopt a rule with unquantifiable and uncertain social benefits, the SEC’s hands were tied and it did the best it could: what else could we do?
Oral arguments are scheduled for May 15, 2013.