It’s not only the NGOs that have expressed their dismay at the no-action position taken by Corp Fin and Acting SEC Chair Michael Piwowar with regard to compliance by companies with the conflict minerals rule. In this April 26 letter, six U.S. Senators express their doubt about the “legal basis” for the Acting Chair’s “unilateral move” to halt enforcement of the rule.
You may recall that, in April, Corp Fin issued an Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule, which provided that Corp Fin would not recommend enforcement action if companies performed only a reasonable country-of-origin inquiry and filed only a Form SD, but did not file a conflict minerals report (Item 1.01(c) of Form SD) or, presumably, conduct detailed supply-chain due diligence — even if they would otherwise be required to do so under the rule. At the same time, in a separate Statement, Acting Chair Piwowar commented that the “primary function of the extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals set forth in paragraph (c) of Item 1.01 of Form SD is to enable companies to make the disclosure found to be unconstitutional. In light of the foregoing regulatory uncertainties, until these issues are resolved, it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.” (See this PubCo post.)
Several NGOs then issued statements emphatically rejecting Corp Fin’s position and calling for companies to disregard it. (See this PubCo post.) According to Reuters, Piwowar’s action also produced a real “backlash” from Commissioner Kara Stein, who, quite graphically, “accused Piwowar of acting beyond his authority to gut the meat of a rule mandated by Congress, adopted by the SEC and reviewed by the courts. ‘It is unprecedented for one commissioner, acting alone and without official notice and comment, to engage in de facto rulemaking….It represents a troubling attack not only on the Commission process, but also on the restraints of government power.’”
Now, six Senators — Cory Booker, Sherrod Brown, Chris Coons, Dick Durbin, Patrick Leahy and Elizabeth Warren — have also challenged the Acting Chair’s authority, contending that “[a]ny steps to repeal or modify the requirements of the law require action by Congress. Any attempt to modify the rule requires a transparent, formal review and opportunity to comment by all stakeholders…. As Acting Chairman, you do not have the authority to direct a halt to enforcement.”
Referencing a previous letter from four Senators on the Senate Banking Committee requesting an OIG investigation into whether Piwowar had the authority to delay or revisit the conflict minerals rule (see this PubCo post), the Senators expressed concern regarding the “dangerous precedent set when an Acting Chairman decides which laws the SEC should enforce.”
First, the Senators argue that the rule has had positive effects in the DRC: “North Kivu province, the most 3T minerals-rich province in Congo, reported record-high, conflict-free exports for both tin and tantalum in 2016, and 220 mines have now been certified as conflict-free. In addition, as of April 2017, 77 percent of smelters worldwide (249 out of 343 total) for the four conflict minerals have passed audits.”
However, they contend, the statements from Corp Fin and the Acting Chair improperly conflate “distinct elements” of the rule and incorrectly interpret the court case, which, they maintain, invalidated “only one specific, severable component” of the rule; the conflict minerals report is central to the statute “even if companies are ultimately not required to describe the status of their products.” And, they maintain, the due diligence inquiry has had beneficial effects, creating supply chain efficiencies and “choking off revenue” for armed groups. The rule is also supported by a number of prominent companies that would face a competitive disadvantage if the rule were not enforce, they argue. In conclusion, the Senators urged the Acting Chair to rescind the directive.