Legal and Practical Challenges to Conflict Minerals Rule Continue
On September 12, the NAM et al. filed their joint response to the SEC et al.’s petition for a rehearing en banc of the decision by the United States Court of Appeals for the District of Columbia largely upholding the conflict minerals rule (the “Rule”) but striking down one provision as violating the First Amendment (discussed here and here).
In their filing, NAM claims that:
- Rehearing en banc is not warranted in this case, which presents no conflict in this Court’s decisions or with decisions of the Supreme Court or other Courts of Appeals. Indeed, the dispositive question—whether the compelled speech at issue is “purely factual and uncontroversial information”— is clearly resolved by application of a decades-old legal standard. See Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985). Because the standard for en banc review has not been satisfied, this Court should deny the requests for rehearing en banc.
Further NAM asks the court to clarify that the First Amendment analysis applied in the decision is not affected by the recent holding in American Meat (discussed here). American Meat extended Zauderer review beyond compelled disclosures aimed at preventing consumer deception, but limited review to disclosures of a purely factual and uncontroversial nature.
NAM suggests that this point of clarification is already implicit in the earlier decision and by making it the Court will only be making “a straightforward application of a decades-old legal standard.” It argues that:
- The Securities and Exchange Commission’s (SEC) Conflict Minerals Rule is not a “purely factual and uncontroversial” disclosure requirement. Rather, as the panel majority stated, it forces companies to “confess blood on [their] hands.” Nat’l Ass’n of Mfrs. v. SEC, 748 F.3d 359, 371 (D.C. Cir. 2014). Issuers are forced to bear a scarlet letter that is laden with value judgments and opprobrious connotations with which they strongly disagree, because the rule compels them to make a statement that “conveys moral responsibility for the Congo war,” and “tell[s] consumers that [the issuers’] products are ethically tainted.” Id.
Further, the compelled statement is not purely factual because, in many cases, issuers who are compelled to admit to potential complicity in the armed conflict have no connection to the conflict, but are simply unable to identify the source of their minerals.
Finally, NAM argues that:
- [I]t is repugnant to the First Amendment for the government to force private companies to bear a scarlet letter denouncing their own products.
The basis for this response on the part of NAM is not at all surprising—I had earlier suggested that this was a logical response to the American Meat decision. It is now once more back to the Court to wait for further clarification of what will be deemed purely factual disclosures (and therefore subject to Zauderer review) and what will be deemed to demand that “simply the facts.”
While the legal battles over the conflict minerals rule rages on, so to do the practical arguments as to its effectiveness. In a recent editorial in the Wall Street Journal, Rosa Whitaker, the president and CEO of the Whitaker Group and the assistant United States trade representative for Africa in the administrations of Presidents Bill Clinton and George W. Bush argues (as many others have) that the conflict minerals rule is working a de facto embargo of mining in certain African countries by companies subject to the rule. She states “the perverse result is that America’s biggest competitors increasingly source [their] minerals from Africa, turning them into usable components and reselling them at a premium to affected American companies. This not only effectively nullifies [the Rule’s effect] it amounts to a big income loss for African producers as well as U.S. companies operating the hypercompetitive world of consumer goods.”
Unlike many critics of the Rule, Ms. Whitaker actually has a proposed solution—namely regulate the import of goods containing conflict minerals by prohibiting their import and charging United States border officials and the Commerce Department’s Bureau of Industry and Security with upholding the ban. As a long-standing critic of placing regulation of conflict minerals under the auspices of the SEC, I welcome this suggestion, without passing judgment on whether it is the best alternative—at least it seems a more logical approach than the one currently in place, and one that might avoid the tortured legal fights that continue to rage on in regard to the Rule.