WASHINGTON – A federal appeals court has overturned a disclosure requirement that public companies must post information about their use of minerals from Congo, where militias linked to atrocities have profited from mining minerals used in electronics, jewelry and other goods.
The appeals court says the requirement violates the free speech rights of companies that must inform the Securities and Exchange Commission and publicize on their websites that any of their products have not been found to be free of mineral conflicts.
While overturning the disclosure requirement, the court rejected industry arguments that the SEC must conduct rigorous, quantitative economic analysis on the costs and the benefits of the conflict minerals rule.
An agency is not required to measure the immeasurable, and need not conduct a rigorous, quantitative economic analysis unless the law explicitly directs it to do so, wrote appellate judge A. Raymond Randolph.
The conflict minerals provision is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Dennis Kelleher, president and CEO of Better Markets, a non-profit organization, said that provision in the appeals court decision takes away one of the financial industry’s constant arguments — that reform costs too much money.
Rejecting the industry arguments is profoundly important for financial reform, because it will enable the SEC to actually pass many other financial reform rules, said Kelleher.
In the portion of its ruling overturning the disclosure requirement, Randolph said the label about not being free of mineral conflict requires a company to tell consumers that products are ethically tainted, even if they only indirectly finance armed groups.
Compelling a company “to confess blood on its hands” interferes with the exercise of freedom of speech, said Randolph.
The National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable said they were pleased with the outcome finding a portion of the law and regulation to be unconstitutional.
“We understand the seriousness of the humanitarian situation in the Democratic Republic of Congo and abhor the violence in that country, but this rule was not the appropriate way to address this problem,” said the business groups.
The war and humanitarian disaster in the Democratic Republican of the Congo have killed millions and armed groups fighting the war finance their operations by exploiting trade in gold, tantalum, tin and tungsten.
In 2010, Congress devised a response to the Congo war, requiring firms using what are called conflict minerals to disclose the origin of those minerals.
Under the law, company’s products are conflict-free if they do not directly or indirectly finance or benefit armed groups.
In dissent, appeals judge Sri Srinivasan said the court should wait until the same legal question is decided by the full appeals court in another case. That case will determine whether to uphold labels on meat products that say where animals were born, raised and slaughtered.