Businesses gets partial reprieve from SEC's conflict mineral rule

The Securities and Exchange Commission issued an order Friday to stay a central provision of Dodd-Frank Act regulations requiring firms to track and disclose whether their products contain minerals from the war-torn Democratic Republic of Congo (DRC).

The move follows a federal court ruling last month concluding that a requirement forcing companies to publicly report their products as not “conflict-free” violated their First Amendment protections against compelled speech.

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The D.C. Circuit Court of Appeals ruling was a major blow to the regulation, which critics have assailed as outside of both the commission’s scope and the purpose of the landmark Wall Street reform law.

But the SEC stresses that the court left other provisions of the regulation intact. Those will take effect this month, as scheduled, while the disclosure provision will get a stay “pending further proceedings.”

The appeals court concluded that the SEC was following statutory language in requiring companies to determine whether any gold, tantalum, tin or tungsten in their products comes from the DRC or adjoining nations.

The regulations come in response to violence between warring factions battling for control of the Central African nation’s valuable mineral supply. The rule’s backers say more scrupulous sourcing would lead to lowered demand and decreased violence.

However, the rule, as initially crafted, could compel a company to “confess blood on its hands” when that is not the case.

“The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war,” according to a majority opinion backed by two members of a three-judge panel on the D.C. Circuit. “It requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups.”

The SEC estimated the total costs of the final rule would be $3 billion to $4 billion initially, and $207 million to $609 million in subsequent years. The agency said it was unable to quantify the benefits being sought, namely reducing violence in the Congo.

As originally drafted, the regulations would apply to roughly 6,000 U.S. businesses.

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