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The Conflict Mineral Reporting Saga Continues as Court Overturns Portions of the Dodd-Frank Act

Posted By Administration, Wednesday, May 14, 2014

by Melissa A. Miller Proctor, Esq., Sandler, Travis and Rosenberg, P.A.



The conflict mineral reporting saga has heated up in recent weeks, leading to more uncertainty for publicly traded companies that are themselves subject to the reporting requirements as well as their suppliers. By way of background, on August 22, 2012, the Securities and Exchange Commission ("SEC") implemented regulations giving effect to the conflict mineral reporting requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). Under the Dodd-Frank Act and the SEC regulations, publicly traded companies are required to conduct upstream due diligence investigations of their suppliers' sourcing practices, and disclose their use of certain minerals1 (i.e., columbite-tantalite, cassiterite, gold, wolframite and their derivatives) originating in the Democratic Republic of the Congo ("DRC") or adjoining countries.The conflict mineral disclosures are made annually to the SEC, and information regarding companies' use of conflict minerals must also be posted on their websites. For decades, the DRC has been the scene of horrific human rights atrocities and violence driven chiefly by trade in these minerals. The Dodd-Frank Act was intended to educate U.S. consumers about the origin of minerals used in common commercial goods in order to allow them to make informed purchasing decisions.

Shortly after the SEC issued its final rule implementing the Dodd-Frank Act, a legal challenge was mounted by the National Association of Manufacturers ("NAM"), which argued that the Act was unconstitutional. A few weeks ago, on April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit agreed, in part, with NAM. The court held that the public disclosure requirement for conflict minerals in the Dodd-Frank Act was unconstitutional. Specifically, the court stated that requiring companies to declare whether or not their products are "DRC conflict free" is forced commercial speech which runs afoul of the First Amendment. Specifically, the court noted:

The label "conflict free" is a metaphor that conveys moral responsibility for the Congo war…By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.

See National Association of Manufacturers v. Securities and Exchange Commission, No. 13-5252, at 20 (D.C. Cir. 2014). Thus, the court's decision invalidated the portion of the Dodd-Frank Act that requires a company to describe its products as DRC conflict free, not DRC conflict free or DRC conflict undeterminable in its SEC reports and on its website. However, none of the other Dodd-Frank Act requirements were overturned.

As originally drafted and enacted, the Dodd-Frank Act requires publicly traded companies to take the following steps:
  1. Confirm that they are subject to the conflict minerals reporting requirements (i.e., where conflict minerals are necessary to the functionality or production of a product manufactured by them or whether they contract the manufacturing of such goods)
  2. Make a "sufficiently reasonable inquiry" into the source or origin of the conflict minerals used in their products
  3. Submit the necessary disclosures to the SEC and post the required declarations on their websites
For example, if a company's reasonable origin inquiry indicates that the minerals used in their products are or could be conflict minerals, they must submit the new Form SD to the SEC along with their Conflict Mineral Reports describing the due diligence they performed and their independent private-sector audit as well as identifying whether their products are no DRC conflict or "DRC conflict undeterminable." In the alternative, if the company confirms that no conflict minerals were used, they must merely disclose to the SEC that their products are DRC conflict free.

However, the court's recent decision overturning the disclosure provisions of the Dodd-Frank Act complicates this already complex and controversial law for companies that are required to comply with it. On May 5, 2014, the SEC stated that, despite the court's decision, subject companies are still expected to comply with the June 2nd filing deadline and with the Dodd-Frank reporting requirements that were not specifically struck down. Specifically, publicly traded companies will still be required to: (1) determine whether they are subject to the Dodd-Frank Act; (2) conduct a reasonable origin inquiry of the minerals used in their products; (3) identify the facilities that produced the minerals; (4) identify the origin of the minerals; and, (5) describe the due diligence taken to determine the mine or location of origin of the minerals. However, per the court's decision, the SEC stated that reporting companies are not required to identify whether their products are DRC conflict free, DRC conflict underterminable or not DRC conflict free.

Several industry organizations, including the U.S. Chamber of Commerce and National Association of Manufacturers, have recently announced that they will ask the court to freeze the Dodd-Frank Act in its entirety for the time being until the court's original decision can be fully explored and implemented. Thus, the drama that is the Dodd-Frank Act continues to unfold and affected companies are urged to stay tuned.

[1] These minerals are used widely in the production and manufacture of goods around the globe, including jewelry, computers, digital cameras, cell phones, medical equipment, video games, automotive parts, aerospace and defense equipment, and semiconductors.
[2] Adjoining countries include Angola, Burundi, Central African Republic, Republic of Congo, Rwanda, Sudan, Tanzania, Uganda, and Zambia.


Melissa Miller Proctor is a Partner with Sandler, Travis and Rosenberg, P.A., resident in the firm's Arizona office. With significant experience in export controls, customs laws and regulations, and international trade, Melissa works closely with clients to expand their markets while ensuring their regulatory compliance. She may be reached at (480) 305-2110 or via e-mail at mproctor@strtrade.com.

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Tags:  Dodd-Frank Act 

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