Industry Groups Learn to Live With Conflict Minerals Rule
A federal rule spawned by the Dodd-Frank Act that requires reporting the use of of “conflict minerals” from Africa is facing legal challenges from some business and industry groups. But others are now accepting that it might be here to stay—and they’re adapting.
An ongoing lawsuit against the Securities and Exchange Commission notwithstanding, the agency’s new regulation requiring manufacturers to disclose the use of so-called conflict minerals is set to take effect in 2014.
A number of large industry groups are involved in that lawsuit seeking to overturn the rule. But others are taking a different approach: They’re preparing for compliance when it takes effect. More details:
About the rules: A provision of the Dodd-Frank Act, a 2010 financial regulatory law, directed the SEC to draft and enforce a rule that requires manufacturers to disclose whether a product includes conflict minerals “necessary to the functionality or production of a product” that were acquired from the Democratic Republic of the Congo or nearby countries beset by violent conflict. The rule, which applies to publicly held companies, is intended to draw attention to minerals such as gold and tin, the mining of which often funds war and corrupt regimes. Under the regulations the SEC proposed in 2012, manufacturers would have to disclose such information for 2013 by May 31, 2014. However, industry groups have argued that compliance would be costly and that the rule would compel speech, violating the First Amendment. The National Association of Manufacturers, the U.S. Chamber of Commerce, and the Business Roundtable are among the organizations that filed suit to prevent the rule from taking effect. They lost a round in July, when a judge threw the initial challenge out of U.S. district court. The case is now before the federal Court of Appeals in Washington, DC .
Looking for wiggle room: Last week, the National Retail Federation submitted a friend-of-the-court brief in the case, arguing that the retail industry should not be required to determine and disclose whether the goods they sell include such materials—as retailers serve a different role in the supply chain than manufacturers do. “The SEC’s regulation makes no practical sense,” the group argued, according to its press release. “Manufacturers and retailers have fundamentally different functions in the commercial world, and they have fundamentally different obligations under the statute at issue here.” NRF asserted that Dodd-Frank gave the SEC authority to impose the rule on manufacturers only. “A manufacturer, by definition, must know about the materials and parts that go into its products,” it said, while retailers have “little more ability to learn about and control the source of their components than a consumer who custom-orders furniture.”
Encouraging compliance: Some organizations have decided to prepare for the oncoming regulation rather than fight it. “If this were the stages of grief, we’re at acceptance,” Aerospace Industry Association Vice President Christian Marrone recently told Defense News. He said the group is working with its members to help them better understand the SEC rule and reaching out to the agency to clarify how it will work. While the industry agrees with the intention behind the rule, Marrone noted that it “has unintended consequences. If you’d done a cost-benefit analysis, you probably wouldn’t have done this.” The auto industry is also working to comply with the rule.