Some Parts of Conflict Mineral Disclosure Unconstitutional

The Akin Gump Strauss Hauer and Fled LLP law firm reports that in April, the US Court of Appeals ruled that certain sections of the rule for a company to publicly disclose the use of conflict minerals violated the First Amendment right to free speech. The law firm denotes that labeling products “not DRC conflict free” is unconstitutional, which could directly affect thousands of issuers that must file conflict mineral reports to the Securities Exchange Commission by June of 2014.

Currently, the use of tantalum, tin, gold or tungsten originating from the Democratic Republic of Congo or its neighboring countries must have reports filed with the SEC. This report is mandatory if those minerals are used within any part of a product developed by any manufacturer or other company. As the area near and in the Republic of Congo is a strong supplier of these minerals, they can be found in a variety of goods including cell phones, medical equipment, lamps and other goods.

The National Association of Manufacturers asserts that it can demonstrate in future court proceedings that the rule is unconstitutional and that a stay is warranted. NAM argued that reporting companies that do in fact use conflict minerals within development of a product could lose billions of dollars in compliance costs if the court overturns the rule after the fact. This means that companies that issued the labels on the products would not be reimbursed for costs of the procedure if the rule is eventually dissolved by the courts.

Although the courts denied the stay in its entirety, it did rule that labeling products “DRC conflict free,” “DRC conflict indeterminable” or “have not been found to be DRC conflict free” is not needed for each individual company. However, those companies that are using conflict minerals must still file the report with the SEC by June 2, 2014.

Each company must follow the requirements of Rule 13p-1 on or before the due date. According to a statement issued by the SEC on April 29, 2014, the report should also include a description from the company of any “due diligence that the company undertook,” but the companies do not have to label products at this time.