On April 14, 2014, the U.S. Court of Appeals for the District of
Columbia Circuit ruled that the U.S. Securities and Exchange
Commission (the "SEC") rule requiring
issuers to disclose whether they use "conflict minerals"
in their products was unconstitutional because it would compel
speech in violation of the First Amendment.1 The circuit
court remanded the matter to the district court, from where this
case was appealed, for further consideration.
In 2012, the SEC adopted a rule to implement the conflict
mineral provisions in Section 1502 of the Dodd-Frank Act, which
require disclosure and reporting regulations concerning the use of
"conflict minerals." The term "conflict
minerals" includes cassiterite, columbite-tantalite (coltan),
gold, wolframite and their derivatives originating in the
Democratic Republic of Congo and other adjoining countries
(collectively, the "DRC").2
The rule applies to SEC reporting companies, including smaller
reporting companies and foreign private issuers, that manufacturer,
or contract to have manufactured, products in which conflict
minerals are necessary to their functionality or production.
Specifically, the SEC rule and the underlying statute require such
issuers to state on their websites that their products have
"not been found to be 'DRC conflict free'" and to
file a disclosure report on Form SD with the SEC. The Form SD is
due annually by May 31 (extended to June 2 for 2014 because May 31
falls on a Saturday) for the prior calendar year.
The circuit court found the label "conflict free" to
be a "metaphor that conveys moral responsibility for the Congo
war" and that forcing a company to use that language
interferes with First Amendment protections. The SEC argued that
rational basis review is appropriate because the conflict free
label discloses purely non-ideological information. The circuit
court disagreed, finding that rational basis review is the
exception, not the rule, in First Amendment cases. While the U.S.
Supreme Court has stated that rational basis review applies to
certain disclosures of "purely factual and uncontroversial
information," the circuit court relied on a previous ruling to
hold that this is "limited to cases in which disclosure
requirements are 'reasonably related to the State's
interest in preventing deception of consumers.'" No party
in the case had suggested that the conflict minerals rule was
related to preventing consumer deception, and in the district court
the SEC admitted that it was not.
The circuit court found that the SEC failed to present any
evidence that a less restrictive approach would not achieve the
rule's intended purpose. The circuit court considered
"alternatives to regulating speech" – for example,
issuers could use their own language to describe their products or
the government could compile its own list of products that it
believes are affiliated with the Congo war based on information
issuers submit to the SEC. Without any evidence that alternatives
would be less effective, the circuit court dismissed the SEC's
claim that the restriction to speech as compelled by the disclosure
requirement is narrowly tailored to achieve the rule's purpose.
As a result, the circuit court found the SEC's conflict
minerals disclosure rule violates the First Amendment, to the
extent the SEC rule and the underlying statute require issuers to
report to the SEC and to state on their websites that certain of
their products have "not been found to be 'DRC conflict
SEC Partial Stay and Guidance
On May 2, 2014, the SEC issued a partial stay of the conflict
minerals disclosure rule, stating that companies will not be
required to declare whether their products do, or do not, contain
conflict minerals. Companies will, however, need to meet other
reporting requirements under the SEC's conflict minerals
disclosure rule. According to a guidance statement issued on April
29, 2014 by the SEC's Division of Corporate Finance, companies
that do not need to file a Conflict Minerals Report with Form SD
should still disclose their reasonable country of origin inquiry
and briefly describe the inquiry they undertook in their Form SD
filings. For companies that are required to file a Conflict
Minerals Report in their Form SD filings, the report should include
a description of the due diligence they undertook, but such
companies need not describe their products as "DRC conflict
undeterminable" or as having "not been found to be
'DRC conflict free'".
1. National Association of Manufacturers, et al. v.
SEC, et al., No 13-5252 (D.C. Cir. April 14,
2. 17 CFR §240.13p-1 (2012).
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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