United States: Original Judgment In Conflict Minerals Case Reaffirmed

Those public companies that must comply with the Securities and Exchange Commission's Conflict Minerals Rule (Rule)1 should be aware that the three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Court of Appeals) that in April 2014 issued the original appellate decision (Original Decision) in National Association of Manufacturers v. SEC (NAM),2 a case that poses a challenge to the Rule's validity, recently reaffirmed the Original Decision upon rehearing (Rehearing Decision and, together with the Original Decision, the Decisions).

Rehearing Decision

In the Rehearing Decision,3 the court reaffirmed its Original Decision that parts of Section 13(p) of the Exchange Act4 and the Rule:

"violate the First Amendment to the extent the statute and rule require regulated entities to report to the [SEC] and to state on their website that any of their products have 'not been found to be 'DRC conflict free.''"5

The SEC and Amnesty International had petitioned for a rehearing in NAM after the D.C. Court of Appeals, sitting en banc, issued its decision in American Meat Institute v. U.S. Department of Agriculture (AMI),6 another case involving the First Amendment's application. The SEC and Amnesty International had hoped the court would apply the First Amendment analysis of AMI in its rehearing of NAM and reverse the Original Decision. It should not come as a surprise if the SEC now petitions for a rehearing of the Decisions by the D.C. Court of Appeals, sitting en banc, which may well be friendlier to the SEC's position than the three judge panel has been. The SEC could also petition the U.S. Supreme Court for certiorari. If the SEC does not petition for another rehearing or certiorari, the Decisions will become final and the case will go back to the district court for further action.

In the meantime, the stay of those parts of the Rule affected by the Original Decision that was issued by the SEC following the Original Decision (Stay)7 will remain in effect. However, the Decisions and the Stay do not affect the core elements of the Rule, including the supply chain due diligence and reporting requirements, and issuers must continue to comply with those requirements. Regardless of the direction in which NAM goes, the uncertainty regarding the Rule and how issuers should best comply with it will continue for the near future and possibly past the next Form SD filing deadline on May 31, 2016.

Practical Considerations

Issuers subject to the Rule remain in the same position as they have been since the June 2, 2014 filing deadline for the first ever Form SDs—they do not have to disclose that any of their products containing necessary conflict minerals8 (Conflict Products) have "not been found to be 'DRC conflict free,'" but remain somewhat uncertain about how the Decisions, the Stay and the SEC's guidance regarding the effect of the Original Decision on the Rule (Guidance)9 affect compliance with the Rule's other requirements. Meanwhile, affected issuers must continue to comply with the Rule's requirements that are not affected by the Decisions or the Stay and prepare for filing their Form SDs and, if necessary, their conflict minerals reports (CMRs) for the 2015 reporting year. When doing so, issuers should keep in mind the following:

  • The express language of paragraph (c)(2) of the Rule requires issuers having to file CMRs with the SEC to make certain disclosures regarding any Conflict Products that have not been found to be "DRC conflict free," while the express language of Instruction 2 to Item 1.01 now requires issuers having a two-year transition period (Transition Period) under the Rule10 to describe as "having not been found to be 'DRC conflict free'" those of their Conflict Products they could have previously described as being "DRC conflict undeterminable." In the Guidance, Keith F. Higgins, the Director of the SEC's Division of Corporation Finance, instructed issuers to continue to comply with and address those parts of the Rule the court in NAM upheld and noted that no issuer "is required to describe its products as 'DRC conflict free,' having 'not been found to be 'DRC conflict free,'' or 'not DRC conflict undeterminable.'" He also stated that, with respect to Conflict Products that are "not found to be 'DRC conflict free'" or that are "DRC conflict undeterminable," the issuer should still disclose in its CMR:

    • the facilities used to produce the conflict minerals in the products;
    • the country of origin of those conflict minerals; and
    • the issuer's efforts to determine the mine or location of origin of those conflict minerals.

    The Rule does not require issuers having to file CMRs to include in their CMRs any disclosure regarding Conflict Products found to be "DRC conflict free." As a result, when an issuer makes in its CMR the disclosures described in the immediately preceding bullet points as to a Conflict Product that has not been found to be "DRC conflict free" and posts that disclosure on its website, the issuer will effectively, even if not expressly, be identifying those Conflict Products as "having not been found to be 'DRC conflict free,'" the very disclosure the Decisions say issuers cannot be compelled to make. The Decisions do not expressly address the treatment of those other disclosure requirements of the Rule under the First Amendment and Director Higgins may or may not have considered the effect of making those other required disclosures in the context of the Rule's overall disclosure requirements when issuing the Guidance. Whether the holding in the Decisions is intended to extend to those other disclosure requirements is unclear.

  • The Rule provides that issuers for which the Transition Period has passed no longer may classify and disclose a Conflict Product as being "DRC conflict undeterminable" in their CMRs. Moreover, the Rule no longer gives those issuers the pass they had during their Transition Period on disclosing the facilities used to process, or the country of origin of, any necessary conflict mineral in a Conflict Product if those facilities or that country of origin was not known to them and they could have classified and disclosed such Conflict Product as being "DRC conflict undeterminable" in their CMRs for their Transition Period. The Rule's provisions do not provide an issuer with any relief from the Rule's requirement that such facilities and country of origin be disclosed for a Conflict Product that has "not been found to be 'DRC conflict free,'" even if the issuer, despite extensive due diligence, is unable to identify those facilities or the country of origin. As a result, those issuers that have had have difficulties obtaining such information about the necessary conflict minerals in their Conflict Products in past reporting years and continue to have such difficulties should step up their due diligence efforts to obtain that information in order to comply with the Rule in their post-Transition Period compliance environment.

  • The Guidance indicated that, "pending further action," unless an issuer voluntarily describes one of its products as being "DRC conflict free" in its CMR, no independent private sector audit (IPSA) will be required of the CMR.11 Issuers for which the Transition Period has ended are left to ponder, however, whether the SEC, having no expectation that the uncertainties over the Rule would continue for so long, intended for that element of the Guidance to continue to apply for reporting years following an issuer's Transition Period. Perhaps the SEC will not revisit that portion of the Guidance and issuers will not be faced with having to obtain an IPSA of their CMRs for the 2015 reporting year.

The Original Decision, the Stay and the Guidance can be seen as having created something of a quandary for issuers with respect to what the Rule, as it is effectively modified by the Original Decision, compels issuers to disclose in CMRs and how to comply with the Rule in other respects. Issuers having products containing conflict minerals that are not, or may not be, "DRC conflict free" should watch for future SEC guidance on compliance with the Rule, which is badly needed, and for further developments in NAM.


1. The Rule is embodied in Rule 13p-1 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), and Item 1.01 of Form SD (Form SD), which the Securities and Exchange Commission (SEC) adopted pursuant to Section 13(p) of the Exchange Act. Section 13(p) was added to the Exchange Act by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Item 1.01 of Form SD (Item 1.01) sets out the principles for compliance with the Rule and the Rule's disclosure requirements.

2. Nat'l Assoc. of Mfrs. v. SEC, 748 F.3d 359 (D.C. Cir. 2014). For more information on that decision, please see our client alert dated May 2, 2014, The Conflict Minerals Rule: Important Recent Developments.

3. The Rehearing Decision, Nat'l Assoc. of Mfrs. v. SEC, which was decided on August 18, 2015, can be found here.

4. Paragraphs (1)(A)(ii) and (E) of Section 13(p) of the Exchange Act provide that under the Rule an issuer will disclose in a report submitted to the SEC certain information about their products containing necessary conflict minerals that are not "DRC conflict free" and post that information on the issuer's website.

5. NAM, 748 F.3d at 373. A product will be "DRC conflict free" if none of the necessary conflict minerals in the product directly or indirectly finance or benefit armed groups identified as perpetrators of human rights abuses in the Democratic Republic of the Congo (DRC) or one of the countries sharing a border with the DRC.

6. 760 F.3d 18 (D.C. Cir. 2014) (en banc).

7. See In the Matter of Exchange Act Rule 13p-1 and Form SD, Order Issuing Stay (May 2, 2014), available at http://www.sec.gov/rules/other/2014/34-72079.pdf.

8. The focus of the Rule is those products manufactured by an issuer or that it has manufactured for it containing conflict minerals necessary to the functionality or production of the products.

9. See Keith F. Higgins, Director, SEC Div. of Corp. Fin., Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule (Apr. 29, 2014), available at www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370541681994. For more information on the Guidance, please see our client alert dated May 2, 2014, The Conflict Minerals Rule: Important Recent Developments.

10. The Transition Period was the 2013 and 2014 reporting years for all issuers but smaller reporting companies, for which the Transition Period is reporting years 2013 through 2016.

11. Subject to very limited exceptions, Item 1.01(c)(1)(ii) expressly requires an IPSA be conducted of any CMR to be filed with respect to a reporting year following the issuer's Transition Period and for CMRs filed for reporting years in an issuer's Transition Period if the CMR discloses a Conflict Product to be "DRC conflict free."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions