How time flies! This month, the litigation relating to the U.S.
SEC's Conflict Minerals Rule enters its fourth year. The
litigation has been quiet for the better part of the last year,
after the SEC's petition seeking rehearing en banc by the D.C.
Circuit Court of Appeals was denied and the SEC declined to seek
Supreme Court review of the appellate court's decision.
In April 2014, the Court of Appeals for the D.C. Circuit held
that the requirement under the Conflict Minerals Rule that
companies indicate that their products have "not been found to
be DRC conflict free" violates the First Amendment. Following
the April 2014 decision, the case was remanded to the D.C. District
Court to take action consistent with the appellate court's
decision. Please see our earlier updates and more fulsome
discussions of the litigation here.
In furtherance of the appellate court's decision, late last
week, the case was randomly assigned to Judge Ketanji Brown
Jackson. As those who have been watching the case for the past four
years may remember, the District Court judge who originally decided
the case – Robert L. Wilkins – was subsequently
elevated to the Court of Appeals.
The $64,000 question is, of course, what does this mean for the
audit requirement under the Conflict Minerals Rule? In April 2014,
in response to the appellate court's decision, the SEC issued a
Statement in which it indicated that an independent private sector
audit will not be required unless a company voluntarily elects to
describe a product as "DRC conflict free" in its Conflict
Minerals Report. For a further discussion of the Statement and
mandatory audit stay, please see our earlier Alert on this topic.
We believe, for a variety of reasons, that it is highly unlikely
that the mandatory audit requirement will be reinstated for the
2016 compliance year, and the reassignment of the case to a new
judge does not necessarily mean that we will see a quick resolution
of the case. With that said, although we continue to believe that
companies generally should defer on a voluntary audit for the
foreseeable future, filers should continue to take steps that will
position them for an audit, in particular, benchmarking compliance
programs against the OECD Guidance framework, fleshing out program
documentation and tightening up disclosure. There are reasons for
doing so independent of an audit, including enhancing program
efficiency and effectiveness and meeting external stakeholder
expectations. For compliance tips for the calendar 2016 compliance
year, please view this recent webinar from last week and see our
Alert, Musings on Conflict Minerals Compliance –
The Year That Was, the Year That May Be and What You Should Be
For Further Information
If you would like to learn more about the issues in this Alert,
please contact your usual Ropes & Gray attorney.
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On November 9, 2016 Andrew Liazos presented at the New York City Bar. He discussed innovative approaches used by public companies during the 2016 proxy season for disclosing executive compensation practices.
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