Although most electronics manufacturers support the principle behind the U.S. Securities and Exchange Commission’s rules for dealing with conflict minerals, several industry trade associations have demonstrated the cost and effort to comply with the SEC requirement is onerous. The rule is now facing its first challenge in the courts, as the National Association of Manufacturers filed a brief in January with the United States Court of Appeals for the D.C. Circuit. The group asserts that the rule is invalid and violates the First Amendment.
According to law analysis website Lexology, the trade group argues:
- The SEC did not satisfy its obligation to weigh the economic benefits and detriments of implementing the Rule. The SEC has acknowledged that it could not quantify the potential benefit of adopting the Rule.
- The Rule is unnecessarily costly and would impose obligations in excess of what is required under the Dodd-Frank Act. Most notably, the SEC declined to adopt a de minimis exception to the Rule. Thus, any minute or trace amounts of conflict minerals in a company’s products trigger disclosure obligations under the Rule.
- The Rule compels speech in violation of the First Amendment. Companies unable to trace the origin of minerals used in their products or that have identified that their products use conflict minerals must submit SEC filings and disclose on their website that their products have “not been found to be DRC conflict free.” According to the Trade Groups, this requirement does not advance a government interest because there is no evidence the requirement will minimize the sale of conflict minerals.
The NAM currently estimates this SEC regulation could cost could manufacturers $9 to $16 billion to implement, while not achieving the intended objective. Another industry trade group, the IPC, estimates costs around $7 billion. In the meantime, industry leaders such as Intel Corp. are embracing the measure and encouraging their supply chain partners to follow suit.
The rule, which the SEC adopted in September 2012, requires manufacturers to disclose any conflict minerals that are necessary to the functionality of a product. Companies must also demonstrate a good-faith effort to determine the source of the minerals and disclose if the minerals originated in a “covered country” such as the Democratic Republic of the Congo.