A U.S. Court Inquires, “Are the Benefits of Provision 1502 of the Dodd-Frank Act Worth the Costs?”
In an attempt to challenge the legality of 1502’s requirements, the National Association of Manufacturers, the U.S. Chamber of Commerce, and the Business Roundtable challenged the SEC’s implementation of the Conflict Minerals Rule. The Petitioners contend that the SEC’s implementation of the provision failed to adequately analyze the resulting costs and benefits and would unfairly penalize American businesses. Specifically, they argue that conducting due diligence of product source and supply chains would cost American manufacturers billions of dollars and would force them to make political statements that would unfairly tarnish their reputation. Moreover, the Petitioners argue that the SEC should allow the “de minimus” exception for companies using minimal quantities of conflict minerals in their products because these minimal uses would have a minimal effect on the conflict-minerals market.
The SEC’s attorney, Tracey Hardin, countered that these claims were unwarranted for several reasons. Firstly, the SEC was not obligated to weigh the costs and benefits of such a provision before implementing it because such a calculation was the responsibility of the Congress, which had previously declared that the benefits of requiring companies to disclose their use of conflict minerals outweighed the costs. Secondly, the provision was worthwhile because it would improve the security and stability of the DRC and the prosperity of American security and business interests. Regarding the DRC, 1502 would help stabilize the DRC by reducing the overall funding to armed groups that control the mineral mining sites from which the conflict minerals are extracted. Domestically, the provision would benefit the U.S. economy by leveling the playing field for companies that have already implemented conflict-mineral monitoring systems, helping companies improve their supply chain risk management by creating greater transparency, and supporting companies in meeting their investors’ and consumers’ expectations that their products are DRC conflict free.
In the course of the three-hour oral argument, the presiding Honorable Judge Wilkins opted for a neutral position by questioning the merits of both sides’ arguments. Judge Wilkins did, however, suggest that federal courts should defer to Congress’ expertise, stating that, “this is a circumstance where a court should really defer to Congress and the executive in an area of foreign policy where the court has no expertise.” On the other hand, Judge Wilkins voiced his concerns as to whether the SEC had properly used its powers to minimize any negative impacts when drafting the provision.
Although Judge Wilkins’ court did not yet reach a decision, one thing is certain: this will not be the last time that we hear of this issue, which will undoubtedly be appealed by the losing side.
For further reading, please consult the following:
1) https://www.ey.com/Publication/vwLUAssets/Conflict_minerals/$FILE/Conflict_Minerals_US.pdf
2) Global Witness and UN Group of Experts Amicus Brief.