The United States Court of Appeals for the District of Columbia overturned the Securities and Exchange Commission’s conflict minerals rule on Monday, arguing that compelling a company to declare its minerals conflict-free violates the First Amendment.
The SEC rule, finalized on Aug. 22 in response to Sect. 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly traded firms to disclose whether they source conflict minerals—including gold and tungsten—from the Democratic Republic of the Congo and surrounding countries.
The three-judge appeals court panel did concur with a lower-court decision that upheld the rule, agreeing that the SEC did not act “arbitrarily and capriciously” in designing it. But in a 2-to-1 decision, it ruled in favor of Sect. 1502 opponent National Association of Manufacturers (NAM), decreeing that the SEC provision creates “compelled speech.”
“It is far from clear whether the description at issue—whether a product is conflict-free—is factual and non-ideological,” wrote Senior Circuit Judge A. Raymond Randolph in the majority opinion. “An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with [the term’s] assessment of its moral responsibility.”
The decision remanded the SEC rule to a lower court to address the First Amendment concerns. The first reports were to be issued May 31. At press time, it was not clear whether that deadline stands, and legal analysts suggested that the SEC might issue a clarifying statement in the next few days in the light of this verdict.