A U.S. appeals court ruled this week that the government cannot compel companies to report whether or not their products contain so-called “conflict minerals” -- gold, tantalum, tin, and tungsten-- mined from regions in Africa. The U.S. Circuit Court of Appeals for the District of Columbia ruled on Monday that the requirement that companies state whether their products are "DRC conflict free" or not conflict free violates the First Amendment, according to ECIA.
The three-judge panel by a 2-1 vote stated that the Securities and Exchange Commission’s (SEC) requirement to label products as "conflict free" or not is hardly factual and non-ideological. Instead, the compelled disclosure ethically taints products and stigmatizes companies in violation of the First Amendment.
The suit was brought by the National Association of Manufacturers (NAM), the U.S. Chamber of Commerce and the Business Roundtable in 2012.
The U.S. Dodd-Frank conflict minerals rule requires publicly traded U.S. companies to disclose whether their products contain certain metals and whether these metals originate from rebel-held mines which are funding armed conflict in the Democratic Republic of Congo (DRC). The measure is intended to discourage companies from sourcing these materials from regions in which human rights are routinely violated.
In a statement released on Tuesday, the NAM said: "We believe it is unreasonable to require companies to continue to spend substantial resources implementing the SEC's rule when its central feature has been invalidated on constitutional grounds. Therefore, we believe the SEC and Congress should reexamine this approach of the Dodd-Frank Act and rule in light of the court's decision.
The SEC had estimated initial compliance costs of $3 billion to $4 billion in the U.S.; electronics industry estimates were higher. Fewer than 20 percent of issuers filed conflict minerals compliance documents in 2014 to the SEC. One of them was capacitor manufacturer Kemet Corp. which uses tantalum in its products.
The ruling comes amidst the development of a similar rule in the European Union. The EU’s proposed conflict-minerals legislation is likely to cast a much wider net than Dodd-Frank. Not only may the EU requirement add elements to the list—such as cobalt—but it may encompass any country or region that is perceived to be violating human rights.
“The European conflict minerals regulation is aligned in many ways with the U.S. regulation but actually extends the geographic scope to consider all areas of conflict and high risk where conflict minerals are sourced,” said Scott Wilson, content solution strategist for the Electronics & Media Group at IHS, a panelist on the IHS/iPoint webinar “Conflict Minerals Compliance: Mistakes, Lessons Learned & Best Practices.” “It no longer pays special attention just to the DRC.”
That’s not the only adjustment the EU may make: instead of a voluntary self-certification program for conflict minerals disclosure, the EU may mandate measures such as third-party audits, he said. In May members of the European Parliament requested mandatory certification for EU importers of conflict minerals to ensure they do not fuel conflict and human rights abuses. Their position includes compulsory independent and third-party audits of smelters and refiners to check due diligence. Members further proposed that the 880,000 downstream European companies that use conflict minerals in manufacturing consumer products provide information on the steps they take to identify and address conflict mineral risk in their supply chains.
The Dodd-Frank Act has reverberated throughout the electronics supply chain and has prompted many OEMs to push data-collection requirements to their downstream partners. It’s become abundantly clear, said Jared Connors, technical sales manager for material compliance, sustainability and conflict minerals for iPoint, that the compliance process is impacting companies that don’t have to file with the SEC. “The information [regarding conflict minerals] comes from the supply chain, yet the majority of supply chain companies have no direct connection to the law and therefore have no obligation the be familiar with the requirements.” A lot of disparate data ends up with the filers, he said. “This is an annual audit you have to do each year—and you have to show improvement year after year. In 2015 you are going to have to demonstrate you know more about your sources than you did in 2014.”
The distribution channel in particular is a concern for some filers. As distributors do not manufacture the components they sell, many refer OEM customers to data their suppliers have filed or have provided online. “This represents a misalignment between the physical supply chain and the information chain,” said Wilson. “The regulation really addresses suppliers, but in the case of electronics in particular, distributors are selling products on behalf of [original component manufacturers] and don’t collect [conflict minerals] information. Distributors may not have a system to address specific questions and they have to pass those on to the OCM."
The government has 90 days to appeal to the Supreme Court, or it may petition for rehearing before the entire set of judges in the D.C. Circuit.