Uses of Conflict Minerals

Challenge to Rule 13p-1 Implementing Section 1502 in 2013

United States views on international law [1] in relation to Challenge to Rule 13p-1 Implementing Section 1502: In National Association of Manufacturers et al v. SEC, No. 13-5252 (D.C. Cir. 2013), plaintiffs-appellants challenged the rule implementing Section 1502 under the Administrative Procedure Act (“APA”), the Exchange Act, and the First Amendment of the U.S. Constitution. The district court rejected all plaintiffs' challenges to the rule. On appeal, the SEC brief filed on October 23, 2013 argues that the SEC acted reasonably in arriving at the regulatory approach it used to implement Section 1502 and that the rule does not violate the First Amendment. The section of the brief summarizing the argument appears below. The full text of the brief is available at (Secretary of State website) state.gov/s/l/c8183.htm.

Some Aspects of Challenge to Rule 13p-1 Implementing Section 1502

Appellants' disagreement with Congress's determination that Section 1502 will ameliorate the humanitarian crisis in the DRC animates their challenges to Rule 13p-1. But such a disagreement does not provide a basis for the Commission to undermine the scheme Congress envisioned. And the Commission reasonably determined that appellants' preferred regulatory approaches would do just that.

Developments

Far from thinking itself precluded from adopting the de minimis exception appellants advocated, the Commission requested comment on such an exception and analyzed whether it would be appropriate in light of Section 1502's purposes. After examining the language and structure of the statute, as well as evidence before it, the Commission reasonably concluded that creating a categorical exception for small uses of conflict minerals would thwart, rather than advance, those purposes. Indeed, it is undisputed that conflict minerals are frequently used in small amounts. And those small individual uses can have large cumulative effects.

Details

Similarly, the Commission reasonably concluded that Congress included products “contracted to be manufactured” in the reporting requirement to prevent manufacturers from evading that requirement. And issuers would be able to do just that if those who contract to manufacture products were not included in the rule. Recognizing that the statute is silent as to how issuers determine whether their necessary conflict minerals originated in the Covered Countries, the Commission reasonably interpreted Section 1502 to require issuers to conduct due diligence when they encounter red flags in their reasonable country of origin inquiry. Without such a requirement, issuers would have an incentive to avoid learning the source of their minerals, thus undermining one of the fundamental requirements of Section 1502.

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And the Commission's provision of a longer transition period for smaller issuers than for larger issuers was far from arbitrary. That larger issuers will have greater leverage over their suppliers, and should therefore be better equipped to determine whether their products are DRC conflict free more quickly, is both intuitive and supported by comment. And because some smaller suppliers in larger issuers' supply chains may not even be covered by the rule, and those that are will still be required to trace their minerals, there is no reason this accommodation for smaller issuers imposes an unreasonable burden on others.

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In conducting its economic analysis, the Commission reasonably chose not to re-evaluate Congress's determination of benefits. Rather, the Commission designed Rule 13p-1 “to help achieve the intended humanitarian benefits in the way that Congress directed” (Adopting Release, JA0781/2), measuring the effects of its choices on issuers and users of the required disclosures. Nor was a re-evaluation of benefits in the DRC required for the Commission to reasonably conclude that the rule does not impose burdens on competition not necessary or appropriate in the furtherance of the Exchange Act. The Commission took numerous steps to lessen the burdens imposed by the rule. And where it did not do so, it reasonably concluded that the suggested alternatives would undermine the scheme Congress envisioned. In this circumstance, no more was required.

Challenge to Rule 13p-1 Implementing Section 1502 in 2013 (Continuation)

United States views on international law [1] in relation to Challenge to Rule 13p-1 Implementing Section 1502: The Commission also provided an extensive qualitative analysis of the costs and benefits of its discretionary choices and a thorough quantitative analysis of the costs of the final rule. In the context of a mandatory rule where quantitative data was not available, this analysis was sufficient.

More about Challenge to Rule 13p-1 Implementing Section 1502

Finally, Section 1502 and Rule 13p-1 do not violate the First Amendment because they compel disclosure of factual information.

Resources

Notes

1. Challenge to Rule 13p-1 Implementing Section 1502 in the Digest of United States Practice in International Law

Resources

Notes

1. Challenge to Rule 13p-1 Implementing Section 1502 in the Digest of United States Practice in International Law