Dear Members
After a really very pleasant summer here in New York, fall seems finally to have come. At least the trees on my street are shedding leaves. Or maybe they’re just dying.
And when it comes to dying, industry here in the U.S. continues to wish that the SEC’s Dodd-Frank Act-related conflict minerals rule would do just that – die. There was quite a flurry of stories in the press here in both August and September around the rule, its legality and its effectiveness.
On the legal front, there was a rehearing in the U.S. Court of Appeals down in Washington DC over the question of whether companies have their rights of free speech under the First Amendment violated by the requirement that forces them to declare if their products are “conflict free”. To the delight of many, and the dismay of many others, the court upheld an earlier decision that requiring such a declaration was, indeed, a violation of free speech under the First Amendment. As can be imagined, the SEC (which, albeit unvoiced, would really rather not have to have anything to do with all this), has said it is reviewing its position in the matter.
Also back in August, the U.S. Government Accountability Office reported to Congressional Committees on the SEC’s conflict minerals rule. To leave no-one in any doubt, emblazoned across the front page of the report was its conclusion: “Initial Disclosures Indicate Most Companies Were Unable to Determine the Source of Their Conflict Minerals.”
I believe it best for the GAO to speak of the results for itself: “Most companies were based in the United States (87 percent). Almost all of the companies (99 percent) reported performing country-of-origin inquiries for conflict minerals used. Companies GAO spoke to cited difficulty obtaining necessary information from suppliers because of delays and other challenges in communication. Most of the companies (94 percent) reported exercising due diligence on the source and chain of custody of conflict minerals used. However, most (67 percent) were unable to determine whether those minerals came from the DRC or adjoining countries (Covered Countries), and none could determine whether the minerals financed or benefited armed groups in those countries. ” Needless to say, opinions differ widely on why this should be the case.
Finally, at the end of September, The Business Roundtable (an association of CEOs of leading U.S. companies) went to Congress with a plea over securities filings, asking that it stop adding rules requiring companies to make what they consider to be non-material disclosures. Amongst these rules is, of course, that covering conflict minerals. The roundtable’s reasoning was two pronged. On the one hand, the materiality, i.e. use to investors, of such disclosures was, in its view, questionable. On the other hand, there was considerable (unnecessary) cost involved: “For those choosing to continue purchasing minerals that might be from the DRC, the SEC estimated that initial implementation of Section 1502 of the Dodd-Frank Act would cost public companies $3 to $4 billion.”
For how long, and in what form, the SEC’s current conflict minerals rule survives remains uncertain.
As everything runs its course, I remain, from a pleasant New York, with best wishes to MMTA members everywhere.
Tom Butcher, October 14th, 2015
©2015 Tom Butcher
