Supply Chain

Court Upholds “Conflict Minerals” Rule

Even if there’s an appeal, companies would not meet the compliance deadline if they still choose to sit on the sidelines, an attorney says.
David KatzJuly 24, 2013

Companies awaiting the outcome of a lawsuit challenging  the Securities and Exchange Commission’s “conflict minerals” rule before beginning to comply with the regulation have less reason to procrastinate. On Tuesday, Judge Robert L. Wilkins of the U.S. District Court for the District of Columbia rejected the case made against the SEC by the National Association of Manufacturers, the U.S. Chamber of Commerce and The Business Roundtable, meaning that the rule will continue to be in effect.

To be sure, the plaintiffs can appeal the decision. Moreover, the District of Columbia court where the decision would be appealed “has been hostile to agency rule-making in other cases,” Michael Littenberg, an attorney who leads the conflict minerals rule compliance practice at Schulte Roth & Zabel and isn’t associated with the case, told CFO. “It’s not a given that the appellate [court] will agree with the district court.”

However, the plaintiffs have only until August 22 – coincidentally, the one-year anniversary of the adoption of the rule, which was mandated by the Dodd-Frank Act – to file an appeal. Even if they do appeal, Littenberg says, it’s “likely to mean a minimum of a few months, or even longer” before they know the outcome. And if the rule, which requires companies to publicly disclose their use of certain minerals from the Democratic Republic of the Congo (DRC) or an adjoining country, were still to be upheld, it could mean that they would be out of compliance when the rule goes into effect.

Companies must comply with the SEC’s Conflict Minerals Rule for the calendar year beginning January 2013, with the first reports due May 31, 2014. “Companies that have been sitting on the sidelines now need to start” their compliance effort, says Littenberg.