(Updates paragraph on SEC comment with staff expected to
recommend the rule proceed)
By Stella Dawson
WASHINGTON, April 28 (Thomson Reuters Foundation) - Two
members of the U.S. Securities and Exchange Commission on Monday
said a new rule requiring companies to disclose if their
products contain "conflict minerals" from Africa's Democratic
Republic of Congo should be delayed until courts have resolved
whether it violates free speech.
The rule, due to take effect on June 2, is strongly
supported by human rights advocates. They say it should reduce
violence by curbing a major source of funding for rebels in the
Democratic Republic of Congo, who rely on illegal mining of
tantalum, tin, gold or tungsten commonly used in jewelry and
But SEC commissioners Daniel Gallagher and Michael Piwowar,
both Republicans, said that since the U.S. Court of Appeals
ruled in early April that one part of the conflict mineral
regulation violates companies' freedom of speech, its
implementation should be stayed until all legal challenges have
They said they believe the whole rule violates the First
Amendment rights of companies.
"Marching ahead with some portion of the rule that might
ultimately be invalidated is a waste of the commission's time
and resources - far too much of which have been spent on this
rule already - and a waste of vast sums of shareholder money,"
they said in a joint statement.
An SEC spokesman declined to comment on the agency's next
move. A person familiar with the matter, however, said that the
agency's staff is most likely going to recommend that the SEC
press ahead with implementation, though no final decision by the
five-member commission has been made yet.
The SEC's conflict minerals rule stems from the 2010
Dodd-Frank Wall Street reform law. It requires publicly listed
companies to conduct internal inquiries into the origin of the
minerals in their products and then file a report with the SEC.
The U.S. Court of Appeals for the District of Columbia
Circuit in April affirmed a part of the rule permitting the SEC
to require companies to conduct due diligence on the minerals'
origins. But it struck down another part on grounds that it
would violate companies' free speech to force them to publicly
state that their products are not "conflict free".
The three business groups that challenged the rule had
argued this would be a form of political speech.
Companies preparing for the regulation say it is an
extremely complicated and costly process. The SEC staff has put
a $3 billion to $4 billion price tag on initial compliance.
Human rights groups, however, say passage of the law already
is having some impact.
Enough Project, a U.S.-based group working to end genocide,
reported in 2012 that four leading electronic firms - Intel Corp
, Hewlett Packard, Motorola Solutions
and Apple Inc - have established programs for keeping
minerals from rebels in the Democratic Republic of Congo
conflict zone out of their supply chains. And officials in the
African country have said it is starting to lessen the violence.
Twelve U.S. Democratic lawmakers last week urged SEC Chair
Mary Jo White not to cave into pressure to delay the rule. [ID:
White has not taken a public position recently, although in
a speech last year she questioned Congress using the securities
regulator as a tool to achieve essentially political ends.
It is still unclear what will happen to the case following
the court's ruling.
The appeals court remanded it to a lower court for further
proceedings on the free speech issue. However, the court also
said it could be consolidated with a free-speech case involving
a meat-labeling rule that is due to be re-heard before the full
appeals court on May 19.
In their joint statement, Gallagher and Piwowar said that
they believe the district court "could and in our view should
determine that the entire rule is invalid" because due diligence
checks for minerals and issuing a statement that products are
not conflict free are inextricably linked.
(Reporting by Stella Dawson; Additional reporting by Sarah N.
Lynch in Washington; Editing by Tom Brown and Cynthia Osterman)