(Updates throughout with more details on the case, background, comment from SEC)
By Sarah N. Lynch
WASHINGTON, Aug 18 (Reuters) - A U.S. appeals court declared on Tuesday that the Securities and Exchange Commission cannot force public companies to declare whether their products may contain “conflict minerals” from a war-torn part of Africa because it violates their free speech.
The 2-1 ruling by the U.S. Court of Appeals for the District of Columbia Circuit hands a partial victory to the three corporate trade groups who had challenged the SEC’s rule, saying it wrongfully forces them to publicly bash their own products.
The SEC’s conflict minerals rule is a provision mandated by the 2010 Dodd-Frank Wall Street reform law.
It requires manufacturers to conduct due diligence on their supply chains to try and track the origins of minerals including tantalum, tin, gold or tungsten to determine if they may have come from the Democratic Republic of Congo.
The measure is strongly backed by human rights groups who say such disclosures can help consumers and investors who wish to avoid any minerals that might have helped fund rebel groups.
But trade groups including the National Association of Manufacturers argued the rule was costly, burdensome and forced companies to publicly wear a scarlet letter if in fact the minerals did originate in a conflict zone.
Tuesday’s ruling still largely upholds the majority of the SEC’s conflict minerals rules, which went into effect last year.
Companies still must conduct due diligence and file reports to the SEC with their findings, but they are not required to state whether or not the products are deemed “conflict free.”
The decision on Tuesday marks the second time that the three-judge panel has reviewed the regulator’s conflict minerals rule.
In April 2014, the panel issued the same findings, but the SEC asked for a re-hearing, after the U.S. appeals court later upheld another federal regulation requiring companies to label the origins of meat.
Tuesday’s decision, however, found that the meat labeling case is distinct from the conflict minerals rule because labeling meat relates to “curing consumer deception” while disclosing conflict minerals does not deal with advertising or point of sale disclosures.
The court also questioned the point of the SEC’s rule and whether it would truly help diminish the humanitarian crisis, saying such an impact is “entirely unproven and rests on pure speculation.”
An SEC spokesman said the agency is still reviewing the court’s decision and had no immediate comment.
Reporting by Sarah N. Lynch; Editing by Lisa Lambert and Susan Heavey