Experts support business groups’ challenge of SEC ‘conflict minerals’ rule

A former U.S. ambassador and other academics and ex-government officials have filed a brief in support of a lawsuit challenging a new federal regulation requiring companies to disclose their use of certain minerals from the Democratic Republic of Congo.

The U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable asked the District of Columbia U.S. Circuit Court of Appeals to wipe out a “conflict-minerals” regulation promulgated by the Securities and Exchange Commission, claiming that the agency did not adequately analyze its impact.

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Government officials weigh a bag of tin ore at the Kalimbi mine in the Democratic Republic of Congo. Tin is one of the “conflict minerals” at the center of a new SEC regulation.

The SEC was required to draft the regulation as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  The rule sets new auditing and disclosure requirements for companies that use certain ores and minerals that originate in the DRC.

These “conflict minerals” include tin, tungsten, tantalum, gold or their derivatives.

Jendayi Frazer, who served as assistant secretary of state for African affairs from 2005 to 2008, says the SEC erred in failing to fully consider whether its regulation would advance the goal of weakening armed groups in the war-torn region.

Frazer said the SEC compounded that error by exercising its discretion in ways that make the regulation “more likely to harm legitimate economic activity in the DRC and benefit the very armed groups that Congress sought to stifle.”

Professor Marcia Narine of the University of Missouri, Kansas City, and J. Peter Pham, director of the Michael S. Ansari African Center at the Atlantic Council, an advocacy group to promote American leadership around the world, joined Frazer in the brief filed in the D.C. Circuit, the court of first resort to hear challenges to federal regulations.

The SEC rule states that the exploitation and trade of conflict minerals originating in the DRC is “helping to finance conflict characterized by extreme levels of violence” and orders publicly traded companies to comply with certain disclosure requirements.

The U.S. Chamber of Commerce and the other petitioners argue that the SEC failed to determine whether the regulation would provide any benefit to the citizens of the Congo.

The groups also say the regulation could sock American companies with nearly $3 billion to $4 billion in initial compliance costs.

(Click here for the brief on Westlaw.)

Frazer and her fellow amici echo this concern, saying the regulation will impose unnecessary burdens on U.S. companies.

The SEC “failed to minimize the inordinate compliance costs of its rule for [publicly traded companies], who must undertake burdensome yet possibly inconclusive investigations into whether even trace amounts of tin, tantalum, tungsten and gold in their products came from mines controlled by armed groups,” the brief says.

The decline of the legitimate market for Congolese minerals resulting from the regulation also has interfered with existing attempts to prevent armed groups from benefiting from mining, according to the brief.

Since 2010 the legal market for conflict materials has “shriveled,” and the eastern provinces “hardest hit by conflict have been disproportionately harmed,” the experts’ brief says.

As a result of the regulation, miners and their families are “more susceptible than ever to the predations of armed groups,” and there is little market for minerals whose origins cannot be verified, the experts say.

Armed groups also have taken advantage of opportunities to launder or smuggle minerals at the expense of independent mines and exporters, they add.

Oral argument is scheduled for May 15.

National Association of Manufacturers et al. v. Securities and Exchange Commission, No. 12-1422, oral argument scheduled (D.C. Cir. May 15, 2013).