Building upon guidance issued by earlier this week by its Division of Corporation Finance, the Securities and Exchange Commission has issued a partial stay of its controversial conflict minerals rule. Companies will not be required to declare whether their products do, or do not, contain minerals that may benefit militias in the war-torn Congo by June 2, as was originally expected of them. They will, however, need to meet other reporting requirements.
The announcement on Friday afternoon responds to an April 14 opinion issued by the U.S. Court of Appeals for the District of Columbia Circuit in the case of National Association of Manufacturers v. SEC. Plaintiffs, which included the Business Roundtable and U.S. Chamber of Commerce, prevailed in their claim that requiring companies to report to the SEC and on their Web site that products are not “DRC conflict free” was compelled speech that violated First Amendment protections. The court, however, had no objection to other aspects of the required conflict minerals report and other disclosures.
A further review of the rule, focused on constitutional issues, is currently underway in district court, as ordered by the Court of Appeals. That review isn't expected until June 5 at the earliest, three days after the first filings are due, prompting the SEC to delay the full scope of its disclosure requirements.
In its order, the SEC denied a motion filed by the plaintiffs for a stay of the entire rule. It only acted on the requirements that drew constitutional scrutiny so, for now, no company is required to describe its products as “conflict free,” having “not been found to be conflict free,'” or “conflict undeterminable.”
“Among other things, a stay of those portions of the rule avoids the risk of First Amendment harm pending further proceedings,” the SEC wrote. “Moreover, limiting the stay to those portions of the rule requiring the disclosures that the Court of Appeals held would impinge on issuers' First Amendment rights furthers the public's interest in having issuers comply with the remainder of the rule.”
The order refers to the guidance from earlier this week clarifying what is still expected from filers. Companies that do not need to file a Conflict Minerals Report should still disclose their reasonable country of origin inquiry and briefly describe the inquiry they engaged in. For companies that are required to file a Conflict Minerals Report, the report, still due on June 2, should include a description of due diligence the company undertook.