The federal appeals court for the D.C. circuit issued its opinion Monday in National Association of Manufacturers (NAM), et al., v. Securities and Exchange Commission that partially struck down the SEC’s conflict minerals disclosure rule.
The opinion of the U.S. Court of Appeals for the District of Columbia Circuit said the SEC rules violate the First Amendment by requiring reporting companies to disclose in SEC filings and on their websites if any of their products have “not been found to be ‘DRC conflict-free.'”
(Meaning, the products are not connected to areas designated as conflict zones in the Democratic Republic of the Congo and any of its adjoining areas.)
Last year, the federal district court for D.C. rejected NAM’s claims and granted summary judgment for the SEC and Amnesty International (which had intervened in the suit).
But by weighing NAM’s s challenge to the disclosure requirements using a strict scrutiny test, the appellate court found that requiring a company to use such specific terminology to describe its products was a First Amendment violation.
The appeals court said:
The label “conflict free” is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups. … By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.
The court said requiring companies to say products have “not been found to be ‘DRC conflict-free'” is unconstitutional but not the conflict minerals statute itself — unless the law mandates that interpretation.
On that point, the court said in a footnote: “We only hold that the statute violates the First Amendment to the extent that it imposes that description requirement.”
The appellate court remanded the case to the district court for further proceedings consistent with its opinion.
The deadline for the first conflict minerals disclosure reports from reporting companies is May 31, 2014 (June 2, due to the intervening weekend).
The April 14, 2014 opinion of the U.S. Court of Appeals for the District of Columbia Circuit in National Association of Manufacturers (NAM) v. Securities and Exchange Commission is available here.
Julie DiMauro is the executive editor of the FCPA Blog and can be reached here.