The US Court of Appeals for the District of Columbia Circuit in April 2014 upheld the bulk of the Security and Exchange Commission’s then-new Conflict Minerals Rule, but ruled a key disclosure requirement violated the First Amendment because it forced a company to “confess blood on its hands.”

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The same federal appeals court ruled against the disclosure requirement a second time Tuesday, saying an investigation requirement is fine, but disclosing that material remains untracked does not require an admission tantamount to guilt, when it comes to receiving raw materials from war-torn areas.

Disclosure of Unknown Origin

The Dodd-Frank Wall Street Reform and Consumer Protection Act required companies to disclose whether any tin, tantalum, tungsten or gold (commonly known as 3TG), in their supply chains is connected to violent militia groups in Africa.

An SEC spokesman said the commission is reviewing Tuesday’s decision.

The three-judge appeals panel split 2-1, effectively siding with business groups in ruling that forcing companies to designate which products “could not be found to be ‘DRC conflict free’” is tantamount to requiring firms to criticize their own products.

Two judges appointed by Republican presidents voted in the majority and a recent appointee of President Barack Obama dissented.

Conflict Minerals Rule Still Intact

The court’s rulings did not overturn the entire Conflict Minerals Rule, it actually upheld requirements such as having companies investigate whether their products include the minerals and a requirement to file public reports on their investigations, a process that began last year.

One situation where a respondent could not confirm that all of its raw materials were DRC conflict free, was party supply retailer Party City, a company that filled out a conflict minerals compliance form and asked their suppliers where, exactly, all of the materials for their mylar balloons and other party supplies came from. Party City reported it received little response from its supply chain.

That was one of many cases that highlighted the difficulty of actually vetting and confirming supply chain compliance for the wide range of businesses that the Conflict Minerals Rule covers.

What Does This Mean For Conflict Minerals Compliance?

In a statement after the initial ruling against the SEC last April, the regulator indicated that companies are not required to identify products as “DRC conflict free,” having “not been found to be ‘DRC conflict free’” or “DRC conflict undeterminable.” The SEC also indicated that, pending further action, an independent private sector audit (“IPSA”) will not be required unless a company voluntarily elects to describe its own product as “DRC conflict free” in its Conflict Minerals Report. That statement is likely to remain in effect pending the outcome of further litigation. It also looks unlikely that the private sector audits will be required this year and, barring a legal settlement, likely most of next year.

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The SEC can petition the entire DC Circuit Appeals Court to hear the case en banc, a request that the court can decide whether or not to grant. The SEC can also appeal to the US Supreme Court no matter what the outcome is at the circuit court level. The business groups that challenged the Conflict Minerals Rule can ask the court to stay the entire law, as they did after the April decision, but it’s not likely that the court would grant such a request as a stay was not allowed after the initial decision.

Most larger companies — in a variety of industries — intend to continue implementing their 3TG traceability and responsible sourcing initiatives no matter what the outcome of the case concerning the DRC measure.


US companies shelled out roughly $709 million and six million staff hours last year to comply with regulations to disclose conflict minerals in their supply chains, according to recent research by Tulane University and Assent, a software and services firm that partners with companies to automate their compliance processes.

party city mylar balloons

Adorable possible violations of the Dodd-Frank conflict minerals compliance regulations.

A glance at the results of the study, which included 2015 Dodd-Frank 1502 form SD submissions, showed how each company performed according to Securities and Exchange Commission regulations and OECD due diligence guidelines. A team led by Tulane University’s Chris Bayer, PhD., ranked all 303 respondents according to both criteria. Assent has provided an excellent video explanation of the criteria for anyone interested.

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We have also written extensively about how US manufacturing firms can comply with the Dodd-Frank conflict minerals regulations and this study is the first major one to quantify the difficulty firms, large and small, face in confirming that their supply chains are conflict minerals free.

The research focused on company disclosure processes regarding the use of minerals such as tin, tantalum, tungsten and gold from the Democratic Republic of Congo, a mineral rich nation that is mired in ongoing civil war. More than 80% of the companies that filed compliance reports with the SEC said they couldn’t identify whether their products contain conflict-free minerals.

Selling Mylar Balloons And Selling Computers: Are They The Same?

A curious case comes from the party materials and decorations retailer Party City Holdings, Inc. We were surprised to see that Party City filled out a 1502 form at all, as most of the companies on the list were large manufacturers and technology companies such as Apple, Microsoft and IBM and not party supply retailers known more for selling funny St. Patrick’s Day hats and last minute Halloween costumes.

But, dutiful corporate citizen that it is, Party City noted on its EX 1.02 form (an addendum to 1502 form SD) that, “It is possible that certain of the company’s metallic balloon and novelty products may contain Conflict Minerals. The Company’s policies prohibit the use of conflict minerals from covered countries, as documented in our vendor standards manual. The company has numerous suppliers and some of the suppliers may in turn have sub-suppliers. The company relies on its suppliers to provide information on the origin of any conflict minerals contained in the products supplied to the company (the “Covered Products”). Contracts with direct suppliers may be in force for multiple years and historically did not require the supplier to provide the Company with information regarding the origin of any conflict minerals. Accordingly, we rely on the cooperation of our direct suppliers to provide the necessary information on the origin of any conflict minerals.”

Party City got a ranking in the bottom 30 of the respondents for being honest about its balloons and other party materials. While it’s sort of funny to discuss mylar balloons in this context, the question of how to vet the suppliers of suppliers is NOT unique to the company.

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Party City surveyed its suppliers with respect to the origin of any conflict minerals that are included in its products. Of the suppliers who responded, none responded that they use conflict minerals from the covered countries. For those suppliers who did not respond to the initial inquiry, the company sent a follow-up inquiry to solicit their response. What more can a seller of mylar balloons and giant inflatable palm trees do?

80% Can’t Account for Entire Supply Chains

Is it any wonder that 80% of the companies couldn’t identify whether their products contain conflict-free minerals? Another 9% used language that didn’t specify if their supply chains even contained the metals in question, according to the report.

“The public needs to understand that this isn’t as simplistic as they might think,” Lawrence Heim, director of advisory firm Elm Sustainability Partners in New Haven, Ct., and a member of the study advisory panel, told Bloomberg News. “There are more technical obstacles in terms of being able to obtain information and data from suppliers.”

The companies in the top 30 for compliance include industry heavyweights such as Nokia, Blackberry Limited, Ford Motor Co., Goodyear Tire and Rubber Co. and the aforementioned Microsoft, IBM and Apple.

Microsoft, for example, provided a framework for detailed due diligence to support responsible global supply chain management of minerals with its 1502 SD form. There’s an entire section on supplier engagement. The Redmond, Wash., software giant also provided a detailed explanation of supplier guidelines on their site.

While it is certain that a level of diligence above simply asking suppliers where they get their materials from exists, it still begs the question of can the Dodd-Frank conflict minerals regulations be effective when they treat Party City and Microsoft as if they are, essentially, in the same business and dealing with the similar supply chain issues.


As of today, the SEC has received 3,848 conflict minerals compliance forms from major manufacturers. We recently caught up with Lawrence Heim, our resident expert on all things conflict minerals and asked him to share with us some of his initial impressions based on his analysis of 110+ filings.

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The short version: Caterpillar went the extra mile and many steel producers may not have even met the reporting requirements because of a lack of information, ArcelorMittal and US Steel included.


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