This is the second part of a two-part series examining the legal arguments put forward by manufacturing organizations against section 1502, the Conflict Minerals rule passed as part of Dodd-Frank. Readers can read the first part here.
MM: What challenges do practitioners, including the US manufacturers, have in making their case?
SA: One of the biggest challenges will be the fact that SEC acted under an explicit mandate from Congress. In recent history, the SEC was challenged on the proxy access rule and the petitioners succeeded in blocking the rule. But in that case, the SEC wasn’t acting because Congress told it to. In this case, Congress required the SEC to act. With regard to many of the points raised by petitioners, the SEC went through a fairly exhaustive evaluation of alternatives and then describes why it reached certain conclusions, including references to Congressional intent.
Another difficult aspect of this petition for review is the question of how to evaluate the adequacy of the SEC’s economic analysis. The SEC acknowledges that Congress said Section 1502 was enacted, in part, to address humanitarian goals. The benefits of such intended outcomes are hard to quantify. It will be very interesting to see once the issues are briefed by both petitioners and the SEC, how the court will evaluate the adequacy of an economic analysis in a situation where the benefits are uncertain. The SEC was straightforward in stating that it could do an analysis of compliance costs, but that it was not equipped to quantify the benefits of a hoped-for reduction in conflict.
MM: What do you make of the argument that the rule is a violation of the First Amendment?
SA: It’s a hard argument to make. One of the key roles of the SEC is to prompt public disclosures from entities like the companies subject to this rule. Companies are required to disclose all sorts of information pursuant to the securities laws and regulations.
MM: And now the billion-dollar question – based on the legal arguments put forward, what would you recommend manufacturing organizations do from an implementation standpoint?
SA: It’s possible that the petitioners might get some of the language of the rules changed. But they have a high burden. I wouldn’t suggest manufacturing organizations stop doing what they are doing.
(Editor’s Note: In other words, manufacturing organizations should continue with their plans to implement the rules.)