Dive Brief:

• As of April 7, the Securities and Exchange Commission (SEC) ruled that U.S. corporations will no longer be required to conduct a due diligence review or an audit regarding sourcing of conflict minerals, Reuters reported. This rollback follows a court opinion which stated that the rule “violate[s] the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.”’
• The rule regarding the disclosure of sourcing was established in 2010 as part of the Dodd-Frank Wall Street reform law. Supporters regarded the law as a necessary disclosure to existing or potential investors, alerting them of the possibility of products that could contain tantalum, tin, gold or tungsten — known as conflict materials — mined from the Democratic Republic of Congo.
• Companies opposed to the law argued that it forced revelations of politically inflammatory information which does not fall within the SEC's mandate of disclosure of financial information that informs investment opinions. Furthermore, the rules imposed undue financial burden on companies to report.

Dive Insight:

The announcement the SEC would no longer enforce the conflict minerals reporting rule of the Dodd Frank Act centers around the role of the agency in business: does it exist to protect investors, or should they also enforce practices deemed for the greater good? Further, if the commission seeks to protect the greater good — what resources are they to receive to enforce reporting practices?

The recent decision clarifies the acting chairman's position that, as it stands, the SEC has no responsibility to enforce the rule. Yet, the Department of State has reportedly asked the commission to consider ways it can help stem the sourcing of conflict minerals. 

The legal problem mirrors the issues faced by companies who, willingly or not, must consider whether their money helps fund conflicts in developing countries. Like the SEC, many companies have little legal responsibility to do so, yet other actors (like consumers, associations) may demand they do so.

Compelling arguments exist either way. Recent reports show conflict mineral reports are not only costly, but may also be ineffective as such minerals exist worldwide, and not just in the DRC as the Dodd Frank rule suggests. Yet, media reports and business examples show the rule has been effective in stemming the flow of funds at least to armed groups in the DRC, while increasing public consciousness of the issue. 

As such, while proponents of the rule may mourn the lack of enforcement, it may be worth re-examining the practice to better align it with business practices and global realities. In this way, the SEC's examination of its role within the rule may open the door to further improvements ... or, at minimum, reveal which companies are truly committed to the practice.