Conflict Minerals and Resource Extraction:
Dodd-Frank, SEC Regulations, and Legal
Challenges
Michael V. Seitzinger
Legislative Attorney
Kathleen Ann Ruane
Legislative Attorney
April 2, 2015
Congressional Research Service
7-5700
www.crs.gov
R43639
Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges
Summary
Two sections of the Dodd-Frank Wall Street Reform and Protection Act (Dodd-Frank) require that
the Securities and Exchange Commission (SEC or Commission) issue regulations to make public
the involvement of U.S. companies in conflict minerals and in resource extraction payments.
Supporters of the Dodd-Frank conflict minerals statute and the SEC implementing rule believe
that such disclosures could have an impact on the amount of violence involved with the mining of
conflict minerals. Opponents of the statute and rule argue that they require disclosures that are
arbitrary and capricious and that some of the required disclosures violate the First Amendment
guarantee of freedom of speech. Supporters of the resource extraction statute and the SEC
implementing rule believe that they are needed to achieve the goal of the transparency of
payments made by resource extraction issuers to governments in order to foster reform and anti-
corruption and to improve the tax collection process. Opponents believe that they are arbitrary
and capricious and violate the First Amendment. Legal challenges to the statutes and regulations
have occurred, based primarily on administrative law and First Amendment grounds.
Section 1502 requires that the SEC issue rules mandating the disclosure by publicly traded
companies of the origins of listed conflict minerals. Soon after the SEC issued regulations to
implement this provision, the National Association of Manufacturers and other plaintiffs
challenged the rules on the bases of several arguments, two of which claimed that the SEC did not
conduct an appropriate cost-benefit analysis before promulgating the rule and that the rules
violated the Constitution’s First Amendment freedom of speech guarantee (by forcing the
companies to label their products). The U.S. District Court for the District of Columbia upheld
the rules, and plaintiffs appealed the decision. The Court of Appeals for the D.C. Circuit largely
upheld the SEC’s authority to implement the rules but struck down the portion of the rules
requiring issuers to describe certain products as having been “not found to be DRC conflict free.”
The court found that the requirement violated the First Amendment. Recently, the D.C. Circuit
Court of Appeals, sitting en banc, overruled an important aspect of the panel’s decision finding
that part of the DRC conflict mineral disclosure requirements violated the First Amendment. In
light of that ruling, on November 18, 2014, the court of appeals panel agreed to rehear arguments
related to the First Amendment questions presented by the case.
Section 1504 of Dodd-Frank requires the SEC to issue rules mandating resource extraction
issuers to disclose payments made to a foreign government or the federal government for the
purpose of the commercial development of oil, natural gas, or minerals. The SEC issued rules,
and the American Petroleum Institute brought suit, arguing, among other things, that the SEC
acted arbitrarily and capriciously in promulgating the rules, as well as that the rules violated the
First Amendment. The U.S. District Court for the District of Columbia vacated the rules on
administrative law grounds and did not reach most of the Administrative Procedure Act
arguments and the First Amendment issues. The SEC is not appealing this decision and is,
instead, working on Section 1504 rules that will take into consideration the court’s decision. The
SEC has not yet issued a new rule. On September 18, 2014, Oxfam filed a lawsuit in the U.S.
District Court for the District of Massachusetts to force the SEC to issue a new resource
extraction disclosure rule. The SEC has said that it cannot achieve Oxfam’s timeframe demands
for issuing a new rule.
This report will be updated as needed.
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Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges
Contents
Introduction ...................................................................................................................................... 1
Section 1502 of Dodd-Frank............................................................................................................ 1
Statute ........................................................................................................................................ 1
Regulations ................................................................................................................................ 2
Legal Challenge ......................................................................................................................... 3
Federal District Court Decision ........................................................................................... 4
U.S. Court of Appeals Decision .......................................................................................... 8
SEC Guidance on Filing Conflict Minerals Disclosure Forms ......................................... 12
Section 1504 of Dodd-Frank.......................................................................................................... 12
Statute ...................................................................................................................................... 12
Regulations .............................................................................................................................. 13
Legal Challenge ....................................................................................................................... 13
Federal District Court Decision ......................................................................................... 14
Conclusion ..................................................................................................................................... 16
Contacts
Author Contact Information........................................................................................................... 17
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Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges
Introduction
Congressional hearings, news reports over the past several years, and even the 2006 film Blood
Diamond have brought increased attention to the mining and selling of conflict minerals.
Generally defined, conflict minerals are “minerals mined in conditions of armed conflict and
human rights abuses, notably in the eastern provinces of the Democratic Republic of the Congo
[DRC].... ”1
Resource extraction payments have also received global attention. The Extractive Industries
Transparency Initiative, begun in 2002, is an organization made up of sponsoring countries (the
United States is one), natural resource extractive companies, and other nongovernmental
organizations. Their goal is the transparency of all payments made by resource extraction issuers
to governments.2
Concerned about the armed conflicts in the DRC and about the need for transparency of resource
extraction payments, Congress in the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank)3 added two sections to deal with these issues. Both of the sections require the
issuing of regulations by the Securities and Exchange Commission (SEC or Commission) in order
to make public the involvement of U.S. companies in conflict minerals and in resource extraction
payments. Very briefly, Section 1502 mandates the SEC to issue rules requiring the disclosure by
publicly traded companies of the origins of listed conflict minerals. Section 1504 mandates SEC
rules requiring resource extraction issuers to disclose payments made to a foreign government or
the federal government for the purpose of the commercial development of oil, natural gas, or
minerals. The SEC has issued final rules, and court cases have challenged the rules on several
grounds.
Section 1502 of Dodd-Frank
Statute
Section 1502 of Dodd-Frank, codified at 15 U.S.C. Section 78m(p), mandates that the SEC issue
regulations requiring publicly traded companies filing annual and other reports with the SEC to
disclose annually the origins of conflict minerals necessary to its operations if the minerals
originate from the Democratic Republic of the Congo (DRC) or an adjoining country. Congress
enacted this requirement because of its belief that the “exploitation and trade of conflict minerals
originating in the Democratic Republic of the Congo is helping to finance conflict characterized
by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly
sexual- and gender-based violence and contributing to an emergency humanitarian situation
therein.... ”4 If the minerals originate from the DRC or an adjoining country, the company must
file a report with the SEC and include such information as a description of its due diligence on the
1 http://en.wikipedia.org/wiki/Conflict_minerals. For purposes of this report, diamonds are not defined as “conflict
minerals.”
2 http://eiti.org.
3 P.L. 111-203, 124 Stat. 1376 (2010).
4 Dodd-Frank, Section 1502(a).
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Conflict Minerals and Resource Extraction: Dodd-Frank, SEC Regulations, and Legal Challenges
source and chain of custody of the minerals and a description of the products manufactured or
contracted to be manufactured that are not DRC conflict free. (DRC conflict free products are
products which do not contain minerals directly or indirectly financing or benefiting armed
groups in the DRC or an adjoining country.) Dodd-Frank defines “conflict mineral” as: “(A)
columbite-tantalite (coltan) [used to produce tin], cassiterite, gold, wolframite [used to produce
tungsten], or their derivatives; or (B) any other mineral or its derivatives determined by the
Secretary of State to be financing conflict in the Democratic Republic of the Congo or an
adjoining country.”5
Regulations
On August 22, 2012, the SEC voted 3-2 to adopt final rules to require publicly traded companies
to disclose information related to their use of conflict minerals.6 17 C.F.R. Section 240.13p-1
requires every company filing reports with the SEC having “conflict minerals which are
necessary to the functionality or production of a product manufactured or contracted by that
registrant to be manufactured” to file a report on Form SD7 to disclose required information.
In complying with the requirements of Form SD, the company must in good faith conduct a
reasonable country of origin inquiry concerning its necessary conflict minerals. If the company
determines that its necessary conflict minerals did not originate in the DRC or an adjoining
country or if the company reasonably believes that its necessary minerals came from recycled or
scrap sources, it must disclose its determination and describe the inquiry it made in arriving at its
determination. If, on the other hand, the company knows or has reason to believe that any of its
necessary conflict minerals originated in the DRC or an adjoining country and are not from
recycled or scrap sources, it must exercise due diligence on the source and chain of custody of the
minerals. Depending upon the results of the due diligence, the company may be required to file a
Conflict Minerals Report as an exhibit to its specialized disclosure report.
The Conflict Minerals Report must contain information about the registrant’s due diligence and a
product description. The company must use due diligence which conforms to a nationally or
internationally recognized due diligence framework if a framework is available for the conflict
mineral, including but not limited to an independent private sector audit in accordance with
standards established by the Comptroller General; disclose steps that it has taken or will take if
products are DRC conflict undeterminable to mitigate the risk that the minerals benefit armed
groups; and exercise appropriate due diligence in determining the source and chain of custody of
necessary conflict minerals if a recognized due diligence framework does not exist. The product
description for products not found to be DRC conflict free or DRC conflict undeterminable must
have a description of those products, the facilities used to process the necessary conflict minerals
in those products, the country of origin of the necessary conflict minerals, and efforts to
determine the mine or location of origin. If the necessary conflict minerals are from only recycled
or scrap sources, those products may be considered DRC conflict free, thereby freeing a company
from having to provide the above product information.
5 Dodd-Frank, Section 1502(e)(4).
6 17 C.F.R. §§240.13p-1 and 248.
7 A copy of Form SD may be found at http://www.sec.gov/about/forms/formsd.pdf. Form SD is a new disclosure form
to be used for specialized disclosure not included within an issuer’s periodic or current reports.
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The SEC made a number of changes from the proposed rule to the final rule, several of which
were at the urging of business groups such as the Chamber of Commerce. Nevertheless, critics
complained that compliance costs would be excessive and that, in many cases, companies, despite
due diligence, would be unable to meet the SEC’s requirements.8 A legal challenge to the SEC’s
rule occurred.
Legal Challenge
The National Association of Manufacturers (NAM), the Chamber of Commerce, and the Business
Roundtable filed a lawsuit to challenge the SEC rule. National Association of Manufacturers v.
Securities and Exchange Commission9 challenged the rule on the basis of several arguments:
1. The SEC did not conduct a proper cost-benefit analysis, as required by Sections
3(f)10 and 23(a)(2)11 of the Securities Exchange Act.
2. The SEC incorrectly concluded that the statute did not allow it to adopt a de
minimis exception (allowing only a trace amount of a conflict mineral) to the
rule.
3. The rule improperly required due diligence and a report from a company having
only a reason to believe that conflict minerals may have originated in the covered
region.
4. The SEC required a company to use an extremely burdensome approach in
tracing minerals back to their smelter or refiner.
5. The SEC mistakenly interpreted the statute to apply to companies which only
contracted for the manufacture of products and did not actually manufacture any
products.
6. The rule was inconsistent by giving small issuers four years to be able to trace
conflict minerals in their supply chain but only two years for large issuers, many
of whom may have to obtain information from small companies to meet their
obligations.
7. The statute and the rule violated the Constitution’s First Amendment guarantee of
freedom of speech by requiring a company to describe its products as not DRC
conflict free even when it is simply unable to trace its supply chains to determine
the minerals’ origins, thereby forcing a company falsely to associate itself with
groups involved in human rights violations.
Amnesty International intervened as defendants in the case to defend the regulations.12
8 http://www.complianceweek.com/critics-of-secs-conflict-minerals-rule-speak-out-at-appeal-hearing/article/328332.
9 No. 13-cv-635 (D.D.C. July 23, 2013).
10 15 U.S.C. §78c(f). “Whenever pursuant to this chapter the Commission is engaged in rulemaking, or in the review of
a rule of a self-regulatory organization, and is required to consider or determine whether an action is necessary or
appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether
the action will promote efficiency, competition, and capital formation.”
11 15 U.S.C. §78w(a)(2). “The Commission and the Secretary of the Treasury, in making rules and regulations pursuant
to any provision of this chapter, shall consider among other matters the impact any such rule or regulation would have
on competition.... ”
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Federal District Court Decision
On July 23, 2013, the United States District Court for the District of Columbia (D.C. District
Court) held that the SEC complied with its cost-benefit analysis and other Administrative
Procedure Act (APA) requirements and that it did not violate the Constitution’s First Amendment.
In its analysis, the court placed the plaintiffs’ arguments into two separate categories of claims:
1. The SEC, in issuing the rule, did not adhere to the Administrative Procedure Act
(APA),13 thereby ignoring its statutory obligations under the Securities Exchange
Act14 and engaging in rulemaking that was arbitrary and capricious.
2. The statute and the rule violated the Constitution’s First Amendment freedom of
speech guarantee.
Administrative Procedure Act Challenge
In analyzing the plaintiffs’ APA claims, the court started with the APA statutory language that
agency action is unlawful if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.”15 The court then discussed cases that have ruled that the arbitrary and
capricious standard is narrow and that a court cannot substitute its judgment for the agency’s
judgment. (“[T]he agency’s action remains ‘entitled to a presumption of regularity,’ Citizens to
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414-16 (1971).”)16 Nevertheless, the court
must be satisfied that the agency’s statutory interpretation has a rational connection with the
choice that it has made.
The Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council17 limited a
court’s role in reviewing agency interpretations of statutes.18 The D.C. District Court discussed
the two-part Chevron test in examining the SEC’s interpretation of the statute. Under the Chevron
test, the court must first determine “whether Congress has directly spoken to the precise question
at issue”19 (Step One). If so, the court’s inquiry ends and the statutory language controls. If the
statute is ambiguous, the reviewing court must consider whether the agency’s interpretation is a
permissible interpretation of the statute (Step Two).
(...continued)
12 “The Democratic Republic is facing escalating conflict, killings, and displacement,” said Suzanne Nossel executive
director of Amnesty International USA. “Strict legal requirements are needed to prevent corporate interests and profit-
seeking from fueling human rights abuses.... Amnesty International USA has spent years working to expose and
eliminate links between these minerals and violence in the region.” http://www.amnestyusa.org/news/press-releases/
amnesty-international-to-defend-conflict-minerals-reporting-requirements-from-attacks-by-corporate-g.
13 5 U.S.C. §§551 et seq.
14 15 U.S.C. §§78a et seq.
15 5 U.S.C. §706(2).
16 956 F. Supp. 2d 43, 54 (D.D.C. 2013).
17 467 U.S. 837 (1984).
18 See CRS Report R43203, Chevron Deference: Court Treatment of Agency Interpretations of Ambiguous Statutes, by
Daniel T. Shedd and Todd Garvey.
19 956 F. Supp. 2d at 55.
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The district court first examined plaintiffs’ claim that the SEC did not properly analyze the costs
and benefits of the rule, in violation of the requirements under the Securities Exchange Act that
the SEC consider “whether the action will promote efficiency, competition and capital
formation”20 and ensure that the rule does not “impose a burden on competition not necessary or
appropriate in furtherance of the purposes of”21 the Exchange Act. Plaintiffs alleged that the SEC
did not properly analyze the costs and benefits of the rule because it had not independently
determined whether the rule was necessary or appropriate to decrease conflict and violence in the
DRC. The court disagreed with this charge.
According to the court, the Exchange Act provisions cited by plaintiffs (even if they applied,
which is not certain, since Section 1502 of Dodd-Frank did not reference them), did not require
the type of analysis that plaintiffs claimed was necessary. Instead, the provisions required only
SEC consideration of such matters as promotion of efficiency and not imposing a burden upon
competition. “Simply put, there is no statutory support for Plaintiffs’ argument that the
Commission was required to evaluate whether the Conflict Mineral Rule would actually achieve
the social benefits Congress envisioned.”22 Plaintiffs cited D.C. Circuit Court cases23 as precedent
for SEC rule invalidation. The court responded that the cases which plaintiffs cited were based on
“shortcomings on the Commission’s part with respect to the economic implications of its
actions—economic implications that the SEC was statutorily required to consider in adopting the
challenged rules.”24 In contrast, according to the court, those decisions could not provide support
to plaintiffs’ argument that the rule must be invalidated because the SEC did not consider whether
the rule would actually achieve the humanitarian benefits which Congress identified. In issuing
the rule, according to the court, the SEC correctly maintained that its role was not to second-guess
Congress but, instead, to issue a rule that would promote the benefits that Congress identified.
The court, therefore, seemed to find that, even if compliance with the cost-benefit and
competition requirements of the Exchange Act were necessary, the SEC satisfied the second
prong requirement of the Chevron test that the rule must be a permissible interpretation of the
statute.
Therefore, upon review of the record, the Court is convinced that the Commission
appropriately considered the various factors that Sections 3(f) and 23(a)(2) of the Exchange
Act actually require. No statutory directive obliged the Commission to reevaluate and
independently confirm that the Final Rule would actually achieve the humanitarian benefits
Congress intended. Rather, the SEC appropriately deferred to Congress’s determination on
this issue, and its conclusion was not arbitrary, capricious, or contrary to law—whether
because of some statutory directive under the Exchange Act or otherwise.
Plaintiffs also complained that the SEC was incorrect in not providing any type of de minimis
exception from the rule’s coverage. They contended that the SEC wrongly interpreted the statute
to mean that it did not have the authority to determine a de minimis threshold and that, even if the
20 Section 3(f) of the Securities Exchange Act, codified at 15 U.S.C. §78c(f).
21 Section 23(a)(2) of the Securities Exchange Act, codified at 15 U.S.C. §78w(a)(2).
22 956 F. Supp. 2d at 56.
23 See e.g., Business Roundtable v. Securities and Exchange Commission, 647 F.3d 1144 (D.C. Cir. 2011); American
Equity Investment Life Insurance Company v. Securities and Exchange Commission, 613 F.3d 166 (D.C. Cir. 2010);
and Chamber of Commerce v. Securities and Exchange Commission, 412 F.3d 133 (D.C. Cir. 2005), all of which to
some extent vacated SEC rules because of the Commission’s failure to consider the effect of the rule upon efficiency,
competition, and capital formation.
24 956 F. Supp. 2d at 57.
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SEC was correct in not providing a de minimis exception, its analysis of the issue was arbitrary
and not able to survive APA review. Plaintiffs stated that the SEC could have used its general
exemptive authority under the Exchange Act, allowing it to “exempt ... any class or classes of
persons, securities, or transactions, from any provision or provisions [of the Exchange Act] or of
any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in
the public interest, and is consistent with the protection of investors.”25
To this argument, the SEC stated that it was well aware of its exemptive authority but that its
discretion in interpreting the statute allowed it not to provide a de minimis exception. The district
court agreed with the SEC that it was correct in exercising its independent judgment in declining
to adopt a de minimis exception, and the court believed that it could not say that the SEC’s
determination was unreasonable or without a rational connection in violation of the APA.
Plaintiffs next contested as inconsistent with the statute the part of the rule requiring due
diligence and reports when the minerals “did originate” or “may have originated” in the DRC.
According to the plaintiffs, the statute required due diligence and reports only when the minerals
“did originate” in the DRC. Plaintiffs further stated that, even if the statute were ambiguous, the
SEC’s interpretation merited no deference because the SEC acted arbitrarily and capriciously. The
court replied to this argument that, because the statute did not directly speak to the specific
circumstances which trigger disclosure obligations, the SEC appropriately construed the statute as
ambiguous (Chevron Step One) and interpreted the statute in a reasonable and permissible way
(Chevron Step Two).
Plaintiffs argued that the SEC’s extension of the rule to issuers that only contract to manufacture
products with necessary conflict minerals instead of limiting the rule’s coverage to issuers that
themselves manufacture the products was contrary to the statute and also arbitrary and capricious.
The plaintiffs argued that the SEC’s interpretation failed Chevron Step One because the statute
limits its coverage to issuers which manufacture products. The SEC countered that Section 1502
was ambiguous on this point. The court stated that it found no “clear and plain meaning” from the
words of the statute and that, because both parties made credible arguments suggests that
Congress did not make its meaning plain in the statute. The court went on to point out that the
term “manufacture” is inherently ambiguous and that few authorities limit manufacturing only to
fabrication. Because the court could not say that the statute was unambiguous, it could not grant
plaintiffs’ Chevron Step One argument. As for plaintiffs’ argument that the SEC’s rule was
arbitrary and capricious, the court stated that the rule’s application to issuers that contract to
manufacture was a “perfectly permissible construction of Section 1502” and not arbitrary,
capricious, or contrary to law.
Plaintiffs’ final argument—that the rule violated the APA—challenged the four-year phase-in
period for small companies and two-year phase-in period for large companies as arbitrary and
capricious. Because some small companies are part of the supply chains of large companies,
plaintiffs argued, small companies do not have to provide the information that large companies
must report within the two-year phase-in period, resulting in an unreasonable burden upon large
companies. The court stated that the plaintiffs’ concerns, though not altogether unfounded, were
“overinflated” and that it was not unreasonable for the SEC to have a bifurcated phase-in period.
25 15 U.S.C. §78mm(a)(1).
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First Amendment Challenge
The court went on to analyze the NAM’s claims that the portion of the rules that required
companies to declare on their websites that certain products were “not found to be DRC conflict
free,” violated their First Amendment rights.26 The plaintiffs did not challenge the portion of the
rule that required disclosure of this information to the SEC, which may have qualified for a lower
standard of review than the public disclosure requirement. The court would ultimately find that
the public disclosure requirement comported with the First Amendment.
The court began by discussing the proper standard of review for the rules. The SEC had argued
that the rules should be analyzed under the “rational basis” standard which can be applied to
certain factual disclosure requirements. Under this standard, initially announced by the Supreme
Court in Zauderer v. Office of Disciplinary Counsel,27 “purely factual and uncontroversial’
disclosures are permissible if they are ‘reasonably related to the State’s interest in preventing
deception of consumers,’ provided the requirements are not ‘unjustified or unduly
burdensome.’”28 According to the district court at the time of the decision, D.C. Circuit precedent
had further indicated that this standard may only be applied to disclosure requirements intended
to prevent consumer deception.29 Because the SEC conceded that the conflict minerals rules were
not aimed at preventing consumer deception, the D.C. District Court declined to apply the
rational basis standard. Looking to circuit precedent for which standard to apply, the court
ultimately decided that, given the commercial context in which the regulations arose, the court
would apply the general “intermediate scrutiny” standard applied to commercial speech
commonly known as the Central Hudson test.30
Under the Supreme Court’s Central Hudson test, in order to survive review a regulation must (1)
address a substantial government interest; (2) directly advance that interest; and (3) be narrowly
tailored to achieve that interest.31 Under Central Hudson, the narrow tailoring prong is met if
there is a reasonable fit between the means chosen and the interest sought to be achieved by the
regulation. NAM agreed that the government has a substantial interest in promoting peace in the
DRC. However, NAM contended that requiring companies to disclose whether their products
were “DRC conflict free” did not directly advance that interest, nor was it a reasonable fit
between means and ends.
Specifically, the plaintiffs argued that Congress had provided no hard evidence that public
disclosures regarding whether a product is “DRC conflict free” would actually lead to the
promotion of peace in the DRC and the regulation, therefore, could not be said to directly
advance the government’s interest. While the court did agree that the burden of showing that a
regulation directly advances a particular interest is not satisfied by mere conjecture, and that the
government must demonstrate that the regulation will materially relieve the identified harm, the
court also found that there are more types of permissible evidence of direct advancement than
26 956 F. Supp. 2d at 73.
27 471 U.S. 626 (1985).
28 956 F. Supp. 2d at 77 (quoting R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205, 1212 (D.C. Cir. 2012) (quoting
Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 651 (1985)).
29 See R.J. Reynolds, 696 F.3d at 1214. This precedent would be overruled by American Meat Institute v. USDA, 760
F.3d 8 (D.C. Cir. 2014) en banc.
30 956 F.Supp. 2d at 77 (citing Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 566 (1980).
31 Cent. Hudson, 447 U.S. at 566.
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empirical evidence, particularly in the context of foreign relations. The court quoted the Supreme
Court’s finding that, in the foreign relations context, “conclusions must often be based on
informed judgment rather than concrete evidence, and that reality affects what we may reasonably
insist on from the Government.”32 The court went on to note that Congress specifically found in
the statute that the money used to purchase conflict minerals is funding the conflict in the DRC
and that Congress could not “begin to solve the problem of eastern Congo without addressing
where the armed groups are receiving their funding, mainly from the mining of a number of key
conflict minerals.”33 Congress relied on information from the State Department and the United
Nations, among other sources, to reach the conclusion that requiring disclosure from companies
that use these minerals in their products was a reasonable step toward bringing these issues out in
the open. As a result, the court found that Congress’s decision to enact this statute was based upon
“informed judgment” that the regulation would directly advance its interests.34
Turning to the last prong, the plaintiff argued that there were many less restrictive means for the
government to achieve its goal. The crux of the plaintiff’s argument seemed to hinge upon the
fact that the rules compelled companies to state on their websites that their products had not been
found to be DRC conflict free. In the plaintiff’s estimation, this requirement amounted to a
requirement that companies brand themselves with a ‘scarlet letter’ of complicity in the atrocities
that occur in the DRC. The court did not agree that the rule was so burdensome. The rules would
require companies to post their conflict mineral reports on their websites, and companies were
free to do so in whatever manner they chose. They would not have to prominently feature the fact
that any of their products were “not found to be DRC conflict free,” and could provide any
amount of context or extra information that they wished in order to explain their findings.
Furthermore, the court found that the Central Hudson standard requires only that Congress
choose a regulation proportionate to its goals. The regulation need not even be considered by the
reviewing court to be the most reasonable option to withstand scrutiny. As a result, the court held
that the regulations represented a reasonable fit between the means and the ends, and concluded
that the regulations withstood constitutional scrutiny.
U.S. Court of Appeals Decision
On September 18, 2013, NAM and the other plaintiffs filed an appeal of the D.C. District Court’s
decision with the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit).35 On
January 7, 2014, a D.C. Circuit panel heard oral argument. On April 14, 2014, a divided D.C.
Circuit held that the SEC rule and the statute requiring the rulemaking ran afoul of the First
Amendment but disagreed with the plaintiffs’ arguments that the SEC violated the APA and the
cost-benefit requirements of the Securities Exchange Act.
Administrative Procedure Act Challenge
Before addressing the First Amendment issue, the circuit court considered the APA and Securities
Exchange Act challenges that NAM brought. The court stated that it was reviewing the
32 956 F.Supp. 2d at 79 (quoting Holder v. Humanitarian Law Project, 561 U.S. 1, 130 S. Ct. 2705, 2727-28 (2010).
33 Id. at 80 (quoting 156 Cong. Rec. S3817 (May 17, 2010) (statement of Sen. Durbin)).
34 Id. at 79.
35 National Ass’n of Manufacturers v. SEC, 748 F.3d 359 (D.C. Cir. 2014).
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“administrative record as if the case had come directly to us without first passing through the
district court.”36
The court first addressed NAM’s claim that the SEC rule should have had an exception for de
minimis uses of conflict minerals and that the SEC erred when it failed to create an exception and
assumed that the statute foreclosed it from doing so. The court found that the SEC did not act
arbitrarily and capriciously by not including a de minimis exception. The court found acceptable
the SEC’s reasoning that, because conflict minerals may often be used in very limited quantities,
a de minimis exception might interfere with the intent of Congress in enacting the statute.
The court next addressed the final rule’s requirement that an issuer must conduct due diligence if
it has reason to believe that conflict minerals may have originated in covered countries. NAM
argued that this requirement contravened the statute, which, in NAM’s view, required issuers to
submit a report to the SEC only in cases in which the conflict minerals actually did originate in
the covered countries. In responding to NAM’s argument, the court used the Chevron reasoning
that, if a statute “is silent or ambiguous with respect to the specific issue at hand,” the agency has
the authority to use reasonable discretion in construing the statute. Here, according to the court,
the statute did not mention either a threshold for conducting due diligence or the obligations of
uncertain issuers. Nothing in the statute prevented the SEC from filling in those gaps in the
statute. Further, according to the court, the manner in which the SEC filled in the gaps was
neither arbitrary nor capricious.
In addition, NAM argued that the SEC violated the statute by deciding to apply the rule
expansively to issuers that only contract to manufacture products, rather than limiting it to issuers
that actually manufacture products. Once again, the court replied that the more reasonable
interpretation of the statute is that Congress decided not to mandate the specifics of the rule and
left its application to agency discretion and that the SEC did not act arbitrarily or capriciously.
As for the rule’s different phase-in periods for large and small companies, which NAM argued
were inconsistent, arbitrary, and capricious, the appeals court, like the district court, was able to
see the “trickledown” logic of the SEC’s approach.37
Securities Exchange Act Challenge
As opposed to the district court, which examined the plaintiffs’ challenges to the law under the
Securities Exchange Act at the beginning of its analysis of plaintiffs’ arguments, the appeals court
examined the Securities Exchange Act challenges after it had examined the APA challenges.
NAM alleged that the SEC rule violated 15 U.S.C. Sections 78w(a)(2) and 78c(f) because it did
not adequately analyze the costs and benefits of the final rule. The court found no problem with
the commission’s cost-side analysis and stated that it did not understand how the commission
could have done a better job with respect to determining the benefits of the rule. The court went
on to emphasize that the statute required the SEC to promulgate a disclosure rule and that it (the
SEC) could not second-guess Congress as to the basic premise that a disclosure rule would help
to promote peace and stability in the Congo.
36 Id. at 365.
37 The court stated at 14 that the SEC explained: “Large issuers ... can exert greater leverage to obtain information
about their conflict minerals ... , and they may be able to exercise that leverage indirectly on behalf of small issuers in
their supply chains.”
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First Amendment Challenge
Like the district court before it, the court of appeals determined that the regulations requiring
public disclosure of the “DRC conflict” status of certain products did not qualify for rational basis
review under the Zauderer standard.38 In the course of deciding that the rational basis standard
was not appropriate, the court appeared to question whether the required disclosures were purely
factual. The court wrote that “[p]roducts and minerals do not fight conflicts. The label ‘conflict
free’ is a metaphor that conveys moral responsibility for the Congo war.... By compelling an
issuer to confess blood on his hands, the statute interferes with the exercise of the freedom of
speech under the First Amendment.”39 Despite questioning whether the required disclosures were
factual, the court ultimately did not decide that issue. Instead, the court refused to apply a rational
basis standard because the disclosures were not required for the purpose of alleviating consumer
deception. This reason was similar to the district court’s analysis. Unlike the district court, the
appeals court did not determine which of the remaining standards of scrutiny (i.e., intermediate or
strict scrutiny) properly applied to the regulations, because the court found that the regulations
did not even survive intermediate scrutiny under the Central Hudson test.
After laying out the basic elements of the test, the court explained its view that “the narrow
tailoring requirement invalidates regulations for which ‘narrower restrictions on expression would
serve [the government’s] interest as well.’”40 Though acknowledging that the government need
only show a reasonable fit between the means and ends of a regulation, the court found that “the
government cannot satisfy that standard if it presents no evidence that less restrictive means
would fail.”41 The association challenging the rules had made a number of suggestions that it
believed would be less restrictive than the rules adopted by the SEC, including that the companies
could be required to describe their products’ status in their own words. Given the other options
the SEC had for implementing the disclosure requirement and the fact that the commission “failed
to explain why (much less provide evidence that) the Association’s intuitive alternatives to
regulating speech would be any less effective,” the court found that the rules were not narrowly
tailored and therefore violated the First Amendment.42
The dissent in the case would have held the decision on the First Amendment question in
abeyance until the full court of appeals, sitting en banc, had decided the question of whether a
38 National Ass’n of Manufacturers v. SEC, 748 F.3d 359 (D.C. Cir. 2014). This holding would later be overruled by
the D.C. Circuit Court of appeals, sitting en banc, in a case captioned American Meat Institute v. USDA, 760 F.3d 8
(D.C. Cir. 2014) en banc. That decision, and its effects on the SEC’s conflict minerals disclosure rules will be
discussed further below.
39 Id. at 371.
40 Id. at 372. (internal citations omitted)
41 Id. Interestingly, for this principle that the government must present evidence that less restrictive means would fail in
the context of applying intermediate scrutiny, the court cites Sable Comm’n v. FCC, 492 U.S. 115, 128-32 (1989). In
Sable, the Supreme Court applied strict scrutiny to a regulation which prohibited certain indecent telephone services.
Indecent speech, when not delivered over the broadcast airwaves, is fully protected speech. Id. at 126. Regulations of
fully protected speech are subject to strict scrutiny, a higher standard than the court of appeals was applying here. Id.
Under strict scrutiny, it is clear that the government may only apply regulations that are the least restrictive means of
achieving its compelling interests. It is unclear whether the court, in this case, applied an analytical element of a higher
standard of scrutiny in the context of applying a lower standard of scrutiny.
42 748 F.3d at 373.
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rational basis standard could be applied to disclosure requirements outside of the consumer
deception context.43
District Court Panel Decision in NAM v. SEC is Overruled
On July 29, 2014, the United States District Court of Appeals for the D.C. Circuit, sitting en banc,
overruled the panel decision in NAM v. SEC to the extent that the panel held that the rational basis
standard of review set out in Zauderer could not be applied to factual commercial disclosure
requirements imposed for reasons other than the prevention of consumer deception. As a result of
this ruling, a rehearing of NAM v. SEC has been granted by the original appellate panel.44
In American Meat Institute v. UDSA, the D.C. Circuit was asked to decide whether the Zauderer
rational basis standard of review could be applied to a requirement for meat producers to disclose
the country of origin of their products.45 The court ultimately decided that the Zauderer standard
could be applied to factual commercial disclosure requirements, even when the government’s
interest in requiring the disclosure does not include preventing consumer deception. In reaching
its decision, the court acknowledged that the Supreme Court had only applied the Zauderer
standard to disclosure requirements aimed at preventing deception. However, when closely
reviewing the Supreme Court’s language articulating the Zauderer standard’s application, the
court found that “the language with which Zauderer justified its approach ... [swept] far more
broadly than the interest in remedying deception.”46 In deciding Zauderer, the Supreme Court had
noted that commercial speakers had a minimal First Amendment interest in refraining from
disclosing purely factual information that would be of interest to consumers. Noting this fact, the
D.C. Circuit Court of Appeals reasoned that commercial speakers’ minimal speech interest in
refusing to disclose seemed “inherently applicable beyond the problem of deception.”47 As a
result, the court held that the Zauderer rational basis standard could be applied to purely factual
disclosure requirements that are intended to fulfill government interests beyond prevention of
deception. The court also explicitly overruled the portion of NAM v. SEC that held to the contrary.
Nevertheless, the court’s decision in American Meat Institute has not settled the issue of whether
the Zauderer rational basis standard should be applied to the SEC’s conflict minerals rules. As
noted above, Zauderer permits a rational basis standard of review to be applied to commercial
disclosure requirements of “purely factual and uncontroversial information.” The American Meat
Institute court made clear that it was not deciding whether Zauderer standard could be applied to
disclosure requirements where the purely factual and uncontroversial nature of the required
disclosure was disputed. The court in NAM v. SEC had questioned, but did not decide whether the
information covered by the SEC’s conflict mineral disclosures was, indeed, “purely factual and
uncontroversial information.” Therefore, there remains a lingering question regarding the
application of the Zauderer standard to the DRC conflict minerals disclosure requirements. While
the rational basis standard may be applied to these requirements despite the fact that the rules are
not intended to prevent deception, it remains to be seen whether these rules require disclosure of
“purely factual and uncontroversial information.” If the information required to be disclosed is
43 Id. (Srinivasan, J. dissenting).
44 2014 U.S. App. LEXIS 21753 (Nov. 18, 2014).
45 760 F.3d 18 (2014).
46 Id. at 22.
47 Id.
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not “purely factual and uncontroversial” in nature, the rules may yet fail to qualify for review
under the more relaxed Zauderer standard.
On November 18, 2014, the panel that originally heard NAM’s case against the SEC’s rules
granted a rehearing of the case and requested that the parties provide supplemental information in
advance of the hearing.48 The panel requested further information related to three questions. First,
the panel asked the parties what effect, if any, the en banc court’s decision in American Meat
Institute has on the First Amendment issues related to the conflict minerals regulations. Second,
the court asked what the meaning of “purely factual and uncontroversial information” in the
context of the Zauderer standard is.49 Third, the court has asked to what extent the question of
whether the information required to be disclosed is factual and uncontroversial is a question of
fact. It appears, therefore, that the court of appeals panel soon will attempt to answer the
remaining questions regarding the proper standard of review to be applied to NAM’s First
Amendment challenges.
SEC Guidance on Filing Conflict Minerals Disclosure Forms
In light of the decision by the court of appeals, on April 29, 2014, the SEC issued guidance on
what covered companies must file with respect to the disclosures required by the conflict minerals
rule.50 The commission expects companies to file reports and address those parts of the rule that
the court upheld. Specifically, the Division of Corporate Finance stated,
[C]ompanies that do not need to file a Conflict Minerals Report should disclose their
reasonable country of origin inquiry and briefly describe the inquiry they undertook. For
those companies that are required to file a Conflict Minerals Report, the report should
include a description of the due diligence that the company undertook. If the company has
products that fall within the scope of Items 1.01(c)(2) or 1.01(c)(2)(i) of Form SD, it would
not have to identify the products as “DRC conflict undeterminable” or “not found to be
‘DRC conflict free,’” but should disclose, for those products, the facilities used to produce
the conflict minerals, the country of origin of the minerals and the efforts to determine the
mine or location of origin.51
Section 1504 of Dodd-Frank
Statute
Section 1504 of Dodd-Frank, codified at 15 U.S.C. Section 78m(q), requires resource extraction
issuers52 to disclose to the commission payments made to a foreign government or federal
48 2014 U.S. App. LEXIS 21753 (Nov. 18, 2014).
49 Id.
50 http://www.sec.gov/News?publicStmt/Detail/PublicStmt/1370541681994#.
51 Id.
52 “[T]he term ‘resource extraction issuer’ means an issuer that—
(i) is required to file an annual report with the Commission; and
(ii) engages in the commercial development of oil, natural gas, or minerals. Dodd-Frank, §1504,
specific provision codified at 15 U.S.C. §78m(q)(1)(D).
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government for the purpose of the commercial development of oil, natural gas, or minerals. The
resource extraction issuer, a subsidiary of the issuer, or an entity under the control of the issuer
must include this information in an annual report filed with the SEC. Information to be disclosed
shall include the type and total amount of the payments made for each project of the resource
extraction issuer concerning the commercial development of oil, natural gas, or minerals and the
type and total amount of the payments made to each government. The statute mandates that the
rules, to the extent practicable, shall support the commitment of the United States to international
transparency promotion efforts concerning the commercial development of oil, natural gas, or
minerals. The commission must, to the extent practicable, make a compilation of the information
available online to the public.
Regulations53
On August 22, 2012, the SEC issued final rules (later challenged and vacated by a court decision
discussed in the following section) to implement Section 1504.54 17 C.F.R. Section 240.13q-1
required every resource extraction issuer engaged in the commercial development of oil, natural
gas, or minerals to file a report on Form SD55 within the period specified in the form and to
disclose the information specified by the form. “Commercial development of oil, natural gas, or
minerals includes exploration, extraction, processing, and export of oil, natural gas, or minerals,
or the acquisition of a license for any such activity.”56 The rule required that the reports be made
publicly available.
Legal Challenge
In October 2012, the American Petroleum Institute, the U.S. Chamber of Commerce, the
Independent Petroleum Association of America, and the National Foreign Trade Council filed suit
against the SEC. Plaintiffs challenged the SEC rule on the basis that it violated the First
Amendment guarantee of freedom of speech, that it was arbitrary and capricious under the APA,
and that the SEC, as with Section 1502, had made an inadequate cost-benefit analysis before
promulgating the rule. With respect to the First Amendment challenge, the plaintiffs alleged that,
because the SEC rule required disclosures that would arguably allow business competitors access
to sensitive commercial information, they would be compelled to engage in speech that would
have “disastrous effects on the companies, their employees, and their shareholders” in violation
of their First Amendment rights. With respect to the inadequate cost-benefit analysis challenge,
the plaintiffs alleged that the SEC violated its statutory duty under Section 23(a)(2) of the
Securities Exchange Act57 to consider the public interest and refrain from adopting a rule that
would impose a burden upon competition. Oxfam International, an international human rights
organization, was granted permission to intervene in the case in support of the rules.58
53 The regulations are not in effect because they were vacated by the court decision discussed in the following section,
“Legal Challenge.”
54 17 C.F.R. §§240.13q-1 and 248.
55 A copy of Form SD may be found at http://www.sec.gov/about/forms/formsd.pdf.
56 17 C.F.R. §240.13q-1(a)(b)(2).
57 See footnote 8 above.
58 “Transparency in the oil, gas and mining industry is now a global norm,” said Gary [Ian Gary, senior policy manager
of Oxfam America’s oil, gas and mining program]. Oil companies should join citizens in resource-rich countries,
investors, and energy consumers in supporting disclosure rather than seeking to turn back the tide through litigation and
(continued...)
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Federal District Court Decision
The case, American Petroleum Institute v. Securities and Exchange Commission,59 was decided
on July 2, 2013, by the U.S. District Court for the District of Columbia.
The court ruled in favor of the plaintiffs and granted the plaintiffs’ motion for summary judgment,
vacated the rule, and remanded the rule to the SEC for further proceedings. The court did not
reach the plaintiffs’ First Amendment challenge or most of their Administrative Procedure Act
arguments “because [it determined that] two substantial errors require[d] vacatur: the
Commission misread the statute to mandate public disclosure of the reports, and its decision to
deny any exemption was, given the limited explanation provided, arbitrary and capricious.”60
In its analysis of the validity of the rule, the court applied “Chevron’s well-worn framework.”61
As described before, the court first must ask whether Congress directly spoke to the precise
question at issue and, if Congress has done so, an agency must in its rule adhere to the
unambiguously expressed intent of Congress. If the statute is silent or ambiguous concerning the
specific issue, a court moves to the second step and must defer to an agency’s interpretation of the
statute so long as the interpretation is “based on a permissible construction of the statute.” The
court went on to quote from a D.C. Circuit case that “deference is only appropriate when the
agency has exercised its own judgment.”62 If the agency’s rule is based on an inaccurate
interpretation of the law, its rule cannot stand.
The first basis upon which the court vacated the SEC rule concerned the SEC’s requirement that
the reports be made publicly available. The court stated that the SEC clearly believed that it was
bound to make the annual reports publicly available. With this decision, the commission stopped
its Chevron analysis at Step One and believed that it did not have discretion to reach another
result. The district court concluded that, therefore, no deference to the SEC’s statutory
interpretation is warranted because the SEC did not exercise its own judgment; rather, it believed
that the interpretation was compelled by Congress. The court then faced the task of determining
whether the statute compelled the public disclosure of full payment information, or in Chevron
terms, “whether Congress has directly spoken to the precise question at issue.”
The court found that the SEC wrongly concluded that Section 1504 of Dodd-Frank required
reports of resource extraction issuers to be made publicly available and cited the language in the
statute requiring the SEC to make public only a “compilation of the information required to be
submitted” to the SEC “to the extent practicable.” The statute required the disclosure of annual
reports but did not indicate whether the disclosures must be public or whether they may be made
only to the SEC. The statute also expressly addressed the public availability of the information
and established a more limited requirement for what must be made publicly available than, for
example, what must be made publicly available in an annual report. According to the court, the
(...continued)
threaten global progress toward reducing corruption in resource-rich countries.” http://www.oxfamamerica.org/press/
oxfam-calls-on-exxon-shell-bp-and-chevron-to-withdraw-support-from-oil-industry-lawsuit-get-on-transparency-train/.
59 Civil Action No. 12-1668 (JDB) (D.D.C. July 2, 2013).
60 Id. at 7.
61 See discussion of Chevron above at p. 4.
62 Transitional Hosps. Corp. v. Shalala, 222 F.3d 1019, 1024 (D.C. Cir. 2000).
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SEC offered no persuasive arguments that the statute unambiguously required that the full reports
be publicly disclosed.
The court stated,
The Commission did not indicate in the Rule the form that a compilation would take, opting
instead to assure public availability by requiring public filing of the annual reports
themselves. Nonetheless, the Commission’s briefs confirm that it misinterprets the word
“compilation.”
With this statement, the court concluded that the agency’s remaining arguments for mandating
public disclosure of the annual reports derived from this error. The court went into a lengthy
discussion of the meaning of “compilation of information,” looking at such sources as judicial
opinions and Shakespeare’s sonnets, and found that the term can have a wide variety of meanings
and a combination of elements. After this discussion, the court stated that the commission was not
required by the statute to make all of the information available on an annual basis but, rather, a
“significant responsibility” to evaluate the information to determine whether disclosing it in a
compilation is practicable and then use the information to make a compilation.
The court then turned to intervenor Oxfam’s arguments in support of the rule and found them
similarly unpersuasive. For example, Oxfam argued that Congress intended public disclosure
when it inserted Section 1504 of Dodd-Frank into Section 13 of the Securities Exchange Act,
which created the public reporting requirements for filing issuers. The court refuted this argument
by stating that the Securities Exchange Act does not define a report as something that must be
publicly filed and does not preclude the confidential treatment of reports that are filed. The court
also disagreed with Oxfam’s argument that the SEC’s decision was reasonable and reiterated
“black letter law” that an agency’s regulation has to be declared invalid if the regulation was not
based upon the agency’s own judgment but, instead, upon the unjustified assumption that
Congress indicated that such a regulation was desirable or required.
The second basis upon which the court vacated the SEC rule concerned the SEC’s rejection of
any exemption where disclosure is prohibited. The court found that the denial of any exemption
for countries in which resource extraction payment disclosures are prohibited was arbitrary and
capricious. According to the court, commentators expressed concern that, because Angola,
Cameroon, China, and Qatar prohibit disclosure of payment information, there could be added
billions of dollars to issuers dealing in resource extraction that would have a significant impact
upon their profitability and ability to compete. The court found these concerns warranted, but the
SEC argued that, although it understood the concerns, adopting an exemption would be
“inconsistent with the structure and language” of the statute.
The Securities Exchange Act provided the SEC with the authority to make exemptions from some
of its provisions, including the section in which the resource extraction provision is codified.
Although the exemption authority is discretionary, exercising it could, according to the court, be
required in some circumstances by the SEC’s competing statutory obligations, such as the
requirement that the SEC” shall not adopt any ... rule or regulation which would impose a burden
on competition not necessary or appropriate in furtherance of the purposes of this chapter.”63 In
addition, the court stated, an agency decision concerning exemptions must be based upon
63 15 U.S.C. §78w(a)(2).
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reasoned decision-making. With these principles in mind, the court rejected the SEC’s reasoning
for not providing an exemption from the disclosure requirements, stating,
The Commission’s primary reason for rejecting an exemption does not hold water. The
Commission argues that an exemption would be “inconsistent” with the “structure and
language of Section 13(q).... ” But this argument ignores the meaning of “exemption,”
which, by definition, is an exclusion or relief from an obligation, and hence will be
inconsistent with the statutory requirement on which it operates. Nor does it help to argue
that section 13(q)’s transparency objectives “are best served” by permitting no exemptions....
That an exemption is inconsistent with a statutory provision or that the provision’s purpose is
“best” served by allowing no exemptions is hence no answer at all.
As for the SEC’s second explanation—that an exemption might undermine the statute by
encouraging countries to adopt laws that would prohibit the disclosure required by the rule—the
court stated that a court will typically not permit any of the rationales used by an agency when
one of the multiple rationales that an agency has relied upon is deficient. The SEC could have
limited the exemption to the four countries that the commentators cited, for example, in order to
address this concern. Because the agency did not provide an exemption of this limited type but,
instead, focused on what it believed to be the statute’s apparent purpose, it showed itself averse to
sacrificing any of the statute’s aims despite the cost, thereby “abdicating its statutory
responsibility to investors.”64 The court therefore concluded that the SEC’s exemption analysis
was arbitrary and capricious and invalidated the rule.
The SEC has stated that it will not appeal the case and will, instead, “undertake further
proceedings” concerning issuing another rule that is in keeping with the court’s decision.65 The
SEC has not yet issued a new rule. As a result of the SEC’s inaction, Oxfam America has filed a
lawsuit against the SEC in the U.S. District Court for the District of Massachusetts over the
agency’s delay in issuing a new resource extraction disclosure rule.66 The SEC has asked the
court to deny Oxfam’s motion for a summary judgment to issue a new rule within a prescribed
time and “instead allow the Commission to report on its progress in promulgating the proposed
rule no later than October 31, 2015, the time by which it expects to consider a revised proposed
rule.”67
Conclusion
The SEC’s rules implementing Sections 1502 and 1504 of Dodd-Frank have clearly been
controversial. The D.C. District Court upheld the rules for Section 1502, but, although it upheld
the bulk of the rules and the SEC’s administrative authority to promulgate them, the D.C. Circuit
struck down as a violation of the First Amendment the part of the rules requiring issuers to
64 Id. at 27.
65 http://www.financialexecutives.org/KenticoCMS/FEI_Blogs/Financial-Reporting-Blog/September-2013/SEC-To-
Undertake-Further-Work-on-Resource-Extracti.aspx#axzz35mmNLjlD.
66 Oxfam America, Inc. v. Securities and Exchange Commission, No. 14-cv-13648 (D. Mass. September 18, 2014). For
more information on the Oxfam lawsuit, see CRS sidebar titled: “Oxfam Sues SEC Over Not Yet Issuing New
Resource Extraction Disclosure Rule.” http://www.crs.gov/LegalSidebar/details.aspx?ID=1108&Source=search.
67 Memorandum of Law in Support of the SEC’s Cross-Motion for Summary Judgment and Opposition to Oxfam’s
Motion for Summary Judgment (February 27, 2015), located at https://www.complianceweek.com/sites/default/files/
Oxfam_America_Inc_v_Securities_&_Exchange_Commission__madce-14-13648__0024.0.pdf.
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describe certain products as having been “not found to be DRC conflict free.” On July 29, 2014,
the U.S. District Court of Appeals for the D.C. Circuit, sitting en banc, overruled the panel
decision in NAM v. SEC to the extent that the panel held that a rational basis standard of review
could not be applied to the requirements because the requirements were imposed for reasons other
than the prevention of consumer deception. As a result of this ruling, a rehearing of the First
Amendment questions posed by NAM v. SEC has been granted by the original appellate panel.68
With respect to the Section 1504 rules, the D.C. District Court vacated the rules. The SEC has
decided not to appeal the decision but, instead, to work on rules which will meet the court’s
objections. The SEC has not yet issued a new rule. As a result of the SEC’s inaction, Oxfam
America has filed a lawsuit against the SEC in the U.S. District Court for the District of
Massachusetts. The SEC has stated that complying with Oxfam’s timeframe demand for issuing
a new rule is not achievable.
The final outcome concerning rules for both Sections 1502 and 1504 of Dodd-Frank is unknown
as of the date of this report.
Author Contact Information
Michael V. Seitzinger
Kathleen Ann Ruane
Legislative Attorney
Legislative Attorney
mseitzinger@crs.loc.gov, 7-7895
kruane@crs.loc.gov, 7-9135
68 2014 U.S. App. LEXIS 21753 (Nov. 18, 2014).
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