Press release | April 11, 2017

Reprehensible SEC decision on conflict minerals rule undermines global efforts to source minerals responsibly

Responsible Minerals
D.R. Congo

WASHINGTON, DC – SEC Acting Chairman Michael Piwowar and the SEC Division of Corporation Finance’s recent actions questioning enforcement of an important aspect of the Conflict Minerals Rule are irresponsible and only serve to benefit the criminal and corrupt seeking to profit from Congo’s minerals trade, according to Global Witness. 

The SEC April 7 statements that cast doubt on enforcement of the Rule’s supply chain due diligence requirements, cite a 2015 court decision that found one component of the rule to be unconstitutional – a legal interpretation which Global Witness strongly disagrees with.

Carly Oboth of Global Witness said: “Questioning the enforcement of supply chain due diligence requirements puts the US at odds with global responsible sourcing efforts and undermines a critical requirement of the Conflict Minerals Rule. Supply chain due diligence empowers companies to identify and respond responsibly to abuses they may find along their supply chain when sourcing from eastern Congo or elsewhere. It has become a global norm and business practice.  This decision risks putting US companies at a significant disadvantage. Companies that do not meet this requirement may be penalized elsewhere.”

Investors worth over almost US$5 trillion have written in support of company supply chain due diligence disclosures. Major US companies have also been recently quoted in support of the conflict minerals rule.  However, Acting Chairman Piwowar is now directing the SEC to develop recommendations for “future Commission action,” which appears to have been decided unilaterally without consultation with the other SEC Commissioner, Kara Stein.  If this is the case, the Commissioner’s unprecedented decision – made after a 45-day comment period in which almost 300 submissions were made from companies, industry groups, Congolese and international civil society and investors – would be a clear overreach from a Commissioner who is only Acting Chairman for a limited amount of time.


This unilateral decision comes just two weeks after four Senators sent a strongly worded letter to the SEC Inspector General, stating “we are concerned that Commissioner Piwowar’s actions may lack adequate justification, undermine the SEC’s mission, exceed his authority as acting chairman, violate other procedural requirements, and could potentially prove to be a waste of the SEC staff’s precious time and resources.”

Oboth added: “Acting Chairman Piwowar’s interpretation of the rule is both misguided and inaccurate. Supply chain due diligence is not purely a function that informs product labelling, as his statement incorrectly suggests.

“Just because the tag on my shirt tells me where it was made it does not mean I know anything about how the materials were sourced or how problems along its supply chain were identified and addressed by companies. By only keeping the requirement for companies to identify their minerals’ country of origin, Acting Chairman Piwowar is asking companies to focus on geographies; responsible sourcing is about how, not where, you do business. The Commissioner risks rolling back industry efforts to scrutinize individual supply chains and combat human rights abuses and potential cases of conflict financing along them.”

This decision runs contrary to global momentum for responsible sourcing spurred by Section 1502, which has led to new due diligence regulations in the EU, Congo, Rwanda and voluntary guidance in China. The conflict minerals provision has begun to establish much needed transparency and scrutiny of Congo’s mineral sector whose opacity has for too long benefitted predatory armed groups.

Oboth concluded: “Section 1502 is not without its own challenges. Scrutiny and debate are a healthy and important means of ensuring our laws are effective and meet their intent. However, politically-driven, ill-informed and secretive decision making undermine the democratic process and betray the very transparency Section 1502 seeks to advance.”

Global Witness urges an immediate retraction of this statement and for companies to disclose their supply chain due diligence efforts in reports to the SEC regardless of Friday’s decision.  In the meantime, a full notice and comment period is required by the Administrative Procedure Act for substantial changes to any SEC rules. We also call on companies to continue complying with the due diligence requirements of the SEC rule in accordance with the OECD framework.


/ ENDS

Contacts

Notes to editor:

Section 1502 of the Dodd-Frank Act requires US-listed companies to determine whether they use minerals sourced from the DRC or its neighboring countries and, if so, to conduct basic supply chain checks — known as ‘due diligence’ — on their supply chains to ensure they are financing conflict or human rights abuses. Companies must annually disclose their due diligence efforts in public reports to the SEC.


The legal challenge refers to a lawsuit brought against the SEC in October 2012 by three industry associations — the US Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable — who argued the rule issued by the SEC was overly burdensome and costly for companies to implement. In July 2013, the DC District Court upheld the law, citing industry groups’ arguments as over-exaggerated and capricious. The industry groups appealed the judgment in August 2013.


In April 2014, the US Court of Appeals for the District of Columbia Circuit found the regulation’s requirement that issuers describe their products as 'not been found to be DRC conflict-free', to be a violation of the First Amendment’s right to free speech, but the court left the bulk of the conflict minerals Rule intact, including the requirement to report on supply chain due diligence measures. The SEC responded with new guidance, declaring that companies no longer had to describe the status of their products unless they voluntarily elected to describe their products as ‘DRC conflict free.’ This decision was upheld in an August 2015 decision by the same court, though on different grounds.


For over a decade, Global Witness has exposed the role of minerals in fuelling conflict and human rights abuses in eastern Congo and played a leading role in securing passage of the conflict minerals provision.

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