A Month Before Deadline, Firms Play for Time on Conflict-Mineral ReportingBy
A Wall Street milestone passed last week without anyone taking much notice when Siliconware Precision Industries became the first company to file a conflict-minerals report with the Securities and Exchange Commission.
The Taiwanese semiconductor company was complying with rules mandated by the Dodd-Frank Wall Street reform law. Now companies whose products depend on tantalum, tin, gold or tungsten—minerals vital to electronics—must assess whether they may be financing fighting and human rights abuses in the Democratic Republic of the Congo (DRC). The nearly 6,000 companies subject to the rules have until June 2 to submit their Form SD (for “special disclosure”), but Siliconware’s April 24 filing has been the only filing so far as industry groups push a legal challenge down to the deadline.
The SEC issued its conflict-mineral rules (PDF) in August 2012, estimating that it would cost all the companies as much as $4 billion for initial implementation and up to $609 million annually after that. The National Association of Manufacturers and the U.S. Chamber of Commerce promptly sued and lost before notching a partial victory on appeal. In a ruling two weeks, the U.S. Court of Appeals for the District of Columbia held that forcing companies to publicly declare which products aren’t “DRC conflict free” violates the First Amendment. The label “requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups,” the appeals court majority wrote. “By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech.”
The implications for the entire conflict-mineral rule remain unclear. The appeals court sent the case back to the lower court, leaving the SEC with some decisions to make as the compliance deadline looms. The SEC’s Republican commissioners, Daniel M. Gallagher and Michael Piwowar, have come out in favor of putting a hold on the whole thing and suspending any regulatory obligations until the case is resolved, according to a joint statement issued Monday. SEC head Mary Jo White expressed her own public doubts about forcing companies to make such disclosures during a speech last year.
It’s all somewhat semantic: For the first two years, companies are allowed to report that they couldn’t get a definitive answer and can label products with the awkward “DRC conflict undeterminable.” Indeed, Siliconware found that a portion of its assembly services are “conflict indeterminable” and otherwise provided few answers and little persuasive evidence in its single-page submission.
Whatever happens to the SEC rule, the issue isn’t going away. Companies face pressure from socially-responsible investors, non-governmental organizations, commercial customers, consumers, and others, according to Michael Littenberg, a partner at Schulte Roth & Zabel in New York. “We have a lot of clients in this area, and many of our clients have indicated that they intend to continue to move forward with their compliance efforts,” he says. “The SEC reporting aspect of it is just one piece of the compliance program. In terms of companies continuing to take steps to trace the source of conflict minerals that are in their products, I think the train has left the station on that one.”
UPDATE AT 3:30PM | SEC Chairwoman Mary Joe White told lawmakers on Tuesday that companies will still have to comply with parts of the conflict-mineral rule. The SEC plans to issue guidance on how companies need to report by Wednesday, according to White’s testimony at a House Financial Services Committee hearing.