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) 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. 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.... " 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 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. National Association of Manufacturers v. Securities and Exchange Commission challenged the rule on the basis of several arguments:
1. 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. The statute and the rule violated the Constitution's First Amendment freedom of speech guarantee. 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 did not agree that the rule was so burdensome. 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. The court expressed some skepticism as to whether the disclosure requirement was commercial speech, but declined to decide the question because the panel found that the regulations would not survive even the lesser standards of scrutiny applied to commercial speech regulations. Circuit to rehear this case en banc . 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. 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." Circuit struck down as a violation of the First Amendment the part of the rules requiring issuers to describe certain products as having been "not found to be DRC conflict free." Upon rehearing the case in light of the en banc court's decision, the panel again struck the rule down under the First Amendment. Circuit Court of Appeals to rehear the case en banc . With respect to the Section 1504 rules, the D.C. District Court vacated the rules. The U.S. District Court for the District of Massachusetts has ordered the SEC to publish an "expedited schedule" for issuing the rule.
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. Both sections have been subject to litigation. As of the date of this report, the rules pursuant to Section 1502 are in effect, with the exception of the disclosure requirements being reviewed by the Court of Appeals for the D.C. Circuit. The SEC continues its rulemaking proceedings under Section 1504.
Key Takeaways of This Report:
Section 1502 requires that the SEC issue rules mandating the disclosure by publicly traded companies of the origins of listed conflict minerals, which it did. The National Association of Manufacturers and other plaintiffs challenged this rule 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. The U.S. District Court for the District of Columbia upheld the rules, but the Court of Appeals for the D.C. Circuit, while largely upholding the SEC's authority to implement the rules, 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 rule was unconstitutional because narrower alternatives were available to achieve the government's goals. 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. The en banc court opened up the possibility that a less restrictive test might be applied to the disclosure requirements. Upon rehearing, the panel issued a decision finding that, even after the decision of the en banc court, the requirement to label certain products as "not found to be DRC conflict free" was unconstitutional. The panel held that the lower standard of scrutiny did not apply to the rule, and argued that even if it did the rule still would not survive review. These decisions highlight an important question in First Amendment jurisprudence. The government more easily may require commercial disclosures in certain circumstances under the Constitution. This case raises important questions about when and how a regulation might qualify to receive that lower standard of scrutiny. 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, which it did. 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. However, in response to a lawsuit filed by Oxfam, the U.S. District Court recently ordered the SEC to publish an "expedited schedule" for issuing a resource extraction rule.