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A U.S. Securities and Exchange Commission rule requiring companies like Boeing Inc. and Apple Inc. to disclose whether any “conflict minerals” are used in their products violates their free-speech rights, an appeals court in Washington said.
The rule was part of the 2010 Dodd-Frank Act overhauling regulations of securities markets and applies to certain minerals, including gold, tin, tungsten and tantalum, mined in Democratic Republic of the Congo and neighbouring countries. It was intended to help ensure that use of the minerals didn’t benefit armed groups responsible for violence in the region.
The appeals panel decision represents the second time courts have faulted regulators for carrying out a requirement of the 2010 Dodd-Frank Act. SEC Chair Mary Jo White said in October the goals of the Dodd-Frank disclosure mandates were laudable while questioning Congress’s decision to have her agency implement them.
The SEC’s authority to require disclosure of important information to investors shouldn’t be used to “effectuate social policy or political change,” Ms. White said. The requirement to disclose the information will cost thousands of companies as much as US$4-billion to put in effect, according to the SEC.
It obligates a company to disclose those products that have “not been found to be ’DRC conflict-free’” in reports to the SEC that must also be posted on the firm’s website.
That statement goes beyond disclosure that is merely factual and non-ideological, U.S. Circuit Judge A. Raymond Randolph, wrote for the majority of a three-judge panel at the U.S. Court of Appeals.
“It requires an issuer to tell consumers that its products are ethically tainted,” and leaves a company unable to use its free-speech right to dispute that assessment by remaining silent, Judge Randolph wrote. “By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”
U.S. Circuit Judge Sri Srinivasan declined to join the First Amendment part of the ruling and suggested in a separate opinion that it might be undermined by the full Washington appeals court in a pending case.
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