Conflict Minerals Latest Disclosure Rule Targeted for Rollback

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By Andrea Vittorio

A draft executive order targeting a requirement that companies trace their use of minerals from war-torn regions in Africa is the latest sign that Republicans are wasting no time rolling back the Dodd-Frank Act’s corporate disclosure provisions.

The Trump administration may temporarily put the conflict minerals reporting requirement on pause, according to a draft of the proposed order obtained by Bloomberg BNA. Acting Securities and Exchange Commission Chairman Michael Piwowar had asked Jan. 31 his staff to reconsider implementation of the rule.

Piwowar has also asked companies to provide feedback about “unexpected challenges” caused by a disclosure rule focused on executive compensation while the Republican-led Congress has already passed a resolution revoking another Dodd-Frank rule requiring payment disclosures from oil, gas and mining companies.

Companies from General Motors to General Electric are required by the 2010 Dodd-Frank Act to report to the SEC every year on their conflict mineral use. Approximately 1,200 companies filed conflict minerals disclosures in 2016. Government Accountability Office research shows many companies have found it difficult to fully trace their use of tin, tantalum, tungsten and gold, which have been linked to armed conflict and human rights abuses in the Democratic Republic of the Congo and neighboring countries.

Dodd-Frank authorizes the SEC to revise or temporarily waive the requirements of the rule for up to two years if the president determines it is in the national security interests of the U.S. The commission declined to comment.

National Security

While the rule was meant to address a humanitarian crisis in the region, the draft order says “mounting evidence” shows that the disclosure requirements “have instead caused harm to some parties” in the DRC and “have thereby contributed to instability in the region and threatened the national security interest of the United States.”

Concerns about whether the reporting has had its intended impact in Africa were also cited in the SEC’s notice of reconsideration.

Rebels are still profiting from gold mining in the region, the U.N. Security Council said in June. Some companies, including Exxon Mobil Corp. and Owens Corning, are also telling suppliers not to source from the region at all, effectively creating an embargo, according to the Responsible Sourcing Network.

Sen. Richard Durbin (D-Ill.), one of the sponsors of the bipartisan conflict minerals legislation that eventually became part of Dodd-Frank, called the Trump administration’s potential move “senseless and immoral.”

“How can this Administration claim that more violence in Africa would be in the national security interests of the United States?” Durbin said in a statement Feb. 9. “As Americans become increasingly conscious about the origins of the products they buy, reducing transparency and eliminating incentives for responsible sourcing in this industry would be a grave mistake.”

Going Away?

Groups such as the U.S. Chamber of Commerce and the National Association of Manufacturers have long criticized the conflict minerals disclosure rule for falling outside the agency’s mission and for being costly to implement. Companies may not like reporting, but “I have never heard a national security concern expressed with respect to the conflict minerals rule,” Keir Gumbs, a former SEC attorney who is now a Washington-based partner at Covington & Burling LLP, told Bloomberg BNA.

“Unless the national security provision is justified with adequate details, it could be grounds for a lawsuit,” Carly Oboth, a policy adviser on the conflict resources team at Global Witness, told Bloomberg BNA.

Global Witness, one of the environmental and human rights groups that advocated for the rule, is “extremely concerned about where this is heading,” Oboth said. Congress is expected to also move to eliminate the Dodd-Frank mandate for conflict minerals disclosure, as Republican lawmakers have proposed in the past.

“I think we’re going to see the conflict minerals rule go away,” said Brian V. Breheny, who was a deputy director at the SEC’s Division of Corporation Finance before becoming a partner at Skadden, Arps, Slate, Meagher & Flom LLP in Washington. “I think that’s going to happen.”

Apple Inc., Intel Corp. and other companies have said they will continue efforts to source responsibly, even if the conflict minerals reporting requirement is rolled back.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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