In a ruling that rests on what one rights group described as "a warped interpretation of the First Amendment," a three-judge panel has said that corporations have a constitutional right to conceal information about whether minerals in their supply chains may have funded conflict.
The U.S. Court of Appeals for the D.C. Circuit on Tuesday ruled that the Securities and Exchange Commission (SEC) cannot force public companies to declare whether their products may contain "conflict minerals" from the war-torn Democratic Republic of Congo (DRC) because it violates their right to free speech. Such disclosure rules only apply to advertisements, the three-judge panel ruled, 2-1.
The National Association of Manufacturers and other business groups have worked to overturn the disclosure rule since its inception.
And they are sure to be emboldened by Tuesday's decision, which the pro-democracy group Move to Amend said "sets a dangerous precedent" on corporate personhood.
"Rulings such as this one send the message that so-called corporate 'rights' actually trump 'We the People's' rights," stated Kaitlin Sopoci-Belknap, national director of Move to Amend. "In this case a corporation is hiding behind the First Amendment to avoid accountability for their actions, and the Court has ruled their right to secrecy is more important than the public's right to know."
The SEC's conflict minerals rule—strongly backed by human rights groups—is a provision mandated by the 2010 Dodd-Frank Wall Street reform law, requiring manufacturers to conduct due diligence on their supply chains to try and track the origins of minerals including tantalum, tin, gold, and tungsten to determine if they may have come from the DRC.
"Today's decision affects not only the conflict minerals rule but could also be exploited by companies to bring legal challenges to other corporate transparency laws."
—Zorka Milin, Global Witness
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As Global Witness and Amnesty International explained in a report released earlier this year: "These minerals are essential for electronic devices, such as smartphones and laptops. For over fifteen years armed groups in eastern Congo have preyed on the mining sector to finance their operations with devastating impact, committing gross human rights abuses in the process." That report found that 79 of the 100 companies analyzed failed to meet the minimum requirements of the U.S. conflict minerals law.
Tuesday's ruling still largely upholds the majority of the SEC's conflict minerals rules, which went into effect last year.
Companies still must conduct due diligence and file reports to the SEC with their findings, but they are not required to state whether or not the products are deemed "conflict free."
But Ron Fein of Free Speech for People said the ruling would have implications beyond conflict mineral disclosure. "[T]hese judges are coming for the entire set of transparency laws that help make our stock markets the most trusted in the world," he said. "And perhaps they won't stop there; according to these judges, nearly every disclosure or sunshine law in modern society is now subject to corporate First Amendment challenge."
Zorka Milin, senior legal advisor at Global Witness, agreed. "Today's decision affects not only the conflict minerals rule but could also be exploited by companies to bring legal challenges to other corporate transparency laws," she said in a statement.
"The convoluted logic of the decision is a perversion of the First Amendment and intrudes on the mandate of a democratically-elected Congress," she continued. "Given the potential implications of the ruling, in particular, the warped interpretation of the First Amendment, we urge the court to reconsider and overrule this decision."