(Reuters) — Two members of the U.S. Securities and Exchange Commission on Monday said a new rule requiring companies to disclose if their products contain “conflict minerals” from Africa's Democratic Republic of Congo should be delayed until courts have resolved whether it violates free speech.
The rule, due to take effect on June 2, is strongly supported by human rights advocates. They say it should reduce violence by curbing a major source of funding for rebels in the Democratic Republic of Congo, who rely on illegal mining of tantalum, tin, gold or tungsten commonly used in jewelry and electronics.
But SEC commissioners Daniel Gallagher and Michael Piwowar, both Republicans, said that since the U.S. Court of Appeals ruled in early April that one part of the conflict mineral regulation violates companies' freedom of speech, its implementation should be stayed until all legal challenges have been resolved.
They said they believe the whole rule violates the First Amendment rights of companies.
“Marching ahead with some portion of the rule that might ultimately be invalidated is a waste of the Commission's time and resources — far too much of which have been spent on this rule already — and a waste of vast sums of shareholder money,” they said in a joint statement.
An SEC spokesman did not immediately respond to a request for comment on the joint statement by two of the SEC's five commissioners.
The SEC's conflict minerals rule stems from the 2010 Dodd-Frank Wall Street reform law. It requires publicly listed companies to conduct internal inquiries into the origin of the minerals in their products and then file a report with the SEC.
The U.S. Court of Appeals for the District of Columbia Circuit in April affirmed a part of the rule permitting the SEC to require companies to conduct due diligence on the minerals' origins. But it struck down another part on grounds that it would violate companies' free speech to force them to publicly state that their products are not “conflict free.”
The three business groups that challenged the rule had argued this would be a form of political speech.
Companies preparing for the regulation say it is an extremely complicated and costly process. The SEC staff has put a $3 billion to $4 billion price tag on initial compliance.
Human rights groups, however, say passage of the law already is having some impact.
Enough Project, a U.S.-based group working to end genocide, reported in 2012 that four leading electronic firms — Intel Corp , Hewlett Packard, Motorola Solutions and Apple Inc — have established programs for keeping minerals from rebels in the Democratic Republic of Congo conflict zone out of their supply chains. And officials in the African country have said it is starting to lessen the violence.
Twelve U.S. Democratic lawmakers last week urged SEC Chair Mary Jo White not to cave into pressure to delay the rule.
White has not taken a public position recently, although in a speech last year she questioned Congress using the securities regulator as a tool to achieve essentially political ends.
It is still unclear what will happen to the case following the court's ruling.
The appeals court remanded it to a lower court for further proceedings on the free speech issue. However, the court also said it could be consolidated with a free-speech case involving a meat-labeling rule that is due to be re-heard before the full appeals court on May 19.
In their joint statement, Gallagher and Piwowar said that they believe the district court “could and in our view should determine that the entire rule is invalid” because due diligence checks for minerals and issuing a statement that products are not conflict free are inextricably linked.