The Ethos of Dodd-Frank 1502 Regulation

by Source Intelligence

on November 14, 2017

When it comes to human rights, why are we shackled to political discourse and regulatory uncertainty? How has the issue of “conflict minerals”, what seems like an obvious human rights concern, become so political?

The Responsible Sourcing Network (RSN), a thought leader and NGO in the human rights and ethical sourcing space, recently released its annual Mining the Disclosures Report where they evaluated companies on their conflict minerals compliance (Dodd-Frank 1502) and reporting programs. RSN noted a predominant trend of decreasing scores and reduced participation in regulatory reporting this filing year. Given the uncertainty, misinterpretation and downright confusion surrounding the status of Section 1502 of the 2010 Wall Street Reform and Consumer Protection Act (DF 1502), the regulation that enforces encourages any type of conflict minerals transparency, I believe it is apparent why we saw decreased participation in regulatory reporting.

From the beginning, DF 1502 has been targeted – so the confusion is understandable. If you have not followed DF 1502 closely, pop down to my “Brief History of Dodd-Frank 1502” to get filled in.


The Conflict Minerals Litigation Saga Continues


In early November, however, HR 4248 was introduced in the U.S. House of Representatives that would repeal disclosure requirements related to Dodd Frank 1502.


The many battles that the conflict mineral litigation has faced and now a new one, HR 4248, has all caused frustration, served as a distraction, diverted resources, been a source of concern, and led to uncertainty. It’s no wonder we are all confused!


Regulatory Confusion Causes a Decrease in Reporting, not Action


It is these reactions that undoubtedly led to what the RSN report described as a general decrease in quality in 2017 conflict minerals filings. From my perspective, the drop in scores doesn’t necessarily indicate that companies aren’t investing in supply chain transparency and due diligence, but simply a reflection of the confusion and uncertainty around the status and enforcement of the rule. Companies may have just cut back in terms of what they reported for conflict minerals - not necessarily in terms of what they are doing. 


Will Dodd Frank 1502 Go Away?

The one thing this Administration has done consistently is be inconsistent. So who knows? But for those who are truly committed to making this world a better place for subsequent generations – they get it and they are committed to implementing smart, thoughtful and realistic initiatives that will be profitable and ethical.  

Companies Can Choose To Do The Right Thing

There is no doubt that businesses are divided on the merits of DF 1502. The fact is however, that minerals due diligence is a human rights issue. And whether Dodd-Frank 1502 survives this administration or whether future policy is put into place that requires supply chain tracing and transparency, companies can choose to do the right thing with respect to ensuring their products are sourced, manufactured, distributed and disposed of in a way that does not violate human rights.  


We Need Leaders To Effect Change

Conflict minerals is a human rights issue. And here’s the silver lining: we are getting better at documenting human rights issues in supply chains, there is commonality beginning to form in terms of how to measure and report on human trafficking issues, and businesses understand – because many felt it first hand – these violations can have detrimental impacts on their brand and profitability.  This presents continued opportunities for leadership. Leadership to effect change; whether from within the government, private or not-for-profit sectors. Now. Is. The. Time.



A Brief History of Dodd-Frank 1502 - A Non-Historian’s Perspective


Let’s take a quick walk down the Dodd-Frank 1502 regulatory history lane, shall we?

Not long after the conflict minerals rule became effective, it was challenged by several business groups that demanded the SEC strike down or modify the rule. It wasn’t until 2014 that the U.S. Court of Appeals for The District of Columbia Circuit issued its opinion in the legal challenge to the rule.

In its ruling, the Court of Appeals held that the conflict minerals rule and section 1502 violate the First Amendment of the U.S. Constitution, to the extent they require companies to report to the SEC and state on their websites that their products have “not found to be DRC conflict free.”

In April of 2014 the staff of the SEC Division of Corporation finance issued a statement (2014 SEC staff Statement) on its expectations for conflict minerals reporting in response to the ruling. Basically, the statement documented that 1) companies are not required to use the product descriptors otherwise required by the rule and Form SD and 2) pending further SEC guidance, an independent private sector audit (IPSA) of a company’s conflict minerals report (CMR) is not required unless a company voluntarily elects to describe its products as DRC conflict free in its CMR. Then, about a month later, the SEC issued a formal order partially staying the conflict minerals rule that was consistent with the 2014 SEC staff statement.

There was of course, an appeal and following an appeal process, the conflict minerals rule litigation was ultimately remanded to the U.S. District Court for the District of Columbia for further proceedings consistent with the appellate court decision.

It gets better. Let’s fast forward to the U.S. Presidential election.

First there was the rumor in February of this year that the Trump Administration was considering a 2-yr suspension of DF 1502. Then, On April 3 the U.S. District Court for the District of Columbia issued a final judgement in the conflict minerals litigation. It found the conflict minerals rule and Section 1502 violate the first amendment to the U.S. Constitution to the extent they require companies to disclose that their products have not be found to be DRC conflict free and remanding to the SEC to take action in furtherance of the court’s decision.

In April, following the final judgement, the SEC staff issued a statement indicating that it will not recommend enforcement actions to the SEC if companies only file disclosure under item 1.01(a) and (b) of Form SD. These portions of the conflict minerals rule require companies to file a Form SD. Item 1.01(c) of Form SD requires that companies file a CMR as an exhibit to their Form SD, to the extent practicable.

HR 4248 Gets Introduced In the U.S. House of Representatives

Summer rolls around and in June, the Republican-controlled House of Congress passed the Financial Choice Act, intended to overhaul the country’s financial regulations. Then in September the House backed a $1.2 trillion omnibus spending bill (HR 3354) which has a single-line amendment that cuts off funding to “implement, administer or enforce” the regulation. Both of these proposed laws now must be considered by the Senate.  Finally, in early November 2017, HR 4248 was introduced in the U.S. House of Representatives that would repeal disclosure requirements related to Dodd Frank 1502.


The ideas presented here were formulated for the Responsible Sourcing Network’s 2017 Mining the Disclosures webinar. As a Gold sponsor of the RSN report, we were afforded the opportunity to share insight and thoughts relevant to the conflict minerals topic.

Read More of What You Like.

The European Conflict Minerals Debate Continues, Will You Be Affected?

NGOs Engage In EU Conflict Minerals Regulation

The Current Status of Supply Chain Transparency