WASHINGTON The U.S. Securities and Exchange Commission said on Friday it is suspending enforcement of the costliest requirements of its "conflict minerals" rule, after a court remanded it back to the regulator because part of it violates the U.S. Constitution.
Acting SEC Chairman Mike Piwowar, a Republican, said he has asked staff for a recommendation on how to proceed with the rule, which requires companies to disclose if their products contain certain minerals from a war-torn part of Africa.
For now, he added, companies will not be required to conduct a due diligence review or an audit, which are both part of the process used to determine the origin of the minerals.
"Until these issues are resolved, it is difficult to conceive of a circumstance that would counsel in favor of enforcing" the due diligence requirements, he said in a statement.
The move sparked backlash from SEC Democratic Commissioner Kara Stein, who accused Piwowar of acting beyond his authority to gut the meat of a rule mandated by Congress, adopted by the SEC and reviewed by the courts.
“It is unprecedented for one commissioner, acting alone and without official notice and comment, to engage in de facto rulemaking," she said.
"It represents a troubling attack not only on the Commission process, but also on the restraints of government power.”
The conflict minerals rule was required by the 2010 Dodd-Frank Wall Street reform law and is supported by human rights groups that want companies to tell investors if their products contain tantalum, tin, gold or tungsten mined from the Democratic Republic of Congo, in the hope that such disclosures will curb funding to armed groups.
Business groups have contended that it forces companies to furnish politically charged information that is irrelevant to making investment decisions and that it costs too much for companies to trace the source of minerals through the supply chain.
In 2014, a U.S. appeals court struck down part of the conflict minerals law after the Business Roundtable, the U.S. Chamber of Commerce and the National Association of Manufacturers sued the SEC over it.
The court found part of it violated free speech rights of companies by forcing them to publicly state that their products were not conflict free.
The rest of the rule was left intact.
Since then, companies have furnished reports with SEC and conducted due diligence, though they were granted a reprieve from the audit requirement and the labeling of the minerals themselves.
The litigation formally came to an end on Monday, when the lower court remanded the rule back to the SEC to address the First Amendment concerns.
The appeals court did not say whether the Dodd-Frank law itself or the SEC's implementation of the rule violated the Constitution, a matter that the SEC will now need to determine.
Companies will still need to file required forms with the SEC and do origin inquiries, as they have been doing.
(Reporting by Sarah N. Lynch; Editing by Marguerita Choy and Lisa Shumaker)