Today’s ruling of the D.C. Circuit Court of Appeals that Dodd-Frank’s “conflict minerals” disclosure mandate violates the First Amendment is the first time ever a court has ruled that a provision of Dodd-Frank violates the Constitution. Regulations issued under Dodd-Frank have been struck down for reasons such as inadequate cost-benefit analysis and other procedural violations, but this is first time a provision has been found to be unconstitutional.
And it couldn’t happen to a more misguided and destructive provision of the law! As my Competitive Enterprise Institute colleague Hans Bader and I have written in blog posts, articles, and regulatory comments, the conflict disclosure mandate creates a compliance nightmare, hurts American miners and manufacturers, and does the greatest harm to those it was intended to help — the struggling worker in and nearby the Democratic Republic of Congo.
As explained by Mercatus Center scholars Hester Peirce and James Broughel in their book Dodd-Frank: What It Does and Why It’s Flawed, the “conflict minerals” mandate of Section 1502 is one the law’s many “miscellaneous provisions” that offer “a clear example of how a statute invoked as the answer to the financial crisis is, in reality, an odd conglomeration of responses to issues, many of which had nothing to do with the financial crisis.” Section 1502, championed by celebrities, including Ashley Judd and Ben Affleck, requires all types of firms to disclose their products’ use of five “conflict minerals” — including gold, tin, and tungsten — that can be sourced to war-torn regions of the Congo.
Fighting violence in the Congo is a laudable goal, but it defies common sense and basic civics to pursue foreign-policy objectives through a banking and investment bill. The government entity charged with enforcing this provision is neither the State Department nor the Defense Department, but rather the Securities and Exchange Commission — which no one would call an agency well-schooled in the nuances of foreign policy.
The Court looked at this leap of logic and decided that the provision could not survive the First Amendment’s prohibition against “compelled speech,” even under the lesser standard for “commercial speech.” As Judge A. Raymond Randolph wrote in the majority opinion, this compelled speech is not even “reasonably related” to the SEC’s mission of “preventing consumer deception.” The opinion concludes, “By compelling an issuer [publicly-traded company] to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”
Today’s opinion is especially good news for residents of the Congo, who have seen more blood and more poverty as a result of this misguided mandate. In a New York Times op-ed, journalist David Aronson describes how Dodd-Frank’s conflict mineral mandate is acting as a backdoor tariff and re-impoverishing Africa. Among the effects Aronson describes: “Mining towns are virtually cut off from the outside world because the planes that once provisioned them no longer land. . . . Villagers who relied on their mining income to buy food when harvests failed are beginning to go hungry.”
Hopefully, other courts will take heed of this great ruling and start striking down the many other unconstitutional provisions of Dodd-Frank, including the ones being challenged by CEI and our co-plaintiffs.