How SEC Chair Mary Jo White Gave Congolese Warlords Some Unexpected Help

Finally, some good news for brutal militias.
SEC Chairwoman Mary Jo White.
SEC Chairwoman Mary Jo White.

WASHINGTON -- Warlords in the Democratic Republic of Congo got some help from two conservative judges on Tuesday, when a federal appeals court for the District of Columbia ruled against part of a key regulation on conflict minerals.

But they also got an unlikely assist from Securities and Exchange Commission Chairwoman Mary Jo White, whose very agency was defending the rule before the court. 

Armed militias in eastern Congo have long relied on the mining of tantalum, tin, tungsten and gold to finance more than a decade of violence, much of it targeting civilians. But militia access to mining wealth was dramatically curbed in 2012, when the SEC adopted a new regulation requiring U.S. companies to audit their supply chains for conflict minerals. The agency also required corporations to disclose the findings of those audits to consumers in simple language that explains whether their products are "DRC conflict free."

Congress directed the SEC to write the rule as part of the 2010 Dodd-Frank financial reform law. The bipartisan measure was designed to embarrass companies that purchase minerals from mines controlled by violent groups.

But White criticized the regulation in a speech shortly after she took over as SEC chairwoman in 2013, bemoaning congressional mandates that "seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions." Those comments appear to have undermined her own agency's efforts to defend its work.

In Tuesday's decision, the federal court concluded that the consumer disclosure aspect of the rule violated corporations' First Amendment rights to free speech. Companies, the court ruled, cannot be legally obligated to criticize their own products -- even if the required disclosures are factually accurate. 

It's a sweeping view of corporate personhood that the SEC could challenge in an appeal. But in making his case against the agency, the court opinion by Judge A. Raymond Randolph directly quotes from White's 2013 speech in a footnote:

"Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share. But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals." 

White's agency has spent millions defending the conflict minerals rule in court after challenges from corporate lobbying groups such as the National Association of Manufacturers. Top NAM officials include representatives of ExxonMobil, General Electric, Caterpillar, Intel, Boeing, Pfizer, BP, Clorox and others.

Before she became the head of the SEC, White was a terrorism prosecutor and corporate lawyer whose clients included JPMorgan Chase, the board of Morgan Stanley and former Bank of America CEO Kenneth Lewis. She has endured withering criticism from Sen. Elizabeth Warren (D-Mass.) and a host of liberal organizations who say she has gone easy on big banks during her term as SEC chairwoman.

"For those of us who have been concerned that Mary Jo White's corporate attorney perspective would undermine the SEC, Tuesday's D.C. Circuit opinion is a sad 'We told you so' moment," said Jeff Hauser, who runs the Center for Effective Government's Revolving Door Project, which examines corporate ties to government officials.

"We need an SEC Chair who will seek to buttress financial regulation, rather than one who goes out of her way to offer ammunition to right-wing judges seeking to undermine corporate disclosure," he added.

Human rights advocates are primarily concerned with a different sort of ammunition, and worry that the court's ruling will eventually reinstate funding for violent groups that continue to assail civilians in Congo's eastern provinces. 

"It doesn't eviscerate the Dodd-Frank rule, but one of the things that makes that whole framework meaningful is the requirement that companies actually disclose to consumers whether or not they've succeeded in eliminating conflict minerals from their supply chains," said Chris Albin-Lackey, a senior researcher at Human Rights Watch. "That's the thing that gives it teeth."

Companies will still be required to monitor their supply chains, and they will have to report on that oversight in SEC filings. But they do not have to use standardized "conflict free" language in those filings, making it easier for companies to obscure the degree to which their operations may be financing violent militias if the court ruling is upheld. 

Human rights groups also worry about the judicial precedent the ruling could set.

"We're concerned about the broader impact of recognizing broad first amendment rights on the part of companies to keep consumers and investors in the dark," said Julie Murray, an attorney for Amnesty International.

The SEC did not respond to a request for comment for this article.