content - sec conflict minerals report · conflict minerals report - design of due diligence •...
TRANSCRIPT
Presented by:Bruce CalderVP Consulting Services
Content - SEC Conflict Minerals Report2014 Reporting Period
Tuesday, March 3, 15
Agenda• Introduction
• Due diligence- Requirements
- Flow chart
• Conflict minerals report- Overview
- Breakdown by sections
• Recommendations
• Summary
• Q&AWebinar is 50 minutes with 10
minutes of Q&A(hopefully)
Tuesday, March 3, 15
Claigan Conflict Minerals Services
• Conflict Minerals- Conflict minerals compliance
• RCOI (Reasonable Country of Origin Inquiry)
• Supplier RCOI
• Amalgamated smelter list
• Smelter RCOI
• Due Diligence
• Conflict Minerals Report
• Experience- Claigan work is quoted in the SEC final rules 18 times
- Claigan has testified to Congress on Conflict Minerals
Tuesday, March 3, 15
3 Steps in Section 15021. Issuer to determine whether it is subject to the
requirements
• Necessary to the functionality or production of a product manufactured or contracted by that issuer to be manufactured
2. Issuer to conduct a reasonable country of origin inquiry regarding the origin of its conflict minerals
• RCOI process to determine whether or not their conflict minerals originate in the DRC or adjoining countries
3. Issuer to conduct due diligence on the source and chain of custody of its conflict minerals and provide a Conflict Minerals Report
• if, based on its RCOI, the issuer knows or has reason to believe, that it has necessary conflict minerals that originated in the Covered Countries and did not come from recycled or scrap sources.
• Only applies to those conflict minerals sourced from the DRC or adjoining countries
Tuesday, March 3, 15
Conflict Minerals Report• Conflict minerals report
- Required if sourcing or has reason to believe are sourcing from the DRC or surrounding countries
• which includes pretty well every issuer using circuit boards in their products
• Content- “...a description of the measures the issuer has taken to
exercise due diligence on the source and chain of custody of those conflict minerals.”
- Plus additional requirements if products are DRC Conflict undeterminable (or equivalent)
• facilities, countries, and mine of original related to conflict minerals requiring due diligence
• risk mitigation efforts
Tuesday, March 3, 15
Conflict Minerals Compliance Flowchart
Create affected suppliers list
Perform RCOI with Suppliers
Create Amalgamated Smelter List
Perform RCOI with Smelters
Create internal report
Review with internal stakeholders
SEC Disclosure
SEC Conflict Minerals Report
Due Diligence
3TG RCOI Due Diligence Disclosure
2014 Reporting Period
Tuesday, March 3, 15
Smelter RCOI & Due Diligence
Smelter
Question : Does the smelter source from the DRC
or surrounding countries?
No
Yes
Question : Can the smelter provide reasonable
evidence?
Review evidence. If acceptable - complete
If no contrary evidence,: Accept. Complete.
Review against industry and NGO
sources
Question : Is the smelter conflict free certified?
Yes
No
YesQuestion :
Is the smelter conflict free certified?
Conflict free.Complete
No
Issue
No
Contrary Evidence or Warnings Exist
Yes
Guilty until proven innocent
Innocent until proven guilty
Due Diligence Not Due Diligence
Reason to believe
Tuesday, March 3, 15
Key Note• Conflict minerals report
- Due diligence required if sourcing from the DRC or surrounding countries
- Sourcing information needs to come directly or indirectly from the smelters and refiners used by suppliers
• Smelters and refineries- If a smelter RCOI and related due diligence was not performed
by an issuer, then the conflict minerals report will be hard to complete to the specifications of the SEC final rules
• In short,- if you have not gone beyond requesting CMRTs from suppliers,
you will have gaps in your conflict minerals report to the SEC
Tuesday, March 3, 15
Content of SEC Filing
Introduc)on*
Execu)ve*Summary*
RCOI*(Supplier*and*Smelter)*
Design*of*Due*Diligence*
Due*diligence*Process*and*Results*
Facility*and*Mine*Informa)on*
Steps*Taken*to*Mi)gate*Risk*
Addi)onal*risk*factors*
SEC$Filing$Conflict$Minerals$Report$
Tuesday, March 3, 15
Conflict Minerals Report - Introduction• Purpose
- General introduction
- Specifying • company and product lines
• reason for conflict minerals report
• Content- Company name
- Principal business lines and affected products
- CMR related to conflict minerals necessary to functionality of products manufactured by the company in 2014
• Company name and description should be similar to annual report
Tuesday, March 3, 15
Conflict Minerals Report - Executive Summary• Purpose
- Summary of principal results contained in the report
• Content- Key RCOI information
• # of smelters identified
• # of smelters sourcing from the covered countries
- Due diligence results• Conflict free certification status of smelters sourcing from the region
• Example - 21 of 24 smelters used by suppliers of Acme that are sourcing from the covered countries are conflict free certified.
• Comment whether any conflict minerals used are known to benefit armed groups in the DRC
Tuesday, March 3, 15
Conflict Minerals Report - Reasonable Country of Origin Inquiry• Purpose
- “...briefly describe the reasonable country of origin inquiry”
- focus on determination of whether or not conflict minerals are sourced from the covered countries
• Content- Longer form of principal RCOI information
• # of suppliers surveyed
• # of smelters identified
• # of smelters sourcing from, or there is reason to believe are sourcing from, the covered countries
- Statement that since some smelters were identified to source from the covered countries, due diligence is required
Tuesday, March 3, 15
Conflict Minerals Report - Note on Supplier Statistics• Supplier statistics and conflict minerals report
- Supplier statistics • are commonly requested in CMRTs, but are not required in a
conflict minerals report
• Conflict minerals report- To describe due diligence undertaken
• Supplier statistics- are part of the RCOI process (NOT due diligence)
• which is only to be described briefly in the conflict minerals report or Form SD
- are extremely misleading and unhelpful to the reader• focus in on RCOI information from smelters, not suppliers
• did the issuer identify materially all sources (i.e. smelters) of 3TGs?
• statistically speaking - not all suppliers are equal
Tuesday, March 3, 15
Conflict Minerals Report - Design of Due Diligence• Purpose
- To communicate that the due diligence measures used were consistent with OECD Due Diligence Guidance
• Content- Describe that the company’s due diligence measures
conform to the OECD Due Diligence guidance.
• Not required- Itemization of OECD steps 1- 5
• Most of which do not apply to the SEC Due Diligence requirement for conflict minerals
• OECD applicable to audit is limited in scope unless written into conflict minerals report
Tuesday, March 3, 15
Conflict Minerals Report - Due Diligence Process and Results• Purpose
- to describe due diligence process
- to describe results of due diligence
- to describe conflict free nature of products
• Content- statistics of smelters sourcing from covered countries
• number of smelters
• conflict free status of smelters
• # certified, active, and not participating
• due diligence review for uncertified smelters
• process and sources
• comment on whether or not there is any reason to believe they directly or indirectly benefit the armed groups of the conflict region of the DRC
Tuesday, March 3, 15
Conflict Minerals Report - Facility and Mine Information• Purpose
- DRC conflict undeterminable requirement
- Describe the facilities, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity
• Content- Facilities and mines used by smelters sourcing from the
covered countries• Needs only be those smelters sourcing from the covered countries
that are not conflict free certified
- Typical information provided• Conflict minerals processed and countries of residence of smelters
• Covered countries from which conflict minerals are sourced by these smelters
Tuesday, March 3, 15
Conflict Minerals Report - Steps to be Taken to Mitigate Risk• Purpose
- DRC conflict undeterminable requirement
- “...describe the steps they have taken or will take... to mitigate the risk that their necessary conflict minerals benefit armed groups, including any steps to improve their due diligence.”
• Content- point form list of planned improvements for next reporting
period
- normally• contractual / program improvements
• improved supplier engagement
• improved smelter engagement
• continued engagement and support of industry programs
Tuesday, March 3, 15
Conflict Minerals Report - Additional Risk Factors• Purpose
- to identify other risk factors that could have led to errors in the disclosure
- recommended, but not required
- typical for SEC disclosures
• Content- Disclosure is in good faith and based on best efforts
- However, other factors could have led to errors in the disclosures
- Examples• gaps in supplier data, error in supplier knowledge, gaps in the smelter
auditing process, errors in public data, errors in translations.....
Tuesday, March 3, 15
IPSA Audit - Planning Ahead• An IPSA audit is required in the event that
- a product line is DRC conflict free
- for 2015 reporting period, if the US Court of Appeals overturns their ruling
• Audit to form opinion- whether your due diligence process conformed to an
internationally recognized standard
- whether what you disclosed in your conflict minerals report is what you did
• In this case, the conflict minerals report would be structured slightly differently- Minimalistic approach (to properly constrain auditors)
- OECD guidance steps would not normally be disclosed
- No DRC conflict undeterminable sectionsTuesday, March 3, 15
Summary• Conflict minerals report
- Main data is the due diligence of smelters sourcing from the covered countries
- Supplier data is only discussed briefly as part of the RCOI discussion
• DRC conflict undeterminable requires- Description of facilities and mines
- Steps to mitigate risk (improvements for 2015)
• Recommendations• Do not list smelter names (especially ones not sourcing
from the region)
• Do not describe process in terms of OECD Due Diligence 5 steps
Tuesday, March 3, 15
Claigan - Conflict Minerals Due Diligence• Due diligence
- If you are conducting only CMRT data requests with suppliers, you are NOT conducting due diligence
- You need to have completed
- Smelter RCOI, and
- Due diligence on smelters sourcing from the covered countries
• Recommendation- Contact Claigan
- We can help
Tuesday, March 3, 15
Claigan Conflict Minerals Services
• Conflict Minerals- Conflict minerals compliance
• RCOI (Reasonable Country of Origin Inquiry)
• Supplier RCOI
• Amalgamated smelter list
• Smelter RCOI
• Due Diligence
• Conflict Minerals Report
• Experience- Claigan work is quoted in the SEC final rules 18 times
- Claigan has testified to Congress on Conflict Minerals
Q&ATuesday, March 3, 15