smelter fundamentals & due diligence requirements

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Smelter Fundamentals & Due Diligence Requirements

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Drew YoungAssent ComplianceResearch & Analysis Lead







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Feature Presentation







Smelter validation is the process of scrubbing data collected on potential smelting facilities to determine which entries are legitimate smelters of conflict minerals.

NOTE: we use the term ‘smelter’ as including both smelters and refiners, or SORs.

What Is Smelter Validation?







Why Is Smelter Validation Important?

◆ Dodd-Frank Section 1502 requires filers to identify smelters in the chain of custody of their 3TGs

◆ Smelters are in the best position to know the origin of the material

◆ Best estimates suggest 300-350 3TG smelters exist, yet Assent has received >2,000 unique facilities from polled suppliers

◆ Validation is important to provide greater accuracy in supply chain traceability, reporting and to gain a better understanding of the smelting industry, which will lead to better knowledge of COO

Smelter







Legitimate: It has been verified as a smelter/refiner by a third-party such as the CFSI, or independently by Assent.

Non-Legitimate: It has been confirmed not to be a 3TG smelter/refiner.

Undetermined: It is a new entry that is not confirmed as Legitimate or Non-Legitimate. These profiles require further investigation via our research and outreach program. The conclusion of this process is the candidate smelter being labeled Legitimate or Non-Legitimate.

When a candidate smelter entry is received from an industry organization or by supplier submission on a CMRT, the first step is to cross-reference the incoming data against existing profiles in the Assent Database for a match based on indicators such as unique smelter ID (CID#), metal, facility location and name.

If a match is found in the database, the duplicate information is merged into one accurate profile.

If no matching profile exists, one is created and populated with information gathered by the Smelter Team. The profile is then analyzed and assigned a status of Legitimate, Non-Legitimate or Undetermined.

The Assent Smelter Program: Validation Process







Means of Smelter Validation

Matches in Assent’s Database

Research Outreach







Assent has an expert team of multi-lingual Compliance Quality Coordinators conducting research and outreach to:◆ Potential smelters to establish accurate lines of

business◆ Maintain comprehensive smelter profiles in the

Assent Database◆ Encourage non-compliant smelters to seek

conflict-free certification◆ Gather COO data

The Assent Smelter Program: Outreach Process







◆ Standardized reporting template developed by the CFSI◆ 2 Important smelter-related tabs:

◇ Smelter List – where the author lists smelter information from their supply chain

◇ Smelter Reference List – displays the CFSI’s smelter name/alias information for the current reporting period

Weaknesses of the CMRT

The CMRT







◆ Displays the CFSI’s known smelter name and alias information◇ Can be found on the CMRT or as a separate workbook

released by the CFSI

◆ Standard Smelter List is made up of only LEGITIMATE smelters (i.e. those facilities verified to be smelting or refining conflict minerals)

◆ Best practice is for reporting companies use the latest Standard Smelter List for the current reporting period◇ Version 4.10 (and any subsequently released version)

should be used for the 2016 reporting period◇ This list becomes a snapshot of the information available

during the calendar year being reported on

CFSI Standard Smelter List







◆ Flagship program of the CFSI

◆ Offers an independent, third-party audit that determines which smelters and refiners can be validated as “conflict-free” based on defined assessment protocols

◆ Smelters are labeled depending on their status within the audit process:◇ Compliant means the smelter has completed the annual audit

process and has been verified to have conflict-free sources.◇ Active means they are in the process of being audited, or have

committed to begin the audit process.◇ The remaining smelters meet the CFSI definition of a smelter

but are neither compliant nor active in the audit process.

The Conflict-Free Smelter Program







◆ Smelters that are not enrolled in the CFSI but are on the Standard Smelter List are still legitimate smelters

◆ These should still be reported on your CMRT

◆ Contact these facilities to encourage them to enroll in the CFSI

◆ Request your suppliers to do this also

◆ Much easier to get smelters to become certified conflict-free than remove those smelters from the supply chain

Non-Certified Smelters







What should go on your CMRT?

◆ Legitimate smelters/refiners◇ Cross-referenced with the CFSI Standard Smelter List

◆ Facilities not on the Standard Smelter List but supported by reasonable evidence that it is a legitimate smelting facility of conflict minerals◇ This should be in rare cases only◇ Smelter Not Listed on the CMRT◇ Contact reporting supplier to gather further information◇ Conduct independent research into the facility’s correct line of business

Your CMRT Smelter List







Validating Your Smelter List 12

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Consolidate entries received from your suppliers

Remove duplicates◆ Match on CID

◆ Match on metal, smelter name and location

Isolate entries that are not on the CFSI Standard Smelter List

◆ Can you easily determine if this is a legitimate smelter or not?

◆ Request further details from the supplier

Use the auto-fill functionality of the CMRT Smelter List as a tool

◆ Input CID or;

◆ Input metal and smelter name from the dropdown boxes

◆ Remaining info will auto-fill

◆ Red cells indicate problems







Dodd-Frank Section 1502 requires filers to include the following in their CMR:

◆ A description of the Reasonable Country of Origin Inquiry

◆ A description of the company’s due diligence activities

◆ The facilities used to produce the conflict minerals (smelters and refiners)

◆ The minerals’ country(ies) of origin◆ The efforts to determine the mine or

location of origin

Conflict Minerals Report







◆ RCOI◇ Filer effectively describes efforts to determine location

of origin with greatest possible specificity◇ Should include a list of known countries of origin from

legitimate smelters reported in their supply chain

◆ Filer is a member of the CFSI

◆ Filer uses a publicly-available list to crosscheck list of SORs to determine which are certified conflict-free

◆ Level of detail and completeness with which SORs were identified (ex. metal, name and facility location)

CMR Best Practices for Smelters:Conflict Minerals Benchmarking Study







High Risk Smelters: Flagging

◆ Identifying Factors of High-Risk Smelters◇ Non-enrollment in a third-party sourcing audit

■ Not listed as either Compliant or Active in the CFSP◇ Country of Origin

■ Mine location■ Mineral reserve data can be found through the US Geological Survey

◇ Facility proximity to the DRC and covered countries■ Plausibility of funding conflict and conflict mineral smuggling■ Geo-political factors

◇ UN Reports, NGO Reports, other public info sources■ e.g. UN Group of Experts on the Democratic Republic of the Congo Report - May 2016■ e.g. Global Witness■ e.g. Berne Declaration

◇ US Department of Treasury Trade Sanctions■ Ties to individuals, entities, governments or countries under embargos







High Risk Smelters: Risk Mitigation

◆ Step 3B of OECD Due Diligence Guidance◇ “adopt a supply chain risk management plan that outlines the company

responses to risks…”◇ “measurable risk mitigation should aim to promote progressive performance

improvement within reasonable timescales”◆ Do not just remove smelters from your CMRT◆ Contact the supplier that reported the high-risk smelter to alert them of the issue and

have them also implement a risk mitigation plan◆ If it was reported on a company-level CMRT, ask the supplier to provide a part or

product-level CMRT◆ It is very unlikely these facilities will actually exist in your supply chain

◇ Weakness of industry standard company-level declarations◆ Engage with smelters that are not compliant to assessment protocols for

conflict-free certification







High-Risk Smelters: Risk of Conflict Sourcing◆ Tony Goetz NV - CID002587 - Belgium

◇ High risk of sourcing from conflict areas in DRC, Uganda and Burundi◇ Numerous reports, including Expert UN Security Council investigations, have found evidence of ties to conflict mines,

gold smuggling, black market dealings, money laundering and fraud since the 1980s.◇ Anticipate this facility will be a major target of due diligence and risk mitigation in the coming CM season◇ African Gold Refinery Limited (AGRL) has committed to opening a gold refinery in Entebbe, Uganda by the end of 2016

■ Tony Goetz is AGRL’s main investor

◆ Kaloti Precious Metals - CID002563 - UAE◇ Delisted from DMCC Good Delivery List in 2015 for not meeting re-certification criteria◇ In 2014, Global Witness reported on a leaked, unreleased audit report from Ernst & Young Dubai, revealing suspicious

cash transactions worth over US$5.2 billion in 2012, falsified paperwork, and inadequate supply chain information on several tonnes of high-risk gold from Sudan

◇ Represents a larger issue of gold smuggling through Dubai, UAE

◆ Phoenix Metals - CID002507 - Rwanda◇ Listed as Active in the CFSP Audit Process◇ Have temporarily ceased operations in order to implement infrastructure to comply with assessment protocols







High Risk Smelters: Economic Sanctions

◆ Sudan Gold Refinery - CID002567 - Sudan◇ US Department of Treasury has imposed a comprehensive trade embargo on Sudan◇ All property and interests of the Government of Sudan are blocked, as well as the importation of goods and

services of Sudanese origin◇ Reports indicate this facility sources from Central African Republic and South Sudan, both covered countries

with high-risk conflict-affected gold mining

◆ Fidelity Printers and Refiners - CID002515 - Zimbabwe◇ US Department of Treasury has imposed sanctions on specifically-identified individuals and entities

connected to actions that cause violence, human rights violations, and undermine regional stability◇ Fidelity is financed by Sino Zim Development (PVT) Ltd, which is covered under these targeted sanctions◇ Material from this facility would constitute a breach of sanctions

◆ Central Bank of the DPR of Korea - CID000190 - North Korea◇ Reports suggest this facility is no longer refining gold◇ Still reported on CMRTs that have not been accurately updated from year to year







Knowledge◆ Educate yourself and your team on

conflict minerals, smelters and your related company policies

◆ Pass this knowledge on to suppliers and customers

◆ Encourage non-CFSP smelters to enroll in the audit process

Education and Policy

Take a Stance◆ Make a commitment to eventually

having a conflict-free supply chain◆ Make a commitment to improving the

transparency of your supply chain◆ Draft a company conflict minerals

policy and make it publicly available

Effort◆ Do not perpetuate bad data◆ Take the time to fill out your CMRT

properly◆ Track back to high-risk smelters and

identify your suppliers that source from them

Getting HelpContact Assent◆ www.assentcompliance.com◆ Supplier Success Center

Join the CFSI◆ www.conflictfreesourcing.org








http://www.conflictfreesourcing.org

http://www.conflictfreesourcing.org


[Webinar] The Status of Conflict Mineral Laws in the U.S. and AbroadTuesday, October 4th | 1PM EDT

Upcoming Educational SummitsOctober 20, 2016 | ChicagoNovember 17, 2016 | BostonFebruary 8, 2017 | San Jose

Joint Materials ManagementConference with Tetra TechDecember 1, 2016 | Chicago

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