conﬂict minerals due diligence process - home - claigan · 2015-12-14 · conﬂict minerals due...

Presented by:Bruce CalderVP Consulting Services

Conflict Minerals Due Diligence ProcessPlus Details on US Sanctions

Wednesday, July 23, 14

Agenda• Introductions

• Compliance process- Full flow chart

- Smelter RCOI

- Due Diligence

• Summary of findings- Review of example RCOI and due diligence findings

• Sanctions- New US Sanctions on DRC

- Update on North Korea

- Other sanction and CSR issues

• Recommendations

• Summary

Webinar is 50 minutes with 10 minutes of Q&A

(hopefully)


Claigan Conflict Minerals Services• Conflict Minerals

- Conflict minerals compliance

• RCOI (Reasonable Country of Origin)• 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

- Worked for

- Legrand, Danaher, Smiths Medical, Smith & Nephew, Covidien, Johnson & Johnson, Hamilton Beach, Honeywell, Hach, Fluke, Moog, Edwards Lifesciences, Instrumentation Laboratory, GE, Schneider Electric, KavoKerr, Microsemi, JDSU, Agilent, Barrx, Tyco, L-3, Smart Technologies, Pelton & Crane, Cooper Surgical, Carestream, Abbott Laboratories, Atricure, CAE, Philips, Plexus, FLIR, Trojan, Deltrol Controls, LoJack, Thermo Scientific, Li-Cor, Avid, and US Commercial Service.


Due Diligence• The majority of industry does not understand due

diligence as described in the SEC final rules

• Common misconception- Request and review of supplier EICC-GeSI templates

represents due diligence

• This is only a portion of step 2 of Section 1502 of Dodd-Frank- Reasonable Country of Origin Inquiry (RCOI)

• Recommended reading for all issuers- SEC final rules

• ppg 148 to 157

• ppg 161 to 166

• ppg 182 to 183


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


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


Amalgamated Unique Smelter List• Suppliers will provided thousands of “smelter” names

• Only 175 to 220 will be correct

- And not all with be EICC listed

• Supplier responses need to be amalgamated into a single valid list of unique smelter names

• Example -


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


RCOI - Sourcing from the DRC• RCOI Standard - SEC Final Rules - pg 148

- “We do view an issuer as satisfying the reasonable country of origin inquiry standard if it seeks and obtains reasonably reliable representations indicating the facility at which its conflict minerals were processed and demonstrating that those conflict minerals did not originate in the Covered Countries ... These representations could come either directly from that facility or indirectly through the issuer’s immediate suppliers, but the issuer must have a reason to believe these representations are true given the facts and circumstances surrounding those representations.”

• Additional key passage - pg 153- “This revised approach does not require an issuer to prove a

negative to avoid moving to step three, but it also does not allow an issuer to ignore or be willfully blind to warning signs or other circumstances indicating that its conflict minerals may have originated in the Covered Countries.”


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

Included inConflict Minerals Report

Not included in Conflict Minerals Report


Claigan Technical File

• Internal document created for clients to• Summarize smelter RCOI and due diligence findings

• Create stakeholder consensus on results

• Act as a guide in the event of an IPSA audit


Smelter RCOI• Example summary of smelter RCOI findings (2013)


Smelter RCOI - Reason to Believe• Review to see if ‘Reason to Believe’ sourcing from

covered countries (2013)


Due Diligence - Requirements• For those conflict minerals that you know or have reason

to believe are sourced from the DRC or surrounding countries

- Required to conduct due diligence

• Due diligence and information communicated in Form SD should reflect on those specific sources- ~10 to 20% of the facilities

- Of which three quarters of these are CFSI certified

- Remaining to conduct due diligence

• 5 to 10 facilities (refineries / smelters)


Due Diligence - Non Certified Smelters• Key question

- Is there any reason to believe these facilities directly or indirectly finance or benefit armed groups operating in these countries?

• Not required for

- CFSI certified facilities

- Facilities not sourcing from the region

• Complicated work

• Standard recommendation is to use specialized organizations (such as Claigan) for this section


Conflict Minerals Report - Content• Conflict Minerals Report Content

• Description of RCOI process

• Description of measures taken to exercise due diligence on the source and chain of custody of those conflict minerals

• Including, but not limited to, a description of adherence to OECD Due Diligence Guidance

• Description of facilities and mines used to process those conflict minerals

• Unless DRC Conflict Free with IPSA audit

• IMPORTANT NOTE

• Those conflict minerals, only apply to those conflict minerals sourced from the covered countries

• Does not apply to smelters and refineries that are not sourcing from the covered countries.


SEC Filings are Forever• Important thing to remember

- SEC filings are NOT like policies on your website

- You can never change them

- You can never deleted them

- They are there forever

• Mis-steps in a Form SD filing can haunt a company for years

• FYI- All filings are searchable both by Edgar and Google

- A number of universities are conducting full research projects on the conflict minerals submissions


2014 Projection• An increase in number of smelters involved in the covered

countries

• Gold- Shortage of gold and copper supply in China

- Increased investment by Shanghai Gold Exchange (SGE) companies in the covered countries

• In many cases, DRC gold mines being purchased by SGE members

• Tantalum- In the last couple of years, virtually all tantalum mines in

the western world have closed• Australia and Canada (~50% of the world’s output)

• In 2014, 75% of the world’s supply of tantalum will be from Africa


Executive Order - DRC• July 8th - Executive Order on DRC

- Amends E.O. 13413 of October 27, 2006

• Key addition to DRC sanctions

- Prohibition of

• (7) support to persons, including armed groups, involved in activities that threaten the peace, security, or stability of the Democratic Republic of the Congo or that undermine democratic processes or institutions in the Democratic Republic of the Congo, through the illicit trade in natural resources of the Democratic Republic of the Congo;


Executive Order - DRC - Effect• Enforcement

- Being NOT DRC Conflict Free (i.e. supporting the armed groups) is a sanction violation

• Sanction requirements bring into scope - All US persons and companies

• Now in scope of the sanctions (not Section 1502 directly)

- Privately held US companies

- US subsidiaries of international companies


Update on North Korea• Central Bank of DPR of Korea (North Korea) was

reported on many EICC-GeSI forms

- Historically, pre-2007

• However, many of the Shanghai Gold Exchange (SGE) gold refineries have strong links to gold properties in North Korea

• Overview- Shortage of domestic gold in China

- Privately held gold companies the most effected• Report to shareholders

- Affects a large portion of the SGE

- Most of affected SGE companies are producers of gold salts, wirebonds, and balls for the electronics industry.


JPMorgan• JPMorgan applied for a specific license for North Korean gold six

months after joining the Shanghai Gold Exchange


Other US Sanction Issues• Iran, Sudan, and Myanmar

- Myanmar sanctions ended Aug 2013, but suppliers were reporting Myanmar sourcing long beforehand

- A number of Chinese smelter companies have operations in Iran

- A number of gold smelters source from Sudan


Other CSR Issues• Sanctions just one of many CSR issues

- Tungsten• Poisoning of a village, eviction, ordering of police to beat protesters

- Tin • Village poisoning (flood of toxic water), military junta, death and illness,

crop destruction, displacement - Gold

• Corruption, pollution


Summary • Supplier RCOI is only a small fraction of the

requirements of Section 1502

• Perform

- Smelter RCOI

- Due diligence on smelters that are or you have reason to believe are sourcing from the covered countries

• Sanctions- New DRC sanctions

- Many of the smelters look to be involved in activities that would create sanction issues for US companies

- CSR issues above and beyond DRC and US sanctions


Recommendations• Do not become over-focused on supplier RCOI

• Perform proper smelter RCOI and due diligence

• Perform due diligence as early as possible- Issues identified early may be solvable

• Work with Claigan- World’s best in smelter RCOI and due diligence


Claigan Conflict Minerals Services• Conflict Minerals

- Conflict minerals compliance

• RCOI (Reasonable Country of Origin)

• 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

• [email protected]

Q&AWednesday, July 23, 14

mailto:[email protected]

mailto:[email protected]

conﬂict minerals due diligence process - home - claigan · 2015-12-14 · conﬂict minerals due...

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