Conflict Mineral Due Diligence in 2017

[email protected] / www.assentcompliance.com / 1 866 964 6931 / © Assent Compliance 2017

Conflict Mineral Due Diligence in 2017

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http://www.assentcompliance.com



Today’s Presenter

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Travis MillerAssent ComplianceGeneral Counsel







Agenda

Your Audience

Closing an RCOI

Conducting Due Diligence

2016 Risk Highlights

Forward Looking Statements

Questions

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[email protected] / www.assentcompliance.com / 1 866 964 6931 / © Assent Compliance 2016 3












INTRODUCTION

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Assent Product SuitesOur Market Leading Platform

Ethical Sourcing

Materials Management

Supplier Information Management

InspectionsConfigurable Surveys & Declarable Substance

Lists

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Feature PresentationPRESENTER, TITLE & COMPANY

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Understanding Your Audience







Who Is the Audience of a Form SD Filing?

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⬥ A SEC filing is a financial statement or other formal document submitted to the U.S. Securities and Exchange Commission (SEC)

⬥ Public companies, certain insiders and broker-dealers are required to make regular SEC filings

⬥ Historically, the intent of these filings is to offer investors and financial professionals clear guidance on the company’s financial prospects

You Are Speaking to a Number of Stakeholders








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⬥ Why are investors interested?◇ The value of a company and its brand can be negatively impacted by

revelations that the company does not source ethically⬥ Example: 10K language highlighting the conflict minerals risk

The Company’s procurement of goods and services from outside the United States is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of "conflict minerals" used in products that the Company causes to be manufactured and potential sell-through difficulties and reputational damage that may be associated with the inability of the Company to determine that such products are "DRC conflict-free."









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⬥ Regulators are reviewing these documents

⬥ Filers often underestimate the potential implications of a conflict minerals filing because there no direct enforcement provision in the rule

⬥ However, the Form SD and CMR reveals details on how a company sources and who they source from









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⬥ Why are regulators interested?◇ In practice, the same people who use forced labor and fund militants

to receive advantageous pricing may be willing to engage in other unethical activities









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⬥ We also need to be wary of trade and sanction risks








Who is the audience of a Form SD filing?

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⬥ Community of NGOs dedicated to eradicating slavery, forced-labor, torture and corruption

⬥ Our Form SD and CMR filings are offering these groups access to valuable information

⬥ NGOs use this information to direct efforts and resources toward areas where they believe they can have the most impact









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⬥ Why are NGOs interested?◇ By exerting pressure and influence over disclosures, there is hope

that long-overdue action will be taken









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⬥ The last and most critical stakeholders for the majority of companies are customers

⬥ Our customers have significant compliance risks that are expanding daily

⬥ Customers do not want to receive negative headlines or lose business due to the bad behavior of a supplier









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⬥ Why are customers interested?◇ Companies do not want to support the atrocities occurring in the DRC

and adjoining countries









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Closing an RCOI and Finalizing Due Diligence







Closing an RCOI

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⬥ At some stage in the annual survey, a decision has to be made that enough due diligence has been conducted

⬥ This represents the end of the Reasonable Country of Origin Inquiry (RCOI)

⬥ The critical question: When do you draw this line in the sand and discontinue further data collection efforts for the year?

The End of Data Collection







Closing an RCOI

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⬥ At Assent, we we find these to be the ‘best practices’ among our clients:

◇ Save enough time to adequately draft, review and file◇ A CMR should include analytics and reach competent

conclusions based on your data◇ Remember: You are bound to the data you have, so take a

preliminary screen of that data to make sure there are no red flags before closing your books for the year








Closing an RCOI

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⬥ The conclusion of the RCOI kickstarts two critical stages in conflict minerals filings:◇ Final due diligence◇ CMR preparation

⬥ These final processes tend to work in parallel as a company determines whether it is:◇ Conflict Free (and thus must complete an IPSA), or ◇ Not Conflict Free (and thus must present due diligence outcomes

and findings)








Final Due Diligence

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⬥ Prior to conducting final due diligence, a reporting company must:

◇ Consolidate all of the CMRT data received from suppliers

◇ Remove redundant and erroneous smelters/refiners ◇ Create a final list of smelters and refiners to be

declared

A Last Chance to Evaluate Supplier Data







Final Due Diligence

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Recommended actions for final due diligence

⬥ ‘Scrubbing’ of alleged smelters provided by suppliers⬥ Review country of origin information from smelters⬥ Risk assessment of supplier’s statement against publicly available information⬥ Determination of whether there is reason to believe the smelter sources from

the DRC or adjoining countries⬥ Due diligence on smelters believed to be sourcing from the DRC or adjoining

countries⬥ Generation of technical documents summarizing findings⬥ Review of findings with stakeholders

A Last Chance to Evaluate Supplier Data







Final Due Diligence

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⬥ A Conflict Minerals Report (CMR) is a highly variable and user specific document

⬥ However, all CMRs have two core objectives:◇ Demonstrate your efforts to eliminate funding of

conflict in the covered countries◇ Demonstrate improvement in reaching a ‘conflict-free’

status determination

Pencils Down: Time to Draft Your CMR







Final Due Diligence

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◇ The best CMRs communicate:

■ Efforts to maintain economic ties to conflict-free smelters and refiners in the DRC region

■ An understanding of the goal of the law when describing a company’s policies and actions

■ No implication your materials are ‘conflict-free’ unless they are (if so, an IPSA must be conducted)□ A company that suggests their products are

conflict-free, even without using those exact words, may be subject to the audit requirement








Final Due Diligence

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⬥ Tips on communicating how you have improved

◇ Establish a process to continually identify and mitigate risks in your supply chain

◇ Acknowledge actual problems or risks you have identified and describe how your company has addressed (or will address) them

◇ Improvement is the goal, not perfection









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2017 Risk Highlights







Assessing Risk

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1. Establish strong company management systemsa. Adopt and communicate company policy on conflict minerals b. Structure internal management to support supply chain due diligencec. Establish a system of controls and transparency over the mineral supply chaind. Strengthen company engagement with supplierse. Establish a company-level or industry-wide grievance mechanism as an early-warning

risk-awareness system

2. Identify and assess risk in the supply chaina. Identify risks in the supply chain as per the ‘Supplements’b. Assess risks of adverse impacts in light of the standards of their supply chain policy

3. Design and implement a strategy to respond to identified risks a. Devise and adopt a risk management planb. Implement the risk management plan, monitor and track performance of risk mitigation efforts

and report back to designated senior management

The Framework for Assessing Risk







Assessing Risk

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◆ The following red flags should trigger the due diligence processes of the OECD Guidance:

The minerals originate from or have been transported via a conflict-affected or high-risk area

The minerals are claimed to originate from a country with limited known reserves, likely resources or expected production levels of the mineral in question

The minerals are claimed to originate from a country in which minerals from conflict-affected and high-risk areas are known to transit

The company’s suppliers or other known upstream companies have shareholder or other interests in companies that supply minerals from or operate in one of the red flag locations

The company’s suppliers or other known upstream companies are known to have sourced minerals from a red flag location of mineral origin and/or transit in the last 12 months

The Framework for Assessing Risk







Assessing Risk

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Example 1

Tony Goetz NV - CID002587Location: BelgiumMineral: GoldRisk: Conflict Sourcing

◆ Located in Antwerp, Belgium◆ Extreme risk of sourcing from conflict areas in the DRC, Uganda and Burundi◆ Reports show evidence of ties to conflict mines, gold smuggling, black market

dealing, money laundering and fraud dating back to the 1980s⬦ Final report of the Group of Experts on the Democratic Republic of the Congo for the United

Nations Security Council (S/2016/466)







Assessing Risk

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Example 2Sudan Gold Refinery - CID002567Location: SudanMineral: GoldRisk: Conflict Sourcing & Economic Sanctions

◆ U.S. Dept. of the Treasury’s OFAC has a comprehensive trade embargo on Sudan⬦ https://www.treasury.gov/resource-center/sanctions/Programs/Documents/sudan.pdf

◆ Reports indicate this facility sources from the CAR and South Sudan (covered countries with high-risk conflict-affected gold mining and risk of smuggling)

◆ Sudan is not a covered country per Section 1502, but it has large gold reserves in conflict areas and confirmed human rights abuses ⬦ Enough Project, Darfur’s Gold Rush: State-Sponsored Atrocities 10 Years After the

Genocide, May 2013







Assessing Risk

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Example 3Fidelity Printers and Refiners - CID002515Location: ZimbabweMineral: GoldRisk: Economic Sanctions

◆ U.S. Dept. of the Treasury’s OFAC has imposed sanctions on specifically identified individuals and entities connected to actions that cause violence, human rights violations and undermine regional stability⬦ https://www.treasury.gov/resource-center/sanctions/Programs/Documents/zimb.pdf

◆ Fidelity Printers is financed by Sino Zim Development (PVT) Ltd, which is an identified target of the sanctions program⬦ Global Witness, Financing A Parallel Government? (June 2012)

◆ Material from this facility would constitute a breach of the sanctions program






https://www.treasury.gov/resource-center/sanctions/Programs/Documents/zimb.pdf

https://www.treasury.gov/resource-center/sanctions/Programs/Documents/zimb.pdf


Assessing Risk

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Things You Need to Watch Out For◆ There are many more smelters of concern that Assent reviews and flags◆ It is very unlikely these facilities are actually in your supply chain

⬦ Company-level reporting may not apply to the parts supplied to your company⬦ Inability to validate CMRT declarations > one tier down the supply chain⬦ One inaccurate CMRT can skew results for an entire supply chain

◆ Once the risk has been reported, it is your responsibility to undertake risk mitigation

⬦ Follow OECD Due Diligence Guidance⬦ “Downstream companies retain individual responsibility for their due diligence, and should ensure

that all joint work duly takes into consideration circumstances specific to the individual company.”⬦ “Risk-based due diligence refers to the steps companies should take to identify and address actual

or potential risks in order to prevent or mitigate adverse impacts associated with their activities or sourcing decisions.”

⬦ http://www.oecd.org/corporate/mne/GuidanceEdition2.pdf






http://www.oecd.org/corporate/mne/GuidanceEdition2.pdf

http://www.oecd.org/corporate/mne/GuidanceEdition2.pdf



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Understanding and Using Them Effectively

◆ In United States, a forward-looking statement predicts, projects or uses future events as expectations or possibilities

◆ Section 27A of the Securities Act of 1933 (amended) and section 21E of the Securities Exchange Act of 1934 (amended) require businesses to comply to standards of communication that limit risk factors








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◆ It is common practice in CSR, product and supply chain disclosures to set future goals and discuss plans to achieve those goals

◆ Conflict minerals disclosures require a regulated SEC filing meaning these statements take on added consequence and require careful drafting









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◆ Under SEC rules, companies should alert and caution investors related to forward looking statements to meet safe harbor protections.








Upcoming Events: Webinars & Conferences

Learn more about Assent events:www.assentcompliance.com/events

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[Webinar] KPMG & Thermo Fisher Discuss Conflict Mineral ComplianceWednesday, February 1st, 2017 | 10AM EST

Upcoming Educational SummitsFebruary 8th, 2017 | San Jose






http://www.assentcompliance.com/events




Q&A Discussion

Questions?

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Conflict Mineral Due Diligence in 2017

Education

Transcript of Conflict Mineral Due Diligence in 2017