[email protected] / www.assentcompliance.com / 1 866 964 6931 / © Assent Compliance 2017 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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Today’s Presenter
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Travis MillerAssent ComplianceGeneral Counsel
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Agenda
Your Audience
Closing an RCOI
Conducting Due Diligence
2016 Risk Highlights
Forward Looking Statements
Questions
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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
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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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Who Is the Audience of a Form SD Filing?
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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."
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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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
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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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
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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⬥ We also need to be wary of trade and sanction risks
You Are Speaking to a Number of Stakeholders
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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
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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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
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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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
You Are Speaking to a Number of Stakeholders
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Who Is the Audience of a Form SD Filing?
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⬥ Why are customers interested?◇ Companies do not want to support the atrocities occurring in the DRC
and adjoining countries
You Are Speaking to a Number of Stakeholders
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Feature PresentationPRESENTER, TITLE & COMPANY
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Closing an RCOI and Finalizing Due Diligence
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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
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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
The End of Data Collection
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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)
The End of Data Collection
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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
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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
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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
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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
Pencils Down: Time to Draft Your CMR
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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
Pencils Down: Time to Draft Your CMR
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Feature PresentationPRESENTER, TITLE & COMPANY
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2017 Risk Highlights
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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
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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
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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)
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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
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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
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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
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Feature PresentationPRESENTER, TITLE & COMPANY
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Forward Looking Statements
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Forward Looking Statements
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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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Forward Looking Statements
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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
Understanding and Using Them Effectively
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Forward Looking Statements
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◆ Under SEC rules, companies should alert and caution investors related to forward looking statements to meet safe harbor protections.
Understanding and Using Them Effectively
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Upcoming Events: Webinars & Conferences
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[Webinar] KPMG & Thermo Fisher Discuss Conflict Mineral ComplianceWednesday, February 1st, 2017 | 10AM EST
Upcoming Educational SummitsFebruary 8th, 2017 | San Jose
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Q&A Discussion
Questions?
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