Defensa de JOH insiste que testimonio de analista de la DEA es falso y solici...
KPMG: Conflict Minerals (August 2011)
1. Conflict Minerals
Provision of
Dodd-Frank
Immediate implications and
long-term opportunities for companies
August 2011
kpmg.com
2. Contents
Section 1: Summary ............................................................................................................2
Section 2: The law and its requirements..............................................................................3
Section 3: Analysis of industry action and challenges .........................................................5
Section 4: KPMG’s recommended approach.......................................................................8
Section 5: Long-term costs and benefits of implementing Section 1502............................9
Section 6: Conclusion ..........................................................................................................9
3. Conflict Minerals Provision of Dodd-Frank | 2
Section 1: Summary
Even as the “conflict minerals’’ provision neighboring countries in Central Africa, A small number of companies already
of the Dodd-Frank Wall Street Reform where proceeds of the mining activities have begun the work of performing
and Consumer Protection Act (Dodd- have been used to finance armed militias supply chain due diligence, some
Frank, or the Act) slowly garners attention committing atrocities in those war-torn even before Dodd-Frank was enacted;
in board rooms, C-suites, and among the countries. and, a few industry groups have been
rank and file of companies around the instrumental in formulating industry-wide
For many—if not most—businesses,
world, questions abound regarding the solutions, with the high-tech industry
the most daunting aspects of the
provision’s scope, impact, reporting, and taking the lead. However, the majority of
provision will involve complying with the
auditing requirements. companies have not yet taken any action
requirement to conduct due diligence on
to formulate a strategy, according to a
The conflict minerals provision, contained the origin of the conflict minerals, which
recent KPMG survey on the topic. In fact,
in Section 1502 of the Act, has a direct include gold, wolframite, casserite,
it appears that general awareness of the
bearing on reporting requirements on columbite-tantalite, and their derivative
conflict minerals provision continues to
about half (at least 6,000) of all publicly metals, which include tin, tungsten, and
be low. Corporate counsel and auditors
traded companies in the United States. tantalum.
report that they have had to inform senior
The Act directs the Securities and
In today’s global economy, where executives at their affiliated companies
Exchange Commission (SEC) to issue
businesses utilize numerous vendors, about the conflict minerals provision,
rules requiring companies to disclose in
contract manufacturers, and strategic- its broad implications, and the reporting
10-K, 20-F and 40-F filings whether they
,
alliance partners, knowing simply how deadlines. The final rules, which were
manufacture products containing certain
to develop a strategy to determine the expected in April, are now anticipated to
minerals mined from the Democratic
source of minerals will be the first major be released before the end of 2011.
Republic of Congo (DRC) or certain
hurdle to clear.
KPMG has developed a practical
approach for conducting due diligence
on conflict minerals—an approach that
is in conformance with the Organisation
for Economic Co-operation and
Development (OECD) guidelines, and
works well with tools and programs
endorsed by two electronics industry
associations—Electronic Industry
Citizenship Coalition (EICC) and Global
e-Sustainability Initiative (GeSI).
While a number of organizations and
specific businesses have raised a great
deal of criticism about the complexity
and ambiguity of the rules, a number
of organizations that already have
undertaken a supply-chain due diligence
program have reported benefits
beyond pure compliance of the rule
requirements, not the least of which is
supply-chain transparency.
KPMG issued a recent Public Policy Alert
addressing the impact conflict minerals
provisions may have on strategic
business planning such as supply chain
optimization particularly during global
expansion.
4. 3 | Conflict Minerals Provision of Dodd-Frank
Section 2:The law and its requirements
Introduction In enacting Section 1502,
The term “conflict minerals” is used to Congress hoped to remedy
describe certain minerals such as gold, what it perceived as the
wolframite, casserite, columbite-tantalite exploitation and trade
and their derivative metals, which of conflict minerals
include tin, tungsten, and tantalum that originating in the DRC.
are mined in the DRC or its adjoining Trade of these minerals
countries.1 help finance armed
conflict, characterized by
The United Nations has been raising
extreme levels of violence.1
awareness of mining of conflict minerals
The purpose of Section 1502 is
as a source of revenue for armed militias
to promote transparency and consumer
committing atrocities in the DRC for
awareness regarding the use of conflict
at least the past 10 years.2 Over the
minerals and ultimately to discourage the
last several years, Non-Governmental
use of conflict minerals by manufacturing
Organization (NGO) groups, such as the
and processing companies.
Enough Project3 and Global Witness,4
have championed the cause and lobbied Apart from action on tin, tantalum,
Congress and several major electronics tungsten and gold (commonly referred
corporations to take action. to as 3TG), Section 1502 leaves the door
open for the U.S. Secretary of State to
Attempts to legislate controls around the
classify other metals/minerals as conflict Figure 1: DRC and adjoining countries
use of these minerals began in 20095
minerals. Congress left the task of
and culminated with the U.S. Congress
formulating guidelines and implementing
passing the Dodd-Frank Wall Street
the rules to the SEC.
Reform and Consumer Protection Act
in 2010. Included in the Act was the
little-known—and even less-understood
—“Section 1502, dealing with conflict
”
minerals.
Table 1: Uses of 3TG and % from DRC1, 6
Metal Industries Using the Metal Common Applications Commercial Ores* % World-Supply from DRC
Tin „ Electronics „ Solders for joining pipes and Cassiterite 5%
circuits
„ Automotive
„ Tin plating of steel
„ Industrial equipment
„ Alloys (bronze, brass,
„ Construction
pewter)
Tantalum „ Electronics „ Capacitors (in most Coltan (columbite-tantalite) 15-20%
electronics),
„ Medical equipment
„ Carbide tools
„ Industrial tools and
equipment „ Jet engine components
„ Aerospace
Tungsten „ Electronics „ Metal wires, electrodes, Wolframite, Scheelite, 0.60%
electrical contacts Ferberite, hübnerite
„ Lighting
„ Heating, and welding
„ Industrial machinery
applications
Gold „ Jewelry „ Jewelry Various free and combined 0.5-2%
forms
„ Electronics „ Electric plating and IC wiring
„ Aerospace
5. Conflict Minerals Provision of Dodd-Frank | 4
Applicability from a conflict mineral to make another Current time line
The section requires that companies product. In other words, the conflict On December 23, 2010, the SEC
that file 10-K, 20-F or 40-F annual reports
, mineral need not appear in the final proposed rules governing specialized
with the SEC, and use conflict minerals product to require reporting compliance. disclosure relating to conflict minerals
in their manufacturing processes and and opened a period for receiving public
The provision specifically mandates three
supply chain, disclose in the reports comments. Final rules were due to be
steps for companies to follow:
whether the minerals came from the issued by April 15, 2011, but the release
DRC or an adjoining country. 1. Determine if tin, tungsten, tantalum date was later delayed until sometime
and gold are used to make its between August and December of 2011.7
The disclosure requirements will impact
products.
myriad industries, from makers of For now, it is understood that the final
earrings, to cell phones, to combat jet 2. Determine if the metals they use rules will apply beginning with the annual
fighters, to auto parts, and many more. originated in the DRC or neighboring report for the first full fiscal year after the
The SEC estimates the law may directly countries. If the metals did not enactment of the final rules (i.e., for a
impact as many as half (roughly 6,000) of originate in affected nations, calendar-year company, the annual report
all U.S. publically traded companies and companies must report how the for 2012 to be filed early in 2013).
perhaps thousands more suppliers.1 company determined the metals’
Action by state and local governments
origins.
The rule affects: On April 12, 2011, a California State
3. If the metals were from DRC or Senate committee passed a bill that
„ Publicly listed companies that
adjoining countries—or the source would curb the use of conflict minerals
manufacture products utilizing conflict
is unknown—companies must trace from Congo.8 If passed, the bill would
minerals.
the supply chain for the source and prohibit the state government from
„ Publicly listed retailers that carry furnish an independently audited contracting with companies that fail
private-label products or contracted report on those due-diligence efforts. to comply with federal regulations on
with another party to have a conflict minerals. In addition, two cities,
The SEC mandate is expected to require
product specifically made for them; Pittsburgh, PA; and St. Petersburg FL,
the first and second steps of the process
however, retailers that only sell other have taken steps toward becoming
described, regardless of the origin of
companies’ branded products are not conflict-free cities, and NGOs have been
these metals. The third step—disclosure
required to report. lobbying other cities in the United States
of the products manufactured, facilities
and Canada to follow suit.9
„ Certain private or foreign corporations where DRC materials may have been
that operate in the supply chain of a used, etc.—must be completed only if
publicly listed U.S. customer. While the DRC is identified as a source or if the
they do not have SEC reporting source is not identifiable. Companies
obligations, it is likely that many will must make specific disclosures in their
need to provide documentation to annual report, and if applicable, furnish
their customers. a conflict mineral report as an exhibit,
and on their Web site whether they
„ Certain public/private distributors
use conflict minerals in a product they
with no product specifically made for
manufacture, or in products contracted
them. Similar to private corporations,
to be manufactured on their behalf.
while they are not covered by the
new regulations, they may need to Federal law does not prohibit companies
conduct due diligence to provide from sourcing conflict minerals, nor
information to their public customers. impose a penalty for doing so. However,
the intent is to rely on public pressure to
Law’s requirement
dissuade U.S. companies from indirectly
All SEC-listed companies that use
sourcing conflict minerals, and hence
conflict minerals in the “functionality or
fund the armed groups in the DRC.
production” of a manufactured product
must comply with the Act, including
companies that used a product made
6. 5 | Conflict Minerals Provision of Dodd-Frank
Section 3: Analysis of industry action and
challenges
Challenges to implementation Uncertainties include: deadline. Smaller companies are even
There are many reasons why less likely to have developed a strategy.
„ Nature and objective of audit:
implementing Section 1502 could be
challenging for companies. Its mandate – Conformity with a recognized Figure 2: Company strategy for conflict
to companies is extremely complex and standard minerals
it has been criticized in many quarters
– Whether the issuer performed the Have you developed a strategy to
as being vague and open to wide comply by the deadline?
py y
due-diligence procedures
interpretation. Even though the SEC is
expected to issue further details later in – Origin of the conflict minerals Yes
17%
2011, implementation may be challenging
„ Applicable professional standards for
for the following reasons:
audit: Choice between attestation or
1. Uncertainties regarding the scope performance audit No
Not sure/
Don't
59%
of the requirement. Terms such as know
„ Independence requirement: 24%
“reasonable country of origin search”
Standards set by the SEC, the Public
and “substantial to the functionality”
Company Accounting Oversight
have caused a great deal of debate.
Board (PCAOB), or the GAO % of companies that have not yet developed a strategy
Also, the implications to retailers are to comply with regulation
unclear, as is the extent to which due While the comments to the SEC10 80%
80%
diligence will be required for recycled overwhelmingly supported the 70%
70%
onses
% responses
60%
60%
materials. implementation of the new law, the 50%
challenges were apparent in some of 40%
2. Mapping the supply chain is
the comments from companies, trade 30%
30%
expected to be an arduous task. 20%
20%
groups, and service providers, including
Today’s supply chains are global and 10%
10%
KPMG. However, it is unrealistic to 0%
highly complex. Between the ore and
expect that the SEC will be able to clarify <$0.5B $0.5B - $1B - $5B $5B - $10B - >$20B
the final use, materials frequently $1B $10B $20B
every requirement. In fact, requirements
change hands 10 or more times. The Annual revenues
are expected to evolve over time, and
dynamic nature of sourcing of parts
it will be up to the industries to find Source: KPMG Conflict Minerals Survey, 2011
and commodities that have yielded
acceptable solutions.
lower costs for companies have
One of the first steps in “DRC conflict
also made the supply chains less Individual company response and
free” status is to develop a company
transparent. Complexity can magnify potential reasons
policy of not using conflict minerals and
when companies use distributors Even before the conflict minerals
including appropriate language in supplier
or multiple suppliers for the same provision was signed into law, several
contracts. The KPMG survey found that
component. As a result, even large high-tech companies had started work
fewer than 10 percent of respondents
companies with substantial clout over on the issue. According to the Enough
have even taken this step (figure 3). Not
suppliers and extensive resources Project, companies such as Intel, HP,
surprisingly, the majority of companies
face significant challenges to map Apple, Dell, Motorola, Microsoft, and
that have taken action are from the
their entire supply chain. Nokia have begun conducting due
high-tech industry or are suppliers to the
diligence to become “DRC conflict
3. Uncertainties regarding audit industry.
free. 12
”
standards. Companies are finding it
While there may be several reasons for
difficult to reach a conclusion about Despite these examples, and a looming
the inaction, a lack of understanding of
how the audit will be conducted. The reporting requirement about to become
the act seems to be a strong contributor.
proposed rule does not clearly state a reality, most companies have not
Just over 50 percent of companies
the type of conclusion sought and acted. A survey conducted by KPMG’s
surveyed in the affected industries claim
related objective of the audit of the Americas’ Financial Services Regulatory
to have a good understanding (2 or higher
conflict minerals report; but leaves Center of Excellence (figure 2) indicated
on a scale of 0 through 4) of conflict
it to the Government Accountability that only 17 percent of respondents
minerals (see figure 4). In fact, only five
Office (GAO) to provide guidelines. in affected industries claim to have a
percent of respondents said that they
strategy to comply by the reporting
understood the provision very well.
7. Conflict Minerals Provision of Dodd-Frank | 6
Figure 3: Company policy and supplier Figure 4: Awareness of Conflict
contracts Minerals Provision of Dodd-Frank
Awareness of Conflict Minerals Provision
of Dodd-Frank
Have you started including verbiage in supplier contracts? 100%
Yes
90%
5% Do not
use 80%
80% 0 = Not aware
aware
9%
No
70%
70%
40%
1
60%
Not sure/Don't know
46%
50%
2
40%
30%
30% 3
20%
20%
Have you developed a company policy?
4 = Understand
10% very well
Yes/In-
process 0%
9%
Source: KPMG Conflict Minerals Survey, 2011
No Not sure/Don't know
53% 38%
Source: KPMG Conflict Minerals Survey, 2011
8. 7 | Conflict Minerals Provision of Dodd-Frank
Industry-based Solutions Figure 5: Stages of conflict minerals due diligence by industry
While individual companies have been Industrial
slow to act, a few industry groups have
taken the lead in formulating potential Aerospace
solutions. The OECD has developed Healthcare
standards that have been referenced1
by the SEC as a good starting point for Industry Automotive
companies to base their policies for
Chemicals
compliance with the Act. The OECD
requirements13 for risk-based due Retail
diligence in the conflict mineral supply
Electronics/High Tech
chain include:
„ Establish strong company Initial stages of Advanced stage
management systems due diligence of due diligence
„ Identify and assess risks in the supply Source: KPMG Conflict Minerals Survey, 2011
chain
process of developing a Conflict Free While other industry groups have not
„ Design and implement a strategy to
Smelter (CFS) program14. If successful, made public any common solutions,
respond to identified risks
companies performing due diligence the Automotive Industry Action Group
„ Carry out independent third-party will only need to trace the 3TG supply (AIAG) and the Aerospace Industry
audit chain down to smelters (see figure 6). Association (AIA) have sought to increase
The work of tracking the mines of origin awareness among their members by
„ Report on supply chain due diligence
and preventing “tainted” minerals from holding seminars/Webinars. Through the
Even though OECD guidelines may reaching the supply chain would then AIAG, six auto makers—Chrysler, Ford,
be a good starting point, they do not fall on the smelters. Lastly, on August 3, GM, Honda of America, Nissan North
outline how supply chain due diligence EICC and GeSi announced the release of America, and Toyota North America—
could be conducted. Two electronics the “Due Diligence Reporting Template issued a letter dated April 19, 2011 to
industry associations, Electronic and Dashboard” that companies can their suppliers alerting them of the new
Industry Citizenship Coalition and use as a standard questionnaire for law.16
Global e-Sustainability Initiative, which conducting inquiries into supplier’s
Figure 5 illustrates the progress made by
together represent a large group sources of metals.15
various industries on addressing conflict
of high-tech companies, are in the
minerals.
Figure 6: Proposed solution for end-to-end supply chain transparency
Source: KPMG LLP 2011
,
9. Conflict Minerals Provision of Dodd-Frank | 8
Section 4: KPMG’s recommended approach
Recommended steps „ Prepare disclosure statements in is leading the implementation of this
Based on extensive experience with accordance with SEC requirements initiative to drive towards meeting
past due diligence and reporting “significant and reasonable” due-
„ Engage third party to perform an
requirements, KPMG has developed diligence requirements.
independent conflict minerals audit
a simple process that involves the
Gaps in internal and external processes
following key steps: „ Institutionalize a process so to update
were identified and an action plan put in
with ease on an annual basis
„ Identify use of 3TG conflict minerals place to bridge the gaps by December,
in products manufactured or KPMG successfully tested this approach 2011.
assembled with a U.S.-based electronics corporation
OECD guidelines, industry best practices
with global operations, and thousands
„ Identify and survey suppliers of 3TG for supply chain due diligence, and
of worldwide suppliers. In the face
metals questionnaires available from EICC-GeSi
of imperfect information and gaps in
were referenced during the course of the
„ Perform a risk assessment using tools supplier data, KPMG worked with the
project.
and OECD guidelines company’s procurement group that
Case Study
KPMG recently assisted a U.S.-based, business implications of the rigorous the annual report disclosure on conflict
global manufacturer with more than compliance process. The team included minerals.
3,000 suppliers in instituting a rigorous legal, investor relations, procurement,
Looking for opportunities beyond
“auditable” supply chain due diligence corporate social responsibility, supply
traditional compliance
process to assess its risk exposure chain, and others within the company
In the end, the company used this
to conflict minerals. The ancillary who typically handle large change
project to gain other significant benefits
objectives beyond the immediate management exercises.
such as future supplier certification and
compliance goal were to develop a
Compliance strategy meet audit requirements, establishing
process that could be extended to other
The team developed a process a process to respond to customer
corporate social responsibility initiatives
to identify, survey, and risk rate requests to provide information on the
in the future—one that would integrate
suppliers that use 3TG metals in the use of conflict minerals in the products
with the company’s overall risk process
manufacture of components used by sold, identifying opportunities for
(both from an internal audit and external
this company. This was done using, consolidation and supply chain cost
audit perspective) and drive vendor
in part, a KPMG proprietary tool that reduction, and preemptive identification
accountability while improving the
provided the mechanism to collect and of risk due to sole sourced suppliers.
stability of their own supply chain.
analyze the results. Supplier information This company also saw value in
Getting started was synthesized into information that positioning their market brand as
The company established a will be used to complete and maintain conflict free.
multidisciplinary team to address
Source: KPMG Public Policy Alert, July 2011, “Legislative complexity challenges traditional business and compliance strategies.
”
10. 9 | Conflict Minerals Provision of Dodd-Frank
Section 5: Long-term costs and benefits of
implementing Section 1502
The fear of the unknown Supplemental benefits of conducting recognize that there could be other
Several comments to the SEC from supply chain due diligence potential benefits of performing supply
industry groups have expressed During a recent KPMG Webcast chain due diligence for conflict minerals,
concerns about the cost of implementing on conflict minerals, the audience, such as identification of opportunities for
the provisions of the new law. KPMG’s comprising representatives from more supply chain simplification/rationalization
survey specifically asked respondents than 500 diverse organizations, was (6%) and cost reduction (14%), and
about the (perceived) impact of asked if they foresaw any supplemental improvement in customer goodwill/brand
compliance. The surprising finding was benefits from implementing the conflict recognition (8%).
that companies that had not already minerals provision. Only nine percent
Industry participants believe that this law
developed a conflict minerals strategy of respondents chose “none, viewing
”
may trigger similar regulations on other
were three times more likely to anticipate the effort as purely a reporting burden
corporate social responsibility issues,
higher costs from suppliers than (figure 8). It appears that companies
such as environment/sustainability, labor
companies that had developed a strategy
standards, health and safety, and ethics.
(figure 7).
Figure 8: Long-term benefits of the The California Transparency in Supply
Conflict Minerals provision Chain Act,17 which seeks to curb human
Figure 7: Anticipated impact of the
Conflict Minerals provision
trafficking and slave labor, is one such
example. A strong process developed for
% anticipating higher cost from suppliers as a result of the Conflict
Minerals provision
provision
conflict minerals may serve as a template
to meet those regulations as well.
20%
20%
18%
% responses
16%
14%
12%
10%
8%
6%
4%
2%
0%
Companies that have NOT Companies that have developed a
developed a strategy strategy
Source: KPMG Conflict Minerals Survey, 2011 Source: KPMG Conflict Minerals Survey, 2011
Section 6: Conclusion
The Conflict Minerals provision of once the ruling is finalized. The generally
Dodd-Frank places a new burden on positive experience of companies that
SEC registered corporations to trace have already begun work should spur
and report the source of 3TG metals. other affected corporations to develop
Requirements of the new law are far a conflict minerals strategy, and begin
from clear, and many corporations are the due-diligence process sooner rather
waiting for the SEC to issue clarifications than later. This message has been
before the end of the year. reiterated by the U.S. State Department
in a press release on July 15, 2011 that
However, several leading corporations
urges companies to begin to “…exercise
and industry groups have begun to trace
due diligence immediately in order to
conflict minerals in their supply chain
ensure a viable and conflict free supply
rather than wait for SEC’s final ruling, due
chain…”18
to the tight time line for implementation
11. Conflict Minerals Provision of Dodd-Frank | 10
Sources
1. SEC Release No. 34-63547; File No. S7-40-10 (http://www.sec.gov/rules/
proposed/2010/34-63547.pdf)
2. “A Comprehensive Approach to Congo’s Conflict Minerals - Strategy Paper” by
The Enough Project (http://www.enoughproject.org/publications/comprehensive
approach-conflict-minerals-strategy-paper)
3. www.enoughproject.org
4. www.globalwitness.org
5. http://www.opencongress.org/bill/111-s891/show
6. U.S. Geological Survey (http://minerals.usgs.gov/minerals)
7. “SEC Postpones Rules on African Conflict Minerals Until August” by Bloomberg,
April 12 2011 (http://www.bloomberg.com/news/2011-04-12/sec-postpones-rules
on-african-conflict-minerals-until-august.html)
8. “California takes decisive step against Congo’s conflict minerals” by Christian
Science Monitor, April 13, 2011 (http://www.csmonitor.com/World/Africa/Africa
Monitor/2011/0413/California-takes-decisive-step-against-Congo-s-conflict
minerals)
9. “City Councils: A New Pressure Point for the Conflict Minerals Movement?” by
Enough Project, May 25 2011 (http://www.enoughproject.org/blogs/city-councils
new-pressure-point-conflict-minerals-movement)
10. http://www.sec.gov/comments/s7-40-10/s74010.shtml
11. KPMG’s comment to the SEC: http://www.sec.gov/comments/s7-40-10/s74010
110.pdf
12. “Getting to Conflict-Free: Assessing Corporate Action on Conflict Minerals”
by Enough Project Dec 13, 2010 (http://www.enoughproject.org/publications/
getting-conflict-free)
13. “OECD (2011), OECD Due Diligence Guidance for Responsible Supply Chains of
Minerals from Conflict-Affected and High-Risk Areas” OECD Publishing (http://
,
dx.doi.org/10.1787/9789264111110-en)
14. http://www.eicc.info/documents/Conflict-FreeSmelterFAQ.pdf
15. “GeSI and the EICC® Launch Conflict Minerals Reporting Template
and Dashboard, by GeSI, August 3, 2011 (http://www.gesi.org/Media/
”
GeSINewsFullStory/tabid/85/smid/503/ArticleID/84/reftab/37/Default.aspx)
16. “SEC Conflict Mineral Filing Requirement Affects Automotive Suppliers” by
PRWeb, May 16, 2011 (http://www.prweb.com/releases/conflict_mineral/
Republic_of_Congo/prweb8430202.htm)
17 “ The California Transparency in Supply Chains Act: New Legislation Requires
.
Disclosures on Corporate Efforts to Eliminate Slavery and Human Trafficking” by
Foley Hoag LLP October 3, 2010 (http://www.csrandthelaw.com/2010/10/articles/
,
legislation/the-california-transparency-in-supply-chains-act-new-legislation
requires-disclosures-on-corporate-efforts-to-eliminate-slavery-and-human-traffic
king/)
18. “Statement Concerning Implementation of Section 1502 of the Dodd-Frank
Legislation Concerning Conflict Minerals Due Diligence, United States
”
Department of State, July 15, 2011.
