2. Introduc)on 1
Compliance
with
the
SEC
Conflict
Minerals
Rule
for
the
Dodd-‐Frank
Wall
Street
Reform
Act,
Sec@on
1502
on
conflict
minerals
This
webinar
covers:
• Conflict
in
DRCongo,
conflict
minerals
and
the
supply
chain
• Rule
applicability
for
SEC
repor)ng
companies
• A
decision
tree
for
tes)ng
applicability
for
your
company
• Issues
regarding
interpreta)on
of
certain
defini)ons
• How
to
achieve
conflict
minerals
due
diligence
compliance
in
5
steps
• About
RCS
Global
and
Go
Global
Compliance
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
3. The
DRC
and
the
supply
chain 2
• DRCongo
– Conflict
for
the
past
20
years,
worst
since
WWII
– Country
the
size
of
Western
Europe
–
¼
the
size
of
US,
most
parts
currently
at
peace
– Localised
conflict
in
the
Eastern
DRC
– SEC
Rule
affects
DRC
and
9
surrounding
countries
• Conflict
Minerals
– Minerals
and
other
commodi)es
used
to
fund
rebel
groups
– Conflict
minerals
legisla)on
was
the
result
of
extensive
lobbying
by
CSO
– Effect
on
conflict
is
contested,
but
changes
are
occurring
in
the
supply
chain
– A
number
of
ini)a)ves
currently
in
opera)on
in
the
DRC
• The
Supply
Chain
– Minerals
go
from
DRC
to
Rwanda,
Uganda
to
the
ports
of
Kenya
and
Tanzania
– Then
they
tend
to
go
to
Asian
smelters
– From
there
to
contract
manufactures
and
along
the
supply
chain
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
4. Rule
Applicability 3
The
Dodd-‐Frank
Wall
Street
Reform
Act,
Sec)on
1502
on
conflict
minerals
• Final
SEC
rule
applies
to
any
issuer
that
files
reports
under
Sec)on
13(a)
or
Sec)on
15(d)
of
the
Exchange
Act,
including
domes)c
companies,
foreign
private
issuers,
and
smaller
repor)ng
companies
• Ask
yourself:
Do
you
manufacture
or
contract
to
manufacture
products
where
conflict
minerals
are
necessary
to
the
func)onality
or
produc)on
of
a
product?
– Conflict
minerals
=
)n,
tantalum,
tungsten
and
gold.
• If
you
do
not
report
to
the
SEC,
you
may
s)ll
be
asked
to
address
the
issue
by
some
of
your
'repor)ng'
customers
• Calendar
– Rule
applies
from
calendar
year
2013
onwards
• First
repor)ng
on
May
31st
2014
• Exemp)on
for
2
years
for
large
companies
to
be
able
to
state
DRC
indeterminable.
4
years
for
small
companies.
• On-‐going
appeal
against
the
rule
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
5. SEC
Decision
Tree 4
COMPLIANCE TO THE
SEC CONFLICT MINERALS RULE
Do
you
report
to
the
SEC?
Do
you
manufacture
or
contract
to
manufacture
products?
Are
conflict
minerals
necessary
to
func@onality
or
produc@on?
Are
the
conflict
minerals
in
the
supply
chain
aaer
January
31,
2013?
Did
conflict
minerals
originate
in
the
covered
countries?
(DRC
+
9)
Did
conflict
minerals
come
from
non
scrap
or
recycled?
Did
you
determine
that
the
conflict
minerals
are
not
from
the
covered
countries
or
are
from
scrap
or
recycled
material?
Did
you
determine
whether
the
conflict
minerals
financed
or
benefiMed
armed
groups?
From
2015
onwards
List
‘DRC
Conflict
Free’
products
in
the
CMR
Audited
List
‘DRC
Conflict
Undeterminable’
products
in
the
CMR
No
audit
Form
SD
Filing
Form
SD
+
Conflict
Minerals
Report
annex
Rule
Scoping
Determina2on
Supply
Chain
Due
Diligence
No
Regulatory
Obliga@on
Reasonable
Country
of
Origin
Inquiry
No
-‐
Reasonable
Certainty
Rule
does
not
apply
No
to
any
No
Yes
–
Reasonable
Certainty
No
Yes
6. Scoping
and
Determina)on 5
Room
for
interpreta)on
lea
by
the
SEC
– what
is
‘contract
to
manufacture’?
– what
is
'necessary
to
the
produc)on‘?
– what
is
due
diligence?
– what
are
'reasonable
measures'
in
RCOI
and
DD?
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
7. Defini)ons 6
• What
does
Contract
to
Manufacture
mean?
– Firm
approaches
the
contract
manufacturer
with
a
design
or
formula,
and
not
to
purchase
'off
the
shelf‘
– The
contract
manufacturer
will
quote
the
parts
based
on
processes,
labour,
tooling,
and
material
costs
• What
the
SEC
means
– The
final
rule
release
provides
guidance
on
how
to
conduct
this
inquiry,
yet
does
not
explicitly
define
what
it
means
to
“contract
to
manufacture”
products
– The
SEC
has
indicated,
however,
that
a
company
will
not
be
deemed
to
“contract
to
manufacture
a
product”
if
it
merely:
• affixes
its
brand,
marks,
logo,
or
label
to
a
generic
product
manufactured
by
a
third
party
• services,
maintains,
or
repairs
a
product
manufactured
by
a
third
party
• specifies
or
nego)ates
contractual
terms
with
a
manufacturer
that
do
not
directly
relate
to
the
manufacturing
of
the
product
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
8. Defini)ons 7
What
does
necessary
to
the
produc@on‘
mean?
• The
SEC
specifically
declined
to
define
the
term
"necessary
to
the
func)onality
or
produc)on."
• In
determining
whether
conflict
minerals
are
necessary
to
the
func)onality
or
produc)on
of
a
product,
the
rule
release
advises
companies
to
consider
the
following
factors:
– Whether
a
conflict
mineral
is
contained
in
and
inten)onally
added
to
the
product
or
any
component
of
the
product
and
is
not
a
naturally
occurring
by-‐product;
– Whether
a
conflict
mineral
is
necessary
to
the
product's
general
expected
func)on,
use
or
purposes;
and,
– If
a
conflict
mineral
is
incorporated
for
purposes
of
ornamenta)on,
decora)on,
or
embellishment,
whether
the
primary
purpose
of
the
product
is
ornamenta)on
or
decora)on.
• Companies
will
have
to
make
decisions
as
to
what
level
of
reputa)on
risk
they
are
prepared
to
associate
with
their
bona-‐fide
declara)ons.
• We
generally
advise
that
in
doubt
(key
packaging
elements
in
par)cular),
inves)gate.
The
incremental
cost
of
adding
products
to
the
inves)ga)on
is
generally
minimal.
• There
is
no
minimal
excep)on
to
the
rules.
If
any
amounts
of
conflict
minerals
are
necessary
to
the
func)onality
or
produc)on
of
a
product
manufactured
or
contracted
to
be
manufactured
by
the
company,
a
reasonable
country-‐of-‐origin
inquiry
needs
to
be
conducted.
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
9. Defini)ons 8
What
is
supply
chain
due
diligence
in
prac@ce?
• Due
diligence
on
your
supply
chain
to
iden)fy
source
of
minerals:
iden)fy
products,
iden)fy
suppliers,
put
in
place
internal
systems
of
control
to
govern
due
diligence.
• The
SEC
has
endorsed
and
singled
out
the
OECD
DD
Guidance
–
its
not
a
requirement,
but
is
the
most
widely
recognised
and
embedding
a
number
of
other
guidance
• Other
guidance
forthcoming
in
the
US
such
as
IPC
• Forthcoming
EU
Rule
possible
What
are
'reasonable
measures'
in
RCOI
and
DD?
• If
minerals
were
in
supply
chain
following
Feb
1
2013,
you
must
RCOI
(no
DD
required
on
products
manufactured
beforehand)
• OECD
recommends
that
downstream
companies
conduct
a
first
)er
supplier
DD
enquiry
and
support
industry
ini)a)ves
What
this
means
for
repor@ng
companies
• Rule
determina)on
phase
defines
(narrows
down)
the
applicability
scope
• Management
decisions
on
the
acceptable
level
of
compliance
• Need
to
insist
on
the
'best
of
my
knowledge'
and
'reasonable'
aspect
of
the
rule
-‐
no
financial
penalty
for
a
poor
due
diligence
process,
but
intense
scru)ny
from
civil
society
and
in
turn
your
customers
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
11. Our
Approach 10
COMPLIANCE WITH THE
SEC CONFLICT MINERALS RULE
Conflict
Minerals
Diligence
in
5
steps
1. Informa)on
and
training
-‐
to
assist
with
general
understanding
of
exis)ng
regula)on,
standards
and
impact
2. Quick
gap
analysis
to
iden)fy
general
rule
applicability,
relevant
management
and
systems
processes
and
supply
chain
understanding
If
the
gap
analysis
iden)fies
the
need
to
go
forward:
3. Thorough
scoping
and
determina)on
-‐
to
assess
exposure
in
terms
of
content,
'necessity'
of
the
minerals
and
other
aspects
of
the
rule;
4. Review
of
Company
Management
Systems
-‐
to
ensure
that
ac)ons
taken
by
your
company
to
comply,
or
support
your
client's
compliance,
will
be
appropriately
documented
and
performed
5. The
actual
supply
chain
due
diligence
in
two
steps
('reasonable
country
of
origin
inquiry'
and
'due
diligence'
as
per
SEC
defini)ons)
a.
Note
the
results
of
the
due
diligence
efforts
will
need
to
be
made
public,
if
you
are
subject
to
the
SEC
rule
b.
This
due
diligence
will
also
need
to
undergo
a
separate
audit
–
typically
this
should
be
able
to
be
performed
by
your
usual
auditors
12. Supply
Chain
Due
Diligence AN INTRODUCTION TO RESOURCE
CONSULTING SERVICES
Why
RCS
Global
and
the
Conflict
Minerals
Consor@um?
• 10
years+
experience
on
this
issue
• Significant
project
work
specific
to
supply
chain
due
diligence
with
other
companies
• We
work
keep
the
project
simple
and
can
respond
with
flexibility
to
suit
our
clients
business
needs
–
to
do
more
or
less
• RCS
Global
and
CMC
members
advised
the
SEC
and
OECD
on
their
rules
• Our
business
model
sees
us
in)mately
and
personally
involved
in
the
project
every
step
of
the
way
• Cost
effec)ve!
1011
