Conflict Minerals - Form SD and Conflict Minerals Reports

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info@assenTcompliance.com w w w. a s s e n T c o m p l i a n c e . c o m Tel: 613.290.8044

Section 1502
Conflict Minerals
Step 3 – FORM SD & Conflict
Minerals Reports
Assent Compliance

Jonathan Hughes
613.290.8044
jon.hughes@assentcompliance.com

C u s t o m s o l u t i o n s f o r c o m p l i a n c e [ REAC H | R o H S | CP s i a | RSL | p r o p 6 5 ]

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Agenda

• Assent Compliance Corporate Overview
• Brief recap of Dodd-Frank Act Section 1502
• Assent Compliance involvement with Dodd-Frank Act
• Form SD
• What does the Law State?
• Sample Form
• Conflict Minerals Report
• What does the Law State?
• Different Conflict Mineral Report Statuses
• Application of OECD Due Diligence
• Lessons Learned
• Assent Compliance Services
• Q&A

C u s t o m s o l u t i o n s f o r c o m p l i a n c y [ REAC H | R o H S | CP s i a | RSL | p r o p 6 5 ]

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About Assent
Assent Compliance delivers SaaS Environmental Compliance Services to
companies who must comply with local, national and global environmental
regulations. Assent also supports its software division with a team of highly
experienced industry consultants to provide our clients with turnkey
compliance solutions. Industry experts at Tier 1 companies rank Assent
Compliance amongst the top environmental compliance solutions in the
world and one of the only global solution providers to offer a full service
solution from end to end.

Our Mission
Is to help our clients comply with environmental regulations in the
most efficient and cost effective manner possible. This is achieved
through SaaS automation of processes and working with clients
to build efficient internal compliance programs that meet global
compliance requirements.


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How The Assent Compliance
Management System Works
Integrates with
Pulls Bill of Material (BOM) Communicates with Supply
Major ERP/PLM
into a centralized compliance Chain in bi-directional fashion
Systems
data base or operates as a to procure environmental
stand-alone system. information from suppliers

Modules to Comply with
All Major Environmental Build IPC 1752-A FORMS.
Regulations Import/Export via XML

Built-in CRM for compliance
Homogenize proprietary
tasks, due diligence reporting
supplier DOC formats in xml
and audit trails

Allows internal Staff to Acts as a repository for any
Make Engineering Override compliance related material
assessments


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Consulting Services
 Compliance Assessment Services For Environmental Regulations

 Internal Standard Operating Procedure Consulting

 Compliance Plan Development

 Compliance Strategy Consulting

 Conflict Mineral Compliance

 IT System Integration


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our offices
Munich, Germany
london, UK

Ottawa, Ontario Can-
ada (HQ)

Taipei,
Taiwan

Bangalore, India
New York,
New York

Kenya
(Conflict Minerals)


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Section 1502 – Dodd-Frank Wall Street
Reform and Consumer Protection Act
The basics
• The Conflict Minerals (3TGs)
• Tin (Cassiterite Ore)
• Tungsten (Wolframite)
• Tantalum (Coltan Ore)
• Gold

• The Countries
• Democratic Republic of Congo • Congo Republic
• Central Africa Republic • Tanzania
• South Sudan • Burundi
• Zambia • Rwanda
• Angola • Uganda


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• Conflict Minerals Definition:
• Mined in conditions of armed conflict and abuses of human rights
As per 17 CFR Parts 229 and 249 “The Conflict Minerals” Rule:
“It is the sense of the Congress that the exploitation and trade of conflict minerals originat-
ing in the Democratic Republic of the Congo is helping to finance conflict characterized
by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly
sexual – and gender-based violence, and contributing to an emergency humanitarian situ-
ation therein”

• This situation attracts Media attention
• Child Soldiers
• Sexual assault on a mass scale
• Intimidation and abuse of local populace
• Armed control of mines, trading routes, and other strategic areas

More Media attention = More Consumer attention


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 Section 1502 – Dodd-Frank Wall Street
SCOPE
• Companies that register with the SEC
• 10K (US)
• 20F (Foreign)
• 40F (Canadian)
Legal Wording: Issuers that File Reports Under Sections 13(a) and 15(d) of the Exchange Act
• Conflict Minerals “necessary to the functionality or production” of its products manufactured
(or contracted to be manufactured)
• Suppliers to impacted SEC filing companies are affected by the process, even if they are not an
SEC filing company themselves


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 Principal Requirements (as part of
annual reporting to SEC) – FINAL RULES
• Reasonable Country of Origin Inquiry
• Trace back of all 3TGs to country of origin
• Determine if 3TGs are from scrap or recycled sources

Possible Scenarios and Requirements stemming from the RCOI:
Scenario 1:
• If the Issuer knows all 3TGs did not originate in DRC Countries or are from scrap or recycled
sources
OR
• If the Issuer has no reason to believe that the 3TGs may have originated in the covered coun-
tries and may not be from scrap or recycled sources.


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Requirements:
• Disclosure of the RCOI on Issuer Internet website
• File Form SD with the SEC as part of annual filings:
»» Disclose the determination
»» Disclose the process
»» Disclose the internet address of the site with the RCOI Information
• Maintenance of reviewable business records to support a reasonable country of origin conclusion
is not required but it is mentioned in the final rules that maintenance of appropriate records may
be useful in demonstrating compliance with the final rule.
Additional Note from the Final Rules: These reviewable records may be required by any nation-
ally or internationally recognized due diligence framework applied by an issuer.


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Principal Requirements (as part of
annual reporting to SEC) – FINAL RULES
CONT’D
Scenario 2:
• If the Issuer knows or has reason to believe that the 3TGs may have originated in the covered countries.
OR
• If the Issuer knows or has reason to believe that the 3TGs may not be from scrap or recycled sources.

Requirements:
• All the above tasks plus
• Create Conflict Minerals Report
• Filed as exhibit to the Form SD
• Make report available on the Internet website

• Same as proposed – All of the above must be audited by a 3rd party
• 10K/20F audited as a part of overall SEC filing
• Independent Private Sector Audit - Required for the Conflict Minerals Report (exceptions
surrounding the “Undeterminable Status” exist)


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 Final Rules Flowchart
Does the issuer file re- Does the issuer
ports with the SEC under manufacture or Are conflict minerals necessary to the
YES YES
sections 13(a) or 15(D) of the contract to functionality or production of the product
exchange act? manufacture products? manufactured or contracted to be
manufactured?
No
No

File does not apply. No
END
YES
YES Were the conflict minerals outside the sup-
ply chain prior to January 31, 2013?

No, if newly mined
No, if potentially scrap or recycled
On a reasonable country of origin inquiry (RCOI), No
YES does the issuer know or have reason to believe that
the conflict minerals may have originated in the DRC Based on the RCOI, does the issuer know or reasonably
or an adjoining country (the covered countries)? believe that the conflict minerals come from scrap or
recycled?

No
YES

File a form SD that discloses the issuer’s determination and
Exercise due diligence on the source and chain of custody of its conflict minerals follow- briefly describes the RCOI and the results of the inquiry.
ing a nationally or internationally recognized due diligence framework, if such framework
END
is available for a specific conflict mineral.
In exercising this due diligence does the issuer determine the conflict minerals are not from
Yes
the covered countries or are from scrap or recycled.
File a form SD the discloses the issuer’s determination and
No briefly describes the RCOI and due diligence measures taken
and the results thereof.
File a form SD with a conflict minerals Report as an exhibit, which includes a description of END
the measures the issuer has taken to exercise due diligence.
In exercising due diligence, was the issuer able to determine whether the conflict minerals
No Is it less than two years after the
financed or benefitted armed groups?
effectiveness of the rule (four years
for smaller Reporting companies)?
Yes

The conflict minerals report must also include and independent private sector audit report, The Conflict minerals Report must also include
which expresses an opinion or conclusion as to whether the design of the issuer’s due diligence No Yes
a description of products that are “DRC Conflict
measures is in conformity with the criteria set forth in the due diligence framework and wheth- Undeterminable” and the steps taken or that will
er the description of the issuer’s due diligence measures is consistent with the process under- be taken, if any, since the end of the period covered
taken by the issuer. Also, include a description of the products that have not been found to be in the last Conflict Minerals Report to mitigate the
DRC Conflict free, the facilities used to process the necessary conflict minerals in those prod- risk that the necessary conflict minerals benefit
ucts, the country of origin of the minerals and the efforts to determine the mine or location or armed groups, including any steps to improve due
origin of those minerals with the greatest possible specificity. END diligence. No audit is required. END


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Section 1502 – Dodd-Frank Wall Street
Assent Compliance’s Involvement with Dodd-Frank
Section 1502
• Meeting with SEC
• Over the course of Monday December 12th and Tuesday December 13th, Assent Compliance
met separately with Commissioner Paredes, Commissioner Walter and Commissioner Aguilar
for 1 hour each to discuss the following items in respect to Dodd Frank Section 1502
»» NAM and Tulane Reports
»» Compliance costs
»» Practical compliance activities
»» Impact on industry
»» Impact on supply chains
»» Feedback on proposed rules


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• On Wednesday December 14th, Assent Compliance participated in Conflict Mineral discussion
panel with the following panelists:
• GE
• AMD
• Brookings Institute
• RIM
• Claigan Environmental
• KEMET

• The panel discussed various issues surrounding Conflict Minerals and fielded questions from
the audience (which was comprised of congress staff, journalists, industry groups and business
representatives)

• Assent Compliance is included 4 times in the Final Rules from the SEC based on our input
at the meeting and on a separate submitted letter we provided to the SEC.


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 Form SD
What does the Law State?
• All companies in scope of the Conflict Minerals provision must file Form SD.
• This will be done yearly on May 31st, for the previous calendar year.
• NOTE - This is done on a yearly basis and is independent of your company’s fiscal year
• The first report is due May 31st, 2014 for calendar year 2013
• Under the heading “Conflict Minerals Disclosure”, you must provide the following information:
• RCOI Determination
»» Do you have reason believe...?
• RCOI Results
»» Stats, Ex: 1,500 surveyed, 1400 responses, 125 stated source unknown, etc
• Description of your RCOI methodology
»» How was it carried it, what are your policies, how & where is the data stored etc.
• Link to your website where this disclosure is made publically available
»» www.yourcompanyname.com/conflict_minerals_disclosure


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 Form SD
What does this mean?
• You need to have a clear, transparent process that can effectively meet the requirements of the RCOI
• Remember that it is a Reasonable COUNTRY of Origin, not a Reasonable direct supplier
survey – IE: You must have an RCOI methodology in place that allows you to map your
supply chain to determine source where necessary

• You will need to coherently explain the compliance checking process that lead to your determination.
• A simple “We have no Conflict Minerals because we got a spreadsheet from all our suppliers”
is not going to cut it with the SEC or the public
• The key terms used are “reasonable” and “good faith execution”
• Your plan should account for allow for an enable accountable and traceable improvements
in the long term.

• This information is PUBLIC and must be disclosed on your website
• Keep in mind that all your policies regarding Conflict Minerals will be on your website.
• Think of your brand image
• Do not contradict yourself
»» Your website statements must match up with your SEC disclosures as well as
statements you have given to your customers!


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 Form SD
Example
A. Acme Corporation’s Conflict Minerals Disclosure (Reasonable Country of Origin Determination)
Acme Corporation has reason to believe that some of the Conflict Minerals used in its products may
have originated from DRC or adjoining countries.

B. Description of Acme Corporation’s Reasonable Country of Origin Inquiry
Acme Corporation has enlisted the assistance of a 3rd party Consultant – Assent Compliance - to
help design and implement a Conflict Minerals Compliance Plan that will enable compliance with
Dodd-Frank Section 1502. In order to order to achieve these goals, Acme Corporation has taken the
following steps:

1. Conflict Minerals Policy
Acme Corporation has instituted a DRC Conflict Free sourcing policy. Acme Corporation does
not accept the use of Conflict Minerals in its products. All Acme Corporation suppliers are required
to sign the Conflict Minerals policy statement as part of the terms and conditions of doing business
with Acme Corporation. Acme Corporation’s Conflict Minerals Policy statement can be found here:
www.acme.com/conflict_minerals_policy.html
In addition, Acme Corporation supports its suppliers in seeking a mutually sustainable solu-
tion for its entire supply chain, including its indirect suppliers by providing Conflict Minerals
educational materials, guidance and flow-down contract clauses for use by its suppliers.


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2. Internal Standard Operating Procedures
Acme Corporation has created internal standard operating procedures (SOPs) for all depart-
ments and business units that are affected by Conflict Minerals.
These SOPs provide a step by step process that each business unit, department and employee
must follow in order to generate and maintain the necessary information needed for Acme
Corporation’s compliance with Dodd-Frank Section 1502.

3. Risk Assessment & Risk Mitigation
As part of Acme Corporation’s Compliance Plan design, all products and suppliers were as-
sessed in order to identify Conflict Minerals scope and risk. High risk suppliers and products
were flagged in Assent Compliance’s Database for prioritization of due diligence and supply
chain sourcing activities.
High risk suppliers and products are required to provide a greater level of proof, in order to
demonstrate a reason to believe that their conflict minerals do not originate in the covered
countries.
In addition, Acme Corporation has established a separate Risk Mitigation committee which
will specifically address high risk suppliers and products who do not meet the minimum
requirements of Acme Corporation’s Conflict Mineral compliance program. This committee
is responsible for resolving these supply chain issues by assisting the supplier, mapping mine


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of origin or changing the source of the materials in question.

4. Supplier Corrective Actions
Acme Corporation has created a list of Supplier Corrective actions to be taken with vendors
who cannot provide sufficient compliance information. The specific supplier corrective ac-
tions depend on factors such as vendor size, risk level and vendor capabilities.
Suppliers who do not improve their responses in a timely fashion are removed from Acme
Corporation’s supply chain.
Acme Corporation will assist suppliers with their source mapping efforts and provide flow-
down contract clauses where appropriate in the effort to support a mutually sustainable
program for all of its suppliers.

5. Reasonable Country of Origin Methodology
Acme Corporation will be utilizing Assent Compliance’s Conflict Minerals software and
services to conduct its reasonable country of origin inquiry. This will involve sending the
EICC-GESI Conflict Minerals Reporting template to all of Acme Corporation’s direct sup-
pliers. This form must be completed and signed by an appropriate supplier signatory.
All responses are reviewed and sent back to supplier for any corrective measures as prescribed
in Acme Corporation’s Conflict Minerals compliance plan.
High risk responses are sent to the risk mitigation committee for review and further action


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as per Acme Corporation’s Conflict Minerals compliance plan and SOPs.
6. Maintenance of Reviewable Business records
Acme Corporation uses Assent Compliance’s database in order to maintain reviewable busi-
ness records. This includes, supplier responses, supplier corrective actions and risk mitiga-
tion processes.
Although no longer part of the mandatory requirements under final rules, the storage of
these metrics is an important part of demonstrating transparency and is in accordance with
compliance to recommended OECD due diligence.
This will also allow Acme Corporation to show the long-term evolution and improvement
of its program to its shareholders.

C. Results of Acme Corporation’s Reasonable Country of Origin Inquiry
Based on the process described above, Acme Corporation received the following results from its
Reasonable Country of Origin Inquiry:
Initial Assessment and Survey:
Total number of Acme Corporation Suppliers: 1,750
Suppliers in Scope of Conflict Minerals requirements: 1,500
Suppliers surveyed: 1,500
Responses received: 1,500


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Approximately 85% of Acme Corporation’s suppliers were designated as being in scope of
Acme Corporation’s Conflict Minerals Compliance Program.
Supplier Responses
No Conflict Minerals in materials provided to Acme Corporation: 200
Conflict Minerals do not originate from DRC or adjoining countries: 1200
Conflict Minerals source is unknown: 100
Through its Conflict Minerals Compliance Program, Acme Corporation was able to deter-
mine that over 94% of all its suppliers either do not provide materials that contain Conflict
Minerals or do not provide any reason to believe that their Conflict Minerals originate in
the covered countries.
The 100 suppliers that were unable to provide sufficient Conflict Minerals source infor-
mation as part of the initial Reasonable Country of Origin inquiry underwent additional
OECD Due Diligence activities which are describe in Acme Corporation’s Conflict Minerals
report.
Provided below is a link to Acme Corporation’s internet disclosure for Conflict Minerals:
www.acme.com/conflict_Minerals_Disclosure


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 Conflict Minerals Report
Preface
• First we should examine what triggers the requirement for a Conflict Minerals report:
• “requires an issuer that, after its reasonable country of origin inquiry, had reason to believe
that its minerals may have originated in the Covered Countries and may not have come from
recycled or scrap sources and, after the exercise of due diligence, still has reason to believe that its
minerals may have originated in the Covered Countries and may not have come from recycled or
scrap sources, to provide a Conflict Minerals Report that includes a description of the measures
the issuer has taken to exercise due diligence on the source and chain of custody of those conflict
minerals.” (Pg. 182-183)
• This is an important and often overlooked change between the proposed and final rules.
• Before you jump to conclusions and rush right into a Conflict Minerals Report, you must first
determine if you have “reason to believe”.
• Make sure your RCOI is setup to allow your company to make that determination.


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Conflict Mineral Report Status
• Differs from your RCOI determination
• RCOI Determination = “reason to believe”
»» Based on outcome of your RCOI
• Conflict Minerals report = DRC Conflict Mineral status
»» Based on outcome of your Due Diligence measures
• One of three statuses
»» “DRC Conflict Free”
»» “do not contain minerals that directly or indirectly finance or benefit armed
groups in the Covered Countries” (Pg. 185)
»» “Not DRC Conflict Free”
»» “The Conflict Minerals Statutory Provision does not define “Not DRC
Conflict Free” but instead only defines “DRC Conflict Free”” (Pg. 183)
»» “DRC Conflict Undeterminable”
»» Temporary status for issuers that are “unable to determine that their conflict
minerals did not originate in the Covered Countries” (Pg. 186)
»» Only permitted for 2 years for larger issuers and 4 years for smaller issuers
»» Smaller issuers defined as issuers with less than $25,000,000 in revenue as
per Rule 12b-2 [17 CFR 240.12b-2] under the Exchange Act. (Pg. 29)


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Principal Requirements – “Not DRC Conflict Free”
• Conflict Minerals Report must include some of the following items (Pg. 167 of the Final Rules):
• “description of the measures taken by the issuer to exercise due diligence on the source and chain of
custody of its conflict minerals”
• These measures must include “an independent private sector audit” of the Conflict Minerals Report
• Entity that conducted the audit
• “provide a description of the products “manufactured or contracted to be manufactured that are
not ‘DRC conflict free’”
• “facilities used to process the conflict minerals”
• “the country of origin of the conflict minerals”
• “efforts to determine the mine or location of origin with the greatest possible specificity”


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Principal Requirements –
“DRC Conflict Undeterminable”
• “provide a description of the products “manufactured or contracted to be manufactured that are
not ‘DRC conflict free’” – If known
• “facilities used to process the conflict minerals” – If known
• “the country of origin of the conflict minerals” – If known
• “efforts to determine the mine or location of origin with the greatest possible specificity” If Applicable
• “the steps it has taken or will take, if any, since the end of the period covered in its most recent prior
Conflict Minerals Report to mitigate the risk that its necessary conflict minerals benefit armed
groups, including any steps to improve its due diligence” (Pg. 186)
• NOTES – No audit required, but you must still carry out OECD Due Diligence and state
your plan to mitigate risk going forward


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Principal Requirements – “DRC Conflict Free”
• These measures must include “an independent private sector audit” of the Conflict Minerals Report
• Entity that conducted the audit
• NOTE – No need to list products, processes, mine with greatest specificity etc.


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What does this mean?
• OECD has the only nationally recognized due diligence framework
• It is de-facto legislated that you use this process

• Your initial Compliance Plan should start with OECD Due Diligence as a base for your meth-
odologies, processes, policies, etc.
• Make sure your Compliance Plan and RCOI is in-line with OECD Due Diligence and you will
not need to re-invent the wheel
• Can also then incorporate those initial steps as proof of your due diligence measures

• Evolution – expect your plan to improve and evolve over time as more info and infrastructure is
available to support your Conflict Minerals compliance program

• This information is public – if you do have to write a Conflict Minerals Report, write it as if every
customer and shareholder is reading it.


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OECD - Practical Applications
• There are 5 steps outlined under the OECD framework:
1. Establish strong company management systems
»» Compliance Plan
»» RCOI Methodology
»» Due Diligence Plan
2. Identify and assess risks in the supply chain
»» Supplier & Product Profiling
3. Design and implement a strategy to respond to identified risks
»» Risk Mitigation Committee
4. Carry out 3rd party audit of smelter/refiner’s due diligence practices
»» Not applicable to 99%
5. Report annually on supply chain due diligence
»» Part of Conflict Minerals Reporting


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 Lessons Learned
• Follow the rules
• Guidelines, formats, methodologies and processes exist – use them!
• Don’t re-invent the wheel

• Focus on Risk
• Final rules and OECD both recommend a risk based approach
• Profile your risk
1. Suppliers
2. Products
• Mitigate your risk
1. Risk Committee
2. Supplier Corrective Actions
• Getting an EICC spreadsheet from 100% of your direct suppliers is not the same as miti-
gating 100% of your risk.

• Make your life easy:
• Give yourself time to design an effective a plan
• Give your suppliers time but make sure your deadlines are firm
• Setup a multi-departmental Risk Committee
• Start sooner rather than later
1. The longer you wait, the more resources you will need over a shorter period of time


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 How Assent can help
Assent Compliance offers turnkey Conflict Mineral Compliance services including Conflict
Minerals Scope Assessments, Conflict Minerals Reasonable Country of Origin Inquiry, Conflict
Minerals Report generation and Conflict Minerals Software.
Assent Compliance can help you complete your Form SD or Conflict Minerals Report. In support
of these reports, we offer the following services:
• Conflict Minerals Scope Assessments
• RCOI Services
• Conflict Minerals Software
• Due Diligence Support
• Risk Profiling & Risk Mitigation
• Supply Chain Mapping
• Risk Committee participation

If you’d like to know more about our services, contact info@assentcompliance.com


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 Questions?


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