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www.intertek.com 1
Conflict Minerals Intertek – Managing Conflict Minerals Requirements
Matt Quinn – Chemical Services
www.intertek.com 2
Our Heritage
Caleb Brett founds a marine surveying business
1885
Thomas Edison establishes what is later renamed as the Electrical Testing Laboratories (ETL)
1896
Virginius Daniel Moody establishes Moody Engineering for construction and electrical engineering projects
1911
Intertek and Moody International join forces
2011
Intertek Today: Valued Quality. Delivered.
Today 1973
Labtest
establishes
the first
commercial
consumer
goods testing
facility in
Hong Kong
1989
Labtest
establishes
the first
commercial
testing
laboratory in
China
www.intertek.com 3
• FTSE 100 company in the
Support Services sector
• Revenue generation of over
£2bn in 2014
More than
1,000 laboratories and offices
More than
100 countries
Over
38,000 people
An Extensive Global Network
www.intertek.com 4
Intertek at a Glance
Our organisation
Products
Industry
Commodities
Industries we
operate in
Aerospace & Automotive
Building Products
Chemical
Consumer Goods &
Retailers
Electrical & Electronic
Energy
Food & Agriculture
Government & Institutions
IT & Telecom
Industrial
Medical & Pharmaceutical
Minerals
Petroleum
Toys, Games & Hardlines
Textile, Apparel
& Footwear
What we do
Testing
Inspection
Certification
Auditing
Outsourcing
Advisory
Training
Quality Assurance
www.intertek.com 5
• On August 22, 2012, the Securities and Exchange Commission
(SEC) adopted S1502 of the Dodd-Frank Act
• Known as the Conflict Minerals Act.
• The regulation is intended to act as a “catalyst” to avert direct or
indirect financing of conflict in the Democratic Republic of
Congo (DRC) and 9 neighboring countries through pressuring
companies to disclose origin of materials used in the supply
chain.
• The Conflict Minerals Act covers the “3T’s & G”:
• Tin
• Tungsten
• Tantalum
• Gold
Overview of Dodd-Frank S1502 – The Basics
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• Companies that are affected:
• “Issuers - Companies who file under Exchange Act (SEC)
• Manufacture or contract to manufacture products where
3T&G “are necessary for the functionality or production” of
the finished product
• If the minerals are intentionally added at any point.
• Indirectly will affect most supply chains that sell to
publically traded organizations.
• No “de-minimis” clause
Overview of Dodd-Frank S1502 – Impact on
Companies
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Why Section 1502?
• Exploitation of conflict minerals originating in the Democratic
Republic of Congo (DRC) is helping to finance conflict with extreme
levels of violence in eastern DRC.
• The conflict has claimed >5 million lives since late 1990s.
• The DRC is #186 of 187 countries on UNDP’s Human Development
Index. (2014)
Mineral Metal Derivatives Share of Global
Production from
DRC
Columbite-tantalite
(coltan)
Tantalum ~15-20%
Cassiterite Tin ~5%
Wolframite Tungsten ~2%
Gold Gold ~2%
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The 3T+G Supply Chain
Mines
Trading Houses
…
Product/Component
Manufacturer
OEM
Smelter / Refiner
…
1,000s
1,000s
100s
In-Country Bag and Tag Systems
Solutions for Hope (SfH): Tech sector initiative
launched in July 2011 to create an initial flow of
conflict-free tantalum from the DRC
RCOI drives industry to get down to this level;
Companies can “piggy back” onto Industry initiatives,
such as the Conflict Free Smelter Program
Companies conduct self assessment
questionnaires, RCOI and Due Diligence
Companies have the most impact further downstream.
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The final ruling requires Issuers to conduct the following:
1. Determine Applicability
• Understand whether you fall under scope of the requirements and whether
your products contain Conflict Minerals that are necessary to the functionality
or production of your product.
2. Determine Whether Conflict Minerals Originated in the Democratic
Republic of the Congo or Adjoining Countries and the Resulting
Disclosure
• Reasonable Country of Origin Inquiry (Risk Assessment)
3. Supply Chain Due Diligence and Conflict Minerals Report (if required)
• Smelter/Refiner Due Diligence
• Traceability Audits
• Creation of Form SD/Conflict Minerals Report
What does the SEC Require for Compliance?
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Companies will need to determine whether their products contain
Conflict Minerals and whether they are necessary:
1. To the Functionality of the Product
2. To the Production of the Product
This Determination should also be carried out by the private
organizations within the supply chain. This will account for
deviations in product assessments and focus RCOI efforts.
Step 1: Determining Applicability
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Conflict Minerals Usage
Electronic Hardware Tantalum Tin Tungsten Gold
PCB √ √ √ √
Solders √ √
Component lead frames, contacts, and connectors √ √
Processors and chipsets √ √ √ √
Capacitors √ √ √
Hard disk drive √ √ √
LCD screens and displays √ √ √ √
Power supplies and adaptors √ √ √
Speakers √ √ √ √
Cameras √ √ √
Batteries √ √ √
Cables √ √
Mechanical Parts √ √ √ √
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Functionality of the Product – issuers will need to consider the
following:
• If the conflict mineral was added intentionally to the product or
a component of the product. Does not have to be the issuer
adding the CM.
• If the mineral is needed for one function, use, or purpose of the
finished product. (Example: Smart Phone)
• Whether the conflict mineral is incorporated for purposes of
ornamentation, decoration, or embellishment.
Determining “Necessary to Functionality of
Product”
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Production of the Product – issuers will need to consider the
following:
• If the conflict mineral was intentionally included in the
production process. This does not include tools, machines or
equipment that are used during the production process.
• Whether the conflict Mineral is required for the production of
the product.
• Whether Conflict Mineral was included in the product.
Catalysts that are used during the manufacturing process that do
not remain in the product are exempt.
Determining “Necessary to Production of
Product”
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• If products contain necessary Conflict Minerals, the Issuers are
required to carry out RCOI to determine if they are sourced
from the Covered Countries.
• Final ruling does not specify what steps and outcomes are
necessary to satisfy the reasonable country of origin inquiry
requirement as it “depends on each issuer’s particular facts
and circumstances”
• RCOI process should be aligned with OECD Due Diligence
Guidance for Responsible Supply Chains of Minerals from Conflict-
Affected And High-Risk Areas
• Provides Country of origin information as well as provides risk
information on the individual supplier.
Step 2: Reasonable Country of Origin Inquiry
(RCOI)
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• Conflict Free Sourcing Initiative (CFSI) has created the Conflict
Mineral Reporting Template (CMRT) to standardize data collection
• Records suppliers Conflict Mineral information and
• Smelter/Refiners found in the supply chain.
• IPC1755 - Conflict Minerals Data Exchange Standard
Establishes Requirements for Suppliers and their Customers
http://www.conflictfreesourcing.org/conflict-minerals-reporting-
template/
• Need to determine which level of Declaration you will be collecting:
Corporate vs. Product
• Companies will be moving towards collecting Product level
declarations in order to help stream line Due Diligence phase.
Tools to Carry Out RCOI Process
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How is the RCOI Carried Out?
How do companies conduct a reasonable country-of-origin inquiry?
• Supplier Self Assessments provide trickle-down effect, for easier risk filtering.
• For example, the CFSI Conflict Mineral Reporting Template
Supplier (‘User’)
The
Company
Direct
Supplier
Sub-
Supplier
Direct
Supplier
Send Back
Aggregated/Completed Templates
Beginning: Send Instructions
and Questionnaire
Send Back
Aggregated/
Completed
Templates
End: Send Back
Aggregated/Completed
Templates
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• Data validation needs to occur on CMRTs from the supplier.
• Do the responses provided for each of the questions contradict
each other? Example: Do all 3TGs originate from recycled
sources, answers Yes for Tantalum, but only has collected
50% of CMRTs from their suppliers.
• Have the suppliers provided valid Smelter/Refiner information?
• Compare provided information to CFSI, LBMA, and State
Department List.
• Trying to validate data manually may be very difficult.
• Automating this process will save time and mitigate risk of errors.
RCOI Process – Data Validation
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• Once Data is collected the smelter list should be amalgamated
and reviewed to determined if the supply chain contains any
3TGs from the DRC or covered countries.
• This will dictate whether you need to move onto Step 3: Due
Diligence.
• Understanding customer responses to questions A-J will help
determine risk of suppliers.
• Will need to conduct traceability audit on some of the higher risk
suppliers.
• Private companies will roll-up data into corporate CMRT
and provide to customers.
RCOI Process – Data Roll-Up
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Due Diligence: Countries of Risk
Sudan
Uganda
Rwanda
Burundi
Tanzania
Zambia Central African Republic
Congo
Democratic Republic of
Congo
Angola
Companies should Red
Flag suppliers
knowingly sourcing
minerals in the DRC or
surrounding countries
and suppliers who
don’t know and thus
are unable to determine
the mineral(s)’ origin
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RCOI: Intertek’s Supplier Management Solution
Identifies HIGH RISK SUPPLIERS
AND SMELTERS/REFINERS
HOUSES AND ANLALYZES
SUPPLIER PROFILES through supplier
submitted CMRTs
Facilitates Process by:
• VALIDATES CMRT RESPONSES
• VALIDATES
SMELTERS/REFINERS
• COMPILES SMELTER LIST
• POPULATES CORPORATE /
PRODUCT CMRT
• LOGS ALL ACTIVITY FOR AUDIT
TRAIL PURPOSES
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There are two potential scenarios that are dictated by the CMRT
data you collected:
• If no 3TGs from the Covered countries are present or they
came from recycled or scrap sources, you submit a Form SD
describing your RCOI process and how you came to this
determination. (Annually)
• If Issuers determine (or have reason to believe) that necessary
3TGs are in the supply chain and are from the covered
countries, Issuers are required to move to Step 3.
What Are My Responsibilities After My RCOI is
Complete?
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• Issuers are required to conduct due diligence on the source
and chain of custody of the Conflict Minerals found in the
supply chain sourced from the covered countries.
• Due diligence process must be based on nationally or
internationally recognized standards as well as the Issuers
individual facts and circumstances.
• OECD Due Diligence Guidance for Responsible Supply Chains of
Minerals from Conflict-Affected And High-Risk Areas
• Misconception that the RCOI is part of the due diligence
process. This is not the case.
Step 3: Due Diligence and Conflict Minerals
Report
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• The purpose of the due diligence is to determine if the Issuers
3T&Gs are “conflict free” or not.
• Steps can include, but not limited to:
• Validating “unknown” smelters / refiners
• Reviewing “validated” smelters / refiners and identifying who has
been deemed to be “Conflict Free” through auditing – CFSI
Conflict Free Smelter Program
• Putting forth a “reasonable” effort in determining risk of remaining
smelters / refiners as to whether they are Conflict Free or not.
• Verifying suppliers information through traceability audits.
Step 3: Due Diligence and Conflict Minerals
Report – Cont’d
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• OECD Guidelines provides a framework that companies can
use to determine and mitigate risk of sourcing Conflict Minerals
from the covered countries.
• 5 Steps:
• Establish Strong management systems
• Identify and assess risk in the supply chain
• Design and implement a strategy to respond to identified risks
• Carry out independent third-party audit of smelters/refiners’ due
diligence practices
• Report annually on supply chain due diligence
OECD Guidelines - Overview
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1. Establish Strong Company Management Systems
• Create appropriate internal stakeholder team
• Create a company policy and statement regarding your conflict
minerals position and your expectations of your suppliers going
forward.
• This should be communicated internally as well as externally.
• Create RCOI process to identify 3TG’s and Conflict Minerals
sourced from the covered countries.
• Ensure you work Conflict Minerals into your procurement
contracts with your suppliers.
• Implement internal system to identify possible risks within the
supply chain.
OECD Guidelines – Developing Internal
Systems
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2. Identify and Assess Risk in the Supply Chain
• Reasonable Country of Origin Inquiry and Traceability Audits
3. Design and Implement a strategy to respond to identified
risks
• Reporting of risk assessment to management steering
committee.
• Create a Process for dealing with at risk suppliers or
Smelters/Refiners
• Strive for year-over-year improvement of your internal process
and policies. Risk Mitigation.
OECD Guidelines – RCOI and Responding to
Identified Risks
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4. Carry out independent third-party audit of supply chain
due diligence at identified points in the supply chain
• SEC Final Ruling initially required “Conflict Free” declarations
in Conflict Minerals Report to go through an Independent
Private Sector Audit (IPSA).
• This has changed.
5. Report on supply chain due diligence
• Form SD / Conflict Minerals Report
OECD Guidelines – Auditing Due Diligence and
Reporting
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• Utilizing Industry Associations and groups will facilitate
Due Diligence process with determining Conflict Mineral
Status of Smelters/Refiners.
• Are they actually a Smelter/Refiner?
• Have they been audited and deemed “DRC Conflict Free”
• Conflict Free Sourcing Initiative (CFSI)
• Joint effort of Electronic Industry Citizenship Coalition (EICC) and
Global e-Sustainability Initiative (GeSI)
• Audit Smelters and Refiners to determine “Conflict Free”
• 45 Tantalum; 42 Tin; 15 Tungsten; 70 Gold
• Created and Maintain CMRT
• CFSI, LBMA and State Department lists can be used to
identify valid Smelters/Refiners. They are not exhaustive.
Utilizing Industry Associations to Help with
Due Diligence
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• If Issuer finds that Conflict Minerals are not sourced from covered
countries or are from recycled or scrap sources, they must
describe their due diligence in the Form SD. • Not required to submit Conflict Minerals Report
• If Issuer finds that Conflict Minerals are sourced from Covered
Countries and not from recycled and scrap sources, they must file
a Conflict Minerals Report as an exhibit of their Form SD.
• If some Issuers are not able to determine whether their products
are conflict free or not, they can declare as “DRC Conflict
Undeterminable”. • Past this filing only smaller reporting companies (less than 75 million in
outstanding shares owned by the public) – allowed until 2016 data year
(2017 filing).
What Do The Outcomes of My Due Diligence
Mean? (Final Ruling)
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• The final ruling states that a CMR must include the following:
• The country of origin of those conflict minerals
• Any effort made to determine the mine or location of origin with the
greatest possible specificity
• The facilities used to process those conflict minerals, such as the
smelter or refinery through with the issuer’s minerals pass
• A description of any products that are not “DRC conflict free.”
• Generally companies will use the OECD Guidelines as a
framework for their CMR.
• Does not have to be overly specific, but should address the
different pieces.
Conflict Minerals Report (CMR)
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• Under the final ruling if you want to claim “DRC Conflict Free”
you will need to have an IPSA conducted on Due Diligence.
• Audit does not determine whether you are “Conflict Free” or not.
• Looks at your process and determines whether you followed it .
Conflict Minerals Report (CMR) – Cont’d
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• Court of Appeals has ruled that declaration of Conflict Minerals violates the
First Amendment.
• In appeal process.
• Confirmed by Court of Appeal for the D.C. Circuit reaffirmed it’s decision
(Aug 18)
• SEC has issued statement on the following changes:
• “No company is required to describe its products as “DRC conflict free”,
“not been found to be ‘DRC conflict free’ or DRC conflict undeterminable”.
• If a company has products under scope “it would not have to identify the
products as “DRC conflict undeterminable” or “not found to be ‘DRC conflict
free,’” but should disclose, for those products, the facilities used to produce
the conflict minerals, the country of origin of the minerals and the efforts to
determine the mine or location of origin.”
Change in CMR and IPSA Requirements
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• “Pending further action, an IPSA will not be required unless a
company voluntarily elects to describe a product as “DRC
conflict free” in its Conflict Minerals Report.”
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/13705416
81994#.VP7rPvnF_aU
Although IPSA’s are not currently required, there will be
organizations that will still move forward with these audits in an
effort to declare “DRC Conflict Free”.
Change in CMR and IPSA Requirements –
Cont’d
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• Issuers are looking to the supply chain to provide corporate and
Smelter/Refiner information in order to determine if they have any
Conflict Minerals in their Supply Chain. • Looking at Private Companies to implement the necessary risk
mitigation processes.
• Now that the Issuers have (almost) two filings under their belt, the
push back on “problem” CMRTs will most likely increase. • Some Issuers are readying themselves for audits and will need to
tighten the information from the suppliers. Increased transparency.
• Be prepared to provide CMRT on product level. Issuers want to
minimize due diligence efforts.
• Be prepared to show progress year-over-year. They are looking
for you to improve your internal program.
What Does All This Mean to the Supply Chain?
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• Determining product applicability will help streamline your
RCOI efforts.
• Align your program with OECD Guidelines to ensure you are
developing an acceptable program.
• Work with industry associations where possible to help with
Due Diligence efforts.
• Although IPSAs are not currently required, companies will still
be conducting them to ensure Conflict Free Status.
Summary of US Conflict Minerals
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• Previous voluntary conditions have been removed and has
moved towards mandatory requirements.
• Smelter and Refiners will be required to do through a 3rd party
audit.
• Is not limited to Issuers. Can affect all EU Manufacturers
(~880,000 businesses).
• Companies must provide “information on the steps they take to
identify and address risks in their supply chains for the minerals
and metals concerned.”
• It currently has a global scope. Not just limited to DRC…
• Still open and requirements can change.
EU Conflict Minerals – First Vote Info
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