12th CFSI Workshop, Sept 10, 2013: Smelter and Compliance Basics

Conflict Free Minerals Supply Chain Workshop 12

Washington, DC

September 10 and 11, 2013 1

Photo by Jay Celorie

Conflict Free Minerals Supply Chain Workshop 12

Welcome

Washington, DC

Bob Leet, Intel

2

EICC® 81 Members (July 12, 2013)

3

http://www.samsung.com/

http://www.adobe.com/

http://www.amd.com/

http://www.analog.com/

http://www.apple.com/

http://www.appliedmaterials.com/

http://www.celestica.com/

http://www.chicony.com/

http://www.cisco.com/

http://www.dell.com/

http://www.edwardsvacuum.com/

http://www.emc.com/

http://www.flextronics.com/

http://www.foxconn.com/

http://www.hitachi.com/

http://www.ibm.com/

http://www.intel.com/

http://www.jabil.com/

http://www.kodak.com/

http://www.lenovo.com/

http://www1.lexmark.com/

http://www.logitech.com/

http://www.micron.com/

http://www.microsoft.com/

http://www.nvidia.com/

http://www.onsemi.com/

http://www.philips.com/

http://www.pegatroncorp.com/

http://www.quanta.com.tw/

http://www.sanmina-sci.com/

http://www.seagate.com/

http://www.sony.com/

http://www.ttelectronics.com/

http://www.wdc.com/

http://www.xerox.com/

GeSI Members (as of Sep 2013)

Members

Partners

4

CFSI Partners ( As of Sep 8, 2013 )

Partner Industry Associations

Non-Member Partner Companies

+ 4

others

5

http://www.aiag.org/staticcontent/membership/mbrcompanies.cfm?section=membership

http://www.jeita.or.jp/english/

CFSI Commitment

• The CFSI is committed to improving conditions in its supply chain and mining activities that fuel conflict are unacceptable.

• In order to enable participating companies to source conflict-free minerals, we are taking action by: – Implementing Conflict-Free Smelter and Due Diligence Programs

– Supporting in-region sourcing schemes to enable future legitimate trade from DRC and surrounding countries

– Supporting OECD due diligence guidance and pilot

– Engaging with stakeholders for collaboration and efficiency

6

Upstream

Smelters /

Refiners

Downstream

Conflict Free Smelter (CFS) Program

Raw Materials

Finished Products

CFSI Supply Chain Strategy

7

Why Here?

1) Conversion

2) Small Numbers

(<500)

RCOI \ Due Diligence

In-Region Sourcing

In-Region Schemes

Conflict Free Smelter Program (CFSP)

Company Assurance

Finished

Product

MINE SMELTER/REFINERY OEMS

CFSI Conflict-Free Sourcing Approach

8

Conflict Free Sourcing Initiative Workshop Sponsors

9

Conflict Free Sourcing Initiative (CFSI): How to Successfully Pass a Conflict-Free

Smelter Program (CFSP) Audit

Bob Leet

Intel, CFSI Lead Dave Reynolds

Kemet, CFSI Member, CFSP Compliant Smelter

10 September 2013

Background: Key Provision from Dodd-Frank Act

U.S. SEC issued rules requiring certain companies to:

“Disclose annually... whether conflict minerals... did originate in the Democratic Republic of the Congo or an adjoining country [“Covered Countries”] and, in cases in which such conflict minerals did originate in any such country, submit … a report that includes:

(i) a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector audit of such report... and

(ii) a description of the products manufactured or contracted to be manufactured that are not DRC conflict free...”

Source: § 1502, Dodd-Frank Act

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Conflict-Free Smelter Program (CFSP)

The Conflict Free Sourcing Initiative (CFSI) has spearheaded the development of a 3rd party audit process to determine if smelters/refiners are capable of sourcing conflict-free minerals.

• Why: Provide a mechanism that enables and encourages responsible sourcing of tantalum, tin, gold, tungsten

• Schedule: Addressing each metal separately, but concurrently – Tantalum, tin and gold smelter/refiner assessments are underway; tungsten

smelter assessments are expected to begin in 2013.

• Results: A list of smelters/refiners who are certified as compliant with the CFSP audit protocol, which is posted on the CFSP website. – http://www.conflictfreesmelter.org

** Companies make their own sourcing decisions. **

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http://www.conflictfreesmelter.org/

CFSP Audit Focus

13

Company Mass Balance

- Includes all inventory

- Includes all facilities

Ore / Concentrate

Recycled / Scrap

Toll Customer

Finished Products

Toll Supplier

Conflict

Free

Policy

Intermediates

Unfinished Products

Company Program Validation

- Conflict Free Policy

- Conflict Free Sourcing Systems

Sourcing Processes Validation

CFSP Audit Process Overview • CFSP Audit Program Manager coordinates all the below

activities

14

Pre-Audit

• Visit by CFSI

Member(s)*

• Sign Audit

Agreements

• Pre-Audit Checklist

• Line-Item

Summary

• Audit Quote

• Funds Received

• Set Audit Date

Audit • 3rd Party Audit

• Auditor Report

and Compliance

Recommendation

• Audit Review

Committee (ARC):

•

Compliance

Letter

or

•

Improvemen

t Needed

Post-Audit

(non-compliant)

• Improvement Plan

(sent from ARC)

• Improvement

Completed (within

90 days)

• Re-audit (as

necessary)

• ARC Compliance

Determination

* Optional

PRE-AUDIT PROCESS

15

Pre-Audit Visits

• Pre-Audit visits are typically arranged by the customer of the smelter with a CFSI company or two who are end customers

• Objective: Help the smelter prepare for a CFSP audit – Help compile the Line-Item Summary – Answer questions about the Pre-Audit Checklist – To assist where possible answering questions about

the Auditee Agreement and Non-Disclosure Agreement

• These visits have proven to be a winning strategy for the smelter and the downstream customer

16

Line-Item Summary • A documented list of all the smelters purchases during

the audit period and closing inventory at the end

Must be completed completely for appropriate audit quote and effective audit execution!

- Separate worksheet tabs for concentrate, inventory, and Secondary (scrap)

17

Line-Item Summary (Cont.)

• The column headings on the Excel document may not match your company’s system. Work with your auditor to clarify for them.

• Not all transportation documents will match. Work with your auditor to clarify for them.

• The Line Item Summary is the tool the auditors will use to track the material movement throughout your supply chain.

18

Pre-Audit Checklist (Overview of Smelter)

Used to estimate the audit cost at the smelter’s facility(ies)

19

AUDIT PROCESS

20

Key Components of the CFSP Audit

1. Conflict minerals policy review – Publicly available

2. Mass balance – Accounting system assessment

3. Materials traceability assessment – Reasonable Country of Origin Inquiry

4. Due diligence program review – Any other key components (e.g. OECD

expectations)

21

1. Conflict Minerals Policy Requirements

• A documented, effective and communicated conflict-free policy for procurement

• Explicitly states that the smelter avoids minerals that directly or indirectly finance or benefit armed groups from conflict-affected regions.

• Key policy components: – Covers tin/tantalum/tungsten/gold materials as relevant to that smelter/refiner

– Covers the DRC and adjoining countries

– Publicly communicated

– Embedded within standard operating procedures and training provided

– An effective date established

– If sourcing from DRC or adjoining countries, needs to comply with Annex II of the OECD guidance for tin, tantalum and tungsten

– Shared with suppliers

• Tantalum-specific note: Must additionally cover adherence to UN sponsored international transportation regulations (IAEA Regulations for the Safe Transport of Radio Active Material-Class 7)

22

2. Mass Balance

• Objective: to ensure that the declared closing inventory matches that expected from the calculated closing inventory, taking into account the possible error margin of inventory, stock, and loss estimation – The auditor must be able to evaluate the smelters

procurement processes and records, and determine if all material can be accounted for within a 10% margin of error.

• Formula: Closing inventory at end of audit period = Opening inventory at start of audit period + receipts – product shipments – estimated losses

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3. Material Traceability Assessment (Chain of Custody)

• Objective: validate the reasonable countries of origin (RCOI) for the smelter’s procurement, and help to identify any “red flags” which would trigger evaluation against the OECD Due Diligence Guidance

• Auditor validates: – Documentation as identified on the smelter’s Line-Item

Summary demonstrates chain of custody • Secondary (recycle/scrap) evaluation of transportation and

supplier only

– Sampling of finished lots can be traced back to incoming materials to test for missing documentation on the Line-Item Summary

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• Level 1: countries with known active ore production which are not identified as plausible countries for export out of region, smuggling, or transit of conflict minerals

• Level 2: known or plausible countries for export out of region, smuggling, or transit of conflict minerals (currently: Kenya, Mozambique, South Africa)

• Level 3: ore sources currently within conflict regions that are potentially supplying ore materials which currently include the Democratic Republic of the Congo and the adjoining countries

Level 3

Level 2

Level 1

Increasing

Scrutiny

To Demonstrate

Conflict Free

Sourcing

Chain of Custody Documentation Expectations by Sourcing Country

25

CFSP Chain of Custody Expectations L1 L2 L3 Chain of Custody Expectations (Audit Goal)

X X X Substantiate country of origin

X X X Validate transportation chain from mine to smelter/refiner

X X Match material across documents (e.g. concentrate assays)

X X Validate mine existence / reasonable plausibility

X Validate due diligence completed on smelters and their entire supply chain for links to conflict groups

X Validate traceability information in-region: mine-site, concentrating/processing, and transportation

X Validate mine-site baseline studies

X Validate regular monitoring reports from the mine sites

X Validate field governance assessments of wider provincial/country risks (smuggling, security)

X Validate sampling (risk-based) of audit reports on companies with smelters supply chain

X Validate existence of a grievance system

X Validate public disclosure as related to Step 5 of the OECD Guidance

X Validate smelter’s due diligence information is communicated to downstream customers

Review: http://www.conflictfreesmelter.org/CFSAuditStandardandInstructionDocuments.htm

Note: Lesser requirements exist for L1-L2 ASM materials

26

http://www.conflictfreesmelter.org/CFSAuditStandardandInstructionDocuments.htm



CFSP Audit Documentation Examples

L1 L2 L3 Examples of Acceptable Documentation

X X X Government-issued country of origin certificate or copy of mine license/certificate (for domestic mines only)

X X X Government issued export certificate or similar document (for imported material)

X X X Bills of lading or transportation documentation

X X X Sample analysis/results from supplier and/or smelter

X X On-site mine visit reports conducted by the smelter or representative

X X All documents that validate chain of custody from mine to smelter

X X Government issued operating license/certificate for industrial operations or registered cooperatives.

X Demonstrated sourcing from an OECD conformant process

Review: http://www.conflictfreesmelter.org/CFSAuditStandardandInstructionDocuments.htm

27


Level 3 Sourcing • The CFSI encourages continued sourcing from the DRC and the

adjoining countries (“in-region”) • In order to be considered Conflict-Free, in-region sourcing must

reasonably meet minimum international expectations – OECD Due Diligence Guidance for Responsible Supply Chains on

Minerals from Conflict-Affected and High-Risk Areas

• The only known in-region program reasonably meeting appropriate up-stream expectations of the OECD Guidance is iTSCi – Several closed-pipe programs (e.g. Solution for Hope, KEMETs’ vertical

integration, and Conflict-free Tin Initiative) leverage the iTSCi program for portions of their conformance

– iTSCi does require membership to have access to the extra information a smelter would require to be conformant to the OECD Guidance

– Just buying iTSCi-tagged material will not allow a smelter to be conformant to the OECD Guidance

– Other alternative programs are currently in development – ICGLR Regional Certification Mechanism (RCM) certificates as issued

will leverage programs such as iTSCi to validate Conflict-Free sourcing

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4. Due Diligence Program Review

• Objective: Ensure that overall systems and procedures for Conflict Minerals management work together and meet CFSP expectations for all Level 1 through 3 sourcing

• Smelter’s program is evaluated through a review of the conflict minerals policy, mass balance, and sourcing documents

• Procurement and management systems must be sufficiently robust that the smelter/refiner can easily demonstrate the chain of custody for incoming materials.

• Testing of the material on-hand (inventory) upholds the robustness of management systems and demonstrates that the source of origin can be efficiently determined with reasonable certainty.

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OTHER CFSP KEY POINTS

30

CFSP Audit Review Committee (ARC) • ARC Purpose:

– Validate Auditor performance and recommendation relative to audit findings

– Temporary until accreditation program in place

• Member Qualifications: – At least one pre-audit smelter

visit – Auditing Experience (e.g.

quality auditor) – OEM Company

• Inclusive of Industry Experts: – 3rd Party ARC Member from

University of Waterloo – Non-Company expert as

needed, smelter approves (e.g. ITRI, TIC)

Audit

Review

Committee

BlackBerry

Apple

HP Intel

Limited to 7

members

31

CFSP Process Estimated Timeline

Allowance for improvements is up to 90 days, and may require a re-audit

Auditee Agreement

& NDA Signing

Pre-Audit Checklist & Line-Item Summary

Quote

Payment

Audit Date

Settled

Audit executed

Audit Report Created

Audit Passed

Improve-ment

Required

DONE

0.5 to 2

Months

1 to 2

Weeks

2 to 4

Weeks

2 to 4

Weeks

2 to 4

Weeks

32

Benefits of Participation • CFSI continues to gather multi-sector support for the CFS Program

– Electronics very broadly (JEITA supporting partner) – Automotive (AIAG supporting partner) – Retail Industry (RILA supporting partner) – Aerospace (GE, Boeing, and UTC partner companies) – Manufacturing (MSCi and Siemens partner companies) – Jewelry (Signet/Sterling Jewelers partner company)

• Being found compliant with the CFSP protocol helps assure your customers that you can supply them conflict-free minerals – One audit: significantly reduce downstream customer reviews and

audits of your procurement activities – Provides your downstream customers with verified information about

your sourcing activities, allowing them to meet the Dodd-Frank reporting requirements

– Through your participation, you help to encourage responsible mineral trade

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What improvements can be made to the CFS Program?

Bob Leet, Intel

Dave Reynolds, Kemet

What are immediate improvements that can be made to the CFSP?

• Some topical areas: – Audits

• Example: Timing - Allow more time for Audit team to review the LIS prior to onsite visit

– Audit Protocols • Example: Make sure auditee has a ‘go to’ person for Questions prior to

audit

– Program Management – Information Management – Communications

• Some actions underway: – Program management / Decision-making process being

documented – Revised Audit protocols

12th Conflict-Free Sourcing Initiative Workshop

Helping companies make informed choices about conflict minerals in their supply chains

Sept 10-11, 2013 / Washington, D.C.

Compliance Basics

Jay Celorie, HP

Brenda Baney, Delphi




DD Break-Out Sessions Agenda Date/Time Current Tues. 9/10 1:30-3pm Compliance basics (RCOI & DD) and example

• Brenda Baney, Delphi • Jay Celorie, HP

Tues. 9/10 3:30-5:15pm

Downstream due diligence: OECD steps interpretation • Jay Celorie, HP • Sandy Merber, GE

Wed 9/11 1:30-3:00pm Reporting basics (Form SD, CMR, and other) and examples • Bryan Fiereck, Intel • David Hancock, Boeing • Patricia Jurewicz, Responsible Sourcing Network

Wed 9/11 3:15-4:45pm Independent Private Section Audit (IPSA) Panel Discussion • Bryan Fiereck, Intel Corporation • Sandy Merber, General Electric • Lawrence Heim, Auditing Roundtable • Mandy Nelson, American Institute of Certified Public Accountants




SEC Step Goals

• RCOI: determine if – sourcing within CC

– or solely from recycle/scrap

– RCOI method not specified by SEC

• DD: determine if sourcing is supporting conflict in the DRC – Various DD methods could support determinations

• DD & RCOI method(s): – different but must comply with SEC requirements &

nationally/internationally recognized framework (if available)

– describe RCOI/DD method(s) within Form SD and CMR




Compliance Journey

• “Begin with the end in mind.” – Know ‘what’ final compliance looks like before getting started.

• High-level Compliance Steps 1. Build a management program to support

2. Collect the necessary compliance information

3. Summarize compliance information

4. Make compliance conclusions

5. Identify program improvement(s)

6. Report

7. Institute Program Improvements and Repeat




Step 1

Build a company management program to support gathering necessary compliance data.

Management process should identify

1. Product(s) which contain necessary conflict minerals.

2. Suppliers which contribute those necessary conflict minerals to the products.

3. Adopt a policy and expectations for your suppliers




Step 2

Collect the necessary compliance data.

1. Conduct a supply-chain survey (using the CFSI

Conflict Minerals Reporting Template).

2. Review data received from supply-chain against

individual facts and circumstances to ensure

reasonableness and respond if needed.

3. Database the supply-chain survey responses.

• Track status of supplier responses.

• Create smelter/refiner tracking file.

• Relate smelter/refiner to supplier(s) → product(s)




RCOI – Information Sources

• Contemplate the following as available information sources which assists in RCOI determination and results – Conflict Minerals Reporting Survey responses

– Participation in in-region sourcing program(s)

– Information attained from industry initiative program(s)

– Information attained directly from a smelter

– Other indirect information (smelter location)

• Make Covered Country sourcing conclusions from ‘all’ applicable information sources

42




Step 3

Summarize compliance data.

1. Aggregate supplier declaration responses.

2. Aggregate smelter/refiner data.

Include smelter/refiner’s

• Ore origin information (CC or non-CC)

• “DRC Conflict Free” designation by an

independent audit program

• Solely recycle/scrap




DD – Information Sources

• Compare smelters to CF independent audit program reference lists (e.g. CFS, LBMA, RJC)

– DRC CF: smelters which are ‘listed’

– DRC conflict undeterminable: smelters not yet ‘listed’

– Identify additional/future activities one will complete to improve DD

– Goal: identify smelters and rely on industry program

• DD end game: advance the industry independent audit program of smelter/refiners




Step 4

Make compliance conclusions based on

smelter/refiner data.

Ask questions by product category. – DRC CF= all smelter/refiners are DRC conflict free (includes sole

recycling/scrap, facilities on independent audit assessment

program list, facilities known to source outside CC, etc.)

– Not been found to be DRC CF= if one smelter/refiner has been

reported to process ore that directly or indirectly supports armed

group in CC, or after transition period, if one smelter/refiner has

unknown ore source or conflict status

– DRC conflict undeterminable= in transition period, if one

smelter/refiner has unknown ore source or conflict status




Step 5

Identify program improvement(s) to

support better data gathering.

– Strategize how to improve supplier survey

response rate and accuracy.

– Identify and execute strategies to increase

smelter/refiner participation in independent 3rd

party validation audits.

– Modify database to meet changing

compliance requirements.

46




Step 6

Report the results and conclusions using

data collected with the compliance

program.

– Write and submit Form SD if needed

– Write and submit Conflict Minerals Report

(CMR) if needed

– Participate in an Independent Private Sector

Audit (IPSA) of CMR if needed

47




Step 7

Institute program improvements and repeat.

– Implement program improvements.

– Repeat compliance steps during every

compliance period.

– Compare progress towards sourcing goal(s).

Collectively, Steps 1 – 7 should result in

progress towards a DRC Conflict Free

supply-chain.

48

Conflict Minerals Automotive Case Studies

Brenda Baney, Delphi

AIAG: at-a-glance

Globally recognized trade association founded in 1982 – Unique Open/neutral forum to collaborate on industry issues

– 1,000 Member companies & growing

– 35 full-time staff

– Senior Purchasing Executives ‘on loan’ from Chrysler, Ford and GM

– Over 650 Industry ‘volunteers’ providing subject matter expertise

– Over 50 active projects and committees

Conflict Minerals Workgroups

– Information, CFSI, Best Practices, Communications, Technical Information and Due Diligence

– Stakeholder coordination with EICC/GeSI, OECD, IPC, & others

– Workgroups latest public information & resources are available at www.AIAG/CorporateResponsibility

http://www.aiag/CorporateResponsibility

Case Study

• Participants – 2 Original Equipment Manufacturers

– 3 Tier 1 Suppliers

• Three Phases of the Compliance Process: – Getting Started

– Engaging the Supply Chain

– Looking Ahead

• Each section concludes with list of: – Challenges

– Lessons Learned

Getting Started

• Impacts – “Our cross-functional team determined that it applies to our

company globally. It impacts much more than production of vehicles, it also affects after-market parts.”

– Resources noted as most significant impact

• Guidance primarily from AIAG, but also EICC/GeSI, NAM and OECD

• OEMs cite adherence to existing human rights-oriented policies as main motivation while tier suppliers note OEM requests as primary

• One OEM and 1 Tier 1 had completed policy

Getting Started

• Internal Organization

– Cross-functional teams include: Legal, Finance, Engineering, Sustainability or EH&S, Purchasing, Communications and Policy/Govt Affairs

– Generally Purchasing is in charge

– Team meetings from twice/week to once/month

• Tools

– All are recommending suppliers use iPCMP for reporting

– Most are also offering suppliers option of using the EICC/GeSI template

Engaging the Supply Chain

• Casting a Net: Wide or Narrow? – All participants have thousands of suppliers, and some have

tens of thousands – Narrowing the focus

• Direct Material Supplier only • One company used a target list of suppliers whose products most

likely to contain conflict minerals which they arrived at by working with materials engineering

• Other Four participants sent to ALL DIRECT SUPPLIERS – “Who would have ever thought that conflict minerals can turn up in things like seat

foam? Even an educated guess may not be that educated”

• Generally agreed upon timing — OEMs receive data in 4th Qtr — Tier 1-n requesting in 3rd Qtr


• Determining High Risk Suppliers & Follow-up

– Using Materials Engineering to identify suppliers with products containing conflict minerals – 3TG

– Cross referencing using the International Materials Data System (IMDS) which has product material content

– Evaluating each suppliers response, or lack of a response

– “More than how many respond, it’s the quality of response”

– None plan to perform due diligence at the Tier 2 level and beyond. Going to rely on suppliers or decide on case-by-case basis if that depth needed


• Lessons Learned

– Prioritize based on Risk Assessment • Whether or not you cast a wide net, or narrow you will still need

to prioritize high-risk suppliers for outreach and/or follow up

– Establish a Supplier Point of Contact • Including a dedicated email address such as

conflict [email protected]

– Be Patient – But Persistent • There is widespread confusion among suppliers beyond Tier 1

about the details of the conflict minerals compliance rule and whether it applies to them.

Looking Ahead

• Sourcing Expectations

– Most companies still evaluating whether or not their policies will have specific language addressing conflict minerals sourcing

– Only 1 Tier 1 participant said they’re planning to require suppliers to be conflict-free

– One OEM said they expect suppliers to comply with their human rights policy

Looking Ahead

• Auditing Requirement – The SEC’s Big Stick!

• A company’s conflict minerals report must include “a description of the measures taken by the [issuer] to exercise due diligence on the source and chain of custody of its conflict minerals, which measures shall include an independent private sector audit of such report.” and “a description of the products manufactured or contracted to be manufactured that are not DRC conflict free.”

– Three participants are going to hire a third party auditor, such as ones that conduct financial audits

– One non-filing company still plans to structure their process to meet audit requirements

Looking Ahead

• Lessons Learned

– Identify Conflict Minerals when engineering new products

• Establish procedures to identify presence of conflict minerals within new product development

– Recognize the Limitations of Smelter Capacity

• The lack of sufficient conflict-free smelter capacity was Identified as the biggest challenge

• This will help keep your expectations consistent with the options your suppliers have.

Appendix




Downstream due diligence:

OECD steps interpretation

CFSI Workshop 12

Sept 10th, 3:30-5:30 PM




Introduction

Purpose

• Suggest reasonable practices

• For downstream Cos removed from smelter

• Interpret OECD Steps

• Reference CFSI tools

• Link to SEC rule

Disclaimer

• Not legal advice

• Companies accountable for their due diligence and judgment based on their facts and circumstances

• Use at your own discretion




OECD Step 1

Description of elements

that could be considered

reasonable practices

• Policy

• Internal team

• System of transparency

• Engagement with

suppliers

• Grievance mechanism

SEC relationship

• The rule was silent on

specific requirements

relating to these OECD

elements

• These elements could

support a companies

implementation of its

program




OECD Step 2: Identify/Assess Risk

• Clarify role of

downstream company

removed from smelter

• Use ‘industry

mechanism’ to

engage SOR on:

mine of origin, due

diligence, or spot

checks

Suggested Steps

• ID relevant first tier

suppliers

• Survey suppliers

• Review information

received (SORs)

• Compare SORs to

CFSI CFS list or

equivalent




OECD Step 2 relative to SEC

• Step 2 can be used to support RCOI, representations from suppliers could indicate:

– SORs

– Mine of origin

– Solely recycled or scrap

• Compare SORs identified to list of verified facilities, or other known/published information




OECD Step 3: Response to Risk

• Risk=Red Flag

• Red Flag=mineral origin/transit

• Use ‘industry scheme’ to engage SOR on: mine of origin, due diligence, or spot checks

OECD defines upstream role:

• Provide results of risk assessments

• Have SORs get audited

downstream role:

• Identify, to the best effort, SORs

• Review due diligence of SORs by ‘industry scheme’




OECD Risk Management Analogy

Smelter~ airplane pilot

• ‘at the controls’ directly controls risk-based decisions

• e.g. a pilot decides how to operate plane, manages weather risks, etc.

• a smelter choses who to buy minerals from and how much to buy, based on risk based decisions

Downstream Co~ passenger

• Along for the ride, no visibility into cockpit, not consulted for pilot decisions

• No risk-based decisions

• Only decision passengers have--either you stay or you leave (hopefully with a parachute)

• End users are not on the plane




OECD Step 3 Suggested Steps

• Report to designated senior management: do

SORs source from conflict-affected area?

• Adopt a risk management plan: encourage

SORs to get audited directly/thru suppliers

• Implement risk management plan: engage in

efforts to grow audits of SORs, if ‘bad’ SOR is

found, work with suppliers to mitigate risk

• Continue to monitor supply chain and SORs




OECD Step 3 relative to SEC

• Step 3 can be used to support DD, by a downstream company investigating a SOR:

– Reviewing independent assessments (e.g. CFS)

– In region sourcing programs

– Assertions by SORs, or other 3rd party information (UN reports, metal associations, etc)

• Group SORs with product categories and associate with DRC conflict-free, have not been found to be DRC conflict-free or DRC conflict undeterminable




OECD Step 4: Audit of SORs

• Step 4: defines audit

parameters for SORs

• CFS/RJC/LBMA

facilitate audits in

conformance with

OECD and provide

– RCOI information

– Designation of DRC

conflict-free

Downstream company

role:

• Participate and

contribute to a SOR

assessment scheme

– Membership

– Donation

– Direct participation

– Encouragement,

education, outreach




OECD Step 4/independent audit

scheme relative to SEC • Step 4 or use of an independent assessment

of SORs can be used to support SEC reporting obligations: – Knowledge of a SOR sourcing from covered

countries

– Knowledge that a SOR was validated as DRC conflict-free

• If all SORs for a product category are listed in the CFS, then this product category could be claimed in the SEC CMR as DRC conflict-free




OECD Step 5: Reporting

SEC rule governs

Come to Reporting Basics breakout

tomorrow!

Technology

12th CFSI Workshop, Sept 10, 2013: Smelter and Compliance Basics