Conflict minerals scope assessment and compliance plan

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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 1 – Scope Assessment
and Compliance Plan
Assent Compliance

jonathan hughes
phone: 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
• Defining Scope
• What Does the Law State?
• Implementation
• Risk Mitigation
• 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
• 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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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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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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 Defining Scope
When looking at products and suppliers in scope, we need to have 2 separate questions:
1. What does the law state?
2. How does a company implement the legal rules in line with its business processes?
The first question will provide us the criteria. The second will provide us with a methodology to
determine what suppliers meet those criteria for inclusion in the RCOI.
This is a critical first step since any omissions at this stage will effectively negate any further efforts
towards compliance.


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 1. What does the law state?
The Conflict Minerals provision does not provide definitions on which of your suppliers are spe-
cifically in and out of scope; it states which companies and products are in and out of scope.
To make this determination, we should first look at what the regulation states:
“..conflict minerals that are necessary to the functionality or production of a product manufactured or
contracted to be manufactured.”
There are a couple of items to address here:
A. “necessary to the functionality”- The SEC provides 3 criteria for guidance (pg. 22 - Final Rules):
(a) whether the conflict mineral is intentionally added to the product or any compo-
nent of the product and is not a naturally-occurring by-product
(b) whether the conflict mineral is necessary to the product’s generally expected func-
tion, use, or purpose
(c) if conflict mineral is incorporated for purposes of ornamentation, decoration or
embellishment, whether the primary purpose of the product is ornamentation or
decoration.


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B. “necessary to the production”. The SEC provides 3 criteria for guidance (pg. 22 – Final Rules):
(a) whether the conflict mineral is intentionally included in the product’s production
process, other than if it is included in a tool, machine, or equipment used to pro-
duce the product (such as computers or power lines)
(b) whether the conflict mineral is included in the product
(c) whether the conflict mineral is necessary to produce the product

C. “manufactured or contracted to be manufactured”. Here is the text from the SEC Final Rules
to be used as guidance in making this determination:
(a) “…the degree of influence it exercises over the materials, parts, ingredients, or
components to be included in any product that contains conflict minerals or their
derivatives.”


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 1. What does the law state? (CONT)
Generic Product Exemption
Generic Products Exemption (and other considerations around “contract to manufacture”):
• An issuer will not be considered to “contract to manufacture” a product (and therefore would
be outside the scope of the Conflict Minerals Regulation) if it does no more than take the fol-
lowing actions:

1. The issuer specifies or negotiates contractual terms with a manufacturer that do not directly
relate to the manufacturing of the product such as training or technical support, price,
insurance indemnity, intellectual property rights, dispute resolution, or other like terms or
conditions concerning the product, unless the issuer specifies or negotiates taking these ac-
tions so as to exercise a degree of influence over the manufacturing of the product that is
practically equivalent to contracting on terms that directly relate to the manufacturing of
the product; or
2. The issuer affixes its brand, marks, logo, or label to a generic product manufactured by a
third party; or
3. The issuer services, maintains, or repairs a product manufactured by a third party.


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 1. What does the law state? (CONT)
Catalysts
Within the final rules, the SEC states:
• “We do not consider a conflict mineral “necessary to the production” of a product if the conflict
mineral is used as a catalyst, or in a similar manner in another process, that is necessary to pro-
duce the product but is not contained in that product.” (P.22-23)
• “However, we note that there are products where a catalyst is used and is not completely washed
away. In those situations, the product contains a necessary conflict mineral that is necessary to
its production and is subject to the final rule.” (P.85-86)

Using the above criteria, and as part of the first step in a Scope Assessment, companies would need
to examine all of their different products and manufacturing processes to determine which prod-
ucts meet these criteria.
There will be situations where a product’s 3TG status may be unknown (IE. You does not know
whether or not the product contains 3TGs). In these instances, an initial “gating” process (IE.
Asking the supplier if 3TGs are present) would be an initial step preceding or in conjunction with
a Reasonable Country of Origin Inquiry. We will touch on this later in the presentation.


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 2. Implementing the legal rules in line
with business processes
Now that we have our list of products in scope, the next question is determining who supplies you with
these materials. When looking at this determination, we need to examine some of the following factors:
A. Which of your suppliers provide the 3TG in the final product?
(a) In some cases, you may know that a product contains a 3TG but may not know which
supplier or material provides or contains the 3TG. In those cases, an initial gating process
should be implanted for suppliers of that product.

B. Which suppliers are active versus inactive?
(a) Some suppliers in your databases (especially when looking at Approved Vendor Lists) may
not be current. You will need to comprise a formula for including suppliers (Ex: Suppliers
who have not been used for 1 year are considered inactive)

C. Data consolidation
(a) With multiple ERPs/PLMs and multiple business units, you will run into cases where the
same suppliers is called different names (Ex: Acme, Acme Corp, Acme Corporation)


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D. Can all of this information be pulled from your ERP/PLM systems?
(a) Once the criteria for suppliers in scope has been determined, you need to make sure that it
is feasible to use this criteria to pull the info from your ERP/PLM

*In relation to the supplier scope determination process, we need to make sure we think about the data
quality as the contacts in the database may either be out of date or not the right person to contact for
Conflict Minerals information.


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Creating Risk Profiles
Once you defined suppliers in scope, your next step should be the designation of Risk Profiles.
These Risk profiles should provide an internal indication of the overall risk that supplier poses to
your company with respect to Conflict Minerals. The higher the risk level, the greater the chance
that the supplier uses 3TGs from one of the covered countries.
When initially creating a risk profile you may choose to consider some of the following criteria:
• Materials you purchase form the supplier
• Material type
• Volume
• Size of supplier
• What tier supplier is this (1, 2, direct/indirect, etc)
• Are they an SEC issuer?
• Previous experience with respect to material disclosures
• Do they provide full material declarations?


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This initial Risk profile will help guide your Reasonable Country of Origin Inquiry and Source
Mapping processes. A supplier’s risk profile however should change overtime based on their re-
sponses. Typically, you should be looking at some of the following corporate answers from your
suppliers in order to determine whether or not their Risk profile should change:

• Does the supplier have a DRC Conflict Sourcing policy in place?
• Have they surveyed their suppliers?
• Do they audit their suppliers?
• How prompt was the response?
• Do they show an adequate understanding of the Conflict Minerals provision?
• Do they have a Conflict Minerals Compliance plan in place?

As a Supplier’s Risk profile changes over time, so should your approach to gathering, analysing and
auditing their Conflict Mineral declarations.


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Establishing a Risk Management Committee
As part of your overall Risk mitigation process, not only should you establish Risk profiles for your
suppliers but a separate Risk Management Committee should be created.
This Risk Management Committee acts as a distinct body within your Conflict Minerals Compliance
procedures. This body deals with high risk suppliers or other compliance risks uncovered during
the Assessment, RCOI and Due Diligence stages.
Depending on the size of your company the level of scope under the Conflict Minerals Provision,
this committee can range in size from 3 - 9 people. This committee should be made up of internal/
external resources with expertise in some of the following areas:
• Product Material composition
• Company Supply Chain
• Legal
• Finance
• Conflict Minerals Provision


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This committee will be tasked with making some decisions with respect to the corporate direc-
tion and risks your corporation will take with respect to Conflict Minerals compliance. This can
include, but is not limited to:

• Corporate Conflict Minerals disclosure
• Submission for change of Suppliers
• Submission for product redesign
• Acceptance of insufficient information

Establishing a strong, knowledgeable Risk Committee will pay dividends down the road when you
come across difficult situations in your Compliance process.


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Common Pitfalls
• Internal Communications
• This involves virtually every single division –communicate your intentions early and often

• Retrieving and rolling up the data
• Depending on the size of your company, and the scope you fall under, this can be an enor-
mous effort
• Multiple Business units and ERP/PLM’s must be coordinated for reporting

• Scope
• Just because you aren’t in scope, doesn’t mean you won’t get asked questions

• Public Disclosure
• Everything needs to be disclosed on your website, including your methodology.
• The steps you are taking now will be transparent to your shareholders and your consumers
down the road


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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 Reports, and Conflict Minerals Software for reviewable business records.
Assent Compliance performs full Conflict Minerals Scope assessments for our customers in order
to make the following determinations:

1. Products in scope of the Conflict Mineral provision
2. Corporate obligations
3. Conflict Minerals Compliance Plan

Our Conflict Minerals Scope Assessment helps companies meet the following OECD guidelines
for Due Diligence in Conflict Mineral supply chains:
• Establish Strong Company Management Systems
• Identify and Assess Risk in the Supply Chain
• Design and Implement a Strategy to Respond to Identified Risks


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 Questions?
Should you have any questions please feel free to ask them at this time.


Conflict minerals scope assessment and compliance plan

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