Presentation given by Chris Bayer, PhD Candidate of Payson Center for International Development at Tulane University Law School to the Global Conflict Minerals Symposium held in Los Angeles, CA on August 22, 2013.

1. 1
Dodd-Frank Section 1502:
Compliance Costs and
Externalities of Greater Information Symmetry
August 22, 2013
Chris Bayer
PhD Candidate
Tulane University

2. Presentation overview
• This presentation will focus on:
– company-level costs
– implementation modalities
– synergistic platforms
– externalities
• Companies are thus able to peer over their
respective fences and see how their neighbors are
getting on
2

3. http://www.payson.tulane.edu/dfs1502-survey-corporate-efforts3

4. Tulane's 2013 snapshot survey
• July 11, 2013 – August 16, 2013
• Snowball method (with 40 trade associations
serving as seeds)
• Online survey (using Qualtrics)
• Numerator = 62 companies
o 42 based in the US – 20 with significant business activity in the US
• Indicative – not representative – of affected
companies
4

5. Survey topics
Section # of questions
A. Company Profile 8
B. Overall Implementation Status 2
C. Internal Resources Utilized 1
D. External Resources Utilized 5
E. Synergy 9
F. Perceived Advantages 1
G. Legislative Alternatives 1
5

6. Company profile: primary commercial
activity along supply chain
6
Count
1 Smelting/Refining
5 Processing of Smelted/Refined Metal (including
scrap/recycled sources and carbonaceous materials)
1 Chemical and material manufacturing
34 Component / Sub-assembly Manufacturing
11 Contract Manufacturing for Other Companies
1 OEM
26 Final / Consumer Products Manufacturing
1 Distributor/ Retail

7. Company profile:
Companies with product(s)
containing 3TG mineral(s)
7
Count
43 Tungsten
42 Tantalum
56 Tin
47 Gold

8. Company profile: Industry sectors
8
Count
11 Aerospace
9 Medical
33 Automotive
11 Defense
5 Chemical
25 Electric /electronics / high-tech
1 Sports / Recreational Equipment
1 Energy
1 Agriculture

9. Company profile: public / private
9
Count
33 Public
29 Private
Count
30 Supplier
3 Issuer
29 Supplier and Issuer
Company profile: supplier / issuer

10. Company profile:
annual company revenue
10
Count
12 < US$ 50 million
3 US$ 50 million – US$ 100 million
5 US$ 100 million – US$ 500 million
5 US$ 500 million – US$ 1 billion
15 US$ 1 billion – US$ 5 billion
21 > US$ 5 billion

11. Four main tasks required to comply
with the SEC regulation
1) Conduct the regulatory applicability
determination / analysis
2) Develop and implement the Reasonable
Country of Origin Inquiry
3) Develop and implement the Due Diligence
system
4) Preparing for the CMR Audit and reporting to
the SEC
11

12. SEC - Degree of completion:
(1) regulatory applicability determinations / analysis
12
0 5 10 15 20 25 30 35 40
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 78%
%
Companies

13. SEC - Degree of completion:
(2) reasonable country of origin inquiry
13
0 5 10 15
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 55%
%
Companies

14. SEC - Degree of completion:
(3) due diligence system
14
0 5 10 15
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 41%%
Companies

15. SEC - Degree of completion:
(4) preparing for the CMR Audit and reporting to the SEC
15
0 5 10 15 20 25 30 35
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
N/A: 8%
average: 18%
%
Companies

16. Degree of completion:
OECD’s 5-step Due Diligence framework
1) Establish strong company management systems
2) Identify and assess risk in the supply chain
3) Design and implement a strategy to respond to
identified risks
4) Third-Party audit of smelters/refiners’ due
diligence practices
5) Report annually on supply chain due diligence
16

17. OECD - Degree of completion:
(1) Establish strong company management systems
17
0 5 10 15 20
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 67%
%
Companies

18. OECD - Degree of completion:
(2) Identify and assess risk in the supply chain
18
0 2 4 6 8 10 12
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 51%%
Companies

19. OECD - Degree of completion:
(3) Design and implement a strategy to
respond to identified risks
19
0 5 10 15 20 25
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 39%%
Companies

20. OECD - Degree of completion:
(4) Third-Party audit of smelters/refiners’
due diligence practices
20
0 10 20 30 40 50
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 16%%
Companies

21. OECD - Degree of completion:
(5) Report annually on supply chain due diligence
21
0 10 20 30 40 50
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-100
average: 15%
Companies
%

22. Number of employees involved in CMP
22
0 10 20 30 40
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-200
Companies
# of employees
per company

23. Average LOE per employee on CM team
23
0
5
10
15
20
25
30
35
1 2 3 4 5 6 7 8 9 10
265 = 10% LOE
19 = 50% LOE
27 = 100 % LOE
Employee #
LOE %

24. Non-IT related expenditures on
external resources
• 41% of companies incurred costs in order to support
conflict minerals program
review, assessment, development and
implementation
• “External resources” include:
• consultants
• auditors
• industry association membership fees / related costs
• legal fees
• pilot program costs
24

25. Non-IT related expenditures on
external resources
25
Count
14 < US$ 50,000
6 US$ 50,000 – US$ 100,000
2 US$ 100,000 – US$ 250,000
2 US$ 250,000 – US$ 500,000
0 US$ 500,000 – US$ 1 million
1 > US$ 1 million

26. IT gap / needs analysis
• 57% of companies have conducted a
gap/needs analysis for IT systems or
modifications required to support conflict
minerals trace ability and/or reporting
• 34% of these companies engage external
resources to support this gap/needs analysis
for IT systems
26

27. IT related external resource
expenditures
27
Count
22 < US$ 50,000
2 US$ 50,000 – US$ 100,000
1 US$ 100,000 – US$ 250,000
0 US$ 250,000 – US$ 500,000
1 US$ 500,000 – US$ 1 million
0 > US$ 1 million

28. IT modalities
28
Count
5 We will/have hire(d) external resources to modify certain existing
IT systems
13 We will/have use(d) internal resources to modify certain existing
IT systems
6 We will/have buy/bought wholly new IT systems
8 We have no IT system needs
19 Unknown at this time

29. Actual / anticipated amount expended
for completion of the IT project
29
Count
3 US$ 0
22 < US$ 50,000
11 US$ 50,000 – US$ 100,000
6 US$ 100,000 – US$ 250,000
1 US$ 250,000 – US$ 500,000
0 US$ 500,000 – US$ 1 million
3 > US$ 1 million
13 Unknown / not estimated

30. Synergy
• 77% of companies use the EICC-GEeSI Template or a
modified version thereof
• 26% use the EICC-GEeSI Dashboard
• 21% use the IPC-1755 Conflict Minerals Data Exchange
Standard
• 46% use a commercially available CM data
management system:
– iPoint Conflict Minerals Platform (iPCMP)
– CMO COMPLIANCE (in partnership with Deloitte)
– Foresite systems
– Bravo Solutions
– Compliance Data Exchange (CDX)
– KPMG's Conflict Minerals Tracking Tool
30

31. Support – through purchasing
requirements – of in-region initiatives
• 2 (3%) - Solutions for Hope (SfH) closed pipe
system
• 2 (3%) - ITRI Tin Supply Chain Initiative (iTSCi)
• 1 (1.6%) - ICGLR Certification
• 0 (%) - BGR Certified Trading Chains
• 2 (3%) - Conflict Free Tin Initiative
• 2 (3%) - KEMET Partnership for Social and
Economic Stability
31

32. Support for other in-region initiatives
• 3 companies (5%) are members of the Public-
Private Alliance for Responsible Minerals
Trade (PPA)
32

33. Support – through purchasing
requirements – of supply chain initiatives
• 31% EICC-GeSI conflict-free smelter program
• 1.6% RJC Chain of Custody Certification
• 1.6% LBMA Good Delivery
33

34. DFS1502 externalities
Agree Neither
agree nor
disagree
Disagree
1. DF S1502 has leveled the playing field with regard to
sourcing minerals from the DRC and neighboring
countries. 3 24 31
2. Due to DF S1502–related actions, we have identified
opportunities for consolidation (vertical integration)
and supply chain cost reduction. 2 16 40
3. Due to DF S1502–related actions, we have improved
our risk management (e.g. pre-emptive identification
of risk such as reliance on sole-sourced suppliers). 4 23 31
4. Due to DF S1502–related actions, we have improved
our supply chain performance management in terms of
responsiveness and efficiency. 4 20 34
34

35. DFS1502 externalities (cont.)
Agree Neither
agree nor
disagree
Disagree
5. Due to DF S1502–related actions, we have improved
response to customer requests for CM-related
information. 23 20 15
6. Due to DF S1502–related actions, we now have data
and standards with which to conduct future supplier
certification. 13 27 19
7. Due to DF S1502–related actions, we now have
improved supplier policies. 7 28 24
8. Due to DF S1502–related actions, we now have the
confidence that our company is not negatively
impacting the Congo and surrounding countries. 5 28 25
9. Due to DF S1502–related actions, our Corporate Social
Responsibility standing has improved. 8 33 1735

36. Summary findings
• Companies are steadily implementing main tasks
required to comply with the SEC regulation
• Almost half of the companies are turning to
external help with their CMP
• The majority of companies are opting to build
rather than buy
• Companies are synergizing – to varying degrees –
with information sharing platforms
• Generally don't accord much significance to
possible externalities of DFS1502
36

37. Discussion questions
• How is an increase in symmetry of B2B
information in the 3TG-based industries affecting
the upstream, smelter and downstream tiers?
• Due to the increased symmetry of information, are
upstream companies at a greater advantage vis-à-
vis downstream companies?
• To what extent can IT-related expenses be reduced
through engagement of common platforms?
37

38. 38
Thank you for your attention!