Santa Claus’ Belated Message for Conflict Minerals Reports

Even though Christmas is over, Santa Claus has a lesson for everyone who will file a Conflict Minerals Report (CMR) for the 2014 filing year. With our apologies to St. Nick, here we go.

Making a List

Under the SEC conflict minerals disclosure requirement, a company filing a CMR must include “a description of the facilities used to process the necessary conflict minerals in those products.”  The term “description” is arguably vague, but a simple listing of smelter/refiner names seemed to be a reasonable approach to fulfilling this requirement. However, only 18% of all CMRs filed for CY2013 included such a list. Today, it appears that listings of the smelters/refiners will likely be more common for CY2014 filings. Doing so is logically aligned with information presented in Conflict Minerals Reporting Template (CMRT). Anything different may stick out like a sore thumb.

and Checking it Twice

Perhaps the most interesting aspect of last year’s CMR filings was the inclusion of DPR Korea (North Korea) in the smelter/refiner lists of some companies. With long-standing US trade sanctions in place, this created quite a stir although it was later clarified as an administrative error in the CMRT smelter listings. But this highlighted a critical gap in many due diligence programs – smelter/refiner information had not been reviewed on a stand-alone basis. For CY2014 filings, we expect a great deal more effort will be put into confirming this information, especially with the new Department of Commerce global listing of smelters/refiners.

Gonna Find Out Who’s Naughty or Nice.”

In CY2013, there was confusion as to what country to list in the CMR. Many times, smelter/refiner lists included the country where the smelter/refiner is physically located rather than where the ore came from (i.e., the “country of origin”). The Country of Origin is only infrequently the same as the smelter/refiner location, again indicating that the information in the CMR had not been well reviewed.

There were also questions about whether the Country of Origin was limited to Covered Countries, sources determined to be funding conflict, or all countries identified. The language in the final release is vague, but a simple reading leads one to conclude that all countries are to be disclosed.

So what will Santa think of your CMR? There may be a significant amount of additional effort required for the CY2014 filing. Through our new smelter due diligence program, we can help.

One thought on “Santa Claus’ Belated Message for Conflict Minerals Reports”

  1. Hi Lawrence,
    Good article, as always. In the “Gonna Find Out” section, my take is that filers are to list “facilities” and “country of origin.” Since the breakup of several of the multisite CID’s, most CID’s are aligned with a particular smelter in a particular location. I think (don’t know) that many/most smelters use minerals from multiple countries of origin. This makes it tough (but not impossible) to list in the CMR smelter facility and then the one or more countries that sourced the minerals. A more ambiguous approach is to list the facilities with physical location and then list the countries of origin in a general list that covers all smelters. This is what Intel and others did. This is an evolving process and I think filers will get better with time.

Leave a Reply

Your email address will not be published. Required fields are marked *