Tag Archives: CMRT

New GAO Report on Conflict Minerals Regulation – It Just Ain’t Right

GAO just released its latest annual report to Congress on the effectiveness of the conflict minerals regulation.  We’ll save you some effort and boil it down this way:

Essentially, the reporting year 2015 conflict minerals disclosures filed by May 31, 2016 were the same as those filed for reporting year 2014.  I doubt this is much of a surprise.

But what caught our attention is this little twist: GAO is critical of the fact that “an estimated 55 percent of the companies in 2016 reported that they could not definitively confirm the source of the conflict minerals in their products.”  Yet nowhere in the report is there mention that the SEC, under the May 2014 Statement from then-Director of Corporate Finance Keith Higgins, allows companies to file without including a product determination statement.  Due to the legal uncertainty surrounding the rule at the time of the filings reviewed in the report (which was not resolved until earlier this month), many filers chose to submit disclosures without the definitive language GAO is seeking.

But GAO does acknowledge that companies “had taken actions to improve their data collection processes, such as gathering missing information about their supply chains and implementing new technologies to facilitate the data collection process” and that “the process for collecting data on conflict mineral supply chains had become more routine and standardized.”

GAO’s report may be accurate insofar as the literal text of the CMRs, but statements about filers’ inability to determine necessary sourcing information are not so accurate.  While filers may have chosen not to provide specific product determination language in their CMRs, Conflict Minerals Reporting Templates (CMRTs) both from suppliers and provided to customers paint a more accurate picture of a company’s status.

It wasn’t in GAO’s scope to review CMRTs, although the statutory mandate for the annual study doesn’t appear to limit the GAO to SEC filings.  Perhaps next year – assuming there will be a next year for the SEC conflict minerals disclosures – GAO could expand their efforts for a more accurate picture.

Cobalt is the New Conflict Mineral

Conflict minerals information requests from customers increasingly include cobalt.  While cobalt is not an official conflict mineral, and the basis for the recent public attention is not the funding of armed groups, it is nonetheless being included in conflict minerals CMRT requests.

But cobalt is not one of the CMRT metals, and the CFSI smelter/refiner lists and audits do not include cobalt.  What do you do?  You can build on your existing conflict minerals program, but you need new data collection/verification tools, business criteria and customer reporting methodologies.

These are fundamental issues that every company will have to resolve before meaningful responses to customers can be provided, and it will likely take time.

For Conflict Minerals, It’s Spring in October

In past years, most companies really geared up their conflict minerals supplier engagement activities after the first of each year.  This allowed companies to fully capture the complete calendar year of manufacturing and generally provided adequate time to meet the SEC filing deadline of May 31.

This year is different.  There are a significant number of companies who began their reasonable country of origin processes in earnest last month.  They are facing a new and earlier deadline for their conflict minerals information – from their customers.  A deadline that is 7 months sooner than the regulatory filing date presents its own challenges.  Among other things, it is now more critical that the RCOI and due diligence programs be efficient and that risk mitigation strategies are used and function as they should.

More than ever, additional and knowledgable support is needed for many of these companies facing customer-required early deadlines.  We can help.  Give us a call to discuss.

Avoid This Major Conflict Minerals Smelter/Refiner List Error

Only a few days remain before the deadline for the SEC conflict minerals submittals and as you may expect, we are busy conducting last minute reviews of the Form SD and conflict minerals reports (CMRs).  Here is an important reminder about smelter/refiner lists.

The CMR must include “a description of … the facilities used to process the necessary conflict minerals,  … the country of origin of the necessary conflict minerals…”  The SEC did not provide guidance on what constitutes a “description”, but we have written on this matter previously.  We also offered commentary on smelters/refiners that are not on the Conflict Free Sourcing Initiative (CFSI) lists.

But confusion continues about “the country of origin“, which is really the heart of the entire disclosure.  Simply put, the country where the facility is located is frequently different from the country from which the ore came out of the ground.  Unprocessed or partially processed ores are transported globally for final processing, and there are few smelters/refiners actually located in the Covered Countries.

Where are you getting your information about countries of origin? There are essentially four ways to get this information, but sometimes you may really be getting the the country where the facility is located, rather than the country from which the ore originates.

  • The “RCOI Data” from the CFSI.  This data is available only to CFSI members.  Third parties, such as conflict minerals data management systems and consultants such as us, are not allowed access to that information.  From what we understand, CFSI’s RCOI data doesn’t actually list specific countries of origin associated with the audited smelters/refiners, but presents groups of countries called Level 1, Level 2 and Level 3 – assigned based on potential risk.  Those companies using this information should then list in their CMR all the countries that are included with each Level associated with the relevant smelters/refiners.
  • Suppliers can provide this information in the CMRT.  Column O of the Smelter List tab is intended to capture the country of origin information from suppliers.  But many suppliers are unaware of  both the actual country of origin and Column O in the CMRT.
  • IT system providers.  Those who employ commercial conflict minerals IT solutions may expect the system to have, or extract from suppliers, the actual country of origin information.  Be careful about relying only on a list generated by an IT solution: thoroughly determine what information is being reported, and where it comes from to ensure the correct information is being generated.  And as we said earlier, make sure that the system is not automatically filtering out facilities that do not have a smelter ID.
  • Do your own research.  This option can be the most labor intensive of them all, but it also results in a high level of certainty and control.  Doing your own research can involve a number of activities, such as internet research, phone calls, emails and first hand visits to the facilities.  More efficient methods available include using stand alone third party smelter/refiner verification data and the iTSCi audits that are available online.

Remember that you are ultimately responsible for your due diligence activities and results, even if you rely on third party information.  It is worth making sure you are reporting the correct information.


Avoid Surprises in Customer Conflict Minerals Audits

We recently supported a client as they were undergoing a conflict minerals audit conducted by a third party hired by a customer – one of the world’s most recognizable brands.  We previously wrote about customer audits of supplier conflict minerals programs, indicating that we believe audits of this type will become more common in the coming months.

The biggest surprise to everyone involved in the audit concerns the use of the specific commercial IT system used by our client.  Our client’s customer (the brand) required our client have copies of the most current CMRT from suppliers.  Fair enough – or so we thought.  Our client printed out the appropriate number of the most current supplier CMRTs from their IT system and the auditor proceeded to find numerous issues with those CMRTs, resulting in at least two audit findings.


Why are there problems if the most current CMRTs were pulled directly from the system?  How did these nonconforming suppliers/CMRTs make it through the RCOI process?  We figured out what happened and think this is a potential problem for users of any conflict minerals IT system.  Read this and do your own check up on your system to find out if this situation applies to you.

You know the story – you send out a data request to your suppliers. They respond with either their CMRT, or they enter the data directly into the IT system. The data is screened for omissions and errors, and the supplier is prompted to make corrections – typically directly into the data system. Once the data is fully approved, it is accepted into the system and the supplier information is current and correct.

So far, so good. But maybe not.

The requirement for this particular major brand is that all suppliers must have updated CMRTs available from their suppliers – updated data in the IT system doesn’t count. What we found is that the original CMRTs from suppliers are not updated along with the data; they retain their original content as a permanent record. When our client printed out CMRTs for the auditor, those documents did not reflect the revised data that had the benefit of the reviews and corrections. The auditor found outdated CMRTs that did not conform to the audit criteria, resulting in the findings.

Two things should be learned  from this experience: make sure you know what criteria a customer will use in auditing you, and make certain that you can produce the specific data requested – which means understanding your conflict minerals IT system in detail to know its relevant limitations.

New Conflict Minerals Reporting Template Issued by CFSI

The Conflict Free Sourcing Initiative (CFSI) has released version 4.0 of the Conflict Minerals Reporting Template or CMRT.

The timing of this release may cause confusion on the part of issuers and suppliers who are already done with their CMRT collection processes.  CFSI stated that

CMRT 4.0 is not recommended for filing 2014 supply chain data, but is designed for 2015 reporting.

For CY2014 filings, companies should continue using version 3.02 as they have been.  When the CY2015 supplier outreach begins, companies should ensure version 4.0 is used.

STOP – Don’t Send that Conflict Minerals CMRT!

You may be on auto-pilot when it comes to responding to requests for your Conflict Minerals Reporting Template (CMRT).  After all, many customers probably contact you with these requests and they have become an everyday occurrence.  You may even have the process automated through a software system to reduce your burden.

But some clients are telling us they are receiving requests from unfamiliar people and companies.  What we have determined is that not everyone who requests the CMRTs are customers – competitors and even commercial conflict minerals IT systems are asking for them as well.

We have long suggested that companies take time to screen incoming requests to determine if a response is needed, but not because we thought requests would be for inappropriate commercial purposes.

Not every company will be concerned about distributing their CMRTs beyond actual customers, but some may not feel it is in their best interest to do so.

Does Your Conflict Mineral Smelter/Refiner List Look Like This?

In a previous post, we discussed smelter/refiners lists in conflict minerals reports (CMRs).  In this post, we broaden the discussion.

Last year, definitive information on smelter/refiner names and locations was severely lacking. Early efforts at using the CMRT for collecting smelter/refiner names resulted in many non-smelters/refiners being listed by suppliers, so EICC/CFSI initiated their “verified smelter/refiner” listings. “Verified” is not the same as audited; “verified” means that the CFSI has simply confirmed that the location is a legitimate smelter/refiner operation. Further, the CFSI list represented only those facilities identified within the electronics supply chain, and therefore did not represent all smelters/refiners globally. This point was communicated in the heading of the Standard Smelter Names tab of the CMRT.  The CMRT version 3.02 (November 7, 2014), lists 279 verified smelters/refiners.

For the CY2013 filing, issuers arguably could make a reasonable interpretation that any processing facility name not verified by the CFSI was not definitively a smelter/refiner and therefore did not need to be reported. As a result, many issuers listing smelters/refiners in their CMR included only those facilities that were either CFSI audited or verified* (and within the electronics supply chain only).

In September 2014, the Department of Commerce published their report – DEPARTMENT OF COMMERCE REPORTING REQUIREMENTS UNDER SECTION 1502(d)(3)(C) OF THE DODD-FRANK ACT, WORLD-WIDE CONFLICT MINERAL PROCESSING FACILITIES. In this report, Commerce stated “…to our knowledge, the attached list is the most comprehensive list to date of all known processing facilities in the world.” Approximately 450 processing facilities are listed – about 170 more than are CFSI verified or audited.

For CY2014, we don’t believe issuers can take the same approach to omitting smelters/refiners as last year. Since the Commerce list is considered by US Government to be the most comprehensive list to date of all known processing facilities in the world, it may no longer be reasonable to omit facility names using the argument that they can’t be confirmed as a smelter/refiner.

In other words, if your CY2014 smelter/refiner list is limited to ONLY processing facilities that are CFSI audited or verified, your disclosure may be incomplete (unless CFSI audited/verified facilities actually do make up 100% of the names provided by your suppliers).

Recently, we have seen some draft smelter/refiner lists for CY2014 filings that were incomplete because they omitted any facility name that was not on a CFSI list. The logic behind these was based on CY2013 data availability and is no longer valid in our opinion.

If your list of smelters/refiners (either in your CMRT or Conflict Minerals Report) contains only facilities with a CID number, we suggest you review your supplier data and confirm this is indeed accurate. Otherwise, we recommend that you list all supplier-provided facility names that are included in the Commerce list, regardless of their status with CFSI.

And don’t forget to conduct research into the countries of origin used by those facilities.


* Of the 1300 filers for CY2013, only 18% included a smelter/refiner list in the CMR.