Tag Archives: coltan

UPDATED ALERT: Piwowar Issues New Statement on Conflict Minerals Rule in Response to Closure of NAM v. SEC Lawsuit, Stein Pushes Back

SEC Acting Chairman Michael Piwowar and the SEC Division of Corporation Finance Staff both issued statements today (April 7, 2017) on the conflict minerals rule in light of the final Court action in NAM v. SEC.

The statements from both Staff and Acting Chairman Piwowar clarify that the Commission does not intend to recommend enforcement against any issuer that does not file a CMR or conduct due diligence of its smelters/refiners.  The statements do not amend the language of the rule itself to eliminate the CMR and due diligence requirement – they only clarify that no enforcement action will be taken if an issuer triggers the CMR/due diligence mandate, but files only the basic Form SD.

Reuters reported that the only other currently-sitting Commissioner, Kara Stein, took issue with Piwowar’s unilateral action :

The move sparked backlash from SEC Democratic Commissioner Kara Stein, who accused Piwowar of acting beyond his authority to gut the meat of a rule mandated by Congress, adopted by the SEC and reviewed by the courts.

“It is unprecedented for one commissioner, acting alone and without official notice and comment, to engage in de facto rulemaking,” she said.  “It represents a troubling attack not only on the Commission process, but also on the restraints of government power.”

We will continue to monitor new developments and keep you informed.  In the meantime, please do not hesitate to contact us with any questions.

The No-Fluff Latest “Must Read” on Conflict Minerals Filings for 2016

The conflict minerals disclosure is still required for calendar year 2016. No Executive Order has been issued, nor has SEC eliminated or modified the rule. Acting Chairman Michael Piwowar did direct the Staff to “to reconsider whether the 2014 guidance on the conflict minerals rule is still appropriate and whether any additional relief is appropriate” but no action has been taken as yet.  Any action that may be taken would most likely follow standard rule making procedures (proposal publication, public comment, Commission adoption of final rule).  Given the timing typically required for the entire process, it is highly unlikely that a rule change will occur before the end of calendar year 2017.

The use of specific product determination wording it still voluntary. The 2014 SEC Guidance remains in effect.

An IPSA is required only when a company voluntarily chooses to use the product determination wording of “DRC Conflict Free” or “Not DRC Conflict Free”. The 2014 SEC Guidance remains in effect.  We expect the number of IPSAs to rise slightly for the 2016 filing.

Companies continue to confuse the smelter/refiner location country with the country of origin.  Quite simply, the country of origin is where the rocks come out of the ground; the smelter/refiner location country is  where those rocks are processed.  These are  frequently different countries.

Companies also continue to report countries of origin that are not plausible sources of production or reserves (e.g., Hong Kong and UAE).  A plausibility review of all countries should be conducted before submitting the Conflict Minerals Report (CMR) to the SEC.  We have developed a comprehensive list of plausible countries of origin from a range of sources including USGS, Department of State and experts in each of the metals trade.  This is used as part of our smelter/refiner verification services.  Contact us if you would like more information.

Six high-risk smelters/refiners are frequently identified by suppliers.    Three of these are related to US-sanctioned entities (Fidelity Printers, Sudan Gold Refinery and Central Bank of DPRK), not conflict minerals.  Issuers need to determine how they will address these within their conflict minerals disclosure, if at all.

The EU conflict minerals regulation has been finalized and differs from the US regulation in that it applies to companies with more than 500 employees, importers of 3TG, contains applicability thresholds and goes into effect in 2021.

Just over 12,000 comments were submitted to the SEC in response to Acting Chairman Piwowar’s request for comments. More than 11,700 of those comments were form letters and just over half of the remaining 300 were submitted by concerned citizens. Approximately 130 comments were submitted by company representatives, industry groups, Congolese society, NGOs and investors. In our view, opinion reflected in the 130 was split relatively evenly for and against the rule. We noted that several of the comments against the rule cited erroneous and outdated information, specifically concerning costs of rule implementation.

The Senate Foreign Relations Committee, Subcommittee on Africa and Global Health Policy is holding a public hearing on April 5 titled A Progress Report on Conflict Minerals.  Yes we will be there.

The US State Department announced they are “seeking input from stakeholders to inform recommendations of how best to support responsible sourcing of tin, tantalum, tungsten and gold.”

Some DC pundits believe that, in the aftermath of the Trump administration and Republican Party failure to succeed on healthcare, Democrats are emboldened to resist efforts to revamp Dodd-Frank. Perhaps, similar to what Mark Twain once wrote, “reports of its death are greatly exaggerated”.

BREAKING: Leaked Draft Executive Order Suspending Conflict Minerals Law

Yesterday, several news outlets reported on what was claimed to be a leaked draft Executive Order that would, if signed by President Trump, suspend Dodd-Frank Section 1502 for a two year period by claiming it is in the US national security interest to eliminate US corporate due diligence activities concerning tin, tantalum, tungsten and gold (3TG).  The document offers no explanation as to  the reasoning behind the conclusion that national security interests are either currently threatened or how national security would improve by the action.  Further, the Executive Order cites incorrect and outdated information about the costs of the Rule.  In the end, none of that may matter as President Trump will almost certainly sign such an Order regardless.

Would that mean all conflict minerals traceability and reporting processes would immediately come to a halt?

No.

First, there will continue to be customer demands for the information regardless of the SEC disclosure requirement, and you will have to meet your customer information requests or possibly jeopardize the business relationship. Second, the Order will very likely be challenged in court as was the President’s recent travel “ban” Executive Order.  Once it goes to court, who knows what will happen and how fast or slow.

We recommend continuing to move forward on the due diligence and reporting activities already underway for calendar year 2016.  But stay tuned – the situation is changing more rapidly and drastically than anyone had imagined.

 

You May Be Using Unauthorized Information from CFSI

CFSI recently added a Vendor Member category for service providers, which we think is a positive development and provides significant benefit.  However, there are limits to who is allowed to use the CFSI information/data and it is possible that the data is leaking beyond these limits.

CFSI provided this in response to a recent inquiry from Elm on the matter:

Along with CFSI Company Members, Vendor Members have access to member-only tools and resources. Pursuant to the non-disclosure agreement (AECI) between the EICC and each CFSI member, CFSI vendor members cannot disclose, publish or disseminate CFSI’s information to non-CFSI members and CFSI vendor members agree to use CFSI’s data for the benefit of the CFSI. CFSI vendor members cannot share CFSI data with clients that are not CFSI-members or use CFSI data to provide services to non-CFSI members.

We don’t believe Vendor Members would intentionally disseminate CFSI data in an unauthorized manner, but errors can occur.  Elm thinks it is appropriate for non-CFSI members to explore the source(s) of the country of origin data they use and report to ensure they are not using CFSI data inappropriately.

If you have any questions, contact Leah Butler at the CFSI at lbutler@EICCOALITION.org

ALERT: European Parliament Announces Conflict Regulation for Finalization

In a press conference concluded minutes ago, Bernd Lange, Chair of the International Trade Committee, Iuliu WINKLER, rapporteur with Cecilia MALMSTRÖM, Member of the EC in charge of Trade and Council presidency and Ivan LANČARIČ, Ministry of Economy of Slovak Republic announced what is called “informal deal on a regulation” for the EU conflict minerals scheme. This action will be legally binding and is aligned with the June 2016 political understanding. The final text will be voted on by the member states on December 7, 2016, with a vote in the plenary expected in the first half of 2017.

Details are forthcoming, but what is known now is:

  • Due diligence is based on the OECD Guidelines.
  • The scheme is mandatory for importers of 3TG and applies to companies with more than 500 employees but small volume importers will be exempt from these obligations.  The “small” threshold was not provided in the public announcements. Previous reports place the threshold at 100kg for gold.
  • The regulation allows companies to become a responsible importer by declaring in writing to the competent authority in a member state that it follows the due diligence obligations set in the regulation. A list of these importers will be published by the Commission. The competent authorities will carry out checks to ensure that EU importers of minerals and metals comply with their due diligence obligations. Details about the checks were not provided in the public announcement.
  • The legal deadline for implementation is January 1, 2021 but the EP specifically invites voluntary early entry into the program by EU manufacturers and sellers not otherwise subject to the law.
  • The Commission will draft a handbook including non-binding guidelines to help companies, and especially SME’s, with the identification of conflict-affected and high-risk areas.

Press releases from the EP are available here and here.  A more detailed press release is here.

We will continue to follow these developments and will post updates as they are available.

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.

ALERT: EU “Political Understanding” Reached on Conflict Minerals Law

Yesterday, the European Commission announced that a “political understanding” was reached on the European conflict minerals law.  As we understand it, this means that the relevant political entities have agreed upon high level legal principles for the conflict minerals requirements for covered businesses in Europe.  The technical and implementation details are to be developed in the future.

Video announcements are available here and here.  The most substantive information in the first video is presented at 13:30 – 14:50 and 16:50 – 19:50.  In the second video, substantive information is presented at 10:22 – 11:20 and 13:30 – 19:22.  We distilled this down to the following points we were able to extract:

  • Due diligence and disclosure are mandatory, not voluntary, for the covered supply chain actors
  • Due diligence is based on OECD, but is limited to 3TG at this time
  • It is global in scope, covering conflict-affected areas, not just DRC and adjoining countries as is Dodd-Frank
  • Requires due diligence for upstream actors, including smelters/refiners
  • Due diligence is also mandatory for importers of ores and processed metals, but manufacturers are not covered
  • Covers 95% of relevant European importers of ores and processed metals
  • Specific guidelines are to be developed for companies with more than 500 employees
  • Requires public disclosure by covered downstream actors, which will include a registry/database
  • A clause exists for the EU/EC to review/renegotiate the law in the future relative to covered downstream actors
  • Includes some form of on-going monitoring, possibly audits
  • Several exemptions have been agreed upon, including recycled materials, existing stocks of materials and by-products from processing. The details are to be worked out in additional trialogue technical negotiations

As we know more, we will continue to post updates.  Feel free to contact us with any questions.

 

Global Witness, Amnesty International Claim 80% Noncompliance with SEC Conflict Minerals Requirements

Today, Global Witness and Amnesty International (“GW/AI”) published Digging for Transparency:  How U.S. companies are only scratching the surface of conflict minerals reporting.  The report was also covered in Bloomberg news, Reuters, BBC and reflected in the OpEd section of the New York Times.  In the report, the two groups claim that

… almost eighty percent of companies in the sample, many of which are household names, failed, in our assessment, to meet the minimum requirements of the law.

This is surprising to say the least, given that we completed a comprehensive analysis of all 1300 filings and came to a dramatically different conclusion1.  We took a detailed look into the GW/AI report to understand the data and conclusions.

Perhaps not surprisingly, their numbers and methodology develop misleading findings to support their sensational headline. Several contradictions were identified between the text, the numbers and facts.  Although the text sometimes (but not always) clarified that certain reporting elements are not actually mandated by the SEC requirements, the statistics portray the elements as being required.  This theme runs through the entire report – the statistics reflect GW’s and AI’s preferences for the content/detail of conflict minerals reports, but not noncompliance with the legal requirements.

One example of this inconsistency on page 7 of the report states that “Awareness by companies of the need to follow OECD guidance was extremely high, with ninety-six percent of the companies we analyzed stating that their reports conformed to the standard“, yet the following statement is made later:

Only forty-six percent of the surveyed companies provided information to the SEC about what they had done to follow each of the five steps in the guidance. Responsible companies should describe their supply chain checks in detail.2

The word “should” is correct.  How companies describe their due diligence framework and measures is not prescribed by the SEC rule.

Another example is the basis for how they arrived at their figure of 80% noncompliance3 .  The groups used twelve criteria against which their sampling of reports was assessed (see page 6).  Figure 3 on page 15 shows the percentage of the sampled reports that meet these criteria.  Interestingly, only three of those criteria are legally mandated without discretionary implementation (“Do RCOI”, “Submit report”, and “Report on website”), and the report shows close to 100% compliance on those elements.  Filers have significant discretion on how they report on eight of the elements (for which the report shows a much lower level of conformance) and are based on data sources the filers have limited control over.  Where filers’ discretionary approach to reporting differs from GW/AI’s desires, the groups considered that to be a noncompliance, and the reported percent “compliance” drops off significantly.

The remaining element (“Determine if under the law”) is a bit baffling.  Filers are not required to affirmatively file or otherwise state that they are not covered by the law, so by definition all filers are covered by the law.  Specifically stating that they are covered is neither mandated nor sensical.

The report further states that “for the companies who filed Conflict Minerals Reports, doing due diligence in conformity with the OECD guidance is a legal requirement of Section 1502.4    While this is correct, one can argue about whether it is legally mandated to address all components of the OECD Guidance.  The ambiguity comes from the fact that the rule takes a voluntary framework – written in terms of “should” and allowing companies to implement it based on their own circumstances and position in the supply chain – and incorporates it by reference into a legal mandate.  So we are faced with a requirement that allows discretionary implementation.  This is the same conundrum faced by EPA in the early 1990s when it considered mandating the use of the voluntary ISO 14001 environmental management standard.

GW/AI criticized the Conflict Free Sourcing Initiative’s (CFSI’s) smelter/refiner auditing program, stating that

… the audit protocols do not require all of its participating metal processors to undertake supply chain due diligence in accordance with the OECD guidance.5

In reality, the protocols and procedures do guide the CFS auditor to review documentation from industry associations such as ITSCi, Certified Trading Chains and the ICGLR Regional Certification Mechanism for supply chain due diligence activities conducted by or for the smelter/refiner.  In fairness to GW/AI, the extent to which this is done by the CFS auditors is unclear.

These are only a few examples from the report.

It is our view that the report and its conclusions take liberties with facts and interpretations of the legal mandate.  While Global Witness and Amnesty International may have certain desires for the content of the SEC filings, that does not make for noncompliance with the legal mandates.

____________________

 The GW/AI report states that 1321 reports were filed with SEC, which we think double counts for amended filings by also including the original filing superseded by the amendment.  They selected only 100 companies (less than 8% of the total filers) to review and assess, some of which are our clients.

2 Page 19.

3  “The main finding of our analysis is that only twenty- one percent of companies in our sample met all twelve of the criteria that constitute the minimum requirements of Section 1502 (see Methodology section above). While these criteria do not represent an exhaustive list of steps companies should take, this demonstrates that seventy-nine percent of companies we analyzed did not meet the minimum requirements of the law.”   Page 15.

4   Page 12.

5  Page 26.

 

 

 

 

New Tulane University Study Aims to Assess Depth of Conflict Minerals Supply Chain

As previous research has shown, companies have expended considerable resources in order to comply with Dodd-Frank Section 1502 (DF1502).  While not all companies are required to submit mandatory information to the SEC, many companies, small and large alike, have had to respond to customer requests for information that will allow their customers, or companies further downstream, to meet their reporting obligation.  Tulane University, with stakeholder input, has put together a survey to gauge what companies are doing to generate and furnish the necessary information required by the law.  Not only will this survey yield benchmarks for companies, but it will also give policymakers a view of possible affects this law is having on the 3TG markets.

A notable feature of Tulane’s survey is that it seeks to reach deep down into 3TG supply chains, and supports Mandarin and French.  Yet the ultimate success of this survey hinges upon companies passing on the survey link to their suppliers encouraging participation, and they in turn requesting their suppliers participation and so on.  With the aggregate perspective of affected companies all stakeholders stand to be better informed.

As we helped develop the questionnaire, we can assure you that completing the questionnaire will not be a waste of your time.  It should only take 20 to 30 minutes to complete, and considering all the effort you have already invested in reporting, what is half an hour to now share with peers and decision makers what you did and how the law affected you?

The survey URL is: http://tulane.co1.qualtrics.com/SE/?SID=SV_887hzeI4hrrshut

For more information about the survey please consult: http://payson.tulane.edu/welcome-dodd-frank-section-1502-3tg-market-impact-survey-2015

Newsweek Calls for Improvements in Conflict Minerals Audits

Today, Newsweek magazine published an article calling out Apple, the Conflict Free Sourcing Initiative (CFSI) and iTSCi.

Fundamentally – although in a sensationalistic slant – the article points out potential gaps and concerns about the mechanisms, processes and supporting data relied upon by the conflict minerals audit programs.  It also illustrates the point Michael Littenberg makes: “Big consumer brands are the low-hanging fruit for nonprofits and investor advocates, and they’re increasingly focused on this issue.”  And should mass media outlets like Newsweek continue to cover the topic, that will only increase the momentum.

To an extent, we feel our quote is somewhat out of context in that there do appear to be pockets of success relative to maintaining adequate documentation by some upstream supply chain actors.  At the same time, we have long advocated strengthening audits along the conflict minerals supply chain, going back to our comments at the 2011 SEC Conflict Minerals Roundtable.

The article also contains factual errors such as the SEC disclosure “requires U.S. publicly traded companies to audit their supply chains…” and that the compliance process is limited to the Reasonable Country of Origin Inquiry (RCOI).