Tag Archives: gold

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  Further, the Executive Order cites incorrect and outdated information about the costs of the Rule.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.

 

BREAKING: Acting SEC Chair Opens Conflict Minerals Guidance, Rule for Public Comment

UPDATE February 2, 2017:  We have confirmed with SEC Staff that the request for comment does indeed extend to the entire rule, not just the 2014 Guidance.

Acting SEC Chairman Michael Piwowar issued a statement this evening concerning the conflict minerals rule and the April 29, 2014 Guidance from the Commission making the use of specific determination wording voluntary, and thus the Independent Private Sector Audit.  Piwowar is “directing the [SEC] staff to consider whether the 2014 guidance is still appropriate and whether any additional relief is appropriate in the interim.”  The statement includes a 45-day public comment period on the matter.

Although there is ambiguity in this statement that we hope to get clarity on soon, it appears that the statement may only relate to the 2014 guidance and not the rule as a whole.  In addition, it also appears that the outcome of the SEC’s action in relation to Piwowar’s statement applies to filings covering calendar year 2017 and therefore may not impact activities currently underway by issuers preparing for their CY2016 filings.

Updates and additional information will be provided during our webinar to be held Thursday, February 2.  Sponsored by TheCorporateCounsel.net, other panelists include Michael Littenberg, Christine Robinson and Dave Lynn.

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.

Kaloti Precious Metals Offers Direct Support to US Corporate Conflict Minerals Due Diligence Efforts

Last month, a senior representative of Kaloti Precious Metals reached out to Elm asking if we would be willing to publish a public statement and update concerning their situation relative to a past refinery audit under the Dubai Multi-Commodities Center (DMCC) gold audit program.  We have no relationship of any kind with Kaloti and objectively believe this information is appropriate, reasonable and valuable to a wide range of stakeholders.  If you have any questions or concerns, please contact Kaloti directly using the email address they provide in the statement below.

Kaloti Precious Metals Statement

Going forward with the new refinery there will be changes to our processes. We have added a tab to our sustainability page called Conflict Minerals (http://www.kalotipm.com/Sustainability) that openly invites US Corporates to engage with Kaloti to assist in their SEC and any other reporting functions.

Responsible Conflict Minerals Reporting

As the regulatory change around the gold industry continues to be adapted (namely 1502(d)(3)(C) of the Dodd-Frank Wall Street Reform and Consumer Protection Act Dodd-Frank Act) the Governing bodies such as the Department of Commerce and the SEC are requiring US Corporations to report on Responsible Sourcing of Conflict Gold and other named minerals. The Act defines “conflict minerals” to mean “columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives” or any other mineral determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo or adjoining country. From a commercial standpoint, tin, tantalum, tungsten, and gold are equivalent to the minerals set forth in the statute and are more commonly used terms in commerce, and therefore these are the terms used in the listing.

Kaloti Precious Metals has always adhered to the highest industry standards by following the guidelines of the of OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, LBMA Responsible Gold Guidance as well as that of our own regulator the DMCC, whose Guidelines can be found here Responsible Sourcing of Gold and Precious Metals.

Kaloti Precious Metals has already been engaging with number of US corporations on this subject for their own SEC reporting and would like to extend the offer out to invite other US Corporations to contact us directly using a personalised email address sec.enquiries@kalotipm.com that is sent directly to an officer who will handle all SEC reporting enquiries that will allow you to fulfill your SEC reporting obligations, so feel free to contact us directly.

 

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.

 

New OECD Documents Available, Including Third Edition of Minerals Due Diligence Guidance

OECD has recently published a trio of new and updated documents concerning responsible sourcing, including – but not limited to – conflict minerals.

  • The Third Edition of the Minerals Due Diligence Guidance
  • A report on due diligence in gold sourced from Columbia
  • A report on the Implementation of the Recommendations on the Minerals Due Diligence Guidance

What Did Apple Really Say in its CMR? Maybe Not What You Think

Similar to last year, Apple Computers filed its SEC conflict minerals disclosure early.  This is the conflict minerals parallel to Warren Buffet’s annual letter to shareholders. Admittedly, the “Oracle of Cupertino” doesn’t have the same alliterative allure as the “Oracle of Omaha.” But Apple’s conflict minerals report is scrutinized almost as much. This year’s report from the computer giant contained more detail than it has in past years, most likely a reflection that much of their efforts through the years are bearing fruit.

We took a detailed look at the report, carefully considering and evaluating the language in an attempt to divine subtle insights that may exist. A number of topics caught our attention.

  • Apple stated: 100% of the identified smelters and refiners in Apple’s supply chain for current products were participating in an independent third party conflict minerals audit (“Third Party Audit”) program. Comment – Although it has been widely reported that all of Apple’s smelters/refiners have been audited, “participating” is not the same as “audited”. Participation also includes being on the CFSI’s verified smelter/refiner list, beginning the audit process (e.g., contract negotiations or making time commitments) toward becoming audited in the future and publicly acknowledging that. Apple later stated “Of these 242 participating smelters and refiners, 86% had already completed a Third Party Audit by the end of 2015, while the other 14% were in the process of undergoing such a Third Party Audit as of December 31, 2015.” Further, Apple defined “participating smelters and refiners” as “those that have agreed to participate in, or have been found compliant with, the CFSP or cross-recognized independent third party conflict minerals audit programs confirming their conflict mineral sourcing practices.”
  • Apple stated: Apple does not believe that Third Party Audit program participation alone is sufficient to label products “conflict free.” Apple believes it has more work to do. In 2016, Apple is turning its attention to two key areas: enhancing due diligence in the gold supply chain and helping improve local incident reporting and issue resolution. Comment – Given their leadership position, the company may disrupt current expectations that are reliant on smelter/refiner auditing alone. Their focus on gold reflects “allegations of illicit trade of gold” made in publicly-available incident reports and refinery due diligence audits such as the delisting of Al Kaloti Jewelers Factory Limited in April 2015 from the Dubai Good Delivery list.
  • Apple stated: Apple plans to continue to review in detail credible reports of incidents in the Democratic Republic of the Congo (the “DRC”) and adjoining countries (collectively, the “Region”) that may potentially connect to Apple’s supply chain and confirm the transparent reporting and resolution of any incidents related to armed groups where these incidents may reasonably relate to its supply chain. Comment – The company is looking deeper into local incident reporting “[c]onsidering reports from numerous groups and organizations related to traceability gaps, stolen minerals, and fraudulent use of tags, … to determine if local systems are effectively able to capture and remediate incidents when they arise, and if any incidents of concern may be associated with Apple’s supply chain”. This references iTCSi incident reports that are publicly available to members and nonmembers. These reports, governance assessments, company audits and other vital information are publicly available here.
  • Apple stated: Apple will continue to remove from its supply chain those smelters or refiners that do not comply. Comment – The company has been actively pushing suppliers to remove non-conforming smelters and refiners from their supply chain as part of Apple’s risk management processes, meaning that suppliers sometimes have to terminate relationships with some of their suppliers.
  • Apple stated: Apple reviewed more than 700 iTSCi reports for 2015 relating to incidents, potentially associated with mine sites connected to various smelters in Apple’s supply chain… Based on its review, Apple found that in a few cases individuals associated or potentially associated with armed groups, in particular the police in the DRC and the DRC national army, were alleged to be involved in incidents linked to smelters in Apple’s supply chain. While, to date, Apple does not have reason to believe that these incidents resulted in associated specified minerals being included in Apple’s products, Apple remains concerned about a number of reported incidents. Accordingly, Apple is actively engaged with appropriate stakeholders to better understand incident reports and how they are addressed and, in the case of three specific incidents, continues to actively investigate the follow-up actions that have been taken to address these incidents. Comment – As we noted above, Apple’s direct review of publicly-available iTSCi reports supplements their use of smelter/refiner audit information. At the same time, Apple “remains concerned” about incident reporting and corrective action processes. There may also be an implicit questioning of whether/how the various audit mechanisms capture incidents. This level of work may not be feasible for all companies, which underlines why audits should ensure this review is included at each level of the supply chain. To our knowledge, there has been no third party assessment or review of any of the audit programs, although the London Bullion Market Association (LBMA) had plans to conduct a review 4Q15. The upcoming OECD conformance assessment (the scope of which is described here) may not include an efficacy review.
  • Apple stated: Apple has also been conducting spot audits since 2013 to assess suppliers’ understanding of due diligence requirements. Comments – As we have discussed in past articles, Apple is conducting supplier audits that not only confirm the technical data provided to Apple, but also assess that suppliers have an understanding of due diligence requirements. Apple suppliers should ensure that they have thorough internal knowledge of the requirements and their associated systems.
  • Apple stated: Apple’s review identified incidents of varying nature and concern, including, among others, incidents involving theft of, and/or fraud in connection with, tags and minerals and military and police levies or payments at or near mine sites. As of the date of this report, not all 2015 incidents have been publicly reported, fully traced to minerals associated with smelters, resolved or remediated. Comment – This reinforces our comments that Apple “remains concerned” about incident reporting, corrective action processes and audit processes.
  • Apple stated: Apple has received confirmation that three incidents linked to smelters reported in Apple’s supply chain have occurred in which individuals identified as members or potential members of organizations within the meaning of “armed groups,” as defined in Item 1.01(d)(2) of Form SD, in particular the police in the DRC and the DRC national army, were alleged to be involved. Each incident appears to have involved no more than a few individuals in isolated theft, illegal tax or similar criminal activity, potentially for personal gain, and, based on information received to date, the alleged perpetrators have been sanctioned or the specific incident has otherwise received some level of official redress by the local authorities. Comment – iTSCi published a response and notes “the amount of mineral that could be linked to these incidents was around 0.1% of that tracked from mines by iTSCi in 2015, with the potential financial gain of up to around US$425 in total which appeared to be for personal gain of the individuals”. Among several systemic points iTSCi brings forth, they clarify that there remains a relevant question as to “how to interpret the actions of rogue individuals as opposed to actions of ‘armed groups’”.
  • Apple stated: Apple believes there is little doubt that there is a need to enhance gold trading due diligence, to increase local stakeholder involvement, and to ensure that Third Party Audit programs reinforce requirements for smelter and refiners to be aware of and follow-up on the resolution of incidents. Comment – This statement indicates that Apple may see gold refiner audit programs as facing specific challenges that require additional/more detailed checks than currently exist. To our knowledge, there has been no third party assessment or review of any of the audit programs, although LBMA had plans to conduct a review 4Q15.
  • Apple stated: Apple’s reasonable country of origin inquiry is based on Third Party Audit information and, to the extent that country of origin information has not been audited, additional information collected by it and others. To the extent reasonably possible, Apple has documented the country of origin of identified smelters and refiners based on information received through the CFSP, surveys of smelters and refiners, and/or third party reviews of publicly available information. However, some country of origin information has not been audited by a third party because, among other reasons, applicable smelters and refiners have gone out of operation before completing a Third Party Audit, smelters and refiners have not gone through a Third Party Audit, or the Third Party Audit does not yet include reporting of country of origin information. Comment – Specific to gold, prior to the LBMA’s Responsible Gold Guidance (RGG) v.6 (published August 2015, effective January 1, 2016), refiners that conducted third-party audits based on ISO 19011:2002 were not required to issue a Refiner Compliance Report or to publicly disclose countries of origin of mined gold. However, for assurance engagements based on ISAE 3000, country of origin information was required. Since Apple has indicated they have RCOI information for every smelter and refiner, they apparently supplemented LBMA audits with “additional information” and “third party reviews of publicly available information” given that LBMA ISO audits conducted under the previous RGG versions in place for CY15 lack the country of origin information.

 

 

Is Your Conflict Minerals Policy Really Conflict-Free?

Earlier this month, Reuters ran an article about rival gangs fighting over profits from gold mining in Mexico.  The mine, located in the town of Carrizalillo, Guerrero, is operated by Goldcorp.  The situation highlights a number of issues, such as how rapidly conflict situations can change:  the gangs involved were originally based in the drug trade.

It also brings to light wording of a company’s conflict-free sourcing policy.  With the focus of the past few years on “DRC Conflict Free” sourcing, conflict areas outside of Eastern Africa may be escaping due diligence and sourcing mandates.  If your conflict-free policy limits sourcing prohibitions to the DRC and adjoining countries, you may want to reassess that position.

Rwanda’s Minerals Trade – Conflict Free or Not?

Earlier this week, Evode Imena, Rwanda’s Minister of State in Charge of Mining appeared before the House Financial Services Monetary Policy and Trade Subcommittee to provide testimony on the effectiveness of the US conflict minerals requirements under Dodd-Frank Section 1502.  The video of the hearing can be viewed here.

Through his comments, Minister Imena maintained that Rwanda’s situation relative to conflict minerals mining and transportation is completely different from that in neighboring Democratic Republic of Congo (DRC).  Imena testified that there is no conflict in Rwanda and therefore, Rwanda should be inherently classified as conflict-free under US requirements.  He also denied that Rwanda had any role in mineral/ore smuggling from the DRC.

These statements are at odds with findings presented in the United Nations Group of Experts (GoE) Mid-term Report on the Democratic Republic of Congo issued October 16, 2015.  Paragraphs 56 – 67 of the Report set forth evidence found by GoE of gold smuggling from the DRC into Rwanda and black market sales of iTSCi tags and supporting documentation.