Tag Archives: ITRI

Conflict Free Tin Smelter Closing

ITRI’s “Tin in the News” email newsletter announced that PT Refined Bangka Tin (RBT) is closing permanently due to “environmental concerns”.  ITRI stated that “Since 2012, RBT has consistently been one of the top exporting private Indonesian smelter”.  Additionally, RBT is currently an Conflict Free Smelter under the Conflict Free Sourcing Program (CFSP Smelter ID CID001460).

This closure should not impact the CY2015 SEC filings since the smelter operated through CY2015.  Similarly, CY2016 filings may also include RBT since the smelter produced tin during the first months of the year.

Latest DRC Group of Experts Report: Conflict Minerals Problems Continue

The United Nations Group of Experts (GoE) on the DRC released their latest mid term report covering the first half of CY2015.  The report can be downloaded below.  This report, much shorter than previous GoE reports, presents findings of continued conflict minerals problems in the DRC with gold smuggling, non-compliance with the Congolese Ministerial Decree, illegal taxation on transit routes of cassiterite, concerns about air cargo manifests and illegal sale of iTSCi tags along with irregularities with the associated logbooks.  See paragraphs 49 – 78.

In response to the GoE report, ITRI posted detailed comments on the report that “clarify certain points”.  ITRI provides commentary on specific facts cited by the Group, but also adds some context as well:

…the extent of gold mining in Shabunda and the extent of RM and FARDC interest in control of that sector, as well as the potential earnings from gold are significantly higher than for the 3T minerals as also described in the Groups report.

While all partners understand that the occurrence of risks impacting the supply chain need to be minimised, it is the identification and follow up of such issues that is key. iTSCi has developed many tools to mitigate and resolve risks in the supply chain in alignment with the concepts of due diligence described in the internationally accepted OECD guidance…

Mitigation and risk management continues to be the approach of iTSCi and we do not support expectations of perfection which lead to disengagement, embargo and a regressive spiral of events.

The GoE’s findings may or may not be a surprise, but it does raise questions and potential concerns for downstream companies – especially issuers filing Conflict Minerals Reports to SEC signed by an executive officer.

UN Group of Experts Midterm 2015 DRC report

GAO Publishes Results of Accountability Audit of SEC Conflict Minerals Rulemaking Activities

The Government Accountability Office (GAO) has published its report to Congress (mandated as part of Section 1502 of The Dodd-Frank Act) that

  • assesses the effectiveness of Section 1502(b),
  • describes issues encountered by the SEC in carrying out the provisions of the Act,
  • reviews non-covered companies that have conflict minerals necessary to the functionality or production of a product manufactured by such companies; and
  • reviews the rate of sexual-and gender-based violence in war-tom areas of the Democratic Republic of the Congo and adjoining countries.

Because the final rule has not yet been promulgated, the GAO report – as stated by SEC in their June 22, 2012 written comments to the report – “examines the steps the SEC has taken toward issuing a conflict minerals disclosure rule; stakeholder-developed initiatives that may help covered companies comply with the anticipated rule; and any additional information available on the rate of sexual violence in the eastern Democratic Republic of Congo.”

Key Points from the Report

The following are excerpts from the report on what we think are key points.

Some stakeholders’ efforts to improve their initiatives through expansion and harmonization have been hindered by the uncertainty regarding potential due diligence and disclosure requirements stemming from SEC’s delay in issuing a final rule. For example, while 12 of the approximately 25 tantalum smelting companies world-wide have been certified as conflict-free through the Conflict-Free Smelter Program to date (see figure 6),[Footnote 38] company representatives said GeSI and the EICC are facing challenges engaging tin and tungsten smelters in the absence of a final rule…

GeSI and EICC representatives are finding it difficult to convince Asian–particularly Chinese–smelters to participate in the program because the electronics industry has limited leverage over Chinese smelters in the absence of a final SEC rule. In addition, according to one EICC member company representative, Chinese smelters and the Chinese government are not concerned with improving the transparency of supply chains in the absence of any business incentives. The limited participation by Chinese smelters may affect the scalability of the Conflict-Free Smelter Program as Chinese smelters processed an estimated 43 to 48 percent of the global tin supply between 2006 and 2009, and Chinese companies mined and processed an estimated 77 to 84 percent of the global tungsten supply between 2006 and 2009…

Some stakeholders have discussed efforts to harmonize their initiatives to further improve them, but some of these efforts have been hindered by the absence of SEC’s final rule.

In the report’s conclusion, GAO stated the following:

SEC has taken some important steps in its effort to issue a rule, including issuing a proposed rule that generated a large volume of public comments. However, SEC has not yet finalized and issued a rule as stipulated in the Act, largely due to the time and effort required for the Commission to understand the complexities of the four conflict minerals’ supply chains, review the large volume of comment letters, and hold the numerous meetings requested by stakeholders…

The continued delay in issuing a final rule, however, has contributed to a lingering uncertainty among industry and other stakeholders who expect their actions to be guided by a final rule…

Without a final rule, it is unclear to what extent the initiatives currently being developed or implemented by industry and other stakeholders will achieve results consistent with those anticipated under the conflict minerals legislation. Moreover, in part because of the delay in the rule’s issuance, many companies across the tin, tantalum, tungsten, and gold supply chains are reluctant to participate in or support the global and in-region initiatives currently being developed or implemented because they are uncertain whether or not the initiatives will align with the anticipated rule.

We think it is worth noting that although GAO laid out that there are six global inititives requiring audits and 3 in-region sourcing initiatives requiring audits, there was no mention of the divergent scopes of these audit, the absence of auditor qualification standards or applicability/relevance to the audits required by Section 1502.

The full report is available as a PDF here or text file here.

Pose Questions to African and Global Experts on Conflict Minerals, DRC

Do you have questions about conflict minerals programs or cultural/business contexts of conflict minerals in Central Africa?

In just over a month, Elm’s Lawrence Heim will be presenting at ITRI’s Conflict Minerals Programme in Cape Town South Africa as part of ITRI’s International Tin Conference 2012.

He is joining a panel of world renowned experts from Central African countries including DRC, the United Nations (UN), US Agency for International Development (USAID) and more.  These recognized experts, covering a range of topics relevant to cultural and business implications of conflict minerals in Africa, include (alphabetically):

  • Patrick Amisi, Minister of Mines, Maniema, DRC
  • Banny Banza, Vice President Stakeholders Committee Katanga, Head of SAESSCAM Katanga
  • Bali Barume – BGR
  • Yves Bawa – Pact
  • Cyprien Birhingingwa, South Kivu civil society
  • Assheton Carter, Senior Vice President, Pact
  • Joseph Ikoli – DRC
  • Eric Kajemba, OGP (civil society) (to be confirmed)
  • John Kanyoni, FEC & Association des Comptoirs, North Kivu and DRC
  • Bob Leet – EICC/Intel
  • Gilbert Leya – Katanga
  • Paul Mabolia, ICGLR Committee on Illegal Exploitation of Natural Resources, DRC
  • Joseph Mbaya – Rwanda
  • Kay Nimmo – ITRI
  • Henry Nkeng – MONUSCO – Centre de Negoce
  • Dr Emmanuel Nkurunziza, President of Stakeholders Committee Rwanda, Director General 
Rwanda Natural Resources Authority
  • Richard Robinson, Extractive Industry Technical Advisor, USAID (invited)
  • Gregory Mthembu Salter, consultant to UN Group of Experts on due diligence
  • Graham Smith , RSDIP Program Coordinator, Development Bank of Southern Africa
  • Vincent Songe – Kivus (connection with other initiatives)
  • Representatives from the ICGLR data team and Audit Committee

Elm is offering you the opportunity to submit questions directly to these subject matter authorities.  Click here to submit written questions.  Please include the name of the specific individual to whom the question is addressed.  Answers will be consolidated and posted to our blog within two weeks after the ITRI Conflict Minerals Programme has concluded.

Mr. Heim will attempt to present all questions, but please be aware we can’t guarantee that all questions submitted to us will be presented, or that answers will be provided to all that are presented to the experts.  Further, we reserve the right to screen the questions and exclude any that we determine to be inappropriate or inflammatory.

Elm to Present at ITRI International Tin Conference Conflict Minerals Seminar in South Africa

International tin industry association ITRI is hosting its biennial international conference in Cape Town, South Africa on April 23 – 25, 2012.  Following the conference on April 26, ITRI will hold a one-day seminar on conflict minerals.

Elm is pleased to have been selected to present on audit requirements under the US Securities and Exchange Commission (SEC), their relationship to traditional environmental auditors/auditing practices and how this impacts conflict minerals due diligence programs/activities intended to support compliance with the upcoming SEC regulation.

The complete program, covering a wide range of critical topics and featuring renowned experts on the subject including many from the affected African countries/economies,  is available here.

OECD to SEC: Make us the Conflict Minerals Due Diligence/Audit Standard for the US

ITRI reported the following yesterday:

The Organisation for Economic Co-operation and Development (OECD) is expected to make a formal request that the US Securities and Exchange Commission (SEC) makes explicit reference to existing, internationally agreed due diligence guidelines when it releases new “conflict minerals” reporting rules shortly. The SEC is in the final stages of considering the interpretation of the US Dodd-Frank Wall Street Reform and Consumer Protection Act and may release the new ‘rules’ sometime in August. The OECD believes that its own guidelines, together with those set out by the UN Group of Experts on the Democratic Republic of Congo, can be used to help clarify definitions of “not DRC conflict free” and “DRC conflict free” under the US law.

OECD has drafted a letter to SEC and is looking for companies or associations willing to support the concept of progressive due diligence and improvement of mining circumstances in the central African region, and to request clarification of the expectations for company reporting in terms of the ‘conflict mineral’ issue.

Elm recently reported on certain US industry views on the OECD standard, which includes general concerns about potential inconsistencies with SEC auditor standards.  These concerns are relevant to not only the audits themselves, but the scope of the supply chain management programs, audit preparations and a range of potentially significant liabilities.  Elm shares these views; the following table highlighting the main points.

OECD Guidance

Comments

Step 2.II  DOWNSTREAM COMPANIES

Downstream companies who may find it difficult to identify actors upstream from their direct suppliers (due to their size or other factors), may engage and actively cooperate with other industry members with whom they share suppliers or downstream companies with whom they have a business relationship to carry out the recommendation in this section in order to identify the smelters/refiners in their supply chain and assess their due diligence practices or identify through industry validation schemes the refiners/smelters that meet the requirements of this Guidance in order to source therefrom.

Supply chain due diligence activities undertaken with suppliers/others with business relationships or members of industry association-sponsored conflict minerals audit programs conflicts with the Auditor Independence elements in Step 4.A.3.a.

 

Step 4.A contains the OECD’s standards for independent third party audits of smelter/refiner due diligence practices, but continues (Step 4.B.1):

… all actors in the supply chain should cooperate through their industry organisations to ensure that the auditing is carried out in accordance with audit scope, criteria, principles and activities listed above [in Step 4.A.].

Also provides additional SPECIFIC RECOMMENDATIONS for exporters, traders, re-processors and downstream companies within the context of the smelter/refiner audit scope.

Creates significant ambiguity in the intended audit scope: are the audits of exporters, traders, re-processors and downstream companies to be included as part of – or directly involved in – the smelter audit?

Additionally, this conflicts with the Auditor Independence elements in Step 4.A.3.a.

 

Step 4.A.3.a    The Audit Principles: Independence

To preserve neutrality and impartiality of audits, the audit organisation and all audit team members (“auditors”) must be independent from the smelter/refiner as well as from smelter/refiner’s subsidiaries, licensees, contractors, suppliers and companies cooperating in the joint audit. This means, in particular, that auditors must not have conflicts of interests with the auditee including business or financial relationship with the auditee (in the form of equity holdings, debt, securities), nor have provided any other services for the auditee company, particularly any services relating to the due diligence practice or the supply chain operations assessed therein, within a 24 month period prior to the audit.

SEC has long-established standards and regulations for auditor independence in the US.  Those standards have been tested/validated in the US legal system.  There is no need for untested duplicative standards that do not specifically reflect US law and that apply only to a single set of SEC audits.

Other forms of impairments to auditor independence from SEC’s “Yellow Book” (GAO-07-731G) not indicated by OECD:

  • Personal impairments including preconceived ideas toward individuals, groups, organizations, or objectives of a particular program that could bias the audit; and biases, including those resulting from political, ideological, or social convictions that result from membership or employment in, or loyalty to, a particular type of policy, group, organization, or level of government.  Given the emotional nature of underlying issues (human rights atrocities, subsistence livelihood of artisanal miners), personal impairments are highly relevant in these audits.
  • External impairmentsare pressures, actual or perceived, from management and employees of the audited entity or oversight organizations, which includes:
    • external interference or influence that could improperly limit or modify the scope of an audit or threaten to do so;
    • external interference with the selection or application of audit procedures or in the selection of transactions to be examined;
    • the authority to overrule or to inappropriately influence the auditors’ judgment as to the appropriate content of the report.

Direct involvement in audit processes by industry associations, NGOs, business competitors and customers alike create a high likelihood of these (and similar) external impairments.

As is detailed in other sections of this comparison table, this OECD auditor independence standard conflicts with other elements of the Guidance and increases annual audit costs for companies by mandating “rotating auditors” for annual audits.

Step 4.A.3.b.  The Audit Principles:  Competence

Auditors should conform to the requirements set out in Chapter 7 of ISO 19011 on Competence and Evaluation of Auditors.

ISO is not meaningful within the context of legally-mandated audits under SEC jurisdiction.  Such audits are no longer a voluntary standard as is ISO.

The audited companies – and auditors themselves – face significant risks related to SEC compliance, reputation and a broad range of consequential liabilities that are addressed far better by specific SEC audit/auditor standards than a general voluntary framework with no direct governmental involvement or support.

Step 4.A.4.b.  The Audit Principles:  Document Review

… all records on business partners and suppliers, interviews and on-the-ground assessments…

SEC audit standards are based on “reasonable assurance” and “representative sampling”.  Audit tasks seeking 100% certainty or review are not appropriate/feasible except in limited circumstances.

Where expectations are based on 100% certainty or review, auditors face significant and unreasonable liabilities.

Step 4.A.4.c.  The Audit Principles:  In-site Investigations

In-site investigations should include…

ii.  A sample of the smelter/refiner’s suppliers (both international concentrate traders, re-processors and local exporters), which includes supplier facilities

Suggests the auditors visit another company’s facilities.

The auditor faces multiple uncontrolled business liability risks in this “extended audit” scope unless the auditor has a separate specific contract with that supplier.  Such a contractual relationship conflicts with the Auditor Independence elements in Step 4.A.3.a.

4.A.4.c.  The Audit Principles:  In-site Investigations

In-site investigations should include…

iv.  Consultations with local and central governmental authorities, UN expert groups, UN peacekeeping missions and local civil society.

Suggests direct involvement of external parties in the audit process, an inappropriate extension of audit scope.

An auditor may not be able to confirm/verify the information presented by these external parties.  This also presents a potential for inadvertent breach of confidential business information.

4.A.4.d  The Audit Principles:  Audit Conclusions

Auditors should generate findings that determine, based on the evidence gathered, the conformity of the smelter/refiner due diligence for responsible supply chains of minerals from conflict-affected and high-risk areas with this Guidance.

The findings envisioned by OECD are based on conformity and not fully consistent with the requirements of Section 1502(b), which requires the audit to include additional information (“compliance”).

A substantial body of information over more than 15 years related to ISO14010/14011 (Environmental Management Systems Auditing, now superseded by ISO 19011) demonstrates there is typically a significant gap between the outcome of conformity audits versus compliance audits.

4.B.1.d  SPECIFIC RECOMMENDATIONS – For all downstream companies

It is recommended that all downstream companies participate and contribute through industry organisations or other suitable means to appoint auditors and define the terms of the audit in line with the standards and processes set out in this Guidance. Small and medium enterprises are encouraged to join or build partnerships with such industry organisations.

As explained above, this program element conflicts with the Auditor Independence elements in Step 4.A.3.a.

 

Step 4.B.2  INSTITUTIONALISED MECHANISM FOR RESPONSIBLE SUPPLY CHAINS OF MINERALS FROM CONFLICT AFFECTED AND HIGH-RISK AREAS.

All actors in the supply chain, in cooperation and with the support of governments and civil society, may consider incorporating the audit scope, criteria, principles and activities set out above into an institutionalized mechanism that would oversee and support the implementation of due diligence for responsible supply chains of minerals from conflict-affected and high- risk areas. The institution should carry out the following activities:

a)  With regard to audits:

i)  Accrediting auditors;

ii) Overseeing and verifying audits;

iii)Publishing audit reports with due regard to business confidentiality and competitive concerns.

b)  Develop and implement modules to build capabilities of suppliers to conduct due diligence and for suppliers to mitigate risk.

c)  Receive and follow-up on grievances of interested parties with the relevant company.

This takes key audit oversight out of SEC’s hands and places the responsibilities directly with a group of representatives from the regulated community, creating a major gap in auditor standards and dramatic potential for auditor impairment as discussed above in Step 4.A.3.a.

Research indicates there is no precedent in any other legally-mandated audit program under SEC that defers this level of direct management and oversight to an industry group or other non-governmental organization.