Tag Archives: wolframite

Conflict Minerals is Dead! Long Live Conflict Minerals!

The deadline for filing the CY2016 SEC conflict minerals disclosure has now passed, although there are likely to be a few late filers. It is too early to glean anything from the filings and at least three analyses will be conducted, including the Development International study, which is the most comprehensive of them. We all anxiously await these reports.

The future of the SEC disclosure requirement is murky and there is a chance that this may be the last year of mandated filing in the US. Many clients and others are asking us questions about the future of conflict minerals, and what the past results have been. These are our thoughts.

Looking forward, we do not know what is in store for the SEC rule. There are many moving parts politically and publically. We will know what happens when it happens. I’d like to think there will be adequate advance notice to those impacted, but even that is not assured.

But the review mirror tells a story too. While aspects of the rule’s impact are hotly debated, one thing is indisputable – it resulted in much greater visibility into material sourcing and other companies deep in supply chains. This has allowed some companies to reduce business risk by optimizing their supply chains – concentrating spending power or diversifying their supply base to manage potential disruptions. Companies identified that, unbeknownst to them, entities sanctioned by the US Department of Treasury Office of Foreign Asset Control (OFAC) may have been present in their supply chains. Supplier audits/screening improved in many cases.  Appropriate auditor qualifications in light of global reliance on audit results has also become a major question in the scheme of things.

Of course, the rule brought human rights abuses in the DRC and other countries out of the shadows and into the light of the public. But has the population of the DRC benefitted? Experts continue to argue both sides of the question. Without taking sides, earlier this year we attempted to evaluate one major criticism of the SEC rule – that it directly resulted in hundreds of thousands, if not millions, of jobs lost in the 3TG mining sector. The question we posed ourselves was what impact did the 2008 – 2010 global economic recession have on artisanal and small miner (ASM) job losses which are currently attributed only to Dodd-Frank Section 1502? Did the timing of 1502 coincidentally occur at a time when mining jobs were already in decline because of pre-existing macroeconomic conditions?

Our intent was to rely on existing literature rather than creating original research as this was an unfunded effort on our own part. After a few months, we ran into two insurmountable obstacles:

  • The existing DRC-specific literature we found does not acknowledge or give any consideration to potential impacts of the 2008 – 2010 global economic recession. Yet analyses from The World Bank, the World Economic Forum (WEF) and the International Finance Corporation (IFC) demonstrate that global economic downturns play a major role in commodity prices and mining jobs worldwide, including ASM.
  • The DRC has a uniquely major informal economy which some literature indicated accounts for up to 80% of the country’s total economic activity annually. There is a significant gap in available information on DRC’s informal economy and what is available was sometimes inconsistent with other data on the same matter or irrelevant to our study.

We found only two sources referencing global 3TG price influence on prices paid to DRC ASMs.  Other data supported the position that a very large number of ASM miners in DRC move between multiple jobs based on income potential, so when ore prices were low in the past, miners moved to agriculture or other income sources. There was a meaningful amount of anecdotal information supporting the hypothesis that several factors other than Section 1502 (such as the DRC’s own taxation and mining policies) had a direct effect on DRC ASM job losses within the timeframe of interest, but we were not willing to rely on non-empirical information. We put down our pen (or mouse) and moved on to other things.

So the debate will continue.

There have been developments beyond just the SEC rule. The European Union adopted their own version of a conflict minerals due diligence rule that impacts a different class of companies and goes into effect in 2021. And the application of the OECD Due Diligence Framework is expanding into other materials (such as cobalt) and other geographies. At the moment, that appears to be just the beginning of that trend and that future is unknown as well.

In the end, what can be said about Section 1502 in consideration of it’s possible end? It all depends on your perspective, but it ain’t over till it’s over.  And it ain’t over.

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?


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.


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.


May 30 Conflict Minerals Filings – Our Initial Review and Thoughts

UPDATE:  We have standardized benchmarking analyses/reports available for a nominal fee.  As of late Sunday night (June 1), we began detailed reviews and summary data collection/analysis on over 100 filing companies representing a range of industry sectors.  This will expand over the coming weeks to include the thousands more filings expected by the end of the day today.  If you are interested in obtaining a benchmarking report for your company, contact us.  We can provide custom reporting as well.

Want to help us prioritize our company reviews?  Read this.

Even before we got our first cup of coffee this morning, we went to SEC’s website and perused the recent filings for Form SDs/CMRs. Over the past 48 hours (at least as of about 10am eastern time), close to 150 filings were submitted. And there will certainly be more than that by the time this article is published.

We semi-randomly selected 15 company filings to compare and contrast. In selecting the companies, we tried to select large, well known companies across a range of industries. We excluded companies with whom Elm worked on their program or filing.

Below is summary information of the 15 filings that includes the company name and industry, the link to their SEC filings, excerpts from the documents that we felt we particularly interesting or important, and our comments.  Our general observations are that

  • There is, as expected, wide variability in length, publication of metrics, listing smelters and interpretations of “may have reason to believe CM may have originated in Covered Countries”;
  • Most issuers have defined due diligence to include the RCOI;
  • Most issuers did not include the scrap disclosure in the Form SD;
  • Percentage of direct spend was a common risk screening factor; and
  • Supplier response rates, when identified, varied greatly from 0% to 100%


 Company: Apple Computers

Industry: Electronics, Consumer Goods, Computers

Link to SEC filing

Key excerpts from filing: Based on its due diligence efforts, Apple does not have sufficient information to conclusively determine the country of origin of the Subject Minerals in its products or whether the Subject Minerals are from recycled or scrap sources. However, based on the information provided by Apple’s suppliers, smelters, and refiners, as well as from other sources, Apple believes that the countries of origin of the Subject Minerals contained in its products include the countries listed in Annex II below, as well as recycled and scrap sources.

Our comments: Some may express disappointment that Apple did not file a lengthier disclosure. However, a careful reading of the content will show that Apple actually did far more than just reviewing spreadsheets and looking at smelter lists.


Company: HP

Industry: Electronics, Consumer Goods, Computers

Link to SEC filing

Key excerpts from filing: We have determined that with respect to our 2013 products containing necessary conflict minerals we know or have reason to believe that some of the necessary conflict minerals originated or may have originated in the Covered Countries. Further, we know or have reason to believe that these necessary conflict minerals may not be conflict minerals from recycled or scrap sources. Accordingly, we conducted due diligence on the source and chain of custody of those necessary conflict minerals and have prepared this Conflict Minerals Report.

Our comments: Severalof the issuers in our review took the position that suppliers’ company-level disclosures could not be definitively linked to specific parts/materials provided to the issuer, and therefore it was not possible to identify smelters/countries of origin applicable to the issuer. HP does not appear to have taken this path and disclosed on a broader basis. We offered our views on this point earlier.


Company: Ford Motor Company

Industry: Automotive

Link to SEC filing

Key excerpts from filing: The majority of our in-scope suppliers have provided a company-level completed CMRT that does not identify the smelters or refiners used for a particular part, component, or business customer. In cases where suppliers provided a part-level report, the identification of the smelters and refiners that support our specific products could not be determined due to lower tier suppliers reporting on a company basis. Therefore, we are unable to identify with certainty the specific facilities used to process the 3TG in our products.

However, due to our position in the supply chain, we are unable to identify with certainty the specific facilities used by our suppliers to process the conflict minerals in our products; therefore, it is not possible for us to determine with certainty the origin of the conflict minerals used in our products. As a result, for the 2013 reporting period, our automobiles and automotive components and service parts are DRC conflict undeterminable.

Our comments: Ford did not provide a list of identified smelter/refiners or countries of origin based on their inability to link suppliers’ company-level declarations to the specific parts/materials purchased by Ford.


Company: NewellRubbermaid

Industry: Consumer Products

Link to SEC filing

Key excerpts from filing: As a result of the Company’s RCOI, the Company has reason to believe that some suppliers in its supply chain of in-scope products or components of such products may be sourcing 3TG from Covered Countries. However, the Company was unable to determine the specific source of the 3TG due to insufficient information. Additionally, some suppliers have claimed the 3TG in their products comes from recycled or scrap sources, but they have not provided sufficient evidence to support their claim. Accordingly, the Company undertook the due diligence process described below.

Responses to the CMRT received from targeted suppliers identified 45 unique smelters, 19 of which could be verified to exist, as they were validated against the standard smelter list published by CFSI. Eighteen of the valid smelters could be verified as conflict-free using information published by CFSI. The majority of respondents did not provide smelter information; further, responding suppliers often provided their responses at a company-wide level, rendering the Company unable to conclude whether 3TG from smelters that may have been identified were actually used in the Company’s in-scope products.

Our comments: Although the CMR states that scrap was identified as a source, NewellRubbermaid did not include the scrap disclosure in the Form SD itself. Also, the company did not provide a provide a list of identified smelter/refiners or countries of origin based in part on their inability to link suppliers’ company-level declarations to the specific parts/materials purchased by NewellRubbermaid.


Company: NeimanMarcus

Industry: Retail, Apparel

Link to SEC filing

Key excerpts from filing: The Company identified fifty-seven (57) of its vendors/suppliers who are required to complete the Template and Certification process outlined in 1.4 above.  We have relied on these vendor’s/supplier’s responses to provide us with information about the source of conflict minerals contained in the merchandise sold to us.

As noted above, following its RCOI for the 2013 calendar year, the Company has concluded that based on that inquiry it has no reason to believe that any of the 3TG in its supply chain may have originated in the Covered Countries, or may not have originated from recycled or scrap resources, as the case may be.

Our comments: By only filing a Form SD and not conducting due diligence, NeimanMarcus demonstrated that it had enough faith in the credibility and completeness of its suppliers’ initial representations.


Company: Signet Jewelers

Industry: Jewelry, Retail

Link to SEC filing

Key excerpts from filing: Signet has reasonably determined that supplies of Products containing 3TGs to Signet are “DRC conflict-free” as defined in Section 13(p) of the Exchange Act and Form SD thereunder.

Signet determined through this due diligence process, that some of its necessary conflict minerals originated or may have originated in the Covered Countries, but nevertheless qualified as “DRC conflict free”

Our comments: In accordance with a DRC Conflict Free designation, an IPSA was conducted and filed. The auditor was not a CPA firm and stated that the IPSA was conducted in accordance with GAO Performance Audit standards. At the same time, the auditor chose to offer comments beyond the objective by judging an aspect of effectiveness: “It is clear that Signet has established strong management systems for Conflict Minerals supply chain due diligence and reporting compliance in its supply chain through the implementation of their SRSPs and the integration of these into daily business practices. 

The CMR contains a very long detailed description of the design of Signet’s due diligence measures that includes words that we are unsure how the auditor was able to audit, such as: “conducting a careful review”, “large amounts of gold and/or 3TG,” “suppliers that supply significant amounts of Products containing 3TG”. Such ambiguous words are not considered auditable and are to be avoided.


Company: Anheuser-Busch (AB InBev)

Industry: Food and Beverage

Link to SEC filing

Key excerpts from filing: AB InBev has determined that it manufactures only one product employing necessary conflict minerals within the scope of Form SD. The product in question is a line of glass bottles manufactured by AB InBev’s Mexican subsidiary that utilize the coating Certincoat® TC100, which contains the conflict mineral tin necessary for its functionality. AB InBev is supplied Certincoat® TC100 by a single supplier.

Based on the documentation it has received from its supplier, AB InBev has no reason to believe that its necessary conflict minerals may have originated in the DRC or an adjoining country. 

Our comments: By only filing a Form SD and not conducting due diligence, Anheuser Busch demonstrated that it had enough faith in the credibility and completeness of its suppliers’ initial representations. Also, the tin-containing product appears to be necessary for the production of the glass bottles, and the tin is in organotin form. This disclosure is in contrast to the position taken on organotin by the American Apparel and Footwear Association in their due diligence guidance document.


Company: Armstrong World Industries

Industry: Building Materials, Flooring

Link to SEC filing

Key excerpts from filing: … we concluded that our products containing Conflict minerals are “DRC conflict undeterminable”

Our products and suppliers were assessed by in-house subject matter experts in order to identify our Conflict Mineral scope and risk. Then, as part of our RCOI, all suppliers deemed to be within the scope of the Rule were surveyed using a variation of the EICC/GeSI Conflict Minerals Reporting Template. Based on our reviews, 191 of our 1,550 raw and sourced material suppliers were in scope for having provided materials that potentially contained tin that was not from scrap or recycled sources. We surveyed all 191 suppliers and achieved a 100% response rate, with 97% of respondents reporting the materials they sell us do not contain tin.

We received completed questionnaires from six of our suppliers that said that the materials they sell to us contain tin. To date, only three of those suppliers have provided us with smelter lists. Based on the information provided regarding the smelters we have determined that none of the smelters are located in the Covered Countries.

Notwithstanding our efforts to obtain information from the three suppliers that did not identify the names and locations of the smelters or other sources of the tin, we have, thus far, been unable to identify the smelters or sources for the tin supplied to us by those other three suppliers and, therefore, have been unable to determine the country of origin of that tin. Based on the location of the facilities used to process the tin, we have no reason to believe the source of the tin is from a Covered Country although we can’t exclude that possibility. We are still working closely with our suppliers to obtain the remaining smelter lists and mine locations to assist with a final determination of the country of origin of the tin. 

Our comments: The tin in Armstrong’s products is in organotin form. This disclosure is in contrast to the position taken on organotin by the American Apparel and Footwear Association in their due diligence guidance document.  It is also interesting that although Armstrong received an exceptional response rate, the completeness rate of those responses appears to be quite low.


Company: Eli Lilly

Industry: Medical Devices, Pharmaceuticals

Link to SEC filing

Key excerpts from filing: The current supplier that uses 3TG (specifically gold and tin) (and its respective suppliers) have represented to us that they conducted their own due diligence for the medical device which they manufacture. The supplier was unable to provide complete documentation regarding the country of origin or the smelters from which the gold and tin that is incorporated into the medical device is sourced. As a result of our supplier’s inability to provide us with this information, we had insufficient information from this supplier and were unable to conduct any diligence to determine the mine location of origin for the 3TG minerals used in the Lilly device.

Our comments: Although Eli Lilly stated they were unable to conduct due diligence, they did file a CMR describing their due diligence activities.


Company: BorgWarner

Industry: Automotive Parts

Link to SEC filing

Key excerpts from filing: BorgWarner therefore declares itself “DRC conflict undeterminable” as defined by paragraph (d)(5) of the instructions to Item 1.01 for all products manufactured by BorgWarner.

Our comments: BorgWarner provided detailed numerical metrics on the number of suppliers queried and the response rate. No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.


Company: Navistar

Industry: Automotive, Truck Manufacturing

Link to SEC filing

Key excerpts from filing: For 2013, this approach focused on those suppliers providing material to our North America Truck operating segment, which accounted for approximately 63% of our net sales and revenues for 2013.

We surveyed 125 suppliers of the North America Truck operating sector as of April 21, 2014. This population represents over 70% of the segment’s supplier related expenditures for our most recent full fiscal year. Based on our initial and follow-up efforts, we received responses from 72% of those surveyed.

Based on these initial survey results, Navistar was unable to determine the origin of 3TG in all our North American Truck segment products and therefore cannot exclude the possibility that some 3TG in such products may have originated in the Democratic Republic of the Congo or an adjoining country and are not from recycled or scrap resources for the 2013 calendar year.

Our comments: Navistar’s disclosure includes a smelter list, which identified one CFS smelter, but no countries of origin were disclosed.


Company: Toyota

Industry: Automotive

Link to SEC filing

Key excerpts from filing:

(i)              Conflict minerals’ country of origin: Because sufficient information to identify a portion of the smelters/refiners and the countries of origin of conflict minerals was not provided by its suppliers, Toyota was unable to determine any of its products to be “DRC conflict free”, as defined by Form SD.

(ii)            Facilities used to process conflict minerals: During the course of our due diligence on the source and chain of custody of the necessary conflict minerals, Toyota has collected information on some, but not all, of its smelters/refiners. Among those smelters/refiners, we found some of them processed minerals sourced in the Covered Countries. However, through our due diligence, we were unable to obtain sufficient information to determine whether those conflict minerals were from mines which financed or benefited any armed group.

(iii)           Efforts to determine the conflict minerals’ mines or locations of origin: Through its participation in CFSP and the RCOI survey completed by its suppliers, Toyota has determined that its efforts to seek information about the conflict minerals smelters/refiners in its supply chain represents the most reasonable effort Toyota can make to determine the mines or locations of origin of the necessary conflict minerals contained in its supply chain.

Our comments: No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.


Company: Vishay Intertechnology Inc.

Industry: Electronics, Electronic Components

Link to SEC filing

Key excerpts from filing: Vishay obtained survey responses from In-scope Suppliers representing 80% of the dollar value of 2013 in-scope procurement activities.  Based on the survey responses obtained, we have reason to believe that some of our supplies of 3TG may have originated in the Covered Countries, some from outside of the Covered Countries, some from recycled/scrap materials, and some from sources that are currently unknown.

Our comments: Vishay included a smelter list that identified CFS and Non-CFS smelters, but the company did not include a disclosure of the identified countries of origin.


Company: Baker Hughes

Industry: Oil and Gas

Link to SEC filing

Key excerpts from filing: … secured initial responses from 35.9% of the identified suppliers, each of which registered on the supplier engagement web portal; received completed questionnaires from 34.9% of the identified suppliers

Our comments: Although we had no involvement with BakerHughes in any way, their disclosure is aligned with guidance Elm provided clients regarding the structure and headings of the CMR, the definition of due diligence measures undertaken and listing smelter identified by suppliers, including differentiating between CFS and non-CFS smelters/refiners. However, the company provided no list of countries of origin. The supplier response rate appears low.


Company: Medtronics

Industry: Medical Devices

Link to SEC filing

Key excerpts from filing: The suppliers surveyed represent approximately 42% of our direct material expenditures in 2013. In addition, the suppliers surveyed account for approximately 43% of all electronic and metal expenditures in 2013, which we have determined are categories that have the most potential to contain 3TG.

As of May 15, 2014, we have received responses from 24% of the suppliers surveyed.

The large majority of the responses received provided data at a company, division, or product category level or were unable to specify the smelters or refiners used for components supplied to Medtronic. Based on the information received in the due diligence process, we do not have sufficient information to determine the country of origin of the 3TG in any of our products.

… the Company has reasonably determined that each of the products is “DRC conflict undeterminable,” as defined in the Rule.

Our comments: Medtronics chose to use the “DRC Conflict Undeterminable” language. No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.




December 2013 UN Group of Experts report on DRC, Conflict Minerals

The most recent report of the UN Group of Experts (GoE) on the conditions in the DRC and surrounding countries has been released.  The report is wide ranging, but there is plenty of interesting information about conflict minerals – mainly gold – and the GoE’s findings concerning areas of militia control.

The report acknowledges that improvements have been made in the area’s conditions, but armed groups “continue to pose threats to security.  These groups are responsible for grave human rights abuses and massive displacement.”  In contrast to many reports from popular western media about the surrender and demise of M23, “…sanctioned M23 leaders are moving freely in Uganda, and that M23 has continued to recruit in Rwanda.”  In addition to M23, the GoE provided details on a number of other militia groups that are still active in the region.

Clearly, earlier statements by some media and other observers that the conflict ended with M23 are wrong.

With regard to conflict minerals, the GoE “estimates that 98 percent of the gold produced in DRC is smuggled out of the country, and that nearly all of the gold traded in Uganda – the main transit country for Congolese gold – is illegally exported from DRC” and tin, tantalum and tungsten continues to be smuggled out of eastern DRC.  One particularly blunt comment points to the DRC government:  “The Group notes that the lack of action of the Government of DRC against gold traders operating illegally in the aforementioned trading towns. In each location, gold traders work openly, but government authorities fail to arrest these traders, or otherwise compel them to legally trade in gold.”

The GoE found that “The main downstream destination of artisanally mined Congolese gold remains the United Arab Emirates (UAE); other destinations are Lebanon and Asian markets including India.”  According to various articles and sources, the highest uses of gold in those markets are jewelry and investments (bullion and coin) rather than industrial/commercial uses (such as gold chemicals/salts for plating of electronic components).  At least part of this finding seems to be supported by statements made by the World Gold Council.  Therefore, there may be less of a linkage between this gold smuggling and downstream manufacturers (other than jewelry) than it may appear.

Armed groups are funding themselves through several means such as poaching (ivory), looting villages, illegal transportation taxes, embezzlement of government levies at borders and revenues from various businesses (including rental fees for ore mining/processing equipment).  The report pointed out a few instances where they identified mining as a source of revenue, although “The Group found no evidence that M23 was engaged in the trade of minerals in 2013.”

Not everything was gloom and doom, however, as there were improvements noted that were attributed to gains in due diligence practices.  The report (shorter than others in the past)  is worth spending a few minutes reading.

What the Independent Private Sector Audit of Your Conflict Minerals Report Will Cost

Read this important update about IPSAs for calendar year 2013.

As we near the end of the first reporting year for conflict minerals disclosures, the regulated community is seeking to understand what the Independent Private Sector Audit (IPSA) of the conflict minerals report (CMR) will entail and cost, as numerous companies are expecting to trigger the IPSA for 2013.

The CMR IPSA is different from other types of audits required by the Securities and Exchange Commission.  The SEC recognized that the IPSA “differs significantly from the objectives of other audits required by our rules” [p. 218 of the final release] and that it “is not as comprehensive as an audit objective requiring an auditor to express an opinion or conclusion as to whether the due diligence measures were effective, or to express an opinion or conclusion as to whether or not the issuer’s necessary conflict minerals are “DRC Conflict Free”. [p. 219]

Two notable differences are the stated audit objective and the required audit standard – and each of these shapes the cost of the IPSA.

The audit objective makes it clear that the issuer has a significant amount of control over the audit boundaries/effort by virtue of how the company chooses to describe the due diligence framework and activities performed.  The more concise, clear and auditable the company’s descriptions as set forth in the CMR, the easier, less time consuming and lower cost the IPSA should be.  We previously offered thoughts on one way to define “due diligence” that forms the foundation of what the CMR language could describe aligned with this concept.

The audit standard to be used for all IPSAs is the US Government Accountability Office (GAO) generally accepted government auditing standards (commonly referred to as “GAGAS” or “the Yellow Book”).   Because these standards are mandated, auditors should be following the prescribed activities for either the Attestation Engagements or Performance Audits.  Issuers may feel that the amount of information to be reviewed on-site is minimal and may not justify more than a day or two on-site.  However, on-site audit activities are only one aspect of the audit; the required preparation, planning, peer review and reporting tasks may be more time-intensive than the on-site work, but they are necessary nonetheless – and also impact the cost.

As stated in the proposal and final regulation, the SEC thinks the IPSA should cost around $25,000 for a small company, or up to $100,000 for a large company.  So what will your CMR IPSA cost?  It depends on a number of factors, some of which are directly influenced by the audited entity.  But based on the IPSA proposals we have submitted, SEC’s estimates may frequently be generally on-target – and in some cases, even high.

If you are interested in having Elm submit a proposal for your CMR IPSA, feel free to contact us.

GAO’s New Report on SEC’s Conflict Minerals Rule: About Everything You Need to Know

Last week, GAO published its 52-page annual performance audit report on SEC’s conflict minerals regulations. The annual report to Congress is required under Section 1502 “beginning in 2012 and annually thereafter, on the effectiveness of the rule in promoting peace and security in the DRC and adjoining countries; to describe information that may be publicly available about entities that use conflict minerals but are not required to report to SEC under the rule; and report, annually beginning in 2011, on the rate of sexual violence in war- torn areas of the DRC and neighboring countries.”

The report did not address the effectiveness of SEC’s conflict minerals disclosure rule “because the first disclosures of companies’ use of conflict minerals will not be due to SEC until May 2014 and sufficient time must elapse to allow the full impact of the rule to materialize.”

We think the most important take aways from the report are:

Some optimism was expressed …

  • “Stakeholder-developed initiatives focused on sourcing of minerals may enhance companies’ ability to achieve the SEC rule’s desired outcome of denying armed groups in the DRC benefits from conflict minerals.”

… but overwhelmed by in-region realities

  • “Officials GAO interviewed cited constraining factors such as lack of security, lack of infrastructure, and lack of capacity in the DRC that could affect the ability to expand on efforts to achieve conflict-free sourcing of minerals from eastern DRC and thereby potentially contribute to armed groups’ benefiting from the conflict minerals trade. For example, officials GAO interviewed noted that there is a lack of infrastructure in place that would enable companies to set up or expand operations in the DRC. Limited transportation and poor roads in eastern DRC also make it difficult to get to mine sites. Moreover, according to officials, the remoteness of mines also makes it difficult for DRC officials to validate mines and ensure that the mines have not been compromised by illegal armed groups.”
  • GAO notes a “lack of technical, economic, and political capacity as another factor that may affect the creation or expansion of in-region sourcing initiatives focused on responsible sourcing in the DRC and neighboring countries” and “the DRC government lacks capacity to mitigate corruption and smuggling”.


  • GAO identified 278 smelters and refiners; the total number is believed to be nearly 500 worldwide. The 278 smelters and refiners “may not be representative of others, and the information we report about these 278 cannot be generalized to other smelters and refiners of tin, tantalum, tungsten, and gold.”
  • GAO found that “over half of the 278 smelters and refiners of conflict minerals it identified were located in Asia, many processed tin, and most did not have a conflict minerals policy publicly available.”

Companies not subject to SEC

  • “Estimates provided by public commentators responding to the rule indicate that roughly 280,000 suppliers could provide products to roughly 6,000 companies that report to the SEC under the rule and may be asked to provide information on their use of conflict minerals and the origin of the minerals as part of the rule’s due diligence requirements. GAO found little available aggregated information about companies that do not report to SEC under the rule.”

Packaging and Organotin – In or Out of SEC’s Conflict Minerals Regulations?

Anyone who has been involved with SEC’s conflict minerals regulations for any amount of time is well aware of its confusing nature, overly complex and labyrinthine sentences and significant substantive ambiguities.  Among these, two matters seem to be rising to the top in popularity – due to the sweeping nature of the applicability:

  • Is packaging within the scope of the regulation as something that is “necessary to the functionality or production” of a product?  In some cases, packaging may serve little more than a product container to convey the product to the market or consumer in a convenient manner.  In other cases, packaging could be seen as preventing the degradation of the product, and therefore arguably contributing to its functionality.
  • Is organotin – as well as other non-metallic forms of 3TG – considered a different/specific “derivative” of cassiterite that is not intended to be regulated in the same manner as the specifically-named derivative “tin”?  In the preamble of the final rule (77 Fed. Reg. 56284 – 56285), SEC addressed the matter of organotin without bringing full clarity to their views on the matter.

There may – or may not – a glimmer of insight into the Commission’s potential interpretation on these two topics.  Take a few minutes and read Footnote 9 in SEC’s Respondent Brief filed in the NAM/US Chamber lawsuit.

Then we invite you to post your thoughts, interpretations and comments here to encourage more discussion and views.


OECD Publishes Cycle 3 (and Final) Downstream Conflict Minerals Due Diligence Implementation Report

Last week, OECD made available the complete final report on downstream company pilot program implementation of its conflict minerals due diligence framework.

We have not completed our review and summary, but the report can be downloaded for free here.

Of particular initial interest to many may be:

  • the illustrative list of products (page 12)
  • key trends (pages 15-18)
  • learnings and recommendations from pilot participants (pages 60-64).  Among the recommendations is one that Elm has voiced for two years:  that the audit/auditor standards be upgraded from the generic ISO19011.  However, the recommendation references ISO/IEC 17021, which brings its own unique concerns and challenges.
  • list of 3T smelters (pages 70-75).  It is important to understand that this list does not include gold refiners, nor is the list exhaustive or  limited to  “approved” or “certified” smelters.

We hope to have additional analysis and insights available soon.


Elm Selected to Lead Development of New Auditor Guidance for Conflict Minerals Performance Audits

Elm has been selected by The Auditing Roundtable to lead their newly formed Working Group to develop a professional auitdor guidance intended for use by non-CPAs in applying the “generally accepted government auditing standards” (also known as “GAGAS” or the Yellow Book) to audits of Conflict Minerals Reports under SEC’s conflict minerals regulations.

Lawrence Heim, CPEA, Director of Elm’s Conflict Minerals services:  “The Board of Directors agreed to take on the challenge of developing this guidance, and doing so as rapidly as possible to serve the regulated community.  I am honored that the Board asked me to play a role in that process.”

Heim continued: “Given the importance, visibility and global impact of of this guidance, the Board recognizes how critical broad-based input and consensus will be.  The Working Group’s first order of business is to present to the Board for their approval two lists: one of recommended professional peer reviewers and one of organizations/entities from whom input will be sought as stakeholders.”

The Working Group will hold its first meeting in conjunction with the Roundtable’s national meeting in San Diego January 28-30, 2013.

Elm has been a vocal proponent of strong auditing and auditor qualification/independence standards in the conflict minerals context since our initial project work in 2010.  The Securities and Exchange Commission solicited our opinion and experiences on the matter during their Conflict Minerals Roundtable in 2011.  The Auditing Roundtable and the Board of Environmental, Health & Safety Auditor Certifications submitted written comments on the use of Performance Audit standards to the SEC during the proposed rule stage, and provided a briefing paper on auditor qualifications/audit standards to the US State Department Office of Central African Affairs in 2011.

The Auditing Roundtable

The Roundtable was founded in January 1982, when managers of ten corporate environmental audit programs met to discuss their auditing programs and practices.  The Roundtable has held regular meetings since that time and has undergone many important changes.  A Code of Ethics and the first formal bylaws, adopted in 1987, opened the Roundtable membership to individuals and provided for the election of a Board of Directors by the membership at large.  Following peer review and vote by the membership, the Roundtable adopted Standards for the Performance of Environmental Audits in 1993.  In 1998, the Roundtable reorganized into its current organizational structure.  Today it is the leading organization for environmental, health and safety auditing professionals in the United States and has formalized relationships/reciprocity with other scientific and auditing professional organizations around the world.

For more information on The Auditing Roundtable, click here.

Board of Environmental, Health & Safety Auditor Certifications

In 1997, The Auditing Roundtable joined with The Institute of Internal Auditors (IIA) to establish the Board of Environmental, Health & Safety Auditor Certifications (BEAC) for the purpose of issuing professional certifications relating to environmental, health, and safety auditing and other scientific fields.  BEAC is a member of the Council of Engineering and Scientific Specialty Boards (CESB), a third-party accreditation board. The CESB has granted full accreditation to BEAC’s Certified Professional Environmental Auditor (CPEA) certification.  BEAC certification is also recognized by

  • American Industrial Hygiene Association
  • American Society of Safety Engineers
  • American Chemistry Council
  • Texas Commission on Environmental Quality
  • Canadian Environmental Auditor Association

For more information about BEAC, click here.