Conflict Minerals What Companies Need To Know Now

Transcription

1 Conflict Minerals What Companies Need To Know Now Dynda Thomas Squire Sanders USFIA Webinar May 1, Offices in 19 Countries

2 Disclaimer The information contained in this presentation contains general information and is provided for informational purposes only and should not be construed as legal advice on any subject matter. Recipients of this presentation should not act or refrain from acting on the basis of any content included in this presentation without seeking the appropriate legal advice on the particular facts and circumstances at issue from an attorney licensed in the recipient s state. Conflict minerals compliance is especially driven by each company s own facts and circumstances and general guidance, such as included in this presentation, will not necessarily be appropriate for your circumstances. 2

3 Overview Section 1502 of the Dodd-Frank Act required the Securities and Exchange Commission (SEC) to promulgate new disclosure and reporting requirements relating to the use of certain minerals originating in several central African countries that were helping to finance extraordinary violence in the Democratic Republic of the Congo (DRC). Congress hoped that these rules would help bring an end of that violence. August 22, 2012, the SEC promulgated the long-awaited Conflict Minerals Rule. On October 22, 2012, the National Association of Manufacturers and other business groups challenged the rule. On July 23, 2013, that challenge was rejected by the U.S. District Court. On April 14, 2014, the Court of Appeals found that certain provisions of the Conflict Minerals Rule violate the First Amendment. Stay tuned for further developments in advance of the filing date. 3

4 Statement of Rule The Conflict Minerals Rule requires any reporting company having conflict minerals that are necessary to the functionality or production of a product manufactured or contracted by that [reporting company] to be manufactured, shall file a report on Form SD within the period specified in that Form disclosing the information required by the applicable items of Form SD as specified in that Form. Exchange Act Rule 13p-1 4

5 Key Terms Conflict Minerals are: tantalum tin tungsten gold Commonly referred to as 3T&G. These are conflict minerals regardless of where sourced and regardless of whether they financed or benefitted an armed group. 5

6 Key Terms Covered Countries Covered Countries are the Democratic Republic of the Congo, Zambia, Angola, Republic of the Congo, Central African Republic, South Sudan, Uganda, Rwanda, Burundi and Tanzania. 6

7 Disclosure and Filings Disclosures required by the Conflict Minerals Rule must be made by reporting companies on a new Form SD ( specialized disclosure ). If required, the Conflict Minerals Report is an exhibit to Form SD. Form SD is due for every calendar year by May 31 st of the following year, with the first reports due on May 31, 2014 (June 2, 2014). The reporting company must make its Form SD (with the Conflict Minerals Report if required) available on its website for one (1) year. 7

8 Challenges Companies are Facing Lack of Internal Awareness Internal Resistance Lack of Budget Complexity of Supply Chain Supplier Response Rate Quality of Supplier Response Inability to Gather Required Information Legal Uncertainty and Recent Changes 8

9 Legal Challenge Implications D.C. Court of Appeals rejected all but 1 challenge to Conflict Minerals Rule (April 14, 2014). Portions of Section 1502 of the Dodd-Frank Act and the SEC s Conflict Minerals Rule violated the First Amendment when they required that reporting companies report to the SEC and state on their websites that any of their products have not been found to be DRC conflict free. 9

10 What Do Companies Disclose? On Tuesday, April 29 th, Keith Higgins, the Director of the Division of Corporation Finance, released a Statement. SEC expects companies to file reports by the June 2, 2014 filing date. Reports should comply with and address those portions of Rule 13p-1 and Form SD that the Court upheld. 10

11 What Do Companies Disclose? According to the SEC Statement: Companies filing only the Form SD (without any Conflict Minerals Report) must disclose their RCOI and briefly describe their inquiry. Companies that are required to file the Conflict Minerals Report must describe their due diligence. No product descriptions are required in a Conflict Minerals Report. Products that would have been identified as either DRC conflict undeterminable or not found to be DRC conflict free, companies are required to disclose the smelters/refiners, the country of origin, and the efforts to determine the mine or location of origin of the conflict minerals in those products. Although companies are not required to use product descriptions, they are permitted to do so if they wish. Until further notice, no independent private sector audit is required unless a company chooses to describe products as DRC conflict free. 11

12 Possible Next Steps Petitioners could seek a stay which could be granted by the Court (seems unlikely to be successful after the SEC Statement, which addressed the areas of concern). Court of Appeals or SEC could consolidate conflict minerals case into American Meat Products case (another First Amendment case about compelled speech and appropriate standard for review). 12

13 For Now Until implications are known, reporting companies should: Press forward with inquiries, due diligence, analysis of responses, drafting of Form SD and Conflict Minerals Report. Stay tuned and be ready to adapt or change your disclosure if there is any further action or proceedings. Not file too early as there might be additional guidance or resolution on the implications of the Court of Appeals decision. If you file early, you will be noticed (and possibly scrutinized). So, be sure you want that attention before filing in the first wave of filers. 13

14 Reporting Requirements Form SD Conflict Minerals Report Periodic Reporting Disclosure Key Resources OECD Due Diligence Guidelines for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Countries AICPA Guidance on Private Section Audit (January 2014) Enough Project and Responsible Sourcing Network, Expectations for Companies Conflict Minerals Reporting (September 2013) 14

15 Reporting Requirements 15

16 Reporting Requirements Form SD Instructions 16

17 Reporting Requirements Form SD Instructions 17

18 Reporting Requirements Form SD Instructions 18

19 Reporting Requirements Form SD Conflict Minerals Report Periodic Reporting Disclosure Key Resources OECD Due Diligence Guidelines for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Countries AICPA Guidance on Private Section Audit (January 2014) Enough Project and Responsible Sourcing Network, Expectations for Companies Conflict Minerals Reporting (September 2013) 19

20 Reporting Requirements Conflict Minerals Report CMR must be exhibit to Form SD and must be provided on the company s website. CMR must include descriptions of: Design of due diligence Due diligence measures performed Results of due diligence Note changes per SEC Statement 20

21 Reporting Requirements Conflict Minerals Report Due Diligence (description required) Design of Due Diligence Measures Should state that measures were designed to conform, in all material respects, with the framework in The Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance) and the related Supplements for tin, tantalum, and tungsten and for gold. 21

22 Reporting Requirements Conflict Minerals Report Due Diligence Measures Performed Establish Strong Company Management Systems (required by OECD Guidelines) Policy Internal team Control systems Supplier engagement Grievance mechanism Identify and assess risk in supply chain (required by OECD Guidelines) Information directly from suppliers Participation in industry-wide initiatives around risks 22

23 Reporting Requirements Conflict Minerals Report Design and Implement a Strategy to Respond to Risks (required by OECD Guidelines) Risk management plan in response to identified risks Update identified risks Industry-wide initiative to identify upstream suppliers (including smelters and refiners) EICC-GeSI s Conflict Free Sourcing Initiative (CFSI) ITRI Tin Supply Chain Initiative (itsci) Public Private Alliance for Responsible Minerals Trade (PPA) Supplier communications and outreach Establish alternative/replacement conflict-free sources, terminate contracts Obtain independent third-party audit of smelters/refiners (required by OECD Guidelines) Report on supply chain due diligence (required by OECD Guidelines) 23

24 Reporting Requirements Conflict Minerals Report Due Diligence Results (description required) Smelters/refiners Country of origin Efforts to determine mine or location of origin 24

25 Reporting Requirements Form SD Conflict Minerals Report Periodic Reporting Disclosure Key Resources OECD Due Diligence Guidelines for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Countries AICPA Guidance on Private Section Audit (January 2014) Enough Project and Responsible Sourcing Network, Expectations for Companies Conflict Minerals Reporting (September 2013) 25

26 Reporting Requirements Periodic Reporting Disclosure Example 26

27 Reporting Requirements Required Reporting Form SD Conflict Minerals Report Periodic Reporting Disclosure Key Resources OECD Due Diligence Guidelines for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Countries AICPA Guidance on Private Section Audit (January 2014) Enough Project and Responsible Sourcing Network, Expectations for Companies Conflict Minerals Reporting (September 2013) 27

28 Reporting Requirements Key Resources Enough Project s Report Expectations for Companies Conflict Minerals Reporting Conflict-Minerals-Reporting.pdf AICPA Guidance Audit Procedures for Conflict Minerals Audit ts/conflict_minerals/frc_conflict_minerals2.pdf OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas 28

29 First Form SD Filing Siliconware Precision Industries Co., Ltd. April 24, 2014 Do not use it as a model Form SD and Conflict Minerals Report No IPSA Claims certain products are conflict free and rest are DRC conflict undeterminable Due diligence design and measures performed are not spelled out No description of RCOI Demonstrates importance of being current on latest developments (FAQs and SEC Statement) 29

30 Additional Resources Conflict Minerals Law: The Source for Legal Insights & Analysis on Conflict Minerals Compliance Squire Sanders Interactive Conflict Minerals Flowchart Interactive-Flowchart.pdf Called nifty by TheCorporateCounsel. Updated to include FAQs 30 Squire Sanders Conflict Minerals Practice Webpage

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