conflict minerals: the first year and what's to come

© 2014 Baker & McKenzie LLP

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Conflict Minerals: The First Year, and What's to Come

November 14, 2014


Chelsie Chmela

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Conflict Minerals: The First Year, and What's to Come

An Ethisphere Webinar, November 14, 2014

Presented by:

David Hackett (Moderator), Partner, Baker & McKenzie, Chicago

Reagan Demas, Partner, Baker & McKenzie, Washington, DC

Daniel Goelzer, Partner, Baker & McKenzie, Washington, DC

Douglas Hileman, Douglas Hileman Consulting, LLC, Los Angeles

© 2014 Baker & McKenzie LLP 5

Agenda

‒ Year 1 - Filings Overview Informal SEC Staff Comments Overall Developments, Trends and Observations

‒ Ongoing litigation: Legal Challenge to SEC Rule

‒ Year 2 – What to Expect? Conflict Minerals Report Format Smelters and Suppliers Conflict Free Determinations Audits

‒ Year 3 – Looking Ahead


Year 1 Filings: Overview

‒ Who filed, who didn’t

‒ What they said/didn’t say

‒ Analyses do not include forward-looking statements; analysis by position in supply chain; or requirements imposed via other channels (notably

customers)

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Year 1 Filings: Informal SEC Staff Comments

‒ No formal statements

‒ Division of Corporation Finance Director Keith Higgins’ comments “Conflagrating” RCOI and due diligence “Oblique” representations concerning DRC-Conflict

Free products without IPSAs Failure to list smelters

‒ SEC guidance likely to depend on whether litigation is resolved

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Year 1 Filings: Overall Developments, Trends, Observations

‒ Tremendous range and variation of responses

‒ Project to Program

‒ Data management: tools; objectives; capabilities; flexibility/ scalability

‒ Commercial pressures

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Ongoing Litigation: Legal Challenge to SEC Rule

‒ Ongoing, with no impact on operations or RCOI/diligence frameworks

‒ More “wait and see” possible

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Year 2: What to Expect? What to Do?

‒ The bar will rise in Year 2

‒ Description of steps taken to review and validate supplier data

‒ Smelter lists

‒ Forward looking statements

‒ Managing product-level inquiries, declarations

‒ Customer engagement

‒ Non-SEC reporting

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Year 2: What to Expect? What to Do? (cont’d) ‒ A Pre-Drafting Checklist

What is important to the users of the company’s Conflict Minerals Report? How does the company’s Year 1 Report compare with those of competitors? Have NGOs commented on our Report or made inquiries to the company?

‒ Is the Conflict Minerals Report consistent with other disclosures? Do the disclosures in the CMR align with the company’s other SEC filings? What are the company’s customers and suppliers saying about conflict

minerals? How do their disclosures compare to ours?

‒ Are the company’s forward-looking statements credible? Review forward-looking statements made last year. Did we do what we said

we would do? Consider forward-looking statements we are making this year. Do we have

concrete implementation plans?

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Year 2: Conflict Minerals Report Format

‒ Raise the bar on your CMR

‒ Write the report “from the middle out”

‒ Align the “steps taken” with the OECD framework’s five steps

‒ Move company background, industry trends, conclusions, etc.

‒ Anticipate the IPSA

‒ Take care on forward-looking statements

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Year 2: Smelters and Suppliers

‒ Do I have to list smelters in my filing?

‒ Use Conflict Minerals Reporting Template (CMRT) and Conflict Free Smelter (CFS) List

‒ Department of Commerce List of Conflict Minerals Processing Facilities Includes much more than smelters & refiners Has no information on conflict-free status DOC does not have duty to investigate further

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Year 2: Conflict Free Determinations in Year 2 Filings

‒ If required (based on outcome of federal court action), undeterminable status still available for year 2

‒ Will the level of SEC scrutiny increase?

‒ Risks of inconsistent communications

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Year 2: Audits‒ Independent Private Sector Audit (IPSA) – defined term

‒ Required for all issuers for 2015

‒ Required for 2014 only if issuer concludes that a product is “DRC Conflict Free”

‒ Two specific IPSA objectives: both are process-related

‒ Attestation or performance audit standards allowed

‒ Example of IPSA (performance standards) in link at www.DFCMAudit.com

‒ Issuer’s CMR is significant driver of IPSA scope, procedures, cost

‒ Issuers should get a successful IPSA

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Year 3: Large Filer Transition Period Ends

‒ Transition period for large filers ends January 1, 2015

‒ Likely more scrutiny by SEC as well as outside parties on claimed status

‒ Customer requirements can become contractually legally binding, with potentially dramatic consequences (loss of sales)

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Year 3: Integrating into Business Processes & Programs

‒ ISO Management systems

‒ Sarbanes-Oxley: business processes; internal controls

‒ Cut-off dates

‒ Integrated supply chain diligence and compliance programs

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Year 3: Observations & Suggestions for Preparation

‒ Year 3 will be more like Year 1 End point Manage like project Readiness Identify IPSA auditors early

‒ Draft Year 2 and Year 3 reports with the IPSA requirements in mind

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Closing Thoughts/ Q&A


Contact information

Daniel Goelzer, Partner, Baker & McKenzie, Washington, DC• Email: [email protected]• Phone: +1 (202) 835-6191

Daniel Goelzer, Partner, Baker & McKenzie, Washington, DC• Email: [email protected]• Phone: +1 (202) 835-6191

Douglas Hileman, President, Douglas Hileman Consulting LLC• Email: [email protected] • www.douglashileman.com• Phone: +1 (818) 416-6403

Douglas Hileman, President, Douglas Hileman Consulting LLC• Email: [email protected] • www.douglashileman.com• Phone: +1 (818) 416-6403

David Hackett, Partner, Baker & McKenzie, Chicago, • Email: [email protected]• Phone: +1 (312) 861- 6640

David Hackett, Partner, Baker & McKenzie, Chicago, • Email: [email protected]• Phone: +1 (312) 861- 6640

Reagan Demas, Partner, Baker & McKenzie, Washington, DC• Email: [email protected]• Phone: +1 (202) 835-1886

Reagan Demas, Partner, Baker & McKenzie, Washington, DC• Email: [email protected]• Phone: +1 (202) 835-1886


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