2015 SEC Conflict Minerals Reports

Transcription

1 2015 SEC Conflict Minerals Reports Blunders, Apathy, and Awkward Laundry Presented by: Bruce Calder VP Consulting Services

2 Overview - Agenda Introduction 2015 Conflict Minerals Report Summary Errors and awkward disclosures North Korea Lack of effort CAR and South Sudan UAE Sourcing Sudan Gold Refinery Tony Goetz Ranking the IPSA auditors Client rankings Red flags Summary and Q&A

3 Claigan - Conflict Minerals Services Program Development Supplier RCOI Smelter RCOI and Due Diligence Experience Quoted in the SEC final rules 18 times Testified to Congress on Conflict Minerals Works for the CFSI regarding identification of new smelters 3 of Claigan s clients passed conflict minerals IPSA audits in 2015 Claigan was independently audited against OECD Guidance

4 Claigan - World Leader Claigan Claigan is the world leader in due diligence We focus on being Comprehensive Clear If you want to be DRC Conflict Free not a problem If you want to be good but stay under the radar we can do that too Let us help you.

5 2015 Conflict Minerals Report - Summary Total number of submissions for 2015 reporting period 1,217 and still growing Summary DRC Conflict Free 19 companies audited 11 declared at least some products DRC Conflict Free Significant increases in overall data But an increase in errors related to lack of due diligence, and lack of effort

6 Topics Today Reviewing of Red Flag errors Likely sourcing from armed groups Likely sourcing smuggled African minerals Sourcing from US sanctioned entities Companies that are not even trying Purpose To provide knowledge that companies can use to improve their programs and their suppliers programs However this is no substitute for working with specialized experts

7 Past Blunders (2013/2014) - Example Sourcing from North Korea Central Bank of the DPR of Korea In 2013 and 2014 reporting period many companies reported Central Bank of DPR of Korea Common belief Legacy gold bars Not recent material due to sanctions

8 North Korea - Again In the 2015 reporting period 11 companies still reported sourcing from North Korea Which is less than before, but still awkward Example

9 Downside - North Korea can be real North is exporting gold again (and increasing in volume) Gold concentrate To China for refining into gold bars Gold bars To Hong Kong Recommendation Do not automatically exclude DPRK if reporting in your supply chain Perform risk mitigation Gold bars Gold concentrate

10 Not Even Trying Did not double check their supplier provided smelters List the same smelters under multiple different spellings, or List obvious non-smelters Includes some companies that underwent an IPSA audit

11 Sourcing Countries - High Risk High risk countries of origin reported by issuers Central African Republic (CAR) South Sudan Risk Neither have conflict free sourcing initiatives on the ground Both have strong links to armed conflict Note i.e. listing these countries of origin indicates high risk of sourcing from armed groups with one exception (to be shown later) listing of CAR and South Sudan as countries of origin of minerals is an error

12 Common RCOI Error Some organization provide L1, L2, and L3 sourcing information instead of actual countries of origin L3 countries Covered countries including DRC Common error instead of attempting to determine actual countries of origin many issuers just report all covered countries which leads to the misreporting of CAR and South Sudan

13 UAE as a Country of Origin A number of issuers list UAE as the country of origin of its minerals Key note UAE does not have any 3TG mines UAE gold is normally African rebranded gold Listing of UAE as country of origin for 3TGs shows both lack of due diligence high likelihood of sourcing DRC smuggled gold

14 UAE - High Risk Country UAE is a very high risk country for gold smuggling Publicly available sourcing 2016 DRC Group of Experts Report NGO reports Enough Project Global Witness Southern Africa Resource Watch Based on Section 1502 and OECD Due Diligence requirements, UAE based refineries or sourcing should be identified as high risk

15 Sudan Gold Refinery Many issuers listed the Sudan Gold Refinery as a source refinery of gold 170 issuers for 2015 reporting period Downside Owned by US Sanctioned Entity Central Bank of Sudan Public information identifying sourcing from Central Africa Republic South Sudan Links to benefitting from atrocities in Darfur The #2 high risk smelter for benefiting armed groups

16 Tony Goetz NV Many issuers listed Tony Goetz NV as a source refinery of gold 120 issuers in 2016 Tony Goetz is the main reason Section 1502 exists Strongly linked to armed groups in the DRC for the past two decades Extensive public information on relationships Dubai entities to enable the African trade Listing of Tony Goetz NV as a source refinery (without risk mitigation) is a clear flag of high likelihood of benefitting armed groups in the DRC gap in due diligence practices

17 Tony Goetz - Strong Links to Armed Groups Basic search on google Tony Goetz DRC Two of first four hits are high risk publicly available stories Publicly available high risk links

18 But likely not even in your supply chain However, in most cases the listing of Tony Goetz as a source refinery is an error Source of Tony Goetz in CMRT is related to a specific consultant recommending to their clients to list every known smelter in their CMRT Signpost for the issue Tony Goetz will be listed in CMRTs that list Woltech Korea Co., Ltd. Woltech Korea Co. Ltd did not open until December 2015 and will not be in your supply chain for the 2015 reporting period If you see both Goetz and Woltech in a CMRT, it means that someone reported every known smelter.

19 Key indicators of false CMRT reporting A supplier CMRT reports Tony Goetz, and Woltech Korea Co., Ltd. (conflict free) Also, very high likelihood that the source CMRT has the following address format in the contact line In all cases these CMRTs report every known smelter except Sudan Gold Refinery Fidelity Printers Needs to be dealt with before propagating throughout the supply chain

20 Not Sourcing from the Region A number of issuers reported that they did not source from the covered countries when they clearly sourced from refineries that clearly and publicly indicate sourcing from the covered countries Including some IPSA audited issuers such as China Mobile These issuers list the following smelters but somehow do not source from the region Malaysian Smelter Corporation Wolfram Bergbau

21 Rating the IPSA Auditors For the 2015 reporting period, Claigan rated the IPSA auditors based on the score of their audited clients Claigan scored based on 90 points based on Conformance to OECD requirements which is half the basis of an IPSA audit Weighted by Section 1502 importance 10 points based DRC Conflict Free Industry leadership and direct benefit to the DRC

22 Ratings by Auditor Auditor Ra+ngs Based on Client Scores Hileman RCS KPMG SGS E&Y CROWE HORWATH Elm Sikich Fiondella, Milone and LaSaracina, LLP

23 Red Flags by Auditor 0.9 Red Flags Non-compliance or error that can be verified with publicly available data Examples Tony Goetz, Sudan Gold Refinery, stating not sourcing from covered countries but listing MSC, etc Red Flags / Per ISPA Client KPMG CROWE HORWATH Elm Fiondella, Milone and LaSaracina, LLP Hileman RCS SGS Sikich

24 This is all avoidable Everything we talked about today is avoidable if issuers used proper due diligence Claigan none of our clients had the issues we discussed today there is a tremendous advantage in using people that specialize in this work and know what they are doing Let us help you

25 Doing it right is cheaper than doing it wrong Question you should ask yourself Why am I spending a lot of money to do a bad job? Key note Doing it properly is a lot cheaper than doing it wrong Why go it alone? Why not leverage the best?

26 Summary CMRs for 2015 Reporting data More comprehensive data But even more wide spread errors and gaps in due diligence Significant disparity in ranking of IPSA auditors Claigan can help

27 Claigan - World Leader Claigan Claigan is the world leader in due diligence We focus on being Comprehensive Clear If you want to be DRC Conflict Free not a problem If you want to be good but stay under the radar we can do that too Q&A Let us help you.