With 2013 looming, the past 2 months have been a whirl of meetings, conference calls, proposals, RFP development support and project work. Through all that, a few questions companies are asking in this regard are becoming almost universal. A handful of these questions and thoughts specific to SEC regulatory compliance are below. We hope you will find these informative and helpful.
- How far back in the supply chain do I need to go? The preamble to the final rule makes it clear that issuers may satisfy the Reasonable Country of Origin Inquiry obtaining and relying on representations from the company’s direct (Tier 1) suppliers. However, you must have reason to believe the representations are true and additional efforts may be required to either (a) identify/monitor “applicable warning signs or other circumstances” indicating that materials may originate from Covered Countries or are not scrap, or (b) confirm the accuracy/credibility of information from those suppliers.
- How can I be comfortable relying on information provided to me by my suppliers? This is a difficult question but one that should be approached with an attitude of what auditors call “professional skepticism”. For example, one company recently released a letter to its customers clearly stating that their products contain no cassiterite or its derivatives; however, one of the products manufactured by the company (based on its public website) is tinplated metals.
Spreadsheets or questionnaires limited to “Yes/No” answers present another challenge. The customers receiving such answers have no way to gauge the context of – or what we call the “story” behind – the answers that explain programs in place/being designed. Such explanations help strengthen the credibility of the Yes/No answers, and increase the customers’ willingness to rely on that information. An approach we have used is to develop a supplier questionnaire that requires narrative answers, and that contains questions with a certain amount of overlap or relationship such that consistent answers across those questions would be expected. Where one question is answered in one way, then the subsequent related question has an inconsistent answer, that is a red flag triggering direct follow-up with that supplier.
- How long will this take/when should I start? Conventional wisdom is that if you have not already completed at least one of the following tasks, you are in danger of falling behind:
- Completed formal substantive work on regulatory applicability determinations
- Assessing product identification strategies
- Issuance of an RFP for external support
- Screening consultants, either pre-RFP or as part of your proposal reviews
It is wise to anticipate that the program scoping and implementation process will require a minimum of 9 months, depending on individual circumstances. Keep in mind that your timetable is not just your timeline – you are also heavily reliant on and impacted by your supplier’s timetable, and the supplier tiers beyond that.
- What will the Form SD/CMR look like? These forms are not “fill-in-the-blank” type formats. The regulations set forth the information that is required, but the format is not specified. Until and unless this changes, we expect there will be variability in how companies address the requirements in narrative manner. Conflict Minerals Consortium member Source 44 has developed an initial template document for Form SD/CMR that is worth looking into.
- What is SEC’s plan for providing interpretations? Our most recent conversation with SEC earlier this week indicated no change from past discussions on this matter: at this time, the Commission is still evaluating what mechanism they will use to respond to the multitude of requests for interpretation. Options include publishing an FAQ, promulgating an official interpretive guidance document or issuing letters to each specific requestor. Of course, they also acknowledge there are many “moving parts” at this moment such as the change in Commissioners and the NAM/US Chamber lawsuit, that could have an outcome on the timing, format and substance of the interpretations.
- I had hoped to rely on the CFS to help me. Will I be able to do this for 2013? The CFS program is facing numerous challenges, continues to evolve and even EICC-GeSI admits some disappointment in the slower-than-expected uptake in the program. Depending on who you believe, it is estimated that there are between 200 and 400 3TG smelters globally that may require the CFS designation. As of the November 29, 2012 update on the CFS website, there are 15 CFS tantalum smelters, 3 CFS tin smelters, 11 CFS gold refiners and no CFS tungsten smelters. Again, depending on which smelter count you believe, the current CFS smelter total represents 7% – 15% of the global total. While this number will rise over time, it remains to be seen if it will increase materially in 2013. There are also concerns about CFS auditor capacity as the number of approved audit firms was recently reduced from three to two (although that may only be a temporary reduction). We anticipate that the majority of issuers will likely utilize the DRC Conflict Undeterminable classification for 2013, except limited in situations where information leads only to these few smelters.
These are but a few of the questions we have run across. If you have specific questions, please feel free to contact us and we will get back to you.