WEBMASTER NOTE:  This is the unedited transcript of the Roundtable 
Discussion on Conflict Minerals held on October 18, 2011 which we 
received directly from the transcriber.  We are posting the 
transcript in this form to make it available as soon as possible.



0001
 1            U.S. SECURITIES AND EXCHANGE COMMISSION
 2   
 3   
 4   
 5                ROUNDTABLE ON CONFLICT MINERALS
 6   
 7   
 8   
 9                   Tuesday, October 18, 2011
10                           12:30 p.m.
11   
12   
13   
14   
15   
16   
17   
18   
19   
20   
21   
22   
23            U.S. Securities and Exchange Commission
24             100 F Street, N.E., Washington, D.C.
25                   Station Place Auditorium
0002
 1   PARTICIPANTS:
 2   
 3     Mary L. Schapiro, Chairman, SEC
 4     Elisse B. Walter, Commissioner
 5     Luis A. Aguilar, Commissioner
 6     Troy A. Paredes, Commissioner
 7     Meredith cross, Director, Division of Corporate Finance
 8     Paula Dubberly, Deputy Director, Division of Corporate Finance
 9     Felicia Kung, Chief, Office of Rulemaking, Division of
10   Corporate Finance
11     John Fieldsend, Special Counsel, Office of Rulemaking,
12   Division of Corporate Finance
13     Brian Croteau, Deputy Chief Accountant, Professional Practice
14   Group, Office of the Chief Accountant
15   
16   PANELISTS:
17     David Bouffard, Public Relations, Signet Jewelers Ltd.
18     Mike Davis, Conflict Resources, Global Witness
19     Bennett Freeman, Sustainability, Calvert Investments
20     Andrew Matheson, Boston Silicon Materials
21     Sandy Merber, Counsel, ITR&S, General Electric Company
22     Yedwa Zandile Simelane, AngloGold Ashanti Limited
23     Irma Villarreal, Counsel, Kraft Foods, Inc. 
24     Susan Baker, ESG Research, Trillium Asset Management
25     Benedict S. Cohen, Chief Counsel, The Boeing Company
0003
 1   Panelists (Cont'd.)
 2   
 3     Darren Fenwick, Government Affairs, Enough Project
 4     Lawrence M. Heim, Director, Elm Consulting Group
 5     Tim Mohin, Director, Advanced Micro Devices, Inc.
 6     Kay Nimmo, Manager, ITRI, Ltd.
 7     Jennifer Prisco, Global Supply, Tyco Electronics Corp.
 8     Michael Riess, Director, Materials Management Corp.
 9     Darrel Schubert, Chairman/Auditing, Ernst & Young, LLP
10   
11   GUEST SPEAKERS:
12     RICHARD DURBIN, U.S. Senator
13     JAMES MCDERMOTT, U.S. Congressman (by videotape)
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0004
 1                         C O N T E N T S
 2   
 3                                                      PAGE
 4   Opening Remarks 
 5         Meredith Cross, Moderator                      6
 6         Chairman Schapiro                              7
 7         Commissioner Aguilar                           8
 8         Commissioner Walter                            9
 9         Commissioner Paredes                           9
10   
11   Introductions:  Paula Dubberly, Deputy Director     12
12   
13   Panel One:
14         David Bouffard                                13
15         Mike Davis                                    17
16         Bennett Freeman                               20
17         Andrew Matheson                               24
18         Sandy Merber                                  27
19         Yedwa Zandile Simelane                        30
20         Irma Villarreal                               35
21         Commissioner Walter                           82
22         Chairman Schapiro                             85
23        Sen. Durbin                                    86
24        Rep. McDermott (By video)                      91
25   
0005
 1   Contents (Cont'd)
 2   
 3   Panel Two:
 4         Susan Baker                                   96
 5         Benedict S. Cohen                            100
 6         Darren Fenwick                               109
 7         Lawrence M. Heim                             112
 8         Tim Mohin                                    115
 9         Kay Nimmo                                    118
10         Jennifer Prisco                              121
11         Michael Riess                                122
12         Darrel Schubert                              124
13         Brian Croteau                                151
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0006
 1                           P R O C E E D I N G S
 2               MS. CROSS:  Good afternoon, everyone, and welcome. 
 3   I'd like to offer a special welcome and thank you to our
 4   panelist for joining us today to discuss the implementation of
 5   Section 1502 of the "Dodd-Frank Act" regarding disclosure and
 6   the use of certain minerals in an issuer's products.  This is an
 7   important undertaking and your views and input are critical to
 8   our information gathering process in developing recommendations
 9   for the Commission for adoption of the rules.
10               I'm Meredith Cross, Director of the Division of
11   Corporation Finance, and I'm joined to my right by Paula
12   Dubberly, Deputy Director in the Division, Felicia Kung, Chief
13   of the Office of Rulemaking, and John Fieldsend, Special
14   Counsel.  We'll be pressed for time today in an effort to
15   maximize the time allotted to panelists.  We won't be able to
16   accommodate questions or comments from the audience.  We do
17   encourage you to submit comments, however, which you may do in
18   writing or via e-mail through our website, SEC.gov.
19               Today I'm pleased to introduce the Chairman of the
20   SEC, Chairman Mary Schapiro, who will lead us off with some
21   brief opening remarks.  We are also joined by Commissioner
22   Walter who will be here shortly, Commissioner Paredes and
23   Commissioner Aguilar, and we are grateful for their support of
24   this important roundtable.
25               With that, I would like to turn it over to Chairman
0007
 1   Schapiro for any opening comments or remarks she may have.
 2               CHAIRMAN SCHAPIRO:  Thank you, Meredith.  I want to
 3   thank you and your staff for your incredible hard work in
 4   organizing the roundtable.  
 5               As you all know, the Commission has proposed rules
 6   to implement Section 1502 of the "Dodd-Frank Act," and the staff
 7   is now working to formulate recommendations for our
 8   consideration for the adoption of final rules.  In adopting this
 9   provision of the statute, congress expressed its hope that these
10   new reporting requirements contained in the federal securities
11   laws will help to curb the violence in the Eastern Democratic
12   Republic of the Congo.
13               Congress was concerned that the exploitation in
14   trade in conflict minerals originated in the DRC is helping to
15   finance conflict that is characterized by extreme levels of
16   violence, particularly sexual- and gender-based violence, and is
17   contributing to an emergency humanitarian situation.  Our
18   responsibility is to give affect through rulemaking to
19   congressional intent.
20               Because expertise about these events does not reside
21   within the Commission or our staff, the Commission proposed
22   rules to carefully follow the direction of congress.  We have
23   gained additional insights and perspective from the commentators
24   and the many groups and individuals that have come to meet with
25   us on this topic.  In fact, we have received about 250 comment
0008
 1   letters on our proposal and I, my fellow commissioners and the
 2   staff have had over 90 meetings with a wide range of interested
 3   parties and experts.  This ongoing dialog has been extremely
 4   constructive and this roundtable is a continuation of that
 5   valuable input from all stakeholders.  
 6               So I personally am looking forward to very
 7   productive and informative roundtable.  I want to thank
 8   everybody on the panels, in particular, for taking the time from
 9   their busy schedules to participate today, and I want to welcome
10   all of you in the audience to the SEC.
11               MS. CROSS:  Thank you, Chairman Schapiro.  If any of
12   the commissioners have anything they'd like to say before we
13   start, I welcome your comments.
14               COMMISSIONER AGUILAR:  Meredith, thank you.  I also
15   want to extend my welcome to the participants here today as well
16   as to the public audience, whether they're here or watching by
17   web cast.  
18               Last July congress gave the Commission the important
19   responsibility of implementing the conflict minerals disclosure
20   process mandated by Section 1502 of the "Dodd-Frank Act."  We
21   take this obligation very seriously, and we are committed to
22   adopting a rule that's consistent with the significant public
23   interest underlying the law.  
24               Effective rulemaking requires careful consideration
25   of many factors, and I am very appreciative of the many comment
0009
 1   letters that we received from NGOs, investors and issuers, as
 2   well as representatives of the Congolese civil side and the U.S.
 3   public.  Today we continue this valuable process by hearing from
 4   a broad range of stakeholders, who have agreed to participate in
 5   today's roundtable.  
 6               And I very much appreciate your willingness to be
 7   here today and I thank you, but I also want to extend my thanks
 8   to the members of the staff who have put together today's
 9   program, as you can tell from the panel that they've spent a lot
10   of hard work doing that.  I want to thank them before today's
11   proceedings begin.  That's all the comments I would have,
12   Meredith.
13               COMMISSIONER WALTER:  I'd just like to add my
14   welcome to everyone who has taken the time to come here today
15   and who give us the benefit of their views.  We'll all be very
16   interested in hearing about the issues that are before us, and
17   using your input to help our end product be better.  Thank you
18   so much.
19               COMMISSIONER PAREDES:  And I'll round it out by
20   adding my thanks to the staff as well as the panelists; very
21   much look forward to the conversation.
22               MS. CROSS:  Thank you, Chairman Schapiro and
23   commissioners.  Before we move on, I need to provide the
24   standard disclosure that the comments you hear today are those
25   of the individuals and they don't necessarily reflect the views
0010
 1   of the Commission or the Commission staff.  
 2               As most of you know, the Commission proposed rules
 3   to implement Section 1502.  At the request of commentators. The
 4   Commission extended the comment period and we have received
 5   many, many helpful comments on the proposal.  The comment period
 6   is again open in light of this roundtable and we welcome
 7   comments on all of the issues and topics that are discussed here
 8   today.  
 9               The staff will work expeditiously following the
10   roundtable to bring recommendations to the Commission for final
11   rules to adopt.  We are cognizant of the need to develop rules
12   that faithfully and efficiently implement the statute.  The
13   rules the Commission proposed would require any issuer for which
14   conflict minerals are necessary to the functionality or
15   production of a product manufactured or contracted to be
16   manufactured by that issuer to disclose in the body of its
17   annual report whether its conflict minerals originated in the
18   Democratic Republic of the Congo or an adjoining country.  
19               If so, that issuer would be required to furnish a
20   separate report as an exhibit to its annual report that includes
21   among other matters a description of the measures taken by the
22   issuer to exercise due diligence on the source and chain of
23   custody of its conflict minerals.  These due diligence measures
24   would include, but would not be limited to an independent
25   private sector audit of the issuer's report conducted in
0011
 1   accordance with standards established by the comptroller general
 2   of the United States, the GAO.  
 3               Further, any issuer furnishing such a report would
 4   be required in that report to certify that it obtained an
 5   independent private sector audit of its report, provide the
 6   audit report, and make its report available to the public on its
 7   internet website.  Today, we hope to explore a number of topics
 8   raised by commentators.  In particular, we hope to explore ways
 9   issuers believe they can or need to track conflict minerals
10   through the supply chain, possible approaches for workable due
11   diligence, and appropriate reporting approaches for the final
12   rules.
13               Let me quickly review today's format.  Each panelist
14   may begin with a very brief introduction, opening statement or
15   description of their views.  Then we will start the dialog by
16   asking a question or asking you to respond to a statement.  We
17   will not call on anyone in particular unless you are a
18   particularly shy crowd, which we don't expect.
19               If you want to be sure to have the chance to say
20   something, please turn your nameplate sideways to be sure to get
21   our attention, like this.  I want to very much thank all of you,
22   all of today's panelists for coming.  I know you are extremely
23   busy and many of you have traveled quite far to be here today. 
24   Your participation today demonstrates dedication to the
25   rulemaking process.  
0012
 1               I have worked on many rules over many years, and it
 2   is this kind of public input in the process that results in the
 3   most thoughtful, effective and workable regulation.  So thank
 4   you very much for being here.
 5               Our first panel will focus on what is covered by the
 6   rule, including possible definitions of key terms and what would
 7   need to be done under the rule.  How can minerals be tracked
 8   through the supply chain?  This latter point will also be
 9   discussed in the next panel, since it is at the core of the
10   provision.
11               I will now turn this over to Paula to introduce the
12   panelists.  Paula?
13               MS. DUBBERLY:  Thank you, Meredith, and thank you to
14   all of our panelists.  Let me introduce the panelists, and after
15   I do that we will get to the opening statements.
16               Starting on the right: David Bouffard, Vice
17   President, Public Relations, Signet Jewelers, Inc.; Mike Davis,
18   Campaign Leader for Conflict Resources, Global Witness; Bennett
19   Freeman, Senior Vice President, Sustainability Research and
20   Policy, Calvert Investments; Andrew Matheson, President, Boston
21   Silicon Materials LLC.  Previously, Mr. Matheson worked for a
22   major tantalum processor, where his duties included tantalum ore
23   procurement.  
24               Sandy Merber, counsel, International Trade
25   Regulation and Sourcing, General Electric Company; Yedwa
0013
 1   Simelane, Senior Vice President, Corporate Affairs, AngloGold
 2   Ashanti Limited; Irma Villarreal, Chief Securities Counsel and
 3   Assistant Corporate Secretary, Kraft Foods, Inc.  Just a note:
 4   Susan Baker of Trillium Asset Management was originally
 5   scheduled to be on this panel, but Lauren Campari of Boston
 6   Common Asset was unable to make it here today, so Ms. Baker will
 7   now participate in the second panel in order to even out the
 8   panels.  
 9               Now I'd like to give each of the panelists an
10   opportunity to make brief opening remarks or statement.  Why
11   don't we just go in order, starting with David Bouffard?
12   Panel One: What is covered by the rule and what steps will be
13   required to comply with the rule?
14               MR. BOUFFARD:  Thank you.  I am David Bouffard.  I
15   am the vice president of public relations for Sterling Jewelers,
16   Inc., with U.S. Operations of Signet Jewelers Limited, which is
17   the world's largest specialty retail jeweler.  We appreciate the
18   invitation to appear at today's roundtable, facilitated through
19   the National Retail Federation, and commend the Commission for
20   bringing together a wide array of diversion viewpoints to
21   discuss this important topic.
22               Today I'm speaking on behalf of Signet in describing
23   our ongoing efforts to comply with the applicable requirements
24   of Section 1502.  Importantly, we are committed to the goals of
25   the legislation, and we sincerely hope sharing our efforts today
0014
 1   in preparing for compliance will be helpful to the Commission.
 2               I want to make it clear from the outset that we at
 3   Signet and the jewelry and retail industries as a whole abhor
 4   the horrific human rights abuses in the DRC.  And while Signet
 5   has no reason to believe that any of our products contain gold
 6   sourced from DRC conflict-ridden areas, we nevertheless take our
 7   responsibility under the legislation very seriously.
 8               To that end we have decided not to await the
 9   Commission's adoption of final rules.  As leaders in our
10   industry and in the area of responsible gold sourcing, we have
11   already begun developing, despite the absence of an existing
12   global infrastructure, a responsible supplier chain of custody
13   program.  Our goal is to ensure to the maximum extent possible
14   that the products sold in our stores do not contain any gold
15   originating from conflict mines in the DRC.
16               Therefore, Signet has already instituted the
17   following measures.  First, we've already informed our supplier
18   partners, over 300 companies worldwide, that Signet is
19   implementing a program to identify our suppliers' gold supply
20   chain with a view over time toward establishing a traceable
21   source of conflict free gold and other metals included in
22   products sold through our retails stores in the U.S. as well as
23   the U.K.  Secondly, we're working from the ground up,
24   essentially starting from scratch to create an auditable supply
25   chain mechanism to confirm that the gold we sell at retail
0015
 1   originates through banks defined as good delivery by LBMA and
 2   refineries which follow the GeSI-EICC refinery validation
 3   program currently in development.  
 4               Also, very importantly, we intend to follow OECD
 5   guidelines on gold that are only now being developed.  And it's
 6   worth noting that the OECD established a second working group
 7   for gold, and has made gold the last in developing minerals
 8   specific to Legends' guidelines, recognizing the unique
 9   complexities of the gold supply chain.  
10               Thirdly, we've been working with the responsible
11   jewelry counsel, the world's leading jewelry trade association
12   dedicated to a responsible supply chain, and establishing a
13   robust chain of custody standards and implementation guidance
14   applicable throughout the gold supply chain, and one that
15   non-RJC members can adopt as well.  The RJC chain of custody
16   work also aims to support implementation of the OECD guidance.
17               While OECD GeSI, EICC and RJC initiatives were all
18   under way well before the legislation was enacted in 2010, it's
19   important to emphasize that final standards and other guidance
20   from the OECD in the various private sector initiatives, will
21   not be in place until next year at the earliest.  And we cannot
22   reach our goal until the standards are finalized.  Supply chain
23   testing and implementation would then follow over the years to
24   come.  And although we are committed to complying with Section
25   1502, we face some significant obstacles.
0016
 1               First, there is no reliable infrastructure within
 2   the DRC and neighboring countries to track the origin of
 3   minerals from any potentially conflict-tainted mine.  And we
 4   understand that such an infrastructure may be years away from
 5   implementation.  Second, we have no direct relationship with
 6   refineries closest to the source of the raw material that are
 7   many points removed down the supply chain from the final
 8   products sold at retail.
 9               Third, even after we obtain information from our
10   suppliers, we are dependent on them for the accuracy of that
11   information, and there is currently no viable certification and
12   validation system at the mine, refinery, or intermediate
13   supplier level, and it will take time after development to
14   ultimately implement a refinery validation or any other supplier
15   chain traceability protocol, which can provide a reasonable
16   basis for disclosure.  This is why a phased-in approach to
17   reporting a disclosure is so important.
18               And I want to be clear on that point.  We are not
19   advocating loopholes that would absolve companies from any
20   responsibility to comply with the law, nor are we seeking any
21   delay in the effective date of the final Commission rules. 
22   Again, we believe a reasonable phased-in approach to reporting
23   recognizes the complexities of the global gold supply chain.
24               In closing I want to emphasize that we are committed
25   to the goals of the legislation and that we have a process
0017
 1   currently under way to try to meet those goals.  And while it
 2   will take time to fully implement the process, we believe it can
 3   be done, and done effectively.  
 4               We are pleased to offer our direct assistance to the
 5   Commission and its staff to share our detailed work plan and
 6   progress.  We offer that assistance beginning today and for as
 7   long as it takes the SEC to adopt its final rules.  Thank you,
 8   and I'd be happy to take any questions.
 9               MS. DUBBERLY:  Mr. Davis?
10               MR. DAVIS:  Thank you very much, first of all for
11   the invitation to come and join in this roundtable.  
12               I work with Global Witness.  We're a London-based
13   NGO and we specialize in researching and monitoring a link
14   between natural resource exploitation and armed conflict and
15   corruption.  We've been researching and monitoring the situation
16   in Eastern Congo for certain years now.  Two of my colleagues
17   returned from the latest field visit just a couple of days ago.
18               The first thing I wanted to remind everybody of,
19   which goes to the heart of why we're here and having this
20   discussion is the conflict in Eastern Congo has gone on now for
21   around 15 years and has cost millions of lives.  Revenues from
22   the minerals trade provide both the means and the motivation for
23   the warring parties that includes rebels, militia, army units,
24   to continue their operations and their involvement in the
25   conflict.  There are means, because they're a source of revenue
0018
 1   for groups which otherwise would not have very much, and it
 2   enables some of the most notorious armed groups to maintain
 3   operations.
 4               It's also an incentive, but because as long as there
 5   are opportunities there for men with guns to capture and control
 6   and profit from the minerals trade, they're going to continue
 7   doing so, and it will be impossible to establish a clean trade
 8   and use that as a basis for development in the region.  We can
 9   only break these links between mineral exploitation and conflict
10   through clear and robust measures to address the role of supply
11   chains in sustaining that armed violence.
12               And, to that end, we believe the implementation of
13   Dodd-Frank's 1502 provision can go a long way.  There are a
14   number of very positive developments that we want to draw
15   people's attention to which have emerged since last July, which
16   we believe relate to the passage of the law.  In recent months,
17   the Congolese government has ended five-year illegal occupation
18   of one of the key mining areas in Eastern Congo by its own
19   military units.  It's introduced a traceability system.  Last
20   month it made it a legal requirement that companies involved in
21   the mineral sector abide by the OECD due diligence guidance,
22   which my colleague here just referred to.  
23               The tin and tantalum industries developed a due
24   diligence system for tracing and verifying minerals in Eastern
25   Congo based on the OECD standards.  This program is already
0019
 1   under way in parts of Katanga province where it covers 85 to 90%
 2   of mineral production, and accounts for 550 tons of material per
 3   month.  Some international companies have already gone in
 4   directly and begun setting up their own, entirely controlled
 5   closed pipeline sourcing of Tantalum from areas of Katanga.
 6               And, at an international level, electronics industry
 7   associations have come together to develop a system for
 8   assessing the supply chain controls adopted by metal refiners,
 9   which are the key bottleneck in the supply chain for these
10   materials.  This conflict-free smelter program is now well
11   advanced and stands to help companies in conducting the due
12   diligence which this law requires.
13               In some respects, however, the mineral sector in
14   Eastern Congo remains in limbo.  Production appears to have
15   increased since the end of the government-mandated ban on mining
16   expired at the end of March; however, it remains low and it's
17   impact on ordinary people's livelihoods.  One of the main
18   reasons for this limbo situation continuing is that 15 months
19   after the passage of the "Dodd-Frank Act" it's still not clear
20   to companies and investors what standards they will need to
21   meet.  It's crucial that the SEC issues its regulations quickly
22   so that the current momentum towards a clean mineral trade from
23   Eastern Congo is sustained and isn't lost.
24               I want to finish by highlighting a few key benefits
25   which we believe Dodd-Frank 1502 can bring.  First of all, to
0020
 1   Congolese people, the reduction in the scope of murderous armed
 2   groups to prey upon the mineral sector and derive financing from
 3   it.  For U.S. taxpayers: at the moment U.S. taxpayers pay
 4   between $500 and 600 Million a year through direct aid and
 5   contributions to peacekeeping operations to make Congo a more
 6   stable place.  
 7               In effect, they are subsidizing the lack of proper
 8   controls on the international mineral supply chain.  And then
 9   for companies, this is an opportunity to improve their own
10   commercial performance through better supply chain controls in
11   reducing their risk.  It's an opportunity to be a part of a
12   solution and potentially add value to their brands.  We are
13   convinced that international companies are crucial to
14   establishing a clean minerals trade that brings peace and
15   prosperity to Eastern Congo, and we are very interested in
16   talking to all businesses here and others that may be tuning in
17   about how they can be part of that.  Thank you.
18               MS. DUBBERLY:  Thank you.  Mr. Freeman?
19               MR. FREEMAN:  Thank you, Commissioners and Staff.  I
20   am very pleased to have the opportunity to make a brief
21   statement on behalf of Calvert Investments.  
22               As a sustainable and responsible investor Calvert
23   values companies' prudent management of risk and their global
24   supply chains.  We've been particularly concerned in recent
25   years by the use of certain minerals to fund the continuing
0021
 1   bloody conflict in the Democratic Republic of the Congo. 
 2               That is why we have joined other investors and
 3   shareholder advocates in a multi-stakeholder group, also
 4   including major companies and human rights NGOs to promote
 5   responsible sourcing in the DRC and to support the enactment of
 6   Section 1502.  And we've worked together since the enactment of
 7   1502 to support the development of a rule that ensures its full
 8   and swift, yet effective and reasonable implementation.  
 9               Let me turn to the two sets of issues that are the
10   focus of this first panel -- scope of the rule and tracking of
11   the supply chain -- and highlight two particularly salient
12   issues pertaining to each of these themes on which Calvert has
13   an investor perspective.  First, turning to the scope of the
14   rule I'll address the appropriate entities to be covered in our
15   view and then the process of disclosure.
16               We believe that the entire supply chain must
17   participate to develop effective traffic systems for conflict
18   minerals.  If certain issuers that use these minerals were
19   exempted, that would prohibit both the development of such
20   systems and also the flow of information required for investors
21   to gain a full understanding of issuers' exposure to these
22   minerals.  
23               We believe that reporting standards should be
24   consistent with the statutory language of 1502 and should
25   therefore apply disclosure rules equally to all stipulated
0022
 1   conflict: minerals; tin, tantalum, tungsten and gold.  Let me
 2   single out gold.  Our view is that it's particularly important
 3   that gold is part of the disclosure process.  The provision of
 4   any special conditions or exemptions for gold or any other
 5   mineral would weaken the intent of the disclosure rules.
 6               We believe that all companies across the value and
 7   supply chain should be covered by the rule a well, all companies
 8   from mined product, to ensure the greatest possible degree of
 9   transparency for investors and consumers alike.  As investors,
10   it is critical that we are able to assess standardized
11   disclosures from all companies that may use these minerals in
12   their products.  My full statement that we'll submit for the
13   record provides our viewpoint with respect to coverage of
14   foreign, private issuers, small issuers and others.
15               Let me turn, though, to particularly important set
16   of issues really at the heart of the whole process of the whole
17   discussion here of who's to be covered, and that's the
18   disclosure process.  We understand that companies need a
19   reasonable period of time to develop and implement systems to
20   comply with the rule and to disclose progress, but this brief
21   period should be one of continuous and rapid improvement, during
22   which issuers work with governments, NGOs and industry peers to
23   develop infrastructure to determine and trace the origin of
24   minerals from mine through smelter to product.
25               We understand that initial reporting may be uneven,
0023
 1   yet the objective should be to trace and to disclose such
 2   origins with growing transparency, consistency and credibility
 3   year by year across the value chain.  And we are encouraged,
 4   encouraged by certain factors already apparent; that
 5   internationally accepted due diligence guidelines are already in
 6   place; that many companies are already using supply chain audit
 7   systems; and that on the ground training and monitoring systems
 8   are developing rapidly as well.
 9               Let me turn very briefly to the issues around
10   tracking the supply chain.  We believe that responsible supply
11   chain risk management is absolutely essential to investors.  The
12   situation in the Congo that compelled the enactment of 1502 does
13   present tough supply chain management challenges, but these
14   challenges can be addressed with a rule that takes into account
15   established international standards as well as the experience or
16   the gain that many companies face in dealing with similar
17   challenges around the world, even though the particular
18   challenges on the ground in the DRC are unique in many ways.
19               We are looking for a high due diligence standard
20   together with robust third-party audits that will allow
21   investors to assess a company's willingness and ability to avoid
22   sourcing conflict minerals.  And we particularly hope that a
23   rule refers explicitly to established international standards,
24   above all to the OECD due diligence guidance and supplements for
25   responsible supply chains of minerals from conflict affected in
0024
 1   high risk areas.
 2               That would give us more confidence as investors and
 3   we think greater guidance to issuers.  Third party auditing, we
 4   believe, needs to be very clear, strong.  A focus should include
 5   smelters' tracing documentation and mechanisms.  We also believe
 6   there should be a smelter auditing protocol, which is performed
 7   by an independent third party.
 8               Let me conclude by really expressing an
 9   understanding for why the Commission and staff chose to convene
10   this roundtable, given the complexity and sensitivity of issues
11   at stake in this particular rulemaking process, and the acute
12   concerns that have been expressed by some of the parties.  We
13   have confidence, though, that these issues, however difficult,
14   can and should be resolved on the basis of the comment period
15   already concluded, supplemented by this timely roundtable and
16   the diverse parties and viewpoints it is bringing into sharper
17   focus.
18               We look forward to the issuance of a rule consistent
19   with the legislative intent of Section 1502 that will give
20   confidence to investors such as Calvert in the responsible
21   sourcing of minerals in the DRC.  And we appreciate the
22   opportunity to share our views today.  Thank you.
23               MS. DUBBERLY:  Thank you.  Mr. Matheson?
24               MR. MATHESON:  Good afternoon.  I would like to
25   start by reminding us briefly of the passage of time here, since
0025
 1   the issue first became a prominent problem in business.  It's at
 2   least 10 years since the U.N. initiative's report on the nexus
 3   between conflict mineral exploitation and violence in the
 4   Eastern DRC.
 5               Ten years is a long time, and hard on the heels of
 6   the initial report there was a significant amount of corporate
 7   interest and corporate response in the United States and
 8   overseas.  So straight away we saw corporate leadership in
 9   initial efforts to tackle the problem.  We've had legislation,
10   serious legislation, moot in the United States on a bipartisan
11   basis; for example, the Brownbeck-Durbin bill in the Senate for
12   at least three years.
13               That again is a significant amount of time.  I am
14   very sensitive to the need for adequate systems to be put into
15   place to ensure compliance with the rule; but three years is
16   plenty of time and ten years is a long time.  And I think it's
17   disingenuous of industry groups or particular firms to suggest
18   this is a problem that's going to require a multi-year process
19   to come to terms with, given the ample warning and the egregious
20   nature of the issue at hand that we're all aware of, and that
21   this has taken significant attention and time over this past
22   decade.
23               I'll point out further that many industry groups led
24   by the EICC and GeSI, but not alone, have invested significant
25   time, resources, and money in developing systems and procedures
0026
 1   to address the issue of conflict minerals as close to sources as
 2   is practical, which means that the smelt, which is the natural
 3   chokepoint.  I think if we look for evidence that this issue
 4   matters to investors and for companies, this is the best
 5   evidence we can look for.
 6               Companies are the custodians of shareholder value
 7   and they're deploying resources, well aware of the cost and
 8   certainly better aware of the cost than anyone on this panel to
 9   address the issue.  That tells me and it should tell all of us
10   this is a problem that corporations deemed to be worth solving
11   in the interest of their shareholders.  I think that's
12   unambiguous.  
13               Finally, let's recall also that this is not just a
14   problem for the U.S.; that foreign firms that operate here with
15   regulator security as a part of the process, and the global
16   supply chains mean that overseas supplies are also part of the
17   process.  So, again, I don't think there's any need for us to be
18   concerned that this is singling out the United States or U.S.
19   corporations for any particular disadvantage here.  And, in
20   fact, the opposite is likely to be true.  
21               The sooner we grasp that the better place we'll be,
22   the better place we'll be to compete in the global market as the
23   standards that we're talking about here become more widespread. 
24   Thank you.  
25               MS. DUBBERLY:  Thank you.  Just a note to the
0027
 1   panelists:  When you're speaking, if you could, be sure to be
 2   close to the mike so everybody in the back can hear you.  And
 3   also, if you hear a slight echo, don't worry about that.  You
 4   don't hear that on the Internet at all, so please speak close to
 5   the mike.  Mr. Merber?
 6               MR. MERBER:  Well I'd like to thank the Commission
 7   and its staff for the opportunity to be here this afternoon and
 8   for the thoughtful attention they've given to this rulemaking
 9   process from the beginning.  As a participant in the multi
10   stakeholder group that Bennett mentioned, which has provided
11   comments to the SEC at all stages of the proceeding, I'd also
12   like to acknowledge the spirit of cooperation with which a group
13   of issuers, non-governmental organizations and socially
14   responsible investors have come together to address many of the
15   difficult issues that are faced in the rulemaking.  The issues
16   are difficult, but we share the common objective of implementing
17   Section 1502 in the manner that most effectively helps to
18   alleviate the humanitarian crisis in the DRC.  
19               In my opening comments, I'd like to make a few very
20   brief points, really one central point, and of course I'm going
21   to be happy to elaborate on them in the course of the roundtable
22   discussion that follows.  But let me start by providing a little
23   bit of context.  The conflict minerals, the four that we're
24   dealing with here, tantalum, tin, tungsten and gold, appear in a
25   very broad range of industrial components, including all
0028
 1   electronics, many metal alloys and elsewhere.  
 2               As a result, a company like General Electric has
 3   many, many thousands of suppliers that provide items containing
 4   conflict minerals.  And many of these suppliers are suppliers of
 5   complex equipment themselves, who have, again, thousands of
 6   suppliers in their supply chains.  And everyone has more than
 7   one source of everything that they buy.  At least that's the
 8   goal.  And one other complication, which is that all of this is
 9   very fluid.  
10               Companies change suppliers.  Our suppliers change
11   suppliers, and their suppliers change suppliers all the time, so
12   there's a lot of complexity in the supply chain.  Now, don't get
13   me wrong.  I don't say this to imply that the task isn't doable,
14   but as a context in which to calibrate the expectations of how
15   the task ought to be done; most importantly, the implementing
16   regulations under Section 1502 should provide issuers with the
17   flexibility to design and execute reasonable company of origin
18   inquiries and due diligence processes that are appropriate for
19   their specific situations.  
20               Now, these processes should be fully and completely
21   disclosed in the report, so that investors can make judgments
22   about the effectiveness of the process, about the sincerity of
23   the effort and anything else that they would like to draw from
24   the contents of the report.  And so the report needs to be full
25   and complete, but it should be a report of a process that has a
0029
 1   certain amount of flexibility in its design; you know, at the
 2   downstream level, that is from the smelter to the finished
 3   product that's being reported on.
 4               For example, a reasonable country of origin
 5   determination process may include contractual obligations that
 6   are followed up and verified by various means, including
 7   statistical sampling, and possibly a tiered approach.  So that
 8   one approach may be used for significant suppliers of conflict
 9   minerals, and another for the less significant suppliers, which
10   allows one to spend one's resources on the most important parts
11   of the supply chain, and then over time building up the kind of
12   tracking and traceability that allows you to attempt to get back
13   from the product to the smelters of origin.  
14               If the rules do describe or discuss a due diligence
15   process, or reasonable standard of origin process, that should
16   be in the context of providing a safe harbor so that issuers
17   will know that if they comply with certain standards that will
18   presumptively be judged to be reasonable, but that it not be the
19   only means by which reasonableness can be accomplished.  And I
20   say this because any attempt at this point to too closely define
21   what the reasonable country of origin process or due diligence
22   process ought to be will either necessarily be too unattainable
23   for some supply chains or not sufficiently rigorous for other
24   supply chains; and, therefore, believe that the appropriate
25   thing is to leave flexibility at this point, but require full
0030
 1   and complete disclosure of what's been done so that investors
 2   can make judgments.  
 3               And then also as Bennett alluded to earlier, the
 4   process should take account of continuous improvement year over
 5   year.  And I think that it's appropriate for issuers to help out
 6   in that process, but identifying in the reports after the first
 7   year the changes and improvements that have been made, so that
 8   year over year continuous improvement can be judged by the
 9   investor community.  
10               So that's one of the central themes I'll be talking
11   about today is the flexibility to do this as efficiently and
12   effectively as possible, by no means saying that it can't be
13   done, just the question of how we go about it.  
14               MS. DUBBERLY:  Thank you.  Ms. Simelane?
15               MS. SIMELANE:  Thank you.  I wish to begin by
16   thanking the Commission for the invitation to participate as a
17   panelist today and to share the perspective of an Africa-based
18   global mining company.  
19               AngloGold Ashanti is the world's largest gold
20   producer.  We are headquartered in Johannesburg, South Africa,
21   and our share is listed on the Johannesburg Stock Exchange and
22   the New York Stock Exchange.  Our shareholders are
23   geographically dispersed with 53% in the U.S.  AngloGold Ashanti
24   is signatory to the Voluntary Principles on Human Rights and
25   Security, a member of the Responsible Jewelry Council, and they
0031
 1   report under the Extractive Industry's Transparency Initiative. 
 2               We have 20 operations on four continents, which last
 3   year produced 4.52 million ounces of gold.  Nearly
 4   three-quarters of that came from Africa-based operations.  We're
 5   operating gold mining in Tanzania and two projects in the
 6   Democratic Republic of the Congo, besides our operations in West
 7   Africa and South Africa.  Given this presence in Africa,
 8   AngloGold Ashanti believes we have an informed perspective on
 9   the proposed rules set forth by the SEC.
10               I think I need to stop by saying AngloGold Ashanti
11   fully supports the state of congressional purpose of Section
12   1502, and that is to seek to end the exploitation and trade of
13   minerals as a source of financing conflict in the DRC.  We
14   believe encouraging socially responsible economic development in
15   this region must be recognized as an important part of the
16   strategy to end the conflict and bring about peace and stability
17   in the DRC.
18               However, until the issue of unregulated and illegal
19   Tanzania mining is addressed in the DRC, the aim of the
20   regulations will not be achieved.  Also, the lack of accredited
21   refineries in the region is problematic.  Better governments,
22   stronger institutions on the ground in the DRC, and security
23   should be primary concerns.  The SEC should be lauded for
24   organizing today's roundtable, which hopefully will serve to be
25   for policymakers and the public on factors and issues that must
0032
 1   be considered in the conflict minerals rulemaking.  
 2               I think the SEC would have benefited from more
 3   African voices in today's discussion, which have been useful to
 4   hear from the governments of nations such as Tanzania and the
 5   DRC, and those of the Great Lakes regions, whose citizens will
 6   be directly affected by this rule and are already be directly
 7   impacted by the de facto embargoes.  Also missing are the
 8   African-based businesses that will directly be impacted by the
 9   rule, such as refiners, traders and manufacturers.
10               I think it's important to put into perspective our
11   activities.  The end product of our mining process is not a
12   marketable commodity.  That doesn't occur until it has been
13   refined by our refinery to a level of purity acceptable to the
14   world markets.  The jewelry we produce has no commercial use in
15   its unrefined state.  We submit that gold mining does not
16   constitute the manufacture of a product, and that the final rule
17   should reflect that fact.  
18               Companies affected by the rule won't benefit if
19   there is an alignment on the single, authoritative source of
20   reference for guidance, such as the OECD due diligence guidance.
21    It is our view that the OECD's guidance should constitute a
22   global framework and should be relied upon by the SEC in
23   implementing rules, a position already endorsed by the
24   Department of State.  However, it must be noted that while the
25   OECD's framework for the three Ts is relatively well developed,
0033
 1   the framework for gold has yet to be completed.
 2               The gold supply chain is more complex than that of
 3   the other minerals covered by Section 1502.  The World Gold
 4   Council, the association of the global gold industry of which we
 5   are a member, published a draft conflict free gold standard in
 6   June, and is working diligently to have a chain of custody
 7   process in place by the end of 2011.  This work is being done in
 8   parallel with the OECD's gold working group to produce a gold
 9   supplement that commands broad stakeholder support.  
10               In addition, the ICG allows regional certification
11   mechanism has been tested in relation to the three Ts, but
12   little attention has to date been given to the specifically
13   challenges to go.  We also have concerns regarding the lack of
14   clarity on the auditing standards that align with the goals of
15   Section 1502 and the Commission's proposed rule.
16               The lack of clear guidance make it impossible for
17   the companies to do the necessary planning.  We therefore urge
18   the SEC to be mindful of this when considering the timetable for
19   the introduction of the final rule.  To allow sufficient time
20   for the necessary management system and controls to be put in
21   place, we recommend the effective date of the rule as it relates
22   to gold should be no earlier than January 2014, and the
23   conflicts mineral report is separated from filing of the 20F, I
24   think, which is inline with what was said earlier by the SEC
25   staff.
0034
 1               In order to minimize the potential adverse impact of
 2   the rules on responsible gold mining in the DRC and adjoining
 3   countries, we also suggest that references made to the conflict
 4   minerals map publish and to be regularly updated by the
 5   Secretary of State.  The SEC's implementation of Section 1502
 6   should be focused on the area specifically mapped as conflict
 7   areas by the State Department, thereby avoiding stigmatization
 8   of the remainder of the DRC in adjoining countries.  
 9               Finally, we urge the SEC to consider the effects
10   that Section 1502 will have on responsible economic development
11   in the DRC and countries adjoining thereto.  Mining is a
12   long-time economic business, and decisions made now will have
13   long-time effects in the DRC, 10 to 20 years from now.  The SEC
14   should be mindful that its actions could have unintended adverse
15   consequences on legitimate mining in the region of interest and
16   Africa more generally.  
17               A concerned voice in our January 31, 2010 comment
18   letter was the potential to stigmatize gold that is being
19   responsibly mined in the DRC and adjoining country, and perhaps
20   possibly African gold production.  This would adversely impact
21   the responsible development of the region's available gold
22   resources and undermine the laudable humanitarian goals that
23   underlie Section 1502.
24               We are also concerned about the unintended de facto
25   embargoes that already are occurring as the result of the
0035
 1   legislation, and therefore urge the SEC to strive to minimize
 2   the potential adverse impacts of its rule on  responsible gold
 3   mining in the DRC and adjoining countries.  
 4               Again, on behalf of all the AngloGold Ashanti, we
 5   appreciate the opportunity to participate in this panel and look
 6   forward to the discussion.  Thank you.
 7               MS. DUBBERLY:  Thank you.  Ms. Villarreal?
 8               MS. VILLARREAL:  Good afternoon.  Thank you for the
 9   invitation to participate today.
10               I am happy to have the opportunity to be able to
11   reinforce points made in the Society of Corporate Secretaries
12   and Governance Professionals March and June Comment letters. 
13   Those letters were intended to assist the Commission in
14   understanding the implications of its proposed rules for public
15   companies, including, the perhaps unintended consequences on
16   companies like Kraft Foods.  Society member companies take
17   compliance with the federal securities laws very seriously.  We
18   have put significant compliance programs in place to ensure we
19   meet our disclosure obligations.  
20               When the Commission issued its proposed rules, many
21   companies, including mine, were surprised that the disclosure
22   requirements would apply to them.  Because we may use tin in
23   some of our packaging for our biscuits, cookies and coffee, for
24   example, we are subject to the rules.  So on behalf of many
25   companies like ours, I am happy to comment specifically on some
0036
 1   of the reporting issues raised by the proposed rules, which will
 2   be the subject of the next panel.
 3               Section 1502 requires only that the Commission have
 4   issuers annually provide a conflict minerals report; however,
 5   the proposed rules would require the report to be an exhibit to
 6   the form 10K.  Issuers use the form 10K to give shareholders and
 7   the securities markets disclosure about the financial health of
 8   their companies.  Providing the conflicts mineral report as an
 9   exhibit to the form 10K is problematic for a number of reasons.
10               Issuers take seriously our obligation to provide
11   investors with accurate and reliable information.  We maintain
12   disclosure controls and procedures to ensure the integrity of
13   the information we provide.  And our CEOs and our CFOs must
14   certify the information in those forms 10K.  Issuers may not be
15   able to achieve the same level of certainty about the data
16   gathered from suppliers of conflict minerals.  Fear of
17   competition could make suppliers reluctant to provide the
18   information.  Their systems may not be reliable or accurate, or
19   they simply may not have the information.  These concerns,
20   coupled with imposing these new and complex requirements, could
21   also put issuers at risk of being unable to timely file their
22   forms 10K.
23               Most public companies are also preparing their proxy
24   statements during this same timeframe, and often the same
25   personnel are responsible for preparing both documents.  To
0037
 1   address these concerns, we suggest requiring companies to file a
 2   standalone form CM report, which would be easier to find for
 3   shareholders, consumers and others who are interested in this
 4   information.  
 5               Many company websites already include a discussion
 6   of corporate social responsibility programs and initiatives, and
 7   this new conflict minerals report would complement that
 8   information.  A standalone report also would permit different
 9   deadlines for the forms 10K and CM, placing less stress on
10   issuers' internal resources, while still accomplishing the goal
11   providing conflict minerals information to shareholders.
12               Again, thank you for the invitation to participate. 
13   We appreciate the opportunity to provide the Commission with
14   information we hope will be helpful to the implementation of the
15   statutory provision.  Thank you.
16               MS. CROSS:  Thank you very much for those very
17   thoughtful opening statements.  They're very helpful to us.  
18               I'm going to start off with the questions now, and
19   what you'll see in part through our questions are areas where
20   there were issues raised in the comment letters where there
21   hasn't been a thorough discussion of them.  So we're hoping to
22   get more thoughts on some of these ideas.  So these may not be
23   all the questions you're expecting, but we'll go ahead and get
24   started and look forward to your thoughts.
25               So the first one, Section 1502 defines the term
0038
 1   "conflict mineral" as columbite-tantalite, cassiterite gold,
 2   wolframite, or their derivatives.  The Commission used the same
 3   definition in the proposed rules.  Several commentators,
 4   however, requested that the rule specify the specific conflict
 5   minerals derivatives be the so-called "three Ts," tantalum, tin
 6   and tungsten, with gold being covered as a mineral itself. 
 7   Because although the conflict minerals may have other
 8   derivatives, such as Niobium oxygen and iron, only the three Ts
 9   are significant.
10               Many commentators refer to the covered minerals as
11   the three Ts and gold.  Should the Commission specify that the
12   conflict mineral derivatives for the purpose of the final rules
13   be limited to tantalum, tin and tungsten?  If not, would there
14   be significant impact on companies, the DRC or other groups of
15   stakeholders or a rule that does not limit the derivatives to
16   the three Ts be workable?
17               MS. DUBBERLY:  The three Ts, plus gold.
18               MS. CROSS:  Oh.  Plus gold, correct.  So with that,
19   anybody have any thoughts on that?
20               MR. MERBER:  Okay.  I'll jump in.  I'm not a
21   metallurgist, so I can't answer with the authority of a chemist
22   on the subject.  But it seems to me that to accomplish the
23   essential purpose of the rule, that limiting it to the three Ts
24   plus gold would be the most effective measure.  Because if you
25   include the other elements that may be derived from the same
0039
 1   ore, but aren't the principal objectives of mining that ore,
 2   then you're probably not exerting very much pressure on that
 3   supply chain, while at the same time vastly complicating the
 4   problem of having to go back and look at additional elements.  
 5               You know.  You mentioned iron.  Iron is in a lot of
 6   things, and to have to trace that back would simply distract
 7   from the principal objective of making sure that these intended
 8   extracts from those ores be traced.
 9               MR. MATHESON:  The economic interest is in the three
10   Ts plus gold.  So, for example, many of these are also
11   radioactive and they do contain recoverable amounts of uranium
12   and thorium.  And in some parts of the world those elements will
13   be reclaimed, but they're not driving the exploitation of
14   minerals in the Congo.  Similarly, Niobium; it's a very
15   widespread material in automotive applications in construction;
16   but, again, it's not the primary driver for exploitation in this
17   part of the world.
18               MR. DAVIS:  Thank you.  I'm not a metallurgist
19   either.  I just wanted to make the point that I think, actually,
20   in terms of the issue that the rule is designed to address,
21   which is now very well-known.  The language which is in the
22   provision 1502 is sufficiently clear, and we have to keep in
23   mind that when we are looking at the pattern of exploitation and
24   violence in Eastern Congo, we are looking at ores.  And I think
25   there is a risk here if we jump into a separate set of terms,
0040
 1   which was based through refined metal of creating some ambiguity
 2   about the extent to which the ores which are traded
 3   internationally as are refined metals derived from them, and I
 4   think that could actually cause greater confusion that it
 5   actually resolves.  So we would propose leaving the language as
 6   it is.  
 7               MS. CROSS:  All right.  If no one else wants to
 8   comment on that particular question, I'll move on to the next
 9   one.  Manufacturing is not defined in Section 1502.  Although
10   the traditional definition of manufacturing does not generally
11   include mining, under the proposed rules companies that mine
12   conflict minerals would be viewed as manufacturing those
13   minerals.
14               Should mining be included in a definition of
15   manufacture?  Is mining a transformative process akin to
16   manufacturing?
17               MR. DAVIS:  Thank you.  A number of panelists,
18   including me, have already made several references to the OECD
19   due diligence standards for minerals which come from conflict
20   affected in high risk areas.  And in those standards, as many
21   people here will note, have also been endorsed by the U.N.
22   Security Council and the International Conference on the Great
23   Lakes region of Africa, as well as being implemented in law by
24   the Congolese government makes it very clear that these
25   standards should cover mining.  
0041
 1               And there's a very good reason for that, which is
 2   that mining is the first link in the chain, which in the case of
 3   Eastern Congo is giving rise to the beneficiation of armed
 4   groups.  It absolutely has to be covered, and I think when we
 5   look at the positive trends in the sector in Eastern Congo,
 6   which have been in part brought about by the instruction of the
 7   law.  
 8               One of the things which is likely to come out of
 9   that is that there will be more mining, more industrial mining
10   as opposed to artisanal mining.  And there will probably be more
11   companies going to invest, and some companies have already
12   shaped up to begin doing so, including in the regions which are
13   reflected by this law.  It's absolutely critical they are
14   covered, because they're the first corporate actor in the chain,
15   and they are the one which is best placed to deal with some of
16   these issues to do with rent seeking by armed groups, theft of
17   minerals and control of areas which should be given over to
18   legitimate, civilian economic activity.  
19               So from our perspective, it's absolutely crucial
20   that mining is covered.  And as I noted in the beginning of my
21   comment, that's already enshrined in the international due
22   diligence standards governing this kind of supply chain.  
23               MS. CROSS:  I suppose as a follow-up question the
24   rulemaking that the Commission put out stuck very close to the
25   statutory language.  And so to the extent that if questions are
0042
 1   raised as to whether the term "manufacture" would include
 2   mining, that's part of the reason for our question.  Is it akin
 3   to a transformative process like manufacturing?  I can
 4   understand why you might want to cover mining, but is mining
 5   manufacturing, I think is the question that I'm attempting to
 6   pose here.
 7               MR. SIMELANE:  I think as already submitted, what I
 8   mentioned earlier, I said it's two separate things.  What we'd
 9   like to say is that mining is not manufacturing.  The other is
10   that whether or not to include mining as being important part of
11   the supply chain is a different issue.  So it is not to say that
12   mining shouldn't be covered.  
13               Although just saying is that if you even look at the
14   North American industrial classification system, where you're
15   looking at mining, quarrying, oil and gas extraction, it has a
16   different definition of what manufacturing is.  So it's
17   important that the SEC makes a distinction in that rule.  So if
18   you do include mining, it must be a deliberate notation that
19   mining is included, because it is part of the supply chain or
20   start of the supply chain, but mining is not manufacturing.  
21               MS. DUBBERLY:  Okay.  Thank you.  So we're going to
22   turn now to necessary to the functionality or production.  This
23   question I've drafted up here is pretty long, so if you'll bear
24   with me, you'll see I'm trying to get out a number of different
25   points.  So if you hear anything in the setup that you're
0043
 1   interested in talking about, we'd love to hear it.  
 2               The Commission did not define when a conflict
 3   mineral would be considered necessary to the functionality of a
 4   product.  The Commission provided guidance in the proposing
 5   release that a conflict mineral would be considered necessary to
 6   the production of a product if it is intentionally included in
 7   the final product's production process, regardless of whether
 8   the conflict mineral is not ultimately in the final product, and
 9   would not be considered necessary to the production of a product
10   if it isn't a tool or machinery necessary to produce their
11   product.
12               A number of commentators suggested definitions for
13   when a product should be considered necessary to the
14   functionality or production of a product.  One such definition
15   could be if the mineral was necessary or essential to the
16   product's use, purpose, marketability, functioning or economic
17   utility.  
18               Should the Commission define or provide guidance
19   regarding when a conflict mineral is necessary to the
20   functionality or production of a product?  If so, should the
21   Commission consider a substance, ingredient or component as
22   necessary to the functionality of a product if a conflict
23   mineral is intentionally added to the product and/or meets any
24   additional test, such as whether the conflict mineral is
25   essential to the product's use, purpose, marketability,
0044
 1   functioning economic utility?  
 2               How should the Commission define any of these tests?
 3    For example, when would a conflict mineral be considered
 4   essential to a product's use?  Should there be another test,
 5   such as whether the conflict mineral is essential to a product's
 6   basic function?  
 7               Should the Commission limit any definition or
 8   guidance by stating that none of the following would be deemed
 9   to be necessary for the functionality or production of a product
10   a naturally occurring impurity, an unintentional byproduct of
11   the manufacturing process, an ancillary or incidental feature,
12   attribute or quality incorporated for purposes of ornamentation,
13   decoration or embellishment any conflict mineral integrated into
14   any manufacturing tool, equipment or process used in the
15   production of an end product or a residual metal catalyst used
16   to chemically react and manufacture a product that does not
17   otherwise contribute to the performance of the end product?
18               So I know that was wide-ranging, but I anybody has
19   any thoughts?
20               MR. FREEMAN:  I'll just address one angle, I think,
21   that you're getting at, and I'm sure others.  Yeah.  I'm sure
22   others will have views to add as well that may be more
23   comprehensive than mine, but I think you're getting in part at a
24   de minimis standard here.  We don't think that functionality
25   should be the salient test of whether a particular product is
0045
 1   included here.  
 2               It may appear on the face of it that that would be a
 3   reasonable approach, since some products may contain only very,
 4   very small amounts of a particular metal.  But take the example
 5   of cell phones.  Gold is a component used in cell phones.  It
 6   may not be critical to the functionality of the cell phone as a
 7   global communication device, but when one takes into account the
 8   fact that there were 1.6 billion cell phones sold globally last
 9   year, that adds up to be a very significant volume of that
10   particular metal.
11               So our view is that even a small portion of a
12   particular end product that may be tied to one of these minerals
13   should nonetheless covered for this reason, and therefore we
14   would be uncomfortable with a de minimis standard.  I hope that
15   that addresses at least one angle of your --
16               MS. CROSS:  Actually, my next question is about de
17   minimis, so right now we're focusing on necessary functionality.
18    So you'll get to answer again.  
19               MS. VILLARREAL:  Thank you.  Can I also tell you
20   that from an issuer perspective the simpler you can make the
21   three Ts and gold for those of us who don't have any types of
22   those people on our staffs to try to figure out what, besides
23   tin and gold and tantalum is.  We had discussions around that,
24   and derivatives and those things would just make it that much
25   more difficult for us to understand what it is we're looking
0046
 1   for.  
 2               So please make it a little simpler.  But another
 3   discussion we've had is what is essential to the production, and
 4   we started going down the path.  And this is probably a good
 5   place for me to let you know that we have about 40,000 distinct
 6   products that Kraft Food produces in the world and we have about
 7   100,000 suppliers, direct and indirect suppliers.  
 8               And when I started talking to my procurement people
 9   about tell me whether or not we have anything that is important
10   to the production of any of our packaging, because that may be
11   the place where we have some of those conflict minerals, and
12   they started talking to me about, well, there's the press that
13   we need to make the Capri Sun package.  So obviously that press
14   is going to have probably some tin.  It's made from iron or
15   something, so that's probably going to have something.  
16               We have trucks.  It's essential for trucks to go to
17   pick up the cocoa in the fields in Africa to bring them to where
18   they need to go.  So is that going to be?  Yes.  If we don't
19   have those trucks bringing the cocoa where it needs to go to be
20   processed, I mean there are all kinds of things, and it was
21   getting a bit overwhelming, and I was getting a little bit
22   hyperventilating when we were going through all of that.  And,
23   so, anything you can do to help us, because when they started
24   talking to me about all those different things, I really don't
25   know how to help them with the scope when we're looking at
0047
 1   100,000 suppliers and 40,000 distinct products that we're
 2   manufacturing.  
 3               MS. DUBBERLY:  Mr. Merber?
 4               MR. MERBER:  Just to comment on one piece of this,
 5   just to keep the discussion going, the point that Irma touched
 6   on with respect to the capital equipment that you use in
 7   producing products, the three Ts and gold may be essential to
 8   the functionality of that capital equipment, without which you
 9   couldn't make the product you're making.  But if one were to
10   include reporting on that conflict mineral used "in the
11   production of the finished product on which we would be
12   reporting," since capital equipment may be in place for many,
13   many years, and already will be in our factories -- and we don't
14   know the origin of the conflict minerals in the capital
15   equipment -- it would require unknown reporting on everything
16   made on a particular piece of equipment for the useful life of
17   that equipment.  
18               And I think that would not provide the investors
19   with information about what's going on today in the supply chain
20   of the issuer.  And I think that what's important to investors
21   is what's going on today in the supply chain.  So by being over
22   inclusive in what is necessary to the production of would
23   actually I think undercut the basic objective of the regulation
24   by Washington everything out into a known for a long period of
25   time.  
0048
 1               MS. SIMELANE:  I think it's not really answering
 2   your question directly, but I think it's important to note what
 3   gold is concerned.  It is actually possible for companies to
 4   bypass this by using your recycled gold or actually even
 5   sourcing gold from other sources other than from the DRC -- if
 6   you know what I mean -- because gold is very recyclable.  So if
 7   you're going to be looking for what companies can do actually
 8   just to use the one that already exists and bypass the replacing
 9   it, effectively back on the gold that comes from the DRC.  
10               MS. DUBBERLY:  Thank you.  And we'll address some of
11   recycle in the next panel.  Mr. Davis, did you have a point you
12   wanted to make?
13               MR. DAVIS:  Yes, just very quick, just to say that
14   in our opinion what the Commission put forward in the proposed
15   rule is clear enough on this point.
16               MR. MATHESON:  And, you know, I think Sandy makes a
17   fine point that there are some legacy issues in capital
18   equipment, and one needs to be careful not to draw these rules
19   too broadly.  By the same token, to a great extent many of these
20   materials and the components built from them are somewhat
21   interchangeable.  So one can't draw these rules too narrowly.  
22               I rest this isn't terribly helpful in the context of
23   the question, but one can't draw them too narrowly, because
24   essential in its stricter sense would mean only a very small
25   proportion of these products would really be covered by the
0049
 1   legislation.  And I don't believe that's the intent of the
 2   congress.  The intent is to address the trade in minerals, so we
 3   need to be careful about how narrowly we draw the rules as well.
 4               MS. CROSS:  If I could -- since this is such an
 5   important point -- I might have some follow-up questions here;
 6   see if I could focus you all a little bit.  For example, you
 7   have a product and there's some small ornamentation on it that
 8   has a conflict mineral in it, but it's really not a big part. 
 9   The product works fine without it.  It's a little star on it or
10   something.  
11               Is that within what is intended by the statute if
12   you happen to have anything on a product that has a conflict
13   mineral in it without regard to whether it makes the product
14   work or not?  We certainly had suggestions from commentators
15   that we should exclude ornamentation.  
16               Looking down the list, this is probably one of the
17   areas of biggest comment is we need to put some contours around
18   this so that we give life to the meaning in the provision,
19   because it says necessary to functionality.  That must mean
20   something.  It isn't written to say it's in there.  It says it's
21   necessary to functionality.  So we're in part trying to tease
22   out from the panel, if we could try one more time, if there's
23   things that are not necessary to functionality that wouldn't
24   require the conflict minerals reporting.
25               MR. MATHESON:  Well I have to say if an element of a
0050
 1   design is involved in the product, then it's hard for me to
 2   imagine any circumstance in which it's not being put there
 3   deliberately.  So ornamentation, if it's there explicitly, it's
 4   there because it's been designed there.  And I think that shows
 5   an intent, need or value to the ornamentation.  If some of these
 6   happen to show by chance, it would actually be typical, I think,
 7   in most industrial contexts, be regarded as an error or a
 8   quality problem.  And in no sense adding any representing the
 9   product.  
10               So I think the question actually is I understand the
11   direction of the question, but I think it's a poorly phrased or
12   a poorly framed issue.  If something's there, it's there because
13   somebody designed it to be there, and therefore I believe it
14   should be covered by the regulation.  
15               MS. CROSS:  So under this approach, we have comments
16   that say if it's intentionally added that it should be --
17               MR. MATHESON:  Well I could see if you had a --
18               MS. CROSS:  So I guess that's your perspective.
19               MR. MATHESON:  I believe so.  I mean if it's piece
20   of a spent catalyst that happens to end up in a product that you
21   can't take out or you don't need to take out to provide the
22   utility you're offering your customers, that's one thing.  But
23   if something that's part of a design that's intentionally
24   something that you sell, or that you've explicitly thought about
25   in putting there, I don't see why that should fall outside the
0051
 1   regulation, because you thought about it.  
 2               MR. MERBER:  Okay.  Thank you.  I think the other
 3   piece of this is that -- and I think someone already has
 4   mentioned -- the desire for simplicity when simplicity is
 5   available.  You know.  We've made some statements in our
 6   corporate citizenship report about conflict minerals, you know,
 7   before the legislation.  We're about to come out with our
 8   statement of principles in a much more detailed way.  We won't
 9   distinguish between conflict minerals that are necessary for
10   functionality and those that aren't necessary for functionality
11   in what we feel our citizenship responsibility is in this area. 
12               I think that also just as a practical matter to go
13   through all of our thousands and thousands and thousands of
14   suppliers of materials that include conflict minerals and try to
15   sort them between those that are by some definition necessary
16   and by some other definition not necessary is probably more
17   difficult than dealing with the conflict minerals, generally,
18   throughout the supply train.  So in the multi stakeholder
19   comments, you know, we talked about the standard of
20   intentionally added, and I think that that is an appropriate way
21   to go.  
22               MS. DUBBERLY:  Mr. Davis and then Mr. Bouffard after
23   that.
24               MR. DAVIS:  Thank you.  I'd just like to follow-on
25   for that.  We would also view the key litmus test as being
0052
 1   whether it's intentionally added or not.  I think if you start
 2   to go down the road to making exemptions for things like
 3   "ornamentation," you just open a huge can of words.  I mean
 4   ornamentation could conceivably cover most jewelry, for example,
 5   and then that gets to the heart of what the law is actually
 6   going to achieve with regards to gold.  So I would merely
 7   endorse the comments made about the key thing being the
 8   intentional usage.
 9               MR. BOUFFARD:  Thank you.  I think it's important to
10   look at it from another perspective, which is the practicality
11   of what we're trying to build in terms of a global gold supply
12   chain.  Gold is the primary metal I can speak on, for example. 
13   And we're working with, for example, GeSI-EICC on a refinery
14   protocol, for example, that's under development.  
15               And the idea behind that is refineries are willing
16   to join that initiative, for example, and produce gold that
17   comes through that's auditable and certifiable, et cetera.  And
18   those refineries, for example, are either going to be in the
19   program or not in the program.  So if you're asking about gold
20   ending up in its end state, it still has to go through that
21   choke point in our supply chain, which is the refinery.
22               And a responsible gold supply chain would have a
23   certifiable and auditable point, so regardless of where the gold
24   came through after the choke point, it could still be measured. 
25   It could still be accounted for, for example.
0053
 1               MS. CROSS:  All right.  Now that I pressed you on
 2   that I can move on to the next question, which falls upon the de
 3   minimis point.  As proposed, the rules do not include a de
 4   minimis conflict minerals exemption or threshold.  Some
 5   commentators argued that the rule should include such an
 6   exemption or threshold and provided different ways to measure
 7   when the amount of conflict minerals in a product should be
 8   considered de minimis.  
 9               Other commentators suggested that an issuer with a
10   de minimis amount of conflict minerals in its products should
11   not have to provide a conflict minerals report.  On the other
12   hand, other commentators agreed with the rules as proposed that
13   there should not be any de minimis exemption or threshold, given
14   that many products contain only small or trace amounts of these
15   minerals, but the minerals are nevertheless crucial to their
16   function.  
17               These commentators noted that the necessary to
18   functionality test was included in Section 1502, specifically
19   because a de minimis test would undermine the goals of Section
20   1502.  Should the Commission include a de minimis conflict
21   minerals exemption or threshold to the rules?  Would including a
22   de minimis exemption be consistent with the statutory language
23   and goals?  
24               If a de minimis threshold is appropriate, how should
25   the rules define when the amount of conflict minerals in a
0054
 1   product is de minimis?  And how could the Commission address the
 2   fact that a de minimis amount could be crucial to a product?
 3               MR. DAVIS:  Thank you.  I'm really going to follow
 4   on from what my colleague from Calvert said a moment ago in
 5   response to the previous question.  We would counsel against
 6   using any kind of de minimis criteria, because as he pointed
 7   out, in many of the products which you use these conflict
 8   minerals, the actual amount in each item is very small.  That
 9   applies to gold.  It also applies to Tantalum too.  
10               Moreover, I think we need to keep focused on what
11   the intention of the law is here.  The intention of the law is
12   to reduce the scope of extremely murderous and abusive armed
13   groups in a certain part of the world to derive financing and
14   benefit from the purchasing and usage choices, which companies
15   and ultimately consumers make.  You can't really boil that down
16   to a level at which it's acceptable to be part of that.
17               We're not talking here about a situation which is
18   comparable to the level of toxicity of a chemical to an end user
19   in a product.  The intention of the law here is to prevent
20   harmful consequences in the country of origin, and I don't think
21   there's really any basis of saying, well, if the contribution to
22   that harm is this amount, it's acceptable.  And if the
23   contribution to this harm is lower or higher, then we treat it
24   in a different way.  
25               MR. MATHESON:  I'd like just to remark that if we
0055
 1   look at some specific issuers here who are affected directly by
 2   a question of de minimis, that's usually computer chip
 3   manufacturers, as an example.  There's very, very small amounts.
 4    I've got no idea how much, but probably micrograms or less of
 5   tantalum in logic chips.  And yet the major logic chip
 6   manufacturers are right at the forefront of the EICC and GeSI
 7   initiative, precisely to deal with this problem.  So I think if
 8   you look from the interest of the issuers, we can see that it's
 9   specific, because I'm sure this isn't the only one, and I'm sure
10   it's quite representative that the issuers believe de minimis is
11   not an appropriate standard to impose.
12               MS. CROSS:  All right.  So the next question deals
13   with the definition of the term "contracting manufacturer."  So
14   Section 1502 applies to a person described, and a person is
15   described if conflict minerals are necessary to the
16   functionality or production of a product manufactured by such
17   person.  As proposed, the rules would define contracting
18   manufacturer to apply to issuers that contract for the
19   manufacturing of products over which they have any influence
20   regarding the manufacturing of these products and for generic
21   products offered under an issuers own brand name or a separate
22   brand name, regardless of whether the issuer has any influence
23   over the manufacturing specifications of the product, provided
24   that the issuer has contracted to have the product manufactured
25   specifically for itself.  
0056
 1               Some commentators suggested should the Commission
 2   consider applying the definition only to issuers that exercise
 3   direct and immediate influence over the sourcing of materials,
 4   parts, ingredients or components of the product?  If so, how
 5   would the Commission define when issuers exercise such direct
 6   and immediate influence?  
 7               Alternatively, should the Commission consider
 8   further limiting the definition to exclude retailers, service
 9   providers, and other non manufacturing issuers, by indicating
10   that issuers would not be deemed to contract a manufacture of
11   product by virtue of the fact that issuers specify or negotiate
12   certain contractual terms, assemble a product primarily from off
13   the shelf parts or components, affix its brand, marks, logo or
14   label to a generic product manufactured by a third party, or
15   service, maintain and repair a product manufactured by a third
16   party?  If an issuer is not deemed to contract a manufacturer
17   product because the issuer specifies or negotiates certain
18   contract terms, how would one differentiate allowable contract
19   terms and those that would be considered contracting the
20   manufacturer?  
21               And if an issuer is not deemed to contract a
22   manufactured product because the issuer assembles the product
23   primarily from off the shelf parts or components, does the
24   Commission need to define an off the shelf product?  If so, what
25   would be a reasonable definition of "off the shelf?"  Would the
0057
 1   term be self-explanatory?  Please.
 2               MR. DAVIS:  Yeah.  Thank you.  We would strongly
 3   suggest that the Commission does not exempt those that are
 4   contracting the manufacture of items, even if that may seem on
 5   the face of it like an exercise in outsourcing the exercise of
 6   assembling ready finished parts.  I mean in the end the
 7   inference we're talking about here and responsibility that goes
 8   with it, which is what the law gets at, is to do with money.  
 9               It's about purchasing.  It's about how much as the
10   company acts in the supply chain you're paying your supplier and
11   what it is you're asking them to do, the issue of the extent
12   which you as the manufacturer for example are playing a hands-on
13   role in using or manipulating the materials is secondary.  And I
14   think if the Commission were to go down this route of making
15   exemptions of this kind, you would open potentially a very large
16   loophole indeed.
17               My colleague was talking a moment ago about the role
18   of tantalum for chipmakers.  Now there are a lot of items in
19   supply chains which use chips, and chips are actually made quite
20   high up the supply chain, if you like, a step or two after the
21   metal has been refined.  And I think if the Commission were to
22   go down the route of taking a view that those companies which
23   are assembling items from finished component parts might find
24   that you inadvertently exempted a very large proportion of the
25   issue as this law is designed to cover.
0058
 1               MR. MATHESON:  So I'm just trying to think beyond
 2   simply retailing an item how the question may capture products. 
 3   Perhaps, I might say I'm Andrew Matheson Stores, Inc.  I'd like
 4   to have a DVR I can sell and put my name on it.  And that seems
 5   to me to be absurd.  And that's it.  So Mr. Freeman, please make
 6   it for me.  
 7               That seems to me to be in practice an absurd
 8   situation that no responsible company I'd have a wish to invest
 9   in would dream in a million years of letting yourself in for. 
10   So I think, again, I think what I want to invest in my wish, the
11   investor wants to know that the companies they invest in act
12   responsibly with care, thought and attention to the value of the
13   brand, which in the case of anything which is retailing is a
14   significant part of the value of the asset.
15               In fact they were attentive to and responsible for
16   the process they operate, and also perhaps they operate
17   ethically.  So I think the question is really not, again -- and
18   I understand people probably could ask these questions, but I
19   don't think it's a terribly well-formed question.  I can't see
20   it in reality as a particularly common occurrence.
21               MS. DUBBERLY:  So just to press the point a little
22   bit, I think that the commentators have written in that the
23   phrase in the statute is you manufacture or you contract and
24   manufacture.  And so in for instance the retail situation they
25   may sell DVDs, but they're saying we specified that it plays X
0059
 1   number of DVDs, very basic things, but that is it, and maybe
 2   they put their label on it and they sell it.  But they aren't
 3   really contracting to manufacture, which is the term that the
 4   statute doesn't necessarily say retail.  It says "manufacture"
 5   and "contracting manufacture."
 6               MS. CROSS:  And just to be clear, the purpose for
 7   the discussion is that we have substantial comments to this
 8   effect.  So to suggest that this doesn't -- that people are not
 9   doing this, we're reviewing the comments and people are
10   suggesting that there should be a distinction based on whether
11   one has influence, because if you have influence you have a
12   better chance of being able to say this should be in my supply
13   chain or not in the way your contract is structured.  
14               So the question was a multi part question, because
15   we have many comments suggesting very specific ways to deal with
16   this issue for companies that do essentially buy generic
17   products to put their name on and sell in their stores.  They
18   may not be the company that you would choose to invest in, but
19   it's a common practice.  So I think part of it is trying to make
20   the rules applicable to the full range of public companies that
21   report with us.  
22               So that's the reason for the question.  We have a
23   significant comment to this effect, so we're pressing a bit to
24   see how we should think about this.
25               MS. DUBBERLY:  Mr. Bouffard?
0060
 1               MR. BOUFFARD:  Thank you.  Again, I think it's
 2   important that we remember what we're all trying to build here
 3   regardless of the mineral to which you are referring.  We're all
 4   trying to build a responsible supply chain for these minerals.  
 5               We've determined that writing a purchase order is a
 6   contract to manufacture.  We've looked at it as broadly as
 7   possible.  And at the same time we're largest in our sector, and
 8   only a few that are affected though, because of the fragmented
 9   nature of the industry.  At the same time the responsibility for
10   contracting to build a piece of jewelry, for example, is that
11   manufacturing process.  
12               Is it going to include products that originate in a
13   mine, go through a refinery, go through a manufacturer and
14   finally end up at retail?  And the only way to have companies
15   that are responsible companies participate in that development
16   of a global supply chain that is with a traceability element,
17   such as those who worked with RJC and OECD, et cetera, for gold,
18   is going to take everybody's participation from government to
19   industry to manufacturers and to retailers.  
20               MR. FREEMAN:  Thank you.  I agree with that point
21   that Mr. Bouffard made, and I'd also want to associate myself
22   with the very sharp point that my seat mate Mr. Matheson made. 
23   At Calvert, we look at the full value chain.  We look at
24   companies, manufacturers.  We look at contractors, and here take
25   the case of one of the issues that's been raised by a number of
0061
 1   commentators to this process, which is whether companies private
 2   labels should be covered.  And we think that they should.  
 3               We wanted to be able to see whether there is going
 4   to be a presence of so-called conflict minerals throughout the
 5   value chain from beginning to end here.  And I think I would
 6   just step back and observe that it's become well-established
 7   practice now for over a decade in a number of industries -- not
 8   just the electronics industry sectors -- that regardless of the
 9   status of the manufacturer versus the contractor, private label
10   or otherwise, that consumers and investors alike are interested
11   in the integrity of an entire supply chain all the way to the
12   final product.  And, certainly, we evaluate human rights-related
13   risk in our portfolios at Calvert in this full and comprehensive
14   manner.
15               MS. VILLARREAL:  Just a brief point; I want to make
16   sure that we're remembering that it's not that those minerals
17   aren't going to be disclosed because the manufacturer of those
18   products will be required to disclose the retailer.  And we have
19   many issuers who are small and mid-size companies who don't have
20   exactly what you said.  They don't have the power to make the
21   contracts and have the influence over those manufacturers to
22   force them to do things.  
23               They are getting the products that are off the
24   shelves.  To require them also to be considered a manufacturer
25   and disclosing is almost punitive.  And those manufacturers are
0062
 1   going to be required to do that anyway for that particular
 2   product.
 3               MS. DUBBERLY:  Anybody else want to talk on this
 4   topic?
 5               MS. CROSS:  And I did want to note that when I press
 6   on these questions it's so that we can have this dialog.  I
 7   don't want to suggest I have a point of view, but I'm trying to
 8   make sure that we discussed the issues that are being raised in
 9   the comment letters, which is the purpose of this discussion.  
10               MR. MATHESON:  So just on that last point, you know,
11   it seems to me to be absurd to require people who have already
12   been certified to be effectively certified again.  You know.  In
13   the example that was given, if I'm a small to medium-sized
14   retailer, I'm sourcing from a company which has already passed
15   through the process.  
16               I don't see why -- and that's my spectrum of home
17   grown products.  It seems to me to make no sense to require me
18   to go through a further certification process.  If I can
19   document I'm buying products that are being properly audited and
20   comply with regulations, comply with the law, that should be
21   fine.  So I don't see an issue there.  And I guess the question
22   is what happens to firms that are supplying that are not covered
23   by the law.
24               MS. DUBBERLY:  Thank you.  Now we'll turn to the
25   reasonable country of origin inquiry after you've figured out
0063
 1   that your products have the minerals.  You have to determine
 2   after reasonable country of origin inquiry whether the conflict
 3   minerals originated in the DRC countries.  
 4               The reasonable country of origin inquiry was
 5   designed to be less exhaustive than the due diligence required
 6   if minerals are found to originate from the DRC country.  In the
 7   release the Commission noted that the proposed rules would not
 8   state what a reasonable country of origin inquiry would entail,
 9   because it believed that necessarily would depend on the
10   issuer's particular facts and circumstances.  
11               The Commission noted, for instance, that an issuer
12   could satisfy the reasonable country of origin inquiry standard,
13   if it received reasonably reliable representations from the
14   facilities smelting the minerals directly or through its
15   suppliers.  Should the Commission specify or define a reasonable
16   country of origin inquiry or is that facts and circumstances
17   approach workable?  If you think there should be a definition,
18   do you have specific ideas of what should be included in it?
19               MR. DAVIS:  Thank you.  Yes, we think that the
20   Commission should define a reasonable country of origin inquiry.
21    It's an absolutely crucial part of implementation of the law
22   and terribly important that issuers get it right.  And we think
23   that without some specific explanation of what it is that the
24   law expects and the quality of the responses on that point may
25   not be as high as it needs to be.  
0064
 1               And we would suggest that picking up from the point
 2   you made, the reference to smelters, the key part of conducting
 3   a reasonable country of origin inquiry is to identify the
 4   smelter as the choke point in the supply chain, and then seek to
 5   verify the smelter's own claims about the country of origin of
 6   the materials that they're using.  They're always doing that
 7   through third parties.  One of them I mentioned in my opening
 8   remarks.
 9               There's a particular smelter violation program that
10   some industry groups have been developing, which seeks to give
11   third party verdict on the controls that smelters are exercising
12   on their supply chains.  There may be other means that industry
13   groups can come up with, pooling their resources and thus saving
14   costs.  But we don't believe that it's sufficient to rely on the
15   representations alone of smelters, for example.  
16               We have to keep in mind that many smelters have
17   quite knowingly and recklessly used conflict materials from
18   Eastern Congo, and for many years without making any serious
19   efforts to remedy their supply chain controls.  And so we do
20   think it's essential, first of all, that the issuer identifies
21   that smelter, seeks the smelter's account of what the country of
22   origin is, and seeks third-party verification of those claims.  
23               And when they do that, the issuer should be keeping
24   in mind what red flag issues to look out for, which are set out
25   in the OECD standards and also elsewhere too, which includes
0065
 1   looking at, for example, claims by a smelter that the materials
 2   originate from a country which is not known to produce these
 3   minerals' that the smelter declares that the country of origin
 4   is one which known to be a trafficking point for minerals coming
 5   out of Eastern Congo.  And also we think another red flag issue
 6   to look out for is any claims that the point of origin is
 7   actually another smelter that may in part have processed the
 8   materials, because that could provide a way of escaping a full
 9   account of where the minerals originate from.  
10               MS. DUBBERLY:  So just to make sure I'm following,
11   for the reasonable country of origin, when the issuer is then
12   trying to figure out what country the mineral came from -- you
13   know -- through their suppliers, you're suggesting they should
14   have more.  You want a certification from the smelter to come up
15   through the chain, plus review?  Is that sort of it?
16               MR. DAVIS:  No.  I'm not saying it has to be a
17   certification.  I mean we're talking about a due diligence
18   process here, and we would certainly accept that within that
19   there needs to be some flexibility about how exactly companies
20   gather the information that they need.
21               The point to make here is that the smelter has
22   recognized choke points in the supply chain, and so if companies
23   are making a reasonable country of origin inquiry, it has to
24   involve identifying the smelter.  And the second point to make
25   is that the issue is having identified the smelter and asked the
0066
 1   smelter what the country of origin is, they should be looking to
 2   get some other independent source of information, which is going
 3   to help validate the claims that the smelter makes, so not
 4   simply relying on the smelter's word.
 5               MS. DUBBERLY:  Thank you.  Ms. Villarreal?
 6               MS. VILLARREAL:  Thank you.  I find it terribly
 7   helpful when the Commission includes examples for those of us
 8   who have to help our companies comply.  So some examples of
 9   reasonable reliance on supplier representation, such as
10   demonstrating by contractual obligations with direct suppliers
11   to use DRC conflict free only minerals, and certifications from
12   or notifications to suppliers that the components are products
13   that were supplied are DRC conflict free, things like that would
14   be terribly helpful to us.  So if you could do something like
15   that, that would be great.
16               MS. DUBBERLY:  Mr. Bouffard and then Ms. Simelane.
17               MR. BOUFFARD:  Thank you.  I think it's important
18   that we're talking about the country or origin to talk about
19   that.  And along without talking about the subjects around it,
20   for example, leads back to the phased in approach and why that's
21   important here as well.  
22               Currently, as we have options for reporting: yes,
23   no, and unable to determine; and having to provide a very
24   comprehensive conflict mineral report, we would prefer the
25   category of "indeterminate," for example.  That way, we would
0067
 1   not have to, while the work is being developed, to create the
 2   responsible supply chains that we're talking about, and we're
 3   inspired by the responsible smelter programs that are underway. 
 4               And we're trying to work with GeSI and EICC to
 5   develop a responsible refinery protocol.  So that's where that
 6   comes into play.  So while we're providing a reporting
 7   indeterminate, for example, we would not have to complete a
 8   conflict minerals report, which is take our focus off the work
 9   we're doing; would not have to go through the audit, but we
10   would be fully disclosing the due diligence that we're
11   undertaking.  
12               And, again, that would begin immediately on the
13   effective date of the rules and would continue on an annual
14   basis while the work is done.  We would disclose that our
15   company's products do contain conflict minerals, but we would
16   like to say that the country of origin of that conflict mineral,
17   for example, is indeterminate, because the globally recognized
18   systems of making this reliable inquiry simply do not exist yet.
19                And that's why a phased-in approach is important and
20   that's why time is important for us to conduct our due diligence
21   efforts, but we'd like to do it without a conflict minerals
22   report, remembering that management has to certify the company
23   is taking all reasonable efforts to comply.  
24               MS. SIMELANE:  I'm not sure about how the smelters
25   on the three Ts work, but I just think the issue really is
0068
 1   working with the non-issuers and what work would be done on the
 2   ground to make sure they're actually complying.  They don't have
 3   loopholes on the system.  Because I think in the way that we do
 4   business we have our own smelters that then go straight into the
 5   refineries.  So any of the large gold responsible mining
 6   companies would have their own smelters, so there isn't the
 7   issue that is represented on this question.
 8               MR. MERBER:  Thank you.  This is a very difficult
 9   issue and I think it has to be divided kind of into two separate
10   pieces.  You know.  One is representations or how one can be
11   assured that the smelter, itself, is conflict free.  And in that
12   we support the EICC GeSI program, and hope that one will be
13   developed for gold to have smelter-free, you know, conflict-free
14   smelters identified.
15               Now once conflict-free smelters are identified, then
16   the other question is understanding the extent to which you can
17   know that those are the only smelters that are in your supply
18   chain.  And that's where I think that there needs to be a
19   particular amount of flexibility, because supply chains differ. 
20               If, for example, you know, our company makes light
21   bulbs that have tungsten filaments, we buy tungsten directly
22   from smelters.  It's relatively easy for us to know whether a
23   tungsten smelter, when the tungsten smelter program is fully in
24   place, we'll know whether that tungsten smelter is verified or
25   not.  But that's one extreme example.
0069
 1               The other extreme example is taking the page from
 2   the previous question where you may have contracted for the
 3   production of something.  So, say we contract with somebody for
 4   the production of a room air conditioner or a refrigerator, each
 5   of which is a very complicated piece of equipment by itself that
 6   has many, many, many parts that contain conflict minerals. 
 7   Knowing how to find out what the smelters of origin are for all
 8   of the conflict minerals in those products is a long task.  It's
 9   arduous.  It will take some time to do.  
10               We could impose a contract requirement on that
11   contract manufacturer that would supply us only with
12   refrigerators that have conflict minerals from verified
13   smelters, but it will take time for that supplier to us to trace
14   back through its supply chain through similar, contractual
15   provisions.  So that in the first year of the program, in the
16   beginning when we issue a contract, the contract can't say that
17   everything in a complicated piece of equipment has to be from a
18   verified smelter, because there's no way for a supplier to
19   comply with that.  You know.
20               There's always a red flag when your suppliers agree
21   to comply with something that you know they can't do.  So the
22   difficult thing is in making as much progress as possible to
23   trace back to those smelters so that we can direct the suppliers
24   in the supply chain to use the ones that are verified, and that
25   of course has to marry up at some point in time with a
0070
 1   reasonably verified universe of smelters to choose from, which
 2   doesn't exist in all metals at this point.
 3               So it takes time, even to be able to contractually
 4   obligate our direct suppliers to supply us with material only
 5   that traces back to conflict free smelters.  So that's why I
 6   think that the important thing is that there be disclosure,
 7   disclosure, disclosure about what's been done.  So we could be
 8   able to say, look.  Here's what we've obligated our direct
 9   suppliers to do and it's not in all cases necessarily going to
10   be that everything in their chain has to go back to a
11   conflict-free smelter, because that's not possible for them to
12   do.  
13               But we need to be able to say, look.  When you
14   bought it from the smelter, we want to make darned sure if
15   there's a conflict-free smelter available, you use it.  And we'd
16   like to see you impose that on your direct suppliers, so that if
17   they're buying directly from the smelter, they're buying only
18   from conflict-free smelter.  That gets us down two levels.  
19               Over time, we can get down every level, but it will
20   take time to do that, because, you know, our suppliers, as I
21   say, we've got thousands of suppliers and they have thousands of
22   suppliers.  So we can get there.  And doing that, we'll start to
23   impose the pressure on the system that we want to see.  You
24   know.  
25               If we start doing that, then the pressure on the
0071
 1   smelters to get verified will start to exist from the very
 2   beginning, but we won't get to the bottom of our product for a
 3   little bit of time.  And so what we'd like to be able to do is
 4   have the freedom to develop the program that does that as
 5   effectively as possible, and at the same time then disclose
 6   completely what we've done and let the investors judge whether
 7   what we've done is appropriate.
 8               MS. DUBBERLY:  So maybe I could just one second
 9   follow-up on that point and sort of a couple of points as well. 
10   And I think Mr. Bouffard also made this point is so while you're
11   having this disclosure, it will take time to get to the final
12   sort of point.  How much time are you folks talking about, and
13   what do you want?  What would you feel comfortable should be
14   disclosed, exactly?  
15               MR. BOUFFARD:  Well, thank you.  And I think it's
16   important when we're talking again about this phased-in
17   disclosure and the amount of time that it's going to take, that
18   companies who are willing to disclose and are proud of the
19   effort that they're undertaking to provide their due diligence
20   efforts ought not to be implicated for doing so, and such as the
21   conversation about the country of origin.
22               But in terms of time, we're still waiting; and,
23   again, I think we need to differentiate between tantalum,
24   tungsten and tin and gold, and we're again inspired by the work
25   the tantalum industry has done.  And we believe that's a model
0072
 1   that can be brought over to gold, for example.  However, we're
 2   still waiting for OECD guidelines.  
 3               RJC is still working on its chain of custody
 4   protocol.  That ought to be done by this year.  I believe the
 5   OECD guidelines ought to be done by the early part of next year.
 6    So we're already into 2012, and the project that we're working
 7   with, with 300-plus suppliers, it's going to take us time to
 8   determine -- and we will -- the full supply chain of our
 9   suppliers, and then begin to look at what banks, what refineries
10   that they're working with currently, and what opportunities
11   there are to fall into a program that would be a responsible
12   goal to resupply chain that would meet the goals of the
13   legislation.  
14               So even if that were to come together as we continue
15   to work on it every day, we're still into next year.  And once
16   that protocol is built conceptually, would turn into a pilot
17   that we could model, perhaps the following year.  But once
18   you're talking about hundreds of vendors around the world, it's
19   going to take time for it to be fully implementable.  
20               MS. DUBBERLY:  Ms. Simelane?
21               MS. SIMELANE:  I just wanted to comment on the one
22   seated next to me about the smelting and the refining.  I just
23   think -- and he made the comment about in some metals that the
24   processes are not fully there.  I just think we need to
25   differentiate between the smelting and the refinery in the gold
0073
 1   industry, because at smelting stage, as I said earlier, you
 2   don't have any commercially viable product.  
 3               It's only at the refinery.  And if you want to
 4   comply with this legislation, it would be the manufacturers
 5   would have to use LBMA certified refineries, because they're
 6   working very hard to try and comply with this legislation so
 7   they know their customer and they can trace back on the
 8   reasonable country of origin inquiry.  So there is a difference,
 9   I think, with gold that you can use certified refineries.
10               MS. DUBBERLY:  Thank you.  Mr. Davis, did you want
11   to say something?
12               MR. DAVIS:  Yes, thank you.  Two points really. 
13   First of all I'd very much like to encourage and commend those
14   representatives on the panel who are from companies which are
15   already making real efforts to comply with the law.  And we
16   think that's a hugely positive thing.  I did, however, want to
17   make a point that looks at the context of this issue a little
18   more broadly.
19               We have worked on this question of natural resource
20   exploitation fueling on violence in the Congo for some years
21   now.  And I have to say we go through various stages in which
22   the centers of debate about how the supply chain works shifts
23   around with one constituent group of company or another, making
24   the argument about it so complicated.  So I think there's an
25   element of demystification that's required here.
0074
 1               Around about three years ago, the center of  this
 2   debate was how it was so incredibly complicated to figure out
 3   which mines and which Contoire in Eastern Congo -- that's
 4   trading houses fed with smelters.  Research by us and by the
 5   U.N. group of experts and other NGOs cracked that, and then the
 6   debate moved on.  And then about a year and a half ago we were
 7   at the point where the discussion was about how incredibly
 8   complicated it was for companies which use quite large
 9   quantities of tantalum, for example, to make chips and other
10   components -- how complicated it was for them to find those
11   smelters.  And then some of them actually did it and the debate
12   moved on.  
13               And now here we are having the next iteration of the
14   same discussion, this time with the manufacturers who, just to
15   pick up from what Mr. Matheson said at the beginning, have in
16   many cases known about this issue for quite some years, coming
17   forward and saying it's very complicated, we can't do it.  And
18   while we absolutely have to encourage and help those companies
19   which want to make rapid progress on this, I think we also need
20   to keep in mind that there's a limit to how much infrastructure
21   and apparatus is required to do this.
22               Companies, big companies, successful companies,
23   which are issues to the SEC, are successful, because they have
24   already in place good product quality management.  They have
25   discussions with their suppliers about the items which they are
0075
 1   buying to put in their own product.  If they didn't, their
 2   businesses would fail.  And so I think we need to keep in mind
 3   that these discussions already take place, and that what we're
 4   talking about here is for a certain company, which buys from
 5   certain supplier -- in the discussions which they already have
 6   with those suppliers -- asking them additional questions and
 7   making additional checks which enable them to comply with this
 8   law.  We're not looking at a situation where for companies big
 9   or small, their supply chain and the items which go into that
10   products are a complete mystery to them.  They're not.
11               The other thing that I wanted to say briefly is
12   something about timing and it's a little broader.  We have to
13   keep in mind that what this law requires companies to do is to
14   disclose what they're doing, what they're doing to control their
15   supply chains, what due diligence they're doing.  We recognize
16   it's a process.  We as an NGO have been very much involved in
17   helping to create these due diligence standards, which the OECD
18   has signed off on and which the U.N. group of experts have
19   developed and parallel.
20               We recognize it's a process.  We want to see
21   companies succeeding.  We're not looking for failure here.  But
22   the thing that we have to keep in mind is the basis of this
23   piece of legislation is reporting and disclosure.  And to pick
24   up from what Sandy said, companies can begin reporting now on
25   what it is they're doing.  They may feel there's more they want
0076
 1   to do in the next iteration, in the next report, that there's
 2   more progress that they can make.  And that's completely
 3   understandable.
 4               We welcome that, but I think that's a separate issue
 5   from the idea that because implementation will improve over
 6   time, we therefore have to defer implementation until a moment
 7   when companies will be able to report to a certain level of
 8   detail.  I don't think that's what the law requires, and I think
 9   it's a distraction.
10               MS. DUBBERLY:  Thank you.  Mr. Matheson and then Mr.
11   Merber, and then Ms. Villarreal.
12               MR. MATHESON:  Thank you.  A couple of observations.
13    First of all, the EICC-GeSI program is an audited program.  I
14   think auditing is the fundamental backbone here of credible
15   tracing.  Self-declaration doesn't work.  It's been used in the
16   industry for the past decade, and we know it hasn't stopped the
17   problem.
18               So that process isn't ready to be implemented yet,
19   and until there are standards for all these four minerals or
20   metals, it's going to be impossible to have a validated scheme
21   that allows us to audit accurately what's going on.  We should
22   all keep that in mind.  
23               That doesn't mean that we can't start now tracing
24   back from early ends back to the smelters, and in fact looking
25   at Apple's corporate responsibility report.  They've done it. 
0077
 1   So there's a company with a range of products, granted not as
 2   complex as say an industrial conglomerate like GE, but
 3   nonetheless a complex set of products with a large number of
 4   supplies.  And they trace back and they represent they've mapped
 5   back to their smelters in fairly short time. That tells me two
 6   things.  One, that it's a manageable process, that it can be
 7   done fairly quickly provided it receives appropriate focus.  
 8               Secondly, where they've gone before, it makes the
 9   path easier for those that follow.  If they have a supply that
10   in common with RIM or INTEL or Dell, those followers, assuming
11   they're following, will be able to take advantage of the work
12   that's already being done.  So we shouldn't imagine this is
13   something that has to be done afresh for each company.  They'll
14   be very large and very significant network benefits to the
15   steady implementation of due diligence by the original
16   companies.
17               So, yes, we need to wait until the auditing process
18   is complete and verifiable.  We don't need to wait forever.  We
19   shouldn't imagine this is going to be a program that has to be
20   drawn up for many years.  I don't think that's true.  Thank you.
21               MR. MERBER:  Well, thank you.  A couple of things. 
22   First, you know, I agree with much of what Mike Davis said and
23   what Andrea just said.  I want to be perfectly clear.  I wasn't
24   saying that this is complicated, and therefore we can't do it. 
25   What I was saying is the rule has to recognize the situation of
0078
 1   all of the issuers that have to comply with it; and, that for
 2   some issuers, the task is more difficult for other issuers. 
 3   It's not as difficult to trace back, for example, to the
 4   smelters of origin.
 5               I wasn't arguing that, therefore, some issuers
 6   shouldn't have to start to do that.  I wasn't arguing that the
 7   law shouldn't be implemented in time, that it shouldn't be
 8   implemented properly, promptly, or that the effort to begin the
 9   task, even though it is not going to be completed for some time,
10   won't be very, very beneficial.  It's a very worthwhile thing to
11   do, because it starts to exert that pressure on the supply chain
12   immediately to work to wards the compliance smelters.
13               So I definitely was not saying it's complicated we
14   can't do it.  You know.  There are questions over how one would
15   have to describe the products where the origin of the conflict
16   minerals is not determinate.  That doesn't concern me very much.
17    What concerns me is our ability to describe and disclose in our
18   report that we've made a good faith effort to do what we could
19   to help resolve this problem -- not the words we have to use in
20   the report.  And I think, ultimately, I hope that the report                  we 
21               So we're not arguing that, but, you know, this
22   question of whether we're able at this point to understand the
23   origin of every bit of tin, tantalum, tungsten and gold in our
24   product, because we have a good relationship with our suppliers,
25   is really overstated.  The tantalum isn't necessarily the
0079
 1   important functional element that we're dealing with.  We're
 2   dealing with functional specifications, often, and not with
 3   specific material specifications.
 4               I mean you can look at the experience of the EU in
 5   implementing the REACH law, which is somewhat similar, and its
 6   stake in companies years and years and years.  And they've made
 7   a lot of progress to get an ability to report quite a bit about
 8   these chemicals in their products, but it's taken years.  And I
 9   think we just have to recognize that it will take years; but,
10   clearly, not saying that the law shouldn't be implemented on
11   time; not saying that we shouldn't do everything we can to
12   start.  It's just that as this flows down through the supply
13   chain, it's going to take a little bit of time before we get
14   ultimately to knowing the smelter of origin for all of the
15   conflict minerals in our product.  
16               MS. VILLARREAL:  Thank you.  And I respectfully need
17   to make some comments about the fact that this has been going
18   on, and I understand that this has a long history in legislation
19   back 10 years, and three years, and of course the major users of
20   these conflict minerals have been already working hard to
21   understand their supply chains and the use of these minerals,
22   and are to be commended for doing that.
23               However, companies like Kraft Foods, we're new to
24   this.  We had no idea that this legislation was going to be
25   covering companies like us, and that's just recently come to
0080
 1   mind based on industry letters that started saying you guys
 2   better be paying attention to this.  Because most of the
 3   writings in this area were pointing to the usual companies,
 4   electronics, jewelry companies, the companies that you know
 5   would have those minerals in them, so those of us in the food
 6   industry didn't think we would have that impact.  But people
 7   started digging in saying this is going to cover packaging. 
 8   This is going to cover promotional and marketing materials.
 9               Well, we have all kinds of promotional and marketing
10   materials and we are just now starting to look at all of those
11   things.  As I told you, we have 100,000 suppliers.  We are
12   worldwide.  We have 40,000 products.  We have promotional
13   materials for all those things.  We have things like
14   flashlights, many fridges, USB drives.  We have all kinds of
15   things, because we have to market our products.  This
16   legislation covers all of those things.  Whoever would have
17   thought that?
18               So, respectfully, this is not something that we can
19   just turn on a dime and start doing for 2012.  It's going to
20   take us some time.  We don't have the ability to talk to 100,000
21   suppliers to ensure what and who has conflict minerals.  And
22   then with all those promotional materials, that's a whole other
23   align.  I don't even have information for you on where the
24   suppliers are in those items.  
25               MR. FREEMAN:  Thank you.  I'm going to try to
0081
 1   synthesize a few of the very useful points made in the last 10
 2   or 15 minutes or so, as well as to respond to Kraft.  I want to
 3   be very clear here, at least on behalf of Calvert.  We are not
 4   expecting perfection.  We are not expecting that companies will
 5   be able to turn on a dime and meet all the requirements here
 6   overnight.
 7               What we are expecting is a willingness to make this
 8   work as quickly as possible, bearing in mind as I emphasized
 9   earlier in my opening remarks that this will inevitably be a
10   process of continuous improvement and learning.  And so many
11   efforts have been under way, electronics the last decade,
12   they're directly relevant here.  Preparations have been made in
13   anticipation of the passage of something like Section 1502 for
14   the last several years.
15               Companies like Kraft, in different industries that
16   may not have expected to be covered by something like Section
17   1502, nonetheless have significant experience in looking at
18   their supply chains on other matters: content in their supply
19   chains that they've been developing now for a good long period
20   of time that is adaptable -- not exactly replicable, but
21   adaptable to the challenge that's at stake here.  So it covered.
22    We are looking for companies to move immediately, but we will
23   be looking for clear progress and we are hoping that there will
24   not be a phase-in period here, which we think would dilute and
25   delay the kind of pressure on suppliers that Sandy Merber at GE
0082
 1   is expecting.  
 2               We think that that kind of pressure is a very
 3   salutary thing.  We want to see it.  We've seen it on other
 4   issues; but, as long term investors who look very carefully at
 5   human rights risk across our portfolios, we know progress when
 6   we see it.  We know it's not overnight, but we expect it to be
 7   made in connection with 1502, immediately, even as it builds
 8   year to year.  Thank you.
 9               MS. DUBBERLY:  Commissioner Walter?
10               COMMISSIONER WALTER:  Thank you.  If I can sort of
11   follow on on that to try to put together some strands that I'm
12   hearing, hypothetically, if we were to acknowledge the necessary
13   evolution over the course of time that information will become
14   more perfect and acknowledge that that gets taken into account
15   in evaluating whether a disclosure of the measures that someone
16   has taken constitutes due diligence.
17               Does that take care of the problem so that year one
18   the disclosure would be at one level?  Year two, one logically
19   would expect that more would have been done.  Year three,
20   perhaps, we would have reached perfection, perhaps not, but
21   there also may be evolving techniques that make perfection an
22   evolving concept.  Is that what's needed?  Because it seems to
23   me that from the get-go there's at least a substantial question,
24   or a substantial likelihood that everyone should be able to
25   describe what they are doing.  And if what they are doing is
0083
 1   what they can do and we recognize that that is not necessarily
 2   going to be complete from the outset, does that alleviate some
 3   of the concern?  
 4               MR. BOUFFARD:  Thank you.  I think it's important
 5   that we don't try to put year one, year two, for example,
 6   Because those of us who are working this issue are learning how
 7   long this may take; and, again, once we understand what the
 8   global supply chain looks like in working with governments,
 9   industry, civil society, banks, refiners when it comes to gold,
10   then we'll better understand.  And that's why we offered our
11   help earlier, to share the information that we're learning with
12   you, so that perhaps we can come up with a timeframe.  
13               But, again, that timeframe is not geared towards
14   delaying the legislation.  It's the topic of the phased-in
15   approach in terms of reporting and disclosure is important
16   again, because those of us who are doing the important work are
17   not to be implicated while doing so.  And we can work together
18   to determine exactly how much time it is going to take.  The
19   three Ts are further along than gold.  I think everybody
20   understands that, so gold is an example where we ought to take
21   for perhaps a longer look at.
22               MS. CROSS:  We need to wrap-up here in just a
23   minute.  I guess if there's a couple quick comments, then I'll
24   do the wrap-up for the panel.  Ms. Simelane?
25               MS. SIMELANE:  I think that comment made by the
0084
 1   Commissioner is absolutely crucial, and I think it goes back to
 2   a comment made earlier between self-declaration and the
 3   auditing.  I don't think companies have a problem with
 4   self-declaration, but what's the use of that isn't in line with
 5   what is intended with Section 1502.
 6               I think what we battle with is the auditing
 7   standard, so that it is a meaningful report.  So I think that
 8   would be very helpful, Commissioner, if you are giving the phase
 9   approach is more definite.  I don't think the legislation is
10   intended to be onerous or punitive to issuers.  Therefore, if
11   that phase-in approach is not considered, it would be onerous
12   and punitive, and cost a lot of money for companies to comply
13   with almost immediately, which would be impossible at this point
14   in time.
15               MR. DAVIS:  Very quickly, yeah, just to reiterate
16   we're looking for progress here and we're not looking to catch
17   companies out or document failure.  We want to see companies
18   make a good faith effort to meet the requirements of this law. 
19   We think the best approach is to have the law implemented in
20   full from the start.  And we have to take into account that
21   while many companies, several of which are represented here, are
22   making laudable attempts to move on this now, there are others
23   which are not showing an inclination to make a move at all until
24   they're absolutely required to do so.  So I think a phase-in
25   approach would just mean that, sadly, quite a large constituency
0085
 1   within the group of users will not actually do anything for some
 2   time.
 3               MS. CROSS:  Okay.  So this ends our first panel. 
 4   The second panel will pick up with the same topic, and then also
 5   move on to the reporting.  We're going to take a brief break to
 6   change panelists.  We'll start promptly at 2:50 when we'll hear
 7   from Sen. Durbin and Rep. McDermott, the primary authors of
 8   Section 1502.  
 9               Again, I'd like to thank our panelists very much. 
10   This was a very productive panel discussion and I'm sure our
11   rules will benefit from it.  Thank you.
12               (Recess.)
13               CHAIRMAN SCHAPIRO:  Okay.  If everybody's back
14   together, it's my great pleasure to welcome Sen. Richard Durbin
15   from Illinois to our roundtable today.  Sen. Durbin and Cong.
16   Jim McDermott from Washington state are primary authors of the
17   Section 1502 statutory language.  
18               In addition to Sen. Durbin's efforts toward curbing
19   the violence in the Democratic Republic of the Congo, he has a
20   longstanding interest in the work of the SEC and our efforts to
21   protect investors and facilitate capital formation.  We very
22   much appreciate him taking the time from his busy schedule to
23   speak with us today, and we look forward to his remarks.  
24               Cong. McDermott also hoped to be with us today, but
25   unfortunately had a scheduling conflict.  However, he has
0086
 1   provided us with a video statement, which we will play,
 2   following Sen. Durbin's remarks.  Please welcome Sen. Durbin.
 3               (Applause.)
 4               SEN. DURBIN:  Thank you so much for that nice
 5   introduction.  Clearly the tables are turned.  Mary Schapiro is
 6   the chairman and I'm the witness.  Usually it's the other way
 7   around, so she has her chance to get even with me for a few
 8   tough questions; but, in all seriousness, I want to thank her
 9   and all the commissioners for the fine work you do at the
10   Securities and Exchange Commission.  This is one of those rare
11   moments in our history where your work is so critically
12   important to maintain, and in some cases even restore the
13   integrity of our markets, which are a critical part of the
14   growth of the American economy.  So thank you for all that you
15   do in that regard.  
16               I guess it was five years ago that I made my first
17   trip to the Democratic Republic of Congo and I went to a city
18   called Goma.  I'd never been there before and I didn't know what
19   to expect.  I traveled all over Africa and seen a lot of things.
20    I find it to be the most profound and inspiring place that I've
21   ever visited.  But I wasn't prepared for what I found at Goma.  
22               Imagine, one of the poorest places on earth: people
23   literally starving, dying of disease, malaria and AIDS cutting
24   short lives of far too many, all in the shadow of an active
25   volcano; and then visit small hospitals, completely overtaxed. 
0087
 1   Look at the roadside and find women by the dozens sitting in the
 2   dust praying that they'll get a chance to get into that hospital
 3   for a surgery that they need for what's known as obstetric
 4   fistula, which is a terrible problem to have for a woman, and
 5   usually occasioned by a gang rape or a pregnancy too son,
 6   leaving that women incontinent and eventually being shunned by
 7   her family and tribe.  
 8               She comes with others and waits by the side of that
 9   dusty road hoping that she can get into the one hospital that
10   might take her.  If there are repeated surgeries and there
11   usually are, because these are really horrible situations, she
12   is released from the hospital and goes to the end of the line
13   and starts all over again, waiting for the second, third, fourth
14   and fifth surgery.   
15               You see; the reason this has become such a rampant
16   problem in that part of the world is that this is a nation with
17   all of its problems that is ravaged by war.  It's a war where,
18   sadly, rape is a major weapon.  The United National calls the
19   Democratic Republic of Congo and that section the rape capital
20   of the world.  The unspeakable things that happen to the women
21   and girls in that country in the name of this war we've
22   recounted at some of our committee hearings. 
23               But looking into their desperate faces as they're
24   waiting for help and imagining what they have seen, what they
25   have been through, what they have lived through, is something
0088
 1   you're not likely to forget.  I took some time just a year ago
 2   when I went with Sen. Sherrod Brown to visit some of the refugee
 3   camps.  These are people who've been displaced by this war and
 4   they live a life which is unimaginable.  
 5               Most of them are trying to survive on this
 6   solidified, molten ash, which cuts like glass; raising children,
 7   trying to find some simple place to hollow out an area where you
 8   can pitch a tent and call it home, thousands, thousands of
 9   refugees from this war.  The things that are fueling this war
10   are legendary and historic.  
11               They go back to the Rwanda genocide and tribal
12   conflicts.  But, sadly, what we found was that what's fueling
13   this war more and more is pursuit of precious minerals, minerals
14   which are abundant in this part of the world and are worth a lot
15   of money.  There's slave labor, warring militias and victims by
16   the thousands as they fight for the exploration and the
17   production of these minerals: tin, tungsten, tantalum and gold. 
18   Why are these so valuable?  Because of our insatiable appetite
19   for iPads and BlackBerries and cell phones that use these
20   minerals.  
21               I came back from the first trip with Sen. Sam
22   Brownback, opposite political party, but a close ally in this
23   fight, who is now the governor of Kansas.  And he said: "We have
24   got to alert the American business community and American
25   consumers to the fact that our demand for products that contain
0089
 1   these minerals could, could inadvertently be fueling this war
 2   and leading to this terrible suffering.
 3               There is a lot of suffering around this world, a lot
 4   in Africa.  The refugees with Somalia you see on the news, but
 5   sadly for the last 20 years this part of the world has been one
 6   of the most deadly on earth.  The death, the rape, the
 7   destruction that's going on has to bear heavily on anyone with a
 8   conscience.
 9               The purpose of this amendment that you're
10   considering now as you go through rulemaking is to appeal to the
11   conscience of our business and corporations to ask them to take
12   special steps to try to determine the origin of these minerals
13   and whether they're being mined in a legitimate and safe way. 
14   Now I understand that this is a challenge.  We're in the middle
15   of a sparsely populated area of the world, and I understand that
16   you can't track commerce there as easily as you might on the
17   computers in the United States.  But I do believe, having spoken
18   to many corporate leaders, that they are intent on doing the
19   right thing.  
20               They do not want on their conscience that they are
21   part of what is fueling this terrible war and this mass rape in
22   the Democratic Republic of Congo.  As you make this rule, I hope
23   you feel as I do.  We are willing to work with corporations and
24   business leaders who in good faith will come forward and try to
25   identify as validly as they can the sources of these minerals
0090
 1   and to spell out the efforts they are taking to try to reduce
 2   the likelihood that these memos are going to lead to even
 3   further death and suffering in this part of the world.  
 4               Most major corporations have a Department of
 5   Corporate Responsibility.  This is a question of corporate
 6   responsibility.  I won't delve into this whole debate about
 7   whether a corporation is a person, a citizen, a voter or
 8   anything like that, but I do believe having spoken to the
 9   leaders of some of the most outstanding corporations in our
10   country that they want to do the right thing.
11               I think you can show them that path, a reasonable
12   path that will not only give them a clear conscience in the way
13   they conduct business, but have a measurable, positive impact on
14   this part of the world.  For those of us who enjoy these
15   products every day, I'd like to enjoy it with a clear conscience
16   that the person, the company, the corporation that made the
17   product did everything reasonable and humanly possible to avoid
18   using minerals in these products, which have led to such
19   terrible devastation and suffering.
20               It's a tough task we've given you.  I have checked
21   with my staff and I don't think the SEC has ever had anything
22   quite like this that they've been challenged with.  But I hope
23   that you'll spend a little extra time and I hope that you'll put
24   a little more effort into it with the knowledge that there are a
25   lot of people halfway around the world who wouldn't recognize
0091
 1   any of us, but are sincerely counting on people with good values
 2   and a good faith effort to try to stop this suffering.  Thank
 3   you so much.
 4               (Applause.)
 5               MR. MCDERMOTT:  Good afternoon.  I'm Jim McDermott,
 6   a congressman from Seattle.  And I work with Sen. Durbin and a
 7   strong bipartisan group of other legislators on the conflict
 8   minerals provision that became part of the law called the
 9   "Dodd-Frank Act."  
10               I want to thank the SEC for holding this roundtable,
11   and also thank all of its participants.  You are here to help
12   make sure this regulation works for everyone.  I've looked at
13   many of the submissions on the proposed rule.  The interest in
14   addressing this issue is intense, and it is clear that many
15   companies want to do the right thing.  
16               I first went to Africa in 1961 and I've been back
17   dozens of times since.  In the late 1980s I worked in the Congo
18   for the State Department, and the last time I was back in
19   Eastern Congo and Rwanda was this last August.  We think the
20   black market for minerals in Central Africa is a problem that
21   can be solved and that the customers and sellers of those
22   minerals can do business in a way that does not fuel the war,
23   and sexual violence that has been such a curse in Central Africa
24   for the last 15 years.
25               I think people agree the rule for reporting needs to
0092
 1   meet the goals of informing investors and the public, creating
 2   some basic governance over the use of these minerals, while at
 3   the same time being practical and affordable for companies to
 4   comply with.  For this law to work, the reporting standards have
 5   to be common sense and rely on the practices that so many
 6   companies already have in place today.  
 7               That was our intent.  There are many examples of
 8   what due diligence means for international manufacturers when
 9   they follow other regulatory requirements.  All multinational
10   corporations follow due diligence standards when they import
11   goods into their country and when they meet consumer product
12   safety requirements.  
13               The formula for how a company complies with these
14   regulations is not new and has worked well in many areas of
15   international supply chains, even the most complex ones.  With
16   some agreed-upon standard, like the ones created by the OECD,
17   the bigger companies will do some site visits.  They will do
18   comparative analysis, and they will work to remediate problems. 
19   The smaller companies will piggyback on top of their work. 
20   Companies have told us how this kind of social compliance
21   reporting works around the world today and we're confident it
22   will work here today.  
23               In short, companies who want to do due diligence
24   will make a concerted effort to know what is happening in their
25   supply chain to get the knowledge required in the law.  This due
0093
 1   diligence is not perfect or exact.  Companies will not be able
 2   to guarantee that every grain of metal in every part of every
 3   product they manufacture is conflict free.  That would be
 4   impractical and unachievable.  
 5               And it is not the goal of this law.  This kind of
 6   reporting has to allow companies to follow the same practices
 7   that so many companies have in place today, like the due
 8   diligence they do to make sure they're not using child or forced
 9   labor in their supply chain and that they are adhering to
10   international transshipment, safety and security rules.  
11               Many companies we are talking to who already do this
12   kind of compliance think the business know-how they get from
13   their transparency work is hugely valuable.  With greater supply
14   chain knowledge they can cooperate more efficiently.  They can
15   make better source of decisions, better capacity decisions, and
16   improved productivity.  Many companies see this work as much
17   more than good citizenship and risk mitigation.  It is a better
18   way to compete.
19               By doing practical due diligence, companies will be
20   able to see systemic changes and problems in the mineral trade. 
21   And this will prevent the kind of wide-scale abuse that fuels
22   war.  By doing practical due diligence, companies can keep a
23   black market from flourishing.  I'm confident that investors and
24   the public will know the difference between companies that make
25   a good effort and those who do not.
0094
 1               In congress we have been very encouraged to see how
 2   quickly the mine to smelter program is moving along for tin and
 3   tantalum.  On April 1st there were no clean conflict minerals
 4   coming out of the Congo.  In September there were 550 tons a
 5   month of tin and coal tin, cleanly bagged and tagged, coming out
 6   of Congo and Rwanda.  It is all being brought up by industry and
 7   the smelters are about to start their audits.  
 8               In just six months, Congo and Rwanda together are
 9   already back to producing almost 25% of the volume that was
10   coming out of Central Africa in 2008.  They have 500 clean mines
11   in production, and over 14,000 miners are mining clean minerals,
12   and the clean supply program is moving quickly into other
13   neighboring countries like Burundi and Uganda.  And that is just
14   the progress since April.  In a year or so the DRC and its
15   neighbors could be close to their own level of production, and
16   all of it done transparently and in better conditions.  
17               A clean mine to smelter supply of minerals is no
18   longer just a trial.  It's happening in Central Africa now. 
19   There's huge progress here, and there's a lot more work to be
20   done.  We are very concerned about the impact that breaking the
21   black market has had on the livelihoods of many Congolese,
22   especially in North and South Kebo.  But breaking up a multi
23   billion-dollar black market was going to cause destruction; and
24   where you're seeing that a clean market is replacing it.  
25               Just last week South Kebo had its first mines
0095
 1   approved for bagging and tagging and with a practical and solid
 2   rule in place, we think progress on the ground is going to move
 3   even faster.  We in congress want to thank you for taking your
 4   time to participate in the roundtable, to bridge the differences
 5   on the reporting and audits of the reports.  Everyone wants to
 6   get to the same place: transparency, shareholder knowledge,
 7   consumer choice and real market forces helping the people of the
 8   Congo and Central Africa.
 9               Thank you for taking this time and your good work to
10   think over this problem in depth.  Thank you.
11               (Applause.)
12               MS. CROSS:  All right.  Welcome back everyone.  Our
13   next panel is going to continue our discussion on what would
14   need to be done under the rule, how can minerals be tracked in
15   the supply chain.  In addition we will discuss reporting under
16   the rule.  
17               The staff is joined for this panel by Brian Croteau,
18   who is the deputy chief accountant of the Commission.  Let me
19   introduce the panelists for this panel.  We have Susan Baker,
20   Portfolio Manager and Research Analyst, ESG Research and
21   Shareholder Advocacy at Trillium Asset Management; Benedict
22   Cohen, Chief Counsel, Litigation, the Boeing Company; Darren
23   Fenwick, Senior Manager of Government Affairs, Enough Project;
24   Lawrence Heim, Director, Elm Consulting Group International LLC,
25   and Independent Environmental Health, Safety and Sustainability
0096
 1   Consulting Practice; Tim Mohin, Director of Global Corporate
 2   Responsibility, Advance Micro Devices; Kay Nimmo, Manager,
 3   Sustainability and Regulatory Affairs, ITRI, Ltd., where she is
 4   responsible for ITRI Tin Supply Chain Initiative; Jennifer
 5   Prisco, Legal Counsel, Global Supply Chain, TE Connectivity;
 6   Michael Reese, Director, Materials Management Corporation, a
 7   consulting firm that serves the precious and non-ferrous
 8   minerals industries; and Darrel Schubert, Partner, National
 9   Office, Ernst & Young, LLP.  
10               Now I'd like to give each of the panelists an
11   opportunity to make brief opening remarks or a statement.  Why
12   don't we just start in the order that I just went through
13   starting with Susan Baker?
14               MS. BAKER:  Thank you.  I am pleased to have the
15   opportunity to make a statement on behalf of Trillium Asset
16   Management to this roundtable.  In 1982 Trillium became the
17   first independent money management firm to integrate
18   environmental, social and governance factors and risks into the
19   investment decisionmaking process.  
20               Today we are investment advisors for a broad range
21   of foundations and faith-based institutions, endowments, as well
22   as individual clients with $1 Billion in assets under
23   management.  This discipline of sustainable and responsible
24   investing has grown exponentially over the last decade.  As a
25   member of U.S. SIF, which is the forum for sustainable and
0097
 1   responsible investments, we notice that they published in 2009 a
 2   trends report which noted that SRI, socially responsible
 3   investing assets, topped $3 Trillion or in terms of total USS,
 4   that's one in nine dollars invested in the U.S.
 5               As such, we are a key and growing constituency in
 6   the investment field.  I'd like to thank the Commission for
 7   holding this roundtable and convening a diverse group of
 8   stakeholders.  All of us here sharing the common goal of
 9   preventing the exploitation of conflict minerals for the purpose
10   of financing human rights violations in the Democratic Republic
11   of Congo.
12               As fiduciaries whose long-term view of capital
13   appreciation analyzing and integrating the environmental and
14   social governance data into our investment decisionmaking
15   process is necessary and prudent; however, meaningful reporting
16   is not always available or clear and concise.  As a result,
17   Trillium has worked in collaboration with many organizations to
18   look at and improve supply chains by engaging corporations on
19   risks in their global supply chain.
20               Similarly, we have engaged public policy issues and
21   have submitted comment letters in collaboration with investor
22   groups and multi stakeholder initiatives over the past 14 months
23   pertaining to SEC 1502 and the proposed rules to Section 1502. 
24   Excuse me.  We believe that sourcing of minerals from conflict
25   zones exposes issuers and their shareholders to reputational,
0098
 1   regulatory, litigative and operational risks.  
 2               Therefore, a high level of disclosure, as stated in
 3   the law, will provide better protection for investors from these
 4   risks.  In our view, the SEC has done a satisfactory job
 5   drafting rules which protect investors.  By addressing a
 6   humanitarian crisis through a disclosure approach that seeks
 7   clarity and uniformity, the interest of long-term investors are
 8   better protected.
 9               To that end we support the proposed rules drafted
10   for Section 1502.  These disclosures will allow investors to
11   evaluate supply chain policies and practices and identify
12   leaders who successfully minimize these risks.  We have been
13   encouraged in our dialogs with companies by the innovation with
14   which they expect to achieve disclosure.  And we have been
15   particularly interested in those, including GE and AMD, who have
16   indicated that they are looking at ways to adopt protocols used
17   to monitor their supply chain for compliance with EU's REACH and
18   RoHS regulations to the disclosures provisions for conflict
19   minerals.  
20               Essentially, they're using the same framework and
21   adopting it to the conflict mineral provisions.  Additionally, a
22   common reporting template recently developed by the electronic
23   industry citizenship coalition, EICC, gives companies a cross of
24   broad range of industry sectors the framework for tracking
25   conflict minerals in their supply chain.  So I'd like to make
0099
 1   just a few specific comments here and then elaborate if I can
 2   during the discussion on tracking and reporting.  
 3               Issuers' disclosure under the regulation should be
 4   sufficiently complete to allow investors to clearly understand
 5   the basis on which the issuers have determined the origin of
 6   conflict minerals.  If they state that no conflict minerals
 7   originated in the DRC or adjoining countries, the due diligence
 8   process has to clearly define and demonstrate what led them to
 9   the statement.  We recommend the rules make reference to
10   specific due diligence standards that are aligned with
11   international initiatives, such as OECD guidance.
12               We believe reporting standards should maintain
13   consistency with the statutory language and apply equally to all
14   four conflict minerals.  Knowing that the OECD has started
15   developing a gold supplement, a protocol, this give us reason to
16   believe that special conditions should not be given to any
17   mineral.  To provide special conditions for any mineral weakens
18   the intent of the disclosure rules.
19               And in recognition of the materiality of the data we
20   would prefer that the rules requiring disclosure be filed
21   instead of furnished in the annual report on form 10K, form 20F
22   or 40F of relevant issuers.  We realize there are costs
23   associated with tracking, chain of custody, but we feel the
24   benefits far outweigh the effort.  What is measured often does
25   not count in corporate decisionmaking.
0100
 1               We believe responsible and ethical supply chain
 2   management should be of paramount importance to manufacturers of
 3   products that contain conflict minerals.  And, actually, as
 4   stated aptly by an issuer who was saying that exploitation of
 5   the minerals is reduced in conflict-free systems will in fact be
 6   self-funding.  And to quote: "In terms of an issuer doing
 7   compliance reporting, this just becomes part of our business
 8   cost."  
 9               In closing and on behalf of Trillium I'd like to
10   thank you for this opportunity to address the Commission on this
11   important rulemaking process.  We appreciate that the time and
12   thoroughness that the SEC has taken that fair and meaningful
13   rules are promulgated.  We look forward to prompt issuance of
14   the rules, which will thereby reduce uncertainty in the
15   marketplace and better equip companies to engage their supply
16   chains.  Thank you.
17               MR. COHEN:  Thank you very much for holding this
18   roundtable and offering me the opportunity to speak on behalf of
19   the Boeing Company, the World's largest aerospace company and
20   one of the United States' largest exporters.  Any discussion of
21   the proposed rule must start with the recognition that the
22   ongoing humanitarian catastrophe in the Democratic Republic of
23   the Congo is intolerable, and that governments, international
24   organizations, the business community and NGOs have the
25   responsibility to work collaboratively to end it.
0101
 1               Boeing has been a leader in seeking solutions to
 2   this crisis.  We publicly endorse congressional action to
 3   address human rights violations and atrocities in the DRC.  We
 4   were the first, though by no means the last, major aerospace
 5   company to join the OECD's pilot program on implementation of
 6   their due diligence guidance, which as you know entails a
 7   binding commitment to comply with the guidance.
 8               Collectively, the aerospace industry has achieved a
 9   level of participation in the OECD pilot program second to none.
10    Boeing also led the establishment of the aerospace industries
11   association's subcommittee on conflict minerals, a working group
12   dedicated to establishing best practices in implementing both
13   the SEC's final rule and the OECD guidelines.  Boeing
14   participates regularly in the EICC-GeSI workshops both here and
15   overseas.
16               We have established a wide-ranging, internal working
17   group, spanning all affected stakeholders in the company to
18   address our internal implementation challenges, and we will
19   carefully consider participation in other industry or
20   public-private initiatives to address this issue.  We are fully
21   committed to complying with both the SEC rule and the OECD
22   guidelines, and to doing our part to address the horrific human
23   rights violations that gave rise to Section 1502 of the Act.
24               For the past 10 months our supply chain management
25   professionals have carefully assessed the SEC's proposing
0102
 1   release in the challenges we and other downstream manufacturers
 2   of complex end products will face in implementing the final
 3   rule.  In so doing, we have also consulted extensively with our
 4   peers in the aerospace industry and the broader manufacturing
 5   community.  Five broad conclusions arise from this assessment.
 6               First, the rules should incorporate a multi-year
 7   phase-in period.  This is a difficult request to make, given the
 8   hundreds or even thousands of severe human rights violations
 9   that occur daily in the region.  But industry believes that
10   objective constraints exist, which neither the Commission, nor
11   the OECD nor registrants, either individually or collectively
12   can waive.  These constraints virtually dictate such a phase-in
13   period.
14               First, the several elements of the compliance
15   infrastructure, which congress and the OECD clearly contemplated
16   are not yet mature, though they are maturing.  The OECD
17   guidelines were only finalized in May of this year; and the
18   year-long OECD pilot program, dedicated to establishing the
19   parameters of OECD compliance, got underway just last month. 
20   The supplement to the guidelines on gold has yet to be replaced.
21               The State Department Conflict Minerals Map called
22   for by Section 1502, when released this summer, was so heavily
23   caveated as to be of very limited use for due diligence
24   purposes.  Likewise, various initiatives covering the mine to
25   smelter segment of the supply chain, the certified smelter
0103
 1   program and the smelter to end product manufacture segment of
 2   the supply chain are in various stages of maturity, but none are
 3   currently mature.
 4               Conversely, the internal compliance architecture for
 5   registrants and the vast universe of non-registrant suppliers
 6   who will nevertheless be required by end product manufacturers
 7   to comply is still maturing.  Large, sophisticated manufacturers
 8   like Boeing, with its 10s of thousands of direct and indirect
 9   suppliers, will face significant challenges due to the depth,
10   scope and fluidity of our supply chains and the staggering
11   complexity of our products.
12               For example, we lack the ability to unilaterally
13   impose new contract terms and flow down requirements on our
14   suppliers and can only include such terms as we let new
15   contracts or renew existing ones.  Since normally contracts run
16   for three to five years, we will not be able to ensure that all
17   our supplier contracts contain appropriate flow down clauses for
18   a number of years.
19               Likewise, smaller, less sophisticated and capable
20   participants at all points in the supply chain will face
21   converse challenges in attempting to familiarize themselves with
22   and resource the new requirements.  Yet, if the Commission
23   promulgates its final rule this year without a phase-in period,
24   companies like Boeing will be reporting on our activities in
25   fiscal year 2012 in the absence of critical compliance guidance,
0104
 1   the equivalent of trying to simultaneously assemble and fly an
 2   airplane.  Such an effort will impose large costs, an unfair
 3   stigma on registrants, without benefit to Congolese victims. 
 4   Industry is prepared to undertake measurable steps during any
 5   phase-in period, which will not only begin to yield significant
 6   benefits to the Congo during the phase-in period, but will
 7   ensure that when the rule is fully effected we will be task
 8   organized to carry it out.  
 9               Second, it will be critical for the Commission's
10   final rule to retain the reasonable country of origin threshold
11   determination.  Such a standard fully comports with the language
12   and structure of Section 1502 and the intent of its drafters,
13   who understood that perfect certainty with respect to the origin
14   of all conflict minerals in our modern supply chain is
15   unattainable at virtually any price.  Rather, it reflects the
16   understanding that registrants can indeed comply with the letter
17   and spirit of the Act by making a reasonable, risk-based, good
18   faith determination based on the totality of their
19   circumstances.  
20               Such a determination could rest on such factors as
21   the existence of flow down clauses in the company's supplier
22   contracts, company policies, and the use of consensus best
23   practices and participation in an industry-wide, public, private
24   or international initiatives.  Such approaches are routinely
25   used to achieve other vital government and social objectives,
0105
 1   including protection of customer safety and health, quality
 2   assurance, environmental protection, and protection of national
 3   security in classified technology.  In the context of conflict
 4   minerals the collective effect of industry-wide deployment of
 5   these and other compliance techniques, in combination with
 6   ongoing governance initiatives in the DRC and adjoining
 7   countries will yield genuine benefit to the victims of violence.
 8                Third, the Commission's final rule should include
 9   for some period of time an intermediate category of
10   indeterminate country of origin.  The Commission clearly has the
11   legal authority to adopt such a category under the Supreme Court
12   "Chevron" decision.  Because in Section 1502, congress addressed
13   only one category of registrant: those who knew that their
14   products contained conflict minerals which originated in DRC or
15   adjoining countries, who are required to file a conflict
16   minerals report as specified in the Act.
17               Congress did not direct the treatment of
18   registrants, who are genuinely unable to state with sufficient,
19   reasonable certainty to make a reasonable country of origin
20   finding.  Under Chevron, such silence provides the Commission
21   with the delegated authority to adopt a reasonable rule that
22   serves the overarching purposes of the Act.  Clearly, a
23   regulation that for an indefinite period of time rewarded
24   companies for not knowing the supply chain nor making any effort
25   to do so would be patently unreasonable and an abuse of the
0106
 1   Commission's discretion.
 2               However, it would be a reasonable exercise of the
 3   Commission's discretion to provide a time-limited, indeterminate
 4   origin category subject to mandated steps that a registrant
 5   would have to follow to attain the ability, either to make a
 6   reasonable country of origin determination, or to ascertain that
 7   its products did contain DRC-derived conflict minerals, thereby
 8   subjecting it to the conflict minerals reporting requirement. 
 9   Such a rule would serve the humanitarian policy purposes,
10   animating Section 1502 by promoting an aggressively greater
11   understanding of registrant supply chains.  Significantly, this
12   approach was endorsed by the OECD in its own submission to the
13   SEC.
14               Fourth, the Commission should ensure that its
15   compliance regime is consistent with the OECD guidelines. 
16   Nothing in the guidelines is inconsistent with any requirement
17   of Section 1502.  The State Department, presumably in the
18   exercise of its responsibility under Section 1502 to provide
19   guidance to commercial entities seeking to exercise due
20   diligence, has endorsed the guidelines in their totality, as
21   have the affected governments in the region and dozens of other
22   countries.  Although important aspects of their implementation
23   are a work in progress, they clearly now represent and will
24   continue to represent consensus best practices agreed by the
25   stakeholders.
0107
 1               Fifth, the final rule must reflect the reality that
 2   no manufacturer of complex end products can as a practical
 3   matter map the conflict minerals embedded in the thousands of
 4   suppliers in its supply chain to the mine, or achieve a chain of
 5   custody such that it could positively know the origin of the
 6   conflict minerals in each of the millions of piece parts in its
 7   end products.  In part, this simply reflects the decades old
 8   trend towards enhancing the flexibility and resilience of the
 9   supply chain, a trend whose importance was illustrated by
10   industry's response to the Fukushima nuclear disaster.
11               Our supply chains must be able to shift at a
12   moment's notice to address small scale disruptions, like a fire
13   at a critical supplier's facility, as well as large scale
14   disruptions like Fukushima; and, of course, to reflect changes
15   in price or quality of inputs.  As a result, any supply chain
16   map of conflict minerals would be out of date as soon as it was
17   released.  In addition, the unfeasibility of such mapping also
18   reflects the length of the supply chain from a mine to the
19   manufacture of our highly complex end products, such as an
20   airliner or fighter jet, as well as the staggering number of
21   piece parts involved in such products.
22               To give only a few examples, Boeings defense
23   business, which represents only one-half of the company's total
24   business, acquired well over 190 million piece parts from almost
25   8,000 direct suppliers last year.  Our commercial aircraft
0108
 1   business had almost 2,000 direct suppliers.  Each of our major
 2   first-tier direct suppliers may have hundreds or thousands of
 3   direct suppliers itself, and many of those indirect suppliers
 4   will have a comparable number of suppliers resulting in an
 5   indirect and direct supply chain numbering in the 10s of
 6   thousands.  
 7               Our defense business performed over 600,000 purchase
 8   order transactions last year and competed over a quarter of
 9   those, meaning that we likely had a new supplier and/or new sub
10   tiers resulting from those competitions.  Each of our 747
11   aircraft incorporate some six million parts.  Our new 787
12   Dreamliner contains some 3.5 million parts.  Each FA18 figher
13   jet we make contains over 98,000 part numbers, and a much larger
14   number of piece parts.  
15               There is little commonality between the parts used
16   on our defense or commercial products; e.g., there is little
17   commonality in the parts procured for 747s and 737s, and even
18   less commonality in the parts procured for 747s, and for example
19   FA18s.  Any unreasonable requirements involving so large a
20   number of suppliers and parts could cost the aerospace industry
21   hundreds of millions, if not billions of dollars.  
22               And it is important to note that these costs will
23   have to be expended by some actor or actors in the supply chain.
24    It is possible that much of this expenditure and effort would
25   be undertaken by our major subcontractors, those who, for
0109
 1   example, supply us with engines or landing gear.  But those
 2   expenses would be passed on to us and ultimately our customers
 3   in the case of the FA18 and the Department of Defense.  
 4               Importantly, the OECD guidelines explicitly
 5   recognize both the complexity of modern supply chains and the
 6   limited leverage end product manufacturers have on remote tiers
 7   of the supply chain.  The supplement on tin, tantalum, tungsten
 8   specifically cites to the fact.  "The fact that internal control
 9   mechanisms, based on tracing minerals in a company's possession,
10   are generally unfeasible after smelting with refined metals,
11   entering the consumer market as small parts of various
12   components and end products.  By virtue of these practical
13   difficulties, downstream companies should establish internal
14   controls over their immediate suppliers and may coordinate
15   efforts through industry-wide initiatives to build leverage over
16   sub suppliers, overcome practical challenges, and effectively
17   discharge the due diligence recommendations contained in this
18   guidance."  
19               In closing I'd like to acknowledge the leadership
20   Sen. Durbin and Cong. McDermott, the representatives of our
21   headquarters stake and the headquarters of our commercial
22   aviation, have shown on a critical, humanitarian crisis, and to
23   again thank the Commission for its invitation to participate in
24   this roundtable.
25               MR. FENWICK:  Thank you.  I would also like to take
0110
 1   this opportunity to add my voice to the voices of thanks to the
 2   SEC for holding this roundtable.  There are a couple of points
 3   that I want to address and then into my remarks, which I will
 4   keep at the minimum timeframe requested.  
 5               I think there's an impression that's been created
 6   from the last panel that there's no standard for gold.  And so I
 7   do want to point out, and I want the Commission to know that the
 8   EICC process has already begun to audit 21 gold refiners.  And
 9   so we're not saying that there needs to be one worldwide gold
10   standard, which I also think has sort of been at odds with the
11   flexibility that companies are requesting.
12               So, additionally, I would say that in terms of
13   manufacture, we do believe that if a company puts their name on
14   a product, then they are a manufacturer.  And if a DVD blows up
15   in your house, then the person is going to be looking to the
16   name of the manufacturer for a law suit, potentially.  And
17   mining as well, I would also like to add that we believe and as
18   we have put in our comments that mining is manufacturing.  
19               We previously addressed the issue, but we do believe
20   that mining is more than just taking things out of the ground. 
21   And just a couple of other things, just to say that congress in
22   enacting Dodd-Frank 1502 made certain findings and determined
23   that issuers should disclose certain information.  And so this
24   information is supposed to provide transparency on the use of
25   conflict minerals that it financed and continue to finance a
0111
 1   decade long conflict in the region.
 2               So with that in mind, we believe that to effectuate
 3   Section 1502, the SEC must promulgate strong rules in addition
 4   to what we've submitted in our comments on several points; and
 5   one point being, for example, recycled and scrap material.  We
 6   strongly agree with the Commission's approach as defined in the
 7   proposed rule to recycle materials.  We believe that such an
 8   approach is consistent with industry efforts on this issue,
 9   including the conflict-free smelter program, reasonable standard
10   of care.
11               An issuer has due diligence and reasonable country
12   of origin inquiry should be conducted, we believe under
13   reasonable care standard that requires more than just a passive
14   acceptance by the filer of the information provided by the
15   suppliers.  On the cost issue -- and some commentators have
16   commented on this -- we do believe that some industry
17   associations' estimates of cost of compliance are a bit
18   inflated.  
19               We believe some of these estimates don't accurately
20   reflect what the requirements of 1502 are and what 1502 requires
21   is very limited and focused.  And so, for example, we've had
22   some industry associations that have argued that it's going to
23   cost several hundred thousand dollars, and using Apple as an
24   example -- that they're an electronics giant who has identified
25   142 smelters that provide them with tin, tungsten, tantalum and
0112
 1   gold in their products.  Now, if we think of contractual
 2   obligations, for example, there was one proposal that it would
 3   cost $50 per hour on several hours.  
 4               So, for example, with taking that into account and
 5   looking at the 142 suppliers of Apple, that comes out to about
 6   $14,200.  So these are just some key points that we do believe
 7   that we think the Commission to take into account in developing
 8   its rule, and I look forward to kind of expounding in more
 9   detail on what I've just outlined, because I understand it's a
10   bit rushed.  But I do in particular want to take the opportunity
11   to thank John Fieldsend, Felicia Kung and Paula Dubberly for all
12   of the work that you all have done throughout this process.  I
13   know it's long and I know it's arduous, and there are a lot of
14   people with a lot of opinions.  So thank you.
15               MR. HEIM:  As with everyone else on the panel I also
16   would like to thank the Commission for having me appear and make
17   a few comments.  With my background as fairly much a
18   technical-environmental guy, I'm a little out of my element here
19   in this policy setting.  So kind of bear with me as I bumble and
20   stumble through my discussion.  But with my background I'm here
21   to talk a little bit about the technical-environmental health
22   and safety auditing perspective, and what practitioners in this
23   part of the audit program, what's our experience and what are
24   our thoughts.  
25               I've gone through a bit of this myself as a bit of
0113
 1   disclosure.  My firm was one of the original CFS audit firms. 
 2   We withdrew from that relationship at the end of December, but
 3   we certainly do have experience and understanding in the CFS
 4   program.  But through the process, what we've done is we've had
 5   numerous conversations with customers, with clients, and with
 6   other companies who have contacted us with questions.  And so
 7   we've got a number of projects that are ongoing.
 8               The comments that I'm going to bring forward kind of
 9   reflect a number of those discussions that we've had through the
10   process over the past 18 months or so.  Perhaps the most
11   important thing that I'd kind of like to emphasize is we've had
12   discussions in the previous panel, and there's going to be more
13   discussions in this panel on the idea of audits being such a key
14   element of credibility in this program.  
15               There's a couple of audit schemes that are out there
16   that I think everybody here is probably very well aware of.  You
17   have OECD and their due diligence guide, and it references some
18   audit, an auditor competence guidelines.  If there's nothing
19   else that I impress upon the commissioners and the staff today,
20   I'd like for you all to recognize one element of this.  Those
21   standards as they exist currently establish the lowest common
22   denominator globally for auditor qualifications in the
23   environmental health and safety arena.  And yet the global
24   supply chain of three T and G are resting on the shoulders of
25   that lowest level of auditor competence.
0114
 1               So, if there's nothing else you take away from this
 2   comment, I'd like for you all to think about that.  You know. 
 3   There's no question that the emotional nature of the issue is
 4   driving zero tolerance.  Nobody wants to have any association
 5   with the atrocities.  Every company, every client, every person
 6   I speak to, and certainly as personally we have absolutely
 7   nothing but a desire to get as far away from this as possible.  
 8               But, at the same time that zero tolerance is driving
 9   things toward, driving processes toward unreasonable standards. 
10   And what I mean by that is I've had instances where there've
11   been questions about at an atomic level trying to convince folks
12   -- certain people after an audit -- that the atoms, individual
13   atoms in a particular product were conflict free.  
14               That's not reasonable.  At the same time, this as an
15   audit is the critical linchpin in this process of credibility,
16   the audit pushing towards this level of absolute certainty is
17   therefore driving companies to try to develop management systems
18   to manage to the atomic level, and that's not reasonable.  It's
19   not achievable.  So, again, as the audits are such a linchpin of
20   this process, it's important to understand reasonable assurance
21   versus absolute certainty.
22               And how the desire to pass an audit and what that
23   means in the overall business context, relative to customer
24   demands -- contractual requirements, et cetera -- it's important
25   to understand how that level of audit specificity is driving
0115
 1   management systems developments, costs and expectations, at a
 2   very unreasonable level within company structures.  And, with
 3   that, I will conclude my comments.  
 4               MR. MOHIN:  Good afternoon.  I'd like to thank the
 5   Commission and especially the staff for inviting me to speak on
 6   behalf of AMD on this very important rulemaking.  
 7               AMD is a semiconductor design innovator.  Our
 8   primary products are microprocessors, motherboard chipsets,
 9   imbedded processors, graphics processors that are used in
10   notebook computers, desktops, tablets, servers, work stations
11   and embedded applications.  We also license graphic technology
12   to the Microsoft XBox and Nintendo Wii game consoles.  
13               Along with my colleague from Enough on my left, Andy
14   has co-chaired the multi stakeholder group of companies,
15   socially responsible investors and NGOs with the goal of finding
16   common ground for this rule.  And we have provided consensus
17   recommendations to the SEC on three, separate occasions, with
18   about 25 organizations from across that spectrum endorsing each
19   submittal.  
20               AMD is also an active member of the Electronics
21   Industry Citizenship Coalition, or EICC that we've heard a lot
22   about today, which has developed a conflict-free smelter program
23   and other infrastructure that's going to be essential as we
24   implement this rule.  We also actively participate in the
25   Information Technology Industry Council, which has also
0116
 1   submitted comments to this rule.
 2               So I want to keep my opening remarks very brief. 
 3   I'd like to make three main points.  First, for years the DRC
 4   has been plagued by conflict and human rights abuses.  The
 5   intent behind this legislation and the SEC-proposed rule is
 6   laudable to break that linkage between these abuses and the
 7   minerals trade.  AMD has a long history of corporate
 8   responsibility, and thus we've worked hard with other
 9   stakeholders to find that common ground with the goal of finding
10   and formulating an effective policy for this rule.
11               Second, and of particular importance to AMD and
12   other companies is that this rule is efficient.  For example,
13   since just about all products are complex aggregations of many
14   different components, the only way to comply with this rule is
15   to survey all of the suppliers for each of those components that
16   contain one of the four minerals.  This proposed rule would tie
17   the reporting requirements to a company's fiscal year; and,
18   since reporting companies may have different fiscal years, their
19   suppliers would have to collect all the information at different
20   times of year to support their customers' compliance.  
21               This is in addition to the suppliers own reporting
22   to the SEC.  What this means is that the impact of this rule
23   will ripple down the supply chain every quarter, exponentially
24   multiplying the cost, but adding very little in terms of due
25   diligence.  It would be far more efficient if the SEC were to
0117
 1   synchronize the reporting requirements so that the supply chain
 2   could respond only once per year.  
 3               Third, this rule, while an important part of the
 4   solution, is not sufficient to resolve the human rights abuses
 5   in the DRC.  The problems in the DRC region are complex and
 6   deeply ingrained, and while tracking materials through the
 7   supply chain is one element, a sustainable solution requires a
 8   coordinated approach.  This is why the AMD supports the State
 9   Department's recently announced public-private alliance, focused
10   on conflict free sourcing in the DRC region.  
11               And, particularly, we'd like to recognize the
12   leadership of Under Secretaries of State Hormats and Otero for
13   their work to bring regional and global stakeholders together
14   for this purpose.  AMD will also continue to support
15   collaborative industry efforts, such as the EICC and GeSI
16   conflict free smelter program and supply chain due diligence
17   efforts.  No single company, government agency, or NGO can
18   achieve this outcome by working on their own.  But by working
19   together we can help the DRC region develop a sustainable
20   conflict free minerals trade.
21               I'd like to close by again thanking the
22   commissioners and the staff.  The goal of this legislation is to
23   alleviate some of the worst human suffering in the world.  It's
24   imperative that we all work together towards this goal.  Thank
25   you.
0118
 1               MS. NIMMO:  Good afternoon.  I'm here to provide
 2   input from the global tin industry perspective, provide some
 3   information on concerns from the upstream industry, and
 4   particularly our experience of implementing due diligence in
 5   Africa through the ITSCI supply chain project.  So I want to
 6   raise just three particular points about stocks, recycling, and
 7   generally the impacts in Africa.
 8               Firstly, then, we believe an exemption is essential
 9   for both existing unsmelted minerals and refined metal stocks
10   currently held by industry by investors, and also, for example,
11   even in the U.S. Government stockpile.  Current tin stocks could
12   be valued to around $7 Billion at the moment.  Currently, they
13   would be generally with a non-specific mine origin and
14   potentially conflicted and unsaleable.  In order to prevent a
15   market disruption and financial losses on this material, we are
16   asked that disclosure rules only apply to mineral mined and
17   ingot produced at a certain future date after release of the
18   rules.  
19               Secondly, we believe that recycling should be
20   encouraged and not penalized.  Requiring auditing and conflict
21   mineral reporting for secondary material is a disincentive to
22   the reuse of resources that goes against almost every other
23   regulatory policy.  About 35% of tin is recycled each year from
24   a huge range of sources by a complex, international network of
25   traders, consolidators, and treatment plants.  It's not feasible
0119
 1   to track back to the original metal used, let alone the original
 2   mine, and we consider reasonable inquiry to be sufficient.  So
 3   admission of a conflict minerals report shouldn't be required in
 4   the same way that it's not required for non DRC-mined material.
 5               And, thirdly, I want to talk about Africa.  The
 6   ITSCI project helps to implement OECD due diligence by providing
 7   traceability, risk assessment, and audit.  The artisanal miners
 8   and the upstream industry have contributed around $4 Million so
 9   far to make this work possible.  We've worked with hundreds of
10   government agents to make the project the success it's had so
11   far, now covering around 98% of Rwandan minerals and more than
12   1,000 individual mine pits in Katanga where you've already seen
13   improved governments, increasing revenues and retained
14   livelihoods.  
15               I see the representatives of the government of the
16   DRC are also here today, and we can recognize their support in
17   this project.  Conversely, the impact of the embargo in areas
18   which Dodd-Frank aimed to help and where ITSCI is not operating
19   are severe.  You've heard the description of Goba by Sen.
20   Durbin; and, certainly things have not improved from that
21   description.  
22               As a result of the embargo, we have hundreds of
23   thousands of paid miners out of work or displaced, moving from
24   tin to gold mines, 80% unemployed, loss of tax revenue,
25   increasing theft, smuggling, delay in several mining investment
0120
 1   projects that were previously planned, less access to schooling
 2   and healthcare, and we could go on.  Unfortunately, a major
 3   roadblock to reversing that situation is the growing popularity
 4   of consumers buying Congo-free material and conflict mineral
 5   reporting-free material.  
 6               It is essential that SEC finds ways to create
 7   incentives to continuing buyer engagement.  It must also
 8   carefully match the start if reporting with feasible time
 9   schedules for developing due diligence structures.  A new
10   phase-in of at least two or three years for reporting will allow
11   the ITSCI project to continue and expand.  SEC must also confirm
12   the reliability of the OECD due diligence guidance, and converge
13   and clarify the understandings of armed groups, conflict-free
14   definitions, and such like.  
15               In particular, we need to ensure that the DRC
16   conflict free label can only be used on minerals that are
17   actually purchased from the DRC; not from elsewhere.  So
18   Dodd-Frank aims to control a tiny fraction, maybe three percent
19   of the global tin supply.  To be effective, the final rules must
20   be properly focused to avoid the general embargo while promoting
21   buyer engagement in the DRC, and accounting for the general,
22   upstream issues, such as stocks and recycling.
23               We hope the final rules will make the most of the
24   opportunity that Dodd-Frank provides to make a difference,
25   support development, and not just drive companies out of Africa.
0121
 1               MS. PRISCO:  Good afternoon.  My name is Jennifer
 2   Prisco, and I am legal counsel for the global supply chain at TE
 3   Connectivity, a $12.1 Billion global electronics manufacturer
 4   with about 100,000 employees around the world, manufacturing
 5   approximately 500,000 different electronic products, many of
 6   which contain scant amounts of conflict minerals.  These
 7   products, which principally are in form connectors, cables and
 8   switches, are also in most every electronic product that's
 9   manufactured today.  
10               On behalf of TE I want to thank the SEC for holding
11   this roundtable discussion.  TE Connectivity takes very
12   seriously its corporate responsibility to protect human rights
13   and not contribute to conflict.  As such, we commit to adopt,
14   widely disseminate and incorporate in our supply agreements our
15   policy on responsible sourcing of minerals from conflict
16   affected in high risk areas, and to commit to refraining from
17   any action which knowingly contributes to the financing of
18   conflict minerals.  
19               We support an approach to the enforcement of Section
20   1502, which enables companies to conduct meaningful due
21   diligence and provide reliable, simply stated reports on whether
22   or not their products are conflict free.  As such, conflict free
23   should be by definition products switched to the extent
24   discernable by reasonable interpretation of commercially
25   practicable due diligence do not appear to have originated from
0122
 1   conflict mines.  
 2               By taking care to define this term for purposes of
 3   the SEC rule, companies like TE shall be able to state with
 4   comfort and affirmity that their products are conflict free,
 5   based on the availability of information to them.  This is a
 6   winning approach for all stakeholders.  For the Congolese and
 7   concerned consumers it moves us toward the transparency required
 8   to highlight bad actors and effectively combat human rights
 9   abuses in the Congo.  
10               For companies, it provides the means to execute
11   effective and reasonable due diligence without incurring
12   excessive costs that impact our competitiveness in global
13   markets.  Finally, a rule based on these principles is aligned
14   with the SEC's stated mission to protect investors, maintain
15   fair, orderly and efficient markets and facilitate capital
16   formation, due to its economically reasonable, responsible, yet
17   socially meaningful impact.
18               We hope that today's roundtable moves us in this
19   direction and again we appreciate the opportunity to
20   participate.  I look forward to our discussion.  Thank you.
21               MR. RIESS:  My name is Mike Riess, and my company is
22   Materials Management.  We've been consultants in all aspects of
23   the precious metals industry for over 30 years, and I'd like to
24   talk briefly about collecting information in the gold industry. 
25   I think it addresses the question of reasonable due diligence.  
0123
 1               The gold business is some 3,000 years old; and,
 2   through all that time, it's been split into the visible business
 3   and the other one.  That's the one that believes that gold is
 4   for bribing the border guard.  In the visible part, you have
 5   bullion banks, traders, refiners, processors, and you have an
 6   array of consumers, such as jewelers, electronics industry,
 7   automobile manufacturers, pharmaceutical and chemical companies,
 8   and they all have specialized quality requirements.  
 9               The visible part of the business is governed by the
10   "Bank Secrecy Act's" anti money laundering, customer due
11   diligence standards.  So the regulatory framework and the
12   management systems that are required are already in place to
13   handle the conflict minerals regulations.  Their business is
14   leveraged and it relies on a range of financial institutions,
15   banks, futures brokers, traders, insurance companies, so it has
16   to keep good records.  And the business is intensely competitive
17   and the profit margins are very small.  These companies have no
18   choice but to be very much customer oriented.
19               Other than the bullion banks, there are only a few
20   precious metal companies that report to the SEC, but they'll
21   bend over backwards to accommodate their customers, many of who
22   do come under SEC regulation.  They can be counted on to gather
23   the information and to produce the records that their customers
24   need to comply with the law.  The less visible gray market is a
25   different world.  It operates informally and it flies under the
0124
 1   regulatory and the tax radar.
 2               Recordkeeping is minimal.  There is no customer
 3   loyalty and if they buyer asks too much, there are hundreds of
 4   other outlets.  The gray market, unlike the visible market, will
 5   not be a reliable source of information.  The rub is that the
 6   gray market is an important raw material source for the
 7   legitimate market.  And at the points that they meet, the volume
 8   of metal exchange is large and the transfers are complicated.  
 9               Ultimately, I venture to say that all the gold used
10   by the companies under SEC regulation passes through legitimate
11   refiners, and to a lesser extent through secondary processors,
12   also legitimate.  They're the ones that are best situated to
13   document and to track supplies back to their origins.  The
14   refiners and the legitimate part of the gold business are
15   working actively with the OECD and the EICC.  Industry groups
16   such as London Bullion Market Association, Responsible Jewelers
17   Council, World Gold Council, all have issued due diligence
18   indications and guidelines, and they all endorse third party
19   audits.
20               Unlike the other conflict minerals, gold is a
21   monetary commodity.  Its market is unique and it's complex, and
22   it's very mature.  If the regulations are going to be realistic,
23   I do hope the Commission adopts these industry initiatives in
24   guiding the trade.  Thank you.
25               MR. SCHUBERT:  Good afternoon and thank you for the
0125
 1   opportunity to provide five perspectives on the examination of
 2   non-financial information and the independent private sector
 3   audit that must accompany a conflict minerals report.
 4               My name is Darrel Schubert and I am a partner at
 5   Ernst & Young's national professional practice group.  I also
 6   currently serve as the chair of the auditing standards board o
 7   the American Institute of Certified Public Accountants.  I want
 8   to take this opportunity to than the Commission and staff for
 9   hosting this roundtable to gain additional perspective.
10               So, appreciating the challenges the Commission must
11   resolve before issuing a final rule as mandated by Dodd-Frank,
12   in my opening remarks, I would like to briefly discuss the
13   examination of non-financial information and how that process is
14   similar to but also different from the audit of traditional,
15   financial statements.  In March of 1986 the ASB issued a series
16   of attestation standards addressing the examination of
17   non-financial information.  
18               We've used the standards to examine and report on a
19   wide range of non-traditional subject matters from investment
20   returns reported by mutual fund advisors to security and privacy
21   controls asserted by service providers to compliance with laws
22   and regulations.  These attestation standards that serve the
23   public and the professional well and were adopted by the PCOB as
24   interim standards in April 2003 are attestation standards also
25   used by the GAO in performing attestation engagements under the
0126
 1   government auditing standards.  
 2               While the term "examination" is used in describing
 3   an attestation engagement, be assured that the process is the
 4   same as a financial statement audit.  Just as the audit of
 5   financial statements includes a robust risk assessment process,
 6   including an understanding of internal control and then the
 7   development of an audit strategy to obtain reasonable assurance
 8   that the financial statements are in accordance with GAAP, so do
 9   the attestation standards for non-financial information require
10   the same robust process.
11               Similarly, an examination performed under the
12   attestation standards requires the auditor to obtain a
13   reasonable assurance basis for the opinion expressed.  Another
14   similarity between an audit and an examination conducted in
15   accordance with our attestation standards is that the auditor
16   must be independent of the subject matter and the issuer. 
17   Therefore, management is required to take full responsibility
18   for the subject matter, whatever that may be, in the
19   presentation of that subject matter.  
20               An independent audit cannot be integral to
21   management's process in reaching its assertions.  Our
22   responsibility is to report on whether the subject matter is
23   fairly presented, based on suitable criteria.  Where an
24   attestation examination and an audit differ, isn't in the
25   process or in the responsibilities or in the level of assurance
0127
 1   obtained by the auditor, but rather the subject matter and the
 2   criteria used to assess its presentation.  In an audit of
 3   historical financial statements the entity's financial
 4   statements represent the subject matter, and the criteria are
 5   generally accepted accounting principles, or GAAP.  In an
 6   attestation examination the subject matter and the criteria
 7   vary; however, having the subject matter and criteria clearly
 8   defined is a must.
 9               As we discussed in our comment letter dated March
10   1st, the AICP has concerns that the SEC's proposed rule on
11   conflict minerals was not clear about the subject matter or
12   objective of the examination; nor was it clear about what
13   criteria management would use in preparing and presenting a
14   subject matter.  As to the conflict minerals report, the subject
15   matter might be management's description of their procedures and
16   controls in performing their due diligence process with the
17   auditor expressing an opinion that the procedures described were
18   performed without providing any opinion on whether the
19   effectiveness of such procedures or their compliance with any
20   published standards.  
21               At the other end of the spectrum, the subject matter
22   may be whether management's conclusions about the source and
23   chain of custody of the conflict minerals are appropriate, that
24   is whether the company's products are DRC conflict free or are
25   not conflict free.  These are just two examples of the several
0128
 1   alternative objectives that were identified in our response to
 2   the rule proposal.  As we mentioned, each of these objectives or
 3   subject matters would present different challenges, and because
 4   each would require different examination procedures, some would
 5   be more costly than others.  Therefore, having the subject
 6   matter or the objective of the examination clearly defined in
 7   the final rule is essential before we can say how we would
 8   perform the examination and how much the examination would cost.
 9               Also critical to the examination are suitable
10   criteria against which to assess the prior presentation of the
11   subject matter.  Suitable criteria must have each of the
12   following attributes: Objectivity, measurability, completeness
13   and relevance.  Without clear, suitable criteria, management
14   will not know the rules for how to prepare or present the
15   subject matter.  And without clear, suitable criteria, the
16   auditor will not be able to examiner and report on whether the
17   subject matter is fairly stated.
18               Finally, I want to briefly touch on use of experts
19   in these types of engagement, because some of these engagements
20   do involve non-traditional subject matters.  The CPA
21   professional has a public duty not to accept an engagement, if
22   the CPA doesn't think he or she has the appropriate skills or
23   competencies.  
24               Generally, when we're asked to examine a report on a
25   subject matter that is outside our normal skills and competency,
0129
 1   for example, examining and reporting on greenhouse gas
 2   admissions, the attestation standards direct the auditor to
 3   engage and make the use of specialists who would be able to
 4   assist and advice the auditor on the appropriate procedures to
 5   perform.  However, we recognize there may be instances where the
 6   subject matter and criteria are so far outside the CPA skill set
 7   that we have a duty not to accept the engagement.  
 8               I cannot tell you whether we're at that point with
 9   conflict minerals, because I stated the subject matter and
10   criteria weren't clear from the SEC's proposed rule.  In
11   summary, I feel confident that our attestation standards provide
12   excellent standards for use by CPAs when asked to examine or
13   audit non-traditional information, such as conflict minerals.
14               However, I cannot over emphasize the importance of
15   having the subject matter and criteria clearly defined by the
16   SEC in its final rule.  Unless the objective and subject matter
17   is clearly articulated, and unless management and the auditor
18   are confident that there are suitable criteria to measure
19   present, and examine subject matter against, it will not be
20   possible for a CPA to conduct the engagement.
21               In conclusion, I want to thank Commissioner
22   Schapiro, the other commissioners, and the SEC staff for the
23   opportunity to appear before you this afternoon, and I'd be
24   happy to answer any questions you may have about the auditor
25   examination process or her comment letter.  
0130
 1               MS. CROSS:  Thank you very much for the very helpful
 2   opening remarks.  Before we get started with our questions, I
 3   wanted to see if anyone had comments they wanted to make based
 4   on what was discussed in the prior panel, for example, on the
 5   definitions or any of the other topics from the prior panel.  
 6               This panel we're going to be talking about the due
 7   diligence process and the reporting process.  So if there are
 8   things you wanted to say about necessary functionality or
 9   contract to manufacture, this is your chance.  Yeah.  Go ahead.
10               MR. FENWICK:  Thank you.  I think I just wanted to
11   say in Enough's submission we have outlined -- and I won't
12   rehash for you -- what we believe the definition of "necessary
13   to the functionality of" should look like, definition of
14   "necessary" in particular.  And, as well, the multi stakeholder
15   group companies, investors and NGOs, have come up with four
16   different bullet points of what we also believe that that would
17   include.  
18               And I think I would also mention for some of the --
19   and stop me if part of what I'm about to say is about to be
20   covered here, but in terms of a reasonable country of origin
21   inquiry, as was mentioned in the last panel, I think there are a
22   number of ways to do this.  And I think from our perspective, as
23   most commentators, a lot of commentators have acknowledged, that
24   the choke point in the supply chain is the smelter.  And so the
25   idea -- smelter refiner -- and the idea is to have a process, as
0131
 1   we have said in our multi stakeholder submission, to have a
 2   process by which the filer can determine the origin of the ores
 3   at the smelter level.
 4               Now we understand that, of course, reporting is
 5   going to be uneven in the first years.  We acknowledged that
 6   point.  But what we're going to be looking for in particular
 7   with respect to reasonable country of origin inquiry is what
 8   steps are you taking to determine where the minerals in your
 9   products originate.  And so I just wanted to kind of reiterate
10   that point and try to make it -- I think it's an important point
11   that needs to be made, because it's an important component of
12   this process.  
13               MR. COHEN:  Thanks.  I just wanted to reiterate our
14   company's view, our industry's view, that the remedial purposes
15   of the Act can be served very fully and completely served by
16   something less than perfect knowledge and a complete mapping of
17   the supply chain of complex manufacturers all the way back to a
18   smelter or a refiner.  And I think that the evidence for that is
19   the reaction, the immediate and startling reaction which
20   occurred upon the enactment of the Dodd-Frank legislation on a
21   virtual overnight, virtual complete embargo.  Indeed there's
22   some risk, I think; not that there will be under compliance and
23   insufficient disinvestment in conflict-affected mines, but a
24   risk of over compliance and inappropriate disinvestments.
25               What we believe is that the combination of flow-down
0132
 1   provisions, industry best practices, codes of conduct and
 2   internal organizing of the companies at the downstream end of
 3   the supply chain, pushing that upstream towards our first tier,
 4   our second tier, our third tier, while in combination with the
 5   smelter certification program and the other initiatives that are
 6   going on in the ground in terms of the mine to smelter segment
 7   of the supply chain, that is going to achieve substantially al
 8   the desired effects of the statute without the incredible
 9   expense, delay and complexity of attempting to trace the
10   conflict minerals that might be present in each of the hundreds
11   of millions of piece parts that are acquired every year by a
12   company like mine.  
13               MS. NIMMO:  Yeah.  I just wanted to agree with the
14   lady from AngloGold Ashanti where she was convinced that mining
15   is not manufacturing.  I think that's a pretty well-accepted
16   point of view and perspective in number of regulations; and,
17   we've talked about the REACH regulation's been mentioned before.
18    Ores and concentrates are not covered in the REACH regulation,
19   because they recognize the natural substance and are not
20   transformed into manufacturing product until the point of the
21   smelter.  I think that would be a very well-recognized concept.
22               I'd also want to comment on this point of view that
23   the smelter is the place where the controls should be placed. 
24   So that means the smelter is aware, most all the mineral must go
25   to be treated, but it's not the easiest or the best way, or the
0133
 1   most effective place to control conflict minerals.  That is at
 2   the point of mining in the region or the point of export from
 3   the region, because if we can control conflict minerals on the
 4   ground, all traceability from that point onward is not
 5   necessary.  
 6               MR. MOHIN:  I just want to jump in on the question
 7   of necessary for functionality of the project.  I think the
 8   Commission got it absolutely right when you excluded the machine
 9   tools that make a product.  It would be next to impossible to
10   trace those back; and, as my colleague Sandy Merber said, a lot
11   of those are kept in use for quite a long time.
12               In addition, the entire conversation about de
13   minimis from panel one I think concluded with the keep it simple
14   rule, because this is not a toxicity based rule as the
15   restriction on hazardous substances was, where you had a reason
16   to set a de minimis level.  This is about protecting people from
17   human rights abuses.  And so not only would it make it more
18   difficult to implement, but I don't think it's the right policy
19   in this case.  
20               MS. DUBBERLY:  Ms. Prisco?
21               MS. PRISCO:  Thank you.  I wanted to make a couple
22   of comments too with regard to necessary to the functionality. 
23   I think that when the rule was first -- when the law was first
24   put together, you know, I think it was the intention that we
25   find a way to identify where there are large amounts of these
0134
 1   materials, the three Ts and gold, being used in certain
 2   products, because it would be those manufacturers that would be
 3   able to go back through the supply chain and use their
 4   purchasing power to find out where they were ultimately sourced
 5   from.  
 6               I think that if we start getting into a conversation
 7   where we're looking at each product and we're trying to discern
 8   whether the metal that that product contains is necessary to the
 9   alternate functionality of that product, I think it's an
10   entirely gray area.  I think it's something that the average
11   person wouldn't be able to identify, you getting questions
12   relative to engineering and chemistry.
13               I think that, rather, it's more or less a question
14   of how concentrated the metal percentage in a given product is,
15   and I think it opens the door for a de minimis component to the
16   rule to say this is only going to be applicable where large
17   amounts of these metals are being used; and, as I said, it makes
18   a lot of sense because those companies who are purchasing metals
19   in large quantities for the purpose of their manufacturing
20   operations are much better poised to penetrate upstream the
21   supply chain in order to find out exactly where those metals are
22   coming from.
23               MS. DUBBERLY:  Mr. Riess?
24               MR. RIESS:  I guess my comments are directed at the
25   de minimis question, or at least indirectly.  I want to point
0135
 1   out that the world production of gold is something like 4,000
 2   tons, that the mine component of that is very roughly 2500, and
 3   that the DRC produces some six to ten tons.  So it's a very
 4   small, it's a fraction of one percent in terms of all
 5   production.  
 6               The amount of that gold that comes to the United
 7   States is de minimis, because the trade pattern is essentially
 8   to Dubai and the Emirates, and then along down to India.  So in
 9   terms of establishing reasonable standards as to how much gold
10   or the likelihood of gold coming from the DRC and being consumed
11   here should be taken into account in formulating the regulation.
12               MS. DUBBERLY:  Okay.  Let's now turn to the supply
13   chain, please.  What in particular do you think can or must be
14   done in order to track minerals and a product in order for an
15   issuer to determine if they came from the Democratic Republic of
16   Congo or an adjoining country?  And then, further, what steps
17   are necessary to determine whether minerals from those countries
18   contributed to armed conflict?  To further illuminate these
19   questions, perhaps you could address the OECD guidelines in your
20   answer.  The proposed rules did not specify the due diligence
21   required.  
22               The proposing release, however, indicated that an
23   issuer whose conduct confirmed to a nationally or
24   internationally recognized set of due diligence standards or
25   guidance would provide evidence that it used due diligence.  
0136
 1   Several commentators suggested that the due diligence guidance
 2   developed by the OECD or the United Nations group of experts on
 3   the DRC should be referenced in the rule.  
 4               Do you believe that the final rule should require
 5   use of a specific due diligence standard?  If so, which standard
 6   or standards?  If the final rules require a specific standard,
 7   would that facilitate compliance with the statutory requirement
 8   that the conflict minerals report be audited?  In other words,
 9   if you tied the due diligence to one of those standards, does
10   that make the audit more cost effective?
11               MR. FENWICK:  So I would just say from our
12   perspective I've heard a lot about flexibility and not being
13   prescriptive, and we understand that point.  And I think one of
14   the points that I wanted to reiterate is we have said in our
15   multi stakeholder submission that we have said that due
16   diligence should be OECD or something comparable to
17   understanding that these things can develop over time.  I think
18   that the OECD due diligence guidelines, U.N. group of experts
19   guidelines, are the only things that are out there right now. 
20   And so we've heard guidance being requested from commentators in
21   a number of submissions about providing examples, as on the last
22   panel, I think, that what was providing an example of how some
23   of these things could be done.  
24               So I think the Commission should say that this is an
25   example, or as one of my other multi stakeholder colleagues
0137
 1   mentioned, using the OECD as sort of a safe harbor and the due
 2   diligence within that.  And so I will say in terms of we think
 3   the OECD is very thorough in terms of the information that has
 4   to be assessed, and it specifically addresses different actors
 5   in the supply chain.  And so to a point that was mentioned
 6   earlier in terms of the smelter being the choke point, it is
 7   not, and we are not asking companies to go run around the Congo
 8   and go to the mines.  
 9               What we are saying is that, and what the OECD says
10   is that you identify the choke point in the supply chain.  You
11   got to the smelter.  You assess the smelter's due diligence, and
12   the smelter, as a part of their due diligence, is to show you a
13   bundle of information about origin, documentation, tax
14   documentation, et cetera, to one, determine where the origin of
15   the minerals have come from that have been purchased, but also
16   to whether there's supporting conflict.  
17               And so I will also say that I think there are a
18   number of ways that can be accomplished.  So we are also not
19   saying, and I will agree with my colleague from Boeing, that we
20   do agree that companies can rely on, for example, the smelter
21   validation program, conflict-free smelter program, and use that
22   as a way to say, hey, there are about a hundred smelters that
23   produce only these materials.  So what we are going to do then
24   is we're going to participate in this audit, and then we're
25   going to contractually pass that down and obligate suppliers to
0138
 1   comply, or tell suppliers to comply.
 2               And then we do a risk management approach based on
 3   supply chains, based on the level of the material.  We do a risk
 4   management approach to determine compliance, but we do believe
 5   that there has to be a follow-up along the way; and so it can't
 6   just be the sort of back to the point of sending an e-mail.  So
 7   I think I got everyone right.  Okay.  Thanks.
 8               MS. DUBBERLY:  Thank you.  We'll go Mr. Riess, Mr.
 9   Cohen, then Ms. Nimmo and Ms. Prisco.
10               MR. RIESS:  I just wanted to suggest that the
11   comment that was made before about limited leverage on the lower
12   tiers of the supply chain should be taken into account,
13   irrespective of which standard you apply.  OECD seems to be the
14   one that's coming into general acceptance, but it's the ability
15   to perform given the available information from the lower tiers
16   of the supply chain, I think is a very pertinent point.
17               MS. DUBBERLY:  Thank you.  Mr. Cohen?
18               MR. COHEN:  Thank you.  Yes, I think that my
19   colleague from GE and I think my colleague from the Enough
20   Project hit it pretty exactly in saying there needn't be a
21   trade-off where the Commission has to decide rigidly where we're
22   going to say you have to use the OECD guidelines or some other
23   standard, and nothing but that, or just leaving it completely
24   free form.  You can have the best of both worlds by explicitly
25   stating that the OECD guidelines and the larger OECD guidelines
0139
 1   for multinational enterprises that were just revised and issued
 2   earlier are a safe harbor; that companies performing due
 3   diligence in accord with those guidelines will in fact be
 4   performing due diligence and a reasonable country of origin
 5   inquiry sufficient for these purposes.  
 6               MS. DUBBERLY:  Ms. Nimmo?
 7               MS. NIMMO:  I think from the upstream industry side,
 8   we certainly support of the OECD due diligence guidance. 
 9   Obviously, there's been a number of difficult circumstances that
10   we're trying to work in in those areas, and it's really
11   appropriate to have clear guidance on what isn't acceptable in
12   which areas.  So we certainly support and use the OECD guidance,
13   particularly annex 2, to define sort of responses to presence of
14   armed groups in certain areas or other human rights abuses.
15               What's also important is to try and link what's
16   required by that OECD annex to the definitions of what is
17   conflict-free or what is not conflict-free under the "Dodd-Frank
18   Act," and have been some discussions with the OECD about that. 
19   And I think it would be useful if you also speak to them and try
20   to define and match-up the kind of definitions that you can use
21   under the Dodd-Frank in relation to the OECD annex too.  
22               And, when it comes to armed groups, we still have a
23   particular problem understanding exactly what's necessary.  We
24   have the States Department map, which is not terribly specific,
25   and had a number of disclaimers and waivers on which his company
0140
 1   shouldn't use it for their due diligence practices.  We have a
 2   DRC government map, which is slightly different to the State
 3   Department map.  We have a reference to the Human Rights reports
 4   in Dodd-Frank, which if you look at them refers back to
 5   instances that occurred in 2008 or 2009, and are very
 6   non-specific and not very helpful.
 7               So we have different definitions in each of those. 
 8   We have different definitions in the conflict-free smelter
 9   program, and its number of pieces of confusion which you're not
10   really assisting in getting back to working on traceability in
11   those conflict regions.  
12               MS. DUBBERLY:  Thank you.  Ms. Prisco, then Mr.
13   Mohin and Ms. Baker.
14               MS. PRISCO:  Thank you.  I think that this issue was
15   one of the most complicated and critical of all the issues and
16   considerations with regard to the rulemaking.  The due diligence
17   standard set forth for the OECD are something that TE finds to
18   be reasonable under the circumstances.  I think as a first tier
19   approach, they're very solid.  
20               I think that the rule should go a little further in
21   defining, however, the precise level of commercial
22   reasonableness that due diligence can take into consideration in
23   its exercise.  For example, if the party was to look to relevant
24   trade documents, smelter validation programs, they had certain
25   contractual obligations as a risk management strategy.  
0141
 1               I think those are the kinds of things that need to
 2   be called out specifically to create a good due diligence
 3   framework, because as my colleague to my left stated, it is all
 4   over the map.  No one really knows what it will take to comply,
 5   but at the same time, we can't ask for too much, because we can
 6   only ask for the types of information that a company can go out
 7   and get today, which we hope will increase over time.  But as a
 8   reasonable matter, it's just not presently available.
 9               So if a company exercises commercial practicable
10   efforts or commercial reasonable efforts, or some sort of
11   articulation of that approach, I think that should be
12   satisfactory, and I think they should be able to report with
13   confidence if they discern, based on that level of due
14   diligence, that their supply chain is conflict free.  
15               MS. DUBBERLY:  Mr. Mohin?
16               MR. MOHIN:  To your question can a company figure
17   out if the minerals in its product supported armed groups, no
18   single company working alone can do that.  That's just beyond
19   the scope of most companies, and you're looking at some fairly
20   large companies.  And, of course, there's much smaller companies
21   that are subject to the rule, but, working together we can.  
22               Through the EICC and GeSI effort and our
23   conflict-free smelter program, which is based on the
24   internationally recognized OECD guidelines we've heard so much
25   about, we can figure out which smelters are sourcing clean
0142
 1   materials or conflict free materials, and which ones are not. 
 2   We've also through the EICC and GeSI process figured out a
 3   standardized way to track our products all the way back to the
 4   smelter.
 5               AMD has started its own pilot to look at how this is
 6   done, and the results are still coming in; but, surprisingly,
 7   we're getting some pretty good information back.  So it is
 8   complicated.  It is new, but it's something that we can
 9   absolutely do.  And I would draw the analogy Susan Baker did in
10   her opening remarks to the restriction on hazardous substances
11   rule that came out of the European Union a few years ago.  Also
12   complex, also focused on electronic products, although this
13   one's broader, but it had six different materials, and it had
14   concentrations in each material.  
15               We had to figure that one out.  It took a lot of
16   work; but over the years of implementation, we now have some
17   processes and systems that worked fairly well, and we're looking
18   at how to modify those to use them for this particular rule as
19   well.  
20               MS. BAKER:  I wanted to comment briefly on the OECD
21   due diligence guidance, and I believe that you should specify to
22   the extent possible the steps that would continue a due
23   diligence process.  And I believe from an investors perspective,
24   the transparency and disclosure around that process is critical,
25   and too often we see voluntary industry standards that are used,
0143
 1   but they're not as robust and not as transparent as other
 2   independent processes.  So again, I think you have some
 3   latitude, but I encourage you to hone in on the disclosure in
 4   transparency.
 5               MS. DUBBERLY:  Thank you.  Many commentators have
 6   written in suggesting that gold be treated differently from
 7   other conflict minerals.  Does the fact that the OECD has not
 8   yet completed development of standards for gold mean that the
 9   reporting requirements for gold should be delayed?  And, if you
10   think so, from what period of time?  
11               MR. RIESS:  My understanding is that those
12   guidelines are supposed to come out in a month or so.  So I
13   don't think we have that long to wait.
14               MR. FENWICK:  Yes, I agree with that as well.  The
15   guidelines are coming out and it is our belief that there's no
16   room within the statute to treat things differently.  And there
17   have been some particular mention of some of the difficulties
18   with gold and sort of the visible side and the invisible side,
19   and we sort of understand some of the challenges, and certainly
20   some of the challenges in all of this.  
21               But I think one of the key things that we're going
22   to be looking at is again in judging companies and their
23   progress is the effort that they're undertaking, and so we don't
24   in any way want to incentivize or disincentivize a very robust
25   effort.  And, obviously, some people are going to get a lot
0144
 1   further than others.  And I will also just add to that the
 2   London Bullion Metals Association in their submission, which is
 3   a key point and the key actor in the gold chain, has also asked
 4   that the Commission adopt the OECD due diligence guidelines as
 5   well.  
 6               MS. DUBBERLY:  Okay.  Go ahead.
 7               MS. NIMMO:  Yeah.  I mean I'd just like to comment
 8   that I don't really believe that the gold supply chain is
 9   particularly any more complex, certainly, in the tin supply
10   chain.  Tin is used in hundreds of thousands of different
11   application, in coating in small amounts in a number of
12   different products: ceramics, metals, chemicals, textiles,
13   everywhere.  
14               In fact, they're probably -- you mentioned that it's
15   used in may different places in the same way that gold is, has
16   the same approximate level of recycling as well.  So I don't
17   think it's particularly a larger challenge than any other metal.
18               MS. PRISCO:  I think with gold there is some extra
19   complexity, only because of its value and the fact that it often
20   rests in exchanges, so that the commingling of gold that's
21   caused, once it's placed within an exchange, it makes it
22   extremely difficult, if at all possible to trace back.  So,
23   again, whether or not you include gold with the three Ts at the
24   initial implementation of the rule, that will be dependent on
25   how the due diligence standards flow out, if it's done in a way
0145
 1   that it allows for gold, you know, the gold due diligence to
 2   evolve over time, as perhaps the world adapts to this law, and
 3   then they try to find ways to comply with it and create that
 4   traceability.  But, as of right now, because gold exists in
 5   exchanges throughout the world, we don't have any way to look
 6   beyond that, and we have virtually no traceability as to gold
 7   whatsoever.  
 8               MS. NIMMO:  So I really just need to reply to that
 9   as well.  Tin, obviously, also is held in exchanges.  It's the
10   same type of market, commodity market or material.  Metal on an
11   exchange will have some kind of -- produce an identification and
12   assay, and it looks like a production date certificate, for
13   example.  So I'd be surprised that gold couldn't be traced also
14   through exchanges.
15               MR. CROTEAU:  Okay.  Thank you, and good afternoon. 
16   So we'd like to now turn our attention to the independent
17   private sector audit of the due diligence report that's required
18   by the statute.  And we had a number of commentators who
19   suggested that the Commission clarify in the rule what the audit
20   objective is.  So, for example, the audit objective could be
21   tied to management's due diligence process and controls, to
22   management's conclusions or to both.
23               Also, if the rule works require that management's
24   due diligence follow a certain standard, such as OECD, as we've
25   been discussing, the audit objective could focus on whether or
0146
 1   not the company's due diligence procedures were in conformance
 2   with those standards.  So do panelists have any views about the
 3   appropriate scope and objective of the independent private
 4   sector audit?  And, in particular, if the Commission were to
 5   require management to follow a framework, including one such as
 6   OECD, would an audit of whether the procedures, management's
 7   procedures, were designed in conformity with this framework be
 8   likely to be appropriate and result in a cost effective audit?
 9               MR. COHEN:  Thank you.  I think that's really quite
10   a critical point, and the scope in particular.  I think that it
11   is extraordinarily important in terms of having an efficient
12   audit process, which is not crushing in its expense, to have it
13   focused on the design of the process rather than the content of
14   the report.
15               I think the points were very well made in the
16   submission by AICPA, where they laid out five, different,
17   potential audit objectives, of which the latter three, including
18   an audit of the actual contents of the report were described as
19   being extraordinarily expensive and burdensome.  And so I think
20   that yes, clearly a focus on the process rather than on the
21   contents would be critical.
22               MS. DUBBERLY:  Mr. Heim and then Mr. Fenwick?
23               MR. HEIM:  I think it's important to start off with
24   a clarification of what it is we're really talking about
25   relative to this audit, because in the number of conversations
0147
 1   I've had over the past, however many months with however many
 2   companies, there's a great deal of confusion as to, first off,
 3   not only what it is we're auditing, but where does the audit
 4   fall in the process, because we've had these things called CFS
 5   audits, which is part of the process.  We're talking about some
 6   audits within ITRI, and that chain from the mouth of the mine up
 7   to the smelter.  
 8               There's other audits that are now being discussed
 9   within the public-private partnerships, and then we have this
10   thing called the audit within the conflict minerals report.  So
11   I think it's important that we a) recognize that, and b) clarify
12   that the discussion today is that audit of the conflict minerals
13   report itself, which is a singular element of the process.  In
14   terms of what we've had discussions with and some of the actual
15   proposals we put forth, it's our view that it is a management
16   systems audit.  
17               It is not an audit more related to the outcome or
18   the results.  It's about assessing the existence of the
19   processes, how well they are implemented and communicated
20   throughout the organization, whether or not the data for making
21   decisions exists, and is used throughout the organizations, and
22   then made available through not only the organization itself,
23   but also through the supply chain.  So we view it basically,
24   again, coming at it from the more traditional, environmental
25   health safety management system approach, it's what we call a
0148
 1   management systems audit.  And so for us, the content of the
 2   report is on that element.  
 3               MS. DUBBERLY:  Mr. Fenwick and Mr. Mohin?
 4               MR. FENWICK:  Thank you.  So it's been brought to my
 5   attention from the drafters, at least -- and I'll say this on
 6   the outset.  And I believe that this has also been communicated
 7   to some staff in terms of who should conduct the audit, so I'll
 8   just throw this in really quickly, because this touches to the
 9   expense.  There isn't an expectation that these audits have to
10   be conducted by accountants or audit firms, but someone who's
11   knowledgable with the issue, but is still independent.  
12               So having said that, though, I think for our
13   expectation in terms of -- and I'm throwing this out there, so
14   don't shoot me yet -- in terms of what we expect of the audit,
15   agree with my colleague to my right and also to the left to the
16   point that we do believe there needs to be a review of the
17   descriptions of the filers, the procedures and systems and
18   controls, management controls in place within the report.  Now,
19   I would go a step further to say -- I shouldn't say I would
20   like, but one of the things I think that we would want to see
21   also is if we'd want the auditor to say, okay.  Well based on
22   the systems that GE, for example, has in place, a reasonable
23   person in a similarly situated, could come to the same
24   conclusions, so not judging the actual systems that were used,
25   but just sort of making sure that the company is actually living
0149
 1   up to the systems they themselves put in place.  So that's
 2   clear, I hope.  
 3               MR. MOHIN:  Just very quickly, I think my colleague,
 4   Mr. Heim, to the left, described this very well.  There are two
 5   audits involved here.  There's the audit of the report, which is
 6   specifically called out in the legislation, and just to agree
 7   with Mr. Fenwick, that audit is of the report.  So it really
 8   should be on management's description of procedures and
 9   controls, and, essentially, verifying that those procedures and
10   controls were followed.  
11               The second audit is the audit of the smelter, and I
12   think we get these things confused all the time.  In the case of
13   the EICC-GeSI process that I mentioned before, that is a group
14   process, an industry process whereby many of the companies that
15   subscribe to that process will be using that same audit
16   information.  That's a much more detailed audit that gets into
17   the manifest, and so on, of that actual smelter.  So there are
18   differences.
19               MS. DUBBERLY:  Mr. Schubert?
20               MR. SCHUBERT:  Thank you.  As you mentioned and as
21   Mr. Cohen mentioned, the AICPA comment letter listed five
22   different possibilities for an examination; and, obviously, as
23   you went down that comment letter, they got progressively more
24   difficult for a CPA to do because the subject matter was moving
25   from the processes and controls of management to the content of
0150
 1   the supply chain.
 2               In your question, Brian, did you ask about an audit
 3   or an examination of the processes and controls?  And that would
 4   fall under the purview of a CPA under the attestation standards.
 5    With regard to suitable criteria, you know, the OECD due
 6   diligence guidance, I've learned a lot about conflict minerals
 7   in the last week and a half that I didn't note prior to this,
 8   and I spent some time with this.  I'm not prepared to say that
 9   it is or is not suitable criteria, because I don't know.  There
10   is some concern about whether it would be subject to consistent
11   interpretation, but it is as others have mentioned.  It is the
12   best thing that's out there right now from the standpoint of
13   criteria to do this type of an examination on.  
14               MS. DUBBERLY:  Ms. Nimmo?
15               MS. NIMMO:  I'd actually say there's four different
16   types of audit.  You have the Dodd-Frank audit, the CFS smelter
17   audit, which doesn't audit upstream, the ITSCI audit, which
18   you'd have to audit between the mine and smelter; and then
19   there's also over government audits, regional government audits,
20   also planned, which we can partly converge with.  So there's a
21   number of audits, actually.  
22               I think that is also one of the problems and issues
23   that certainly separately needs to be dealt with.  This is how
24   concept that people are focusing on auditing, the zero tolerance
25   question that Lawrence mentioned earlier, and really moving away
0151
 1   from the actual issue and dealing with the actual issue, and
 2   putting in practical solutions on the ground that will actually
 3   come back and help implement the original aims of Dodd-Frank.
 4               MR. CROTEAU:  Thank you.  Just one follow-up point
 5   so the "Dodd-Frank Act" is clear that the audit is to be
 6   conducted using GAO standard.  We've heard a couple people
 7   mention the use of attestation standards, which are one of the
 8   standards under the GAO standards.  Performance audits are
 9   another set of standards.  
10               Those audits could be performed by accountants and
11   non-accountants, versus attestation standards are generally only
12   performed or allowed to be performed by accountants.  And given
13   that the nature of this type of audit wondered if panelists had
14   particular views on the use of the performance standards, which
15   would enable both accountants and non-accountants to perform
16   these audits.
17               MR. SCHUBERT:  Brian, I'll comment, because I think
18   I'm expected to comment on that one.  The performance audit
19   standards are part of the "Yellow Book," and they're not
20   something I have any personal familiarity with, having never
21   used.  But they are an audit that's at the same level, requires
22   the same level of assurance on the auditors part for reaching an
23   opinion.  
24               My understanding from discussions with individuals
25   in the industry is that the reporting under the performance
0152
 1   audit standards might differ greatly, that one of the selling
 2   points of the attestation standards is that you would have some
 3   consistency in the form of reporting, so that investors or
 4   whoever's reading the report would understand what they're
 5   getting, was that the performance audit standards, the reports,
 6   could differ depending on the individual that's performing it. 
 7   But those standards do require the same level of independence as
 8   the attestation standards when they're done under the government
 9   auditing standards.
10               MS. DUBBERLY:  Mr. Fenwick and Mr. Heim?
11               MR. FENWICK:  Yes.  I think the crux, and just so
12   I'm clear, I think the crux is auditors versus non-auditors;
13   accountants versus non-accountants.  So I think just in line
14   with the other comment, yeah.  I mean from our perspective,
15   again, as long as there's not a conflict of interest and someone
16   sufficiently understands the issue, then accountant versus
17   non-accountant, sure.
18               MS. CROSS:  I'll weigh in quickly, I think, just to
19   get the panel thinking about this.  One of our concerns is to
20   make sure that the costs are kept reasonable, and it's just
21   totally on a back of the envelope thought.  If there are more
22   people who can do the audit, then there's more competition and
23   there's presumably cost come-down, one would think.
24               So we have been thinking, and also there's nothing
25   inherent about this that would lead one to think that
0153
 1   accountants need to do it, but at the same time there is concern
 2   that if there isn't a particular standard that you're auditing
 3   against, that this could be very difficult to implement.  So if
 4   you're hearing the questions from us, they are along the lines
 5   of do you need a standard, for example, OECD, so that you have
 6   something to judge against.  
 7               If a company doesn't have to do a particular
 8   standard, then what do you audit against?  And so that could
 9   lead one to meet a standard like that; and, second, if it's a
10   test, then only the accountants will be able to do it under the
11   current GAO standards.  So does that lead one to want to go down
12   the performance audit path so that more people can do it,
13   accountants and non-accountants depending on independence?  
14               And those are issues that we've been discussing
15   quite a bit internally, so you have the sort of perspective
16   we're coming from.  I think maybe that might help to generate
17   more discussion.
18               MS. DUBBERLY:  Mr. Heim, then Mr. Cohen.
19               MR. HEIM:  Well, apparently, you're reading my cheat
20   notes just now.  Yes, although we are not CPAs.  We've been
21   doing environmental management systems audits for, you know, 20
22   plus years, 25, 26, whatever.  So we're quite familiar with
23   audit standards.  We began taking a look at "Yellow Book" as
24   soon as we were aware of the law and it was passed.  And we
25   began looking at, relative to traditional environmental health
0154
 1   and safety auditors, what are the big differences -- where are
 2   the gaps -- and whether or not as practitioners we would be able
 3   to support these efforts; and there is a big difference.  
 4               There's quite a big difference, but where we did
 5   ultimately come down to was performance audits.  And so in our
 6   discussions with clients, we've kind of landed on the
 7   performance audit as what we think seems to make sense.  And,
 8   you're correct.  We do believe that the competitive market will
 9   be opened up quite widely if it was something that was not
10   limited to CPAs having to perform that particular element of
11   implementation.
12               MR. COHEN:  First of all, I should just say that we
13   deeply appreciate your desire to contain our audit costs, and we
14   urge all of you to hold that thought firmly in mind.  
15               (Laughter.)
16               MR. COHEN:  I would also ask, though -- obviously,
17   GAO will do what it will do and is independent in our view. 
18   Whether since both a performance audit and an attestation
19   engagement are permissible and do have defined scope under GAO's
20   "Yellow Book;" whether you might not engage with them in an
21   attempt to elicit a possibility, you could allow both.  Each has
22   advantages and weaknesses.  So allowing both to be used, would
23   perhaps be the best of both worlds.
24               MS. CROSS:  And you can rest assured we are talking
25   to GAO.  I don't want you to think we're doing this in a vacuum.
0155
 1    We're having discussions with them about what kind of an audit
 2   would be appropriate.
 3               MS. DUBBERLY:  And on this question I don't want to
 4   necessarily put people on the spot here, but if you happen to
 5   have, one of the things we're having a hard time grappling with
 6   is costs of audits.  So if anybody has follow-up estimates on
 7   potential cost, that would be useful for us.
 8               MS. CROSS:  Particularly for the different kinds. 
 9   So if there's a performance audit, if you have a standard, for
10   example, OECD versus don't have a standard.  I mean we do. 
11   We're grappling with what would the audit be if you don't have a
12   standard.
13               MS. DUBBERLY:  So, you know.  If it's just of the
14   report, it's hard to do an audit of the report that's an audit
15   of controls if there's no standard.
16               MR. HEIM:  I think your last comment is exactly
17   right.  You know, as we've struggled at times with developing
18   proposals for clients who have requested this of us, we have our
19   audit process that we believe is correct and that would meet
20   1502 and that it would be aligned with the current proposal of
21   the regulations as well.  But whether that's going to be what is
22   ultimately the final standard, certainly, we don't now yet.  
23               If there are substantive changes in that, then
24   that's obviously going to impact scope and impact cost.  The
25   other thing about that is obviously we develop our costs and
0156
 1   scope based on our costing structure, which is quite a bit
 2   different than what the big four cost structure is.  
 3               So that's another element of pricing that goes into
 4   it.  But there does need to be some kind of acceptable stake in
 5   the sand, if you will, for a standard, because authorize -- and
 6   we've already run into this in certain situations where there
 7   are in a proposal situation, we're up against firms who really
 8   don't understand what the scope is.  And so their cost structure
 9   for what they're bringing forward to the client is massive,
10   because it's so broad.  
11               We bring a narrower focus based on our experience,
12   and it's significantly less.  So the question is why is there
13   this large gap in scope.  Why is there a large gap in cost
14   differential between the two audit standards, and the answer is
15   well, because we don't really know what the audit standard is
16   just yet.
17               MS. CROSS:  So I guess I'll move on to the next
18   topic, unless anybody wants to talk more about audits.  The
19   proposed rule would classify an issuers' conflict minerals from
20   recycled or scrap sources as DRC conflict-free, but such an
21   issuer would be required to disclose that its conflict minerals
22   were from recycled or scrap sources, and submit a conflict
23   minerals report, discussing the due diligence exercise and
24   determine that the conflict minerals were from recycled or scrap
25   sources, as well as have that report audited.  
0157
 1               It appears that most commentators agree that there
 2   should be an alternative reporting scheme for conflict minerals
 3   from recycled or scrapped sources, but commentators disagreed
 4   with the requirements of any such scheme.  Some commentators
 5   argued that the reporting alternative should not require an
 6   issuer with conflict minerals from recycled or scrapped sources
 7   to provide a conflict minerals report, or an independent private
 8   sector audit.
 9               Other commentators agreed with the proposed rules,
10   that the alternative reporting scheme should require a conflict
11   minerals report and an audit.  Should the recycled or scrap
12   reporting require issuers to submit a conflict minerals report
13   and an audit?  Should the scheme require only a conflict
14   minerals report, but not require an audit?  If so, what should
15   the conflict minerals report entail?
16               MS. DUBBERLY:  Ask Mr. Fenwick.
17               MS. CROSS:  Mr. Fenwick will start.
18               MR. FENWICK:  So from our perspective, as I
19   mentioned in our comments, we do agree with the Commission's
20   proposal that our conflict minerals report should be submitted
21   for or furnished/filed for recycled or scrapped minerals, and it
22   should be audited.  I think the reason for this is we are aware
23   of potential loopholes that that can come through recycled and
24   scrap sources.  And I think it's consistent, quite honestly,
25   with what the conflict-free smelter program is doing, because as
0158
 1   they conduct their audits, they're also looking at recycled
 2   sources to make sure that recycled sources match the definition
 3   that EICC conflict-free smelter program came up with.  
 4               And so what I would say was important is in the
 5   report is to be able to say, okay, this is how I know what scrap
 6   and recycled source is.  And so it would be helpful if there was
 7   a definition, and I know one has been submitted.  I think we
 8   submitted one and then another commentator has also submitted
 9   one, so that there's something, too.  But I think it's important
10   for filers to just say, okay.  This is recycled or scrap.  It's
11   going to be DRC conflict-free; and, if it's going to be, tell us
12   just that -- yes, this meets the definition of being recycled
13   and scrapped -- or just how do you know it's recycled and
14   scrapped.
15               MS. DUBBERLY:  Mr. Heim, Ms. Prisco and Ms. Nimmo?
16               MR. HEIM:  I think, first off, again it's important
17   to recognize that there may be some misunderstanding about what
18   it gets you if you claim a material scrap or recycled material. 
19   There's a sense out there by some companies that it's a complete
20   exclusion from the applicability of the regulations and the law;
21   and, obviously, that's not the case.  As the proposal is
22   written, it gets you a somewhat more streamlined report and due
23   diligence process that you have to implement, but it's not an
24   exclusion.  
25               As a parallel and perhaps a contrast, and I think we
0159
 1   discussed our initial meeting a number of months ago, EPA has
 2   spent a couple of decades trying to define scrap in various
 3   applications.  And they do it within the context of whether or
 4   not it's a solid waste or hazardous waste.  And, you know, they
 5   spent two decades trying to define this and they're still
 6   continually refining that.
 7               So I think it is a rather complex question.  Whether
 8   or not it should be subject to the full due diligence and
 9   conflict minerals reporting, I believe that's a little too
10   onerous for that.  It seems to me that once you define a
11   material scrap that you can verify through a reasonable inquiry,
12   or even perhaps some level -- I don't necessarily want to use
13   the word "audit," but some kind of evaluation, and can
14   reasonably rely on that evaluation.  You say, yes, this does
15   meet the definition of scrap under the 1502 regulations.  
16               It seems to me that it's appropriate for that
17   process to end right there.  I don't see any value, and I have
18   not had any clients feel that there's any value in continuing to
19   move the process forward.  It's unnecessary expenditures and
20   efforts.
21               MS. DUBBERLY:  Ms. Prisco?
22               MS. PRISCO:  I'm inclined to agree.  I think that
23   once you identify that a certain percentage of your metals are
24   recycled metals that that percentage of recycle should be exempt
25   from further exploration.  And, verification of that, I think,
0160
 1   could be as simple as asking your first tier supplier -- in our
 2   case or in other cases further down the line.
 3               By asking that supplier to provide you with some
 4   sort of certification from the scrap hauler or the source from
 5   where those metals were received.  I'm not sure that there are
 6   any products out there that use 100% recycled metals.  I'm not
 7   an engineer, but I think from a purity standpoint that's
 8   impossible.  So I think all you're doing is allowing for the
 9   small percentage of recycled metals that are present in products
10   to not trigger any reporting requirements associated with those
11   metals.  And, you know, if anything, I think there's a
12   tremendous amount of environmental responsibility tied with
13   recycling, so we don't want to discourage that.  
14               MS. DUBBERLY:  Ms. Nimmo and then Mr. Riess?
15               MR. RIESS:  The percentage of scrap recycled
16   material is more like 40%, a solid 40%.  It's not at all
17   impossible to go to a refiner that can attest to the fact that
18   they're doing 100%.  Others cannot or would not; but, I would
19   point out that the accumulation process of recycled material was
20   one of consolidation of greater and greater amounts, probably at
21   least through three stages, and at each one there's a blending
22   process.  So I would think that to look for confirmation, audit
23   type confirmation beyond the refiner level would be fairly
24   unrealistic as applied to scrap.  
25               MS. NIMMO:  Yeah.  I'd just like to agree with those
0161
 1   comments.  You know.  If you're looking for recycled tin, you'd
 2   have to also audit proper smelters, lead smelters, steel works. 
 3   You'd have to practically audit the entire metal business in the
 4   entire world.  It's really not feasible to even begin that
 5   process.  No.  So you have to recognize here that you can't
 6   eliminate the risk of some material coming back as recycling.
 7               But, you know, we already know that most of the
 8   conflict minerals that are still being traded is going to other
 9   markets anyway, so you're not going to eliminate that just by
10   introducing audits or conflict mineral reporting on recycled
11   material.  And also you should be quite careful about relying on
12   definitions of recycled material, because it's not just about
13   recovering end of life consumer products.  Just buying products
14   is industrial waste -- is a catalyst -- and things like that,
15   which doesn't really come under the definitions that have been
16   put forward.
17               So it will be very difficult and complex, and know
18   people in the EU have been discussing for many, many years. 
19   When end of life products become waste -- when they become
20   secondary materials -- and there's a very complex number of
21   definitions that say you really should maybe try and avoid
22   getting into.  
23               MS. DUBBERLY:  Mr. Mohin.
24               MR. MOHIN:  Just very quickly, because I think we're
25   kind of lining up here that materials as reclaimed end user,
0162
 1   post-consumer, or scrap should be exempt from the rule.  As my
 2   colleague, Ms. Nimmo, said, "There's not much benefit to the end
 3   purposes of this legislation to track and trace that material;"
 4   however, we feel strongly that the issuer should undertake
 5   reasonable inquiry with regard to how, if determined, that
 6   material is recycled or scrap, and make that inquiry available
 7   and disclosed.  This law is after all a disclosure law, and
 8   people should show their cards when they're determining that
 9   their material is recycled or scrap.
10               MS. DUBBERLY:  All right.  Okay.  Unless anyone else
11   has any comments on that, I'd like to focus on the actual
12   reporting and logistics involved in submitting a report. 
13   Section 1502 states that a person must disclose annually whether
14   its conflict minerals originated in DRC countries, and if so
15   submit to the Commission report.
16               Under the proposed rules, issuers would be required
17   to submit their conflict minerals information in their annual
18   report.  Several commentators suggested that issuers need more
19   time to gather and organize their conflict minerals information,
20   so that the conflict minerals information should not be required
21   until a longer period of time than issuers have to file their
22   forms 10K, and should be included, therefore, in a different
23   form.  
24               If you believe issuers need more time, how many days
25   after the end of the reporting period should the final rules
0163
 1   require an issuer to submit its conflict minerals information? 
 2   And, should the Commission use a new annual reporting form for
 3   that submission?
 4               MR. COHEN:  Thank you.  Our view is that we
 5   definitely will need more time, particularly early on, but
 6   foreseeably for a number of years, because of the novelty of
 7   this issue.  And we think that we would have a lot of challenge;
 8   we're a year-end company.  We'd have a lot of challenge in
 9   getting reported if we had to submit a conflict minerals report
10   and audit a conflict minerals report.
11               Obviously, we'd like to avoid that with a reasonable
12   country of origin inquiry.  But if we did, we think that we or
13   any complex OEM would have a lot of trouble in meeting that
14   deadline; and, so, we would recommend that this be a new 8K
15   item.  You could specify, I would think, May or June would be a
16   reasonable timeframe; and, certainly, I don't think that the
17   investors of a market particularly are concerned about the
18   difference between hearing in February and hearing May or June;
19   but that, I think, would be considerably reasonable.  
20               And I know the 8K is supposed to be event driven. 
21   But for, say, on pay for example, the requirement before the
22   next annual report, before a certain amount of time, before the
23   next annual meeting shows that it can be used for things other
24   than special events.
25               MS. DUBBERLY:  Do you pick 8K because you want 8K,
0164
 1   or how about some new form?  
 2               MR. COHEN:  A new form.
 3               MS. DUBBERLY:  You just keep saying some form other
 4   than 18K.
 5               MR. COHEN:  Yes.
 6               MS. DUBBERLY:  Ms. Prisco and then Mr. Mohin?
 7               MS. PRISCO:  I agree that there should be a delay in
 8   the requirements to file the report; you know, based on the
 9   complexities as my colleague from Boeing noted.  But also I
10   think it should be not an addendum to the full report, but
11   rather it should be something filed independently.  So even if
12   we don't take exception to the time requirement, I think that we
13   should have something separate and apart from the bulk report
14   that's filed, say in February.  And I'm concerned, mostly, from
15   the representations that will made in that report, you know.  
16               In the beginning, notwithstanding any framework that
17   would come out for reporting these things, there's going to be a
18   lot of ambiguity in the process.  There's going to be sources
19   that are relied upon that might ultimately be unreliable; and I
20   think that there should be sort of some instruction by the SEC
21   or some sort of words of caution to the investment community to
22   the fact that there isn't 100% accuracy behind the reporting
23   based on all of the complexities and the unknowns.
24               MR. MOHIN:  Yeah.  I'd like to agree and build on
25   the comments from Mr. Cohen and Ms. Prisco.  This is a
0165
 1   disclosure law, so we have to be clear that the ultimate outcome
 2   here is putting information out for the public to evaluate
 3   whether companies have done due diligence.  And in my opening
 4   remarks, I made a strong case that, first of all, the disclosure
 5   needs to be synchronized so as to reduce cost, rippling down the
 6   supply chain, each time a company's fiscal year is triggered,
 7   because company's have different fiscal years.
 8               I do agree that it ought to be in a different form. 
 9   I think there's different stakeholders and different levels of
10   certainty around the information as we learn how to do this. 
11   And that would in my mind lead you to another form of reporting.
12    And then on the timing question, we have suggested in formal
13   comments to the SEC that there be a phase-in, and that phase-in
14   should have a predetermined period of time where companies could
15   submit an indeterminate determination.  It's going to take
16   companies time to figure out the origin of these materials.  
17               If all we have available as companies to disclose is
18   conflict or non-conflict, I think most conservative people would
19   say, well, we can't determine if it's non-conflict, so we have
20   to say "conflict."  If there were a third way, an indeterminate
21   determination that would allow companies to disclose, in fact,
22   what they had done, so that stakeholders could evaluate that
23   information, I think that would be a wonderful way to take a
24   little pressure off but still provide information to
25   stakeholders to evaluate companies' progress.
0166
 1               MS. DUBBERLY:  Thank you.  We'll go to Mr. Fenwick,
 2   then Ms. Baker and then Mr. Cohen.  But just before we go, maybe
 3   as people could -- if folks could maybe also think on Mr.
 4   Mohin's comment about companies, everybody have the same
 5   reporting period right now.  If you file a 10K, we have
 6   companies that have various different fiscal year end.  
 7               And so some companies may end up sort of doing a
 8   constant due diligence check, which of course will add to the
 9   cost.  And, if everybody has the same filing period, let's say
10   it was calendar year-end.  So it was a reporting period ending
11   in a calendar year-end.  Would that cause particular problems
12   for any issuers?  It seemed to us this wasn't tied to your
13   financial statement reporting.  So if you had a different
14   calendar year-end, just if anybody had any thoughts on that as
15   well.  Mr. Fenwick?
16               MR. FENWICK:  So as my colleague at the end of the
17   table said, he was the auditor, so he felt compelled to speak. 
18   I'm the NGO, so I felt compelled to speak, and I know that this
19   is really geared towards the issuers and also to the investors. 
20   So I will say, as vaguely as possible, that we want to see
21   timely and accurate disclosures.  
22               So I'm going to be the person who's sifting through
23   all these reports.  So as long as it's timely and as long as
24   it's accurate, then, you know, I leave that to -- I defer to any
25   comments my colleague has from the investing community.  This
0167
 1   isn't the subject of the comment, but I feel compelled to say my
 2   colleague, my multi stakeholder colleague, had me up to the
 3   point of indeterminate origin; so we definitely oppose that as
 4   being included.
 5               I mean I should say that, you know, we understand
 6   the challenges and some of the issues, to be clear, but we don't
 7   think, one, that there is precedent in the law for that to
 8   happen.  So maybe there are other ways to work around that.  The
 9   other piece, though, I think, is that we certainly don't want to
10   incentivize violators to just automatically fall into that
11   category and not do everything that they can do to know where
12   the minerals and the products are coming from.
13               MS. BAKER:  Yes.  I would just like to say that we
14   do as investors agree with the synchronized timing of
15   information an d think that having one date when all companies
16   begin exercising due diligence of their minerals would offer
17   integrity and consistency throughout.  And so we would support
18   that idea.
19               In that case, then, we would probably see disclosure
20   data in a 10K and also an 8K.  I'm very leery of having a
21   separate report that is not tied to the filing disclosure
22   information that we will see in either the 10K or an 8K.  So I
23   believe that we should see that continue to be described as an
24   exhibit to the filing that's synchronized by the calendar year. 
25               MS. DUBBERLY:  Mr. Heim?
0168
 1               MS. BAKER:  I had one more comment.  I'm sorry. 
 2   And, finally, I really just would like to say that companies
 3   already can ask for extensions on their filings, and they seem
 4   to be generously granted.  
 5               Not that we want to discourage companies or dissuade
 6   them from doing the reporting that they feel they could do if
 7   they had more time; but, essentially, the law is asking for your
 8   best efforts; are not asking for protection or asking for your
 9   best efforts of disclosing whether it's conflict free or non-DRC
10   conflict-free.  And if everyone's using that same terminology, I
11   think we're on the right path.
12               MR. HEIM:  I'd like to point out a little bit about,
13   you know, I can't comment to the type of report or the location
14   of the report.  That's not really what my expertise is.  But I
15   do think it's important, relative to the overall timing of
16   implementation, to spend a minute, to kind of explain a little
17   bit about the reality of what's happening today.  
18               We've heard a lot about various types of reports and
19   requests being pushed through the supply chain in order to
20   gather the information.  Well, the reality is what's happening
21   today is these first tier suppliers, most of which get these,
22   and they're coming in all forms.  Some of them are coming
23   through the EICC standard reporting template, which is an
24   excellent effort at trying to reduce the impact and the burden
25   on suppliers who are trying to figure out how to report this
0169
 1   information; and, you know, what is it that they need to look
 2   at.
 3               That's an excellent effort, but not everybody is
 4   adopting that.  I've got clients who are getting e-mail
 5   requests, letters, phone calls, a wide variety of formats, forms
 6   and contents.  I'm even seeing some clients who are getting
 7   conflict minerals requests for minerals that are not conflict
 8   minerals.  They're outside the scope of the 3T and G.  Okay.  So
 9   what's happening now is first-off these requests are coming in. 
10   And sometimes the first-year suppliers are able to look at this,
11   and they say, yeah, we can answer some of these questions.  And
12   they'll answer them and they'll get them back.  
13               More frequently than I think perhaps is recognized,
14   these suppliers look at it and they say "We don't have any idea
15   how to answer these questions.  We don't even really know what
16   these questions mean, but we'll pass it on to our supplier,
17   because this impacts their material that we're buying from them.
18    And so these are getting pushed down through the supply chain
19   several levels.  
20               What that means is delays, delays in the issuers
21   getting the information flowing up through the supply chain to
22   them.  That's what's happening right now.  That's exacerbated by
23   the point that Irma from Kraft, I believe, made earlier, which
24   is the fact that there's still a lot of companies who don't know
25   about this requirement.  They don't know about the law.  They
0170
 1   don't know about the regulation.
 2               Keep in mind this regulation is geared toward
 3   publicly traded companies.  It's geared toward and specifically
 4   applicable to issuers and registrants.  If you are a privately
 5   held company, then why would I necessarily pay a whole lot of
 6   attention to what SEC is doing, because I don't have to answer
 7   to SEC.  I do answer to my customers, but I may not be paying
 8   attention to rulemaking under SEC, because I'm a privately held
 9   company and I have a couple million dollars a year in sales. 
10   But my customers are going to drive this down to me.  
11               I don't know that yet.  There's a lot of that lack
12   of awareness in lower levels of the supply chain that exists. 
13   That's creating delays in responsiveness to the information
14   request as well.  And, finally, another element that's creating
15   delays in being able to move forward with this and getting the
16   information comes to this whole point about absolute certainty. 
17               There's a great deal of fear in the lower levels of
18   the supply chain.  With the audits that are driving toward, you
19   know, in some cases atomic level expectations of certainty,
20   companies are trying to manage and figure out how to build
21   management systems to deal with that level of certainty, and
22   that's causing delays, because companies don't know how to
23   implement unreasonable parameters such as that.
24               MS. CROSS:  Okay.  Thank you very much.  I wanted to
25   ask one more quick question and then we'll do the wrap-up.  The
0171
 1   last question I had is that we understand the significant amount
 2   of these minerals are stockpiled or in the pipeline right now. 
 3   Should there be a transition rule for stockpiled materials?
 4               MR. COHEN:  Thanks.  I think my colleague, Ms.
 5   Nimmo, is going to speak to this more knowledgeably than I, but
 6   I did want to simply add a detail to a point she made earlier
 7   about stockpiling, which is that both we and the Department of
 8   Defense operate weapons systems for decades on end, sometimes 40
 9   years, 50 years, sometimes longer.
10               They undergo modifications during that period of
11   time, but what it means is that government and industry
12   stockpiles for our DOD customer can contain articles that are
13   decades old, and tools as well, specialty tools.  So that's a
14   particular circumstance that would make it quite excruciating if
15   we had to attempt to trace those minerals to the point of
16   origin.
17               MS. DUBBERLY:  Ms. Nimmo and then Mr. Fenwick.
18               MS. NIMMO:  I mean we're really talking about the
19   two different types of materials, so we have unsmelted
20   concentrates, which may be largely in the supply chain
21   approaching the smelter.  A lot of the tin materials, for
22   example, will come from artisanal minors, from maybe half of the
23   tin is coming from artisanal minors where they don't really have
24   records of when the material was mined.  So we can't say the
25   date of mining is this or that.
0172
 1               It can take, sometimes, up to a year just to
 2   transport the material from the mines to the smelter.  You know.
 3    We have material from Rwanda arriving at a moment that was
 4   produced in mines in January.  So it takes that time to actually
 5   transport the minerals through just the upstream part of the
 6   supply chain.  So there certainly needs to be at least a period
 7   of time, something like a year, for that material to be moved
 8   out and through the smelter.  
 9               And then we have metal stocks, as they say, held by
10   different people: investors, warehouses, and also customers'
11   producers; you know.  The requirements of the NME, the Metal
12   Exchange, for example, was that metals should be able to be
13   stored indefinitely.  There may be metal in there from any time
14   in the past, so you really need to know a future date, at what
15   point these regulations should start to apply.
16               MR. FENWICK:  Yeah.  I think we've been having
17   conversations about this issue as well, and I think, you know,
18   we've heard some.  We're definitely going to get back to the
19   Commission with some comments, we think, around this issue.  But
20   I just wanted to say that some good points have been raised.  I
21   mean there's a truth to the fact that if something is stockpiled
22   out of the region, and it's being held somewhere else, does it
23   really get at what the intent of the law is.  
24               And, certainly, if it's already been purchased and
25   it's already left the region, then there is a question about the
0173
 1   knowledge of those materials actually having an impact or
 2   benefit.  So I will say that we are open to some idea of having
 3   some sort of an amnesty or maybe some sort of a date for new
 4   minerals, et cetera; but, again, we'll submit some comments to
 5   that point.  
 6               But I do think one of the things we would expect to
 7   see on that, and we even included this in our submission, is
 8   just the statement that if there is this date for the
 9   regulations, or we're saying for stockpiles that there was some
10   statement to say that yes, in fact.  These are stockpiled
11   materials, and we know because they were purchased, et cetera,
12   et cetera.  It's just something to confirm, so it's not going
13   create a whole everybody falls into this category.
14               MS. DUBBERLY:  Mr. Riess and then Ms. Prisco.
15               MR. RIESS:  In the case of gold there are very large
16   stockpiles in vaults all over the world; and, it would be
17   unrealistic to not grandfather those stocks.  For the most part
18   the bars are marked with dates, along with purities and other
19   information.  There's some unbranded gold in exchanges; and that
20   should probably be treated as scrap.
21               MS. PRISCO:  I think as a practical matter there are
22   -- I mean in our case, especially, we have inventory that we've
23   manufactured, you know, a few years ago, just because it doesn't
24   have a shelf life.  There's situations where there's probably a
25   lot of product that's already been manufactured that will
0174
 1   ultimately be sold that was done before these rules were
 2   considered.  So I would encourage you to think about that and to
 3   maybe provide some guidance on, you know, what would trigger the
 4   reporting of the passing of inventory to a customer, perhaps
 5   based on the date of manufacture or some other record.  
 6               MS. CROSS:  So this has been a tremendously -- I'm
 7   sorry.  We have one more.  I apologize.
 8               MR. MOHIN:  Sorry.  I just want to say that
 9   obviously there needs to be an effective date for stockpiled
10   materials, because it's not only impractical to trace their
11   origin, but it would not further the intent of the law or the
12   rule, and I think we all know that.  
13               I think the question you're asking is so what should
14   we set as the date.  And, you know, I would like to submit that
15   any material mined after the effective date of the rule should
16   be subject to the rule.
17               MS. CROSS:  Thank you.  Before I close, I don't know
18   if anyone from the Commission has anything they'd like to say. 
19   With that, I want to thank everyone for their extremely helpful
20   input today.  I think we learned a lot.  As I mentioned, the
21   comment period as reopened in connection with the roundtable.
22               We've received some estimates of cost throughout
23   this process.  It would be very helpful to get more precise
24   information about costs, in particular one of the various
25   components of the cost estimates, and how would various possible
0175
 1   approaches the Commission could take in implementing the statute
 2   in a manner consistent with its terms impact the possible cost. 
 3   So if you have comments to that affect, we'd appreciate them.  
 4               Again, I want to thank you very much for your
 5   participation today, and we look forward to working with you in
 6   the future.
 7               (Whereupon, at 5:10 p.m., the meeting was
 8   adjourned.)
 9                           * * * * * 
10   
11   
12   
13   
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0176
 1                  PROOFREADER'S CERTIFICATE
 2   
 3   In the Matter of:   ROUNDTABLE ON CONFLICT MINERALS
 4   File Number:        3-01118
 5   Date:               Tuesday, October 18, 2011
 6   Location:           Washington, D.C.
 7   
 8             This is to certify that I, Susan Davis,
 9   (the undersigned), do hereby swear and affirm that the
10   attached proceedings before the U.S. Securities and
11   Exchange Commission were held according to the record and
12   that this is the original, complete, true and accurate
13   transcript that has been compared to the reporting or
14   recording accomplished at the hearing.
15   
16   _______________________       _______________________
17   (Proofreader's Name)          (Date)
18   
19   
20   
21   
22   
23   
24   
25   
0177
 1                    REPORTER'S CERTIFICATE
 2   
 3   I, Jon Hundley, reporter, hereby certify that the
 4   foregoing transcript of 175 pages is a complete, true and
 5   accurate transcript of the testimony indicated, held on
 6   October 18, 2011, at Washington, D.C. in the matter of:
 7   ROUNDTABLE ON CONFLICT MINERALS.
 8   
 9   
10   
11   I further certify that this proceeding was recorded by
12   me, and that the foregoing transcript has been prepared
13   under my direction.
14   
15                       Date:____________________________
16          Official Reporter:________________________________
17          Diversified Reporting Services, Inc.
18   
19   
20   
21   
22   
23   
24   
25   
0178
 1   
 2   
 3   Diversified Reporting Services, Inc.
 4   1101 Sixteenth Street, N.W.
 5   2nd Floor
 6   Washington, DC  20036
 7   
 8   
 9   In the Matter of:   ROUNDTABLE ON CONFLICT MINERALS
10   File Number:        3-01118
11   Date:               Tuesday, October 18, 2011
12   Location:           Washington, D.C.
13   
14   This is a letter to inform you that we do not
15   release our tapes and notes.  I do maintain
16   them for a period of one (1) year.
17   
18   Sincerely,
19                       _________________________
20                       Jon Hundley
21   
22   
23   
24   
25