January 4, 2013 – January 11, 2013
The stories provided in this Weekly Recap do not necessarily reflect the views of Squire Sanders (US) LLP and should not be considered an endorsement or legal advice. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

The Institute of Internal Auditors: Internal Audit Role Discussion

The Institute of Internal Auditors message board started a thread titled “Conflict Minerals – Internal Audit Role” discussing what role internal audit teams are playing in compliance with the conflict minerals rule. We recommend this thread to you as a valuable resource for internal audit teams and companies looking for frank discussion concerning internal audit and the conflict minerals rule.

IPC Sample Agreement Streamlines EMS Contracting Process

The IPC Sample Master Ordering Agreement for EMS Companies and OEM’s was recently updated to include new sections on export controls and conflict minerals. Companies now have a new tool to address the intricacies and unique needs of the EMS contracting process. One of the resources they used was the Interactive Flowchart developed by Squire Sanders (US) LLP.

Johnson Controls Highlights Difficulties Companies Face in Tracing Supply Chain

Johnson Controls, a global diversified company in the building and automotive industries, began notifying its 9,000 suppliers last month, encouraging them to use an online supply chain tracking service. Johnson Controls isn’t necessarily worried about its immediate suppliers cooperating and responding to its requests, but suppliers further down the supply chain, many of which are private companies or are located in developing countries, may have a harder time responding to theses requests. Many of theses companies are still unaware of the recently adopted conflict minerals rule.

In its latest 10-K filing, Johnson Controls stated, “There will be costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.”

Avnet: Conflict Minerals Policy Statement

Avnet Technology Solutions Asia Pacific released its conflict minerals policy on January 8, 2013. Excerpts from the policy follow.

As a global distributor of electronic components, computer products and embedded technology, Avnet promotes the traceability of these minerals and the transparency of the supply chain.  Avnet firmly believes that its customers should be fully informed about the products they purchase.  While Avnet, as a distributor, is not able to certify as to the country of origin of the minerals contained in the products manufactured by Avnet’s suppliers, Avnet is committed to working with its customers to supply products that meet the customer’s specifications.

With respect to those limited aspects of Avnet’s business that manufacture or contract to manufacture products that contain conflict minerals that are necessary to the functionality or production of the product, Avnet will not purchase products that contain conflict minerals that directly or indirectly finance or benefit armed groups in the DRC or adjoining countries.  Avnet expects its suppliers to these aspects of its business to only source minerals from responsible sources.

The Conflict Minerals Rule: Good Start or Bad Law?

Resource Investing News highlights the SEC’s view that a company does not qualify as having influence over the manufacturing of a product if it simply stamps its brand on the product or if it merely services a product manufactured by a third party. Resource Investing News then poses the question, “if a company hands over control of the manufacturing of any component of its product, the disclosure of the materials used by the manufacturer is unnecessary. What, then is to stop companies from outsourcing the manufacturing of their products in order to bypass SEC regulations?”

Daniel Persico, Vice President of Special Projects at KEMET, weighed in and said, “[w]e may end up seeing some companies that have maintained their own manufacturing sell their manufacturing and become virtual manufacturers just so they don’t have to deal with disclosing their materials. Instead, they’ll let the suppliers deal with the regulations.” However, he went on to say that he doubted that large electronics companies would be able to avoid disclosing information about their products because their customers will insist on it.