www.whoswholegal.com
ARTICLES • 13
INCREASING TRANSPARENCY IN THE
EXTRACTIVE INDUSTRY: THE CANADIAN
APPROACH
Darrell W Podowski and Jennifer L Poirier, Cassels Brock & Blackwell LLP
In keeping with the recent global trend
of combating corporate misconduct
and corrupt practices, and as part of a
commitment to increase transparency in
the extractive industry, in October 2014,
the government of Canada tabled the
Extractive Sector Transparency Measures
Act (Act). The Act mandates the disclosure
of payments that companies in the
extractive industry make to governments.
The reporting standards are intended to
align with reporting requirements in other
jurisdictions (such as the European Union)
and avoid duplicative reporting in different
jurisdictions.
Although the Canadian government
indicated that its preference was for
the provinces and territories of Canada
to implement the reporting standards
through their own securities regulators,
with Quebec being the only government
to indicate a commitment to do so, the
government of Canada has taken the lead
by introducing federal legislation.
A working group comprised of
the Mining Association of Canada, the
Prospectors & Developers Association of
Canada, Publish What You Pay Canada
and the Revenue Watch Institute have
identified positive impacts that reporting
standards may have on the mining industry
(Recommendations on Mandatory
Disclosure of Payments from Canadian
Mining Companies to Governments, 16
January 2014: The Resource Revenue
Transparency Group) (Working Group
Recommendations). In countries where
corruption is common, or funds are
mismanaged by governments, the benefits
that these countries obtain from resource
revenues may be lost. The working group
notes that by increasing transparency in
resource revenues paid to governments,
this may help to deter corruption and
increase government accountability. It
may also “assist investors to properly
analyze the financial and political risks
inherent in extractive sector development;
and help companies secure a social
licence to operate” (Working Group
Recommendations, page 3).
Prior to tabling the proposed
legislation, Natural Resources Canada
issued a consultation paper which
provided details as to the background and
purpose of the proposed reporting regime
(Spring 2014: Natural Resources Canada)
(Consultation Paper).
The working group
notes that by increasing
transparency in resource
revenues paid to
governments, this may
help to deter corruption
and increase government
accountability
WHO MUST REPORT, AND WHAT MUST BE
REPORTED?
Under the Act, an “entity” includes (i) a
corporation, trust, partnership or other
unincorporated organisation that is
engaged in the commercial development of
oil, gas or minerals in Canada and abroad;
and (ii) a corporation, trust, partnership
or other unincorporated organisation that
controls an entity described in (i) above.
The “commercial development of oil, gas
or minerals” captures the exploration or
extraction of oil, gas or minerals and the
acquisition or holding of a permit, licence,
lease or any other authorisation to carry
out exploration or extraction activities.
While the Consultation Paper suggests that
the reporting standards should apply to the
international export of resources, the Act
does not appear to extend to these types of
activities.
The Act will not only apply to
entities that are listed on a Canadian stock
exchange, but will also apply to entities
that have a place of business in Canada,
do business in Canada, or have assets in
Canada, if they meet two of the three
thresholds for at least one of their two
most recent financial years: at least C$20
million in assets; at least C$40 million in
revenue; and an average of at least 250
employees.
An entity that is subject to the Act
will be required to report certain types
of payments, whether monetary or in
kind, that it has made to governments in
Canada or abroad, as well as to a body
or authority established to exercise or
perform a power, duty or function on
behalf of a government, if the total amount
of those payments during a financial year
exceeds C$100,000 (or such other amount
as may be prescribed by regulation).
The types of payments that must be
reported are those made in relation to
the commercial development of oil, gas
or minerals that fall within the following
categories: taxes, other than consumption
taxes and personal income taxes; royalties;
fees, including rental fees, entry fees
and regulatory charges, as well as fees or
other consideration for licences, permits
or concessions; production entitlements;
bonuses, including signature, discovery and
production bonuses; dividends, other than
dividends paid as ordinary shareholders;
payments for infrastructure improvements;
and any other prescribed category of
payment.
EDITORIAL POLICY AND SELECTION CRITERIA: NOMINEES HAVE BEEN SELECTED BASED UPON COMPREHENSIVE, INDEPENDENT SURVEY WORK WITH BOTH GENERAL COUNSEL
AND MINING LAWYERS IN PRIVATE PRACTICE WORLDWIDE. ONLY SPECIALISTS WHO HAVE MET INDEPENDENT INTERNATIONAL RESEARCH CRITERIA ARE LISTED
14 • ARTICLES WHO’S WHO LEGAL: MINING
APPLICATION TO ABORIGINAL GROUPS
Although the Consultation Paper
proposed that payments made to
Aboriginal governments also be subject
to the reporting standards, under the
Act, the application of the reporting
standards to payments made to Aboriginal
governments (and bodies or authorities
established to exercise or perform a
power, duty or function on behalf of
an Aboriginal government) has been
postponed until two years after it
comes into effect. This is in line with
the Minister of Natural Resources
Canada’s announcement that the federal
government will delay application of the
standards and continue consultation with
Aboriginal groups (Our Resources, New
Frontiers: Canada’s energy and mines
ministers discuss responsible resource
development and priorities for the
upcoming year, 26 August 2014: Natural
Resources Canada) (Press Release).
REPORTING PROCESS
Entities must report payments that are
subject to the Act by providing an annual
report to the Minister within 150 days of
the end of each financial year. A director
or officer of the entity, or an independent
auditor or accountant, must attest that
the information in the report is true,
accurate and complete. The report must
also be made available to the public in the
manner specified by the Minister, and for
the period specified by regulation or, if no
such period is specified, the report must
be publicly available for five years.
Under the Act, the Minister has the
power to compel entities to provide him
or her with certain information in order
to verify compliance with the Act, such
as the results of an audit of the entity’s
report or the records of payments for the
financial year to which the report relates.
If the Minister determines that
the reporting requirements of another
jurisdiction achieve the same purposes as
the reporting requirements under the Act,
an entity may be permitted to use reports
prepared for such other jurisdiction as a
substitute for reports required under the
Act.
EXEMPTIONS
After considering whether certain
exemptions from the reporting standards
should be granted, such as in circumstances
where the standards conflict with laws
In shor t order, companies
will be required to modify
or adopt procedures to
monitor and record details
of payments made to
governments
that prohibit disclosure of the required
information or conflict with contractual
provisions regarding confidentiality, the
Consultation Paper proposed that no
exemptions from the reporting standards be
granted. In line with this proposal, the Act
does not contain any specific exemptions
from the reporting requirements; however,
it reserves the right for the Governor in
Council to grant exemptions by regulation.
PENALTIES
Any person or entity that fails to comply
with the payment reporting obligations,
that knowingly makes a false or misleading
statement or knowingly provides false or
misleading information to the Minister,
and every entity that structures any
payments with the intention of avoiding
the reporting requirements, is guilty of an
offence and liable to a fine of not more
than C$250,000. In addition, any director,
officer, agent or mandatory who directed,
authorised, assented to, acquiesced in or
participated in the commission of the
offence is also a party to and guilty of
the offence. A due diligence defence may
be available, if the person or entity can
establish that they exercised due diligence
to prevent the commission of the offence.
***
The government of Canada has committed
to enacting reporting standards by April
2015, and it is expected that the Act will be
in effect mid-2015. With this deadline fast
approaching, companies in the extractive
industry need to be aware that this
reporting regime is quickly coming down
the pipe. In short order, companies will be
required to modify or adopt procedures
to monitor and record details of payments
made to governments. For companies with
international operations, this may include
implementing appropriate procedures to
ensure compliance with the reporting
regimes of multiple jurisdictions. Also, as
the Act has not yet been finalised (and
must move through subsequent readings),
companies should keep their eye out for
any revisions and changes to the reporting
standards proposed under this legislation.
This briefing was prepared as of 31
October 2014, and therefore will not
reflect any revisions to the Act approved
after this date.
EDITORIAL POLICY AND SELECTION CRITERIA: NOMINEES HAVE BEEN SELECTED BASED UPON COMPREHENSIVE, INDEPENDENT SURVEY WORK WITH BOTH GENERAL COUNSEL
AND MINING LAWYERS IN PRIVATE PRACTICE WORLDWIDE. ONLY SPECIALISTS WHO HAVE MET INDEPENDENT INTERNATIONAL RESEARCH CRITERIA ARE LISTED