3 November 2014
Practice Group(s):
Energy, Infrastructure
& Resources
Australian Anti-Corruption Proposal to Mandate
Disclosure of Offshore Mining and Resources
Payments to Governments
Australian Energy, Infrastructure & Resources Alert
By Robert Milbourne & Hugh Esler
Australia has taken a significant step in supporting a global movement for accountability
and transparency in the mining and extractives industries. On 28 October 2014, Greens
leader Christine Milne introduced the Corporations Amendment ('Publish What you Pay')
Bill 2014 to the Senate. The legislation would establish mandatory reporting of payments
made by Australian based resource extraction companies to governments in Australia
and around the world. Introduction of the Bill follows the global decade long 'Publish
What You Pay' movement to encourage full public disclosure of oil, gas and mining
revenues in resource-rich countries. The Bill aims to stamp out corruption in the industry
through mandating public disclosure of all payments to governments and encouraging
governments to publish funds received, so that a full accounting may be disclosed.
If passed, the legislation will require Australian public and large proprietary companies (or
subsidiaries of those companies) that carry out resource extraction activities (including
mining, oil and gas, and logging) to submit annual financial reports detailing all payments
made to Australian and foreign government entities that relate to extraction activities
valued over AUD100,000. The obligation will include all stages from exploration through
to rehabilitation. The Bill follows the introduction of similar legislation in the Unites States,
Canada and United Kingdom and is the next step in the completion of the Australian pilot
of the Extractive Industries Transparency Initiative (EITI).
The EITI is a voluntary mechanism under which governments, companies and civil
society have sought to enhance openness and accountable management of natural
resources revenues. The EITI is premised on the theory that enhanced transparency and
dialogue will assist in overcoming poverty, conflict and corruption - the "resource curse"
afflicting many developing country economies that are heavily reliant on resource
extraction. Globally, there are 31 EITI compliant countries and another 17 candidate
countries.
In its current form the Bill will mandate filing of an annual report of payments on a
country-by-country and project-by-project basis. The disclosures are intended to capture
not only 'traditional' payments to the government such as royalties, license fees and
taxes, but also indirect payments such as 'infrastructure improvements', 'social payments'
and 'security services'. Disclosure will be mandatory for cash or in-kind payments. The
disclosure will be required for directly controlled and joint venture subsidiaries. The
Australian Securities Investment Commission (ASIC) will then be required to disclose the
reports within 28 days of receipt.
ASIC may, under certain circumstances, make an order relieving a company of its
reporting obligations if disclosures substantially hinder the company in the exercise of its
rights over the assets or management of the subsidiary; (ii) the information necessary to
comply with the requirement cannot be obtained without disproportionate expense or
Australian Anti-Corruption Proposal to Mandate Disclosure of Offshore
Mining and Resources Payments to Governments
undue delay; or (iii) the subsidiary is a subsidiary of the holding company only because
the holding company holds shares in the subsidiary for the sole purpose of selling them.
The Bill raises a number of important issues for Australian resources companies,
including the management of confidentiality provisions in agreements with foreign
governments and the potential ramifications of breaching those agreements in order to
comply with the compulsory disclosure regime. Australian resources companies should
carefully monitor progress of the Bill and their obligations within it.
If enacted, companies will need to consider the consequences of disclosing host
government payments, in particular whether such payments include any confidential
information, or could otherwise impact on third party obligations (such as non-Australian
resident joint venture parties). Consideration should also be given to implementation of
appropriate systems and controls to ensure that all payments to government entities, that
are subject to the Bill, are recorded in a central location to ensure compliance if the Bill is
passed. If companies propose to enter into new agreements with foreign government
entities, it will be prudent to closely consider the impact of the Bill on any confidentiality
obligations when negotiating those agreements.
The K&L Gates Energy, Infrastructure and Resources Group will continue to monitor
progress of the Bill and will provide updates as required.
Authors:
Robert Milbourne
robert.milbourne@klgates.com
+61 7 3233 1203
Hugh Esler
hugh.esler@klgates.com
+61 7 3233 1224
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Australian Anti-Corruption Proposal to Mandate Disclosure of Offshore
Mining and Resources Payments to Governments
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