The Government of Canada has announced that it has opened consultations with industry regarding a plan to establish new mandatory reporting standards for payments made to governments by companies active in the extractive sector, including mining, oil, and gas. These new standards reflect the emphasis that the current Government has placed on combatting corruption and illicit payments to public officials, both domestically and abroad.

Canada's intention to implement a government payment disclosure regime was first announced by Canadian Prime Minister Stephen Harper on June 12, 2013 – see Canada Announces New Initiative for Disclosure of Payments to Governments. More recently, a joint working group comprised of industry and NGO participants, the Resource Revenue Transparency Working Group, made recommendations on what such a payment disclosure regime ought to include for the mining industry – see Recommendations Issued for Canada's Mandatory Payment Disclosure Regime.The Government has noted that the purpose of these new standards are to improve transparency within the industry and to move Canada into alignment with EU Transparency Directive and the US Dodd-Frank Wall Street Reform and Consumer Protection Act.

The purpose behind the consultations is to build on the discussions that have taken place over the previous year between government and various stakeholders. The comment period will last until May 9, 2014. Until that date, companies may submit their own public comments to the Treasury Board Secretariat's Open Government portal. The Government is also willing to meet with stakeholders directly to discuss concerns they may have. This is an important stage for industry involvement as it represents the best opportunity for companies to have an impact on the development of the standards prior to enactment.

Key Principles for the Disclosure Regime

The Government has identified in the consultation papers the following principles as being the foundation for the new standards:

  1. Public companies – The regime will apply to all publicly-listed companies operating or headquartered in Canada and involved in the commercial development of oil, natural gas, and minerals will be required to report;
  2. Private companies – Also, private extractive companies will be required to report if they meet two of the following three criteria: $20 million CAD in assets; $40 million CAD in net turnover; and 250 employees; these criteria were adopted to be in accordance with the criteria of the EU and the US;
  3. Equivalency – There should be explicit recognition and acceptance of other reporting regimes that are equivalent such that a report filed under those other regimes will be accepted in Canada; the other regimes would include those of the United States and EU;
  4. Scope – All mining companies that are reporting issuers under Canadian securities legislation should be required to report payments related to the commercial development of mineral deposits that are made to any level of government in Canada or abroad;
  5. Subsidiaries and controlled entities – Payments by subject companies' subsidiaries, directly or indirectly controlled entities and entities over which they have joint control or exert significant influence should also be reported;
  6. Covered payments – Disclosure on a disaggregated and cash basis should be required for profit taxes, royalties, fees, production entitlements, bonuses, dividends, infrastructure payments required by law or contract, and transportation and terminal operation fees;
  7. Exempted payments – Consistent with US and EU legislation, companies would not be required to report social payments (e.g. schools, training, local community centres);
  8. Reporting threshold – There will be a threshold on reporting payments to all levels of government set at $100,000, aligned with the U.S. and EU regime; this applies to all companies that are within the scope of the new standards;
  9. Disaggregation by project – Payments should be reported on a project-by-project basis and "project" should generally, but not exclusively, be determined on the basis of legal agreements such as licenses or concessions, consistent with U.S. and EU approaches;
  10. Disclosure form and format – The Government is in the process of crafting a reporting template that will be substantially similar to that of the US and the EU; companies would be required to post their reports annually on their corporate websites in "eXtensible Business Reporting Language" (XBRL) so that the information is free and unrestricted for use by the public; and
  11. Verification, audit and penalties – Companies would be required retain a third party to verify the information they provide; the Government will periodically audit selected companies annually with a compliance mechanism, such as administrative monetary penalties, for non-reporting or reporting which misrepresents the data.

Issues for Industry Consideration

The Government is particularly interested in feedback from the oil and gas industry on the following issues:

  1. What considerations should the Government of Canada take into account in communicating this initiative to stakeholders and the public?
  2. What are the implications of using equivalent criteria to the EU Transparency directive?
  3. Currently payments to Aboriginal entities will be captured by the new standards, how should payments to foreign indigenous entities be captured?
  4. What elements should be included in the common reporting template?
  5. What measures are required to ensure that there is no double-counting?
  6. How can the information from company reports be made most accessible to the public?
  7. What is the easiest way for companies to notify the Government and the public that they have met their reporting obligations?
  8. What is the viability of having third party verification for all reporting data?
  9. What are the implications for the industry of imposing penalties for non-reporting or purposeful misrepresentation of data?
  10. How would industry propose addressing conflict between confidentiality clauses in Impact Benefit Agreements and the reporting requirements?

Implementation of the New Reporting Regime

The Government is currently in discussions with the provinces to determine whether these measures can be adopted at the provincial instead of federal level. The Government has expressed a desire that these standards be implemented by provincial securities regulators. However, it has indicated that if these standards are not being implemented by the provinces shortly the Government will begin the legislative process in the summer of 2014. The Government would introduce the new standards as part of its legislative agenda in September of 2014 with the goal of enacting the legislation by April 1, 2015.

This initiative to implement mandatory reporting of payments to governments is just one of many significant developments in Canadian anti-corruption law. Along with last year's amendments to the Corruption of Foreign Public Officials Act and recent increased enforcement efforts by the Royal Canadian Mounted Police and convictions under the CFPOA, these latest developments highlight the need for Canadian companies in the extractive sector to ensure they have effective compliance strategies in place and to act quickly when potential violations are detected. McCarthy Tétrault's International Trade and Investment Law Group has extensive experience in dealing with compliance and enforcement issues in this area and is available to assist companies affected by these latest developments.

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