The Extractive Sector Transparency Measures Act (ESTMA) has been in force since June 1, 2015.  Entities that are listed on a Canadian exchange or meet certain size requirements and are engaged in the commercial development of oil, gas and minerals are required by ESTMA to file an annual report disclosing certain cash and in kind payments made by them to domestic and foreign governments.  Reports required under ESTMA must be filed within 150 days of the entity’s financial year end, and must be accompanied by an attestation by an officer or director of the reporting entity.

Under ESTMA, every relevant payment in each payment category must be collected and aggregated to determine whether the $100,000 reporting threshold by category and payee has been reached or exceeded. ESTMA broadly defines an “entity” as including corporations, trusts, partnerships and joint associations, and contains rules which attribute payments made by subsidiaries to the ESTMA reporting entity that controls them. This means that companies which are, or may be subject to ESTMA and have complex corporate structures, or a large number of subsidiaries or joint venture interests, should already be integrating ESTMA into their business processes to prepare for their first ESTMA filing.

Recommended measures to prepare for a first ESTMA filing include:

  • assessing corporate structure both domestically and abroad to identify all ESTMA “reporting entities” in the corporate family;
  • evaluating ESTMA obligations in relation to foreign jurisdiction resource revenue transparency legislation applicable to certain members of the corporate family;
  • determining how the attribution rules apply to each entity’s payments and payees;
  • implementing a payment tagging and tracking process to collect and aggregate payments by payment category and payee to identify where the reporting threshold has been triggered; and
  • developing a strategy as to which entities in the corporate structure will file ESTMA reports, and whether they will report for other entities within the corporate family.

In addition to preparing for its first report, an entity subject to ESTMA should consider how it can manage future regulatory risk by incorporating ESTMA compliance into its day to day governance structure and operations. Proactive measures may include:

  • identifying and training applicable personnel and contractors;
  • ensuring that co-investment agreements, such as shareholder agreements and joint venture agreements, assign responsibility for compliance with ESTMA and contractually allocate risk of non-compliance accordingly;
  • assessing each acquisition target’s ESTMA compliance in its due diligence process; and
  • integrating ESTMA processes into internal certification and audit processes to facilitate reporting and allow for the due diligence defense in the event of inadvertent non-compliance.

While ESTMA may appear to create a short list of new requirements, actually incorporating the requirements into an entity’s operations and reporting processes requires thoughtful analysis and an investment of time and resources. This is especially so for complex corporate families in multiple jurisdictions.