Prior to the start of the G8 conference in Northern Ireland on June 12, 2013, Canadian Prime Minister, Stephen Harper, announced that Canada is adopting tougher reporting standards to encourage greater corporate transparency in the energy and mining sectors, committing to Canadian initiatives and following in the footsteps of the U.S., Europe and Hong Kong.

Many argue that as a world leader in the mining industry it is important that Canada develops mandatory disclosure rules – almost 60% of the world's public mining companies are listed on the Toronto Stock Exchanges, pursuing more than 9,000 projects all over the world. Therefore Canadian initiatives could have a major global effect in promoting the Extractive Industries Transparency Initiative (“EITI”), a voluntary regime which has now been adopted by more than 35 resource-rich countries.

Traditionally, Canada has led the way in public company disclosure through measures such as National Instrument 43-101- Standards of Disclosure for Mineral Projects. Recently proposed mandatory reporting standards are aimed at building on the current regime by increasing transparency in regards to payments made to governments around the world. Prime Minister Harper's announcement gained express support from the Mining Association of Canada and the Prospectors & Developers Association of Canada, who, along with NGOs Publish What You Pay-Canada and the Revenue Watch Institute, created the Resource Revenue Transparency Working Group ("RRTWG") in 2012 to develop a framework for the reporting of payments to governments by the mining sector.

Although the federal government is not obliged to use the RRTWG framework, using it as a guideline will help to ensure that new requirements are mindful of industry interests, as the framework was created through extensive cross-sector consultations with mining companies, investors, industry experts, government officials and civil society groups across Canada.

What can we expect?

No details have been released yet, but government sources have claimed that it could take up to 2 years of consultations to develop the framework. In addition, it is widely accepted that the best way for Canada to implement mandatory disclosure rules for public companies is through its securities regulators. However, unlike the UK or the U.S., Canada does not have a single unified securities regulator, instead securities regulation is undertaken at a provincial level. Therefore the federal government's role will be to bring the 13 provinces and territories together to formulate a coherent and unified approach to mandatory disclosure in the extractive sector.

It is widely anticipated that any Canadian disclosure framework will be based on the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and the recently released EU amendments to its Accounting Directives, while also taking into account the RRTWG framework. This would be a welcome move as it would not only prevent the duplication of reporting requirements and differing levels of disclosure for international public companies, but it would also expedite the process and save tax payers money in much the same way as Quebec has done by adopting California's carbon cap-and-trade emissions management system.

To understand what such a Canadian disclosure framework will likely look like, it is important to look at the recommendations of the RRTWG and the key features of the Dodd-Frank Act and the EU Directives.

  1. The Resource Revenue Transparency Working Group - Background to Recommendations on Mandatory Disclosure of Payments from Canadian Mining Companies to Governments

On June 14, 2013 the RRTWG released its draft framework for a mandatory reporting mechanism in Canada for consultation. The framework is currently open for comment until September 1, 2013, to allow consideration prior to November 2013, at which point the framework will be finally endorsed and provided to the Canadian government.

The overarching principles of the framework seek to:

  1. Contribute to a process which results in communities, sub-national authorities and national oversight actors having access to the information necessary to hold their governments and decision makers accountable for revenues derived from extractive resource development;
  2. Develop a framework that results in project-by-project reporting, on a country-by-country basis, for all levels of government in Canada and abroad; and
  3. Propose a framework for disclosure that remains broadly consistent with international standard so as to find alignments, reduce duplication, avoid conflicting reporting requirements between jurisdictions and seek equivalency with other jurisdictions where possible.

The framework includes a broad definition of "extractive company" to ensure that the framework applies to all extractive sectors, expressly included to mirror the EU and U.S. legislation. Similarly, the definition of 'project' is intended to be flexible in order to allow companies to apply the term to different business contexts, but is also expressly consistent with the U.S. Dodd-Frank definition.

A reporting threshold is proposed which requires the disclosure of payments that are material to citizens, captures payments through all segments of the mine cycle, does not create an unreasonable burden on companies, and reduces the possibility of duplicative reporting. In addition, the framework should capture payments made to governments above a reasonable minimum threshold. The EU Directives set the threshold at €100,000 made in payments within a financial year, including a single payment or a series of payments to governments.

Contravention of the framework's provisions will incur penalties and liabilities that are recommended to be reasonable and proportionate, while also encouraging compliance. To what extent the proposed penalties will interact with existing securities legislation penalties has not been mooted in the draft framework.

An underlying theme in the framework is to prevent the duplication of reporting for extractive companies, hinting that the measures eventually implemented within Canada are likely to mirror the EU and U.S. legislation, or, in a similar way to the EU directives, provide for equivalency provisions that recognize the reporting process in the another jurisdiction.

  1. The U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act

Section 1504, "Disclosure of Resource Extraction Issuers", requires companies filing on U.S. stock exchanges to report payments they make to governments on a country-by-country and project-by-project basis. These provisions came into effect in November 2012, requiring companies covered under the provision to begin reporting in as early as 2014.

The new disclosure requirements apply to any commercial development of oil, natural gas or minerals, including exploration, extraction, processing and export, and covers any payment that exceeds $100,000 in a fiscal year that is directly related to commercial development activities, including exploration, extraction, processing and export or acquisition of any license for such activity. This includes taxes, royalties, dividends, bonuses or payments for infrastructure improvements.

The SEC purposely didn’t define 'project' in order to allow issuers flexibility in applying the term to different business contexts, but openly dismissed operations within a geographical basin as being too broad a definition and an individual lease as being too narrow. It is expected that a 'project' definition will be tied to the master contract with the local government, and the manner in which the issuer has generally disclosed its 'projects' in its public filings. With time, resource issuers will develop an idea of how to determine 'projects' based on other resource issuers and the development of industry standards.

  1. The new EU amendments to the Accounting Directive and the Transparency Directives

Amendments to the EU Accounting Directive and Transparency Directive, the Extractive Industries Transparency Initiative or “EITI”, introduce new obligations for large extractive and logging companies to report payments made to governments, on a country-by-country and project-by-project basis. The EITI obligations apply to all companies listed on EU regulated markets and large non-listed companies (meaning a company that exceeds two of the three following criteria: turnover €40 million, total assets €20 million and employees 250), and caught payments include production entitlements, taxes, royalties, dividends, bonuses, licence fees, rental fees or payments for infrastructure improvements.

In creating the new EITI requirements, the EU expressly stated that it had responded to developments in the U.S. under the Dodd-Frank Act, and subsequently it is unsurprising that many of the provisions in the EITI amendments are similar to its U.S. counterpart. One such similarity is the reporting threshold of €100,000 for payments made in a single year, including one-off payments and series of payments. There is one big difference, however, in that the EU Directives apply to not only public extractive companies but also large private ones - thus making it harder for companies to hide government payments behind private subsidiaries.

The new disclosure requirements aim to promote the adoption of the EITI and improve the transparency of payments to governments, allowing citizens to hold governments of resources-rich nations accountable for any income raised. Companies should be aware that the EU expressly stated that these amendments will be reviewed, modified or amended within three years of the expiration of the deadline for transposition of the legislation by member states of the EU. Any further amendments will take into account any international developments and the competitiveness of EU industry, but could also include extending the reporting obligations to other industry sectors. It is also expressly mentioned that the introduction of a due diligence requirement when sourcing minerals could be introduced after the three year deadline above has passed, in order to ensure supply chains have no links to conflict parties and companies are engaged in responsible supply chain management.

One key aspect of the new EITI requirements is the introduction of an 'equivalence clause' which allows companies to publish a report on the basis of the mandatory requirements of a third country, provided that these are considered equivalent to the EU requirements. This provision aims at preventing duplication and lightening the burden on companies covered by the reporting requirements.


A Canadian framework for the reporting of payments to governments is on the horizon and will likely be based on the existing U.S. and EU frameworks. Whether a Canadian framework would adopt the more stringent measures of the EU Directives to include public and private companies will be the main point of interest for stakeholders in the process. The first hurdle for the Canadian government, however, is bringing all of the provinces and territories together to formulate a unified plan. This will not be a straight forward process.

The failure of the Canadian federal government and the reluctance of the provinces and territories to implement a single securities regulator to date highlights the issues Canada has in achieving unified regulation. Canada's recent withdrawal from the Kyoto agreement and the widely varying climate change regulation across the country emphasises the challenges ahead to meet international obligations entered into by the Canadian government.

Although figuring out the mechanics of a Canadian framework may take some time, support for mandatory disclosure standards has been evident in Canada and the U.S. for some time, with investor institutions in Canada with over $362 billion in assets and in the U.S. with over $1 trillion in assets expressly writing to their respective regulators in support of stricter standards.

Corruption and bribery is still a real issue in emerging markets as well as developed ones, as evidenced by recent infrastructure industry related corruption allegations in Canada. More stringent requirements to improve transparency in the extractive sector may allow more projects to be completed with less corruption, thus ensuring that the citizens of resource rich nations receive the remuneration and benefits they are entitled to, no matter where in the world that happens to be.