In an attempt to eradicate bribery and corruption in the extractives industry, governments around the world, including the United States, Canada and the United Kingdom are introducing mandatory reporting requirements to increase revenue transparency and accountability for resource extraction companies.
The Corporations Amendment (Publish What You Pay) Bill 2014 (Cth) (Bill) sets the stage for Australia to formally align its governance standards with those of its closest allies. If passed, it will require Australian-based extractives companies to report payments they make to governments on a country-by-country, project-by-project basis.
The introduction of the Bill is consistent with Australia’s pilot of the Extractive Industry Transparency Initiative (EITI), a global benchmark which supports improved governance in resource-rich countries through the full publication and verification of payments to governments.
Who is affected?
The proposed legislation creates new mandatory reporting requirements for all ASX-listed companies, unlisted public companies, large proprietary limited companies, and controlled joint venture companies that are engaged in a resource extraction activity. For the purposes of the Bill, ‘resource extraction activities’ include the following activities in relation to oil, gas, mineral mining and native forest logging:
- development, and
- extraction or logging.
What must be reported?
If the Bill is introduced, affected companies will be required to report any payment, or series of payments, of more than AUD$100,000 made to a domestic or foreign government (including an authority of, or a company owned by, that government entity) in relation to a resource extraction activity.
‘Reportable payments’ (including payments in kind) are broadly defined by the Bill and capture production entitlements, taxes, royalties, dividends, signing, discovery or production bonuses, licence fees, infrastructure improvements, social payments (e.g. payments relating to or given for community projects) and payments for security services.
To avoid concealment of smaller payments, the proposed Bill treats a series of related payments that together meet the threshold of AUD$100,000 as a single payment.
To comply with the reporting requirements, companies will be required to lodge an annual report with ASIC for each resource extraction project that the company is engaged in and for each government entity that the company makes a reportable payment to. The specific details and rules surrounding the reporting requirements, however, are yet to be finalised.
The proposed legislation requires ASIC to make the company report available, free of charge, on its website not longer than 28 days after receiving it.
A failure to take all reasonable steps to comply with or to secure compliance with these new financial reporting requirements will constitute a breach of the Chapter 2M of the Corporations Act 2001 (Cth) and will be subject to the civil penalty provisions of the Act.
As a result of the heightened scrutiny of payments to governments globally, including with the proposed introduction of the Bill, Australian extractives companies should take a closer look at their existing anti-corruption policies and procedures to review their effectiveness.