In the last few days we have seen a tremendous amount of progress on the issue of resource extraction transparency around the world – all driven by the G8 summit being held in Northern Ireland on June 17-18, 2013, with the central themes of “tax, trade and transparency”. The European Union (EU) has implemented its answer to the US’s transparency disclosure requirements pursuant to the Dodd-Frank Act, with an amendment to the EU Transparency Directive. Canada followed suit with a commitment to put in place a similar requirement, announced by Prime Minister Steven Harper while in London in advance of the G8 summit. In addition, a Canadian joint extractive industry and civil society working group released a framework for what transparency should look like in the Canadian context, which seems to be in keeping with Prime Minister Harper’s announcement. With the US, EU and Canada all moving, or having already moved, to embrace transparency in extractive industries, the vast majority of companies involved in those industries will be under an obligation to report, under at least one jurisdiction.
The extractive transparency approved by the European Parliament
On June 12, 2013, the EU Parliament overwhelmingly passed amendments to the EU Transparency Directive. The Directive now requires member states to enact rules that at least meet the requirements within the Directive. The Directive requires that extractive (mining and oil & gas) companies, as well as those involved in the logging of primary forests, report any payments to governments over €100,000 on a project-by-project basis. The new accounting and transparency directives bring the EU into line with disclosure rules adopted pursuant to s. 1504 of the Dodd-Frank Act in the US last year. However, the EU goes further by extending its reporting requirement to large private companies, and not just public companies as in the US.
Payments that must be reported include: production entitlements, taxes, royalties, dividends, bonuses, license fees, rental fees, entry fees and other considerations, as well as payments for infrastructure improvements. Both the EU Directive and the Dodd-Frank Act require disclosure when the company has confidentiality agreements with the jurisdiction in which it operates, and even when that jurisdiction legally forbids the disclosure. It remains unclear whether the reporting requirement will extend to payments made to Aboriginal communities.
The EU rapporteur for the new transparency laws said: "The vote today is history in the making. The new rules will be a major new weapon in the global fight against corruption, ensuring that citizens of resource-rich countries can hold their governments to account for the exploitation of their natural resources."
Member States now have two years to adopt law to implement this Directive.
Canada embraces resource extraction transparency
While in London on June 12, 2013, Canadian Prime Minister Steven Harper announced that Canada would be joining other G8 countries in an initiative regarding resource industry transparency. The Prime Minister committed to establish “new mandatory reporting standards for Canadian extractive companies with a view to enhancing transparency on the payments they make to governments”.
The announcement out of the Prime Minister’s office stated that: “The new reporting regime will be established with a view to: improving transparency; ensuring Canada’s framework is consistent with existing international standards and aligned with other G-8 countries; ensuring a level playing field for companies operating domestically and abroad; enhancing investment certainty; helping reinforce the integrity of Canadian extractive companies; and, helping to ensure that citizens around the world benefit from the natural resources in their country.”
Canada has also committed to a process of consultation with the provinces, First Nations and Aboriginal groups, industry and civil society organizations on the practical mechanics of how to create an effective regime. This is especially crucial in the Canadian context given the lack of a national securities regulator, which would mean that the provinces would need to cooperate to have securities regulation be the mechanism for such reporting. The CBC reported that: “A senior Canadian government official, speaking on the condition his name not be used, said he expects it will take about two years to hold consultations and develop a framework for the new reporting regime.” It will be interesting to see whether Canada’s transparency initiative will extend to payments made to First Nations, or indigenous groups internationally, pursuant to Impact and Benefit Agreements.
Resource revenue transparency working group releases framework for extractive transparency requirements in Canada
On June 14, 2013 and on the heels of the Prime Minister’s announcement a Canadian joint extractive industry civil society group – the Resource Revenue Transparency Working Group – released its recommendations for implementing mandatory reporting standards for Canadian mining companies. Members of the Working Group are: the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay-Canada and the Revenue Watch Institute.
The Working Group’s recommendations for a framework that could be implemented in Canada comes after over nine months of collaborative efforts by the Working Group, which undertook consultations across Canada with industry, civil society, government officials and experts. The draft framework has broad support from Canadian mining companies, along with investors and civil society and can be a jumping off point for the government’s new initiative.
Pierre Gratton, the Mining Association of Canada’s President and CEO, states industry’s position: “The Canadian mining industry is fully committed to improving transparency in a way that aligns with global standards. Today’s launch of the draft framework, which was developed hand-in-hand with our civil society partners, is an important step forward to help reduce corruption and build governance capacity, while showcasing the positive contributions we make to the countries where we operate.”
In its announcement, the Working Group noted that approximately 60 per cent of the world’s mining companies are registered in Canada, and more than 1,000 Canadian exploration companies are active in 100 countries – most of which have their only public listing in Canada. Canadian stock exchanges, the Toronto Stock Exchange (TSX) and TSX Venture in particular, host the lion’s share of the total global value of mining sector market capitalization, and mining equity capital raised. In recognition of the two-tiered reality of mining companies in Canada the Working Group has suggested two thresholds: one at $100,000 (in keeping with the EU and US initiatives) for senior exchange listed companies (TSX), and another at $10,000 for venture listed companies (TSX-V). The Working Group has settled on recommending that the “home” for such a requirement should be in securities legislation, which seems to be in keeping with Prime Minister Harper’s announcement, focusing on the need to consult with a number of stakeholders, but particularly the provinces (which regulate securities in Canada).
The Working Group has expressly released its framework as a discussion document to provide a foundation for ongoing consultation with a broad range of stakeholders and governments on the draft recommendations with a view to finalizing recommendations in the fall.
The draft recommendations and a background document can be found on the Mining Association of Canada website.
Canada’s support for resource transparency follows a new but relatively well trodden path. Given that the EU’s transparency initiative mirrors the US’s Dodd-Frank, it seems highly likely that Canada’s newly announced initiative will look very similar as well, despite the two years of consultation it is likely to take to get there.
With some consensus seemingly achieved on transparency in the extractive industries, transparency campaigners are likely to push for global benchmarks for corporate transparency in other industries. The EU has already indicated that it has an interest in extending this transparency directive to other industries, most notably banking, telecommunications and construction.