The Canadian federal government has brought in a new Act to require greater reporting obligations around payments made to governments by Canadian oil, gas and mining companies. The Act emphasises the importance of monitoring and controlling payments to governmental entities and individuals.
The government believes the Act will “eliminate duplicative reporting to multiple jurisdictions, reducing the administrative and cost burden on governments and companies.” The Act follows similar measures in the US under the Dodd-Frank Act and in the EU under the Transparency and Accounting Directives, both of which are expected to take effect in 2015.
Who Is Affected?
The Extractive Sector Transparency Measures Act applies to a company that:Is listed on a Canadian stock exchange, or Operates in Canada and meets or exceeds two of the following three conditions: $20 million in assets; $40 million in revenue; or Employs 250 employees.
What Is Required?
The Act requires companies to publicly publish an annual report of payments of $100,000 or more to all levels of governments, both domestic and foreign. The threshold applies in aggregate to each payee.
A payment is broadly defined and includes taxes, royalties, fees, production entitlements, bonuses, and certain dividends. Payments can be monetary or in kind.
What Is The Timing?
The Act received royal assent on December 16, 2014. No date has been set for when the Act comes into force, but it is expected to be June 2015.
What Are The Penalties?
The Act creates corporate and personal liability, including for any officer, director or agent.
Non-compliance with various provisions of the Act is an offence punishable on summary conviction. Fines may also be imposed up to $250,000 per offence. If an offence is committed or continued for more than one day, each day constitutes a separate offence.
Enforcement of the Act is not spelled out in detail. Enforcement officers designated by the Minister will have powers to enter any place with reasonable grounds, access company documents and computer systems, and remove anything from the place for the purpose of examination.
What Are The Key Take-Aways?
Businesses operating in the extractive sector need to be aware of the potential implications of this Act on their operations. Businesses may need to re-evaluate their financial interactions with governments in light of the requirement to make publicly available details of significant payments.
The Act does include a due diligence defence; there will be no conviction if the person can show that they exercised due diligence to prevent the commission of the offence. This provides important encouragement to companies to establish risk management control systems, in particular where payments to governments are concerned.