Canada is expected to mandate disclosure by its extractive sector of payments made to local and foreign governments.
On October 23, 2014, the Government of Canada introduced legislation that will enact the Extractive Sector Transparency Measures Act ("the Act"), creating the most stringent suite of regulation in the resource sector ever seen in Canada. The Act, part of a drive by Canada to more fully implement its international commitments in the fight against domestic and foreign corruption, fulfils the Government's earlier vow to adopt the G8's "Publish What You Pay" initiative, and follows similar rules recently instituted in the EU and UK, and similar rules expected to be instituted soon in the US.
Generally, the Act will apply to any entity engaged in the oil, gas or mining sector that:
- Is listed on a stock exchange in Canada; or
- Has a place of business in Canada, does business in Canada or has assets in Canada and meets at least two of the following conditions for at least one of its two most recent financial years:
- It has at least $20 million in assets;
- It has generated at least $40 million in revenue;
- It employs an average of at least 250 employees.
Entities will be required to file, within 150 days of their financial year-end, reports of payments made to any government in Canada or in a foreign state, to a body that is established by two or more governments, or to any trust, board, commission, corporation or body that performs or is established to perform a government power, duty or function. The definition of what payments are required to be reported is very broad, and includes taxes, royalties, licence and other fees, production entitlements, signature, discovery and production bonuses, dividends, infrastructure improvement payments and any other prescribed category of payment. The Governor in Council is expected to enact regulations that will set out the specific detail of such reports, but given the Canadian Government's previous announcements on the subject, and the G8's clear mandate to demand accountability from governments and to empower citizens around the world to gain important information to monitor payments made to their local governments, it is widely anticipated that the Act will impose very detailed and thorough reporting by Entities. The Governor in Council is also expected to enact regulations in relation to the threshold amount for each category of payments to be reported. In the absence of any such regulation, the threshold will be a total of $100,000 to any single payee over the course of the financial year. Reports must be certified as true, accurate and complete by an Entity's director, officer or external auditor. The report must be made available to the public for a period of five years.
Noncompliance with the reporting, public accessibility or record-keeping provisions of the Act are offences punishable on summary conviction with fines up to $250,000. The Entity, as well as its officers, directors, agents or mandataries, are all potentially liable. Importantly, the Act will provide for the defence of due diligence. As such, if an organization fails to comply, the existence of a robust compliance program may provide a full defence to charges, thereby highlighting the need for resource companies to ensure that adequate measures are in place.
The Act will come into force on a day to be fixed by order of the Governor in Council.
The implementation of these measures is a clear indication that Canada intends to continue to send a strong message to resource companies that bribery both within and beyond Canada’s borders will not be tolerated. The Act’s reporting obligations will certainly assist in the detection of potentially improper payments, not only by the Entities’ senior management, but also by law enforcement agencies around the globe, concerned citizens and non-governmental organizations keen to scrutinize the activities of global resource players. Canadian resource companies would be well advised to adopt, implement and monitor the effectiveness of robust policies to ensure that the Act's reporting requirements are strictly complied with. Such policies should work in concert with existing corporate accounting, audit and IT policies as well as existing policies designed to ensure compliance with Canada'sCorruption of Foreign Public Officials Act and other applicable anti-bribery laws.