Home World News Increasing Transparency In The Extractive Industry: The Canadian Approach

Increasing Transparency In The Extractive Industry: The Canadian Approach


In keeping with the recent global trend of combating corporate misconduct and corrupt practices, and as part of a commitment to increase transparency in the extractive industry, in October 2014, the government of Canada tabled the Extractive Sector Transparency Measures Act (Act). The Act mandates the disclosure of payments that companies in the extractive industry make to governments. The reporting standards are intended to align with reporting requirements in other jurisdictions (such as the European Union) and avoid duplicative reporting in different jurisdictions.wpid-mining.jpg

Although the Canadian government indicated that its preference was for the provinces and territories of Canada to implement the reporting standards through their own securities regulators, with Quebec being the only government to indicate a commitment to do so, the government of Canada has taken the lead by introducing federal legislation.

A working group comprised of the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay Canada and the Revenue Watch Institute have identified positive impacts that reporting standards may have on the mining industry (Recommendations on Mandatory Disclosure of Payments from Canadian Mining Companies to Governments, 16 January 2014: The Resource Revenue Transparency Group) (Working Group Recommendations). In countries where corruption is common, or funds are mismanaged by governments, the benefits that these countries obtain from resource revenues may be lost. The working group notes that by increasing transparency in resource revenues paid to governments, this may help to deter corruption and increase government accountability. It may also ?assist investors to properly analyse the financial and political risks inherent in extractive sector development; and help companies secure a social licence to operate? (Working Group Recommendations, page 3).

Prior to tabling the proposed legislation, Natural Resources Canada issued a consultation paper which provided details as to the background and purpose of the proposed reporting regime (Spring 2014: Natural Resources Canada) (Consultation Paper).


Under the Act, an ?entity? includes (i) a corporation, trust, partnership or other unincorporated organisation that is engaged in the commercial development of oil, gas or minerals in Canada and abroad; and (ii) a corporation, trust, partnership or other unincorporated organisation that controls an entity described in (i) above. The ?commercial development of oil, gas or minerals? captures the exploration or extraction of oil, gas or minerals and the acquisition or holding of a permit, licence, lease or any other authorisation to carry out exploration or extraction activities. While the Consultation Paper suggests that the reporting standards should apply to the international export of resources, the Act does not appear to extend to these types of activities.

The Act will not only apply to entities that are listed on a Canadian stock exchange, but will also apply to entities that have a place of business in Canada, do business in Canada, or have assets in Canada, if they meet two of the three thresholds for at least one of their two most recent financial years: at least C$20 million in assets; at least C$40 million in revenue; and an average of at least 250 employees.

An entity that is subject to the Act will be required to report certain types of payments, whether monetary or in kind, that it has made to governments in Canada or abroad, as well as to a body or authority established to exercise or perform a power, duty or function on behalf of a government, if the total amount of those payments during a financial year exceeds C$100,000 (or such other amount as may be prescribed by regulation). The types of payments that must be reported are those made in relation to the commercial development of oil, gas or minerals that fall within the following categories: taxes, other than consumption taxes and personal income taxes; royalties; fees, including rental fees, entry fees and regulatory charges, as well as fees or other consideration for licences, permits or concessions; production entitlements; bonuses, including signature, discovery and production bonuses; dividends, other than dividends paid as ordinary shareholders; payments for infrastructure improvements; and any other prescribed category of payment.


Although the Consultation Paper proposed that payments made to Aboriginal governments also be subject to the reporting standards, under the Act, the application of the reporting standards to payments made to Aboriginal governments (and bodies or authorities established to exercise or perform a power, duty or function on behalf of an Aboriginal government) has been postponed until two years after it comes into effect. This is in line with the Minister of Natural Resources Canada?s announcement that the federal government will delay application of the standards and continue consultation with Aboriginal groups (Our Resources, New Frontiers: Canada?s energy and mines ministers discuss responsible resource development and priorities for the upcoming year, 26 August 2014: Natural Resources Canada) (Press Release).


Entities must report payments that are subject to the Act by providing an annual report to the Minister within 150 days of the end of each financial year. A director or officer of the entity, or an independent auditor or accountant, must attest that the information in the report is true, accurate and complete. The report must also be made available to the public in the manner specified by the Minister, and for the period specified by regulation or, if no such period is specified, the report must be publicly available for five years.

Under the Act, the Minister has the power to compel entities to provide him or her with certain information in order to verify compliance with the Act, such as the results of an audit of the entity?s report or the records of payments for the financial year to which the report relates.

If the Minister determines that the reporting requirements of another jurisdiction achieve the same purposes as the reporting requirements under the Act, an entity may be permitted to use reports prepared for such other jurisdiction as a substitute for reports required under the Act.


After considering whether certain exemptions from the reporting standards should be granted, such as in circumstances where the standards conflict with laws that prohibit disclosure of the required information or conflict with contractual provisions regarding confidentiality, the Consultation Paper proposed that no exemptions from the reporting standards be granted. In line with this proposal, the Act does not contain any specific exemptions from the reporting requirements; however, it reserves the right for the Governor in Council to grant exemptions by regulation.


Any person or entity that fails to comply with the payment reporting obligations, that knowingly makes a false or misleading statement or knowingly provides false or misleading information to the Minister, and every entity that structures any payments with the intention of avoiding the reporting requirements, is guilty of an offence and liable to a fine of not more than C$250,000. In addition, any director, officer, agent or mandatory who directed, authorised, assented to, acquiesced in or participated in the commission of the offence is also a party to and guilty of the offence. A due diligence defence may be available, if the person or entity can establish that they exercised due diligence to prevent the commission of the offence.


The government of Canada has committed to enacting reporting standards by April 2015, and it is expected that the Act will be in effect mid-2015. With this deadline fast approaching, companies in the extractive industry need to be aware that this reporting regime is quickly coming down the pipe. In short order, companies will be required to modify or adopt procedures to monitor and record details of payments made to governments. For companies with international operations, this may include implementing appropriate procedures to ensure compliance with the reporting regimes of multiple jurisdictions. Also, as the Act has not yet been finalised (and must move through subsequent readings), companies should keep their eye out for any revisions and changes to the reporting standards proposed under this legislation.

This briefing was prepared as of 31 October 2014, and therefore will not reflect any revisions to the Act approved after this date.

By ?Darrell W Podowski and Jennifer L Poirier,?Cassels Brock & Blackwell LLP

Source: http://whoswholegal.com/news/featurestransparency-extractive-industry-canadian-approach

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