On October 23, 2014, the Government of Canada introduced the proposed Extractive Sector Transparency Measures Act into Parliament. The proposed Act, which is contained with the omnibus budget Bill C-43, is intended to deter and detect corruption by requiring companies to report payments they make to governments in Canada and abroad. The federal government is implementing the measures as part of international efforts to improve transparency surrounding payments made by companies in the oil and gas and mining sectors to governments.
The Reporting Requirement
The reporting requirements will apply to any company that is publicly traded in Canada, as well as any other company doing business in Canada that meet two of the following three criteria: it has at least $20 million in assets; it has at least $40 million in revenue; or it has at least 250 employees. The federal government will be able to expand the reporting requirement to other companies by regulation. Those companies will be required to report payments to governments in specified categories, including taxes, royalties, fees, production entitlement, bonuses, dividends and infrastructure improvement payments. The federal government will have the power to expand the list of reportable payment categories by regulation.
Companies will be required to disclose payments within a category of payment that are made to the same government, if the total of all payments during the financial year is at least $100,000 (including the value of payments in kind), or any other amount specified in regulations. The $100,000 threshold is lower than the US$100,000 applicable in the United States and the 100,000 euro threshold applicable in the European Union. Companies which are subject to reporting requirements in the United States and Europe will have to keep these differing thresholds in mind. The proposed Act does allow the federal government to deem compliance with other jurisdictions’ reporting requirements to meet requirements under the proposed Act, if the responsible Minister believes that the other jurisdiction’s reporting requirements meet the purposes of the proposed Act.
Companies are to report payments by filing reports within 150 calendar days of their financial year end. Companies will be required to keep records related to reports for a period of seven years after filing. In addition, the federal government will have the power to order companies to provide information, including audit results, needed to confirm that reporting requirements have been met.
The proposed Act provides significant penalties for contraventions, including fines of up to $250,000 for failure to report payments and for deliberately structuring payments so as to avoid triggering reporting obligations. Any official, director, or agent of a company that directs, authorizes, assents to, acquiesces in or participates in a contravention of the reporting requirements will also be guilty of an offence and liable to a fine of up to $250,000.
Application to Aboriginal Governments
The proposed Act will apply to payments made to Aboriginal governments in Canada, but not for two years after the Act comes into force. At that time, companies will be required to report payments made to First Nations, Metis settlements and other Aboriginal governments (for example those north of 60º) that are within the listed categories.
At present, the categories of reportable payments do not include consultation capacity funding payments, nor are “social” payments for training and education, employment, and community development purposes expressly included in the reporting requirements. However, the scope of the “infrastructure improvement payments” category is undefined, and could potentially capture community investment payments made by companies to Aboriginal governments under impact benefit agreements, depending on the purpose or intended use of the payment.
Coming Into Force
There are no defined timelines for bringing the proposed Act into force. However, the spring 2014 federal consultation paper on establishing mandatory reporting standards for the extractive sector states that Canada has committed to implementing the measures by June, 2015. Assuming the proposed Act is passed by Parliament along with the other provisions of Bill C-43, the Act will come into force on a date or dates to be determined by the federal government. Resource companies will want to monitor the implementation of the proposed Act, and ensure that appropriate internal tracking and compliance measures are in place prior to the proposed Act coming into force.
Keith advises private sector, public sector and government clients on Indigenous law and regulatory matters. He has appeared as counsel before numerous regulatory tribunals and all levels of Superior and Appellate Courts (both ...
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Lawson Lundell's Project Law Blog focuses on updating proponents on issues emerging in the law and policy that applies to the development of major projects in Canada. The focus of the blog is on matters relating to environmental assessment and compliance, regulatory matters and Indigenous consultation.