The Extractive Sector Transparency Measures Act (ESTMA) is now law in Canada, having received Royal Assent on December 16, 2014. Part of omnibus Bill C-34 (Economic Action Plan 2014 Act, No. 2), the Act requires publicly traded and large, private oil, gas and mining entities to publicly disclose payments to foreign and domestic governments. With the 2013 amendments to the Corruption of Foreign Public Officials Act (CFPOA) and the new Corporate Social Responsibility Strategy (November 2014), ESTMA complements Canada’s strong commitment to transparency, accountability and anti-corruption. Canada is home to more than 50 per cent of the world’s mining companies and a third of global oil and gas companies with operations in over 100 countries. The Canadian mining industry has partnered with civil society in the support and development of ESTMA for mandatory payment disclosure that would improve resource governance and reduce corruption. The initiative is also supported by investors with almost $6 billion in assets who view this type of transparency as improving business climates in resource-rich countries.
The Act falls short in specifying the detailed content of the required annual report as defined in parallel legislation in other jurisdictions such as the European Union and the United States; however, the Government of Canada has committed to country-by-country, project-level reporting. This and other crucial details will be decided by a multi-stakeholder administrative process in 2015.
In 2010, the United States enacted Section 1504 of the Dodd-Frank Act, requiring all oil, gas and mining companies listed on a U.S. stock exchange to disclose payments they make to governments internationally, on a projectby-project basis. This law will be implemented through regulations developed by the U.S. Securities and Exchange Commission. The first version of the regulations was successfully challenged by a group of oil and gas companies; however, revised regulations are under development and expected to be ready by late 2015.
In 2012, in response to growing international and domestic demand for greater financial transparency in the global extractives sector, Canadian civil society and mining industry organizations created the Resource Revenue Transparency Working Group. This group developed recommendations for a mandatory payment-reporting framework in Canada and presented its final recommendations to the Government of Canada in early 2014.
Other actions took place in 2013, including:
- The European Union finalized the Transparency and Accounting Directives, which require all publicly listed and large, private oil, gas, mining and forestry companies to disclose the payments they make to governments abroad on a project-by-project basis. EU member states are required to adopt the directives into their legislation by mid-2015;
- The Extractive Industries Transparency Initiative, an international voluntary standard for improving transparency in the extractive sectors, adopted a stronger standard that included a requirement for payments to be disclosed in a disaggregated format, including on a project-level basis;
- Prime Minister Stephen Harper announced Canada’s commitment to implement, by 2015, mandatory disclosure requirements for payments made to governments by oil, gas and mining companies both domestically and abroad, now known as the Extractive Sector Transparency Measures Act, or ESTMA.
The Act requires publicly traded and large, private oil, gas and mining entities to publicly disclose payments to foreign and domestic governments.
In 2014, the United Kingdom, France and Germany developed draft legislation to implement the EU Transparency and Accounting Directives. U.K. legislation is now adopted and will apply to companies with a fiscal year beginning on or after January 1, 2015.
In the spring of 2014, the Canadian government began public consultations, seeking input from public-interest and industry groups on disclosure standards. These new standards are intended to improve transparency within the industry and to achieve alignment with similar measures set out in the EU and U.S. It is also apparent that the Canadian government is seeking to broaden accountability and alignment with other initiatives, as evidenced by the 2013 amendments to the CFPOA and the November 2014 disclosure of government’s CSR strategy and policy.
Application of ESTMA
The reporting obligations (Section 8) apply broadly to companies listed on a Canadian stock exchange as well as certain private companies involved in the commercial development of oil, gas or minerals. This includes exploration or extraction as well as acquisition or holding of a permit, licence, lease or other authorization to carry out prescribed activities. Subsidiaries of these companies and entities falling under direct or indirect control will also be subject to the Act. Section 23(c) allows the Governor in Council to develop regulations including the definition of “control.”
The reporting obligations (Section 8) apply broadly to companies listed on a Canadian stock exchange as well as certain private companies . . .
The entities obligated under ESTMA are largely similar to those under U.S. and EU legislation, with the exception that some private companies are also captured in the EU and Canadian legislation. This broader jurisdiction is consistent with the 2013 amendments to the CFPOA.
Entities, as defined above, must report annually to the Government of Canada, detailing payments made to foreign or domestic governments or public bodies if the payments made in the year amount to at least $100,000, or an amount prescribed by regulations. Reports must be filed within 150 days of the entity’s fiscal year end and must include an attestation by an officer or director of the entity, or an independent auditor or accountant. Payments, whether monetary or in kind, include those made in relation to the commercial development of oil, gas or minerals that fall within any of the following categories:
- Taxes, other than consumption taxes and personal income taxes;
- 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;
- Infrastructure improvement payments; and
- Any other prescribed category of payments.
The Act states that the applicable minister may specify the way in which payments are to be organized and indicates that it may be on a project basis, which would be in line with other jurisdictions now in force. Such alignment would, if acceptable, enable substitution of reports from those other jurisdictions. The Government of Canada is working with other jurisdictions to develop a common or similar reporting template that could reduce reporting burdens.
Enforcement and penalties
The Act empowers the applicable minister, as designated by the federal government, with broad authority to ensure compliance, including the authority to order audits of an entity’s reports and to inspect an entity’s corporate offices. Failure to adhere to reporting requirements; knowingly making false or misleading statements or providing false information; or structuring payments with the intention of avoiding reporting such payments is punishable upon summary conviction with a fine of $250,000. Under ESTMA section 24(4), each day that passes prior to correcting a non-compliant report results in a new offence, thus the fine of $250,000 is “per day” that the offence remains uncorrected. In addition to entity liability, Section 25 also imposes liability on directors, officers or employees.
Section 26(b) provides a defence if an entity can establish that it exercised due diligence to prevent the commission of an offence. This should encourage companies to develop strong compliance structures akin to and parallel with the Corruption of Foreign Public Officials Act.
ESTMA does not list any exemptions for its reporting requirements, which harmonizes it with the EU and the U.S. However, section 23(1)b grants the Governor in Council (GIC) the power to make regulations that could exempt entities, payments or payees. This section allows the government to modify the reporting requirements should they contradict a particular country’s laws, but it could also be used to distort the reports to the benefit of powerful lobbying interests.
The federal government committed to ensuring that Canada’s payment reporting framework would be consistent with existing international standards. Civil society groups have expressed concerns that section 9(5) lacks details regarding the way in which payments are reported. In particular, the Act does not specify that reports are to be on a disaggregated, project-level basis, as required by the EU and U.S. legislation.
Civil society also has concerns with section 23(1)f, which allows the GIC to make regulations respecting the information that is to be made available to the public. This section allows the GIC to deviate from the requirements of other jurisdictions that clearly detail the information that must be reported. This could undermine the transparent intent of the reports or could provide the GIC with necessary flexibility to revise the report content to ensure substitution under section 10(1) can be achieved.
A transitional provision is afforded in section 29 whereby payments to Aboriginal governments in Canada are exempt for the two-year period beginning on the date that the legislation comes into force. This period is intended to allow for further consultation between the federal government and Aboriginal groups within Canada. During this period, the Canadian legislation will be aligned with other jurisdictions for substitutive reporting. However, as other jurisdictions have not addressed the issue of payments to Aboriginal groups, Canadian reporting standards may be misaligned with global standards.
The Extractive Sector Transparency Measures Act is now law and is expected to come into force by June 1, 2015. Disclosure reports from impacted entities would then be made available no later than 2017. The Canadian government and the multi-stakeholder group are expected to develop regulations in 2015 detailing the form and content of the required report. In addition, the Government of Canada will continue consultations with Aboriginal Peoples with the expectation of including payments to Aboriginal governments and bodies in two years.