Transparency Act brings miners new reporting duties

It will soon be mandatory for Canadian mining and oil and gas companies to report payments to foreign and domestic governments — including, eventually, First Nations governments in Canada.

The Extractive Sector Transparency Measures Act was tabled in the House of Commons in October, and the federal government intends to pass the legislation by April 2015.

The law, first announced last June, is intended to stymie corruption in developing nations and align with other similar laws being introduced in the U.S. and Europe.

The broad initiative has the support of Canada’s mining industry, including the Prospectors & Developers Association of Canada (PDAC) and Mining Association of Canada (MAC), in part because they believe that greater transparency allows citizens and media to hold governments accountable for how they spend mining revenues.

However, the inclusion of First Nation communities in the legislation has been controversial, Norton Rose Fulbright associate Andrew Godfrey said at a webinar in October. Transparency laws in other jurisdictions don’t cover payments to aboriginal groups.

“The reaction to this has been mixed, but the clients I’ve spoken with support this disclosure as a means for transparency of the payments they make,” he said. “We’re also aware of concerns that this disclosure can potentially jeopardize investments companies have made in building strong existing relationships with aboriginal communities.”

Some agreements with aboriginal communities — such as impact benefit agreements — require payments, but also require terms to be kept confidential.

However, payments to First Nations won’t be subject to the act for two years to allow for a consultation period, the government announced mid-year. First Nations were originally intended to be included under the act from the outset.

“It’s important to note that the [federal government] baked in payments to aboriginal governments in the actual legislation, just on a two-year delay,” Godfrey said.

It’s not yet known how consultations with First Nations will affect whether or how payments under agreements with First Nations communities will need to be disclosed. But Godfrey noted that the way the legislation is written, it will apply to such agreements.

Excluding dealings with First Nations, companies subject to the act will likely have to report payments made in 2016 the next year.

Payments to be disclosed under the act include taxes (other than consumption taxes and personal income taxes), royalties, fees, production entitlements, bonuses and infrastructure-improvement payments.

Payments that add up to less than $100,000 (in alignment with U.S. and EU rules) over one year to one payee don’t have to be disclosed.

But there is room for a lower threshold for juniors to be introduced by regulation.

The PDAC and MAC advocate a $10,000 threshold. The two groups joined with Publish What You Pay Canada and Revenue Watch Institute to form the Resource Revenue Transparency Working Group in 2012.

“The threshold for small issuers is seen to be important as, without a lower threshold, a large part of the Canadian mining sector would effectively report no revenue paid,” said the Working Group in recommendations published in January. “This would not be consistent with one of the objectives of this initiative, which is to communicate the flow of revenues more clearly and credibly.”

Under the new law, offences can lead to fines of up to $250,000, and in the case of a continuing offence, a maximum of $250,000 per day.