Editorial: Transparency Act kicks in

The first day of June saw the coming into force in Canada of the Extractive Sector Transparency Measures Act, which compels extractive companies to publicly report any significant payments they make to governments at home and abroad.

While there are already anti-bribery laws on the books, the commendable intention behind this latest “publish what you pay” legislation is to empower local populations in foreign countries to gain a greater understanding of what payments are being made to their governments by Canadian mining and oil and gas companies, and hopefully better hold their governments accountable for using incoming funds wisely.

As for the timing, the federal government’s proclamation comes ahead of the G7 Summit on June 7, 2015, and fulfills Prime Minister Stephen Harper’s commitment at the G8 Summit a year ago to establish such reporting standards.

On a project-by-project basis, Canadian mining companies will now have to report payments to governments of $100,000 or more in the form of taxes, royalties, licence and entry fees, bonuses, dividends, infrastructure payments and production entitlements.

In a bit of a political concession to Canada’s First Nations — many of whom are not keen to open their books and perhaps expose themselves to tax clawbacks — there are two transition periods included in the act: companies must report on payments made to governments in the fiscal years beginning July 1, 2015, except if the payments are made to aboriginal governments in Canada, in which case the reporting can be differed until after June 1, 2017.

For example, a company with a Dec. 31 year-end would have to submit its first annual transparency report on May 30, 2017.

The act applies to all extractive companies listed on a stock exchange in Canada or that have at least $20 million in assets, at least $40 million in annual revenue, or at least 250 employees. (Except for the exchange listing, these requirements are essentially the same as those in place in U.K. and Norwegian regulations.)

In an attempt to lessen the compliance burden on companies, the act is structured to allow companies to report where possible using the standards and format of another compatible jurisdiction, such as the U.S. or the European Union, with all three of these groups broadly open to further harmonizing their reporting standards over time.

(In the U.S., however, the “publish what you pay” provisions in the Dodd-Frank Act were overturned in 2013, and may not be revived in another form for a few years, and so no such harmonization is possible for now between Canadian and U.S. standards. In fact, some observers had expected the Canadian government to delay implementing the new act until the U.S. had re-established viable publish-what-you-pay standards.)

Natural Resources Canada is developing a transparency reporting template and guidelines in consultation with stakeholders, including Canadian aboriginal groups. The work will be released later this year for public comment.

The federal government’s transparency initiative has the support of the Mining Association of Canada (MAC) and the Prospectors & Developers Association of Canada (PDAC). Both industry associations joined the non-governmental organizations Publish What You Pay (Canada) and the Natural Resource Governance Institute to form the Resource Revenue Transparency Working Group that operated from 2012 to 2014, and provided advice to the federal government.

The MAC said this legislation “places Canada at the forefront of international efforts to eliminate corruption and promote transparency. The Mining Association of Canada and its members are proud to have played an active role in collaboration with the Government of Canada and civil society in the promotion and design of this important legislation.”

The PDAC said the act is important to the mineral exploration and development sector, as it will “highlight the financial contributions and benefits that come from resource development,” and that it “aims to provide companies with reporting standards to help demonstrate economic contributions made to local and national governments.”