That various payments to domestic and foreign governments by natural resource companies should be subject to transparency obligations is now universally accepted as good public policy. Increasingly however, governments are transforming what to date has been a voluntary reporting process, developed by organizations such as the Extractive Industries Transparency Initiative, into legislated requirements. The debate has now moved beyond whether such payments should be reported, to what should be reported and the level of detail to be contained in the reports. The recent announcement by the Canadian federal government of its intention to establish new mandatory reporting standards marks another milestone in the world-wide efforts to legislate transparency and reporting requirements in the natural resources industry. We discuss below this Canadian legislative initiative and the recent developments in Europe and the U.S. related to these reporting measures, which no doubt will inform and influence the Canadian consultation process and the final measures.
On June 12, 2013, Prime Minister Stephen Harper announced that the Canadian government intends to establish new mandatory reporting standards for Canadian extractive companies in consultation with provincial and territorial governments, the First Nations and Aboriginal groups, and the Canadian extractive industry.
Expecting as inevitable that the government would legislate standards for reporting, the Canadian extractive industry has for some time been developing a workable mandatory regime. In September 2012, several organizations including Publish What You Pay Canada, the Revenue Watch Institute, the Mining Association of Canada and the Prospectors & Developers Association of Canada launched the Extractive Resource Revenue Transparency Working Group (Working Group). The objective of this Working Group is to “develop a framework for the mandatory disclosure of payments made to governments by Canadian mining companies, both within Canada and abroad.”
Within two days of the Prime Minister’s announcement, the Working Group released for public comment its draft recommendations on implementing mandatory reporting standards for Canadian mining companies. It is clear that the Canadian extractive industry, aware of multilateral efforts towards greater transparency, is seeking to set the agenda for discussion by proactively advancing workable and realistic requirements consistent with global standards, which do not impose conflicting or excessively burdensome obligations relative to reports required to be filed with foreign regulators.
Coincident with the Canadian government`s announcement, the European Union issued on June 12, 2013 its own mandatory Directives concerning Accounting (78/660/EEC and 83/349/EEC) and Transparency (2004/109/EC). The EU Directives resemble in their application the SEC promulgated final rule under Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which provided for the implementation of the U.S. reporting mechanism. In fact, the EU Directives are more far-reaching in requiring reporting by the forestry sector and certain large private companies (in addition to publicly listed companies). EU member states will have two years to implement national legislation based on the Directives. After the first three years of implementation, the scope of the Directives may be further expanded to cover additional business sectors including banking, telecommunications and construction.
In the U. S., mandatory reporting was legislated in 2010 (by Section 1504 of the Dodd-Frank). It required the U.S. Securities and Exchange Commission (SEC) to promulgate the disclosure rule for resource extraction issuers. Facing considerable opposition from industry, the SEC ran into successive obstacles before finally issuing in 2012 the disclosure rule (Disclosure of Payments by Resource Extraction Issuers, 77 Fed. Reg. 56365 (Sept. 12, 2012)). Details on the scope of the rule can be found in a previous Mining Review dated September 2012. On July 2, 2013, the SEC suffered a further severe set-back when a federal district court vacated the implementing rule for Section 1504. The challenge was brought by the American Petroleum Institute and various other business groups, who argued among other things, that the SEC incorrectly concluded that it was required to make fully public the reports filed pursuant to Section 1504. The court held that the SEC had wrongly concluded that the reports must in all cases be publicly disclosed as filed, and furthermore that it acted capriciously in denying, without an adequate explanation, any exemptions. As such the rule was vacated and the matter was remanded to the SEC. (American Petroleum Institute et al., v. SEC, Case No. 1:12-cv-01668, U.S. District Court – District of Columbia). For further details please click here.
The discussion that will ensue over the next few months in Canada will help shape the important legislation governing the reporting by Canadian natural resource companies of payments to domestic and foreign governments. Any reporting requirement implemented in Canada will have to be harmonized with international standards and will have to be consonant with unique Canadian constitutional and regulatory requirements based on a federal system of government and the obligations to our First Nations and Aboriginal groups. The recently implemented EU Directives and the vigorous opposition in the U.S. to the reporting requirements implemented there will undoubtedly be important considerations in the framing of the Canadian legislation.