New Anti-Corruption Provisions in EU Legislation: Increased Accountability for Mining, Oil and Gas Companies

by Dechert LLP
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Large1 non-listed companies incorporated in the European Economic Area (“EEA”) which operate in the oil, gas and mining sectors will need to annually disclose any payments made to the national, regional or local authority of a host country on a country and project basis where the payment is above a threshold of EUR 100,000 (c. GBP 85,000 / USD 131,000). Sanctions for failure to comply are likely to be punitive.

The payments to be disclosed will include taxes on profits, royalties, dividends, bonuses, licence fees and other direct benefits to the government concerned, amongst others. There will be no exemption to the disclosure requirements, even if the disclosure is not permitted by the host country’s criminal law.

Background

The European Commission has proposed amendments to the existing Directive on transparency requirements for listed companies (the “Transparency Directive”) and to the Directives on accounting rules for annual accounts and consolidated accounts (the “Accounting Directives”) (together the “EU Directives”). The European Parliament and the Council reached agreement on 9 April 2013 on the proposed amendments to the Accounting Directives, paving the way for the new legislation to be adopted later this summer2.

It is expected that an agreement will soon follow that sees the same amendments being made to the Transparency Directive. The obligations will then apply to all companies listed on EU Regulated Markets (e.g. the London Stock Exchange) even if the company is not registered in the EEA and is incorporated in a third country.

Comparison with the US 

The proposed amendments to the EU Directives will bring Europe in line with the United States. Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) applies to companies engaged in the commercial development of oil, natural gas or minerals and which file periodic reports to the US Securities and Exchange Commission.

In the United States, companies are required to report any payment or series of payments that equal or exceed USD 100,000 (c. GBP 65,000 / EUR 77,000) in a fiscal year. The de minimis threshold is therefore lower than under the proposed amended EU Directives. Companies must also disclose taxes, royalties, fees (e.g. licence, rental and entry fees), bonuses (e.g. signature, discovery and production bonuses), dividends, production entitlements and payments for infrastructure improvements.

In the United States, companies need to report payments made to the US Federal Government and all foreign governments. However, payments to US State Governments are not covered. This differs from the proposed amended EU Directives which require the disclosure of payments to national, regional or local authorities which are above EUR 100,000 (c. GBP 85,000 / USD 131,000).

In the United States, no exemptions are available to the disclosure requirements even if the laws of the producing country or contracts entered into prohibit companies from disclosing the information required. The proposed EU Directives will therefore mirror the position in the United States.

What does this mean for you?

It should be noted that the proposed amendments to the EU Directives will need final approval from the European Parliament. This is expected later this summer (June 2013). There will be a further period following adoption of the legislation before the EU Directives enter into force. During this period, Dechert is well placed to assist companies to put in place systems and policies to comply with these new obligations. Companies should:

  • assess whether the business will need to comply with reporting requirements in both the US and the EU; 
  • develop a robust set of policies and procedures to ensure that payments are recorded accurately and that cash payments are adequately supported; and
  • begin identifying which business units or employees will require specific training on the new obligations under the amended EU Directives.
Footnotes

1A large company is one which exceeds two of the three following criteria: turnover of EUR 40 million (c GBP 34 million), total assets of EUR 20 million (c. GBP 17 million) and 250 employees.

2The amendments to the Accounting Directives are due to be voted on by the European Parliament at the June plenary session.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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