Brazil: The International Comparative Legal Guide To: Mining Law 2014

1 RELEVANT AUTHORITIES AND LEGISLATION

1.1 What regulates mining law?

Mining activity is subject to the regulation of the Ministry of Mines and Energy (MME), through the Secretariat of Geology, Mining and Mineral Processing (SGM). SGM is in charge of general mining policies and coordination.

MME also regulates the mining activity through the National Department of Mineral Production (DNPM), an autarchy created with the purpose of managing mineral resources, controlling the emission of titles, collecting statistical data and gathering comprehensive information in data banks.

In regard to Mining Law, miners are subject to the Brazilian Mining Code (Decree-Law No. 227/1967) and, alternatively, the Regulation of the Mining Code (Decree-Law No. 62934/1968). These two rules set forth the basic rights and obligations. Details of each right and obligation are set forth by DNPM, through ordinances and normative rulings.

The mining industry has been waiting for the New Mining Framework ("NMF") (Bill of Law No. 5807/2013) for a while. The Government has submitted the NMF to the National Congress and it is currently under discussions. If approved, Mining Law may change. If so, it represents an absolute change in the current regime, as follows: (i) the creation of the National Council for Mining Policy (CNPM), in order to assist the President in strategic decisions; (ii) concessions will be granted through bidding processes, based on a sole title for exploration and mining with a 40-year term, extendable for 20 years, with a minimum investment; (iii) the creation of a new agency named the National Mining Agency (ANM), with greater management and financial autonomy and basing its decisions in collegiate rulings; (iv) change in the mining royalties (CFEM), which will be calculated over the gross revenue with a maximum rate of 4%.

1.2 Which Government body/ies administer the mining industry?

There are three Government bodies responsible for the administration of the mining industry: MME; the National Department of Mineral Production (DNPM); and Brazil's Geological Services (CPRM). DNPM is the Federal Government agency responsible for managing and monitoring the performance of mining activities throughout the country, ensuring that the exploitation of mineral resources is carried out in a rational, controlled and sustainable way. The Minister of MME, the highest authority, is responsible for granting mining concessions, while other permits are granted by DNPM. CPRM is responsible for mineral research.

The NMF, if approved, will change the current structure. DNPM will become the National Mining Agency (ANM), an agency-structured government body to regulate the mining industry in a more autonomous fashion.

1.3 Describe any other sources of law affecting the mining industry.

Mining is subject to federal statutes and rules enacted by DNPM. Also, the Attorney-General opinions have a binding nature on controversial matters.

Other laws affecting the mining industry are:

  • the Labour Law, due to the hiring of manpower to operate and work at the mines;
  • the Tax Law, due to the payment of major taxes and the general rules applicable to royalties and some other taxes that arise from mining activities;
  • the Environmental Law, due to all the compliance with environmental matters and obtainment of licences to operate mines and plants; and
  • the Competition Law, to avoid concentration and abuse of dominant position in the mining industry.

2 MECHANICS OF ACQUISITION OF RIGHTS

2.1 What rights are required to conduct reconnaissance?

Geological reconnaissance is permitted by the DNPM, provided that a prior approval from the National Security Council is issued.

Pursuant to article 91 of the Mining Code and articles 39 to 44 of the Regulation of the Mining Code, geological reconnaissance is made by aerial prospection, through photography, geophysical equipment and remote sensors to the extension of 12,000 km2.

The holder of the reconnaissance title must carry out its works within 90 days, in order to obtain the priority right over the researched area. After raising data, the permit holder must submit a report with its findings, even if the area proves to be geologically unprofitable.

The reconnaissance is allowed even during the exploration phase, but it is not a mandatory requirement to claim priority over available areas. Most of the time, the prospective miner requests the exploration permit without having carried out reconnaissance works.

2.2 What rights are required to conduct exploration?

Miners applying for exploration must file a specific form provided by DNPM, demonstrate sufficient knowledge of the area to be explored, through a Location Plant, and submit an Exploration Plan. This Exploration Plan comprises information such as the intended minerals, minimum evidence of occurrence, sampling and drilling methods. If this report is approved, DNPM will issue an Authorisation Permit, which will entitle the explorer to conduct exploration works.

2.3 What rights are required to conduct mining?

To apply for mining, the company must have accomplished the exploration works, supplied the Final Exploration Report and submitted the Plan for Economic Use of the Mine (PAE). Also, environmental licences must have been issued. The authorisation to mine is granted by DNPM through a mining ordinance, published in the Official Gazette. The mining rights are granted through concession, since mineral resources are Federal Government property.

The exploration works may have been carried out by another mining company, but the concession will only be issued on behalf of the title holder.

Once conceded, the mine extraction can only take place in accordance to the PAE, and any substantial change in the mining performance must be communicated to and approved by DNPM.

2.4 Are different procedures applicable to different minerals?

Minerals are subject to different regimes.

As a general rule, mineral resources are subject to the authorisation and concession regulation. Mineral rights are granted through an exploration permit and a mining concession.

Other regulations include licence, permission and monopoly regulations.

Gravel, stone, clay and crushed stone ("aggregates"), for instance, are subject to licensing. These minerals have a different regime because they have immediate application in construction.

Additionally, small-scale mining authorises natural persons to dig gold in a non-industrial fashion.

There are also nuclear minerals that are subject to monopoly of exploration by the Federal Government.

2.5 Are different procedures applicable to natural oil and gas?

The exploration and production of oil and natural gas in Brazil follows considerably different regimes than that of other minerals. There are currently three models in the Brazilian legal framework: concessions; production sharing agreements; and onerous assignment.

In the concession regime, in order for an area to be subject to exploration and production, it must be included in a biding round by the Brazilian Agency of Oil, Natural Gas and Biofuels – ANP.

The production sharing model, recently implemented in Brazil specifically for the pre-salt and other strategic areas, also requires the insertion of the blocks in a bidding round. However, some differences apply, such as the fact that Petrobras shall be the sole operator of all the blocks, and consortium members are not the owners of all the oil and gas produced, for instance.

In the onerous assignment agreement, the Federal Government granted Petrobras the right to explore and produce, without the need of a bidding round, 5 billion barrels of oil equivalent (BOE) in contractually determined blocks of the pre-salt area.

3 FOREIGN OWNERSHIP AND INDIGENOUS OWNERSHIP REQUIREMENTS AND RESTRICTIONS

3.1 Are there special rules for foreign applicants?

According to the Federal Constitution, miners, in order to be authorised to explore mineral resources in Brazil, must be Brazilian or companies incorporated under Brazilian law.

In light of heated discussions within the Federal Government about the exploitation by foreigners of natural resources, the Federal Government sought alternatives to impose restrictions again on the acquisition of rural land in Brazil by Brazilian companies majority held by foreigners and to create workable mechanisms to control the ownership of rural land in Brazil.

As a result of these discussions, the National Council of Justice issued the CNJ a recommendation and the Federal Government Attorney's General Office issued Opinion AGU-LA-01/2010, which aimed to reinstate the restrictions of Law No. 5,709/71 on the acquisition of rural land in Brazil by Brazilian companies majority held by foreigners.

There are strong arguments to establish that such restrictions violate Brazil's Federal Constitution and, therefore, for legal and/or administrative defence of Brazilian companies majority held by foreigners that see their purchases of rural properties hampered or hindered. However, there can be no assurance of the outcome in a dispute discussing this matter given the lack of material precedents from the Brazilian courts.

Furthermore, if the mining project is located in border areas, the National Security Council must approve prior to commencement. Also, 51% of the company equity must be Brazilian and 2/3 of their employees must have Brazilian nationality.

On the other hand, foreign capital can be wired to the country with no relevant restriction. The registration of foreign capital with the Central Bank (BACEN) is provided for by Law No. 4.131/62 and Law No. 4.390/64, ensuring equal treatment of foreign and national capital. Implementing regulations on foreign capital matters are enacted from time-to-time by the National Monetary Council and by BACEN.

Foreign capital is defined as goods, machinery and equipment, imported to Brazil without prior foreign capital disbursements, for the production of goods or services, as well as financial or monetary resources invested in Brazil for application in economic legal entities resident, domiciled or with a head office abroad. The term 'goods' has been defined to include trademarks, patents and technology transfers registered with the National Industrial Property Institute.

3.2 Are there any change of control restrictions applicable?

There are no relevant restrictions for the inflow of funds into and from Brazil, provided that foreign exchange transactions are legal and supported by the relevant transaction documents. However, direct foreign investment and certain financial transactions require prior registration with the Central Bank of Brazil ('BACEN').

3.3 Are there requirements for ownership by indigenous persons or entities?

Indigenous people are classified by their level of integration to civil society, according to Indigenous Statute ("Estatuto do Índio"). If the National Foundation for the Indigenous (FUNAI) understands that there is full integration to society, then indigenous people are able to execute contracts as a regular civil person. If partially integrated, indigenous people will have their civil capacity specified by the public authority in regard to what kinds of civil acts they can perform or not. If found isolated (the third level of integration), natives cannot perform most of the civil acts.

3.4 Does the State have free carry rights or options to acquire shareholdings?

The State does not have carry rights in regard to private companies.

3.5 Are there restrictions on the nature of a legal entity holding rights?

The mining activity shall be carried out by a company organised under Brazilian laws and with its head-office and management in Brazil. Therefore, foreign companies cannot operate in Brazil if they do not open a Brazilian subsidiary and set its management in Brazil.

If the operation takes place in Brazilian borders, they have to obtain prior authorisation from the National Security Council. Moreover, at least 51% of their equity must belong to Brazilian citizens and 2/3 of their employees must have Brazilian nationality.

4 PROCESSING AND BENEFICIATION

4.1 Are there special regulatory provisions relating to processing and further beneficiation of mined minerals?

From the environmental perspective, the law establishes that mining activities and beneficiation of mined minerals shall be subject to environmental licensing, which consists of a public administrative proceeding by means of which the environmental agency evaluates and authorises the location, installation and operation of a certain project, considering the applicable legal provisions and the socio-environmental impacts caused by such activity (please, refer to question 8.1 for more information).

Also, for the disposal of waste, treatment and discharge of effluents and air emissions, the entrepreneur shall observe specific legal provisions.

Besides that, depending on the location and environmental conditions of the area in which the activity is going to be developed, there may be specific regulatory provisions. It happens, for example, in cases that the activity affects environmental sensitive areas (protected areas such as Conservation Units, caves, etc.).

4.2 Are there restrictions on the export of minerals?

The Brazilian Customs Regulations do not restrict the export of minerals, except when minerals are subject to specific Export Controls. The Export Controls are restrictions to the export of some goods that are considered sensitive by the Brazilian Customs Authorities, (i.e. uranium, etc.).

The Brazilian exporter must check the Computarised Integrated System of Foreign Trade's (SISCOMEX) administrative controls for every export operation and the lists of sensitive goods (the exports subject to restrictions and their respective Export Controls) to determine which are the minerals controlled and the competent authority that regulates their exportation.

5 TRANSFER AND ENCUMBRANCE

5.1 Are there restrictions on the transfer of rights to conduct

reconnaissance, exploration and mining? Some rights cannot be transferred and some rights are only transferred after DNPM assessment.

Reconnaissance cannot be transferred. Exploration permits and mining concessions can be transferred, provided that the assignee is also able to perform mining.

The Authorities shall assess matters, such as:

  1. stage of exploration;
  2. ability to carry on the mining works;
  3. conformity of corporate documents;
  4. availability to federal agent's inspection; and
  5. proper indication of area.

Depending on the inaccuracy of such information, DNPM may request more information, clarification or amendment of data provided. Ultimately, if the amendments do not suffice, the Authority may deny request of transfer.

5.2 Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged to raise finance?

Rights to conduct reconnaissance and exploration cannot serve as security. Mining concessions, though, can be subject to pledge in order to raise finance, pursuant to article 55 of the Brazilian Mining Code. The pledge must be filed and approved before DNPM to be valid and effective.

6 DEALING IN RIGHTS BY MEANS OF TRANSFERRING SUBDIVISIONS, CEDING UNDIVIDED SHARES AND MINING OF MIXED MINERALS

6.1 Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?

The rights to conduct reconnaissance, exploration and mining are subdivided. The Mining Authority divides each one with one specific title to conduct separate activities.

The collection of small materials and superficial prospection is an activity prior to the application before DNPM to the reconnaissance of the area. If the reconnaissance permit is issued, it cannot be divided because of the mandatory approval by the National Security Council.

If these preliminary findings suggest the occurrence of mineral resources, the miner may apply for an exploration permit if he finds it profitable. This title will grant the miner the right to conduct studies, sampling and drillings to collect data.

Then, the miner can apply for a mining concession to extract minerals and negotiate it.

The Mining Authority analyses the request to decide whether to grant it or not. If granted, the extractions must take place in accordance to the PAE.

The NMF, if approved, sets forth a sole title where exploration and extraction rights will be enclosed. Also, the concession will be granted to the miner through a private contract to be executed between the company and the Federal Government.

6.2 Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?

Currently, no. The NMF provides this comprehension, i.e., a sole title for exploration and mining. However, legislative proceedings to enact this new statute have just begun and this provision may be excluded from the final draft.

In any event, reconnaissance remains at it is: an undivided permit.

6.3 Is the holder of a primary mineral entitled to explore or mine for secondary minerals?

The holder of the title is entitled to explore/mine solely the mineral it applied for. If, by any chance, a new mineral resource is found in the area, the miner must communicate this to the Mining Authority immediately and apply for its extraction.

6.4 Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?

The miner not only has rights over residue deposits, but also must comply with environmental and mineral obligations. The PAE comprises information about the waste dump, and the management of the residue deposits must be supervised by the geologist/mine engineer. Mining Regulatory Rule – NMR 19 provides a set of rules which must be observed by the miner in regard to the deposits.

6.5 Are there any special rules relating to offshore exploration and mining?

Brazil signed and ratified the United Nations Convention on the Law of the Sea, which outlines the general rules on the matter. However, there is no specific statute to regulate the offshore exploration, which ends up following the same rules as territorial mining.

The Regulation of the Mining Code sets forth the potential interference between the activities inspected by DNPM and the activities inspected by other authorities. In Brazil, offshore areas have been exploited mostly for the extraction of oil and gas and in case of finding any material which the competence for extraction belongs to the DNPM, the ANP, together with Petrobras and the National Committee for Nuclear Energy (CNEN), are required to inform DNPM of any activities carried out in the sea that might interfere with DNPM's sphere of competence.

7 RIGHTS TO USE SURFACE OF LAND

7.1 What are the rights of the holder of a right to conduct reconnaissance, exploration or mining to use the surface of land?

Surface rights and underground rights are parallel rights that co-exist. Whenever these two rights conflict, underground rights tend to prevail. As a general rule, mineral resources are a matter of public policy and interest, since they are constitutionally protected and property of the Federal Government. The miner shall perform mining within the land, regardless of the surface owner's consent. This limitation of the right of property is compensated with a permanent indemnification for the damages derived from the mining activity and a monthly income for the occupation of the land. Furthermore, the surface owner is entitled to a share of the profits from the mineral output.

7.2 What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?

The miner must compensate the landowner of any damages caused in his property. Moreover, miners must pay a monthly income for the occupation of the area. Finally, there must be a surface agreement between the landowner and a miner, so that the landowner is entitled to a percentage of the profits obtained with mineral production.

7.3 What rights of expropriation exist?

If the surface is not accessible to the miner, there are actions for the limitation of the land owner's right of property.

The creation of mineral easements limits property rights; it includes usufruct rights and security interests in liens over the surface, for the specific purpose of mining performance.

Another measure is the writ of entry, for the right to have access to the mine. This last remedy does not grant liens over the surface, though. It is a judicial remedy to enforce the miner's right to entry to the land.

8 ENVIRONMENTAL

8.1 What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?

In relation to the prospecting phase, the only situation in which environmental licensing is expressly required is when it involves the usage of Mineral Use Form ("Guia de Utilização", which allows the use of small amounts of minerals in specific purposes before the concession to mine), as provided by CONAMA's Resolution 9/1990.

With respect to mining and beneficiation of mined minerals, these activities are subject to prior environmental licensing proceedings that encompass three distinct and successive phases in which the environmental feasibility of the project is analysed (preliminary, installation and operating licences).

8.2 What provisions need to be made for the closure of mines?

There is a constitutional provision for the obligation to recover the impacts caused by mining activities. According to article 225, §2, "the person exploiting mineral resources must recover the degraded environment, in accordance to the technical solution required by the competent public authority, as set forth by law".

The miner must previously inform MME, filing a report with updated information related to environmental matters of the mine. Secondly, the miner shall finalise the execution of the plan of closure of the mine, which shall be comprised in the PAE.

The PAE comprises relevant information about the mineral substances, the output volume, reserves, the production flow and, among this information, the mine closure.

One of the documents that must be comprised in the closure plan of the mine is the Report of Recovery Plan of the Degraded Area (PRAD), which must be approved by the environmental protection agency and is a condition for the issuance of the Preliminary Licence (LP).

8.3 What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?

The miner must perform the closure pursuant to the PAE in order to recover the degraded area. This takes place after concession, i.e., during the mining rights phase. These obligations are not applicable to the reconnaissance and exploration phases.

8.4 Are there any zoning requirements applicable?

According to the Brazilian Federal Constitution, each municipality has the ability to enact rules dividing its territory into specific zones (i.e., residential, industrial, rural, environmentally protected) aiming to better organise land occupation, and to promote public health and sustainable development. Such rules regulate land occupation and the type of economic activity that is allowed throughout the territory of each municipality, including the areas in which mining activities are permitted or not.

Therefore, in order to exercise mining activities in Brazil, any company or individual should obtain a permit from the relevant municipality. Prior to issuing such permit, the municipality will issue a land use and occupation certificate indicating the activities that are permitted in the relevant area.

9 NATIVE TITLE AND LAND RIGHTS

9.1 Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?

Native titles are areas where indigenous communities are located. These areas are commonly known as native lands, which are protected by the Constitution. These areas are the property of the Federal Government and are occupied by indigenous peoples permanently.

Mining activities can take place within native lands only after the approval from the National Congress and formal request to the tribes. Also, mining must be carried out in conformity to specific legislation provided by the Constitution, which has not been enacted yet. Therefore, the current "legal void" prevents any mining from taking place within native areas.

10 HEALTH AND SAFETY

10.1 What legislation governs health and safety in mining?

In Brazil, labour relations are a matter of Federal law. Therefore, labour rights are nationally standardised, and the same labour costs and consequences will apply regardless of an employer's place of business or place of incorporation.

Regarding occupational health and safety, there is a specific regulation for miners: Regulatory Standard NR 22. The measures set out in NR 22 must be applied jointly with other regulations related to workers' health and safety protection. NR 22 deals with the safety and health requirements in mining in detail.

10.2 Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?

Workers hired to work in mines qualify for the same social rights as other workers (compensation, holidays, working hours, working days, equal pay, etc.).

The measures set out in NR 22 apply to underground and open-pit mining, alluvial mining, mineral processing and mineral research, and addresses matters, such as circulation and transport of people and materials, workplace organisation, underground openings, and hydraulic disassembling, as well as safety and equipment provision.

11 ADMINISTRATIVE ASPECTS

11.1 Is there a central titles registration office?

DNPM has local superintendence offices in each of the federated states. In Brasília, there is the Federal bureau, where every mining company is registered, as well as mining concessions and other relevant information.

One of the new measures envisaged by the NMF is the creation of the National Mining Agency, which shall be responsible for all the activities previously carried out by DNPM. The National Mining Agency suits the Federal Government's trend to arrange autarchies in an agency organisation. The National Mining Agency is an attempt to have a more autonomous, dynamic and market-sensible authority to govern the sector.

11.2 Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?

In accordance with the relevant mining legislation, decisions issued by DNPM's superintendence offices and by the Director-General are subject to administrative review. If an administrative conflict arises, the local superintendence decision is subject to an administrative appeal, to be decided by the Director-General.

After administrative appeal, judicial level is still available.

12 CONSTITUTIONAL LAW

12.1 Is there a constitution which has an impact upon rights to conduct reconnaissance, exploration and mining?

Brazilian Constitution sets forth specific provisions regarding mineral resources. It provides that mines are the property of the Federal Government and that only the production can be owned. The Constitution also provides that companies must be Brazilian and outlines the permission to mine within native areas, in accordance to specific statutes yet to be created.

The rights to conduct reconnaissance, exploration and mining are not regulated at the constitutional level, though. The Mining Code and the Regulation of the Mining Code are the statutes that set forth the general rules related to mining rights.

12.2 Are there any State investment treaties which are applicable?

Brazil has not ratified any investment treaties.

13 TAXES AND ROYALTIES

13.1 Are there any special rules applicable to taxation of exploration and mining entities?

In the Brazilian mining business, specific tax provisions relate to pricing. Even though transfer pricing rules allow taxpayers to elect the best method to calculate pricing, in the mining sector, companies are obliged to use international prices as established by major metals exchanges throughout the world, as metals are commodities.

Mining production is not subject to Federal excise tax due to constitutional exemption. With regards to state VAT, this tax is normally charged differently depending on the state, and exemptions apply upon exportation. Other taxes include taxes on total revenue and corporate income taxes.

Another tax that may be important for mining companies relates to property taxes – tax on rural land or tax on urban property.

13.2 Are there royalties payable to the State over and above any taxes?

Financial Compensation for the Exploration of Mineral Resources – "CFEM" – is the payable royalty derived of the economic use of Federal Government property.

The main charge levied against mining activity is the financial compensation for mineral exploitation ('CFEM'). Other charges include the annual hectare fee ('TAH') and the control, monitoring and supervision of exploration, mining, extraction and use of mineral resources fee ('TFRM'). CFEM ranges from 0.2% of net sales to 3%. The NMF, if approved, will substantially change CFEM levy. The change will not only affect percentages, which may rise up to 4%, but also the tax basis, which will be calculated over the gross revenues, instead of the current net revenues.

A controversial aspect of mining taxes is the TFRM, which is under constitutional review in the Brazilian Supreme Court. The tax was created at state level and is based on the transport of mining production inside and outside of the mine area and plant. Some states, such as Minas Gerais and Pará, the top producers, started to collect this tax in 2011 and have been followed by other states ever since.

Originally published in the 2014 edition of The International Comparative Legal Guide To: Mining by Global Legal Group Ltd., London, www.iclg.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.