* This bulletin has been updated following the March 5, 2014 release of Natural Resources Canada's consultation paper on mandatory reporting standards at an industry consultation during the Prospectors and Developers Association of Canada conference.
Canada's Minister of Natural Resources Joe Oliver announced today that the Canadian government will enact legislation by April 2015 to require mining and oil and gas companies to publicly report the payments they make to governments for resource projects on a project-by-project basis.
Minister Oliver's comments at the Prospectors and Developers Association of Canada ("PDAC") annual conference builds on the strong support for payment reporting from the mining industry itself, which publicly lobbied for this through a working group between PDAC and the Mining Association of Canada ("MAC") along with two other civil society transparency groups (the "Working Group".) The Working Group released their final recommendations for a payment reporting framework earlier this year, which is summarized in this bulletin.
According to Minister Oliver, today's announcement was "informed" by the Working Group's report, but deviates from it in some significant ways:
1. Federal Government Takes Charge
One of the biggest issues in implementing a payment reporting framework in Canada was the choice of whether the provincial or federal government should legislate in this area. The Working Group recommended that provincial securities regulators take this on since similar rules in the United States under the Dodd-Frank Act have been implemented by the US Securities and Exchange Commission. Minister Oliver mostly agreed, stating "implementing mandatory reporting standards through the provincial securities regulators would be the preferred scenario" and encouraged provinces and territories to enact their own legislation in this area. However, this seems highly unlikely, since there is insufficient time for all provinces to pass equivalent laws before the federal government's deadline of April 1, 2015, when national rules need to be fully enacted. This means the Canadian government will likely introduce legislation in this area before the end of 2014. Companies will begin having to report payments for fiscal years ending after June 1, 2015.
2. Coverage of Private Companies
Even if all the provincial securities regulators are able to adopt equivalent rules in this area in the next 13 months, these regulators would only be able to cover publicly-traded companies on a Canadian stock exchange. While this was the recommendation of the mining Working Group, the oil and gas industry has endorsed covering privately-held companies as well, including foreign companies operating in Canada. The Canadian government has sided with the oil and gas industry and created their own threshold to cover publicly-listed and privately-held mining, oil and gas companies. Any companies in these industries based or operating in Canada that meet or exceed two of the following three thresholds will have to report their payments:
1. $20 million in assets;
2. $40 million in net turnover; or
3. 250 employees.
Coverage of private companies is also important in terms of where this disclosure will be housed. Public companies in Canada file all their public documents on the SEDAR database, but this is not a platform that private companies have access to. Therefore, the federal government suggests companies will simply publish their reports on company websites and the public will somehow be notified when they do. What level of assurances would accompany such reports and what penalties would exist for not complying or publishing inaccurate information are still open questions as this framework is developed.
3. Higher Payment Threshold
One of the more controversial recommendations from the Working Group was to adopt a dual payment reporting threshold. Companies listed on the Toronto Stock Exchange would be required to report any payments over $100,000, but smaller issuers on the TSX Venture Exchange would report any payments over just $10,000. Even with PDAC's support for this approach, the federal government has proposed a single threshold set at $100,000, which is more aligned with the U.S. rules and similar to the €100,000 threshold under the amendments to the EU Transparency Directive adopted last June. The mining industry may continue to lobby for a dual reporting threshold with provincial securities regulators but the federal government's rejection of it may make it more of a longshot to be adopted.
4. Coverage of Aboriginal Payments
While Canada's reporting threshold may align with the regimes in the US and EU, today's announcement differentiates Canada's approach to payment reporting in one crucial respect: payments made to First Nations and aboriginal groups will be included in this framework. Mining companies often enter into joint ventures and/or impact benefit agreements with aboriginal groups in Canada or elsewhere that give rise to payment obligations not unlike payments to local host governments. However, such payments were never included in the Dodd-Frank rules or the EU Transparency Directive and largely ignored by the Working Group. Nonetheless, it appears they will form part of payment reporting in Canada, despite the resistance from some aboriginal groups to disclosing these payments during Natural Resources Canada ("NRCan") consultations last year. Whether NRCan has met its duty to consult on this aspect of the proposed framework and whether there may be a formal challenge to this disclosure by aboriginal groups remains at open question at this time.
Even with today's announcement, there are many details still to be worked on in terms of the final framework and rules for mandatory payment reporting in Canada. We will continue to provide legal updates as this framework is developed.
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