Canada is expected to mandate disclosure by its extractive
sector of payments made to local and foreign governments.
On October 23, 2014, the Government of Canada introduced
legislation that will enact the Extractive Sector
Transparency Measures Act ("the Act"), creating
the most stringent suite of regulation in the resource sector ever
seen in Canada. The Act, part of a drive by Canada to more
fully implement its international commitments in the fight against
domestic and foreign corruption, fulfils the Government's
earlier vow to adopt the G8's "Publish What You Pay"
initiative, and follows similar rules recently instituted in the EU
and UK, and similar rules expected to be instituted soon in the
Generally, the Act will apply to any entity engaged in the oil,
gas or mining sector that:
Is listed on a stock exchange in Canada; or
Has a place of business in Canada, does business in Canada
or has assets in Canada and meets at least two of the following
conditions for at least one of its two most recent financial
It has at least $20 million in assets;
It has generated at least $40 million in revenue;
It employs an average of at least 250 employees.
Entities will be required to file, within 150 days of their
financial year-end, reports of payments made to any
government in Canada or in a foreign state, to a body that is
established by two or more governments, or to any trust, board,
commission, corporation or body that performs or is established to
perform a government power, duty or function. The definition of
what payments are required to be reported is very broad, and
includes taxes, royalties, licence and other fees, production
entitlements, signature, discovery and production bonuses,
dividends, infrastructure improvement payments and any other
prescribed category of payment. The Governor in Council is expected
to enact regulations that will set out the specific detail of such
reports, but given the Canadian Government's previous
announcements on the subject, and the G8's clear mandate to
demand accountability from governments and to empower citizens
around the world to gain important information to monitor payments
made to their local governments, it is widely anticipated that the
Act will impose very detailed and thorough reporting by Entities.
The Governor in Council is also expected to enact regulations in
relation to the threshold amount for each category of payments to
be reported. In the absence of any such regulation, the threshold
will be a total of $100,000 to any single payee over the course of
the financial year. Reports must be certified as true, accurate and
complete by an Entity's director, officer or external auditor.
The report must be made available to the public for a period of
Noncompliance with the reporting, public accessibility or
record-keeping provisions of the Act are offences
punishable on summary conviction with fines up to $250,000. The
Entity, as well as its officers, directors, agents or
mandataries, are all potentially liable.
Importantly, the Act will provide for the defence of due diligence.
As such, if an organization fails to comply, the existence of a
robust compliance program may provide a full defence to charges,
thereby highlighting the need for resource companies to ensure that
adequate measures are in place.
The Act will come into force on a day to be fixed by order of
the Governor in Council.
The implementation of these measures is a clear indication that
Canada intends to continue to send a strong message to resource
companies that bribery both within and beyond Canada's borders
will not be tolerated. The Act's reporting obligations will
certainly assist in the detection of potentially improper payments,
not only by the Entities' senior management, but also by law
enforcement agencies around the globe, concerned citizens and
non-governmental organizations keen to scrutinize the activities of
global resource players. Canadian resource companies would be well
advised to adopt, implement and monitor the effectiveness of robust
policies to ensure that the Act's reporting requirements are
strictly complied with. Such policies should work in concert with
existing corporate accounting, audit and IT policies as well as
existing policies designed to ensure compliance with
Canada'sCorruption of Foreign Public Officials
Act and other applicable anti-bribery laws.
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