Canada: New Payment Disclosure Requirements Are Coming For Companies Engaged In The Commercial Development Of Oil, Gas And Minerals In Canada

On October 23, 2014, the Federal Government of Canada (the “ Government” ) introduced Bill C 43 (the “ Bill” ), which included the Extractive Sector Transparency Measures Act (the “ Act” ). The Act will require disclosure by entities in the extractive sector of payments made to government entities through a number of new annual reporting requirements. The Act has only passed First Reading but the Government intends to bring the Act into effect by April 1, 2015.

Companies in the extractive resource sector should familiarize themselves with the Act and  promptly raise any concerns regarding the Act in advance of its review by a Standing Senate Committee (the “ Committee” ), which has been authorized to examine the Act in advance of the Bill going before the Senate. In addition, such entities should begin evaluating the policies and procedures that will be required in order to comply with the legislation as well as any legal, regulatory or contractual commitments that may create difficulties complying with these new Canadian reporting requirements.


The Act aims to harmonize legislation with reporting standards in other G8 countries and enhance disclosure in the extractive industry. The Act’ s purpose overtly refers to Canada’ s commitment to participate in the global fight against corruption.


The Act applies to any entity that:

1.      is listed on a stock exchange in Canada

2.      has a place of business, does business, or has assets in Canada and, for at least one of the most recent two fiscal years, meets two of the following thresholds:

a.      has at least $20 million in assets

b.      has generated at least $40 million in revenue

c.      employs an average of at least 250 employees or

3.        is prescribed by legislation.

An “ entity” is defined as a corporation, trust, partnership or other unincorporated organization that:

a.      is engaged in the commercial development of oil, gas or minerals in Canada or elsewhere or

b.      controls (directly or indirectly, in any manner) a corporation, trust, partnership or unincorporated organization that is engaged in such activities in Canada or elsewhere.

Commercial development includes exploration or extraction, as well as a right to or the acquisition of a permit, licence, lease or any other authorization to explore or extract oil, gas or minerals. While the Act does not cover the Government’ s intention to include refining and transporting, as had been announced in the April 2014 Consultation Paper, section 23 of the Act does permit the Governor in Council to define “ exploration” and “ extraction” which may result in these activities being covered by the proposed legislation.

Reporting Requirements

Entities subject to the Act are required to annually report monetary or in kind payments made to any domestic or foreign government in relation to the commercial development of oil, gas or minerals under certain circumstances, a summary of which is described below. In addition, entities must also disclose payments made to a body established by two or more governments or to any trust, board, commission, corporation, body or authority that is established to exercise a government function. Payments made to government employees or holders of public office are deemed to be payments made to government entities. However, payments made to Aboriginal governments in Canada are not subject to the Act until two years after the legislation comes into force.

The Government of Canada has outlined specific categories of payments that must be publicly disclosed if payments in that category are made to the same payee in excess of (i) the amount prescribed by regulation or (ii) if no amount is prescribed, $100,000. The payment categories include:

a.      taxes, other than consumption taxes and personal income taxes

b.      royalties

c.      fees, including rental fees, entry fees and regulatory charges as well as fees or other consideration for licences, permits or concessions

d.      production entitlements

e.      bonuses, including signature, discovery and production bonuses

f.        dividends other than dividends paid as ordinary shareholders

g.      infrastructure improvement payments or

h.      any other prescribed category of payment.

Reports of such payments will be required to be filed with the applicable Minister within 150 days of the entity’ s financial year end. A director or officer of the entity or an independent auditor or accountant must attest that the information included in the report is true, accurate and complete. While the form of the report is not prescribed, it is anticipated that the Minister will require payments on a project by project basis as indicated in the Government’ s April 2014 Consultation Paper. It is also expected that entities will be required to issue an associated press release regarding its compliance with the reporting requirements as the Act requires the information to be made publicly available in the manner specified by the Minister.

The Government continues to work with the United States (“ US” ) and the European Union (“ EU” ) to develop a common reporting template to reduce the administrative compliance burden. In the event that a common reporting template is not achieved, the proposed legislation allows for an entity to provide reports utilized in other jurisdictions to the applicable Minister, provided the requirements are equivalent to Canadian reporting standards.

Compliance with the Act

The Minister can order an entity to provide any information and documentation in order to verify compliance, and provides expansive investigate powers to the Minister. The Minister is also permitted to order an entity to take any corrective measures that he or she considers necessary to comply with the reporting requirements under the Act. In the event of non compliance, the Act prescribes a fine of up to $250,000 for every person or entity that:
a.  fails to comply with the reporting requirements of the Act
b.  knowingly makes a false or misleading statement or knowingly provides false or misleading information or
c.  structures any payments, either monetary or in kind, with the intention of avoiding the reporting requirements of the Act.
An entity that structures payments to avoid the reporting requirements of the Act is also guilty of an offence punishable on summary conviction. A single event could constitute multiple offences, particularly given the fact that for each day an offence is committed or continued, such offence will be considered a separate offence. As a result, entities may face significant liability as fines may increase by up to $250,000 on a daily basis.
Section 25 of the Act explicitly establishes liability for directors, officers or agents of extraction sector entities. Individuals who direct, authorize, assent to, acquiesce in or participate in the commission of an offence are liable under the Act, regardless of whether the entity has been prosecuted or convicted of the offence.

Exemptions from the Act

The Government had previously acknowledged that situations may arise whereby disclosure of the required information is prohibited by contractual obligations or another jurisdiction’ s privacy or confidentiality laws. Nonetheless, the proposed legislation does not provide for any exemptions and aligns Canadian legislation with that of the EU. However, the lack of an exemption may put companies into a precarious situation whereby they are forced to breach either Canadian reporting requirements or foreign legal, regulatory or contractual requirements.
The US rules for extractive reporting issuers similarly did not provide for exemptions however, this turned out to be a “ serious error” as the District Court for the District of Columbia vacated these rules and referred to the Securities and Exchange Commission’ s (the “ SEC” ) decision to deny such exemptions as “ arbitrary and capricious.” The SEC will be responding with new rules in March 2015 and it will be interesting to see whether these will result in similar revisions to the proposed reporting requirements under the Act.

When Does the Act Take Effect?

As mentioned, the Government intends for this new legislation to be in force by April 1, 2015. The Act requires companies to issue reports beginning in the financial year following its enactment. Assuming the legislation comes into force April 1, 2015, the new reporting obligations will begin to impact companies with fiscal years ending in April. Changes to the legislation may occur prior to its enactment, as the Act has only passed First Reading and has yet to undergo review by the Committee.  

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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