Canada: Reporting Of Payments To Aboriginal Governments Now Required Under The Canadian Extractive Sector Transparency Measures Act

After a two-year deferral period, eligible companies are now required to report payments to Aboriginal or Indigenous governments under the Extractive Sector Transparency Measures Act ("ESTMA").1 Eligible companies must publish its report of these payments online and provide a link to the report to Natural Resources Canada by no later than 150 days following the end of the company's financial year.

ESTMA came into force on June 1, 2015 to enhance accountability and transparency in the extractive sector by requiring companies in the mining, oil and gas industries to publicly report, on an annual basis, payments made to all levels of government in Canada and abroad. The legislation was enacted with a two-year deferral period, which ended on June 1, 2017, for the reporting of payments to Aboriginal governments.

As a result, eligible companies, referred to as "Reporting Entities", that made "Reportable Payments" to Aboriginal governments on or after June 1, 2017 and have a financial year ending on December 31, 2017, were required to report those payments by May 30, 2018. Reporting Entities that make Reportable Payments to Aboriginal governments in 2018 and have a financial year ending on December 31, 2018 will be required to report those payments by May 30, 2019.

Natural Resources Canada's powers to enforce these reporting obligations are severe and could result in aggressive penalties. Companies that are engaged, directly or indirectly, in the commercial development of oil, gas or minerals in Canada or elsewhere should be aware of ESTMA's requirements and carefully track these payments, and ensure they comply with their reporting obligations.

Which companies are considered Reporting Entities?

ESTMA applies to companies that are directly or indirectly engaged in the commercial development of oil, gas or minerals in Canada or elsewhere. These Reporting Entities are required to report under ESTMA if they are an "Entity" that is either:

  1. listed on a stock exchange in Canada; or
  2. subject to Canadian law by virtue of being based, doing business or holding assets in Canada and meet two of the following criteria in one of their two most recent financial years:

    1. at least $20 million in assets;
    2. at least $40 million in revenue; or
    3. employ an average of 250 employees.

The two tests above are exclusive of one another. For examples, an Entity with common shares listed on the TSX Venture Exchange will be a Reporting Entity, even if it does not meet any of the size-related criteria. Additionally, Entities whose securities are not listed on a stock exchange in Canada must still report under ESTMA if they have a place of business in Canada, do business in Canada or have assets in Canada, and meet two of the three size-related criteria in one of their two most recent financial years.

As we have discussed in previous posts, Reporting Entities also likely includes companies that are not "traditional" extractive sector companies – for example, investment funds that hold controlling share positions in extractive companies.

Who is a Payee and what is a Reportable Payment?

Reportable Payments are payments made by a Reporting Entity to a "Payee", which ESTMA defines as:

  1. any government in Canada or in a foreign state;
  2. a body established by two or more governments, or
  3. any trust, board, commission, corporation or other authority that is established to exercise or perform, or that exercises or performs, a power, duty or function of government for a government referred to in paragraph (1) or a body referred to in paragraph (2).

The term "government" is not defined in ESTMA and should be applied broadly to capture a wide variety of scenarios, including any national, regional, state/ provincial, or local / municipal government levels.

Reporting Entities must identify and aggregate all of the payments made within one of the payment categories to a single Payee, and, if that amount meets or exceeds CAD $100,000 it must be included in an ESTMA report. Reportable Payments may be monetary payments or in-kind payments, and includes taxes, royalties, fees, production entitlements, bonuses, certain types of dividends, and infrastructure improvement payments.

When is an Aboriginal or Indigenous government considered a Payee?

ESTMA deferred the requirement for Reporting Entities to report on payments made to Aboriginal or Indigenous governments in Canada until June 1, 2017. The deferred implementation was intended to provide additional time for consultation with Indigenous communities.

While the language of ESTMA uses the term "Aboriginal government", Natural Resources Canada appears to use the terms "Indigenous government" and "Indigenous Payee" to refer to these entities in its policy guidance documents.2 Reportable Payments made to Indigenous Payees on or after June 1, 2017 must be included in subsequent ESTMA reports.

Reporting Entities should use the same analyses and considerations when determining when and how to report payments to Indigenous governments as they would with any other government in Canada or abroad using the definition of "Payee" described above. The terms Aboriginal government, Indigenous government and Indigenous Payee are not defined in ESTMA.

After consultations undertaken by the federal government on the development of standards for ESTMA, Natural Resources Canada proposed that the application should be to the following types of payees:

Aboriginal organizations or groups with law-making power and/or governance mechanisms related to the extractive sector (i.e., mining, oil and gas); provincially or federally incorporated Aboriginal organizations that undertake activities in the extractive sector on behalf of their beneficiaries; [and] Aboriginal organizations or groups that are empowered to negotiate legally binding agreements (e.g., impact benefit agreements) on behalf of their members.3

In April of 2018, the Minister of Natural Resources released a guidance document on reporting payments under ESTMA and includes the following examples of Indigenous Payees:

a. Any government in Canada or in a foreign state.

This could include any Indigenous group or organization that exercises or performs the power, duty, or function of government. For instance, this could include, but is not limited to any group or organization with power to make laws (including by-laws) in relation to natural resources or the management and exploitation of those resources; or a government that has been recognized in federal, provincial, or territorial legislation.

b. A body that is established by two or more governments.

This could include, but is not limited to, a treaty association, tribal council, or Chiefs' council that is established by a government as defined in paragraph (a).

c. Any trust, board, commission, corporation or body or other authority that is established to exercise or perform, or that exercises or performs, a power, duty or function of government for a government referred in paragraph (a) above or a body referred to in paragraph (b) above.

This could include, but is not limited to, a treaty association, tribal council, or Chiefs' council that is established by a government as defined in paragraph (a) or a body as defined in paragraph (b).4

What is the appropriate form of reporting?

All ESTMA reports must be based on one of the two reporting templates provided on Natural Resource Canada's website and reported on a project-by-project basis.

Submitted ESTMA reports must be publicly available for a period of no less than five years from the date they were published and initially provided to Natural Resources Canada. All ESTMA reports published within the last five years should be made available at the same link, and are currently available here: Links to ESTMA Reports. Reports submitted under another jurisdiction may be used as acceptable substitute for reporting under ESTMA.

Additional tools for businesses reporting under ESTMA are available here: Tools for Extractive Businesses.

Companies risk serious enforcement penalties for non-compliance

Since ESTMA was enacted in 2015, we have found that numerous companies in the oil and gas and mining sectors lack knowledge regarding these requirements. Companies must carefully consider ESTMA's broad application and strict reporting requirements to ensure they are compliant.

In June of 2017, Natural Resources Canada published on their website 377 unique reports from companies complying with their obligations under ESTMA. Of these reports, nearly an even number were submitted by oil and gas companies as compared to mining companies. An early report by KPMG regarding ESTMA compliance noted that companies made several errors in their reports, such as reporting payments in dollars other than Canadian dollars to arrive a totals that did not meet the CAD $100,000 threshold for Reportable Payments.5

To date, Natural Resources Canada seems to be focusing on raising awareness and ensuring companies are properly reporting. While we are not aware of Natural Resources Canada taking aggressive enforcement actions at this time, ESTMA does provide severe penalties for companies that do not comply that could be strictly enforced at any time.

To read more about ESTMA and its requirements, please contact the authors of this article to seek advice and refer to the following related articles:

Canadian Government Launches Consultations on Mandatory Payment Disclosure Rules

Canada Confirms Plans to Extend Mandatory Public Reporting of Payments in the Extractive Sector to Aboriginal Entities

Canada Continues Efforts in Battling Foreign Corruption – 2017 in Review and What to Expect for 2018

Footnotes

1 Extractive Sector Transparency Act (S.C. 2014, c. 39, s. 376) ("ESTMA").

2 ESTMA, supra, at s. 29; Extractive Sector Transparency Measures Act Guidance: Version 2, Natural Resources Canada (April 2018).

3 "Developing Mandatory Reporting Standards for the Extractive Sector" Government of Canada (Jan 23, 2018).

4 Extractive Sector Transparency Measures Act Guidance: Version 2, Natural Resources Canada (April 2018).

5 "Insights into Mining: ESTMA Reporting Analysis" KPMG (2017).

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