European Union: Show Me The Money - New European Disclosure Requirements Announced For Companies In Extractive Industries

Last Updated: 17 June 2013
Article by Shash Dayal


The European Union ("EU") has recently proposed new accounting and disclosure rules (the "Proposed Disclosure Rules") that will oblige European listed and other large companies in extractive industries to disclose material payments to the governments in countries where they operate. It follows similar rules being implemented in the United States under the Dodd-Frank Act, and other global initiatives.

This article outlines the proposed new rules and the companies which they will apply to, briefly touches upon the US and other global initiatives, and discusses the likely impact on international energy, mining and other extractive sector companies.

Requirements under the Proposed Disclosure Rules

The Proposed Disclosure Rules will require the disclosure of all payments to governments of €100,000 or more in a financial year by companies to which the new rules apply. In this context, governments include departments, agencies or other government-controlled entities, whether or not in the EU. Such disclosure will need to be both on a project-by-project as well as a country-by-country basis, thereby providing a high level of disaggregation.

The payments covered include items like signature bonuses, entry fees, licence fees, taxes, royalties, production entitlements or other payments to governments under agreements such as concessions, production sharing contracts, leases, licenses or other host government agreements entered into by extractive industry companies.

Type of companies caught

The Proposed Disclosure Rules will apply to companies in extractive industries - i.e. those involved in the processes leading to the extraction of minerals, oil, natural gas deposits or other material, and including the logging of primary forests.

As currently drafted, they will apply to two non-exclusive categories of company - "public-interest entities" ("PIEs") and large companies. Broadly, PIEs are companies whose transferable securities are admitted to trading on a regulated market of any EU member state, including the Main Market of the London Stock Exchange plc ("LSE"), or which are designated as such by a member state.

Large companies (whether or not listed) are those with their registered offices in the EU that fulfil two of the following three annualised criteria: (a) turnover of €40 million or more; (b) balance sheet total over €20 million; and (c) employ more than 250 persons on average.

The LSE's AIM Market is not a regulated market. Nevertheless, we understand that AIM companies are also likely to become subject to the Proposed Disclosure Rules, and not simply those qualifying as large companies. This may arise either through the UK designating AIM companies as PIEs, the UK implementation exceeding the minimum requirements of the relevant EU directive (see further below as regards implementation), or by way of enhanced LSE guidance for extractive companies.

US regime - Dodd-Frank

The Proposed Disclosure Rules will bring the EU regime in line with similar rules being implemented in the US by the Securities and Exchange Commission following the Dodd-Frank Act 2010 and the passage of the Cardin-Lugar Extractive Industries Provision under it (section 1504). A detailed discussion of these provisions is outside the scope of this article, but it should be noted that the Proposed Disclosure Rules are wider than the US rules because they also apply to large unlisted companies and companies in the forestry sector.

Other global initiatives

The Extractive Industries Transparency Initiative ("EITI") is a voluntary initiative comprised of governments, companies, lobby groups, investors and international organisations, which aims to strengthen governance in the extractive sector. Guidelines developed by the EITI, which are broadly similar to section 1504 of the Dodd-Frank Act, have been adopted into law by some countries and this includes governments publishing what they receive from extractive companies and the latter publishing what they pay to governments.

There are also moves aimed at obtaining a similar commitment in relation to disclosure by other countries in the G8, which comprises France, Germany, Italy, Japan, the United Kingdom, the US, Canada and Russia.

Impact on companies

One of the main impacts of the Proposed Disclosure Rules will be increased compliance challenges and costs for affected companies. For companies that are subject to both the EU and US regimes, this will add a further layer of compliance because, although the regimes are similar, the actual disclosure items and requirements under them may vary significantly.

Many countries have national laws that prohibit disclosure of payments to the government. Accordingly, any disclosure under the Proposed Disclosure Rules in such countries would require the consent of those governments. If no consent is forthcoming, the relevant company may need to withdraw from a particular project or country because of the clash between the local law and the Proposed Disclosure Rules.

Another impact will therefore be that companies from countries that are not subject to either the Proposed Disclosure Rules or the US regime may have an unfair commercial advantage over those that do have to comply with these regimes, both in terms of participating in projects as well as the compliance cost.

EU implementation timetable

The Proposed Disclosure Rules will be incorporated into revisions to the EU's Accountancy Directives (78/660/EEC and 83/349/EEC) and the Transparency Directive (2004/109/EC). The final text of the directives is yet to be published. After publication, the provisions will go to the European Parliament and Council of Ministers for approval. EU member states then have two years to implement the laws once any directive is published in the EU's official journal. It is therefore thought that the regime may not enter into force all across Europe before late 2015.


The Proposed Disclosure Rules when implemented will be an important transparency initiative enabling local communities in resource-rich countries to see what amounts are being received by their governments, and will help in holding these governments to account.

However, it will create further administrative and compliance challenges for both listed as well as large unlisted companies and may negatively impact the commerciality of projects, especially if the absence of a uniform global regime means companies not subject to these rules may gain a competitive advantage.

We will continue to follow the developments on this front and provide further updates in future editions of Market reCap.

Useful links:

European Commission Announcement (9 April 2013)

Text of the Proposed Directive (12 April 2013)

EITI website

Global Witness website

Publish What You Pay

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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