Australia has taken a significant step in supporting a global movement for accountability and transparency in the mining and extractives industries. On 28 October 2014, Greens leader Christine Milne introduced the Corporations Amendment ('Publish What you Pay') Bill 2014 to the Senate. The legislation would establish mandatory reporting of payments made by Australian based resource extraction companies to governments in Australia and around the world. Introduction of the Bill follows the global decade long 'Publish What You Pay' movement to encourage full public disclosure of oil, gas and mining revenues in resource-rich countries. The Bill aims to stamp out corruption in the industry through mandating public disclosure of all payments to governments and encouraging governments to publish funds received, so that a full accounting may be disclosed.
If passed, the legislation will require Australian public and large proprietary companies (or subsidiaries of those companies) that carry out resource extraction activities (including mining, oil and gas, and logging) to submit annual financial reports detailing all payments made to Australian and foreign government entities that relate to extraction activities valued over AUD100,000. The obligation will include all stages from exploration through to rehabilitation. The Bill follows the introduction of similar legislation in the Unites States, Canada and United Kingdom and is the next step in the completion of the Australian pilot of the Extractive Industries Transparency Initiative (EITI).
The EITI is a voluntary mechanism under which governments, companies and civil society have sought to enhance openness and accountable management of natural resources revenues. The EITI is premised on the theory that enhanced transparency and dialogue will assist in overcoming poverty, conflict and corruption - the "resource curse" afflicting many developing country economies that are heavily reliant on resource extraction. Globally, there are 31 EITI compliant countries and another 17 candidate countries.
In its current form the Bill will mandate filing of an annual report of payments on a country-by-country and project-by-project basis. The disclosures are intended to capture not only 'traditional' payments to the government such as royalties, license fees and taxes, but also indirect payments such as 'infrastructure improvements', 'social payments' and 'security services'. Disclosure will be mandatory for cash or in-kind payments. The disclosure will be required for directly controlled and joint venture subsidiaries. The Australian Securities Investment Commission (ASIC) will then be required to disclose the reports within 28 days of receipt.
ASIC may, under certain circumstances, make an order relieving a company of its reporting obligations if disclosures substantially hinder the company in the exercise of its rights over the assets or management of the subsidiary; (ii) the information necessary to comply with the requirement cannot be obtained without disproportionate expense or undue delay; or (iii) the subsidiary is a subsidiary of the holding company only because the holding company holds shares in the subsidiary for the sole purpose of selling them.
The Bill raises a number of important issues for Australian resources companies, including the management of confidentiality provisions in agreements with foreign governments and the potential ramifications of breaching those agreements in order to comply with the compulsory disclosure regime. Australian resources companies should carefully monitor progress of the Bill and their obligations within it.
If enacted, companies will need to consider the consequences of disclosing host government payments, in particular whether such payments include any confidential information, or could otherwise impact on third party obligations (such as non-Australian resident joint venture parties). Consideration should also be given to implementation of appropriate systems and controls to ensure that all payments to government entities, that are subject to the Bill, are recorded in a central location to ensure compliance if the Bill is passed. If companies propose to enter into new agreements with foreign government entities, it will be prudent to closely consider the impact of the Bill on any confidentiality obligations when negotiating those agreements.
The K&L Gates Energy, Infrastructure and Resources Group will continue to monitor progress of the Bill and will provide updates as required.
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