Background

On June 12, 2013, the Canadian government announced its intention to introduce new legislation requiring the disclosure of payments made by Canadian extractive resource companies to domestic and foreign governments. While the United States and European Union have both already taken steps towards implementing mandatory payment reporting requirements for their mining, oil, and gas companies, Canada has now also joined the global movement towards transparency in this regard.  In addition to leveling the playing field for extractive resource companies, this initiative is aimed at aligning Canadian policy with the standards of other G-8 countries and reducing corruption within the extractive resource industry.  This initiative seems to be consistent with Canada’s increased enforcement of its anti-corruption legislation, including the Corruption of Foreign Public Officials Act (“CFPOA”).  In the past two years, there have been two significant convictions under the CFPOA resulting in penalties in the range of $10 million for each company.

Reporting Regime

Although Canada does not currently have a mandatory reporting regime in place, it has supported the transparency movement since 2008 through the Extractive Industries Transparency Initiative (“EITI”). The EITI has established a disclosure framework in which 25 countries have agreed to voluntarily disclose payments to governments.  While some countries have expressed their intention to implement the EITI (in addition to their own transparency requirements), Canada has chosen to undertake its own separate transparency regime.

Shortly after the Canadian government had announced its payment disclosure initiative in June 2013, the Resource Revenue Transparency Working Group (the “Working Group”) released a recommended framework which includes proposed legislative disclosure requirements for Canadian mining companies (the “Draft Recommendations”).^[1] The Working Group was formed in 2012 by several organizations including the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay Canada, and the Revenue Watch Institute.  The objective of the Working Group has been to develop a reporting framework for Canadian extractive resource companies in order to establish greater transparency, both within Canada and abroad. The Draft Recommendations borrow heavily from the legislation which has been implemented in the United States, but have also drawn on the mandatory Directives issued by the European Union relating to transparency.^[2]  The Working Group expects to finalize the framework in November 2013.

In their Draft Recommendations, the Working Group has proposed mandated disclosure for payments made by “covered companies”, which include the company itself, its subsidiaries and other entities under its control.  According to the Draft Recommendations, various forms of payments must be disclosed, including profit taxes, royalties, fees, production entitlements, bonuses, dividends, infrastructure payments as required by law or contract, transportation and terminal operation fees, as well as fines and penalties paid to government. The Draft Recommendations also propose the inclusion of two reporting thresholds to accommodate both large and small issuers.  The recommended threshold for issuers listed on the TSX is $100,000, while a lesser threshold of $10,000 is proposed for TSX Venture Issuers.