On October 23, 2014, the Canadian government introduced the Extractive Sector Transparency Measures Act (the “Act”). The purpose of the Act is to implement Canada’s international commitments to participate in the fight against corruption through the implementation of measures applicable to the resource sector. Specifically, the Act requires entities involved in the commercial development of oil, gas or minerals to publicly disclose certain payments they make to governments.
Application of the Act
Generally, the Act applies to any entity engaged in, or controlling other entities engaged in, the oil, gas or mineral industry that:
- is listed on a stock exchange in Canada; or
- has a place of business in Canada, does business in Canada or has assets in Canada and that meets at least two of the following conditions for at least one of its two most recent financial years:
(i) the entity has at least $20 million in assets,
(ii) the entity has generated at least $40 million in revenue, and/or
(iii) the entity employs an average of at least 250 employees.
Entities that meet the above criteria must report certain payments made to Canadian and foreign governments within 150 days of their financial year-end. For purposes of the Act, governments include bodies that are established by two or more governments, as well as any trust, board, commission, corporation, body or authority that performs or is established to perform a power, duty or function of government. Beginning two years after the Act comes into force, entities must also include payments made to Aboriginal governments in Canada.
The categories of payments that must be disclosed are:
- taxes, other than consumption taxes and personal income taxes;
- fees, including rental fees, entry fees and regulatory charges as well as fees or other consideration for licences, permits or concessions;
- production entitlements;
- bonuses, including signature, discovery and production bonuses;
- dividends other than dividends paid as ordinary shareholders;
- infrastructure improvement payments; or
- any other prescribed category of payment.
Entities are only required to disclose payments within a category of payment that are made to the same payee, if the total amount of all those payments during the financial year is at least the amount prescribed by regulation for that category. If no amount is prescribed by regulation for the category of payment, then the threshold amount over which disclosure is required will be $100,000. The definition of “payment” includes payments that are monetary or in kind. The government may specify the form of the report, but the Act provides that the report must include an attestation made by a director or officer of the entity, or an independent auditor or accountant, that the information in the report is true, accurate and complete.
To verify compliance with the Act, the government may require an entity to provide any information or documents, including:
- a list of projects for the commercial development of oil, gas or minerals in which the entity has an interest and the nature of that interest;
- an explanation of how the entity has treated a payment for the purpose of preparing a report;
- a statement of any policies that the entity has implemented for the purpose of meeting its obligations under the Act; and
- the results of an audit of its report or of the records of payments for the financial year to which the report relates.
Penalties and Personal Liability of Directors and Officers
Failure to comply with the Act can result in a summary conviction and fine of not more than $250,000. If an entity commits an offence under the Act, any officer, director or agent of the entity who directed, authorized, assented to, acquiesced in or participated in its commission is a party to and guilty of the offence and liable on conviction to the punishment provided for the offence, whether or not the entity has been prosecuted or convicted.
While there is no definitive timeline for bringing the Act into force, Canada has committed to implementing its international commitments by June, 2015. Consequently, companies in the extractive or resource sector should monitor the implementation of the Act to ensure compliance prior to the Act coming into force.
If you have any questions about the Extractive Sector Transparency Measures Act, contact any member of Clark Wilson’s Corporate Finance & Securities Group.