Canada Introduces Broad Reporting Obligations for Oil and Gas and Mining Companies
On June 1, 2015, the Canadian government enacted the Extractive Sector Transparency Measures Act (the “Act”), which establishes mandatory annual reporting for the extractive sector of payments of $100,000 or more made to all governments related to oil, gas and mining development in Canada and abroad. Reporting entities will be required to submit reports for each of their financial years that begin after June 1, 2015.
The purpose of the Act is to implement Canada’s 2013 G8 commitment to participate in the fight against corruption through the implementation of reporting standards applicable to the Canadian extractive sector by June 2015 and is aligned with reporting standards of the U.S. and the European Union.
Application of the Act
The Act applies to entities engaged in, or which control entities engaged in, the “commercial development of oil, gas and minerals” in Canada or elsewhere, which the Act defines to include the exploration or extraction of oil, gas or minerals or the acquisition or holding of a permit, licence, lease or other authorization to carry out the exploration or extraction of oil, gas or minerals. Additionally, in order to be subject to the Act, an entity must:
- be listed on a stock exchange in Canada; or
- have a place of business in Canada, do business in Canada, or have assets in Canada and meet at least two of the following conditions for at least one of its two most recent financial years:
- have at least $20 million in assets;
- have generated at least $40 million in revenue; and
- employ an average of at least 250 employees.
An entity subject to the Act must, within 150 days of its financial year end, provide an annual report to the Minister of Natural Resources (the “Minister”) disclosing all “payments” in a financial year of $100,000 or more (unless another amount is prescribed) relating to the commercial development of oil, gas and minerals made to any government in Canada (including an Aboriginal government) or in a foreign state. The term payment is defined broadly to include both monetary and in kind payments that fall within any of the following categories of payment:
- 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; and
- any other prescribed category of payment.
The annual 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 and must be made available to the public by being posted on an entity’s website, for example. Records of payments made in a financial year must also be kept for at least seven years.
To minimize administrative burden, the Act contains a substitution authority to allow the Minister to determine that the reports of another jurisdiction can be submitted to satisfy reporting requirements under the Act, subject to any conditions the Minister may impose.
Pursuant to the transitional provisions under the Act, an entity’s initial annual report will be in respect of its first financial year following June 1, 2015, and payments made to Aboriginal governments in Canada are not required to be reported until June 1, 2017.
Failure to Comply with the Act
Every person or entity that fails to comply with the Act, knowingly makes any false or misleading statement, or structures any payments in order to avoid the reporting requirements of the Act is liable to a fine of up to $250,000. Notably, if the offence is committed or continued on more than one day, it constitutes a separate offence for each day on which the offence is committed or continued. Also, any officer, director or agent who directed, authorized, assented to, acquiesced in or participated in the offence 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. Proceedings under the Act are subject to a five year limitation period.
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