Blogs are opinion pieces and reflect their author’s views

Transparency Legislation

Brian Livingston is an Executive Fellow at The School of Public Policy, with a background in the resource area. 


In November of 2014, the Government of Canada passed legislation requiring resource entities (usually corporations) in Canada to publish the payments they make to various governments in the world.  This blog will examine the key terms in this legislation as well as the background.  Future blogs will examine the challenges in creating the mechanisms for compliance, the international linkages to other jurisdictions (particularly the U.S. and the European Union) and the applicability to Aboriginal groups in Canada.


Resource entities mean any entity that is engaged in the commercial development of oil, gas or minerals in Canada or elsewhere.  The legislation applies to any company incorporated in Canada that is  publicly listed on a Canadian stock exchange, or a private entity with a place of business in Canada and that meets two out of three attributes, namely revenue (above $40 million), assets (above $20 million) and employees (above 250).


Payments mean any sort of payment to governments in relation to the commercial development of oil, gas or minerals.  The minimum threshold for total payments is $100,000.  Payments include royalties, any type of taxes (other than consumption and personal income taxes), bonuses, a wide variety of fees and rentals, production entitlements, extraordinary dividends, infrastructure improvement payments, and any other payment as prescribed.  It is obviously designed to catch a wide variety of payments to governments, in an attempt to capture any possible payment that could be diverted by a corrupt government recipient.


Governments means any national government, sub-national government and municipal government.  The definition includes payments to countries other than Canada, as well as to the Canadian federal government, any Canadian province or territory, any Canadian municipality and any aboriginal government in Canada.  The inclusion of Canadian governments was apparently done to show that Canada was asking its’ own entities to do just as much as other countries were asking its’ entities to do.


The origins of the legislation (formally called the Extractive Sector Transparency Measures Act) go back a number of years.  The stated intent of the legislation is to “implement Canada’s international commitments to participate in the fight against corruption through the imposition of measures applicable to the extractive sector”.  It is designed to deal with situations when countries (often developing countries) would permit companies to develop and produce resources such as oil, gas or minerals.  In many cases, the resource payments made by companies to the governments of the countries would often never reach the general population, but rather would be intercepted by a corrupt few in the leadership. 


In response, an organization named the Extractive Industries Transparency Initiative (EITI) was formed about 13 years ago.  Consisting of so-called civil society groups, governments, investors and resource companies, the EITI belief is that governments receiving resource payments should be accountable for the use of such revenues and should use them to further the public good.  One way of achieving this goal is to have companies disclose how much they pay in resource payments to governments around the world, both national and sub-national. The G8 summit of July 2013 called for member nations to implement transparency legislation to require companies to disclose the payments they make to governments in return for the extraction of resources such as oil, gas and minerals.


The passage of the Canadian legislation will permit Prime Minister Harper to report to the G7 summit in 2015 that Canada has passed enabling legislation, as have the U.K and the other EU countries.  The U.S. has also passed enabling legislation, but has run into a legal challenge that has stopped the mechanical steps of implementation (described in detail in future blog).


But the real work remains to be done. There is a strong consensus amongst all the groups of the EITI that transparency should be supported and implemented.  In contrast to the strong consensus on the basic concept of disclosure, there is no strong  consensus on how such disclosure is to be made.  Like so many things in life, the devil is in the details that will be contained in the method of such disclosure.  More specifically, the details are in what is to be disclosed, how is it to be disclosed and where is such disclosure to be made.  The Canadian government has indicated that it does not wish to become an EITI implementing country, and wishes to minimize the administrative burden on companies as they comply with the transparency legislation.


As will be seen in future blogs, the challenge is to have companies report on a consistent basis, and to avoid double counting of payments.  In addition, companies often are subject to the disclosure laws of more than one jurisdiction (for example Shell will be governed by both the European Union and U.S. rules).  In Canada, the provincial securities commissions have no interest in collecting the information, with the exception of Quebec. 


In the United States, the Securities Exchange Commission (SEC) passed draft rules in 2012 setting out how to disclose resource payments.  These draft rules were challenged by the American Petroleum Institute in a lawsuit in 2012.  The Court decision in July of 2013 set aside the draft rules.  As will be discussed in future blogs, the SEC has yet to come up with any new rules (despite promising to do so by March of 2015), likely because they will be a matter of controversy no matter what the SEC does.  The EU has passed legislation requiring the disclosure of resource payments, and has been very granular as to what must be disclosed. 


Future blogs will also look at various other aspects of transparency legislation.  The mechanics of compliance will be a real challenge, and are very much a work in progress.