On June 1, 2015, the Extractive Sector Transparency Measures Act (Canada) (the “Act”) came into force. The Government of Canada enacted the Act in an effort to contribute to anti-corruption efforts through the implementation of reporting and transparency measures in the extractive sector. These rules are intended to be comparable to those being implemented in the United States and the European Union.
The Act applies to any entity engaged in the commercial development of oil, gas or minerals in Canada or elsewhere. The Act defines “entity” as a corporation or a trust, partnership or other unincorporated organization: (a) that is engaged in the commercial development of oil, gas or minerals in Canada or elsewhere; or (b) that controls a corporation or a trust, partnership or other unincorporated organization that is engaged in the commercial development of oil, gas or minerals in Canada or elsewhere. An entity is engaged in the “commercial development of oil, gas or minerals” if it is engaged in: (a) the exploration or extraction of oil, gas or minerals; (b) the acquisition or holding of a permit, licence, lease or any other authorization to carry out any of the activities referred to in (a) above; or (c) any other prescribed activities in relation to oil, gas or minerals.
An extractive entity that is engaged in the commercial development of oil, gas or minerals is required to report if:
- it is listed on a stock exchange in Canada;
- it has a place of business in Canada, does business in Canada or has assets in Canada and that based on its consolidated financial statements, meets at least two of the following criteria in one of its two most recent financial years:
a) it has at least $20 million in assets;
b) it has generated at least $40 million in revenue;
c) it employs an average of 250 employees; and
- it is considered a prescribed entity.
If an extractive entity makes one or multiple payments to one payee, these payments must be disclosed if they are of the same category and total $100,000 or more or another amount prescribed by regulation for that category.
The Act broadly defines a “payee” as: (a) any government in Canada or in a foreign state; (b) a body that is established by two or more governments; (c) any trust, board, commission, corporation or body or authority that is established to exercise or perform, or that exercises or performs, a power, duty or function of government for a government referred to in (a) or a body referred to in (b); or (d) any other prescribed payee. The definition also captures boards, commissions, corporations, trusts or other bodies or authorities that perform a function for a government, including Aboriginal governments and any trusts, boards, commissions, etc. acting for any Aboriginal government. However the Act defers the requirement for extractive entities to report on payments made to Aboriginal governments in Canada until June 1, 2017.
A “payment” is broadly defined in the Act to mean a payment — whether monetary or in kind — that is made to a payee in relation to the commercial development of oil, gas or minerals and that falls 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; or
- any other prescribed category of payment.
Extractive entities are required to report 150 days following the end of its financial year on payments made to any payee. The report must be accompanied with an attestation made by a director or office of the entity, or an independent auditor or accountant, that the information in the report is true, accurate and complete. Reporting entities must keep records related to their payments made to payees for at least seven years. Reporting entities are required to make their reports accessible to the public in a manner specified by the Minister; and for the period prescribed by regulation, or for five years if none is prescribed. The Act includes a substitution authority to allow the Minister to determine that the reports of another jurisdiction (such as the United States or the European Union) can be submitted to satisfy the reporting requirements under the Act, subject to any conditions the Minister may impose.
Failure to comply under the Act or the regulations is punishable upon summary conviction with a fine of up to $250,000. This penalty also applies to every person or entity that: knowingly makes or provides a false or misleading statement or information (including with respect to the payment category); or structures any payments (or other financial obligations or gifts that relate to its commercial development of oil, gas or minerals) with the intention of avoiding the requirement to report them. If an offence under the Act is committed or continued on more than one day, it constitutes a separate offence for each day. Any officer, director, agent or mandatary of the person or entity who directed, authorized, assented to, acquiesced in or participated in its commission is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence, whether or not the person or entity has been prosecuted or convicted. The Act provides for a due diligence defence if the accused can establish that they exercised due diligence to prevent the commission of the offense.
For more information, please see http://laws-lois.justice.gc.ca/eng/acts/E-22.7/page-1.html