May 18, 2017
The Extractive Sector Transparency Measures Act (“ESTMA” or the "Act") created stringent reporting standards for Canadian oil, gas and mining companies. If your company is required to report under ESTMA, the company must file, within 150 days of its fiscal year-end, reports of any payments totalling C$100,000 or more made to any government in Canada or in a foreign state or a body that performs or is established to perform a government power, duty or function, where the payments are made in relation to the commercial development of oil, gas or minerals. To determine whether your company is required to report under ESTMA, and the types of payments captured by the Act, see our previous article on the issue.
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The deadline to report is quickly approaching with final submissions and online publishing due by May 30, 2017 (for companies with a fiscal year-end of December 31, 2016). Non-compliance with the Act, including its reporting and disclosure obligations, is an offence punishable by a fine of up to C$250,000 and can be re-assessed for each day the non-compliance continues, meaning that a penalty can compound and add up to quite significant financial consequences.
Both a company and a director or officer of the company can be found liable for non-compliance with ESTMA and be liable for financial penalties. The threshold for liability of officers and directors is higher than for a corporation. In order to be found to have violated the Act, officers and directors must be found to have "directed, authorized, assented to, acquiesced in or participated in" the corporation's non-compliance. If a company is found to be in non-compliance with the Act, its directors and officers may be able to avail themselves of the due diligence defence. For this reason, directors and officers of a reporting entity should ensure their company has the proper policies and procedures in place to ensure compliance and prevent personal liability.
Companies Should Keep in Mind
- If the company is a reporting entity, it must enrol with Natural Resources Canada (“NRCan”) to obtain an ESTMA identification number prior to submitting a report. It is not sufficient to simply submit a report.
- An authorized representative of the company, i.e. a director, officer, independent auditor or accountant, must attest that all information reported is true, accurate and complete.
- The company’s report must capture all of its subsidiaries’ payments as well. ESTMA deems that a payment made by an entity that is controlled by another entity is made by that controlling entity.
- If the company is considered a reporting entity but has nothing to report, it must still notify NRCan via email that no report is being filed.
- It is an offence to structure payments, or any other financial obligation or gifts that relate to commercial development of oil, gas or minerals, so as to avoid the requirement to report such payments.
- A reportable payment made to a third party instead of directly to the intended recipient is deemed to have been made to that intended person, not to the third party, and should be reported.
- Reporting of payments to Indigenous groups in Canada was delayed until June 1, 2017 which means payments made after this date will need to be tracked and reported in future reports. However, all payments made to Indigenous governments outside Canada must be reported in this first round of reporting.
- Reporting requirements relating to payments made to state-owned enterprises (“SOE”) must be determined on a case-by-case basis. Payments are reportable if the SOE is exercising or performing a power, duty or function of government – and, therefore, constitutes a “payee” under ESTMA. If the SOE is simply engaging in a commercial activity, it is likely not reportable, especially if operating outside of its home jurisdiction.
- As the first reporting round will close on May 30, 2017, companies have received little in terms of guidance from NRCan. This first round of reports and the subsequent review by NRCan will be the Act’s first litmus test.
ESTMA and the CFPOA
The definition of “payee” under ESTMA includes persons that could be categorized as “public officials” under Canada’s Corruption of Foreign Public Officials Act (“CFPOA”). The CFPOA prohibits payments made to foreign public officials. As a result, entities required to report under ESTMA should carefully consider whether the payments being made are in fact made to a government or to a government official, as the latter could result in a breach of the CFPOA. Reporting requirements and compliance with anti-corruption legislation must be carefully considered by entities in their interactions with governments or other entities that may be a payee.
If not already done, Canadian resource companies must adopt, implement, and monitor the effectiveness of their compliance policies to ensure that ESTMA’s reporting requirements are strictly followed. Such policies should work in concert with existing corporate accounting, audit, and IT policies as well as policies designed to ensure compliance with the CFPOA and other applicable anti-bribery laws.
Gowling WLG is recognized as a leader in this area, with extensive on-the-ground experience creating and implementing business integrity programs for the resource sector, including disclosure and reporting policies, internal investigations and regulatory defence. Contact our White Collar Defence and Investigations, Energy, Natural Resources, or Corporate Commercial groups for practical advice on compliance with these important measures.
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