Extractive sector transparency measures act comes into force

The Extractive Sector Transparency Measures Act came into force on June 1, 2015. The Act requires Canadian extractive companies to publicly state all payments made to foreign and domestic governments in annual disclosure reports.

The Act applies to all forms of payments, including taxes, royalties, fees, production entitlements, bonuses, and dividends. Payments made to Aboriginal governments under legally binding impact benefit agreements (IBA) and memorandums of understanding (MoU) between aboriginal communities and extractive companies, will be subject to disclosure two years after the legislation is instated (June 2017). The Act applies to payments of $100,000 or more, whether monetary or in kind.

This Act is similar to ones proposed recently in the US and the European Union: the 2012 proposed Dodd-Frank Act, section 1504 and the European Union (EU) Transparency Directive, that encourage payment disclosure by resource extraction issuers.

The Act is consistent with Canada’s Corporate Social Responsibility (CSR) Strategy for Canada’s Extractive Sector Abroad, which aims to enhance the ethical standards and operational practices of Canadian mining companies when working in foreign countries. The Act is  supported by such organizations as Revenue Watch Institute, and generally by Canada’s mining industry, including the Prospectors & Developers Association of Canada (PDAC) and the Mining Association of Canada (MAC), for its potential to significantly increase financial accountability and transparency of extractive companies. However, there is some concern that open disclosure of benefits (or payments) to specific Aboriginal groups will discourage government funding to Aboriginal communities. In addition, the Act can be criticized for its lack of applicability to smaller junior companies if they don’t meet the assets or revenue criteria. Indeed, for a company to be subject to the Act, it must have a place of business in Canada and be listed on a stock exchange in Canada. Further, for at least one of its two most recent financial years, it must have at least two of the following: 1) CDN$20 million in assets; 2) CDN$40 million in revenue; and 3) an average of 250 employees.

Click here for the Mining.com summary review of the Act.

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