New "Publish What You Pay" Guidance from Natural Resources Canada

Natural Resources Canada (NRCan) has released its final Guidance and Technical Reporting Specifications documents (Guidance Documents) for implementation of Canada’s "publish what you pay" reporting requirements under the federal Extractive Sector Transparency Measures Act (ESTMA). ESTMA is part of Canada's commitment to global transparency and anti-corruption efforts in the extractive sectors and complements similar laws being adopted in the European Union and the United States.  

What You Need To Know 

• ESTMA applies to entities listed on a stock exchange in Canada, and large private entities that have a place of business in Canada or assets in Canada, that are involved in the commercial development of oil, gas or minerals in Canada or abroad.
• A mandatory process has been added to the final Guidance Documents to enroll with NRCan as a reporting entity under ESTMA, with enrollment requested by June 30, 2016.
• ESTMA applies to financial years commencing after June 1, 2015 and reports must be posted online and submitted to NRCan within 150 days after the financial year end (i.e., for entities with a December 31 year-end, the first reports must be disclosed by May 30, 2017). Reporting of payments to Aboriginal governments in Canada is deferred for two years such that payments made after June 1, 2017 will be disclosed in the report filed in 2018.
• Reporting is required for payments made to governments at any level (national, subnational or local) in Canada and abroad that relate to the commercial development of oil, gas or minerals and fall into the categories specified under ESTMA. Payments do not need to be reported if they fall under the threshold of C$100,000 (determined on a per category of payment, per government basis).
• An officer, director or independent auditor must attest to the accuracy of the report when submitted.
• Reporting entities as well as directors and officers not in compliance with ESTMA may be fined up to C$250,000 per day, subject to a due diligence defence.
• Reporting entities should ensure they have developed their accounting systems and accountabilities for identifying government payees and satisfying the detailed reporting requirements under ESTMA. There may be complexities and challenges with respect to a company’s particular organization and operations which will need to be considered and addressed.

Background

Canada's "publish what you pay" legislation—the Extractive Sector Transparency Measures Act (ESTMA)—came into force on June 1, 2015 as part of Canada’s commitment to global transparency and anti-corruption efforts. The legislation is overseen by NRCan; the final Guidance Documents follow NRCan’s public consultation in 2015 and remain largely unchanged from the draft Guidance Documents published in July 2015. NRCan is expected to hold compliance workshops later in 2016.

The history of ESTMA and the movement promoting transparency laws and publication of government payments in the resource sector, often focused on developing countries plagued with corruption and poverty, has been underway for over 20 years. The Extractive Industries Transparency Initiative (EITI) was introduced in 2003 as a voluntary initiative under which countries and companies in the extractive sector voluntarily disclose payments to governments. In recent years, countries (including the United States and those in the European Union) have begun introducing legislation imposing mandatory reporting requirements, the content of which largely follows the requirements under EITI. 

Application of ESTMA Reporting Requirements

ESTMA's reporting requirements apply to "entities" (corporations, trusts, partnerships or other unincorporated organizations) that are engaged in, or control an organization engaged in, the commercial development of oil, gas, or minerals in Canada or abroad, and that:

• are listed on a stock exchange in Canada, or
• do business or have assets in Canada and meet at least two of the following conditions (in one of last two financial years):

• at least C$20 million in assets,
• at least C$40 million in revenue, and
• an average of at least 250 employees.

Timing for Reporting and Record Keeping

Reporting entities are required to submit a Contact Form to obtain an ESTMA identification number before they will be able to submit their reports to NRCan. NRCan has requested enrollment by June 30, 2016. The mandatory Contact Form and the templates for reports are available on the Government of Canada website here. Companies must keep reports publicly available for at least five years and all ESTMA reports published within the last five years will be made available on the same public link.  Reporting entities must keep records of their payments for at least seven years from the date of submission of the report.

ESTMA applies to financial years commencing after June 1, 2015. Reports must be posted on the company’s website and submitted to NRCan within 150 days of the reporting entity’s financial year end (i.e., for entities with a December 31 year-end, the first reports must be disclosed by May 30, 2017). Reporting of payments to Aboriginal governments in Canada is deferred for two years, such that payments made after June 1, 2017 will need to be disclosed in the report filed in 2018. Reporting of payments to Aboriginal or indigenous governments outside Canada is not deferred.

Reporting Requirements

Reporting entities must report payments at or above the C$100,000 threshold (discussed below) made to governments at any level, in Canada or abroad, in relation to the commercial development of oil, gas or minerals that fall into one of the seven categories specified under ESTMA. Parent companies of reporting entities will be able to issue a consolidated report for all of their subsidiaries that are required to report payments under ESTMA. NRCan has reaffirmed that in situations of joint control, such as joint ventures, reporting entities must report all payments that they make to a government. The payment must also be reported if a payment is made by an entity that is not subject to ESTMA but is controlled by a reporting entity, or if the payment is made on behalf of a reporting entity. The entity making the payment will need to report the payment (whether this payment is made as an operator or a member of a joint arrangement).  

Categories of Payments that Must be Disclosed. Reporting is required for monetary and in-kind payments in relation to the commercial development of oil, gas, or minerals that fall within any of following categories of payment:

• taxes (e.g., income, profit and production taxes), excluding consumption (GST), withholding and personal income tax;
• royalties;
• fees (rental fees, entry fees, and regulatory fees), as well as other consideration for authorizations;
• production entitlements;
• bonuses (signature, discovery, and production bonuses);
• dividends, other than dividends paid as ordinary shareholders;
• infrastructure improvement payments; and
• any other prescribed category of payment.

Challenging questions may arise in the context of the application of the reporting requirements to community and social responsibility contributions and infrastructure improvements.

Commercial Development. Commercial development includes exploration or extraction, or the acquisition or holding of a permit, licence, lease or other authorization for exploration or extraction. It will generally exclude ancillary or preparatory activities, and processing is excluded unless "integrated" with extraction.

Thresholds and Breakdown of Payments. Any payment of at least C$100,000 to the same payee (level of government) for a single category, or a series of payments in a single category that total at least C$100,000 must be reported. Reporting entities must group together payments to the same level of government (e.g., national, regional or municipal) to determine if the threshold is met, and reporting should specify payments to different government payees separately where practical (by government body). Payments are reported for the period when paid (not on an accrual basis), and the Technical Reporting Specifications provide guidance and templates for the breakdown of payments, currency conversions and the valuation of in-kind payments.

Project-level reporting is required where applicable, and reporting entities will need to independently consider how to classify and group projects. "Project" is defined in the Technical Reporting Specifications as operational activities that are governed by a single granting instrument or legal agreement that form the basis for payment liabilities with the government (or multiple agreements that substantially interconnected). "Substantially interconnected" is defined to mean a set of operationally or geographically integrated granting instruments or agreements "with substantially similar terms." The scope of projects will depend on your particular business and assets and may require careful consideration on how large or small the project should be defined, keeping in mind the purpose of transparency and the ability to identify payments to subnational and local governments.

Attestation. An officer, director or independent auditor must attest to the accuracy of the report "in all material respects" when submitted. NRCan may require an independent audit of a report. It will be important to ensure that management, the audit committee, the board and the auditors are aligned regarding accountabilities, controls, reporting and attestation of the report.

Payments to State-Owned Enterprises. With respect to State-Owned or Controlled Enterprises (SOE), the application of the reporting requirements will depend on the role the SOE is serving and whether it is performing a government function. Payments to an SOE acting in its capacity as a commercial business would not be reportable payments.

Offences and Penalties

Offences under ESTMA are subject to a fine of up to C$250,000 per day. Offences would include failure to meet the reporting requirements, failure to maintain records, knowingly making false statements or structuring payments to avoid the reporting requirements. Directors and officers who authorized, acquiesced or participated in an offence will have similar personal liability. Offences are subject to a due diligence defense, so companies (and their directors and officers) should ensure they have established proper processes, reporting, internal controls and accountabilities within their organization. When questions arise, companies should document their internal process, analysis, conclusions and rationale, and should seek expert advice when necessary to support their decision making.

Confidentiality and Conflicts of Law

There is no exception to the reporting requirements where the reporting entity is subject to confidentiality provisions or where reporting may violate local laws. To the extent a company’s payments are subject to confidentiality restrictions, it will be important to determine if there are exceptions for "disclosures required by law." The Guidance Documents state that the Government of Canada has held discussions with "countries of interest" to advise them of the reporting requirements and suggests that if a reporting entity encounters challenges, they should provide details to NRCan.

Substitution

Reporting entities will be permitted to substitute reports from another jurisdiction’s "publish what you pay" regime to meet the requirements under ESTMA if that jurisdiction’s laws have been determined by NRCan to be an acceptable substitute. NRCan has published a determination that reports filed under the European Union’s reporting regime qualify as an acceptable substitute.

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* With assistance from Brandon Schur, Articling Student.

Le mois dernier, le Canada a publié sa première Stratégie industrielle de défense (la Stratégie), qui souligne l’engagement du Canada à développer une base industrielle de défense solide et à stimuler la croissance économique. Ces efforts pourraient aussi comprendre le renforcement de l’état de préparation à la biodéfense et aux contre-mesures médicales, ce qui pourrait constituer des débouchés pour le secteur canadien des sciences de la vie en raison de l’importance accordée aux capacités nationales en ce sens et de la nécessité d’atténuer les risques d’urgences sanitaires.

Développement de contre-mesures médicales au Canada

Comme indiqué dans les bulletins précédents, le quatrième pilier de la Stratégie est axé sur la « sécurisation des chaînes d’approvisionnement pour les intrants et les biens clés » par le renforcement de la production nationale et le stockage de ressources. L’accent est mis tout particulièrement sur les contre-mesures médicales, en précisant que nos « alliés ont établi un lien explicite entre l’état de préparation à la biodéfense et aux contre-mesures médicales et leur sécurité économique et nationale, en élaborant de nouvelles stratégies et de nouveaux mécanismes pour faire progresser ces travaux ». Les contre-mesures médicales désignent divers produits réglementés pouvant être utilisés pour protéger la population lors d’une situation d’urgence de grande ampleur, comme l’éclosion d’une maladie ou une attaque impliquant des armes chimiques, biologiques ou nucléaires. Il peut s’agir de vaccins, de médicaments thérapeutiques et produits biologiques, de dispositifs de tests diagnostiques, des équipements de protection individuelle ou industrielle, et d’autres dispositifs médicaux. Les contre-mesures médicales sont essentielles à la réduction et à l’atténuation des dommages lors d’une urgence de santé publique.

Exploiter les voies réglementaires mises en place lors de la pandémie de COVID-19

Pendant et après la pandémie de COVID-19, le Canada a mis en place plusieurs nouvelles voies réglementaires comme mécanismes d’accélération des approbations de produits médicaux, ce qui pourrait offrir au gouvernement des options pour déployer des contre-mesures médicales afin de faire face aux risques pour la santé publique. Au début de la pandémie, Santé Canada a émis diverses ordonnances provisoires pour permettre l’importation et la vente de médicaments et de dispositifs médicaux qui n’avaient pas eu l’approbation des voies réglementaires traditionnelles. Or, Santé Canada a plutôt fait confiance aux voies d’approbation réglementaire et de l’exemption de certaines exigences en homologation de produits des pays impliqués dans la transaction. Beaucoup de ces règles provisoires ont depuis été officiellement intégrées à la réglementation en vertu de la Loi sur les aliments et drogues et ont été appliquées bien après la COVID-19. Conformément au Règlement sur les aliments et drogues, Santé Canada tient à jour la Liste des maladies qui menacent la santé publique et utilisera une procédure d’autorisation modifiée pour les médicaments d’urgence de santé publique pouvant traiter les affections figurant sur la liste. De même, le Règlement sur les instruments médicaux a établi une liste d’instruments médicaux répondant à un besoin urgent de santé publique, ce qui permet à Santé Canada d’autoriser la commercialisation de ces instruments de manière accélérée. Ces outils réglementaires sont utilisés automatiquement quand une situation médicale présente un grand risque pour la santé publique au Canada et nécessite une action immédiate pour contrer ce risque.

Le rôle de la Stratégie dans le renforcement du régime réglementaire de la santé au Canada

La stratégie prévoit que le Canada adoptera une approche proactive en matière de planification en amont des crises sanitaires. Le gouvernement entend s’assurer que les produits médicaux sont déjà disponibles au Canada afin qu’ils puissent être distribués rapidement en cas d’urgence. D’autres modifications récentes au Règlement sur les aliments et drogues permettent de prépositionner au Canada tous les médicaments d’urgence en santé publique, ce qui signifie qu’ils peuvent être importés dans des installations d’entreposage canadiennes avant que leur mise sur le marché n’ait été autorisée. La Stratégie s’appuie sur ces fondements, en faisant référence à l’organisme existant Préparation aux crises sanitaires Canada (PCSC), un organisme opérationnel spécial au sein d’Innovation, Sciences et Développement économique Canada (ISDE), et à un nouveau Fonds des sciences de la vie, lesquels « collaborent avec des partenaires internationaux et de soutenir l’élaboration et la production de contre-mesures médicales ». PCSC supervise la Stratégie en matière de biofabrication et de sciences de la vie du Canada, qui vise à développer un secteur national des sciences de la vie fort et compétitif doté de capacités de biofabrication de pointe, en mettant l’accent sur la capacité à se préparer et à faire face aux futures priorités et crises sanitaires. Dans cette optique, il y aura des occasions pour les fabricants de nouer des collaborations de recherche et des accords commerciaux ou d’approvisionnement liés aux contre-mesures médicales financées par des programmes fédéraux.

Étroitement lié aux capacités nationales, le pilier III de la stratégie implique « Investissement ciblé pour renforcer un secteur canadien de la défense novateur », avec la promesse que le gouvernement fédéral « soutiendr[a] la recherche et le développement, protéger[a] la propriété intellectuelle, soutiendr[a] les petites et moyennes entreprises, investir[a] dans les compétences et la formation, et encourager[a] les exportations afin de créer un secteur de la défense agile et concurrentiel à l’échelle mondiale ». La nécessité de favoriser le développement de la propriété intellectuelle (PI) et la conservation des droits du Canada est mentionnée à plusieurs reprises dans la Stratégie. Par exemple, la Stratégie prévoit l’établissement de partenariats officiels avec l’industrie canadienne qui « [assureront] la propriété et le contrôle nationaux de la propriété intellectuelle (PI) et des capacités essentielles. » La Stratégie reconnaît l’immense talent des établissements canadiens et la précieuse recherche qui y est menée actuellement et qui est déjà financée par des subventions de recherche d’organismes tels que le Conseil de recherches en sciences naturelles et en génie et les Instituts de recherche en santé du Canada, et fait aussi référence à l’engagement de 1,6 milliard de dollars pour de nouveaux fonds de recherche dans le budget de 2025. Cette prise de conscience de la nécessité de promouvoir et de soutenir l’innovation au Canada laisse présager des possibilités de financement, notamment dans les domaines où le Canada accuse un retard en matière de production nationale et où des engagements d’investissement et de fabrication au Canada peuvent être pris.

Prochaines étapes

Dans les prochains mois, nous prévoyons que le gouvernement du Canada publiera d’autres directives et des mesures de suivi. L’équipe de défense des conservateurs poursuivra sa couverture de perspectives sur la défense au Canada en publiant une analyse supplémentaire pour donner des précisions sur l’incidence de la Stratégie sur de multiples secteurs.