Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m S E P T E M B E R 2 0 1 6 13 \ AT L A N T I C \ C E N T R A L \ W E S T REGIONAL WRAP-UP The SEC rules require issuers in the resource sector (oil and gas and miner- als) to disclose payments made to the U.S. federal government only (unlike the ESTMA, which considers all gov- ernment levels) or a foreign government and all its sub-governments, when filing annual reports to exchanges. Also, the issuer must disclose any payments made by a subsidiary or entity controlled by it. The SEC rule encompasses com- mercial development of oil, natural gas, minerals in all phases such as explora- tion, extraction, processing and export or the acquisition of a licence for these activities. (The ESTMA only consid- ers exploration and extraction.) All payments totalling $100,000 or more must be declared and the tally includes taxes, royalties, fees (including licences), production entitlements, bonuses, dividends, payments for infrastructure improvements and, if required by law or contract, community and social respon- sibility payments. SRPs are not covered by the Cana- dian rule but are under the SEC rule if they are in lieu of a payment. Abraham says they can be enhancements such as building a hockey arena or improving roads. The SEC transparency rule has gone through numerous court battles, but the reissued rule now applies to pub- licly traded resource companies on U.S. exchanges and is being lauded as a land- mark move that will stem corruption within governments, often in poorer countries. The push to increase transparency in the resource sector has been driven by the Extractive Industries Transparency Initiative, a global standard, where both government and companies agree to report payments. In 2010, using s. 1504 of the Dodd Frank Act in the U.S., Con- gress added s. 13 (q) to the Exchange Act, which set out disclosure rules for publicly traded resource companies. In 2011, the U.S. Extraction Industries Transparency Initiative was established to enhance disclosure rules in the U.S. The SEC adopted rule 13q-1, which set out transparency reporting rules, on Aug. 22, 2012. The rule was met with a court challenge by American Petroleum Institute, which had wanted exemp- tions in certain countries (Angola, Cameroon, China and Qatar). The API claimed its members would not be able to operate in these countries under the rule and would have to withdraw and lose tens of millions of dollars. The SEC was unwilling to exempt the countries. The Rule 13q-1 was struck down in the API challenge in 2013 by the Federal District Court for the District of Colum- bia with the court declaring that the SEC had not provided adequate justification for its firm exclusion policy. Two civil rights groups then sued the SEC for drag- ging its feet on formulating a new rule, yielding a judicial order that the SEC issue an amended rule. The SEC-reissued rule came out in June 2016. John Anderson, a mining lawyer with Stikeman Elliott LLP in Vancouver, says these disclosure rules are directed at larger companies. In Canada, under the ESTMA, they impact companies that meet two out of three criteria: assets of $20 million, revenues of $40 million or 250 employees. The SEC is allowing Canadian companies to file their ESTMA-mandated reports with the U.S. exchanges since the transpar- ency rules for companies are similar. "It doesn't impact a lot of the junior exploration companies," Anderson says, but larger companies acquiring these junior companies will be scrutinizing their expenditures to ensure they are not acquiring problems in addition to property. As well, the rules do not allow companies to consolidate several projects in one report, but each project must be reported on. Anderson says he believes this is just another step toward greater transparency that is generally occurring in the industry. Anderson says the good news is that the rule now places Canada and the U.S. on a more equal footing when entering or working in foreign countries. (It also allows companies to see what govern- ments assessed competitors and compare costs). But he says it will be bad news for despots who might want to profit on bribes or revenues in oil-, gas- or miner- al-rich countries and attempt to hide pay- ments. "If you are someone who is just looking out for himself and telling people, in a country where they are starving, that there is no income, all these oil compa- nies will now be declaring what they have paid to government," he says. Anderson says the transparency rules will help to ensure that there is also proper development of social proj- ects that resource companies going into an area commit to and the benefit goes to the individuals within that country. "It is going to help make bribes something of the past," he says. — JEAN SORENSEN jean_sorensen@telus.net A DAILY BLOG OF CANADIAN LEGAL NEWS LEGALFEEDS.CA FEEDS LEGAL POWERED BY Untitled-12 1 2016-08-16 4:46 PM

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