November 05, 2015
Starting in 2016, Canada’s oil, gas, and mining companies will be required to start tracking payments to government recipients when the Extractive Sector Transparency Measures Act (ESTMA) comes into effect in January. The new law requires companies in the extractive sector to disclose payments they make to government officials relating to the commercial development of oil, natural gas, or minerals, at home and abroad. Companies that are already required to disclose such payments in other jurisdictions, such as the United States and Europe, will be relieved from having to do so again under the new law.
Companies falling within the scope of the law will be required to report all payments of at least CAN $100,000 made to any government, whether in Canada or in a foreign state. Payments made indirectly through third parties are also covered by the law.
The new law has drawn some criticism from both sides of the political spectrum. Those who say that the law does not go far enough point to the fact that ESTMA does not cover security payments to the military and does not require that the payments be disclosed into a central repository. Others argue that the law is too vague and unclear, as it’s unclear whether payments made to, say, aboriginal communities not acting in an official capacity, would qualify. Some aboriginal groups in Canada are also said to dislike the new law, as it would shine light on payments made by private companies that had for years gone undisclosed. That is one reason why the law’s reporting requirements regarding aboriginal and indigenous groups in Canada have been deferred by over a year until June 1, 2017.
In order to help ease some of these concerns, Natural Resources Canada has published guidance on what is covered by the scope of the law, with illustrative case examples of reportable versus non-reportable payments. In doing their part, Canadian companies will need to ensure that they have adequate accounting practices and compliance procedures in place to comply with the new law.
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