A double dose of transparency

Paired with its new anti-corruption rules, Ottawa’s call for explicit disclosure of all payments made by Canadian companies to foreign governments and officials brings a new standard of offshore accountability to the boardroom
By Rob Colapinto

The world’s most active player in global natural resource extraction will soon be facing new federal legislation mandating beefed-up disclosure of payments made to foreign governments. Canada has long been viewed as a transnational laggard when it comes to its scrutiny of companies’ dealings with offshore governments and officials where they’re operating. No more. The race is on for what surely must seem like a lung-igniting sprint to transparency.

Tighter rules on foreign payments were the focus of an early June announcement by Prime Minister Harper. The piling on continued a week later with the passing of additional amendments and criminal penalties targeting managers and directors under the Canadian Corruption of Foreign Public Officials Act (CFPOA). Add to this mix the need to be mindful of more robust transparency directives recently enacted by the EU Parliament and confusion stateside in the Securities and Exchange Commission’s insistence on full public disclosure through Dodd-Frank, and the Canadian extractive sector might not be blamed for feeling somewhat winded.

“Things are happening so quickly,” says John Boscariol, head of McCarthy Tétrault’s international trade and investment law group. “With all these developments coming together, and in a short period, directors and C-suite officers are getting worried.”

It’s also known that the Canadian framework will piggyback on similar Dodd-Frank reforms (a necessity for cross-listed companies and to ensure an equal playing field). In July, however, a U.S. court struck down the SEC’s ruling that Dodd-Frank requires public disclosure of payments. Shell, BP, Chevron and others successfully argued that the SEC had misinterpreted Dodd-Frank. But in the long run, says Grant McGlaughlin, head of Goodmans LLP’s mining and natural resource group, it’s not going to matter. “It’s an interesting bump in the road, but not one that’s going to derail the U.S., EU or Canadian regulators’ drive towards equivalency in reporting requirements,” he assures.

Details of the new foreign payment regime won’t be fully worked out until the government hears from the provinces and territories, First Nations and aboriginal groups, other stakeholders and at least one multilateral group (the Canadian Extractive Resource Revenue Transparency Working Group) that’s already formulating possible rules for a disclosure regime. What is known is that companies will be required to publicly reveal all material payments, including exploration and extraction rights, taxes, license fees and facilitation payments. At this point, there is still some uncertainty as to how “disclosure” will be defined.

Given that 35% of the planet’s oil and gas companies are listed in Canada, and that some 8,000 Canadian mines operating in more than 100 countries, this means lots of demand for legal help. As outside counsel, Boscariol offers a coolly detached legal assessment of an issuer’s internal controls and planned disclosure. “We look at issues of prevention, detection and then mitigation,” he explains. “And, of course, interpretation; for there’s going to be clarity issues in any new regime.”

“From a legal perspective, we tell directors and boards what a company should not be doing,” offers McGlaughlin. “In no way will there be a nod, wink, wink, ‘You can do it, but just take care to insulate us from it so we can defend ourselves.’”

Indeed, directors and managers will have precious little time for tiptoeing through such minefields. “From the company perspective,” says McGlaughlin, “the new regs are going to be quite a burden. It’s hard enough now for public companies to ensure that they’re properly complying with disclosure regimes; and now we’re adding another level of granularity to these disclosures.”

But it’s one that’s much needed. As recently as 2011, watchdog Transparency International ranked Canada last among G7 nations in its enforcement of corruption and bribery standards established by the OECD. “If you overlay the hotspots for corruption and oppression in the world, you see that’s where our extraction industry is lit up on the map,” says Elisabeth Preston, managing partner at McMillan LLP’s Ottawa office. “We don’t want our activities to be seen as destabilizing the world.”

In the end, says Preston, a broader corporate social responsibility interest comes in to play. Without public disclosure, Canadian shareholders and impoverished citizens of resource-rich nations have no hope of divining the monies paid… and into what coffers.

“It’s not just that companies shouldn’t offer bribes because it’s illegal, or bad to empower despots; there’s a development impact as well,” she explains. “You don’t want to make it so expensive or so unattractive for companies to go into those countries that they just won’t go. If the companies aren’t undertaking these projects then you’ve cut off opportunity for development entirely. And everyone loses.”

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