Law Times

lAw Times • April 28, 2014 Page 11 www.lawtimesnews.com Disclosure of mining payments a hot topic Move to boost transparency could have negative consequences orcing energy companies to disclose payments to aboriginal communities could make treaty nego- tiations smoother and more trans- parent, lawyers believe. But some warn it could also encourage the federal govern- ment to slash funding for infra- structure and social services in those communities. Former natural resources min- ister Joe Oliver told mining execu- tives last month the federal gov- ernment was upholding its com- mitment to ensure mining com- panies disclose payments made to governments at home and abroad. e plans would cover pay- ments of more than $100,000 made by oil, gas, and mining companies to all levels of gov- ernment, including aboriginal communities. is would af- fect payments made by resource companies via legally binding impact benefit agreements. e agreements set out how a com- munity will benefit from land used in operations such as mines. Julie Abouchar, a partner at Toronto law firm Willms & Shier Environmental Lawyers LLP, says the proposals could benefit nego- tiations on impact benefit agree- ments. "A good process involves regular reporting to communities about the progress of negotiation and that the agreement be made available to community members to read before any agreement is ratified," she says. "is approach is possible and appropriate un- der current confidentiality rules but may be followed more con- sistently if the transparency rules were to change." Other commentators have argued opening up the talks would help aboriginal organiza- tions where more than one com- munity is participating in nego- tiations with resource firms by allowing them to work together more effectively. However, there are also con- cerns that governments will use the information to cut back on in- frastructure spending planned for those areas. "If transparency results in a net reduction of the basic federal funding for infrastructure and social services, this would be a disincentive for First Nations to invest the time and resources to negotiate benefits and economic development opportunities," says Abouchar. Fasken Martineau DuMoulin LLP partner Kevin O'Callaghan says such fears reflect a "serious and real mistrust that the aborigi- nal community has of the federal and provincial governments" and could well make aboriginal groups "hesitate" to embrace the change. Applying the transparency rules to aboriginal commu- nities could also increase the complexity of the consultations and thus delay the overall imple- mentation, he adds. But in a Canadian context, it would be legally troublesome to exclude aboriginal communities from a regime that encompasses governments operating at a sub- national level, he notes. In an article on McCarthy Té- trault LLP's web site, lawyers Sam Adkins and Stephanie Axmann note another potential disadvan- tage as the rules could lead to the "financial component of these deals becoming the focal point of negotiations." Instead of creating certainty and transparency be- tween businesses and aboriginal groups, they argue, "such partial reporting could in fact have the opposite effect." Addressing the Prospectors and Developers Association of Canada's convention in Toronto on March 3, Oliver said the fed- eral government's preference was to work with the provinces and territories to implement mandatory reporting standards for the extractive sector through securities regulators. But if the provinces fail to take action, the federal govern- ment will enact legislation by April 1, 2015, that would make disclosure mandatory. A Natural Resources Canada consultation document released on March 3, the day Oliver an- nounced the changes, provided further details. e standards would apply to both medium and large pub- lic and private companies in the mining and oil and gas indus- tries operating in Canada that fall under two of three catego- ries: their assets exceed $20 mil- lion, their net turnover is more than $40 million, and they have more than 250 employees. Companies wouldn't have to report "social payments" such as those for community centres and schools, the paper says. e document builds on rec- ommendations for the mining sector published by the resource revenue transparency working group in January. e group highlighted the fact that nearly 60 per cent of the world's mining companies are list- ed on Canadian stock exchanges. In recent years, the Toronto Stock Exchange alone has handled more than 75 per cent of global public mine financings, according to the working group paper. "With Canadian mining com- panies operating in more than 100 countries worldwide, Cana- da's ability to impact internation- al natural resource governance standards through domestic ac- tion is significant," it noted. O'Callaghan agrees on the po- tential for a Canadian rule change to have a significant global impact. "If the majority of mining compa- nies around the world will be sub- ject to this regime, any arguments about competitive disadvantage would fall away," he says. e standards are partly an ef- fort to align Canada with the Eu- ropean Union's transparency di- rective and the U.S. Dodd-Frank Wall Street Reform and Consum- er Protection Act. But says Abouchar: "e rules in the U.S. were not clear about whether payment to aboriginal governments would be caught." And last July, the U.S. District Court for the District of Colum- bia struck down a rule requiring the extraction sector to publicly disclose payments made to for- eign governments. It's likely the U.S. government will introduce new rules allowing confidentiality under the Dodd-Frank Act, says Abouchar. "So the current pro- posal in Canada goes beyond the present U.S. rules," she notes. e McCarthys' lawyers agree that covering payments to ab- original communities represents a "significant departure" from the U.S. and European standards and say that, as a result, the "govern- ment risks losing the support of the extractive industry." e U.S. government has suf- fered some "trips" in trying to impose greater transparency, says O'Collaghan. However, he's "con- fident" it's heading in the same di- rection as Canada and Europe. As for the rules themselves, the plans would require reporting the following types of payments: • Taxes levied on the income, production or profits of com- panies, excluding consump- tion taxes. • Royalties. • Fees, including licence, rental, and entry fees, as well as other considerations for licences and concessions. • Production entitlements, in- cluding in-kind payments. • Bonuses such as signature, discovery, and production bonuses. • Dividends paid in lieu of pro- duction entitlements or roy- alties. • Payments for infrastructure improvements. Natural Resources Canada's pro- posals would require disclosure of payments to: • Aboriginal organizations or groups with law-mak- ing power and governance mechanisms related to the extractive sector. • Provincially or federally in- corporated aboriginal organi- zations that undertake activi- ties in the extractive sector on behalf of their beneficiaries. • Aboriginal organizations or groups empowered to nego- tiate legally binding agree- ments on behalf of their members. LT FOCUS Draft your own customized documents with O'Brien's Encyclopedia of Forms, Eleventh Edition, Commercial and General, Division I. This service provides, both in looseleaf and electronic formats, a comprehensive collection of documents that can be easily adapted to suit your clients' needs. O'Brien's Commercial and General gives you access to more than 2,800 current general law practice forms and precedents to help you address the many commercial matters that come across your desk. 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Prices subject to change without notice and subject to applicable taxes. 00218EB-A43203 CANADA LAW BOOK ® Available risk-free for 30 days Order online: www.carswell.com/obriens Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 BY CHARLOTTE SANTRY Law Times F The Canadian proposal goes beyond the U.S. rules in place, says Julie Abouchar.

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