Andy Miller Ryan Pratt - EY · Answer - They don't. Pervasive ... Started in 2002 with the goal of...
Transcript of Andy Miller Ryan Pratt - EY · Answer - They don't. Pervasive ... Started in 2002 with the goal of...
Disclosure of payments to governments
Andy Miller
Ryan Pratt
Americas Mining & Metals Forum – September 2013
Page 2 Americas Mining & Metals Forum 2013
Agenda
► Overview and rationale for the disclosure of payments to governments
► Extractive Industries Transparency Initiative (EITI)
► Wall Street Reform and Consumer Protection Act (Dodd-Frank Act):
Section 1504
► European Union: Accounting and Transparency Directives
► Canadian recommendations on payments to governments disclosures
► Collecting, analyzing and reporting government payment information
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Overview and rationale for the disclosure of payments to governments
► More than 3.5 billion people live in countries with extensive oil, natural
gas and mineral resources
► Long-term sustainable development of natural resources
► Improve quality of life of the people in these countries
► Enhance economic growth
► Reduce poverty and related social issues
► Transparency in natural resource development as a means to assure
proper development
"Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light
the most efficient policeman.”
Justice Louise D. Brandeis
- The key for DF 1504 is why
does the SEC care about all of
this?
Answer - They don't. Pervasive
belief is that the SEC is only
acting on behalf of Congress
and that this is not really in the
SEC's purview.
- May also want to add a bullet
about finding other avenues to
identify FCPA violatons, as
some believe that this is the
goal of DF 1504.
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Extractive Industries Transparency Initiative (EITI)
► Started in 2002 with the goal of enhancing good governance of
natural resource development through improving transparency and
accountability in the extractive industries
► EITI Association is an organization comprising sponsoring countries, natural
resource extractive companies, other NGOs
► Companies publish (disclose) what they pay to governments, and
governments publish what they receive in an EITI report
► Multi-stakeholder group of governments, companies and civil society oversee the
disclosure process
► Adoption of the EITI standard is discretionary, and implementation is
the responsibility of individual countries
► Process to become an EITI-compliant country
► EITI framework and disclosure requirements must be adopted into individual
country law, therefore impacting extractive industry companies that operate within
the country
► Payment reports to be on the basis of counts that have been audited to
international standards
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Extractive Industries Transparency Initiative (EITI)
► Current status of EITI – as available on EITI website:
► 23 countries are EITI compliant
► 16 countries are EITI “candidate” countries
► 34 countries have produced EITI reports
► US$1,051 billion in government revenue has been reported
► The United States has been making an effort to become
EITI compliant
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Dodd-Frank Act: Section 1504
► Adds Section 13(q) to the Securities Exchange Act
► The SEC has mandated issuers engaged in the commercial development
of oil, gas or minerals to disclose the amount of payments by type, project
and government, annually
► SEC issued its final rule adopting Section 1504 in August 2012. The
rule covers the following aspects:
► The type and amount of payments by project and by government for all
payments that equal or exceed US$100,000 individually or in aggregate are to
be disclosed
► US federal and foreign governments (not state or local in the US)
► Includes department, agency or instrumentality of a foreign government or a
company owned by a foreign government
► Form SD that will be due 150 days after the issuer’s fiscal year-end (in
XBRL format)
► Disclosures must be made for fiscal years ending after 30 September
2013
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Dodd-Frank Act: Section 1504 Litigation
► U. S. Chamber of Commerce, American Petroleum
Institute (API), Independent Petroleum Association of
America (IPAA) and the National Foreign Trade Council
filed suit in US court to:
► Declare Section 1504 of the Dodd-Frank Act “null, void, and with
no force or effect”
► Inform that the SEC failed to fully consider the competitive effects
of the regulation
► Inform that disclosure of payments that may be contrary to either
local law or by contract will lead to a loss of business for US
companies’ bidding on resources in countries where such
disclosures are barred
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Dodd-Frank Act: Section 1504 Litigation
► On 2 July 2013, a US district court issued a decision,
vacating SEC final rule implementing Section 1504 by
► Suggesting the SEC’s interpretation of two key provisions in the
law as “arbitrary and capricious”
► Remanding the rule to the SEC to:
► Re-draft the rule and take into account the district court’s decision
regarding the disclosure of payments that may be barred by local law
► Re-issue the existing rule but with better justification for the
requirement for public disclosure of all payments to governments
► Make the effective date presently null and void
► What to do now …
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Section 1504: considerations
► API Litigation ► The API successfully challenged Section 1504; however, it is unlikely that 1504 will go away
► Timing ► 150 days following the end of each fiscal year; implementation delayed
► Type of filing ► To be “filed” with the SEC rather than “furnished;” accordingly, any materially “false or
misleading statement” in the disclosure will be subject to liability under Section 18 of the
Exchange Act
► Separate from a company’s Form 10-K or 20-F; it will not be covered by those forms’ CEO and
CFO certifications
► Confidentiality provisions of other countries/contracts ► SEC declined to allow companies to exclude reporting payments that may not be disclosed
pursuant to foreign law or a confidentiality agreement
► This is the crux of the API argument and the part of the law struck down
► Audit ► Unlike Conflict Minerals, there is no independent audit requirement, but companies will likely
look to internal audit or a third party to verify reports
► Affects of Section 1504 on companies’ anti-bribery and corruption programs
Page 10 Americas Mining & Metals Forum 2013
European Union: Accounting and Transparency Directives
► In June 2013, the European Parliament enacted a new Accounting
Directive that repealed the Fourth and Seventh Accounting Directives
on Annual and Consolidated Accounts and introduced the new
obligation for large extractive and logging companies to report the
payments they make to governments
► Also known as country-by-country reporting (or CBCR)
► The new disclosure requirement affects the following:
► All companies active in the extractive and logging industries and listed on
EU stock markets
► Large, unlisted companies registered in the EU that are active in the
extractive and logging industries
► EU-listed or large unlisted parent companies in any sector with
subsidiaries active in the extractive or logging industries
► Small and medium-sized unlisted companies that have EU-listed
subsidiaries active in the extractive and logging industries
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European Union: Accounting and Transparency Directives
► Companies are to publish payments made to governments for the
exploration, prospection, discovery, development and extraction of
mineral, oil and natural gas deposits.
► Forestry companies will need to disclose payments that arise from the
logging of primary forests
► Payments required to be disclosed
► Taxes on income, production and profits
► Royalties
► Fees, including license and rental fees
► Bonuses, including production and signature bonuses
► Production entitlements
► Dividends
► Payments for infrastructure improvements
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European Union: Accounting and Transparency Directives
► The disclosure requirement is equivalent to (and in some cases
exceeds) the disclosure requirements of SEC Rule 13q-1, which has
been vacated by the US district court
► “Equivalence clause” reporting is included in the EU directive so that
undertakings that are required to report payments in other jurisdictions
will satisfy the reporting requirement
► The EU Commission to adopt such equivalence criteria on the basis of
specific criteria concerning, for example, the content and frequency of the
reporting obligation
► The SEC final rule would presumably meet the criteria, however a re-
written rule may or may not be allowed
► Effective date: EU Members States have 24 months to transpose the
new directives into national law
► Companies will publish the information annually in a report, with the first disclosures
expected to be published in 2015 or 2016
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Canadian recommendations on payments to governments disclosures
► Working group formed to develop a framework for the
disclosure of payments to governments by Canadian
extractive industries companies
► Framework is aligned with the US and EU disclosures
requirements
► Canadian extractive industries include many exploration and junior
mining companies, so the disclosure threshold is lower than that in
the EU and the US
► Two separate thresholds are recommended: one threshold for issuers
listed on the TSX set at $100,000, to be aligned with the US and EU
rules, and a second threshold for venture issuers set at $10,000.
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Collecting, analyzing and reporting government payment information
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Common “themes” in disclosure requirements
► Types of payments:
► Taxes on income, production and profits
► Royalties
► Fees, including license and rental fees
► Bonuses, including production and signature bonuses
► Production entitlements
► Dividends
► Payments for infrastructure improvements
► Include payments “in kind”
► Governments
► Federal or national, regional or local authority
► Department, agency or undertaking controlled by that authority
► Includes state-owned enterprises
► Who or what activities are subject to the reporting requirement?
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Complying with the disclosure requirement
► Five-step process:
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Technology approach to Dodd-Frank 1504 compliance
Structured data
Unstructured data
Survey data
Survey platform Reporting
dashboards Data Repository
Secure web-based review tool
(accessed via the web): dynamic and
real-time reporting and analytics to
assist in categorizing payments
Intelligent reporting – in addition to
XBRL Reporting (accessed via free
reader): real-time analytics using a
snapshot of the data source
Data gathering: data from a
variety of sources can be
imported into the EY Data
Repository for analysis and
review
Page 18 Americas Mining & Metals Forum 2013
EY reporting dashboards
ABC Company
Section 1504 Payment Summary
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EYG no. ER0094
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