Large mining, gas and oil companies registered in the UK will be required to report on the payments they make to governments in all the countries they operate in on a country by country or project basis in respect of their financial years commencing 1 January 2015.
The UK is the first EU country to introduce reporting requirements on extractives companies under the EU Accounting Directive Chapter 10. The threshold for reporting payments is €100,000 or more. Unlisted extractives companies will have a maximum of 11 months after the end of their financial year to file a report at Companies House detailing their extractives payments while listed companies will have six months under the Transparency Directive. A further consultation has just been launched by the FCA to make the necessary amendments for listed companies. Two reports may be required for listed companies under the regulations which implement the Accounting Directive and the Transparency Directive.
The format of the report required to be filed is still being discussed but it has been confirmed that a filing fee will be payable to Companies House. Illustrative reports are included in the government’s response document.
Publicising this information at project level should make host governments more accountable to their citizens for the way in which payments are spent. Citizens and civil society will have far greater insight into what governments (local and national) are being paid by extractives companies. This will give them the information they need to help demand that their governments account for how the monies have been spent locally. There is also evidence to suggest that countries with greater extractives’ transparency are more attractive to investors.
Speaking to Governance & Compliance magazine in September 2014, Babawande Sheba, Head of Department for Gas and Oil at Greenwich School of Management, called the initiative an important and brave step taken by the UK government, which he said “should lead to improved corporate governance practices and foster better corporate social responsibility and improved ethical behaviour amongst UK companies”.
However, only time will tell whether this requirement will fulfill its aim of reduced corruption in international trade. As the threshold for reporting a payment or series of payments is €100,000, there is a potential for smaller payments to change hands without being reported.
The requirement to produce an annual extractives transparency report will result in both transition and ongoing compliance costs and smaller companies will feel the impact more. However as more countries enact such laws, the impact should diminish in the long run and a level playing field should emerge for all global players.
Our clients and contacts from the mining, gas and oil industry will need to:
- Update their Boards on this new development
- Look out for the proposed template report once this is developed and take account of the additional filing fee
- Include the new requirement in the year end timetable and plan to be able to meet the filing deadlines in respect of their 2015 accounting year end
Read the government’s response document following the consultation and the draft regulations.