Not quite letting the sunshine in
BY JUSTIN LING April - May 2013 Issue
Why Ottawa is resisting implementing mandatory reporting of payments made by resources companies to foreign governments.
As the G8 works to increase financial oversight and accountability for the extractive sector, is Canada standing off in the corner?
When the G8 leaders get together in Lough Erne, Northern Ireland on June 17-18, they'll be following summit host and British Prime Minister David Cameron's, agenda: tax, trade and transparency. Cameron has also made clear his intentions to renew the international community’s focus on financial openness in the extractive sector.
Cameron is riffing off a trend that is increasingly common in the extractive sector. In matters of corruption, sunlight is the best disinfectant: making public payment data from oil, gas and mineral companies will push out corruption, free industry from having to line the pockets of greedy middlemen, and ensure that local communities know where their royalties are going. Though the consensus appears to be calcifying around Cameron’s push, Canada appears to be more tepid in its support.
The United States passed the Cardin-Lugar Amendment in 2010, which threatens to de-list from the New York Stock Exchange any company that does not publish their payment records. The European Union just passed a set of similar transparency laws, and Australia is dipping a toe in the water with a pilot project on the initiative.
Meanwhile, 21 countries have signed onto the World Bank-run Extractive Industries Transparency Initiative (EITI), a program that seeks to create an international registry of payments – including royalties and bonuses -- that lets the public hold businesses and governments to account.
Canada has officially lent its support to EITI. It's announced more than $12 million in ongoing funding for the project. It sits on the initiative’s management board. It won't, however, implement mandatory reporting in Canada.
A spokesperson for Minister of International Trade Ed Fast said that the government strongly supports Cameron's initiatives, including EITI, but notes that it is aimed more at developing countries, and that Canadian companies already adhere to a high level of reporting.
John McKay is trying to change the government's mind. The Liberal MP for Scarborough --- Guildwood, former lawyer and longtime advocate for regulations on the extractive sector, is trying to get Canada in line by introducing bill C-474. The bill would bring Canada into the EITI fold by requiring Canadian resource companies to submit annual transparency reports disclosing payments made by the company to foreign governments to the Minister of Natural Resources.
The logic, McKay says, goes that if the U.S., Europe, the U.K. and Australia get onboard, then there's no competitive disadvantage for publishing corporate financial reports. From there, Russia, China and the rest of the developing world would be smart to join. After all, kickbacks and bribes -- and the bad press that comes along with them -- isn't good for business.
But that chain breaks down at Canada.
Going into the G7 and being obstructionist has a clear outcome, says McKay. "We will become the home of choice for companies that don't want to be accountable or transparent."
But McKay's conversations with the government have not left him optimistic. "They're ideologically predisposed to let market forces prevail in all markets," McKay told National.
Conventional wisdom goes that industry should be against more transparency and accountability. But in this case, it's industry that's lobbying government. Ben Chalmers, vice-president of sustainability for the Mining Association of Canada, says that the extractive industry is enthusiastic in its support for a "level playing field."
The association, in 2012, teamed up with its sister group, the Prospectors and Developers Association of Canada, and NGOs Publish What You Pay and Transparency International to form a working group on pushing mandatory financial reporting for the extractive sector. They've met with Natural Resources Minister Joe Oliver and have been lauded by the government.
"We've seen a great deal of interest in the work that we're doing from the government in the past year," says Chalmers. "I think that they're maturing."
Kady Séguin, interim director of Publish What You Pay Canada, says that while the U.S. has had its silver bullet solution through their mandatory reporting overseer, the National Securities and Exchange Commission, the path forward for mandatory reporting is "a little bit trickier here in Canada," she says.
If Ottawa had won its battle to establish a unified securities regulator, there wouldn't be a problem. But the Supreme Court of Canada stuck down the government's plan, ruling that it was an unconstitutional overstep onto the province's authority.
So now, if Ottawa is interested in moving forward in any legitimate way, it must corral provincial governments to join the effort. Séguin says that the government can use its authority and "play a proactive role" in bringing the provinces together.
McKay, for his part, is all for empowering the provinces, but he notes that there has been no sign if or when that will happen. In the meantime, he says, C-474 would fill that gap.
While Ottawa might not be onside with mandatory reporting yet, Harper will be facing pressure from Obama and Cameron when the G8 conference starts on June 17.
Justin Ling is a journalist based in Montreal.
Not quite letting the sunshine in