Natural Resources Committee on Nov. 20th, 2014

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Does anybody else want to answer that question around the role that regulations will play in the conversation that we're having?

[The Chair, Conservative, Leon Benoit]

From CAPP I see a willingness to respond.

Alex.

[Alex Ferguson]

I agree and I think we're both saying the same thing. I think we're aligned on the principle of what we're trying to achieve here. I don't think this is a rationalization. I think we're talking more about the mechanics of getting there the most efficient, effective way possible, which is a pretty important piece for any piece of legislation.

If we see very limited, rare occurrences of exemptions, if we turn our minds to that we can probably limit the need for exemptions. Perhaps if we had more clarity on other aspects of the legislation in how it applies to us domestically, that is a primary concern for our sector here in Canada.

Most of our companies that are listed in Canada operate in Canada. Very few of our members—and we represent the majority of Canadian production, as you can imagine—operate internationally. It's more the international companies that interact and invest in Canada.

We're happy with the substitutability, the equivalency. Our companies operate in those other jurisdictions, subject to the EU and Dodd–Frank provisions, and the Foreign Corrupt Practices Act provisions in the U.S.

We're primarily concerned with the efficiency and the effectiveness of this domestically.

Canada has a really good reputation. Yes, issues always come up. I would suggest that any issues we have in corruption in Canada—and we're recognized worldwide as a pretty stable jurisdiction in that space—are due more to where money has gone as opposed to where money came from. I think there are provisions and rules and laws in Canada to address those municipalities or those other places where bad practices may be going on.

At this point we're concerned about the exuberance of taking a fairly big.... which I think we all agree on, and and without understanding the details, being able to fully support all the provisions that are here, without some flexibility.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Ms. Block.

We go now to Monsieur Gravelle for up to five minutes.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you, Mr. Chair.

It certainly is my pleasure to be here today around the table with my colleagues, although it's only temporary. I'm especially pleased to be here with my colleagues from the mining community.

I want to emphasize that Ms. Charlton; our leader, Tom Mulcair; and I met with some of your board members on Tuesday. Your board members recognized that we support mining as long as it's done in the right way, and I think that's what we're trying to do here today. We recognize your contributions, which are good jobs, taxes, the contribution to the GDP, and of course the employment of many aboriginal people, which is very important.

I'm going to direct my questions to the Mining Association for now. I'd like to know the target of this legislation, and why you think the penalties need to be increased?

[Pierre Gratton]

I think Ben made the comment at the very beginning of his opening remarks that we have to remember who the target is here. This is not going after companies, per se. The target here is to try to fight corruption within governments, particularly in some countries around the world. We recognize that the penalties provision in here has a role to play, because if companies don't participate, it won't work. You need to ensure compliance with this act. But the way it's currently drafted, with the daily compounding penalty, we find that it's disproportionate to the nature of the offence. It's kind of sending the signal that we're the culprits here, when actually we're the solution. The culprits we're trying to get at are the governments that aren't transparently disclosing what they're doing with the funds that they receive from industry.

I would note, too, that the Canadian Association of Petroleum Producers had a different way; I think their first recommendation addresses in a different way the same issue that we're raising in our first recommendation around penalties. I think there's a commonly shared concern around the way this particular aspect of the legislation has been addressed.

[Claude Gravelle, NDP, Nickel Belt, ON]

Okay.

The government is using the criminal law power to support this legislation. What difference does this make in comparison with what the provincial securities legislation would put in place? Is there a difference here?

[Ben Chalmers]

The big difference, I think, is that securities regulation has a long and established track record of dealing with financial disclosures. The regimes are well understood by companies. The accuracy issues, which we spoke to as part of our recommendations, are well managed in terms of the level of disclosure versus the due diligence that companies must conduct to make sure they're accurate. And the enforcement schemes are there. A number of steps can be taken for corrective action.

The consequences in securities are very significant. They could eventually result in the delisting of a company. There's a very powerful stick there, or enforcement mechanism; it's just that these are tools that are well equipped to deal with this specific type of disclosure.

[Pierre Gratton]

I would just add that it's the materiality question, which I think CAPP also raised. In securities law, it does take into account the materiality. If in your disclosure you're off by a dollar, through securities legislation, it's kind of irrelevant. You can correct it later. But under this particular legislation, because it's the criminal law power and there isn't a recognition of materiality, you can be off by a dollar and actually be in violation of the act.

That's why our amendments are trying to get at that issue, just so that it's properly balanced.

[Ben Chalmers]

I would just add that the daily compounding is actually a disincentive to correcting errors when they're found. I mean, if a company detects an error, let's say several months after issuing the report, if they go and correct it then they've given evidence to support that they're offside and there's an offence there.

That's one of the reasons why we think the daily compounding should be taken out and replaced with a higher one-time fine.

[Claude Gravelle, NDP, Nickel Belt, ON]

Okay.

Why is this equivalency important to the industry?

[Ben Chalmers]

The equivalency provision is absolutely critical. As I had started to articulate earlier to Ms. Duncan's question, this data is most useful when it is reported consistently. We have many companies that report in multiple jurisdictions. We have companies that are listed in the U.S. that would ultimately be required to report under the Dodd-Frank requirements, and we have companies that are listed in Europe. If they have to report in Canada and also in Europe, there's a reporting burden that's doubled, especially if the rules are not quite aligned. If the definition of “payees”, for example, is a little different, or the payment categories are a little different, or the project definition is a little different, then all of a sudden you have to prepare two separate reports with potentially different numbers.

There's an added burden to companies and also there is the possibility of inconsistent numbers that render the data much less useful.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Thank you, Mr. Gravelle.

We have two more questioners: first Mr. Leef, and then Ms. Charlton.

Mr. Leef, go ahead, please, for up to five minutes.

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chair.

Thank you to all our witnesses.

I want to get a point of clarification on the continuing harm aspect of it. If I understand right, the strict liability application is certainly applied to the non-reporting, or the steps to mislead. Does it apply as well to the section on error in reporting?

[Ben Chalmers]

We've been advised that it does.

[Ryan Leef, Conservative, Yukon, YT]

Okay.

Obviously your testimony today is greatly appreciated, but I would suspect, given that you said you've been highly involved in working with this legislation and working with the government on this, that this isn't the first time you've raised this particular aspect. I'm just curious; while I can appreciate what you're saying, without sort of going back and asking some more questions to understand any unintended consequences or the rationale behind this, have you heard any rationale for the continuing harm section and the consecutive offence option, versus the higher penalties that you're proposing? Have you heard any feedback on that?

[Pierre Gratton]

I would just note that this particular aspect wasn't addressed in our work with Publish What You Pay and Andrew's group; I keep forgetting the name since they changed it.

We are actually new to this issue. It's really been only since the legislation was tabled that we have identified this as a problem for us. It is pretty new.

And what was the second part of your question?

[Ryan Leef, Conservative, Yukon, YT]

It was effectively that: had you raised the issue before, and if you had, what was the response?

[Pierre Gratton]

I'll be honest, I don't think the response has been all that.... It's just an alternative way they chose to address it. We've been having ongoing discussions with Natural Resources Canada on this particular aspect just in the last week.

[Ryan Leef, Conservative, Yukon, YT]

Okay. So effectively, this submission is a fairly new discussion piece for the committee.

[Pierre Gratton]

Yes. That's right.

[Ryan Leef, Conservative, Yukon, YT]

Thank you. I just wanted to get a sense of that.

I'll put this question to everybody. Do we know the order of magnitude of this legislation in terms of how many payments are made by these sectors over $100,000? I can appreciate that we're not going to have an exact figure, but what's the scale of this? What's the order of magnitude?

[Pierre Gratton]

It will depend on the company, but a large operating mine will have lots and lots of payments. It's not just royalties. It depends on the country, too, because there could be all sorts of fees. There could be port fees that are very high, there could be various types of infrastructure payments, there could be payments at state level and national levels of government, and various forms of taxes. For a large operation, $100,000 is not a lot of money. There could be multiple payments.

I could let CAPP speak to the oil and gas part. My suspicion is that it's larger, but I could let them answer that part.

[Alex Ferguson]

Just quickly, it's definitely the same concern we have, but more so domestically in terms of what constitutes that $100,000 threshold. Is it a series of continual payments up to that threshold; over what time period; for what aspects? The definition of a project becomes a little complex for us on that given the nature of the different resource plays that we have here in Canada.

Depending on how you define a project, the $100,000 could capture literally hundreds and thousands of payments within a reporting year.

[Ryan Leef, Conservative, Yukon, YT]

Thank you.