African “natural resource-rich countries” to be in particular focus of Directive
The government of the United Kingdom has announced earlier implementation of, inter alia, the anti-bribery provisions in the EU Accounting Directive than mandated by the European Commission (end of 2014, in lieu of the prescribed July 2015 deadline). The Directive requires Member States to pass legislation compelling, among other things, oil, gas, mining and logging companies to issue detailed accounts of international payments made to foreign governments (incl. taxes, royalties and licence fees).
Paragraphs 44-45 of the Directive’s preamble provide as follows.
44. In order to provide for enhanced transparency of payments made to governments, large undertakings and public-interest entities which are active in the extractive industry or logging of primary forests (9) should disclose material payments made to governments in the countries in which they operate in a separate report, on an annual basis. Such undertakings are active in countries rich in natural resources, in particular minerals, oil, natural gas and primary forests. The report should include types of payments comparable to those disclosed by an undertaking participating in the Extractive Industries Transparency Initiative (EITI). The initiative is also complementary to the Forest Law Enforcement, Governance and Trade Action Plan of the European Union (EU FLEGT) and the provisions of Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market (10), which require traders of timber products to exercise due diligence in order to prevent illegal wood from entering the Union market.
45. The report should serve to help governments of resource-rich countries to implement the EITI principles and criteria and account to their citizens for payments such governments receive from undertakings active in the extractive industry or loggers of primary forests operating within their jurisdiction. The report should incorporate disclosures on a country and project basis. A project should be defined as the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities to a government. Nonetheless, if multiple such agreements are substantially interconnected, this should be considered a project. ‧Substantially interconnected‧ legal agreements should be understood as a set of operationally and geographically integrated contracts, licenses, leases or concessions or related agreements with substantially similar terms that are signed with a government, giving rise to payment liabilities. Such agreements can be governed by a single contract, joint venture, production sharing agreement, or other overarching legal agreement.
An official EU FAQ on the Directive can be found here.
“Global Witness commends the UK Department for Business for swiftly producing a strong set of payment reporting regulations. The UK regulations clearly require companies to report at the project level, whilst wholly rejecting calls to include exemptions which would allow firms to keep payments secret in certain countries,” said Simon Taylor, director of Global Witness.
“This will deter companies from making illicit payments and empower citizens in resource-rich countries to follow the money generated by natural resources and hold their governments to account for how these public revenues are used,” Taylor added.
The regulations will be looked at closely by policymakers in the United States and Canada where similar reporting regimes are being developed. “The UK’s announcement highlights the need for other countries to introduce matching rules that will create a level playing field for industry, and to stand firm against the small number of oil companies that are lobbying to weaken these reporting requirements,” said Taylor.
The UK regulations compel large UK extractive companies to publicly disclose payments of £86,000 and above on a company-by-company and project-by-project basis in all countries with no exceptions. Companies that fail to report fully, truthfully and accurately will face criminal penalties.
However, the regulations include clauses that would empower the UK Business Secretary to veto criminal prosecutions for non-compliance. Civil society groups in the UK Publish What You Pay coalition including Global Witness, Christian Aid and Cafod are calling for these clauses to be removed.
The regulations are due to be laid before the UK Parliament this autumn and to come into force on December 1st 2014, with covered companies required to report in 2016 on the payments they make in 2015.
Project-level payment reporting is supported by a diverse range of interests including a group of investors with over US$6.4 trillion in assets under management.  Statoil endorses a mandatory global reporting standard that matches the EU Accounting Directive,  and in March 2014 the UK oil company Tullow voluntarily disclosed project-level payments for all countries of operation.  G8 leaders agreed at the 2013 Lough Erne summit to work towards a common global reporting standard for project-level reporting,  and more recently the UK Prime Minister David Cameron urged the United States to finalise a rule to implement Section 1504 of the Dodd-Frank Act, which requires U.S.-listed oil, gas and mining companies to disclose payments at the project level.