On 28 October 2014, the Corporations Amendment (Publish What You Pay) Bill was tabled in Parliament. The Bill requires Australian based companies or their subsidiaries, which are engaged in resources extraction activities or projects, to lodge a report with the Australian Securities and Investments Commission (ASIC) if they make payments to any local or foreign government entity that reaches the required threshold ($100,000) over the course of a financial year. ASIC is required to publish all such reports on its website. The objective of the Bill is to require greater transparency in order to deter corrupt payments.
Would this law apply to my company?
If passed, this law would apply to companies which:
- are public companies or large proprietary companies (or their subsidiaries); and
- engage in resource extraction activities or projects. A company is engaged in a resource extraction activity if it engages in exploration, prospecting, discovery, development or extraction of minerals, oil, natural gas or similar materials orlogging of primary forests; and
- make a “reportable payment” or series of payments which total $100,000 or more in relation to the resource extraction activity in a financial year.
This law would apply to a company required to prepare afinancial report under section 292 of the Corporations Act which is the holdingcompany of a company which engages in resource extraction activities. This law would also apply to public or large proprietary companies which participate in a joint venture or similar arrangement that engages in a resource extraction activity or is the holding company for such a company.
What is a reportable payment?
In order to be reportable, the payment must be to agovernment entity. The definition of government entity is broad and includesthe Commonwealth, governments of an Australian state or territory, a governmentof a foreign country (or part of), an authority of any such government or a company owned by any such government. The term reportable payment is also very broad in scope and includes production entitlements, taxes levied on the income, production or profits of a company, royalties, dividends, signature, discovery or production bonuses, licence fees, rental fees, entry fees or other consideration for licences or concessions, infrastructure improvements, social payments or security services. The Explanatory Memorandum to the Bill provides guidance on the terms infrastructure improvements, social payments and security services. For example, social payments is intended to cover payments given for community projects or for the social welfare of the community. Although facilitation payments would not need to be reported unless their cumulative amount during the period exceeded the $100,000 threshold these payments remain illegal in the majority of overseas countries in which they are made, and are only legal under Australian legislation when the appropriate requirements, including record keeping requirements, are met.
What do I need to do?
If your company is engaged in resource extraction activities then it will need to:
- ensure that it has processes in place which would allow it to accurately record and report any payments made to government entities;
- consider whether all such payments have a legitimate basis and could be justified to stakeholders and regulators. If your company is yet to conduct a risk analysis of its operations to identify likely areas of risk or has not set in place a compliance plan and monitoring process to identify corruption, this is the time to take such steps.
By including this requirement with other financial reporting requirements, directors of effected companies will need to ensure they aresatisfied that sufficient steps have been taken to ensure compliance with therequirements. If the bill is passed, the new changes will not take effect for twelve months, which will give companies effected time to implement changes to their financial reporting to comply with new obligations. Some multinational organisations may already be subject to similar reporting requirements in other jurisdictions but will need to ensure that their processes are updated to reflect the new Australian requirements. By Georgie Farrant and Elizabeth Huckerby (Baker & McKenzie Sydney)