From January 1, 2015 UK extractive companies will be required to make annual disclosures to the UK Government of sums that they have paid to governments anywhere in the world. On December 1, 2014 the UK Reports on Payments to Government Regulations came into force (the “Regulations”). The Regulations implement in the UK the requirements of European Directive 2013/34 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (the “European Accountancy Directive”). The Regulations apply to all “large” UK companies and public interest entities in the mining, extractive and logging industries. For these purposes a UK incorporated company is considered to be large if it fulfils at least two of the following three criteria: (a) its balance sheet total exceeds £18 million; (b) its net turnover exceeds £36 million; (c) the average number of employees exceeds 250. The Regulations require that for each financial year (starting on or after January 1, 2015) such companies must submit a report to the UK Government disclosing all payments made governments throughout the world which individually, or in aggregate of related payments, exceed £86,000. Reports must include payments made by all foreign subsidiaries as well as the UK parent, but a consolidated report may be submitted on behalf of a group The report will need to detail: (a) the government to which each payment has been made, including the country of that government; (b) the total amount of payments made to each government; (c) the total amount per type of payment made to each government; and (d) where those payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project; Reports must be submitted within 11 months of the end of the financial year to which they relates (i.e. financial years ending December 31, 2015 or after). Failure to submit a report, or doing so inaccurately is a criminal offence. The Regulations are designed to introduce additional transparency into an industry who’s interactions with foreign governments has traditionally been regarded as opaque and at a high risk of corruption. A recent OECD Foreign Bribery Report issued on December 2, 2014, for example, lists the extractive industry at the top of its list of industries in which companies have been sanctioned for foreign bribery (with 19% of all cases cited occurring in this sector). Although the UK has implemented these rules early (apparently to demonstrate its commitment to transparency in this area), the European Accountancy Directive requires the remaining EU countries to implement equivalent rules by July 20, 2015.
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