The U.K. government this week published proposed regulations aimed at promoting transparency in the extractive and logging industries.

The proposed regulations, published Aug. 21, follow the review of 31 comment letters received in response to a consultation published in March on proposals relating to the implementation of the EU’s Accounting Directive. Many of the comments came from companies in the extractive industry, including BHP Billiton, BP, ExxonMobil, Rio Tinto, Shell, and more.  

The Accounting Directive, approved in June 2013, requires oil, gas, mining, and logging companies to report annually all payments to governments totaling more than €100,000 ($131,000). This information should be reported on a country-by-country and project-by-project basis and does not form part of the annual report.

The EU directive modeled a final rule issued in August 2012 by the Securities and Exchange Commission, as mandated under the Dodd-Frank Act, but with some significant differences. For one, the U.S. regulation applies only to listed companies, whereas the EU directive sweeps in large, unlisted companies registered in the EU. The EU directive defines a “large company” as one which exceeds two of the three following criteria: revenue of €40 million ($52 million); total assets €20 million ($26 million); and more than 250 employees.

Another major difference from the SEC rule is that the EU initiative sweeps in the forestry industry, whereas the Dodd-Frank requirement applies only to oil, gas, and mining companies.

Proposed Rules

In implementing the Accounting Directive, the EU proposed regulations would require companies in the extractive and logging industries to complete their extractive reports on payments to governments covering financial years beginning on or after Jan. 1, 2015.

During the comment period, some companies expressed concern that a period of less than eleven months could lead to companies producing inaccurate or incomplete data due to having insufficient time to make appropriate checks. In response, the proposed rules would allow companies up to eleven months after the end of the financial year to prepare and file an extractive report with Companies House, an executive agency of the Department for Business Innovation and Skills.

The directive gives Member States the flexibility to determine the format of the report—electronic or paper-based. “The government wants to ensure that the format is one that puts minimum burdens on business whilst ensuring that those searching for the information can access it quickly and easily,” the regulations stated.

The draft regulations also allow U.K.-registered subsidiaries of parent companies registered in other EU Member States an exemption from reporting in the U.K. for one year. All Member States, however, must implement the directive by July 2015, and reports required for financial years beginning Jan. 1, 2016.

Under the proposed regulation, penalties would be based on those already applied under the Companies Act, with the exception of penalties for late filings. If accounts are more than six months late, the maximum fine would be £1,500 for private companies, or £7,500 for public companies.

“We do not believe that this approach would achieve compliance in this case,” the regulations stated. “It is more appropriate to look at penalties that are applied for failure to file other company information on the register. Therefore, the penalty regime will include criminal offenses, which may be punished by unlimited fines or possible jail terms.”

With guidance currently being drafted, the U.K. government will “continue to encourage an industry-led approach to the production of guidance,” the regulations stated. “We are also clear that if subsectors of the extractive industry wish to write their own guidance they are free to do so.”

In a prepared statement, Oxfam America praised the proposed regulations. “This is a major step towards fighting corruption in the oil, gas and mining industry, and promoting transparency,” Oxfam America said in a statement, “but we are still waiting on the United States to finish what it started four years ago. There is now a global standard for this type of disclosure, paving the way for the SEC to follow suit, provide regulatory certainty, and finally finish Dodd-Frank.”

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