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Mining companies to be forced to disclose payment details

June 21, 2013
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Canada is introducing mandatory payment disclosure rules for mining companies in a bid to increase transparency in transactions and business operations, Prime Minister Stephen Harper announced.

According to data published by Bloomberg, mining firms have closed acquisition deals worth $524 billion since 2008. Some of these takeovers have been linked to allegations of corruption and bribery but, since the mining industry has been the focus of very little political attention, none of these allegations has been proved. Under the new rules, firms will have to provide information regarding their transactions and failure to do so will be penalized, although the exact penalties are yet to be determined.

The action follows a decision for greater mining operations transparency taken by world leaders at the Group of Eight summit in Northern Ireland. Apart from disclosing financial details, the group also suggested that tighter oversight should be implemented regarding payments originating from foreign governments. The proposal came amid ongoing investigations by U.S. and U.K. authorities into a number of mining companies, such as Eurasian Natural Resources Corp. and a company supported by Israeli mogul Beny Steinmetz.

According to Raj Karia, a partner in London at law firm Norton Rose Fulbright, mining businesses have been in the spotlight lately and not for the right reasons. The market in the sector is changing and when companies are willing to buy, they need to be absolutely sure about the history of the asset they are about to acquire.

In addition, the European Union is proposing laws that would make it obligatory for petroleum and mining companies to disclose all payments, including taxes and fees paid to governments and officials, as well as rules that would force developing countries to report all resource revenues in a standardized way. This aims to "lift the veil of secrecy" that many corporations are hiding under, while they are actually engaging in corruption schemes, claimed British Prime Minister David Cameron.

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Similar disclosure rules have already been adopted by the United States under requirements set down in the Dodd-Frank Act. Many companies opposed the implementation of the new rules and some even challenged them in court, including the American Petroleum Institute, which claimed that the regulation would give foreign companies an advantage over U.S.-based ones.

One of the highest-profile investigations of a mining company in recent months has been taking place in Britain, where coal miner Bumi Plc, co-founded in 2011 by financier Nathaniel Rothschild and two Indonesian coal exporters, has been referred to regulators by a group of stakeholders. The reason for a probe being launched was a mysterious record of $201 million being spent on what appeared to be "no clear business purpose," the Vancouver Sun reported.

Meanwhile, prosecutors in the United States are looking into a deal between BSG Resources Ltd., a company linked with Steinmetz. Whatever the outcome of these investigations, the message seems obvious: mining operations will be subject to far greater scrutiny in future, specialists commented.

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