Canada Needs a Real Sunshine Bill

April-15-13

Recently I had the great honour to meet the Nobel Laureate Aung San Suu Kyi while travelling with a Parliamentary delegation in Burma. One of our members asked what Canada could do to assist in Burma’s “democracy project”. Part of her answer was quite surprising. Aside from the usual expectations, she wanted Canadian companies to rigorously adhere to the Extractive Industries Transparency Initiatives (EITI) and ensure that Burmese citizens benefit from their own resources. The Swiss Deputy Head of Mission was even blunter in his insistence that international companies adhere to the highest of all Corporate Social Responsibility (CSR) standards.

Burma is among the most corrupt and least transparent nations on the earth. It ranks 172 out of 174 on Transparency International’s Corruptions Perception Index. It’s unrealistic to expect that this will change anytime soon.
At the urging of Revenue Watch, Transparency International and others, the US, UK, EU, Australia and others are passing various forms of transparency and accountability legislation binding upon their own companies. Regrettably the Government of Canada has shown no interest in joining this world wide legislative effort.

In response to the financial crisis of 2008-09, the Dodd-Frank Act was passed by Congress. It contained a clause called the Cardin-Lugar amendment which required that all extractive companies trading on US exchanges be required to disclose to the US Security Exchange Commission all taxes, royalties, licence fees, concessions and social or other payments associated with the obtaining and retaining of mining licences in foreign countries. Its primary motivation is to get at the murky world of corruption and bribery which is particularly prevalent and detrimental to the least developed countries such as Burma. The regulations are set to commence in September 2013 and if a company, Canadian or otherwise, listed on a U.S. exchange fails to comply it risks being delisted.

Interestingly, Canadian industry gets it. It understands that disclosure of all these “payments” benefit everyone. Responsible investors practice due diligence. They calculate the risks and decide if they should make the investment. Investors hate surprises. They particularly hate surprises after the fact, and don’t like to wake up to find that their investment is on the front page of the newspapers being accused of abusing human rights or making dubious financial payments, or causing environmental disasters. A record of filings will provide investors with access to information, giving them a clearer idea of a company’s fiscal picture and social practices while considering investing. Disclosure can be a profitable aspect of a winning formula for the industry.

Disclosure also benefits those in the region. By taking under the table payments out of the equation, corruption and bribery will be curbed. Without illicit payments being made conflict will be reduced, allowing for the development programs to work, and keeping Canada’s international reputation intact.

Hence I have proposed to remedy this legislative gap by introducing the “Sunshine Bill” which is modeled on the Cardin-Lugar amendment. I wanted to make it as broad and as simple as possible by including all companies in the extraction sector and by having similar if not identical filing requirements to other jurisdictions.

CSR literature discusses the nature and extent of the “Social Licence”.  It underpins the formal agreement between companies and governments and broadens the understanding among all the formal and informal stakeholders so that consent to operate is given as freely and fully as possible. A bill which requires payment disclosure to a third party government such as Canada would act as an independent point of reference for those needing to know the source and recipients of a payment. It is a lot easier to grant or withhold consent when there is an independent verification process provided by a disinterested third party.

The Government of Canada is rightfully interested in Burma’s success as a democracy. However, if the Government of Canada doesn’t rigorously hold Canadian companies to EITI, then it will sabotage all of its otherwise worthy initiatives. Aung San Suu Kyi and others were very direct with us. Unless international companies proactively disclose in a manner that is comparable and understandable, the social licence will be withdrawn and international companies will find themselves in some difficult positions. Democracy supports business and business supports democracy, otherwise it’s chaos.
It is not as if the Government of Canada has been inactive in the last 6 years. For instance, it set up a Corporate Social Responsibility Councilor. She has had 3 files in 4 years, one of which has been withdrawn. Neither the industry nor NGO’s see her as effective.

Last year the Government of Canada invested $25 million at the University of British Columbia towards the creation of the Canadian International Institute for Extractive Industries and Development. It is this kind of initiative which will do no harm but has no practical application to many of the day to day realities faced by those companies that find themselves in untenable positions.

The Minister of Foreign Affairs announced S-14 which made minor changes to foreign bribery legislation. Again, the bill is no great harm as far as it goes. Unfortunately it doesn’t go very far.
However, were it coupled with the Sunshine Bill prosecutors and the RCMP would have a record of filings with which they could compare payments alleged to have been made with payments of record. These cases are difficult enough at the best of times so why handicap the prosecution team by having no registry of payments and therefore no evidence at trial?

Thus far the Government has yet to approach the issue of accountability and transparency in a comprehensive manner. If you have a registry of payments then prosecution is easier. As an outlier nation on this worldwide project we actually sabotage ourselves, our companies and the efforts of other nations. Those interested in bribery, corruption, illegal payments and shady accounting will be attracted to Canada as a legislatively free zone. Those companies wishing to be more “discreet” than they would have to be in the US, UK, EU and Australia may headquarter themselves here. It is not a reputation we should wish to acquire.

Accountability and transparency are two fundamental values Canadians hold dear and the Sunshine bill will only protect this notion. This bill is a victory not only for Canada, but for industry as well. We can hardly lecture our friends in Burma or elsewhere about accountability and transparency values if we don’t adhere to them ourselves.