Significant new disclosure requirements for multinational corporations operating in the extractive and forestry sectors have been recently heralded in by the EU Commission. They have been described by NGOs such as Transparency International as a "watershed moment" and Bono (of U2 fame) as a "game-changing breakthrough". In reality, the proposed changes may not be revolutionary, as in substance they mirror the guidelines developed by the Extractive Industry Transparency Initiative (the "EITI Guidelines") and section 1504 of the US Dodd-Frank Act which many corporations adhere to as best practice. However once the requirements have been adopted, disclosure of payments to governments will be a legally enforceable obligation and will have significant ramifications for EU companies, the extractive industry and the communities in which they are based.

By introducing these reforms, the EU hopes to "bring in a new era of transparency to an industry which is far too often shrouded in secrecy…so both companies and governments can be held to account on the use of revenues from natural resources". Following the introduction of these reforms, responsibility will be placed upon corporations to improve transparency, which is a responsibility that will come at a cost. This article outlines the proposed new disclosure requirements, the extent to which these changes will impact upon the international mining sector and whether this new regime will successfully tackle the problems it seeks to address.

On 9 April 2013, the European Commission announced that agreement has been reached with the European Parliament on new disclosure requirements for the extractive and forestry industry. The disclosure requirements apply in respect of listed EU companies or large non-listed EU companies (being companies which exceed two of the three following criteria; turnover of €40m, assets of €20m and average number of employees equals 250). Such corporations must disclose payments over €100,000 made to governments (whether an EU government or not) on both a country by country and project by project basis. This includes payments such as royalties, licence fees and any taxes on profits paid. These new requirements are to be incorporated into the proposed revisions to the Accountancy Directives (78/660/EEC and 83/349/EEC) and the Transparency Directive (2004/109/EC) (the "EU Directives"). The final text of the EU Directives is yet to be published.

The EU Directives have been generally aligned with the EITI Guidelines (which some countries had adopted into national legislation) and closely resemble section 1504 of the US Dodd-Frank Act, which places similar obligations on any company who is required to file an annual report with the US Securities and Exchange Commission (and engaged in commercial development of oil, gas or minerals), with US and foreign companies being caught within this remit. However, there are key differences between the three disclosure standards. For example, the EU Directives extends to the logging of primary forests industry, (and pending a review in 2015, may also extend to other industries such as banking, construction and telecommunications), the US Dodd-Frank Act has more prescriptive level of detail as to what needs to be disclosed in the report, the EU Directives exempt small and medium sized undertakings from reporting requirements and each standard has varying lists of the types of payments which must be disclosed. The proposed changes to the EU Directives are part of a global push for other G8 countries to agree similar measures. Arguably the piecemeal 'state by state' approach to such reforms will result in inconsistencies and confusion for the companies operating in the global extractive industry.

The impact of these reforms upon the industry is significant. Concern has been expressed in relation to the blanket application of the disclosure requirements, even for projects undertaken in states where disclosure of payments to the government is prohibited by national law, such as China, Angola, Qatar and Cameroon. Shell and Exxon Mobil have both published government statements and legal opinions confirming that the local laws would not permit disclosure without official consent. If such consent was withheld, the only course of action would be for the company to withdraw from the mining project or risk local criminal sanctions for breach of national laws. Another concern relates to the considerable costs which will need to be incurred to ensure (and maintain ongoing) compliance with the new regime. In practice, corporations listed in both the EU and the US will need to ensure compliance with the two similar, but ultimately separate regimes. It has been estimated that the costs of compliance could run into the tens of millions of dollars. Competition in the industry may also be affected upon disclosure of sensitive information, which some argue will restrict the ability to compete against companies not subject to the extended accounting requirements.

Undoubtedly the new regime is important for the local communities living in resource rich emerging markets. The disclosure regime will allow access to information, which was not previously available. However, an inherent flaw may be that the disclosure only relates to what amounts are being paid, rather than whether the company has paid the correct amount. Particularly in emerging markets it can be unclear as to what amounts are payable, with discretion granted to local officials (and discounts agreed depending on the influence and negotiation power of the company). To ensure these reforms make the desired impact, resources should be invested to equip local citizens to access and evaluate such information, and ensure they are able to hold their governments to account, or these reforms may be of little value.

While these reforms may be a step in the right direction to eradicate corruption, tax evasion and reduce extreme poverty in emerging markets, a disclosure regime is not of itself a cure. The proposed changes may also negatively impact upon the commercial prospects for companies, with significant increased compliance costs and disclosure of sensitive information in circumstances where not all companies operating in the extractive industry are subject to the same regulations. However, some NGOs report that up to 90% of corporations operating in the extractive sector will be subject to disclosure regulations. Indeed the changes proposed by the EU indicate a growing global appetite for greater transparency in the extractive industry, and should be applauded as an important step to promote sustainable investment in emerging markets. It will be interesting space to watch as the final text of the EU Directives is agreed and companies begin to integrate the disclosure obligations into their business practices. Time will tell whether the reforms have struck the right balance for the competing interests of key stakeholders, not the least of which includes the interests of the local communities.