Assessing Corporate Certification as Impetus for Accurate Reporting in Alberta’s Mine Financial Security Program

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  • Alberta’s Mine Financial Security Program (MFSP) establishes the procedures for determining and administering financial security for reclamation of oil sands and coal mining operations. The program establishes more transparent and consistent methods for determining the financial security amount required to cover the mine’s suspension, abandonment, remediation and surface reclamation liabilities should the operator fail financially – while considering the value of the resource as assets against the liabilities. For oil sands mining operations, total MFSP liabilities can run in the hundreds of millions of dollars. To determine financial security amounts, mine operators self-report estimates of the liabilities and assets in the operation. Accuracy of the asset and liability estimates is important to provide public assurance that the program is providing appropriate levels of financial security. Within the MFSP, certain mechanisms are used to improve regulator and public confidence in the accuracy of these estimates. Under analysis here is the corporate certification requirement: a high-level representative – either the Chief Executive Officer (CEO) or Chief Financial Officer (CFO) of a corporate mine operation or a designated financial representative (DFR) of a joint venture – must certify that appropriate procedures were used to determine the estimate values and that the estimates are reasonable. By investigating the legal and regulatory setup for the MFSP, this paper assesses the expectation of increased confidence from the certification requirement by describing its legal implications and the impetus it places on corporations to ensure appropriate procedures for generating estimates. In short, the corporate certification requirement ensures documentary evidence of officer involvement in any misreporting by mining operators. For any misreporting that constitutes an offence under the governing legislation – the Environmental Protection and Enhancement Act (EPEA) – this could raise individual officer liability under the Act. EPEA has enforcement provisions to penalize misreporting under the MFSP, which can be applied to companies as well as individuals. The individual penalties, which can include imprisonment or monetary penalties, can be applied to a corporate officer where he or she had some minimum level of involvement in the misreporting. With respect to some of the most important estimates, there is a link between the MFSP calculations and values reported under disclosure obligations in securities law. This is another mechanism for improving regulator and public confidence in the MFSP estimates and includes a similar certification requirement. While the effectiveness of this mechanism is not within the scope of this analysis, it provides a comparator against which to analyze the effectiveness of the MFSP corporate certification requirements, particularly in terms of the penalties available under each regime. In light of the relatively small magnitude of the monetary penalties available under EPEA and important barriers to investigation and enforcement of misreporting violations, the extent to which certification requirements incent better estimate procedures is not clear. This is particularly true given the small penalties under EPEA relative to those available under securities law. Nonetheless, the risk of reputational injury could provide a less formal but still very powerful incentive that certification bolsters by demonstrating officer involvement. Unfortunately, the absence of a role for civil society in the scrutiny of the estimates precludes a potentially stronger role for certification to incent enhanced estimate veracity. In conclusion, there is some expectation that the inclusion of the MFSP certification requirement provides an incentive for better procedures for asset and liability estimation in the MFSP Annual Report. It is difficult to assess the strength of this incentive, particularly because of uncertainties around the capacity to investigate reporting misconduct with respect to complex internal accounting procedures, on which the enforcement and, in turn, certification requirements rely for effectiveness. A few more conclusions are discussed further. First, there is a lack of clarity in industry around the potential for liability against the certifying authority arising from certification. This can have two negative consequences. For one, the potential liabilities that do exist are not having their full deterrent effect if they are not properly understood by the actors they are intended to impact. Also, reduced certainty with respect to any business decision, but particularly for potential monetary and imprisonment penalties, can undermine efficient business behaviour and lead to suboptimal policy results. This can be improved by: • more clearly explaining how individual liability attaches from the certification; • providing concrete hypothetical examples of misreporting infractions that can lead to individual officer liability; and • better linking the “effect” (wording) of the certification statement to EPEA’s standards for individual officer/agent liability. Second, it is not clear what internal capacity or threshold triggers Alberta Environment and Sustainable Resource Development (ESRD) employs to initiate a more concerted governmental audit or third-party audit of an MFSP Annual Report. The effectiveness of these procedures is critical to the mechanism through which certification engages potential legal liabilities or reputational costs for certifying authorities. Uncertainty around ESRD’s capacity or procedures for pursuing more concerted investigations undermines clarity around the certification’s effectiveness. This can be improved by: • providing more information to stakeholders around ESRD’s review process and where and how ESRD chooses to exercise its audit powers and pursue enforcement measures; and • establishing clearer presumptions or default values for certain parameters of asset and liability estimation, such as minimum per-hectare reclamation costs, derivation from which requires an explanation from the operator.

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    Attribution 3.0 International