Comply with new transparency rules or face criminal penalties, expert warns UK oil and gas firms

Companies with financial years beginning 1 January 2015 will be required to disclose a range of payments made to national governments on a country and project basis under the new rules. Reports must be made to Companies House within 11 months of the end of the relevant financial year. Oil and gas expert Martin Ewan of Pinsent Masons, the law firm behind Out-Law.com, said that although companies across the EU would be subject to the new regime from July, the UK was the first member state to implement the new requirements.

"Transparency is at the heart of UK business and this agenda has been driven hard by our current government," he said. "It's no surprise, therefore, that the UK has opted to bring these rules into force early."

"Preparing these reports will be burdensome for many businesses with numerous international operations. Failure to comply with these new laws mean this could now be very damaging both from a reputational and personal perspective," he said.

The EU's Accounting and Transparency Directives come into force in July. They will require large companies operating in the extractive industries, including forestry and mining companies as well as those operating in the oil and gas sector, to report payments on a country-by-country basis; or by project if the payments have been attributed to specific projects. The reporting requirements cover production entitlements; taxes on income, production or profits; royalties and dividends; signature, discovery and production bonuses; and licence, rental and entry fees and related payments or concessions.

The UK government expects that around 250 companies will be affected by its regulations implementing the requirements of the directive. Affected companies will be required to disclose all payments above the reporting threshold, which is €100,000. UK-registered subsidiaries of parent companies registered in other EU countries will only need to file reports as part of consolidated accounts in the parent member state. In a policy statement, market regulatory the Financial Conduct Authority (FCA) said that it would incorporate the new requirements into the UK's Listing Rules.

Oil and gas expert Martin Ewan said that it remained to be seen whether the new requirements would genuinely improve business transparency or would instead become "another 'box-ticking' exercise". However, he said that the severity of the penalties for non-compliance suggested that the new rules would "have teeth".

"Operators haven't been giving much time between the publication of detailed guidance by the Department for Business, Innovation and Skills (BIS) last month and the deadline for compliance," he said. "This is a particular issue for large scale, multinational developers with numerous administrative centres – tracking and documenting of all payments can be an unwieldy task, particularly in developing economies."

However, he said that businesses would have to address these issues in order to "be confident they are not flouting rules and in line for criminal prosecution further down the line".