U.S. Policy Sparks Fireworks over Firm-Level Reporting at the Extractive Industry Transparency Initiative

There were surprise fireworks at the recent Extractive Industry Transparency Initiative (EITI) 5th Global Conference in Paris—fireworks that could have far-reaching implications for the movement to root out corruption associated with huge oil, gas and mining contracts. The EITI, you may recall, is a coalition of governments, companies, civil society groups, investors, and international organizations that supports improved governance in resource-rich countries through the verification and disclosure of company payments and government revenues from oil, gas, and mining.At issue:  implications of a new U.S. policy – the Cardin-Lugar Transparency Provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act—requiring extractive industry companies registered with the U.S. Securities and Exchange Commission (SEC) to report all payments to all governments in their annual reports. Would this provision leave U.S. and other firms registered with the SEC at a competitive disadvantage? And if so, what should be done to level the playing field?My recent CGD research shed important light on the question. I found that many of the largest, internationally active natural resource companies based in China, Russia, and India are not registered with the SEC and would therefore be exempt from the Cardin-Lugar requirements. For example, only three of the seven largest Russian energy companies are registered in the United States.  Of the sixteen largest Chinese mining companies with overseas operations, only two are listed in New York, and two of the three biggest Indian oil companies are not listed in the United States. I argue that the remedy to this uneven playing field is for the EITI to require all players in extractive industries to provide transparent data on an equivalent basis—that is, company-by-company.How did international companies in the extractive sector react to the idea of mandatory company-by-company reporting? The EITI Global Conference revealed a dramatic split between oil companies and mining companies.Peter Voser, chief executive of Royal Dutch Shell, told the conference that the Cardin-Lugar provision threatened to “destroy” the transparency movement because it violated the sovereignty of host countries to make their own laws. (Such invoking of host country sovereignty by multi-billion dollar international companies is often code for “if the host government wants only aggregate reporting to prevent explicit identification of who pays what, so be it.”) Many in the audience were deeply chagrined: Shell had been seen one of the more supportive oil companies on the issue of public reporting.Chris Anderson, senior director for Newmont Mining, responded that Shell’s argument “is garbage!” Newmont Mining, Anderson asserted, has for years deflected the pressure to offer bribes in Africa by citing the Foreign Corrupt Practices Act. (“Sorry, chum, I cannot give you a new Mercedes in return for better treatment for my company, because then I shall go to jail!”). Anderson urged extractive industry companies to embrace EITI global application of the Cardin-Lugar provision for company-by-company reporting, so that all companies—not only those registered with the SEC—would be compelled to refrain from illicit payments.At the end of the conference, the issue had yet to be resolved. It seems clear, however, that firms subject to the Cardin-Lugar have a strong incentive to push for universal application of company-by-company reporting. Stay tuned…