U.S. Financial Reform Act Requires Disclosure of Resource Payments in Developing Countries

The U.S. financial reform bill passed by the Senate today and now headed to President Obama for his signature will have far reaching impact on poor people in the developing world if it succeeds in reducing the severity of future financial crises. But even if it fails in this regard, a provision requiring oil, gas and mining companies registered with the Securities and Exchange Commission (SEC) to publicly disclose their tax and revenue payments to governments around the world could be a big boost for increased transparency in countries afflicted with what has come to be called “the resource curse.”The provision was championed in Congress by Sen. Lugar (R-IN), Sen. Cardin (D-MD), Rep. Frank (D-MA) and others. It is being hailed by advocacy NGOs, including Global Witness and ONE, winners of CGD’s 2007 and 2008 Commitment to Development Awards.The new legislation also requires companies whose products contain cassiterite (tin ore), coltan, wolframite and gold to disclose to the SEC whether they are sourcing these minerals from the Democratic Republic of Congo (DRC) or adjoining countries. The minerals are crucial to portable electronic devices such as smart phones, and those sourced in conflict-ridden Congo have come to be called “conflict minerals” because they fuel fighting, much as diamonds have in other parts of Africa.House Foreign Affairs Committee Chairman Howard Berman (D-CA) called today's legislative action "a critical first step in ending this threat to the stability of central Africa and a victory in the battle to combat injustice in one of the poorest countries in the world.”The financial reform legislation requires that companies detail the measures they have taken to avoid sourcing these minerals from DRC armed groups, which are guilty of massacres and other atrocities. The bill also requires that all information disclosed be independently audited.Sen. Lugar said the reforms help "empower citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas, and mineral resources and revenue." Bono, co-founder of ONE and lead singer of U2, said the new legislation "will empower activists, media and good-governance watchdogs, both south of the equator and north, to ensure the continent’s vast riches end up in service of its people, not lining the pocket of some kleptocrat.""These provisions are a huge victory for corporate accountability in the oil, gas and mining industries, and we commend the leadership of members of Congress who have steadfastly championed them," said Corinna Gifillan of Global Witness, a non-profit group which has campaigned since the 1990s to break the links between natural resources, corruption and conflict."As well as helping the people of resource-rich-but-poor countries, these provisions will serve U.S. governmental and commercial interests around the world by promoting stability and responsible corporate investment," said Gilfillan. Global Witness is a co-founder of Publish What You Pay, a global coalition of more than 600 civil society groups that works for transparency in the oil and mining industries.Advocacy NGOs have pushed their cause in part through clever use of online videos, including a Mac/PC spoof and my favorite (though it has many fewer views than the shorter Mac/PC spoof), Conflict Minerals 101, both created by the Enough Project.

How powerful a force for good the new disclosure requirements will be remains to be seen. Alan Gelb, a senior fellow here at CGD, pointed out that diamonds have some special characteristics that make embargoes on conflict-tainted stones possible: the diamond business is largely cartelized and is a luxury business, where branding and reputation matter. Alan notes that the minerals in cell phones are purchased in a bundle where many other factors shape a potential buyer’s decision. He also worries that certification requirements may hurt legitimate small-scale producers, for whom certification could be a significant expense.Still, more information is generally better and disclosure, including especially the taxes and fees paid for oil and gas extraction, may have some unintended positive impacts. CGD senior fellow Todd Moss is conducting research on an innovative idea for fighting the oil curse: direct cash transfers to citizens of a portion of the oil or gas revenues, a program he calls Oil2Cash. I’m hoping that disclosure of payments required under the new financial reform law will encourage citizens in oil-exporting countries to speak up and demand that at least part of the proceeds come to them directly.