Newly proposed SEC rules should make US listed extractive companies more transparent
Although big oil and energy companies have been lobbying against formalising disclosure at the project level, the US Securities and Exchange Commission (SEC) proposed new rules on 11 December 2015 would require resource extraction companies listed on US stock exchanges to do just this. They will have to disclose payments made to the US federal government or foreign governments (including subnational governments) for the commercial development of oil, natural gas or minerals on a country-by-country and a project-by-project basis.
These rules are important because they will allow governments, civil society and journalists to follow the money and spot potential corruption risks. They are also in line with a new global norm that is bringing greater corporate transparency.
Transparency International and TI-USA have advocated for strong disclosure rules in the extractive sector to contribute to international transparency and accountability efforts. The extractive sector is rife with corruption and the benefit from extractive revenues in resource-rich countries too often does not reach large sections of their populations.
Project-level reporting by companies will also enhance the ability of investor groups to evaluate risk profiles and company performance.
The European Union, Canada and Norway have also moved in this direction. Similar measures regarding the disclosure of payments to governments made by European companies in the extractive and logging industries are in place. With last week’s US decision there is now the opportunity of instituting a global transparency standard in the oil and gas industry.
Many companies are cross listed on multiple exchanges and a consistent global standard would reduce compliance costs for such cross listed companies. Some companies are already publishing project by project reports, including Norway’s Statoil, Kosmos Energy and Tullow Oil, proving it can be done in a commercial environment.
Transparency International, along with other activists, has advocated country-by-country reporting as a global standard in all sectors.
In the European Union, public country-by-country reporting already exists for the banking sector. Transparency International has been advocating for an extension of this legislation to all EU-based multinational companies.
This summer the European Parliament inserted a country-by-country measure into a Commission proposal on corporate governance rules, the Shareholder Rights Directive. This measure would mean the public disclosure of key corporate financial data, such as profits, taxes paid and a list of subsidiaries, in every country where companies operate.
EU Member States are negotiating this directive and the Commission is carrying out an impact-assessment due in the first quarter of 2016.
A transparency test
In addition to limiting corruption, country-by-country reporting will also help reduce the ability for companies to opaquely shift profits around the world to reduce their tax liabilities. Too often multinationals are able to exploit loopholes in domestic and international tax laws to move money from one country to the next, often through tax havens or “secrecy jurisdictions”, with the end goal of reducing or even eliminating the tax they pay to governments.
Country-by-country reporting will make it easier to reconcile whether companies are paying taxes in the jurisdictions that they have economic activities in.
Without leaks and whistleblowers, even governments only see a small window into the inner workings of companies, which makes proving tax avoidance or evasion nearly impossible. When multinational companies report on their profits, revenue, taxes paid, and number of employees, the numbers include aggregate global figures with subsidiaries’ results bundled together. This makes it harder to understand a corporation’s operations in any specific country.
The next phase of the US rule-making process is a public comment period to 25 January 2016. We applaud the SEC’s issuance of these rules and look forward to participating in the next phase of the discussion with a clear goal of ensuring strong final rules.
Editor's note, 17 Dec 2015: This article was amended on 17 December to remove France from the list of places moving toward greater disclosure. While France's parliament initially voted in favour of country-by-country reporting, the amendment was later rejected by a second vote in the National Assembly.