US ruling on oil, gas and mining companies will make them more accountable
Many of the countries at the bottom of Transparency International’s Corruption Perceptions Index are rich in natural resources yet home to some of the world’s poorest communities.
On 22 August 2012, more than two years after the orignal legislation was passed, the US Securities and Exchange Commission (SEC) voted by a 2-to-1 majority to adopt robust rules implementing section 1504 of the Dodd-Frank Act. In an effort to curb corruption, this landmark ruling will require oil, gas and mining companies listed on US Stock Exchanges to publish the payments that they make to governments.
The ruling on section 1504 is a milestone in the long campaign for transparency in the extractive industry and sets a global benchmark. The US is leading the way and Transparency International calls on the European Union, which is considering similar legislation that would apply to extractive and forestry industries, to follow suit. A key European Parliament vote on legislative proposals will take place in September.
Important step to increasing corporate transparency
“Transparency International welcomes the fact that the ruling requires companies to report payments to governments stemming from each project they operate, as well as by country”, says Carl Dolan, Transparency International’s EU Policy Officer. “This is an important step towards making the world’s largest companies truly accountable for their business around the world, especially in the world’s poorest countries whose development is too often hampered by corruption.”
Transparency International USA stated, “Curbing corruption in developing countries dependent on mineral extraction is vitally important. The SEC’s adoption of the new rules marks a significant step in reducing the uncertainty surrounding the implementation of Sections 1502 (conflict minerals) and 1504 (payments to government by resource extraction issuers) of the Dodd-Frank financial reforms and enhances transparency. However, these rules will not achieve their intended benefits unless other countries require similar disclosures by their home companies."
In our recent Transparency in Corporate Reporting report, which assessed the transparency of the world’s 105 biggest companies, companies performed particularly poorly on country-by-country reporting. 39 companies scored 0 per cent in this category, meaning that they lack transparency in disclosure of any financial data in their countries of operation. Companies scored on average around 4 per cent – a very weak result.
Extractive industry country-by-country reporting has been meager
The Transparency in Corporate Reporting report released by Transparency International in July evaluated country-by-country financial disclosure by the world’s 105 largest, publically traded companies. Below is a list of the 20 extractive companies in the report and how they performed on this important measurement. The higher the percentage, the greater transparency in their disclosures. For full details, see the report.
|Statoil||Norway||Oil & Gas||50.00%|
|Rio Tinto||United Kingdom/Australia||Basic materials||23.70%|
|BHP Billiton||Australia/United Kingdom||Basic materials||23.60%|
|Reliance Industries||India||Oil & Gas||18.30%|
|Oil & Natural Gas Corp.||India||Oil & Gas||15.90%|
|BP||United Kingdom||Oil & Gas||5.60%|
|Occidental Petroleum||United States||Oil & Gas||5.60%|
|Exxon Mobil||United States||Oil & Gas||4.30%|
|Chevron||United States||Oil & Gas||4.20%|
|ConocoPhillips||United States||Oil & Gas||3.20%|
|BG Group||United Kingdom||Oil & Gas||2.40%|
|Royal Dutch Shell||Netherlands/United Kingdom||Oil & Gas||2.10%|
|Total||France||Oil & Gas||1.70%|
|China Offshore Oil Corporation (CNOOC)||China||Oil & Gas||1.30%|
|ENI||Italy||Oil & Gas||1.30%|
|Schlumberger||France/incorporated in Curacao||Oil & Gas||0.70%|
|Gazprom, OAO||Russia||Oil & Gas||0.00%|
|Petrobras-Petroleo Brasil||Brazil||Oil & Gas||0.00%|
|PetroChina||China||Oil & Gas||0.00%|
It is particularly important to shine a light on payments from the extractive sector because the amounts involved have the potential to influence entire economies. Our 2011 Promoting Revenue Transparency report rated 44 oil and gas companies representing 60 per cent of global oil and gas production on their levels of transparency. It found that a dozen companies reveal very limited or no data about operations outside their home country, and four companies only reveal their production volumes in foreign countries.
With oil, gas and mining companies disclosing how much they pay to governments in every country they operate in, citizens in resource-rich countries will know how much money flows into the public budget from these business operations. This simple act of public disclosure will allow for citizens in some of the world’s poorest countries to hold their government officials to account and ask them difficult questions about the use of natural resource revenues.
The public disclosure of payments will also make companies more accountable for their contribution to the economies of the countries and communities in which they operate and where they reap large profits.
While Transparency International welcomes this ruling, as with all new regulations, thorough and timely implementation will be almost as important as the rule itself. Transparency International recommends greater clarity on project-by-project reporting to ensure companies are held to account for their foreign operations.
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