Piping profits: the secret world of oil, gas and mining giants

Source: PWYP Norway
Date: 19 Sep 2011

Click here to download a copy of the report Piping Profits

Ten of the world’s most powerful oil, gas and mining companies own 6,038 subsidiaries and over a third of them are based in secrecy jurisdictions, a new Publish What You Pay (PWYP) Norway report today reveals.

Secrecy jurisdictions facilitate illicit financial flows, to which the developing world loses US$1 trillion a year. The financial opacity created by the use of secrecy jurisdictions also undermines trust in markets and damages market efficiency.

Examining companies’ annual reports and stock exchange filings, PWYP Norway identified and located all of these companies’ subsidiaries. The report, Piping Profits found that:

  • 2,083 (34.5%) of the 6,038 subsidiaries belonging to the 10 of the world’s most powerful Extractive Industry companies are incorporated in secrecy jurisdictions.
  • The global Extractive Industry’s favourite place to incorporate is by far the US state of Delaware with 15.2% of the subsidiaries located there.
  • The second favourite Extractive Industry Company (EIC) Secrecy Jurisdiction is the Netherlands, where 358 subsidiaries belonging to EI giants are based.
  • Chevron is the most opaque EIC major in this study. 62% of Chevron’s 77 subsidiaries are located in Secrecy Jurisdictions. ConocoPhillips is the second most opaque oil and gas major in this report with 57% of its 536 subsidiaries incorporated in Secrecy Jurisdictions.
  • Chevron, Conoco and Exxon are the three US EI major companies surveyed in this report. Combined, 439 (56.1%) of those three North American oil majors’ 783 subsidiaries are incorporated in Secrecy Jurisdictions.
  • Glencore International AG is the most opaque mining company in the Piping Profits survey with 46% of its 46 subsidiaries incorporated in Secrecy Jurisdictions.

These findings are of critical concern as natural resources offer the largest financial potential to improve economic and social opportunities for hundreds of millions of people living in least developed and emerging countries. By incorporating over a third of their subsidiaries in secrecy jurisdictions, the extractive industry is potentially complicit in suppressing these opportunities.

This is why, in order to combat this veil of secrecy, PWYP Norway believes every company should publish their full revenues, costs, profits, tax and the amount of natural resources it has used, written off and acquired in any given year in every country it operates. This is known as country-by-country reporting (CBCR).

The enormous scale of the Extractive Industry’s reliance on secrecy jurisdictions, which have the potential to be used by companies in complicated ownership structures to shroud revenues and profits, comes as pressure mounts on US and EU policymakers to come up with measures that could counter corruption and aggressive tax avoidance by forcing companies to reveal key financial information in every country where they do business.
Mona Thowsen, national co-ordinator of Publish What You Pay Norway, said: “What this study shows is that the extractive industry ownership structure and its huge use of secrecy jurisdictions may work against the urgent need to reduce corruption and aggressive tax avoidance in this sector.

“This is why there is a large and growing body of opinion throughout the world now demanding the introduction of CBCR because it is a vital tool to reduce corruption, secrecy and aggressive tax avoidance that particularly harms people in developing and emerging economies.”

The Piping Profit report also involved journalists from Bolivia and Ecuador attempting to establish key financial and operational performance information from strategically important natural resource companies in their countries. However a month-long concerted attempt to gain information from companies yielded nothing, reflecting the veil of secrecy which citizens face in the campaign to find out what is happening to their resources.

“I always heard it was very complex – and sometimes even dangerous – to obtain financial information about Extractive Industry activities,” said Bolivian Marco Escalera, co-ordinator for major Southern Hemisphere campaign group Somos Sur, after spending six weeks attempting to draw out key financial information from EICs operating in his country. “Whether it is the extractive industries or the state itself, they close ranks against the common enemy: civil society questions. The story is repeated over and over again: Access to timely and reliable information is not good enough.”

CONTACTS

United Kingdom

Nick Mathiason: +44 (0) 77 99 348 619 nick.mathiason@pwyp.no
Joe Williams: +44 (0) 7775 751 170 jwilliams@publishwhatyoupay.org
Alice Powell: +44 (0) 7967 798 390 apowell@publishwhatyoupay.org

Norway

Mona Thowsen: +47 (0) 922 08 412 mona.thowsen@pwyp.no

Notes to Editors

1) The 10 Extractive Industry Companies featured in Piping Profits are BP, Chevron, ConoccoPhillips, Exxon, Royal Dutch Shell plus Anglo-American, Barrick Gold Corporation, BHP Billiton, Glencore International AG and Rio Tinto.

2) All data was based on these companies’ subsidiaries and taken from Annual Returns filed at Companies House in the UK and Stock Exchange filings made at the US Securities Exchange Commission and the Toronto Stock Exchange in Canada.

3) Secrecy Jurisdictions are defined using an Opacity Score benchmark which was devised as part of the 2009 Financial Secrecy Index. All jurisdictions which scored over 50% are defined as Secrecy Jurisdictions. Our study, Piping Profits also scored companies against Tax Haven Lists created by the IMF and the US Internal Revenue Service. Please see the attached report.

4) Delaware is an acknowledged headquarters of global corporate secrecy where among other things details of trusts on public record are not available; international regulatory requirements are not sufficiently complied with; company accounts are not available on public record; beneficial ownership of companies is not recorded on public record and company ownership details are not maintained in official records.

5) The Netherlands is the largest host of conduit companies worldwide and is an important jurisdiction for corporate internal debt shifting.

6) The 2010 Dodd Frank Wall Street Reform and Consumer Act (Dodd-Frank) requires all American firms to report to the SEC the detailed payments made to any state in which it operates. The SEC is finalising how those rules will be applied. In addition, the European Commission is expected to present proposals for country-by-country financial reporting for extractive companies to the European Parliament and EU member states in October 2011.