Q&A: U.S. Financial Reform and Transparency in Oil, Gas and Mining

Among the financial reforms approved by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act is a measure that requires all companies registered with the Securities and Exchange Commission to report the amounts they pay to governments for access to oil, gas and minerals. The law gives investors and citizens new tools to hold companies and governments accountable.

How does the U.S. financial reform legislation promote energy industry transparency?
The legislation passed by Congress requires companies registered with the Securities and Exchange Commission (SEC) to make public their payments to the U.S or any foreign government for the development of oil, natural gas or minerals. This requirement applies to international as well as U.S. companies listed with the SEC. Their payments will have to be reported on a country-by-country basis.

Why is this an important step?
Economists and political scientists have found that a lack of transparency in the oil, gas and mining industries—that, is, a lack of information about their financial dealings with governments—is often associated with mismanagement and corruption in countries heavily dependent on income from those industries. Investors as well as civil society need to know how much money is going to national, regional or local governments, and when and on what terms the financial transactions occur.

Shining a light on companies’ payments on a country-by-country basis is the most direct, least complex and least costly way to give investors, civil society and all interested citizens information to help them make informed decisions.

Which companies are affected by the new law?
Every company registered with the SEC and involved in the exploration, extraction, processing, export or other significant work related to oil, natural gas and minerals is required to make public its payment information. This includes non-U.S. as well as U.S. firms.

Of the 32 largest internationally active oil companies, 29 are registered with the SEC or have other SEC reporting requirements and would be covered by the new law. Eight of the world’s 10 largest mining companies are also registered with the SEC and could be covered, too.

How does this new U.S. law affect the Extractive Industries Transparency Initiative (EITI)?
Congress’ action supports the goals of the EITI, an international, voluntary initiative calling for countries to publish their revenues and for companies to publish their payments. The new payment disclosure requirements deliberately mirror those regarded as EITI best practice. The EITI meanwhile will continue to work to persuade as many countries as possible to regularly make public government revenues from oil, gas and mining companies, and for companies to report all oil, gas and mining payments to governments. The EITI and the U.S. reforms are complementary measures promoting a global transparency movement.

What about the expense and administrative burden of providing this information to the SEC?
All oil, gas and mining companies that operate in the U.S. make comparable disclosures to the Interior Department every month. And some extractives companies already publicly disclose all payments made to foreign governments as a normal part of doing business—including U.S.-based Newmont Mining, Canada-based Talisman Energy, and Norway’s Statoil. All extractives companies in countries implementing the EITI already make public their payments to the governments of these countries. Companies need to keep accurate books and records to comply with foreign and U.S. tax filing requirements and the Foreign Corrupt Practices Act, among other measures.