The European Union’s (EU) requirements for country-by-country reporting of payments to governments by oil, gas and mining (extractive) and forestry companies consist of the Accounting Directive’s Chapter 10 provisions and the equivalent provisions of the Transparency Directive (collectively ‘the Directives’). The provisions require in-scope companies in the extractive and forestry sectors to publicly report details of payments they make to governments on an annual and per-country basis, including at project level.
The reasoning behind the provisions was that by increasing transparency concerning substantial payments made to governments of resource-rich countries by significant corporations in the extractive and forestry sectors, these governments would become more accountable for the usage of the revenues they receive. The need for greater accountability arises from the concern to see improved socio-economic development of these countries. Hence, the provisions could help overcome the ‘resource curse’.
The provisions require that payments be broken down: into categories such as taxes, royalties, bonuses and licence and other fees as well as on a country-by-country basis and into payments made in respect of specific projects as well as entity-level payments such as corporate income tax. The Chapter 10 provisions apply to companies registered within EU Member States. The Transparency Directive provisions apply to in-scope companies from both within and outside of the EU, listed on EU-regulated stock exchanges.
The study reported here follows on from an earlier study into the early transposition and implementation in the UK of the provisions of the Directives (Chatzivgeri et al., 2017).
PWYP UK undertook the study to understand better how the EITI and mandatory reporting complement each other in practice – the two regimes are intended to be, and in many key ways are, complementary – as well as to explore a sample of extractives data in greater depth and to contribute to discussions about “mainstreaming” or “systematic disclosure” in the EITI.
This data assessment investigates the degree of consistency between extractives companies’ total disclosed payments to UK government entities in 2016 as reported under the two transparency regimes, and the extent of and reasons for major variances. Outside of Norway, which has begun to practise “systematic disclosure”, this UK-focused study may be the first of its kind at country level.
Initial findings and dialogue with companies
Of 58 extractive companies reporting via the UK EITI on 2016 – the most recent year for which data was available in September 2018 – 29 had also published a corresponding mandatory payments report. Data published by 16 of these 29 companies showed variances of less than 10% between the two sets of total reported payments to UK government entities. The remaining 13 companies’ data displayed statistically more significant variances, ranging from just under 12% of the company’s total reported UK EITI payments to more than 9,000%, and in money terms from £0.36 million to more than £40 million.
After eliminating obvious potential reasons for the variances as far as possible, PWYP UK contacted the 13 companies concerned, in several cases via the industry body Oil & Gas UK, to request clarification. Most companies were willing to provide enough information to fully explain differences between the two data sets.
Reasons for the data variances and conclusions
Dialogue with companies was needed to understand the variances completely. Explanations received show that differences of scope between the two transparency regimes determining how some main payment types were reported are significant, although the specifics vary. Companies have confirmed that the main factor is the inclusion or exclusion of subcategories of payments and of interest and negative payments (refunds), especially relating to taxes. In some cases, inclusion of subsidiary companies in UK EITI reporting that were not included, or that disclosed separately or for less than 12 months, in mandatory reporting is also a factor, as are differences in reporting period and – most easily resolved – in currency exchange rates applied.
The extent to which similar issues arise in other countries that implement the EITI, and where operating companies also report payments under mandatory disclosure rules – either in the UK, other EU member states, Canada or Norway – remains to be seen. Lessons from Norway’s experience with systematic disclosure will be useful.
Both the EITI and mandatory payments to governments reporting provide hard-won mechanisms to deter corruption and mismanagement, and opportunities for citizens of resource-rich countries and other oversight actors to hold governments and companies to account for their stewardship of the planet’s non-renewable natural resources and of the resulting financial flows. Civil society organisations, parliamentarians, journalists, investors and companies themselves can reap important public benefits from the two extractive industry transparency regimes. Comparing EITI vs mandatory reports is only one of numerous approaches to using extractives data that civil society is currently exploring as part of its work to bridge the gap between extractive industry transparency and full accountability.
Publish What You Pay has campaigned for years for laws requiring extractive companies to disclose their payments to governments worldwide, country by country and project by project, every year, as a complement to the EITI. Now that we have a growing body of public mandatory payment data, it would be good to increase our use of the data.
New two-page guide from PWYP UK
To help PWYP coalitions, member organisations and others in civil society access and use the 90-plus UK-based extractive companies’ payments to governments reports, PWYP UK has produced a short practical multi-lingual guide to accessing these reports. The two-page guide is available in English, French and Spanish, with links to UK-incorporated company reports here and UK-listed (London Stock Exchange) company reports here.
The guide shows how to access data on payments made to governments in 2015, 2016 and 2017 all over the world. Companies that have published their payments this way include Aggregate Industries/LafargeHolcim, Anglo American, Antofagasta, BHP Billiton, BP, China Petroleum & Chemical (Sinopec), Gazprom, Glencore, Lonmin, Lukoil, Premier Oil, Randgold, Rio Tinto, Rosneft, Royal Dutch Shell, Seplat, Soco, South32, Total, Tullow and Vedanta.
As well as explaining how to access reports via the two official UK web portals, the guide also briefly explains NRGI’s www.resourceprojects.org portal. This provides access to mandatory payment data published across the EU (including in the UK) and in Canada and Norway.
Why should civil society access the reports and use the data?
Payments to governments reporting helps deter and prevent corruption and fiscal mismanagement. Companies that are required to publish their payments are less likely to enter into corrupt or questionable deals with governments. Governments are less likely to mismanage the revenues knowing that the money received is publicly reported.
Civil society can achieve more by understanding and publicising the payments made and reported by companies in particular countries and for specific projects. Knowledge empowers. If we detect surprising or questionable payments, we can call for the government and company involved to explain. We can use the data to help citizens and local communities judge if individual oil, gas or mining projects are good value and to demand accountability for how each government spends the money. This includes judging whether a project’s public revenues and how they are spent compensate fairly for negative social and environmental impacts at national or subnational level.
The UK government, the European Commission and others have asked civil society for evidence that payments to governments reports really do help improve extractive industry governance and ultimately citizens’ lives. The more we can make this happen and demonstrate it is happening, the more secure will be the political achievement of opening up extractive company payments and government revenues to public scrutiny.
Data-based advocacy partnerships
Building on its 2016 Data Extractors project, PWYP UK is interested in working with other PWYP coalitions and members around the world to analyse payments and conduct data-based advocacy focused on UK-based extractive companies’ transparency reports. To discuss possible collaboration, please contact email@example.com in English, French or Spanish.
On 20 April 2018 PWYP hosted a webinar on tax and extractives as part of our ongoing engagement with PWYP members around the world to inform the PWYP 2020-2025 global strategy.
Kwesi Obeng kicked off the conversation with a presentation of the key ideas in his discussion paper, with respondents Daniel Mule (Senior Policy Advisor on tax and extractives at Oxfam US) and Mona Thowsen (Secretary General PWYP Norway) picking up and exploring some of those themes in the context of their work at national and global levels.
Following the webinar, Elisa Peter, Executive Director and Stephanie Rochford, Director of Member Engagement, sat down to discuss what we learned and how some of the discussion might be reflected in PWYP’s strategic planning for 2020 to 2025.
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Stephanie: Tax Justice is an umbrella concept that covers a wide range of issues – from the misguided use of tax incentives by governments to attract investment, to the need for cost-related data disclosure (in addition to payment data), to the use of tax havens by multinational companies that divert potential tax revenues, to questions relating to mineral quality and quantity, to the rights of communities (who are the ones most impacted by extractive activities) to access services and livelihoods. What are the themes that you felt resonated most strongly with our members during the discussion?
Elisa: Well it’s clear that members already see PWYP’s work to date as a contribution to a broad Tax Justice movement, given PWYP’s mission to ensure that any benefit (including tax revenues) derived from resource extraction is shared sustainably and equitably. I think that really came out clearly in this conversation – PWYP’s work at national and global levels is happening in the context of a Tax Justice agenda. This includes not only our flagship PWYP campaign on payment disclosure, but also the more recent push for beneficial ownership data, including through the EITI Standard; as well as the calls of many of our coalitions in the ‘home’ countries of multinational extractive companies for more transparency on tax through extended country by country reporting, as Mona from PWYP Norway pointed out. So, really, the question is not so much if but rather how PWYP can situate itself more strategically to work with other actors in the Tax Justice movement in a way that will enhance our respective impact and build on PWYP’s strengths as a global network of civil society activists.
Stephanie: Yes, PWYP’s strength and unique value absolutely lies in our member organisations – and many of them are human rights defenders. To what extent do you see an opportunity for PWYP to bring the rights of communities to the fore by incorporating aspects of the Tax Justice agenda more explicitly into our global strategy?
Elisa: That’s something that I think is becoming more evident: there’s a clear demand to look not only at the revenue collection aspect of a fair tax system but also how those taxes are then spent in a way that meets the needs of citizens, acknowledging that those needs will be very different depending on gender, class, poverty levels and many other factors. The example of Oxfam’s “Even it up” campaign can be a really useful one for PWYP to take inspiration from! Even if a country is able to capture the fair share of revenues generated by extraction through a solid fiscal regime, it is essential that the spending of these revenues is then managed effectively to alleviate poverty and end extreme inequality. Only when all these pieces are in place can natural resource exploitation be a force for good.
Stephanie: On that note, the question of the explicit link between tax and gender equality was posed during the discussion. Maybe that’s an angle where PWYP can add value at a global level?
Elisa: I was really pleased that this question of how tax relates to gender came up, particularly in light of the recent launch of our gender and EITI pilot project, which recognises that the transparency and accountability movement as a whole has not paid sufficient attention to the different ways in which women and men are able to participate in calling for and using extractives data. Kwesi’s response clearly highlighted that tax is absolutely gender discriminatory: for example, when tax breaks are offered for the benefit of corporations and their investors, the result is a reduced provision of the services that women tend to rely heavily on (such as healthcare, etc). So I definitely would like to see us continue to reflect on how we can do more as a movement to recognise and address the specific ways in which women are impacted by seemingly far removed macroeconomics decisions like tax policies.
Stephanie: Mukasiri Sibanda from PWYP Zimbabwe was unfortunately not able to join the webinar today, but he has eloquently expressed the need to ensure that the focus of PWYP’s work, as well as that of the Tax Justice movement, should be rooted in the rights of communities in resource rich countries to access services such as education, healthcare, infrastructure etc.
Elisa: Yes, and Daniel noted that greater participation in, and oversight of, expenditure of extractive revenues is a critical aspect of PWYP’s larger theory of change; but there are also a lot of challenges for PWYP members when it comes to looking at extractive revenues.
Stephanie: That’s true – unlike the issue of tax administration and collection, questions relating to expenditure of extractive revenues ultimately move into the realm of public financial management more broadly, since it’s rare to see ring-fenced budgets which would allow extractive revenue expenditure to be tracked. So the question of accountability here goes beyond extractives.
Elisa: I don’t think there’s a clear answer on how to handle this challenge – as a movement we will need to wrestle with the extent to which PWYP should, or is in a position to, focus our efforts on wider questions of public financial management.
Stephanie: And we have an all too timely example of why that’s not a conversation that PWYP can shy away from…
Elisa: Yes, the arrest of PWYP Niger national coordinator and Board member, Ali Idrissa, came about as a result of peacefully protesting against a finance law that they argue will foster corruption and facilitate tax breaks for the elite. Ali’s arrest brings home the realities of the powerful interests at play when it comes to natural resource extraction, and that accountability – natural resource justice – is not yet achieved and is going to be a hard won battle.
Stephanie: Yes, and this is something that we hope our new strategy will reflect as well – how PWYP members can create spaces to hold those powers to account. In terms of where we go next with our strategic planning in the context of Tax Justice in particular, what are some of the ideas that we want to bring to the PWYP Global Council when they meet in a couple of weeks to refine the 2020-2025 strategic priorities?
Elisa: There were a few key ideas from each of the participants that I found really exciting. For example, thinking about how we can leverage the power of the PWYP collective to tackle issues relating to tax incentives (something that Don Hubert clearly identifies as an entry point for engagement in the PWYP Canada report, “Many Ways to Lose a Billion”). Equally, there seem to be a few windows of opportunity to engage with corporate actors (for example, building on the work of the BTeam to develop responsible tax principles); or with multilateral institutions like the World Bank who are in a position to influence discriminatory tax systems. And there was a suggestion to develop more case studies that evidence the ways in which tax evasion and abuse in the extractive sector is facilitated, and the impact it has.
Stephanie: I agree, those were all really interesting aspects to consider. In addition, there was a clear message on the webinar that we need to capitalise on PWYP’s work over the past 16 years to make payment and contract information available, and to equip our members to use that information to make the evidence-based case for the equitable and sustainable management of the extractive sector.
Elisa: Absolutely – and we will continue that call for transparency which is what provides us with the evidence base to push for change.
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Thanks to all those who joined the webinar and contributed your questions and comments. You can find a summary of the first webinar on The Future of Extraction here.
And if you missed the webinar you can catch up by watching the recoding below:
Further webinars on tax and extractives are taking place in French and Russian this week.
In 2016, French companies extracting natural resources in developing countries made their payments to the governments of these countries public for the first time, detailing the payments for each of their projects. This is a significant step forward in terms of transparency in a notoriously opaque sector.
Nevertheless, while the stated objective of these measures is to facilitate public understanding and monitoring of the activities of companies exploiting natural resources, this report reveals various limitations, such as regarding access to the new data, which remains complicated, particularly for non-specialists. Lack of contextual data surrounding the disclosure of payments makes understanding the data even more difficult. Furthermore, loopholes in the Directives and their transposition into French law also limit possibilities of studying and comparing the different payments.
However, the disclosure of payments to governments shows that the governance of the sector is improving. This report demonstrates how the disclosure of this new information helped inform analysis of the activities of the French oil company Total in Angola and the French uranium giant Areva in Niger.
In 2013, the European Union (EU) passed new transparency legislation requiring large oil, gas, mining and logging companies listed and registered in the EU to disclose their revenue payments to governments around the world. The EU Accounting Directive requires reporting of EU-registered companies’ payments to governments on a country-by-country and a project-by-project basis (for each country a company operates in and for each project to which payments have been attributed) as does a similar provision in the EU Transparency Directive for publicly listed companies. This includes disclosure of taxes paid, production entitlements, royalties, bonuses and other payments of EUR 100,000 and over. Thanks to this legislation, similar laws have been adopted in non-EU countries,
including Norway and Canada, while similar draft legislation is currently being considered in Switzerland and Ukraine and has been pledged by Australia’s major opposition party, and a mandatory reporting law in the United States awaits the Securities and Exchange Commission (SEC)’s implementing rule.
The EU Accounting Directive has now been transposed into national law by all EU Member States. Early adoption by France and the UK means that global companies such as Shell and Total published their first reports in 2016, while the majority of European companies began reporting in 2017.
In 2018, the European Commission (EC) will review Chapter 10 of the Accounting Directive – the section setting out the requirements for “payments to governments” reporting by extractive companies.
This briefing paper has been prepared by members and civil society allies of the Publish What You Pay coalition in order to strengthen EU policy on promoting transparency and accountability in the extractives sector through the review of Chapter 10 of the Accounting Directive and Article 6 of the Transparency Directive. It outlines the main achievements of the existing transparency legislation for the extractives sector as well as its loopholes, and sets out recommendations for the EC’s review.
Leading advocates of country-by-country payments to governments reporting by oil, gas and mining companies have joined Publish What You Pay (PWYP) UK in calling on the United Kingdom government to continue to lead the global push for greater transparency in the extractive industries as part of the fight against corruption and for citizen empowerment in resource-rich countries.
Greg Clark MP, Secretary of State at the UK Department for Business, Energy and Industrial Strategy (BEIS), is undertaking a review of the UK’s Reports on Payments to Governments Regulations, under which UK-registered and London Stock Exchange-traded extractive and forestry companies are required to report their payments to governments at project level for all countries where they operate. The review of the 2014 regulations is a statutory requirement. Mr Clark is due to report to Parliament on the conclusion of his review early in 2018.
PWYP UK’s 46-page submission to the review emphasises the value of mandatory payment reporting in deterring corruption and fiscal mismanagement, preventing conflict, enhancing public understanding and citizen empowerment, and delivering business benefits for companies and investors. The submission includes 28 brief case studies highlighting civil society’s use of companies’ payment disclosures to promote accountability across the sector.
“In times of political uncertainty it is critical that the UK upholds its leading role in the fight against corruption and that progress towards a more open and accountable global extractives sector remains on course. Oil, gas and mining are notoriously corruption prone.”
Miles Litvinoff, PWYP UK Coordinator, commented: “In times of political uncertainty it is critical that the UK upholds its leading role in the fight against corruption and that progress towards a more open and accountable global extractives sector remains on course. Oil, gas and mining are notoriously corruption prone.”
While commending the UK for its leadership on this issue, including for ensuring that companies’ disclosures are available to stakeholders in an open data format, PWYP UK has also identified areas where incomplete and inconsistent company reporting is occurring, and makes recommendations to the government to address weaknesses in the regulations and their implementation.
Among other improvements, PWYP UK is calling for more clarity on requirements for project-level disaggregation, joint venture and payment-in-kind reporting; for full identification of recipient government entities; for disclosure of payments to governments for the sale of oil, gas and minerals; and for better accessibility of reports and clearer information for companies on how to report.
“PWYP UK hopes that the government will take note of our recommendations to make the regulations more fit for purpose,” said Litvinoff.
In her letter to the Secretary of State, Arlene McCarthy, who led negotiations on chapter 10 of the European Union Accounting Directive – on which the UK regulations are based – for the European Parliament, urges the UK government to “build on the gains made thus far – not only in the UK and the EU but also in Norway, Canada and the United States” and to continue “momentum for a greater degree of accountability in this historically opaque sector, where so much potential public benefit has in the past been squandered”.
The UK regulations are part of a global standard of mandatory extractive sector transparency currently implemented in all 28 European Union member states, plus Canada and Norway, which complements the more voluntaristic (for governments) Extractive Industries Transparency Initiative. The original mandatory disclosure law, Section 1504 of the 2010 US Dodd-Frank Act, is yet to be implemented. Campaigns are under way in Australia, South Africa, Switzerland, Ukraine and other countries for similar extractive sector reporting laws.
Jo Swinson MP was Minister for Employment Relations and Consumer Affairs and oversaw the UK regulations’ coming into force in 2014. Her letter says: “It was crucial at the time for the United Kingdom to deliver on its commitment … to advance global standards of transparency in the extractive sector”, and notes that “the comprehensive payment reports now being published by UK-regulated oil, gas and mining companies” are delivering “substantial public benefit”.
Payment reports are delivering “substantial public benefit” – Jo Swinson MP
Caroline Flint MP reminds the Secretary of State that “Oil, gas and minerals are finite resources that provide many developing countries with a relatively brief opportunity to mobilise domestic revenues on behalf of their populations, which will be necessary to meet the Sustainable Development Goals.”
The submission by the Columbia Center on Sustainable Investment (CCSI), part of the Columbia University Law School, underscores investors’ need for “the global standard for payment transparency” that the UK regulations sustain. CCSI outlines “seven areas in which public payment data such as required by the UK Regulations may add material insight to investment analyses and improve investment environments”.
According to US-based oil and gas exploration and production company Kosmos Energy, which listed on the London Stock Exchange in 2017: “We believe resource revenues are more likely to be managed in the best interests of a country if payments and receipts are made transparently, and if accountability measures are in place for the use of these revenues.”
As well as accepting written submissions to the review, the UK government contracted PwC, one of the big four accountancy firms, to conduct stakeholder interviews with companies, investors, government officials and civil society. Members of the PWYP global coalition from sub-Saharan Africa, mainland Europe, North America and the UK took part in 10 interviews.
PWYP UK looks forward to seeing Secretary of State Greg Clark’s report to Parliament on his conclusions in early 2018.
Undue interference by UK Government officials in the civil society nomination process jeopardises genuine multi-stakeholder dialogue in long standing transparency initiative.
Several years of positive progress by a UK Government anti-corruption initiative, the UK Extractive Industries Transparency Initiative (EITI), are at risk due to a recent imposition by UK Government officials which undermines the initiative’s multi-stakeholder nature.
The decision by UK Government officials this week to give one organisation, Extractive Industries Civil Society (EICS), authority over certain civil society nominations to the UK EITI’s multi-stakeholder group has pushed ten full member organisations of the UK EITI Civil Society Network and more than twenty individual associate members, including academics, to withdraw from the UK EITI process. Among the organisations withdrawing are Global Witness , Natural Resource Governance Institute, Transparency International UK , and Publish What You Pay UK .
Miles Litvinoff, Coordinator of Publish What You Pay UK, said:
“Government officials’ decision to overlook the strong concerns expressed by the Civil Society Network is deeply worrying and goes against the democratic principles fundamental to the EITI and to the UK as a country.”
Joseph Kraus, Director, Transparency & Accountability (interim) at the ONE Campaign and a member of Publish What You Pay UK’s Steering Group, said:
“Should the UK Government persist with this decision, it will set the UK EITI process on an uncertain path. The UK will face difficulties in passing EITI Validation, a quality assurance mechanism that assesses countries’ compliance with the requirements of the EITI Standard, which the UK is due to undergo in 2018.”
The Extractive Industries Transparency Initiative (EITI) is an international standard for openness around the management of revenues from natural resources. It is designed to improve accountability and public trust for the revenues paid and received for a country’s oil, gas and mineral resources.
In 2003, the UK Government helped break new ground by launching the EITI which has since been paving the way for better governance in the oil, gas and mining industries worldwide.
The EITI makes relevant information available to citizens, in particular about the revenues generated by their country’s mineral wealth, to enable them to hold their government to account.
In over a decade, USD 2.3 trillion in revenues from the exploitation of natural resources have been disclosed and are open to public scrutiny thanks to EITI reporting in over 50 member countries. This includes the UK which joined the initiative as an implementing country in 2014 and released two EITI reports for the fiscal years 2014 and 2015.
The EITI established an unprecedented governance approach in the sector whereby three constituencies – government, companies and civil society – have equal weight in making decisions about how the country’s mineral wealth is managed.
To ensure the dialogue between the three constituencies is meaningful, the EITI Standard prohibits any form of interference in constituency processes, including the nomination process of representatives.
The UK EITI Civil Society Network (CSN) facilitates broad and mainstream civil society engagement in the UK EITI and is made up of 10 full member organisations and 20-plus individual associate members, including academics whose work relates to the extractive industries. CSN members Transparency International and Global Witness were instrumental in the establishment of the EITI internationally in 2003.
The UK EITI Civil Society Network (CSN) regretfully announces its withdrawal from engagement with the UK EITI.
The Extractive Industries Transparency Initiative (EITI) is an international standard for openness around the management of revenues from natural resources. It is designed to improve accountability and public trust for the revenues paid and received for a country’s oil, gas and mineral resources.
We oppose the decision by senior UK Government officials on 26 September 2017 to give one organisation, Extractive Industries Civil Society (EICS), authority over certain civil society nominations to the UK EITI Multi-Stakeholder Group (MSG). This decision contravenes sections 1.3 and 1.4 of the EITI Standard and is a breach of civil society’s right to determine its own representatives independently.
The CSN, which represents broad and mainstream civil society engagement with the UK EITI, a number of whose member organisations were instrumental in the establishment of the EITI internationally in 2003, has an agreed and published process for filling civil society MSG places, which was adopted by consensus.
In July 2017 we wrote to Margot James MP, Parliamentary Under Secretary of State for Small Business, Consumers and Corporate Responsibility, who is the UK’s EITI Champion, expressing our concern at one organisation’s control of half of the civil society MSG seats and calling for a democratic, fair and transparent process for civil society selection.
In a further effort to find a solution in September 2017, and following consultation with government officials at the Department for Business, Energy and Industrial Strategy, the CSN agreed to amend its Membership Principles to make reference to diversity and local UK communities affected by the extractive industries. The CSN also invited EICS to apply to join the CSN, which it refused to do. We have always sought in good faith to find a solution to the challenges faced on the issue of civil society representation.
The decision to give special status to one civil society organisation over its peers goes against the EITI’s founding principles. We withdraw from the process with immediate effect.
The London Stock Exchange’s (LSE) Alternative Investment Market (AIM) was launched in 1995 for smaller and growing international companies looking to raise capital for expansion. AIM describes itself as “the most successful growth market in the world”. The UK government has sung its praises. Lesser known than the LSE’s Main Market where larger, more established international companies’ securities are traded, AIM has over the years helped more than 3,700 companies raise more than £100 billion.
Approximately 200 oil, gas and mining companies trade on AIM. Although generally smaller than LSE Main Market companies, AIM companies have grown over the years. AIM extractive companies’ combined market capitalisation runs into the billions of pounds, which can make them significant actors relative to the size of host country economies where many citizens are still desperately poor. They operate in 40 developing and transition countries, including 22 lower- and lower-middle-income countries as defined by the World Bank, and in all the BRICS.
Fraud and corruption
The LSE recently asked for views on proposed changes to the AIM rules, including rules of corporate governance. Investigations by Global Witness, Rights and Accountability in Development (RAID) and others have revealed significant cases of fraud, corruption and other abuses involving AIM extractive companies. The risks involved are acknowledged by the UK government: “The absence of good governance and the lack of transparency around [payments to governments] reduce the positive impact that extractive industries can have on economic development … [and] negatively impacts on, and increases the risk for, … companies and investors active in the extractives sector through civil unrest and poor business environment.”
Publish What You Pay UK responded to the recent LSE consultation by proposing that all LSE AIM-traded oil, gas and mining companies be required to annually report their payments to governments following the same rules that apply to the 90-plus LSE Main Market-traded and large private UK-registered extractive companies now disclosing their payments each year under UK law. AIM extractive company reporting should meet the same requirements. The UK regulations’ £86,000 disclosure threshold, applied per single payment or series of related payments, will prevent AIM extractive companies from being unreasonably burdened by having to report inconsequential payments.
Benefits of transparency
Benefits would be considerable. First, there would be consistency in addressing investor and reputational risk. The LSE already requires extractive companies to disclose payments to governments of more than £10,000 on applying for admission to AIM, as well as to annually report estimated reserves and resources. Regular payment reporting by AIM extractive companies will help citizens hold their governments to account for revenues received, better inform investors and improve the UK’s, the LSE’s and AIM’s reputation for corporate governance.
The LSE’s discussion paper recognises AIM investors’ need to fully understand the businesses in which they invest and the associated risks. Payment to government disclosure helps investors make informed decisions and promotes confidence in the market. This is why large numbers of European and North American institutional investors and fund managers support both the EITI and mandatory public country-by-country project-level reporting.
AIM needs to maintain appropriate levels of corporate governance as its traded companies grow in size and as expectations regarding corporate accountability rightly become more demanding. With a current average market capitalisation of approximately £50 million, AIM oil, gas and mining companies are far from small in the eyes of ordinary people, and not all AIM companies will plan to graduate to trading on the Main Market. These factors make it inappropriate to apply fewer transparency requirements to AIM extractive companies than to their Main Market counterparts.
Public country-by-country project-level reporting is increasingly accepted as the industry norm. As Tom Butler, chief executive of the International Council on Mining and Metals (ICMM), said in early 2017: “[T]he global trend is in the [pro-transparency] direction. The train has left the station. It is driven by investors and other stakeholders and the desire of the industry to maintain its social license to operate. One way to maintain that is for everyone to see that the taxes and other payments the mining industry makes are applied sensibly to the development of the country.”
No UK institution should be encouraging a race to the bottom in terms of corporate transparency standards.
It is high time, then, for the LSE to extend annual payment disclosure beyond Main Market-traded extractive companies to AIM-traded ones. In the UK government’s words: “Shareholders, investors, employees, competitors, civil society groups, the media and other external stakeholders view companies’ disclosure of payments … as an example of principled leadership. … Regular … [r]eports on payments and revenues can improve the creditworthiness of both companies and countries.”