US Congress votes down anti-corruption rule

This week, United States legislators chose to relinquish their country’s leadership role in the global oil, gas and mining transparency movement by undoing a landmark anti-corruption rule. Both the House of Representatives and the Senate passed a motion to roll back the bi-partisan Cardin-Lugar provision, also known as Section 1504 of the Dodd-Frank Act Section 1504, in the same week that Rex Tillerson, former head of US oil giant ExxonMobil, was confirmed as Secretary of State.

Elisa Peter, Executive Director of Publish What You Pay (PWYP), a global civil society coalition working to promote transparency in the extractive sector, said: “This rule, which the US Congress has just repealed, played an instrumental role in the global movement towards transparency. By requiring all US-listed oil, gas and mining companies to publicly disclose the payments they make to governments around the world, the United States had demonstrated world leadership in the fight against corruption. This time is over”

Jana Morgan, Director of Publish What You Pay-US, said: “Instead of taking on corruption as they had promised, Congress and the new administration have gutted an important anti-graft measure that helps keep Americans safer and more informed. The Cardin-Lugar rule is critical for ensuring that authoritarian regimes around the world cannot treat oil and mining revenues like state secrets, breeding corruption, distrust, and conflict that harms U.S. security and energy interests.”

The US mandatory disclosures rule, detailed by the US Securities and Exchange Commission (SEC) after much consultation, required all oil, gas and mineral companies listed on US stock exchanges to report the royalties, bonuses, fees, taxes and other payments they make to governments, country by country and project by project.

Ali Neema, National Coordinator of PWYP Iraq, commented: “Transparency rules such as Dodd-Frank Section 1504 are crucial tools to redress extreme corruption problems linked to our country’s oil sector. Undoing this rule undermines efforts worldwide to make natural resource extraction honest and fair. More worryingly, it risks fueling new terrorist threats and leaves transparency about Iraq’s oil to the whim of government ministers and officials.”

Civil society organisations and PWYP members all over the world had called on US legislators to preserve the Dodd-Frank transparency rule. The outcome of 15 years of civil society campaigning and several years of careful deliberation by US lawmakers and officials, Cardin-Lugar has had far-reaching consequences for citizens all over the world by inspiring similar legislation now being implemented in the European Union, Canada and Norway. Companies including Shell, BP, Total and Rio Tinto are already reporting. Many of the largest oil, gas and mining companies support country- and project-level reporting, and several have indicated that they do not find the reporting requirement burdensome.

Miles Litvinoff, National Coordinator of PWYP UK, said: “Undoing this rule may push the US back as a global champion of transparency. But other jurisdictions are proving that they take anti-corruption measures in the extractive sector seriously. The UK is now in its second year of implementing its reports-on-payments-to-governments regulations, and most in-scope companies, including foreign UK-listed companies, are complying fully with their disclosure obligations without a problem.”

Dodd-Frank 1504 is one of the first rules attacked by US Republicans allied with the new Trump administration using the little known Congressional Review Act. ExxonMobil and Rex Tillerson are widely known to have lobbied hard against this rule. Rather than “transferring power back to the people”, as President Trump has stated he wishes to do, this move means that when it comes to US oil, gas and mining companies, citizens will be kept in the dark.

Elisa Peter concluded: “Notwithstanding this step back, PWYP will continue to empower citizens around the world to shine the light of transparency on the oil, gas and mining sectors.”

This move by the US Congress is good for Exxon, bad for everyone

One of President Trump’s best tools to “drain the swamp” is under threat from his own side. A mere four days after he took office, Republican Congress members began attacking a key piece of anti-corruption legislation.

This rule, the Cardin-Lugar provision (also known as Section 1504 of the Dodd-Frank Act), was a bipartisan effort to shield US citizens and shareholders from millions of their dollars vanishing to foreign oligarchs in the oil, gas and mining sector, which is particularly vulnerable to corruption. The “swamp” — a handful of lobbyists, executives and contractors who feed off such business ties — has attacked it for years.

When the provision was born in 2010 it set an international movement in motion. United States leadership inspired similar legislation in the EU, oil-rich Norway, Canada and beyond. In total, governments enacted similar provisions in over 30 countries.

Today these measures apply to 80 percent of the world’s largest publicly listed oil, gas and mining companies, including state-owned companies from Russia, China and Brazil. This is a win-win for resource-rich countries too: citizens from Indonesia to Zimbabwe are using these transparency laws to keep track of the funds their governments receive and ensure that oil, gas and mining revenues don’t simply vanish into private accounts held offshore, but rather contribute to shared economic growth.

But to those in Washington D.C. the most spectacular part of the provision was its bipartisanship, at a time when such feats seemed almost impossible. Later, laws in Canada drew the full support of the mining sector. Yet a handful of oil companies seeking to keep their business dealings secret continued to oppose the law. Leading this opposition was one company, Exxon Mobil, hiding behind an oil lobbying group called the American Petroleum Institute (API).

First API opposed the law in Congress. When that failed, they tried to water down the regulations. After that, they sued the Securities and Exchange Commission, an agency of the US Federal government, resulting in the regulation being sent back for revision, on technicalities.This delayed implementation by years — until a new rule was released in June 2016.

Next week, Republicans in Congress plan to use an obscure law called the Congressional Review Act (CRA), in an attempt to void the implementing rule for the Cardin-Lugar provision. Despite the Cardin-Lugar provision’s long legislative history, and two robust rulemakings, the delays caused by API’s litigation makes it vulnerable to the CRA.

In the early rush of a new administration, members of Congress are moving as quickly as they can to damage anti-corruption standards, a move which only benefit lobbyists and corporate bottom lines. The greatest damage, however, will be to the communities around the world who currently fail to benefit from their natural resources because of the conduct of the likes of ExxonMobil.

To US citizens and the rest of the world, this offensive threatens a return to the dark days of unhinged economic and environmental crime. It means vanished millions of dollars that shareholders,

About time! SEC to speed up draft rule for Dodd-Frank 1504

The Securities and Exchange Commission (SEC) told to speed up draft rule for landmark 2010 US transparency law for oil, gas and minerals

In June 2010, President Obama signed into law Dodd-Frank 1504, which obliges all US-listed extractive companies to publish their payments to the governments where they operate. Section 1504, if properly implemented, will enable citizens to monitor the revenue their governments receive from extractive companies, and help citizens ensure that revenue generated from their countries’ natural resource is put to good use in their own countries. This move placed the US as a frontrunner of global extractives transparency and set the stage for other countries to follow its lead by drafting and implementing similar transparency laws.

The SEC was tasked with drawing up the rules for section 1504 and in 2012 issued a strong rule, over which the American Petroleum Institute initiated legal proceedings against the SEC. To the great disappointment of the PWYP coalition, the rules were vacated by the US District Court. As a result, the SEC was required to submit a new version of the rule, but no such draft has been put forward yet and the SEC has repeatedly delayed the rulemaking process.

Project-level reporting will bring great benefits to citizens’ groups in resource-dependent countries. In April 2014, frustrated with the lack of progress, 544 PWYP members from around the world wrote a letter to the SEC Chair, Mary Jo White, strongly asking the SEC to reissue a robust implementing rule for Dodd-Frank Section 1504. The letter included signatures from PWYP members working in countries where numerous extractive companies are active, including US companies. Project-level reporting would allow these members to hold both governments and companies to account for payments at local level, especially when there are revenue sharing policies and practices in place.

In August 2014, during the US-Africa Leaders summit held in Washington DC, a number of high-profile African members of PWYP wrote an open letter to President Barack Obama, asking for the US to create a level-playing field by issuing a final rule so that Africa can finally benefit from the revenues it is generating from natural resources. This was strengthened through various submissions of transparency advocates around the world to the SEC explaining why Dodd-Frank section 1504 is so critical and why Big Oil’s influence needs to be stopped.

Yesterday, following a lawsuit led by Oxfam America, a US Federal District Court gave the SEC 30 days to submit a firm work plan to issue the final rules for Section 1504 of the Dodd-Frank Act. The SEC has no choice but to comply with the 30 day deadline. We, as PWYP, will continue to keep the PWYP eye open…

The foundation is shaking beneath Big Oil’s House of Cards

No competitive disadvantage from payment disclosure, says leading natural resource economist

Transparency advocates are fighting to prevent Big Oil from weakening Section 1504 of Dodd-Frank, the landmark oil, gas, and mining payment transparency provision. Section 1504, if properly implemented, will enable citizens to monitor the revenue their governments receive from extractives companies, and help citizens ensure that revenue generated from their countries’ natural resource endowment is put to good use. Before Section 1504 can go into effect, the Securities and Exchange Commission must release an implementing rule. And in order for Section 1504 to work as intended, the implementing regulation must require companies to publicly report their payments for each of their projects. Unfortunately, a few loud voices from Big Oil maintain that project-level payment disclosures would put companies at a competitive disadvantage. However, the global Publish What You Pay coalition, investors, extractive companies and government representatives have argued against this position for years.

Recently, Duke University economist, Dr. Robert Conrad has added his voice to the call for payment transparency. In July, he wrote to the Securities and Exchange Commission (SEC) and dismantled arguments by the American Petroleum Institute (API) that disclosing project-level payments to governments would put companies at a competitive disadvantage. Dr. Conrad, an expert in natural resource economics and public finance, also addressed API’s radical proposal for the SEC to allow companies to disclose payment information anonymously.

While API, the lobbying arm of Big Oil, has made a game of trumpeting the ‘parade of horribles’ that will supposedly result from Section 1504 disclosures, Dr. Conrad finds much more fiction than fact in their assertions.

API Myth #1: Reporting project-level payments, by company, will force companies to reveal commercially sensitive information

Reality Check: This argument has been trotted out by industry time and again, but we have yet to see any credible supporting evidence. According to Dr. Conrad:

“…information at the project level does not require disclosure of…commercially sensitive data…that would place a resource producer…at a competitive disadvantage. […] No contractual relationships with downstream processors are disclosed, the contribution of the project to the overall profitability of the reporting issuers is not disclosed, trade secrets are not disclosed, and techniques related to intellectual property are not disclosed.”

A project-level reporting requirement – similar to mandatory disclosure laws being implemented in 30 other countries – would merely require companies to disclose payments they make to governments, such as taxes, royalties, fees, bonuses and production entitlements.

There is no overlap between the disclosures required by Section 1504 and the commercially sensitive information listed by Dr. Conrad. He goes on to explain why royalty payments, dividends and other required payment categories cannot be used to extract commercially sensitive information.

API Myth #2: Highly aggregated disclosures, where company names remain anonymous, are enough for civil society groups to hold their governments accountable

Reality Check: All evidence points to the contrary. Project payment information, by company, is essential for citizens and governments to determine if they are getting a good deal for their natural resources. Dr. Conrad agrees:

“[Natural resources] are part of a country’s wealth, which, if extracted, is reduced in exchange for financial and other economic benefits as determined by each contract. Knowledge of the payment streams by a particular company and by project are then necessary for resource owners to determine whether the present value of the benefits are at least as great as the capital losses resulting from resource depletion.”

In essence, Dr. Conrad is saying that without company-by-company, project-level disclosure (which he defines as equivalent to a contract), citizens are not only unable to monitor the money paid by companies to their government, but are also unable to determine if the benefits of extraction outweigh the costs. Costs of extraction can include environmental damage, civil unrest, and loss of livelihood. While an influx of natural resource revenue can mean an opportunity for a country to develop, if not closely monitored, it can also (and often does) create a fertile environment for graft, corruption and mismanagement.

Last year, 544 civil society groups from 40 countries wrote to SEC Chair Mary Jo White to ask the SEC to quickly produce a new rule for Section 1504 requiring project-level disclosure by company. You can read more about how citizens in countries like Indonesia, Angola and the Democratic Republic of Congo will use project-level payment information to increase corporate and government accountability here.

API Myth #3: American companies will suffer a competitive disadvantage if required to disclose project-level information – especially when competing with state-owned oil companies

Reality Check: API argues that SOEs will not be required to report their payments, whereby giving them an advantage over U.S. companies. This is simply not true.

First, many SOEs will be required, or are already required, to report their payments. In March, Norwegian state-owned oil giant, Statoil, disclosed all of its payments by project. This year the 28-member states of the European Union began implementing their disclosure laws which cover a number of SOEs, including Gazprom, Rosneft and Lukoil. Once the SEC finalizes the US rule, Petrobras, CNOOC, Petrochina and Sinopec will be covered.

Second, there is no evidence that payment transparency will prevent U.S. companies from winning bids against SOEs or, in fact, any competitors. The fact is that disclosure is not a determining factor in awarding bids. And a majority of the world’s top oil, gas and mining companies will be covered by mandatory disclosure legislation or the Extractive Industries Transparency Initiative (EITI). Advantages afforded to some SOEs come from access to capital from their own governments and the ability to obtain government loans at little or no interest. None of this has anything to do with mandatory payment disclosure.

In fact, many SOEs do not even operate outside of their own borders and are merely fiscal vehicles that allow governments to enter into joint ventures with multi-national oil companies in order to have a controlling interest in projects within a country’s borders. SOEs are not ‘boogie men’, as API would have us believe. Instead, SOEs often partner with major U.S. oil companies, which typically have the capacity and proprietary technology needed to extract oil or minerals in increasingly difficult environments.

Dr. Conrad emphasizes this point in discussing the recent joint venture collaboration between Exxon, Statoil and Russia’s Rosneft in order to develop Arctic reserves:

“The Russian government limited access to Arctic reserves to state companies, but Rosneft found it in its interest to form joint ventures with international entities such as Exxon and Statoil, in part because of their technical knowhow and experience.”

Finally, many companies disagree with API’s contention that transparency will hurt business. In fact, many recognize the business case and have chosen to disclose project payments voluntarily. UK oil company Tullow Oil has disclosed its payments by project for the last three years. In March, Texas oil company Kosmos Energy did the same. These companies have noted that transparency makes good business sense, and is not costly or damaging to their operations in any way.

Some companies have even asked for transparency regulations. Canada’s disclosure law came into effect on June 1, and was the result of collaboration between the Mining Association of Canada, the Prospectors and Developers Association of Canada and Publish What You Pay – Canada to petition the government for the legislation. These associations, which represent more than 1,200 companies, said that transparency would be a boon to business and would allow companies to demonstrate their economic contribution to the countries and communities in which they operate.

Companies like these should be applauded for being a part of a global race to the top, rather than API’s attempt to win a race to the bottom.

Conclusion

If the evidence above is not enough to convince you that API’s arguments are unfounded, I recommend that you read Dr. Conrad’s submission in full. Despite the very best efforts by the American Petroleum Institute, merely repeating the same claims over and over again do not make them true. Laggards in the oil industry have yet to present a compelling case or convincing evidence against public, company-by-company payment disclosure for each project. In contrast, investors and civil society have demonstrated the strong demand and clear need for this type of transparency. The rest of the world has moved forward. API’s continual clinging to weak arguments has only served to needlessly perpetuate uncertainty, while causing the US to lose its position as a leader on extractives transparency.

Jana Morgan is the Director of Publish What You Pay – United States

This blog was originally posted on the PWYP – United States website here.

Follow @pwypusa and @janalmorgan.

Oxfam America present oral arguments in case against SEC

In 2010, President Obama signed into law the Dodd-Frank Act, section 1504 of which obliges all extractive companies listed in the US to publicly disclose the payments they make to governments around the world. Five years on, despite inspiring similar legislation by other jurisdictions around the world, this law has yet to come into effect. The SEC was tasked with drawing up the rules for section 1504 and their first effort, from 2012, was vacated by the US District Court in July 2013 following a law suit by the American Petroleum Institute. The SEC was asked to reissue the rule, but has yet to do so, despite the fact that it seems to have ‘plans to take action on numerous other rulemakings that do not have a Congressional deadline before it turns to Section 1504.’

For Oxfam America, this represents an undue delay and so the organisation has ‘filed a lawsuit against the Securities and Exchange Commission (SEC) today for unlawfully withholding a final rule implementing Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.’ Oxfam America were in court last week making oral arguments, you can read coverage of the court case in the media such as politico and the AP.

Every day this rule gets delayed means more extractive revenues being potentially lost or misused, instead of being able to help citizens from some of the world’s poorest countries. With oil, gas and mining there is no second chance.

Meanwhile, other countries have already enacted recent EU Directives obliging listed (and large non-listed) extractive companies to publish what they pay, with the UK being the first to do so. In anticipation of these laws, Tullow Oil has two years in a row voluntarily released project-level information. A spokesperson for the company stated that they had received no negative feedback for their disclosure from the governments where they operate.

Are you for Big Oil or Big Data?

CSOs Put Limited Data to Good Use, Call for Project-Level Reporting

What most profoundly distinguishes American Petroleum Institute (API) from civil society organizations in resource-rich countries working to make a more transparent and accountable extractives sector?

(Hint: the answer we’re looking for is not “the ability to pay for an army of high-priced lawyers” – although that works too.)

Put bluntly, one sees the tragic human consequences of mismanaged natural resource wealth up-close, every day, and is in a position to speak credibly about solutions to the problem. The other, far-removed, is API.

In a series of letters recently submitted to the Securities and Exchange Commission, leaders of civil society organizations from Angola, Indonesia, Sierra Leone, and Zimbabwe speak to the intricacies of their countries’ extractives sectors, lay out precisely why API’s “good enough” approach to payment disclosure is anything but, and urge the SEC to release a rule for Section 1504 of Dodd-Frank that requires project-level reporting by contract, license, or lease.

Take as one example the letter submitted by Cecilia Mattia of National Advocacy Coalition on Extractives (NACE) in Sierra Leone. As Ms. Mattia explains, her country has a revenue-sharing agreement in place that ensures residents of diamond-producing neighborhoods (in Sierra Leone, a chiefdom) a share of the mining proceeds. The revenue sharing agreement stipulates that a diamond-producing chiefdom is entitled to a distribution of money from the national government, the value of which is determined in part by the number of licenses in the chiefdom. In Sierra Leone, chiefdom represents the third administrative tier below national level, preceded by province and district. Yet, as Ms. Mattia explains, API’s “compromise” on project-level reporting is to report at the first tier below national level – or, in the case of Sierra Leone, at the province level. As chiefdom represents the third tier below national level, API’s proposal would say nothing about the number of licenses in each chiefdom. Thus, residents of diamond-producing neighborhoods would not receive the necessary information to ensure they are receiving their correct share from the national government.

Although letters from Angola, Sierra Leone, and Zimbabwe poignantly reflect on opportunities lost to natural resource wealth mismanagement and lament the dearth of high-quality data needed to make a truly transparent and accountable extractives sector, each nevertheless left us feeling hopeful.

It was inspiring to read about how members of Publish What You Pay – Zimbabwe have worked with limited data to uncover revenue leakages to the tune of hundreds of millions of dollars. And how NACE, in Sierra Leone, used EITI data to discover that the government received just $10 million for mineral exports valued at $145 million in 2007 – a much lower return than in comparable countries. Or how in Angola, Open Society Initiative of Southern Africa (OSISA-A) drew on limited data released by the Ministry of Petroleum, Ministry of Finance, and state-owned oil giant Sonangol to reveal staggering discrepancies: an $8.55 billion gap in the value of oil said to be sold by Sonangol compared to what was reported by the ministries; a discrepancy of 87 million barrels of oil claimed to be exported by the Petroleum Ministry versus what was reported by the Finance Ministry; and enormous divergence between what the media claimed was paid to the government in signature bonuses in 2006 ($3.2 billion) and what was reported by the Finance Ministry ($998 million). In a small victory, Angola’s president made changes to top-level management at Sonangol after OSISA-A went public with its findings.

While letters from Angola, Sierra Leone, and Zimbabwe shed light on the game-changing work CSOs could perform if project-level data were made available, Maryati Abdullah of Publish What You Pay – Indonesia highlights how her organization has already put project-level data to good use. Companies operating in Indonesia are required to report their payments by project, as mandated by the country’s EITI framework. Indonesia is one of just a handful of countries where project-level data is available. Made available less than two years ago, PWYP – Indonesia has already used project-level data to identify a company operating outside its licensed territory (at a cost of $1.5 million to the treasury), confirm that the country is receiving the in-kind oil and gas payments it is due, and shed light on two resource-rich district governments that had failed to invest adequately in their populations’ social development.

We hope you will take a few minutes to read each letter in its entirety, and get a sense of what meaningful transparency looks like according to those who know best. In submissions to the SEC, the American Petroleum Institute routinely claims that granular project level data – by contract, license, or lease – would provide citizens of resource-rich countries with too much information, overwhelming them and making it more difficult to hold their governments accountable. While we appreciate API’s concern, we can’t help but wonder: who have they talked to? Not Maryati Abdullah, Cecilia Mattia, Gilbert Makore, or Elias Isaac. Nor any of the 544 civil society organizations that wrote to the SEC last April. Truth be told, we’re confident most would find API’s diagram of its own reporting proposal, with all the arrows and boxes, far more disorienting.

Jana Morgan is Director of Publish What You Pay – United States

David Garcia is Policy Advisor at Publish What You Pay – United States