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July 23, 2015

Oil Industry Payments to Governments Still Lack Transparency
    by Robert Kropp

Five years after passage of Dodd-Frank, a report by Oxfam America finds that payments by the US industry to developing nations lack the transparency to ensure that governments are using them for the benefit of citizens. -- When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the US Senate in 2010, it contained two provisions aimed at improving the corporate social responsibility of companies in the extractives industries. One, which requires that US corporations disclose whether their products contain conflict minerals, was enacted by the Securities and Exchange Commission in 2012; in 2014, the first year in which reporting was mandatory, 1,315 companies from 58 industries submitted filings.

The other provision, which requires that companies in the extractives industries disclose their payments to governments, still founders within the Commission, despite the fact that the SEC refused to delay implementation back in 2012. According to Oxfam America, “oil produced in developing countries is conservatively estimated to be worth $1.55 trillion for their governments” since Dodd-Frank's passage.

What is the justification for the provision, known as Cardin-Lugar after its Congressional sponsors? “More than 663 million people in developing countries live in absolute poverty,” Oxfam states. “They have a right to know: how much do their governments receive for each project and where does the money go?” In addition to protecting against corruption in developing countries, disclosure of payments to governments could help direct revenues to much-needed programs for basic education and health services.

Also, Oxfam continued, “It will also protect investors by giving them information they can use to assess investment risks.”

In 2013, the European Union passed legislation requiring companies in the extractives industries to disclose payments they make to governments. And, since 2006, 48 nations have joined the
Extractive Industries Transparency Initiative (EITI), an international standard for government disclosure of payments from extractive industries, an initiative that commits signatory nations to disclosing those payments.

So what are the reasons for the delay in enacting a five-year-old law in the US? Arguments for delaying implementation, made by industry trade associations such as the US Chamber of Commerce and the American Petroleum Institute (API), were rejected by the SEC in 2012. The Commission subsequently issued what Oxfam describes as a “strong rule,” but it was overturned following a lawsuit by the Chamber and API. The lawsuit was supported by companies such as ExxonMobil, Chevron, BP and Shell.

“Yet,” Oxfam observed, “two years have passed since the ruling in that case, and the SEC has not issued a new rule.” In addition to astronomical lobbying expenditures by the trade associations, the SEC has simply failed to prioritize its legal mandate. In 2014, for the second time, Oxfam filed suit against the SEC to force it to issue a rule; a decision on that case is pending. The Commission has stated it plans to issue a proposed rule by April, 2016.

Meanwhile, “30 countries have adopted laws requiring public, company by company disclosure for each oil, gas and mining project following the US model,” Oxfam states. “Many US-listed extractive companies...will therefore soon begin disclosing this information, increasing the incentives for the SEC to adopt rules that align with standards in these markets.”

One of the nations analyzed in Oxfam's report is Nigeria, which amassed $68 billion in oil revenues in 2012 alone while 58 million of its citizens live in poverty. “When oil, gas and mining projects generate billions of dollars in revenue in secrecy, they end up fueling corruption,” Faith Nwadishi, National Coordinator for Publish What You Pay Nigeria, told Oxfam. “The fact that Nigeria was missing $20 billion of oil revenues while its citizens suffer from poverty is exactly why project-level transparency is needed in this sector.”

“Promote transparency by finishing strong rules,” Oxfam's report concluded. “The SEC must promptly reissue a strong final rule on Section 1504 of the Dodd–Frank Act with no exemptions, no loopholes, by company and at the project level.”

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