For most of us, this July 15th will be the start of just another hot summer weekend. But for many, the day marks the one-year anniversary of Congressional approval of a landmark law that will lift the veil of secrecy on billions of dollars that flow every year from oil and mining companies to governments around the world.
Tucked into the massive Dodd-Frank Wall Street Reform and Consumer Protection Act is a provision requiring oil, gas and mining companies reporting to the US Securities and Exchange Commission (SEC) to disclose the payments they make to host governments.
From rural villagers in Africa to investors on Wall Street, the groundbreaking law casts the transparency net far and wide, arming the public with information it can use to track the amount of money governments receive from oil and mining companies. The provision, backed by a bipartisan group including Senators Lugar and Cardin, among others, requires annual reporting of taxes, royalties and other payments, and covers a broad range of US, European, Chinese, Brazilian and other companies. By law, the final regulation from the SEC — the regulatory agency responsible for implementing the law — should have been issued in April. However, no final rule has been issued.
One of the reasons for the financial crisis was a lack of public information about the real risks of investments. In the case of the oil and mining industries, investors need to know how and whether companies are exposed to political and expropriation risks in volatile resource-rich countries. In some places, companies can make up front payments of over a billion dollars before a drop of oil is produced and this information is not disclosed to investors. This disclosure provision — in addition to providing useful information to citizens in resource-rich countries — also provides valuable information to investors on how to assess risk. This is part of the SEC’s core mandate. As a display of investor interest, investors representing more than $1.2 trillion in assets under management, including TIAA-CREF and others, have called on the SEC to implement strong rules for this provision.
We at Oxfam America joined NGOs in the Publish What You Pay coalition, faith groups and investors representing over $1.2 trillion in assets to commend the SEC for drafting a regulation in December that followed Congressional intent. Industry and other stakeholders have had plenty of time to comment on the draft — the SEC even extended the comment period.
The time for the SEC to act is now. The world is waiting to follow our lead. The longer the SEC waits, countries such as Ghana, Africa’s newest oil producer, are at risk of falling victim to the resource curse. We’ve seen it happen in Sierra Leone, Nigeria and Libya and in mining towns across Latin America, where corrupt government officials squander oil and mineral wealth instead of investing in education, health services and food security.
Too often, oil and mineral riches have led to corruption, violence and wars, affecting people on both sides of the pipeline – communities close to production and consumers in the United States. As we’ve seen in Libya and Nigeria, civil unrest forced oil companies to shut down production, taking millions of barrels a day offline and causing gas prices to spike around the world.
By requiring companies registered with the SEC to disclose and publicize the payments online, citizens in resource-rich countries and civil society groups can use the information to help hold governments accountable for how the funds are used. Investors will have better information to assess high-risk investments, companies will benefit from better relations with local communities next door to their multi-billion dollar investments, and consumers won’t feel the pinch at the gas pump.
Despite the apparent benefits, the oil industry claims the new law will put companies at a competitive disadvantage. But considering Exxon Mobil, Chevron and Shell Oil earned a combined $82.7 billion during the first quarter of this year, their arguments simply aren’t credible. The law does not require the disclosure of sensitive information regarding commercial terms, proprietary technology, business models or contracts. Nor is it necessarily the case that companies disclosing will lose out to companies not covered by the provision when bidding for new oil licenses. Companies making the best bids — on profit sharing, technology and financial backing — are still likely to come out ahead.
Several significant oil and mining companies already disclose their payments to host governments. Statoil, the large Norwegian oil company with operations around the world from Angola and Nigeria to Libya, already reports on payments in every country of operation. Newmont Mining, a global company with gold mining operations in places such as Ghana, Peru and Indonesia, does the same. And other companies are jumping on board. If it truly hurt their bottom line, they wouldn’t be doing it.
In the year since the law’s passage in the US, global momentum for financial transparency in the oil and mining sector has only been growing. Recently in its annual meeting held in Deauville, France, the G8 endorsed mandatory disclosure laws to broaden the reach of the Dodd-Frank provision. Following suit, José Manuel Barroso, president of the European Commission, committed to advancing legislation in Europe, with a proposal tabled by October this year. The Hong Kong Stock Exchange now requires disclosure of tax, royalty and other payments when oil or mining companies list with the exchange.
Today is the day that the SEC has to bring the new law to life, so next year we can celebrate a new beginning of transparency in the oil, gas and mining industry.
By Raymond C. Offenheiser
Offenheiser is the president of Oxfam America.