Ian Gary, Senior Policy Manager, Oxfam America
On June 21, President Obama signed into law sweeping financial reform legislation meant to address fundamental weaknesses in financial regulation in the US that contributed to the financial crisis. Buried within the 2,000+ page legislation is a provision-making disclosure of payments from “extractive industry” companies (oil, gas, and mining) to governments around the world a legal requirement for any company registered with the US Securities and Exchange Commission (SEC). This historic measure will increase financial transparency in the oil, gas, and mining industry and help reduce the corruption, mismanagement, and conflict that are too often associated with natural resource extraction booms. It will also greatly support improvements in public financial management in resource-rich countries around the world. The civil society Publish What You Pay US coalition had been pushing for years for the passage of this requirement and had supported stand-alone legislation introduced in the US Congress in 2008 and 2009.
Secrecy of oil, gas, and mining company payments to governments fosters government corruption and violent conflict in resource-rich countries that are home to more than half of the world's poorest people. The IMF has identified more than 50 countries around the world as “resource-rich” according to its 2007 Guide on Resource Revenue Transparency.
"This provision is a critical part of the increased transparency and corporate responsibility that we are striving to achieve in the financial industry,” said Senator Cardin of Maryland after the law was passed. "We now have the tools to help people in resource-rich countries hold their leaders accountable for the money made from their oil, gas, and minerals."
Passing this law sets up an international standard for the public disclosure of natural resource revenue information, but its effectiveness will be determined by strict implementation by lawmakers and development of effective implementing regulations by the SEC. The SEC has 270 days to develop the rules for implementing the law and first disclosures are expected in 2012/2013. While the law is clear on what must be reported, there is room for refinement on the definitions of reporting categories.
How can this new law help public financial management?
As the White House said in a statement on July 23rd, “this legislation will immediately shed light on billions in payments between multinational corporations and governments, giving citizens the information they need to monitor companies and to hold governments accountable. It will shine a sustained light on the relationship between corporations and governments in the oil and mineral sectors, and make impossible the kind of back-room dealings that cost taxpayers in lost royalties.”
Even in countries already implementing the voluntary Extractive Industries Transparency Initiative (EITI), the disclosures will provide a new level of detail to enable government agencies and citizens to track oil and mining money. For example, watchdog groups in Azerbaijan welcomed the US law because it will provide disaggregated company-by-company information, something not available through EITI in that country. In other countries outside of EITI, such as Equatorial Guinea, Cambodia, or Burma, citizens will have access to basic information out these payments regardless of government commitment to disclosure. Finally, in many countries this reporting will aid in inter-ministerial information sharing. In many countries, there is a lack of communication between natural resources ministries and national oil/mining companies on one hand and the ministries of finance and tax collection agencies on the other. This disclosure will help address the asymmetry of information between government ministries and agencies and improve revenue collection.
The IMF has been sympathetic to public reporting of extractive industries payments through its support to EITI. The IMF is the primary international agency with knowledge of developing countries’ public financial information systems, and could increase its work beyond EITI building on the opportunity presented by this new Law. For example, the IMF is well placed to provide input on the best approach to mesh company reporting requirements with the public financial information practices in developing countries to achieve maximum enhanced transparency.
Coming off this legislative victory, three major challenges exist. First, the SEC will need to faithfully implement Congressional intent and issue robust rules for implementation. Second, other countries with major capital markets for extractive companies – such as the UK, Canada, Australia and elsewhere – will need to adopt similar requirements to broaden company coverage. (The international Publish What You Pay coalition, with members in more than 50 countries, is making headway on this front.) Finally, international NGOs such as Oxfam America, donor agencies, and other actors will need to support groups on the ground to use the newly disclosed information for improved management of the billions of dollars each year from the development of the world’s natural resources. It will be important for the IMF and the World Bank to play a more active role in supporting efforts to build global requirements for extractive industry payment disclosure.
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