By April 15, 2011, important financial reforms proposed by the U.S. government will come into force.
Transnational
corporations listed on the US Securities and Exchange Commission (SEC)
have been scrambling to insert clauses that would allow them continue
operations on the well-worn path of double ‘transparency’ standards.
Observers hope there will be no serious changes in the SEC rule as
proposed.
The reform requires
that mining, oil and gas companies who trade their shares on the
American stock exchange issue an annual report detailing the “type and
total amount” of payments they make to foreign governments. This order
is seen as necessary if Barack Obama’s Executive Order of January 18,
2011 on improving ‘Regulation and Regulatory Review’ is to be complied
with.
In separate letters
written to the SEC by the American Petroleum Institute and the mining
giant, Rio Tinto, these bodies laid out reasons why there should be
clauses that offer escape hatches through which they can choose which
laws to obey and which to break – the laws of the United States or the
laws of the countries in which they operate.
This may sound
rather quirky, even murky, but the fact is that there are countries in
Africa where domestic laws classify revenues obtained from the
extractive sector as “state secrets”.
On account of this,
Rio Tinto argues, “We believe that there should be an exemption, if
such reporting would violate, or may reasonably be deemed to violate,
host country laws…The issuer should not be forced to choose between
which law it will violate – the U.S. or the host country laws.”
The American
Petroleum Institute (API), on the other hand, focuses at length on what
they see as the “potential for competitive harm” of the reform.
Their argument is
that disclosures would enable competitors who are not listed on the SEC
to use such disclosed figures to undercut or outmanoeuvre them in bids.
They also opine that disclosures may endanger the lives of workers in
the sector as “energy companies have already experienced numerous
incidents where facilities have been sabotaged, operations disrupted,
or employees endangered by those who oppose the host country government
or energy development.”
Interestingly,
sector players do not have qualms with the Extractive Industries
Transparency Initiative (EITI) that requires the private sector to
disclose payments made to governments and for the governments to
disclose payments received.
According to Rio
Tinto, “Because the EITI also encompasses disclosure by governments, of
payments they receive from companies, we believe it is more effective
than the proposed rules at improving governance and eliminating
corruption in both the private and public sectors. Therefore, we urge
the commission to follow the EITI principles to the fullest extent
possible.”
The API in its
reaction recommends, “that the commission require issuers to report
payments based upon amount actually paid by the issuer to the
government entity (as opposed to the issuer’s net share of the
payment), consistent with the EITI practices.”
Furthermore, the
API does not “believe it is necessary for the rules to specifically
list other types of fees that would be subject to disclosure. We note
that fees related to entry into, or retention of, licenses or
concessions can be competitively sensitive information.”
Analysts see the
requirement of the reform as not just a threat to the companies in the
sector who are used to having smooth rides over corrupt waters in
certain countries, it should also worry governments in Africa and
elsewhere who are not open to disclosures of payments made in the
sector. Fingers have been pointed at many resource-rich countries.
For example,
according to the API, their members “can confirm to the commission that
disclosure of revenue payments made to foreign governments or companies
owned by foreign governments are prohibited for the following
countries: Cameroon, China, Qatar, and Angola.”
In this context, we
cannot escape noticing that some countries have sought to cover their
paths by taking shelter under the EITI processes so readily applauded
by the companies.
However, it is
noteworthy that this quest is not necessarily a smooth sail for such
countries. We have the example of Equatorial Guinea as well as Sao Tome
and Principe who were expelled from the EITI process at a review
meeting in March 2010. At that time, countries whose candidacies were
questioned but not cancelled included: Nigeria, Sierra Leone, Congo
Republic, and Democratic Republic of Congo.
Ethiopia’s harsh
response to civil society and her refusal to allow international NGOs
to work on advocacy in the country foreclosed her attempt to even gain
candidacy status in the first place. And although Nigeria has since
become EITI compliant, key areas of revenue opacities still remain to
be resolved and corruption in the sector still moves at a galloping
pace.
The extractive
sector companies require levels of goodwill of host governments to
operate in their countries, mainly because of the huge environmental
and human rights abuses that accompany their actions.
Providing escape
routes and bending the rules to suit their practices would entrench
double standards and deepen the endangerment of the environment and
peoples.
