© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Transparency initiative moves forward in Deauville
The movement to enforce a higher standard of transparency in the oil and mining sectors gained ground last week during the G8 meetings, when the head of the European Commission said he expected mandatory disclosure laws to be tabled in October.
The final declaration from Deauville, where G8 group of industrialised countries concluded meetings on Friday, included a commitment “to setting in place transparency laws and regulations or to promoting voluntary standards that require or encourage oil, gas, and mining companies to disclose the payments they make to governments.”
The European Union is moving toward replicating a controversial provision of the US Dodd-Frank act.
Since July 2010, when Dodd-Frank was passed, all extractive companies registered with the Securities and Exchange commission face the need to disclose the “type and total amount” of payments they make to governments in every country where they operate.
The provision’s aim is to avoid the so-called “resource curse” evident in countries like Libya. By making clear the flow of money between oil companise and national treasuries, civil society groups claim, citizens can determine whether a fair share is trickling down.
Jose Manuel Barroso, European commission president, provided the EU’s firmest states yet about Europe adopting US-style legislation.
On Thursday in Deauville he said, “The European commission will table legislative proposals in October, which include the obligation for companies to publish information about their activities.
“We do this in support of the Extractive Industries Transparency Initiative [EITI], which helps Africans increase their fiscal resources available to deliver public goods and services for their citizens,” he added.
Oil and mining companies have privately expressed opposition to Dodd-Frank. They claim they already disclose much information through EITI, a voluntary agreement between companies and countries. An executive at one of the UK’s biggest mining companies said miners and oil companies dispute Dodd-Frank’s rule about reporting payments on a “project-by-project” level, calling it impractical.
Peter Voser, chief executive of Shell, warned in March that Dodd-Frank-style disclosure laws could “destroy” the good work of EITI. In some countries like Qatar, Mr Voser said, disclosure of such information is illegal.
President Barroso made clear, however, that the EU’s aim was to to enforce EITI principles by force of law.
“The transparency directive encourages EU countries to request their national listed extractive industry to diclose payments to governments,” he said, he said, referring to the EU’s existing transparency framework. “What we intend to do with the amendment to the directive in October is to make it mandatory.”
The pending EU legislation is being drawn up by market officials in Brussels. Officials have indicated that the new requirements – which would cover money flows such as tax payments and royalties to foreign governments – will probably extend beyond oil and mining and cover other primary materials businesses.
Most of the biggest London-listed extractive companies like BHP Billiton, BP, Royal Dutch Shell, Rio Tinto, and Anglo American already sell securities in the US and are subject to Dodd-Frank legislation. Any EU law may have less effect on them than on Europe’s less multinational extractive businesses.
But the EU’s push is the latest to expand regulation and compliance for such companies, which operate in some of the world’s least-developed and least transparent countries. The UK Bribery Act, set to enter force this summer, holds UK companies punishable for instances of corruption occurring among employees anywhere in the world.
A heated debate has arisen over how far Europe should go in adopting the key tenets of US legislation. Project-by-project disclosure is more burdensome to companies. But civil society groups claim that it gives the fullest picture of the economic impact of mines and oilfields on local society.
Brussels is expected to follow the country-by-country approach but drop the project-by-project clause, as Michel Barnier, the EU internal markets commissioner, revealed in a Financial Times interview.
But European parliamentarians wrote to Mr Barnier in a letter dated Wednesday and seen by the Financial Times. They urged him to take an aggressive approach.
The MEPs – who include the UK’s Sharon Bowles, chair of the influential economic and monetary affairs committee – stressed the need for Europe to keep pace with the US on this issue. “Unless EU measures go at least as far as the US legislation, we risk implementing an ineffectual law that could damage efforts to create a strong global standard,” the parliamentarians wrote.
“It should enable shareholders, investors, clients, authorities and citizens to assess the financial profile and the nature of the activities and investments in a country as well as to guard against corruption”, the MEPs wrote.
Foundations funded by George Soros, Bono, and Mo Ibrahim – the financier, musician, and telecoms billionaire, respectively – have taken a prominent role in the promoting transparency in the extractive industries.
President Barroso said in a press conference he will be calling on G8 partners to “match his commitment” to the transparency legislation.