A bright day in the fight against corruption

New transparency rules published by the US Securities and Exchange Commission (SEC) yesterday are a significant step forward in the fight against corruption and will benefit many communities where Tearfund works. We welcome this move, although we all need more time to plough through the 232 page document.

The Dodd Frank Act (Section 1504) will mean that communities will have information in their hands about payments by companies to their governments for oil, gas and minerals that have been taken out of their ground. This will help them to seek greater accountability and to make sure that it is used for the most pressing needs such as education and health services.

In Tanzania, where vast reserves of gas have recently been discovered, and could potentially bring in billions of pounds of government revenue, these rules will enable ordinary citizens to know how much US-listed companies are paying to their government. Furthermore, with similar legislation proposed by the EU and pressure for countries such as Canada and Australia to follow suit, most extractive industry companies in Tanzania will soon need to provide such information.

On the ground, work by Tearfund partner CCT has shown that when villagers have the right information about projects that directly impact on their lives, they will mobilise and make sure the money ends up where it should. This is positive both for greater citizen participation and strengthening of democracy as well as for combating corruption and using vital resources for development.

Big step forward, but what’s in a project?

Although delayed by two years, these rules are a historic move towards greater transparency in both industry and government.

They require companies to report on payments on a country-by-country and project-by-project basis and include a wide range of payments such as taxes, royalties, production entitlements and bonuses. They also require companies to report on all payments above $100,000 and have resisted company pressure to include any exemptions (p162). This will make a significant difference.

Although we are concerned by the lack of clear definition of ‘project’ – something that could cause confusion at the time of reporting – the rules nevertheless provide clear guidance that equates ‘project’ with contracts, arguing that “contract generally defines the basis for determining the payments… that would be associated with a particular ‘project’” (p86). This point should not be overlooked, especially as in its reasoning the SEC flatly rejects company arguments that projects are defined as countries, geographical basins or simply internal reporting units.

The EU must match the US and go further

The EU has the chance to match the US regulations and to go further, particularly by defining project more clearly and by providing a lower level of materiality that will provide more meaningful information to communities.

EU Transparency and Accounting Directives are on track to be agreed by the end of the year and could pave the way for a global transparency standard and show EU leadership and commitment to development and responsible business.

The priority is for the EU legislation to define project as based on lease, licence, agreement or other form of contract that gives rise to payments to governments. This will show where the money has come from and where it has gone to.

There should be no exemptions (as there currently are in the Commission proposal) and the EU should consider a materiality threshold of £10,000, so that all relevant payments are reported.

The UK government has taken a lead in Europe and must continue to do so. MEPs are on the whole in favour of strong legislation, but there has been pressure from companies and from some other governments to water it down. This must not be allowed to happen or communities will continue to see increased natural resource extraction with few benefits.

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