The upcoming review of the EU’s Transparency and Accounting Directives might bear good news for the poorest people in resource rich countries.
The USA set the trend for mandatory transparency for companies operating abroad in 2010 with the Dodd-Franck Act. In November 2011, the European Commission published draft legislation (which will replace the existing Accounting and Transparency directives) including a requirement for European Union-listed and large unlisted extractive and forestry companies to publicly disclose the payments they make to governments worldwide, also called Country by Country Reporting (CBCR). If approved, this historic EU legislation would help billions living in poverty but in resource rich countries turning the oil, gas, timber and minerals from a curse to a blessing.
The recent Mopani Copper Mine (MCM) scandal in Zambia highlights the need for mandatory divulgation of all data about payments to foreign governments. A leaked audit revealed how MCM, a consortium that is mining copper and cobalt in Zambia, has been siphoning its profits out of Zambia to avoid paying tax. It relocated its profits to its mother company, the commodity trader Glencore AG, based in the tax-attractive Canton of Zug, Switzerland.
The magnitude of the resource curse becomes clear looking at the negative correlation between the oil, gas and mineral exports from Africa (worth US$393.9 billion in 2008) and the Human Development Index (HDI) of many African countries. Zambia for example occupied the 164th rank on 187 countries in the HDI in 2011 despite having considerable deposits of copper- a highly valued metal. Zambia’s total annual copper production for 2009 was 698,000 tons and is predicted to reach almost a million tons by 2015.
CIDSE welcomes the proposals to revise the existing EU Transparency and Accounting Directives. This would provide citizens, investors and civil society with accurate information about the flow of revenues to governments from oil, gas, mining and logging. It would effectively help fight against corruption and tax dodging and would be an important precedent for mandatory corporate accountability in the extractive industry sector.
The concept of payment disclosure does already exist under the Extractive Industry Transparency. However the voluntary nature of this initiative cannot prevent rogue businesses from evading responsibility to reveal their financial dealings with governments.
Section 1504 of the Dodd-Franck Act stipulates that all companies publicly quoted in the USA divulge, on a country-by-country and project-by-project basis, everything they pay to host governments. Today, the Security and Exchange Commission (SEC), the federal agency responsible for regulation and supervision of financial markets, has yet to finalize the rules that the law stipulates. But extractive industry lobby groups are fighting back the regulation. Claiming that the SEC’s cost-benefit sums are wrong, they threaten to sue. Their claims seem rather dubious comparing the gross earnings of a company such as Shell (US$ 55.660 million in 2011) and the 0.05% of gross annual revenues it would incur in costs to fulfill the new legislations’ requirements according to EU estimates (costs predicted to progressively reduce in later years). When thinking of the 1.5 billion people living on less than $2 a day in developing countries, claiming the costs of reporting are too high seems very indecent.
These legislative initiatives are valuable steps towards full transparency of all multinational companies and it is critically important that the extractive industry lobby does not succeed in watering down the real objectives of the new legislation: enhanced transparency. For this purpose, CIDSE and its member organisations are calling on EU legislators to:
- Introduce a 3 year review clause into both directives that will allow its scope to be broadened to cover sectors beyond the extractives and forestry sector and a wider range of financial information.
- Hold companies liable for the data they publish to meet reporting requirements. This would best be ensured by including the requirement that CBCR should be audited and part of their annual financial reports. Additionally the data should also be available publicly and in an accessible format.
- Ensure reporting requirements for an as wide a range of activities:
- Widening ‘project’ definition to include all activities stemming from a broad range of agreements with the host government which give rise to revenue liability;
- Maintaining the cut-off amount of payments to be reported at a reasonable number so that even small projects would be covered;
- Going beyond oil and mineral extraction sectors to cover forestry
- Ensuring that activities within the EU are also covered by CBCR reporting requirements
- Hold companies liable for the data they publish to meet reporting requirements. This would best be ensured by including the requirement that CBCR should be audited and part of their annual financial reports. Additionally the data should also be available publicly and in an accessible format.
Denmark, that holds the presidency of the European Council until June 2012, would like to have an agreement on the content of the Transparency and Accounting Directives before the end of their mandate. This would require the timely conclusion of the European Parliament’s and the European Council’s negotiations on both directives.