The global movement for transparency in the management of natural resource revenues took a major step forward today as the European Union announced a new directive requiring extractive companies to report their payments to governments on a project-by-project basis. This EU initiative picks up the momentum started when the U.S. Congress enacted disclosure requirements as part of the Dodd-Frank Wall Street Reform Act. It also decisively rejects the oil industry’s attempts to block the rising tide of transparency.
The new proposals, which are contained in amendments to the EU’s Accounting and Transparency Directive, are crucial for a number of reasons. First, they extend revenue disclosure rules to Europe; between U.S. and European regulators, such rules will now apply to the vast majority of extractive companies in the world. A new, binding global standard for revenue transparency has effectively been set.
Second, the Directive takes up many of the aspects of the Dodd-Frank provisions that are most crucial to transparency advocates but were hotly opposed by companies. Specifically, it requires companies to disclose their payments for each extractive project, rather than lumping all their payments together for each country. A group of major oil and mining companies, including Shell, Total, BHP Billiton, and Anglo American, wrote a letter to EU officials shortly before the rules were released, strongly objecting to project reporting.
The same companies have pushed the U.S. Securities and Exchange Commission (SEC), which is responsible for implementing revenue transparency laws in the U.S., to undermine its Congressional mandate to collect and publish project-level disclosures. As I wrote last month, while companies argue that this information is sensitive and would be overly burdensome to report, ERI and other organizations have shown that their objections are overblown and generally misleading. And now that Europe has published rules requiring project reporting, it becomes much more difficult for those companies to make the case that the U.S. should allow companies to keep such information confidential.
Third, the Directive actually goes further than the Dodd-Frank rules in some important ways. It includes large unlisted companies, unlike the U.S. law, which only covers publicly listed corporations. And timber and forestry companies are required to report their payments, in addition to the oil, gas, and mining companies that are the sole targets of the U.S. rules. (This probably has something to do with the fact that European timber companies have been accused of rampant deforestation, corruption and financing civil war in places like Indonesia and Liberia.)
Of course, not everything about the EU Directive is ideal. Companies need not disclose payments to governments whose laws criminalize such disclosure. This undermines transparency, as opaque and repressive governments – the very ones whose payments most demand scrutiny – may be able to unilaterally block the flow of information to investors and civil society. (Moreoever, since no country has been identified whose laws clearly prohibit payment disclosures, the only possible consequence is to give these obstructionist governments an incentive to create a prohibition, in order to take advantage of the exemption.) The Directive also allows companies to decline disclosure of payments where the information “cannot be obtained without disproportionate expense or undue delay,” a loophole that companies may exploit to avoid disclosure of embarrassing information without any oversight.
By and large, however, the new EU rules give a much-needed shot in the arm to international revenue transparency efforts. The process now shifts to the individual EU members states, which must approve the Directive. Meanwhile, the SEC will find it harder to delay issuing its own rules and cannot justifiably develop a disclosure regime that demands less transparency than the European system. Thus the EU Directive provides a floor and a springboard; we can only go up from here.