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April 09, 2013
EU Mandates Disclosure of Payments to Governments
    by Robert Kropp

Transparency International says that with the European mandate joining rules enacted by the Securities and Exchange Commission in the US, 90% of companies in the extractives industries will be required to disclose payments to governments.


The European Union reached agreement this week on a directive that will require companies in the extractives industries to disclose payments they make to governments. The measure is designed to combat the so-called resource curse, in which exploitation of natural resources in developing nations leads to corruption and widespread poverty. It will also provide investors with important information regarding risk factors for companies in the oil and gas and mining sectors.

The EU directive follows a similar rule in the US, originally mandated by Dodd-Frank and enacted by the Securities and Exchange Commission (SEC). Last year, the Commission refused to delay implementation of the rule despite a legal challenge mounted by industry trade groups. In a brief filed in support of the SEC's implementation of the Cardin-Lugar Amendment, Oxfam America stated that it "addressed a number of critical foreign and domestic policy challenges: the resource curse, i.e. the destructive consequences of secret payments to governments by extractive industries, which affect economies and communities, the security of investments in extractive companies, and the stability of US energy supplies."

In some respects the EU directive goes further than the rule implemented by the SEC. Companies in the forestry sector will be covered by the mandate, and both public and private companies registered in the EU "will have to disclose details of tax, bonus and other payments made for every project they operate, over a threshold of 100,000 Euros," according to Transparency International.

"The combined scope of the rules will cover 90 per cent of the world's major international extractive companies," Transparency International stated.

Describing the EU law as "a huge victory for citizens living in resource rich countries," Ian Gary, senior policy manager of Oxfam America's oil, gas, and mining program, said, "Oil companies should join citizens in resource-rich countries, investors, and energy consumers in embracing transparency, rather than seeking to turn back the tide through litigation."

And Senator Ben Cardin, who with former Senator Richard Lugar crafted the amendment to Dodd-Frank in the US, said, "Now the US and the EU are united in strengthening financial markets and fighting the scourge of corruption in resource-rich countries."

"These new measures will improve sustainable business among multinationals active in the oil, gas, mining or logging sectors," according to a statement by the EU Commissioner for Internal Market and Financial Services and the EU Commissioner for Development. "It will play a groundbreaking role in the better management of natural resources and in the increase of domestic fiscal resources available to provide basic social services to the citizens."

"This will help to achieve a new step in the quality of our relations with Africa, based on mutual accountability and transparency," the Commissioners continued.

The new law in the EU is expected to take effect later this year. Transparency International has urged the G8 and G20 countries to enact similar legislation for all government-owned companies, "to ensure that all citizens can benefit from these reforms and that there is a level playing field for extractive companies."

 

 
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