Follow the money

Companies could be forced to come clean on how much they pay foreign governments to secure oil, gas, coal and other raw materials, under proposals presented Tuesday by the European Union's executive.

The legislation - aimed at curbing corruption between poor countries and EU firms - would apply to privately owned as well as publicly listed companies in the extractive industries, the European Commission said in a statement.

"Reporting taxes, royalties and bonuses that a multinational pays to a host government will show a company's financial impact in host countries," the Commission added.

"This more transparent approach would encourage more sustainable business," it predicted.

Long awaited

Anti-corruption campaign group Transparency International said the proposals, which still need to be endorsed by EU governments and the European Parliament, were long overdue.

In a statement, it said its researchers had found that only one out of 12 European companies operating in Libya had publicly disclosed their payments to the discredited regime of deposed leader Moammar Gadhafi.

Irish rock star Bono - speaking as co-founder of the anti-poverty group One - praised the EU for joining "the fight by the citizens of poor countries to ensure their natural resource wealth turns into actual wealth for the people - and doesn't line the pockets of dodgy dictators or distant exploiters."

Improved transparency

Diarmid O’Sullivan from the non-governmental organization Global Witness explained the historic problem of mineral exploitation: "In all the countries that are rich in natural resources, like Indonesia, (and where) you don't have any public accountability over taxes that the companies pay to government, you have problems like corruption and tax fraud, and the countries really don't benefit."

In 2004, the European Commission tightened the directives on transparency, but did not require detailed project and country-level reporting. The proposed amendments would force companies to give more detailed information and complement legislation passed in the United States last year, as part of the Dodd Frank financial reform act.

They would also bolster the work of the Extractive Industries Transparency Initiative (EITI), which sees governments, companies and civil society groups track and disclose cash flows to citizens in 30 countries.

"Of course, the ideal would be to have a global transparency move," said MEP Fiona Hall, who belongs to an anti-corruption initiative in the European Parliament. "But once you have the EU and the US, that really sets a standard which it becomes difficult for these companies to avoid."

"Of course the governments concerned have to do their own budgets, but when you have a budget that looks very small, when an awful lot of income is being concealed, that's not a good place to start," she added. "Whereas at least if you have transparency on the money coming in, then everybody knows how much wealth that country really has."

"What's coming out is a recognition that it's in European interests that the developing countries are prosperous and stable, and you can't do that without curbing corruption," added O'Sullivan. "So they're using the regulatory organizations to create transparency requirements."

Still unclear

But a group of companies has objected to the rules, saying that it was commercially and politically sensitive to force disclosure on a project-by-project basis.

In a letter signed by Anglo American, BHP Billiton, Rio Tinto, Xstrata, BG Group, BP, Repsol, Shell and Total, the companies complained that the rules failed to define what constituted a project.

"One example is oil or gas fields which cross borders, where governments are understandably careful to safeguard the confidentiality of the terms they offer to investors," they wrote, according to a copy of the letter seen by Reuters.

"Further damage to competitiveness will be caused by the additional cost and administrative burden of project-level reporting," they said.

But for Hall, this is merely a detail that can ironed out in the legislative process. "That is something that we hope to do when this legislation comes before parliament," she told Deutsche Welle. "I think that project should mean any kind of contract or license or legal agreement."

Author: Ben Knight
Editor: Sam Edmonds