EU Transparency Legislation Paves the Way for a Global Standard
By Neil Campbell
Thanks to the April 9 deal in Brussels, the European Union (EU) will soon require extractives industries and forestry companies to report all payments they make to governments. An agreement between European parliamentarians and member states paves the way for a final vote in June 2013 that will establish EU leadership on a global transparency standard.
The agreement will require companies to disclose all payments to governments over €100,000 at project level and in each country they operate. There will be no exemptions. The public reporting of these revenues will allow citizens in resource-rich countries to see how much their governments are being paid, and to track whether those funds are used to benefit national and local development. Such transparency is a crucial step towards reducing the “resource curse” in countries that have a disproportionately large extractives sector and weak governance.
The Telegraph newspaper noted that the deal brokered in Brussels could “change the face of business around the world.” Certainly, the deal was hard fought and of huge significance. Four elements are worth highlighting: the inclusive decision-making process that led to the agreement in Brussels; how the EU deal will support a similar U.S. law; the effect this will have in other jurisdictions; and what is now needed by the EU and others to complete the global standard.
A Credible EU Process
The lengthy process towards this agreement is an encouraging example of the EU institutions maintaining an open, transparent and regular dialogue with representative associations and civil society. The Publish What You Pay (PWYP) coalition, with its over 700 member organizations and several specialist groups—the ONE campaign, Global Witness, Oxfam, Revenue Watch Institute, and many others—provided an effective and well-coordinated counterweight to a massive industry lobby. By allowing both sides of the argument full access, the final regulations will be based on facts and merit, not, as is often the case, a compromise decision that would have gutted the rules with loopholes and opt-outs.
The United States and EU have been inadvertently shadowing each other on the issue. The Cardin-Lugar amendment of the 2010 U.S. Dodd-Frank Act requires the disclosure of payments to governments by extractives industry companies. It also broke the hold that the industry lobby had on lawmakers on both sides of the Atlantic. The EU opportunity to build on the U.S. law came through the review of two sets of rules that organize how European companies do their accounting and reporting: the Transparency and Accounting directives. The European Commission put forward its own proposal and impact assessment in October 2011 for similar disclosure rules to the U.S. As lawmakers in Brussels embarked on their procedure for agreeing on new laws, the Securities and Exchange Commission (SEC)—the body that defines the details of the rules for companies listed on the U.S. stock exchange—continued its own consultative process.
By August 2012, the SEC was able to adopt final rules, just in time for the lead committee in the European Parliament to take them into account as it settled its own position on the European Commission’s proposals. As the debate continued, some EU member states were reluctant to support a strong position. They used their support for a “level-playing field” for companies as an excuse to keep their distance. As the U.S. took steps forward, and it became clear how this regulation could increase competitiveness, rather than put European companies at a competitive disadvantage, those sceptics started to fall in line.
Now that we have a preliminary EU agreement, the ball is back in the U.S. court. In response to the SEC final rules the American Petroleum Institute (API), together with three other industry associations, began litigation against the SEC in October. The API includes members which sit on the international board of the Extractives Industries Transparency Initiative, the voluntary process whereby governments report what they receive from companies, who in turn reveal what they pay, and civil society has a seat at the table to build the standard and monitor the process. It is notable that Statoil, an API and EITI board member, has publicly distanced itself from the lawsuit. As Revenue Watch and others have noted, companies like BP and Shell, that are part of the U.S. lawsuit, will now have to report in the EU, “making their support for the [lawsuit] a moot point.”
Oxfam America, who formally assists the SEC to defend its rules, has already made use of the EU agreement in court proceedings. The Economist newspaper captured the duplicity of company positions in its April 13 edition: “Shell said it had ‘always supported’ a global code, though the oil association to which it belongs in America is suing the government there over similar rules [to the EU].” At the very least, the spotlight on this transparency legislation has revealed how some of the major companies need to reconcile their public and private commitments to transparency.
Next Steps for the EU, and Beyond
In the next few weeks the Irish presidency will work through the details of what has been agreed and this will be put before the European Parliament for a final vote in June. This will also include the timetable for transposition into national legislation, and a review process that could eventually see the scope of the directives broadened to other sectors.
There is still an enormous amount to be done to cement a global standard. EU and U.S. rules will capture a large portion of commercial activity, but some key jurisdictions such as Australia, Japan, Canada, and the BRICS (Brazil, Russia, India, China and South Africa) remain outside the fold, even if many of their largest companies will be captured since they raise capital on U.S. and EU markets. Japan and Canada in particular, both EU strategic partners, G8 members and supporters of EITI, will be crucial links in the global chain of legislation. However, this will not come without EU and member-state leaders employing direct pressure on Ottawa and Tokyo. Now that the EU is part of the standard, it must also be its champion.
The EU can also make an impact on the G8. The group’s declaration from May 2011 included a commitment to “setting in place transparency laws and regulations”, though this was tempered by the caveat “or to promoting voluntary standards.” The United Kingdom (UK) G8 presidency in 2013 promised to do more, with UK PM David Cameron calling for “greater transparency all around the globe, so that revenues from oil, gas, and mining can help developing countries to forge a path to sustainable growth, instead of fuelling conflict and corruption.”
With the EU agreement all but sealed, the tide has turned. Voluntary standards such as the EITI had been used by industry as a reason not to support binding rules. EITI Chair, and former UK Development Minister, Clare Short called this interpretation a “false dilemma.” It is no longer either voluntary initiatives or binding rules, but both. Short’s reaction to the EU deal, welcoming how it complements EITI, makes a good postscript to that debate. The argument that regulations and voluntary initiatives complement each other has now been won. The U.S. has already committed to joining EITI. The UK and France are not far behind. Norway is fully EITI compliant and has committed to implementing legislation by January 2014. Australia is piloting the EITI, and is likely to be put under immense pressure by Publish What You Pay to commit to binding rules, when it plays host to the EITI global conference in May.
The deal in Brussels should also be seen in the context of several initiatives to tighten the way Europe does business in the face of the economic crisis, corruption scandals and austerity-induced scrutiny of public and private funds. Already the banking sector, an essential conduit for misappropriated revenues, has been given a set of transparency requirements (under the EU’s Capital Requirements Directive IV). Commissioner Barnier has also put forward proposals that would target another important element that facilitates the illegal appropriation of public revenues: public disclosure of the beneficial ownership of corporations (under the EU’s Anti-Money Laundering Directive).
A Parallel Approach to the Transparency Standard
The EU deal is a step towards a global standard, but transparency in itself cannot be a panacea for corruption; rather, it provides the initial momentum that will encourage action and signal to governments in resource-rich countries that they will be held accountable. A parallel EU approach is now needed, at both international and local levels. Those European leaders who have managed to hammer out this agreement should put their weight behind the global effort, calling on their G8 partners and others to follow their lead on disclosure requirements. At the same time, the complex set of rules needs to be explained and deciphered for those who will benefit most. Local civil society organizations around the world need the tools to be able to respond to the flood of information that will follow the new legislation. For the EU to show real leadership on this standard, it will have to use diplomatic channels to enlarge its global scope and technical and financial support to develop local capacity to use the information. Only when both are in place will the exploitation of natural resources support the development needs of local populations rather than the personal wealth of unaccountable leaders.