Effort to repeal oil, gas, and mining law could fuel corruption
As oil and gas and mining companies celebrate the billions in expected windfall from the new tax law, some members of Congress are now working to scrap a law designed to combat corruption in this industry.
Last month, most Republicans on the House Financial Services Committee voted for HR 4519, which seeks to strike down Section 1504 of the Dodd Frank Act, a law supported by oil and mining investors with nearly $10 trillion in assets. Make no mistake, a vote to roll back Section 1504 is a vote for corruption.
{mosads}Also called the Cardin-Lugar provision, Section 1504 requires foreign and domestic oil and mining companies listed on U.S. stock exchanges to disclose their payments to governments, including tax payments. The law covers both U.S. firms and murky Chinese and Brazilian state-owned oil companies.
Secrecy is fertile ground for corruption and embezzlement in resource-rich countries. Oil and mining corruption and revenue theft undermine democracy and are often a precursor to destabilizing conflicts that can shut down investment and disrupt economic growth for decades. Without adequate sunshine, oil and mineral revenues can easily be funneled to buy arms and fund groups like ISIS and the Taliban, as we’ve seen in Iraq and Afghanistan.
Despite well-documented risks and strong U.S. anti-bribery legislation, corruption by U.S.-listed oil and mining companies is alive and well. U.S.-listed companies — at the highest levels — are taking risks and getting caught. Their investors and the citizens of countries where they operate are left managing the fallout.
Senior Shell executives, for instance, were found to have taken part in a vast bribery scheme to purchase an oil block from a corrupt former Nigerian oil minister that robbed the Nigerian people of $1.1billion. Financial Times reports they will stand trial with Italian state oil company Eni — also U.S.-listed — in Italian courts.
And Petrobras, the Brazilian state oil company listed on the NYSE, recently announced that they will pay a $2.85 billion settlement in a class action lawsuit on corruption. The scandal brought down the Brazilian government and led to a downgrade of Brazil’s sovereign bonds to junk status.
In 2010, the United States Congress recognized that it can help address these risks and led the world by passing Cardin-Lugar. The law was designed to shine a light on billions in oil and mineral financial flows to enable citizens to follow the money and investors to manage risk, while setting a global standard for other markets to follow. The European Union and Canada — the second and third largest oil, gas, and mining markets, respectively — now have laws in force modeled on Cardin-Lugar.
Unfortunately, the Trump administration and the Republican-led Congress appear blind to these developments. President Trump decided to repeal the reasonable implementing rules adopted by the Securities and Exchange Commission (SEC) in 2016 using the Congressional Review Act. The arguments supporting the repeal were based largely on already debunked myths about the law.
Despite misplaced concerns about competitive and reporting costs leading companies, including oil majors Exxon, Chevron, Conoco, Shell, BP, and Total, have already reported over $150 billion in payments without incident. This year, even their Russian competitors Gazprom and Rosneft will disclose for a third time under these laws.
Concerns that countries like China and Angola would allegedly force companies to close down their operations if they complied with Cardin-Lugar are unfounded. Shell, BP, and Statoil have been disclosing in these countries for several years with no negative repercussions.,
Not a single member of the Financial Services Committee should have voted for HR 4519 and no other Representative should do so. The United States cannot declare that it supports democracy and U.S. investors while obstructing initiatives designed to help these thrive. Oil, gas and mining investors worth trillions in assets have publicly supported Cardin-Lugar repeatedly in formal comments because it will shine much-needed light on material company projects operating in volatile markets.
It would be foolish for the U.S. to scrap its commitment to transparency after establishing the standard now being implemented in other markets.
The law’s repeal effort is also misplaced since the SEC is already working on a new rule to replace the rules repealed in February 2017 through the Congressional Review Act. Leading Senate Republicans wrote to the SEC last February in support of a new rule aligned with other markets. The National Journal recently reported that Senators Isakson and Young do not support the repeal.
Representatives must not vote for corruption. They should vote no on HR 4519 and keep the Cardin-Lugar provision in place.
Isabel Munilla is the policy lead for Transparency in Extractive Industries at humanitarian and relief organization Oxfam America.