Amid the encircling gloom, a surprising good deed that wasn’t picked up by the sphere at the time. It deserves much more play than it’s been getting. IMF in-house blogs may not be widely read, but you’d expect more traction from a White House press release.
Go to HR 4173, now Public Law 111-203,the Dodd-Frank Wall Street Reform and Consumer Protection Act (pdf, text). On page 845 (sic), you find Section 1504, “Disclosure of payments by resource extraction issuers”.
… Not later than 270 days after the date of enactment …. the Commission [SEC] shall issue final rules that require each resource extraction issuer to include in an annual report of the resource extraction issuer information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals…
This is the fruit of a decade-long campaign by NGOs focussing on corruption in oil and mining. especially Global Witness and Transparency International, gradually picking up influential supporters: George Soros, Tony Blair, Richard Lugar, the European Parliament, and even some major players in the industry, like Newmont Mining and Statoil. In the end a group of senators (Cardin, Durbin, Feingold, Johnson, Leahy, Lugar, Schumer) shoehorned this little change into the enormous financial reform bill. Nothing to do with the last financial crisis of course, but it makes a sort of sense as part of the general clean-up.
The problem is a classic one of collective action. If you are a normal oil company (and not like the former Elf-Aquitaine deeply corrupt and spook-ridden yourself), you should have nothing against publishing the amounts you pay the governments of host countries. But look what happened to BP in Angola in 2001: they announced their intention to do just that, and got a letter from Sonangol, the Angolan state oil company, threatening loss of the concession. Reproduced here, pages 41-42. It was copied to BP’s competitors just to make the point clear. BP caved in, wouldn’t you? But now they have no choice. Oil and mining companies will face embarassing meetings with officials in Angola, Equatorial Guinea, Kazakhstan, the two Congos, Burma, places like that. Good.
The target here isn’t common-or-garden corruption: a Gucci attaché-case of banknotes here for the Minister, a free shopping trip to Paris for his wife there, a consultancy for a nephew or two. In fact, this will likely increase by substitution. We are talking here of the organized looting of billions, flowing into private armies and police forces, palaces, giant offshore nest eggs, and networks of patronage. In Angola, the siphon at one time was sucking in up to 40% of GDP (according to a Transparency International paper for an OECD conference in 1973). For the looters, section 1504 is not only a financial disaster but an existential threat, as the numbers will be used by domestic opponents, democratic and otherwise. Stand by for fireworks.
The only real reason oil and mining companies should worry is partial coverage. Won’t they lose concessions to companies from countries that allow concealment? It shouldn’t be too difficult, given all the positive noises that have come out of international summits for years, to secure similar measures within the OECD. Russia and China will be harder. But it’s a good sign that the Hong Kong Stock Exchange introduced a similar transparency measure in June, presumably with a nod from Beijing. Good pragmatic thinking: unconstrained kleptocracies make for unstable partners.
Why now? This was a sound idea ten years ago. Maybe the Gulf oil spill just weakened the oil and mining lobby enough to tip the balance, on an issue that was never life-and-death for them. We can be sure the hidden lobbyists for the kleptocrats were fighting hard against the reform to the end. Maybe it was displacement activity: Dodd, Frank and company realized the core financial reform was weak, and grasped at an extraneous one to salve their consciences. Anyway, good work by Lugar and friends.