A leading economist recently illustrated how a common argument against greater extractive industry transparency is wrong.
Robert F. Conrad, a public policy and economics professor at Duke University,submitted a letter to the Securities and Exchange Commission (SEC) last month arguing that the agency needs to implement higher standards for oil, gas, and mining company transparency. Such transparency standards would not put companies at a competitive disadvantage, he said, countering an argument long used by the extractive industry to avoid public disclosures.
Conrad’s letter urges the SEC to implement Section 1504 of Dodd-Frank, a law meant to reform U.S. financial regulation in part by requiring extractive industry companies to publicly disclose annual financial information about oil, gas, and mining projects. Although Congress passed Dodd-Frank in 2009, the agency has yet to finalize a rule for Section 1504.
Currently, public companies file SEC reports that provide ageneral outline of their extractive activities, such as total revenues in every country where they operate. But as Conrad pointed out, citizens and investors need more detailed information in order to hold their governments accountable for natural resource management and to ensure their investments are being used efficiently.
In his letter, Conrad made the case for “project-level reporting,” where companies report specific project information, such as annual revenues for every contract, rather than more general, country-level data. Companies have fought against this type of reporting, arguing that it would put them at a competitive disadvantage with private or foreign companies that don’t have to make similar disclosures. However, Conrad’s letter points out that this is faulty reasoning because Dodd-Frank does not require the disclosure of commercially sensitive information—that is, company secrets that competitors could use to gain the upper-hand in the wider market.
While the SEC wrote a rule to implement Section 1504 in 2010, the American Petroleum Institute (API), an oil and gas trade association, took the agency to court in 2013 to challenge the rule. The court ultimately vacated the rule, saying that the SEC needed to tweak certain parts before reissuing it. However, by 2014, the SEC still had not issued a rule, and Oxfam sued the agency for an undue delay, saying the rule, when implemented, “will be a huge boost in the fight against corruption, mismanagement and poverty.”
As the Project On Government Oversight has noted in the past, Section 1504 complements theExtractive Industries Transparency Initiative (EITI), a voluntary, global set of guidelines for companies and governments that “promote open and accountable management of natural resources.” The EITI standard requires project-level reporting by companies that is consistent with Section 1504 and with recent European Union transparency requirements that say companies in the EU have to disclose financial data on a project by project basis.
Given that all EU members are subject to the new EU transparency requirements, and given growing international participation in EITI—48 countries, including the United States, are implementing the standard—the trend towards greater extractive industry transparency is evident. Even some companies appear to be welcoming it. Even before the EU requirements came into effect, international oil and gas company Statoil began voluntarily reporting its payments to governments, and the Mining Association of Canada recently helped usher in new transparency measures in Canada.
POGO continues to urge the SEC to quickly finalize a rule for Section 1504 so that citizens have the information they need to hold the extractive industry accountable.