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Wall Street Reform Includes Big Steps on Oil and Mining Transparency

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"Follow the money" has become shorthand for rooting out corruption in politics and the corporate world, but this week the U.S. Congress showed that following oil money isn't just a way to lay blame; it also is a tool to lay the foundations for a responsible oil, gas and mining industry.

Among the historic Wall Street reforms approved today, Congress adopted a bipartisan measure requiring all companies registered with the Securities and Exchange Commission to report the amounts they pay to governments for access to oil, gas and minerals. The new law (pdf), which applies to U.S. and foreign companies alike, was introduced by Senators Richard Lugar and Ben Cardin, and was championed during conference by Senator Patrick Leahy. Senate Banking Committee Chairman Chris Dodd and Congressman Barney Frank, Chairman of the House Financial Services Committee have supported the legislation throughout the process.

This measure will help citizens in the U.S. and other countries with significant oil, mineral or natural gas production to follow the money coming from extractive companies to their governments. We'll know how much the companies pay, to whom, and for what.

The BP oil spill is clearly providing momentum for sorely-needed changes to oil and mining regulations. Indeed, the new U.S. legislation is part of a global shift toward better reporting by oil, gas and mining companies. The Hong Kong Stock Exchange enacted a similar country-by-country reporting standard earlier this summer, and a movement for similar requirements is gaining ground in the British Parliament.

Regulators in the accounting community have also taken notice in recent years. The International Accounting Standards Board (IASB) will issue revised standards for extractive companies next year. Currently, the IASB allows companies to aggregate payment information by region or business activity, a reporting method that makes obfuscation and outright concealment of funds easier.

Revenue Watch and our allies have been holding conversations with the IASB since 2008, as the Board prepares to formalize new accounting guidelines. We have emphasized the need to require financial reporting by the extractive industry on a country-by-country basis.

Today's action by Congress is a huge victory for advocates of transparency. Revenue Watch and the Publish What You Pay coalition have worked for years to secure improved industry reporting rules. Stakeholders that will benefit directly include:
  • Citizens worldwide are gaining a weapon in their fight for corporate accountability and a fair share of their countries' oil and mineral wealth.
  • Investors in U.S. and foreign companies are gaining a wealth of data on company activity to help them better assess risk and, in many cases, to improve returns in any producing country where public information can increase political stability.
  • Governments can hold their corporate partners to a higher standard of openness and accountability.
  • Companies can look forward to a more level playing field, contrary to the anxious claims of oil lobbyists. The new law will improve company disclosures and reduce opportunities to gain competitive advantage through "creative accounting" or outright corruption. Companies are also gaining a shield against governments seeking to divert public anger by attacking their corporate partners.
The new law doesn't single out U.S. companies. It applies to any company listed with the SEC, imposing uniform rules on 29 of the world's 32 biggest international oil companies and the most important global mining enterprises (of which only two are U.S.-based).

Additional U.S. reforms are coming. In late June, the Senate Energy and Natural Resource Committee added tough new ethics rules to proposed overhauls of the former Minerals Management Service (MMS), the federal regulatory body with the most direct responsibility over the BP oil spill. The new rules will slow the revolving door that has allowed employees to switch too easily from government to the oil industry and back. Similar proposals are currently moving through the committee process in the House.

The Publish What You Pay coalition is seeking additional accountability safeguards in the revamped regulatory agency, including new disclosure requirements for environmental assessments, financial audits and stronger scrutiny of production reporting, to end years of underpayment of royalties.

Like the cleanup in the Gulf of Mexico, the overhaul of regulations, reporting requirements and revenue management in the minerals sector will take time and demand steady attention. But the benefits to citizens are countless, and the cost of inaction is grave. Congress took a dramatic step forward this week, with both international and domestic impact. It has an opportunity to lay new foundations for responsible resource governance, as both houses consider energy reforms in weeks to come. Perhaps, this time, the momentum is there to get the whole job done.

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