NEW YORK -- Both presidential candidates have put the need for secure, affordable sources of energy high on their agendas, a consensus that makes it all the stranger that part of the American oil industry is working overtime to undo a measure that helps guarantee dependable supplies and promote economic development.
Last month, the American Petroleum Institute and several allies took aim at transparency and accountability by filing a suit challenging a law passed by Congress in 2010 requiring oil, natural gas and mining companies to disclose the payments they make to governments. In its suit, API also challenged the rules approved by the Securities and Exchange Commission (SEC) for carrying out the law.
API's is targeting Section 1504 of the Dodd-Frank financial reform law, which requires these companies to make public what they pay to each governments, and for each natural resource project. API's attack came despite the fact that in drafting the disclosure rules, the SEC solicited and considered extensive public comments for two years, including from the oil industry.
The law and the SEC rules are also the template for transparency measures being developed by the EU. It's a model unambiguously championed by Prime Minister Cameron, who speaking of the SEC rules, declared, "I want Europe to do the same." French President François Hollande has spoken similarly, demanding "absolute transparency, country by country." The EU will take an important step Wednesday, when representatives from the European Commission, Parliament and Council discuss the formal proposals to be voted on early next year.
Oil companies should be welcoming these developments. Here is an opportunity to lessen the risk of being strong-armed by corrupt officials. By making payments public, here is an opportunity to improve the odds that contracts will be honored without political interference. API's legal attack makes many wonder what its member companies may want to hide.
It's vital that the SEC and the EU hold their ground. An assault on transparency is bad for business and bad for development. Transparency and good governance contribute to stable operating environments where energy companies work, resulting in higher investment levels and a more secure and dependable supply of energy. And transparency pays, literally. Research finds that the combination of greater transparency, accountability and improved governance leads to significantly higher per capita incomes -- what we have called the "development dividend."
For scores of countries around the world natural resources are potentially the strongest engine of economic development. They are national assets, but can be mined or pumped only once, cannot be replenished and too often are either mismanaged or deliberately undervalued in corrupt deals.
It is critical that governments collect what they're owed for their nation's resources and that citizens know how much is being collected so they can evaluate the benefits.
API cites the expense of compiling data for disclosure as a primary reason it is challenging the law. But this is not credible, since companies already collect data on payments to governments and the costs of development projects, for internal accounting and tax purposes. API also argues that the law forces companies to disclose sensitive, proprietary information -- a claim undercut by the fact that some major companies in this sector already voluntarily disclose payments to governments without harm to their competitiveness. The vast majority of U.S. firms win business thanks to their superior technology, managerial expertise and their access to capital, not because of secrecy.
API recently has asked the SEC to delay the transparency rules from going into effect pending a final verdict on the lawsuit. Based on its own well-established criteria, the SEC has firm grounds for rejecting the request, and should not surrender American leadership in transparency by caving in to the companies' effort to fight progress, It is heartening that Europe is still moving ahead and appears ready to pass its own robust rules.
Part of the oil industry clearly wants to return to the era when secrecy was acceptable, when companies and governments kept details of their transactions to themselves. Big oil companies are increasingly isolated in this approach. It's not just the U.S. and the EU that stand on the side of transparency; in Canada, the two largest mining trade associations have pledged to help develop a similar disclosure system.
If reason prevails, industry's attack on U.S. regulations will not delay their going into effect. The SEC should mobilize a robust defense, both to advance transparency and to maintain the integrity of the rule-making process, and the EU should maintain its resolve to issue stringent rules of its own. Enlightened investors, companies and leaders around the world already appreciate how richly transparency pays.