US oil industry wins fight against revealing foreign payments

In a fitting move during the week of US Independence Day, a District of Columbia court took sides with the oil industry and shot down a rule that oil companies said would violate their First Amendment rights.

The Securities and Exchange Commission rule that was tossed out was the Cardin-Lugar amendment which was slipped, rather late in the process, into the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The rule was intended to force more transparency into the shadowy world of oil and other extractive industries, where companies often have to make less-than-above-board payments to do and win business in foreign countries.

A lawsuit brought by industry lobbyists, including the American Petroleum Institute and the US Chamber of Commerce, claimed that if American oil companies were required to disclose payments made in order to gain business in foreign countries, it would render them powerless against international competitors who don’t need to “pay and tell.”

It proffered that publicly disclosing payments would cost American oil companies billions in lost profits and would violate their First Amendment rights.

As Gary Gentile reported in Platts Oilgram News on July 3, the API and other groups had argued that a voluntary effort, called the Extractive Industries Transparency Initiative, would achieve the same purpose by disclosing general information about payments without disclosing specific information about companies and projects.

This may be true, but does little to address transparency concerns from the general public and altruistic non-profits. The court filing does note that the authors of the Cardin-Lugar amendment state in the Dodd-Frank Act that they are addressing the phenomenon known as the “resource curse.”

The authors of the legislation, Senators Ben Cardin (D-Maryland) and Richard Lugar (defeated in a primary last year, but previously a Republican from Indiana) claimed that “oil, gas reserves, and minerals . . . can be a bane, not a blessing, for poor countries, leading to corruption, wasteful spending, military adventurism, and instability” when “oil money intended for a nation’s poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments.”

This is also true. Anyone involved in the oil business has heard stories about payments ending up as gold-plated taps in some minor government official’s bathroom. But it goes deeper than that when officials are enriching themselves at the expense of the country, and its poor.

As Sen. Cardin said, many of the world’s “most wealthy mineral countries are the poorest countries” in terms of their citizens’ quality of life.

The API touted the DC court decision as a victory for transparency. Harry Ng, API vice president and general counsel, said in a statement: “US companies are leading the way to increase transparency, but the rule would have jeopardized transparency efforts already underway by making American firms less competitive against state-owned oil companies.”

But the ability to compete freely with other companies does not equate to transparency. And it seems other countries agree.

UK Prime Minister David Cameron called on G8 leaders last month to move toward a global standard for extractive companies to report details of their payments to governments “without exception.”

The EU passed draft laws in April whereby large EU-listed oil, gas and mining companies will be forced to reveal more about their payments to governments, in the hopes of routing out tax evasion and corruption.

The law is just as unpopular there was it was here in the US. In Robert Perkins’ column in Oilgram News this week, he notes: “While oil companies are happy and willing to report their taxes and payments on a global level, any requirement to expose country specific and, worse still project level, payments would be too much of burden, they claim.”

In Canada, Prime Minister Stephen Harper announced in June that the country is adopting a G8 initiative requiring disclosure of payments by Canadian mining and oil and gas companies to foreign and domestic governments. Called “publish what you pay,” the G8 initiative is intended to provide transparency to combat corruption in resource-rich countries.

Oil companies have long had the upper hand when it comes to ducking legislation, largely because governments are so dependent on their tax revenues as well as their commodity. This time they may not be so lucky.

Emerging countries that are resource-heavy are becoming more savvy about their riches. Just last week Algeria Energy Minister Youcef Yousfi said that Algerian companies in the energy industry will halt work with foreign firms implicated in corruption, after a string of probes were launched into alleged graft.

As the digital world encroaches on the furthest resource-rich outposts, it will ultimately be impossible for under-the-counter payments and corruption to continue unabated in the oil business.

Statoil’s CEO Helge Lund, speaking at a London oil conference in June, summed it up: “I think societies will expect more openness and transparency going forward… particularly so with oil and gas companies.”

Platts