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Oil and gas industry using tired arguments in fighting transparency

Source: Publish What You Pay - US - Fri, 7 Mar 2014 16:01 GMT
Author: Jana Morgan
cor-gov
In this 2012 file photo, gasoline drips off a nozzle during refueling at a gas station in Altadena, California REUTERS/Mario Anzuoni
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Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

This article is a response to a piece on trust.org from February 25: 

Fate of U.S. agency rule on extractives hangs in the balance as two SEC regulators tilt toward industry

The U.S. oil and gas industry is waging a battle with courts, a regulator and the press against a global movement towards transparency. The problem is their arguments don’t hold up to scrutiny, which is why the tide is turning against them.

The Dodd-Frank Financial Reform Act, enacted in 2010, included a provision requiring oil, gas, and mining companies to disclose the payments they make to governments around the world. Access to this information would help investors assess and mitigate risk, empower citizens to hold their governments accountable for spending revenues responsibly, and help combat the corruption and waste to which extractive projects in developing countries are especially vulnerable.

Unfortunately, the oil industry in the United States, led by its lobbying groups the American Petroleum Institute and the U.S. Chamber of Commerce, has used multiple tactics to try to undermine this law, known as Section 1504.  While the rest of the world moves forward on enacting similar legislation, with the EU and Norway having already passed laws, the U.S. is stuck in a legal and regulatory battle carried out by high-powered lobbyists. 

In October of 2012, the oil and gas industry sued the Securities and Exchange Commission (SEC) - the government agency responsible for implementing the law. And last year, a court sent the rule back to the SEC for revisions.  The law stands and the SEC is still required to issue a rule to implement this landmark provision.

In drawing on its high-powered lobbyists to pressure legislators and the SEC, painting a distorted picture in the media, and using the courts as a stall tactic, some in the oil and gas industry have tried to block or significantly weaken the law’s implementation.

Incredibly, much of the industry’s complaint has been focused on the First Amendment – and the idea that requiring oil and gas companies to disclose payments to governments constitutes a violation of the First Amendment right against “compelled speech.” This is the tactic the US Chamber of Commerce is using to attack another requirement of the Dodd-Frank Act, Section 1502 or the conflict minerals rule.

Reporting financial information, like company payments to governments, is typical of securities disclosures that provide material information to investors and others about company activities. Big oil companies are claiming the First Amendment gives them the 'right' to keep information secret. This is an outlandishly broad interpretation of the First Amendment that is not constitutionally sound and would undermine a large body of general securities disclosures and other important corporate laws and regulations.

API has also fallaciously argued that strong implementing rules would hurt companies’ competitiveness. However, U.S. oil, gas and mining companies have larger reserves, significant capital and advanced technological expertise compared to their foreign competitors. In a nod to the enormous financial and technological advantages enjoyed by the U.S. oil and gas industry, companies in Russia, Africa and China have signed massive joint venture deals with U.S. companies in order to gain access to their expertise.  The fact is, companies like ExxonMobil – the world’s largest publicly traded oil and gas company and one of the most valuable companies in the U.S. – are competitive because of their resources, talent and expertise, not because they are permitted to hide or disguise the payments they make to governments abroad. From an investment standpoint, these disclosure requirements could actually help improve investment efficiency and make it easier for companies to raise capital quickly by increasing investor confidence. Many companies covered by the Dodd-Frank requirement continue to win licenses to explore, even in places not noted for their embrace of disclosures, such as Angola.

Anti-disclosure advocates have argued that the regulations would force companies to break the law in countries where such disclosures are illegal. However, proponents of this argument have been unable to provide a specific example of a country where this type of disclosure is prohibited and would impede their activities. In fact, one of the countries cited by industry as not allowing disclosure recently joined the Extractive Industry Transparency Initiative. The oil and gas industry has argued that there should be exemptions in countries that bar disclosure, but this would create what has been called a “tyrant’s veto” – an incentive that would encourage dictators and corrupt governments to adopt laws protecting payment secrecy and thus their ability to syphon off funds and collect bribes – completely undermining the intention of transparency legislation.

Both the European Union and Norway have passed laws similar to Section 1504 of the Dodd-Frank Act, mandating public disclosure of payments made to governments. Right now the 28 EU member states are working to transpose these directives into national law. Similarly, the United Kingdom has agreed to fast track its own process by the end of the year. Canada is also coming along, and recently the largest Canadian mining associations, representing more than 1,300 mining companies, released recommendations for the Canadian government for disclosure requirements that align closely with Dodd-Frank. Shortly after this release, the Canadian government committed to having federal mandatory disclosure legislation in place by April 2015. The fact is, while the U.S. was originally a leader in the transparency movement, we now risk falling behind countries that have already finalized their legislation and are moving to implement it.  

It’s important that industry is at the table, but propagating misinformation and relying upon misleading or disproven arguments isn’t helpful – it’s obstructionist. The fact is that transparency at long last has become a global norm, to the benefit of hundreds of millions of the world’s poorest people. As an ever-growing number of governments jump onboard the transparency train, it has become abundantly clear that global progress toward greater transparency in the extractive sectors is here to stay. It is up to regulators and the oil and gas industry in the United States to decide not whether advances in transparency should stay or go, but whether the United States wants to lead or follow. 

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