The Rule to End Corruption in Oil Operations

THE RULE TO END CORRUPTION IN OIL OPERATIONS

NULLIFYING THIS RULE WOULD MAKE IT EASIER FOR U.S. OIL AND MINING COMPANIES TO ENGAGE IN BRIBERY AND CORRUPTION IN DEVELOPING COUNTRIES

In June 2016 the U.S. Securities and Exchange Commission (SEC) finalized a rule requiring oil, natural gas, and mining companies to publically disclose the billions of dollars in payments they make to governments across the world for the right to drill and mine in their borders. Senators Ben Cardin (D- MD) and Richard Lugar (R-IN) added this requirement to the 2010 Dodd-Frank Financial Reform and Consumer Protection Act in a bipartisan attempt to deter corruption in resource-rich countries. The oil industry—led by the American Petroleum Institute and ExxonMobil—has been fighting this rule from day one.

Here are three things to know about the attack on the SEC’s anti-corruption rule for oil and mining companies.

THE SEC RULE SIMPLY REQUIRES OIL AND MINING COMPANIES TO DISCLOSE PAYMENTS TO FOREIGN GOVERNMENTS.

The SEC rule requires companies that “engage in the commercial development of oil, natural gas, or minerals”—both domestic and foreign, and their subsidiaries—to report payments to foreign governments. Payments include taxes, royalties, fees (including license fees), payments for infrastructure improvements, community and social responsibility payments, etc. Companies are required to report any payment equal to or exceeding $100,000. With this disclosure, U.S. shareholders will be able see how much of their investment is flowing to foreign oligarchs.

THE SEC RULE IS INTENDED TO DETER CORRUPTION.

The SEC rule was a culmination of Congress’s long-held bipartisan interest in improving the transparency of U.S. corporations’ mining and drilling operations in corruption-prone, resource-rich countries. In many of these countries, the ruling classes allow foreign companies to exploit natural resources with little benefit for average citizens in need of public services, including schools, hospitals, and roads. This corruption impedes economic development and political stability in already unstable regions around the world.

After Senators Cardin and Lugar won passage of the anti-corruption provision, Canada, the European Union, Norway, and other countries adopted similar rules requiring the disclosure of payments to foreign governments. Now 80% of the world’s largest oil, gas and mining companies, including state-owned companies from Russia, China and Brazil, have to disclose their payments. In addition to benefiting shareholders, citizens in these resource-rich companies can track foreign payments and, perhaps, ensure that more of the money is reinvested in public works—rather than tucked away in offshore accounts.

BIG OIL COMPANIES WANT TO PAY OFF FOREIGN GOVERNMENTS—IN SECRET

The American Petroleum Institute and ExxonMobil have fought the SEC anti-corruption rule from the outset. ExxonMobil has been investigated on more than one occasion for dubious financial payments to help secure privileged access to oil reserves in foreign countries, as have X Shell, ConocoPhillipsY, and ChevronZ. Rolling back this rule would be a major victory for the oil industry and a step back in the U.S.’s efforts to improve transparency and accountability in extractive industries around the world.