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Time global witness for Transparency Coming clean on oil, mining and gas revenues A Report by Global Witness. March 2004. 2 Time for Transparency Contents Summary for Policymakers ........................................................................................................3 Revenue Transparency: A Priority for Good Governance and Energy Security ....................4 Kazakhstan ..................................................................................................................................7 Congo Brazzaville......................................................................................................................18 Angola.........................................................................................................................................36 Equatorial Guinea ......................................................................................................................53 Nauru ..........................................................................................................................................65 Making companies and governments transparent ................................................................71 Conclusion .................................................................................................................................83 References .................................................................................................................................84 Kazakhstan Equatorial Guinea Nauru Congo Brazzaville Angola Global Witness investigates and exposes the role of natural resource exploitation in funding conflict and corruption. Using first-hand documentary evidence from field investigations and undercover operations, we name and shame those exploiting disorder and state failure. We lobby at the highest levels for a joined-up international approach to manage natural resources transparently and equitably. We have no political affiliation and are non-partisan everywhere we work. Global Witness was co-nominated for the 2003 Nobel Peace Prize for our work on conflict diamonds. 3 Summary for Policymakers • Businesses see their legitimate revenues misappropriated and squandered and are left What is the problem? vulnerable to accusations of complicity with corruption and its attendant reputational risk. • Governments of resource-rich developing Crooked elites can extract all sorts of ‘facilitation countries often do not provide information about payments’ from firms that would probably prefer their revenues from natural resources, nor do not to pay bribes. multinational extractive companies publish • States that mismanage resources may fail, forcing information about payments made to the the international community to give more aid, and governments of those countries. Such opacity creating instability that threatens the supply of hides billions of dollars worth of financial vital industrial commodities. impropriety, as this report reveals. Why does it matter? What can be done? • All resource-rich developing countries and • Ordinary citizens, the real owners of natural resource extraction companies should actively resources, are left without the information to call participate in the UK government’s Extractive their governments to account over the Industries Transparency Initiative and seek to management of their revenues. Dispossessed, voluntarily disclose their revenues from resource they are often left marginalized and at the mercy extraction. However, voluntary disclosure will not of donor assistance. In Angola, for example, one work everywhere that transparency is most in every four oil dollars earned goes missing. At needed because many political and business the same time, one in four Angolan children dies elites have a vested interest in avoiding before the age of five from preventable diseases. transparency to protect their illicit profits. • A set of joined-up policies is needed to make resource extraction companies publish what they pay to governments on a country-by-country basis and to make host governments publish what they earn. • Simple adjustments to existing policies of company disclosure, ‘books and records’ provisions in anti-corruption legislation, and international accounting standards can be used to require multinational companies to ‘publish what they pay’. • Export credit agencies, bilateral and multilateral bodies, and banks should make all their lending and insurance conditional on governments publishing their receipts from resource extraction. • International financial institutions like the World Bank should mainstream revenue transparency across their lending and technical assistance portfolios by making it a condition of all their financial support and by including it in their national poverty reduction strategy consultations. This approach is fully consistent with, and a stepping-stone towards, international objectives of promoting accountable government, democratic debate over resource management, and ensuring In countries like Equatorial Guinea, the oil is offshore energy security through a more sustainable operating and so are the revenues. Credit: Robert Grossman/Africaphotos.com environment. 4 Time for Transparency Revenue Transparency: A Priority for Good Governance and Energy Security Across the globe, revenues from oil, gas and mining that Nazarbayev inadvertently revealed the true state of affairs should be funding sustainable economic development whilst trying to discredit a presidential rival.2 have been misappropriated and mismanaged. This Global Witness report considers five major examples of this Congo Brazzaville is one of the petro-states most closely problem: Kazakhstan, Congo Brazzaville, Angola, associated with the legacy of influence peddling and dirty Equatorial Guinea and Nauru. deals in Africa by the now-notorious French state oil company Elf Aquitaine (now Total). Elf treated Congo as In these countries, governments do not provide even basic its colony, buying off the ruling elite and helping it to information about their revenues from natural resources. Nor mortgage the country’s future oil income in exchange for do oil, mining and gas companies publish any information expensive loans. The company even financed both sides of about payments made to governments. Huge amounts of the civil war, as it also did in Angola. money are therefore not subject to any oversight and crooked elites can extract all sorts of ‘facilitation payments’ from firms Although former senior Elf officials have been jailed in that would probably prefer not to pay bribes. Investigations France for ‘misuse of company assets’, their legacy of also reveal that some companies have played a willing role in opacity and hair-raising accounting endures. Despite huge facilitating off-the-books payments, misappropriation of state existing debts and a supposed programme of cooperation assets, and other nefarious activities such as arms shipments, with the international community to restructure Congo’s as part of an anti-competitive, under-the-table method of finances, the government has entered into ever more winning business with unaccountable regimes. Ordinary arcane and tortuous deals to avoid financial scrutiny from citizens, who often own a country’s resources under its the international community and its own citizens. Indeed, constitution, are thus left without the information to call the national oil company Société Nationale des Pétroles du their governments to account over the management of their Congo makes a multi-million dollar profit but, according revenues. The end result is a litany of corruption, social to the IMF, does not pay a single penny of this money into decay, increased poverty, reinforcement of authoritarian the government’s coffers. government and political unrest, which can ultimately lead to state failure and the spread of instability across regions. In Angola, new evidence from IMF documents and elsewhere confirm previous allegations made by Global In Kazakhstan, the largest-ever foreign corruption Witness that over US$1 billion per year of the country’s oil investigation in US legal history has uncovered a major revenues – about a quarter of the state’s yearly income – international corruption scandal that ‘defrauded the has gone unaccounted for since 1996. Meanwhile, one in Government of Kazakhstan of funds to which it was entitled four of Angola’s children die before the age of five and one from oil transactions and defrauded the people of million internally-displaced people remain dependent on Kazakhstan of the right to the honest services of their international food aid. This report highlights the latest elected and appointed officials’.1 The scheme was based revelations from the ‘Angolagate’ scandal, in which around Kazakh President Nursultan Nazarbayev and Oil political and business elites in France, Angola and Minister Nurlan Balgimbayev demanding that international elsewhere exploited the country’s civil war to siphon off oil companies such as Chevron (now Chevron-Texaco) and oil revenues. Most recently, evidence has emerged in a Mobil (now ExxonMobil) pay a series of unusual fees to Swiss investigation of millions of dollars being paid to middleman James Giffen on behalf of the Republic of President Dos Santos himself. The government continues Kazakhstan. This arrangement, the indictment alleges, to seek oil-backed loans at high rates of interest which are helped Giffen to skim money from the deals and send some financed through opaque and unaccountable offshore