The oil and gas industry should remain on guard as it works to keep an anticorruption section of the Dodd-Frank financial reform law focused on corruption. The industry must never allow itself to be seen as accommodating bribery in its dealings with foreign governments. Because that image would advance political agendas hostile to oil, however, extremist groups will promote it if given the chance.
Section 1504 of the Dodd-Frank bill, requiring disclosure of payments by expatriate oil and gas companies to host-country governments, has bred disagreement over the level of detail. At every opportunity, the industry must point out that the disagreement is about reporting scope, not the need for transparency.
Defining 'project'
The Securities and Exchange Commission, which is implementing the law, expects to decide by July how to define "project" under Section 1504. The law requires reporting at the project level but doesn't define the term.
In comments to the SEC, industry representatives, including the American Petroleum Institute, seek a broad definition. They want "project" to mean activities within a geologic basin or province in multiple phases or stages. Other groups want a narrower definition. Typical are the views of activist billionaire George Soros, who supports the Publish What You Pay coalition taking a position like his in comments to the SEC.
In a Feb. 12 written comment, Soros calls the basin-wide definition an "arbitrary standard" that "would produce data of little use to citizens or investors." He says, "Only a definition linked directly to the instruments that establish an issuer's fiscal obligations will allow accountability for what is owed and paid to local governments and specific communities." In his view, "project" should be delineated at the level of the lease, license, or concession.
Two approaches to transparency collide here. In one, payments should be disclosed in order to hold governments accountable for use of the money. The other approach makes companies the targets of accountability.
Targeting companies in this way in a US law makes no sense. All companies with shares traded on US exchanges fall subject to the strict Foreign Corrupt Practices Act, enforcement of which by the SEC and Justice Department has zoomed in recent years. Trace International, which tracks enforcement, says the US accounted for 74% of all worldwide actions against payments to foreign officials between passage of the FCPA in 1977 and July 2011. Antibribery enforcement is indeed lax in many other countries. But that problem won't be solved by making disclosure requirements in a new US law as difficult as possible for companies to meet.
Indeed, the narrow definition of "project" would create huge difficulty for companies. It could force them to reveal negotiated contract terms and might place them in violation of host-country laws or in breach of existing contracts. And it would create great disadvantages for them against competitors not subject to the requirements, especially those owned by governments.
What's more, narrow disclosure requirements would generate volumes of information far beyond what's necessary to document the essentials of transparency: what governments receive from foreign investors and what they do with the money. Unwieldy gushes of meaninglessly detailed data might foster rather than fight corruption.
Gaining leverage
Proponents of the narrow view of "project" seem more interested in gaining leverage over company behavior than in exposing and mitigating systemic bribery. Membership in the Publish What You Pay coalition is revealing. Its US members include groups like Earthworks, Environmental Defense Fund, EarthRights International, Sierra Club, and others that consistently resist oil and gas development. To groups like those, granular disclosure of payments by oil companies to foreign governments would be a handy new tool of obstructionism.
Corruption is a chronic, global problem that in too many places keeps resource development from benefiting indigenous populations. The fight against it should be a priority of governments, companies, and organizations. It is, in fact, too important to be allowed to serve as cover for other political agendas.
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