The advice of Mara V.J. Senn and Rachel Frankel in “Firms can avoid EITI, FCPA pitfalls” (OGJ, July 21, 2008, p. 20) gives short shrift to the legitimate concerns of the citizens of many resource-rich countries and runs counter to evolving practice among countries and companies to use more disaggregated reporting under the Extractive Industries Transparency Initiative (EITI). While it is true that EITI does not require disaggregated reporting, disaggregation prevents free-riding and improves the climate of accountability in the extractive sector—a chief goal of EITI and other efforts to address the so-called “paradox of plenty.” Countries such as Nigeria and Mongolia are already requiring disaggregated reporting under EITI, and a number of extractive companies already unilaterally report their payments to governments, country by country and broken down by type of payment. Apparently, these companies have concluded that the benefits of such disclosure outweigh any perceived risks, legal or otherwise.
Obviously, the authors write with the lawyerly objective of helping clients minimize legal risk. But even from this narrow perspective, we question some of their conclusions. The authors argue that disaggregated reporting could give rise to heightened Foreign Corrupt Practices Act (FCPA) scrutiny in the case of discrepancies between reported company payments and country receipts but then acknowledge that FCPA investigations of large international companies are still possible with aggregated reporting in the case of significant discrepancies. Where a company makes no improper payments and accurately reports, disaggregated reporting offers the best protection from FCPA scrutiny; with aggregated reporting, a large international company could more easily be swept up into an investigation simply because of the actions of less-scrupulous companies in the same aggregated reporting pool. Disaggregated reporting is thus preferable not only from an economic development and accountability perspective but from a legal risk perspective as well.
Matthew Genasci, Attorney
Revenue Watch Institute
New York
