Launched nearly 15 years ago, EITI seeks to tackle the chronic problem of corruption that plagues so many developing countries that have large deposits of oil, gas, copper, gold and other minerals. Time and again, this concentrated resource wealth leads to corruption and wasteful spending, producing the kind of poverty and instability that can breed terrorism. “Our work supports efforts to combat transnational crime and terrorist financing,” said the EITI Chair, Fredrik Reinfeldt, “It’s important that resource-rich countries like the United States lead by example.”
It was in that spirit that in 2014 the United States, at the urging of Sen. Lugar and his colleague, Sen. Ben Cardin (D, Md.) formally became one of the 52 reporting countries of EITI, an NGO based in Oslo. The U.S. has long been a strong supporter of EITI and sat on its board, urging developing countries—and the oil and mining companies that operate there—to open their books and disclose just how much they get in taxes and royalties from the multinational giants. The idea was that the U.S. should lead by example, and open its books, too.
The American sign-up followed the passage in 2010 of the Cardin-Lugar anti-corruption amendment, Sec. 1504 of the Dodd-Frank law. It requires all U.S.-listed companies, including many foreign-owned majors, to report their payments to governments world-wide. This is a simple but powerful transparency measure that imposes virtually no burden on the extractives companies but enables citizens to hold their leaders to account. The oil industry and its powerful lobbying arm, the American Petroleum Institute, strongly opposed the legislation, and fought the SEC regulation in court. Nonetheless, the European Union and Canada adopted nearly identical laws, leveling the global playing field and vindicating U.S. leadership.
When the more than 40 American oil and mining companies voluntarily agreed to join the U.S. EITI program, which was first proposed in 2011, they knew full well what they were signing up for—EITI requires the companies to report how much taxes they pay to the federal government. Some of the big oil companies were clearly uncomfortable with this requirement. But joining EITI was good public relations, signaling to regulators, shareholders and the voters that they supported transparency. (The Lugar Center’s Neil Brown is a member of U.S. EITI’s multi-stakeholder group.)
That apparently false show of support soon crumbled. In the first U.S. EITI report, published in 2015, few of the 44 companies obligated under the rules to report their taxes did so. Even though they had volunteered to join EITI, the oil companies now said they would follow its tax reporting rules only when required by law. Cardin-Lugar was still tied up in the courts and hadn’t yet been implemented. (Note that while there was no legal requirement to report taxes, there is no law against it either. At least one U.S. oil company has voluntarily reported.)
Fast-forward to this year. The SEC finally issued the Cardin-Lugar regulation in the summer of 2016, requiring the reporting of taxes, the law the oil companies said they needed before they would obey the EITI rules. But in January 2017, Congress had before it a bill to repeal the regulation. API lobbied hard, and successfully, against it. API made a number of false and misleading statements about Sec. 1504, but insisted it wasn’t against transparency. In fact, to bolster that claim, it cited the oil industry’s participation in EITI. “API itself has been heavily involved in the implementation of U.S. EITI through our membership on U.S. EITI’s multi-stakeholder group,” it said in its talking points to Congress.
In other words, API was brazenly touting its participation in an initiative it was actively lobbying to undermine. No wonder the civil society members of the U.S. EITI erupted in anger, accusing the oil industry of “bad faith” and demanding that API be expelled from U.S. EITI. Once President Trump signed the repeal of the Sec 1504 regulation, the Trump administration effectively shut down the EITI process. With no change by the oil companies, it formally ended U.S. participation last week. But the administration didn’t blame the oil companies’ duplicitous intransigence. Instead, it made vague references to the American “legal framework” and “U.S. laws [that] prevent us from meeting specific provisions of the EITI standard.”
Hogwash, said Danielle Brian, the chair of US EITI’s Civil Society group, there is no law restricting company reporting. “The government is perpetuating a false narrative created by the oil and gas industries that protect themselves and not the American people,” she said. In other words, it’s probably not too strong to say that for the past several years, the major US oil companies duped the public and their shareholders about their commitment to good governance and corporate responsibility. Last week, when their fraud was exposed, the Trump administration colluded with them to try to cover it up.
The timing of the pull-out—as Congress is preparing unprecedented corporate tax cuts and new “Paradise Papers” revelations about the widespread of use of offshore corporate tax avoidance schemes—led many to ask, “Just what are ExxonMobil and Chevron and the others trying to hide?” After all, the industry gets billions from tax subsidies loopholes. If Canada is any guide, it could be that they’re paying a lot less taxes than people think. Last month it was reported that when Canadian oil companies disclosed their tax bills—under the Canadian version of Cardin-Lugar—it turned out they paid billions less in Canada than abroad. Daniel Kaufman, head of the Natural Resource Governance Institute, in an interview with HuffPost, said many foreign-owed oil giants, including from Russia China, are now reporting their taxes. “The U.S. ones refuse to change their old habits of operating in opacity,” he said. “That means tax avoidance, obviously, and it raises the risk of more corrupt deals.”
While it’s important to know if oil companies are paying their fair share of taxes, the larger issue here is the damage the withdrawal has done to U.S. leadership and to the global fight against the corruption that leaves so many people needlessly impoverished and threatens American national security and foreign policy interests. The Rev. David Ugolor, head of one African NGO, noted that the Trump administration “has taken a decision to abdicate its leadership position at a time when issues related to the mismanagement of oil and gas proceeds worldwide have been linked to issues of migration and global security.” He added the U.S. decision “sends a wrong signal…to new and emerging democracies.”
Gilbert Makore, coordinator of the Publish What You Pay coalition in Zimbabwe, concurs: “When African governments refuse to sign up to global multi-stakeholder initiatives like EITI, they often invoke nationalist rhetoric that these initiatives are foreign imposed….By clawing back on EITI and other transparency-related reforms, the U.S. effectively supports the position of these African governments….The withdrawal, in effect, undermines years’ worth of transparency campaign work.” IN other words, the U.S. action is a stab in the back to the activists in poor countries around the world who have struggling to expose corruption by their countries’ leaders.
This abdication by the U.S. threatens to weaken the resolve of other rich countries to crack down on foreign corruption and may well embolden the autocrats in developing countries. The Trump administration’s stance is short-sighted and counter-productive. By bowing to the special interests, it is harming the national interest. More corruption will mean less successful efforts to fight poverty, hunger, disease and instability. And that in turn will lead to greater risks of conflict, destabilizing mass migration and terrorism.