Post Forum

Robert Guest, US Editor - The Economist, in conversation with: Simon Taylor, Co-Founder & Director - Global Witness.


Simon Taylor, Global Witness

RG: On the panel you complained that the American Petroleum Institute (a lobby group for the oil industry) had campaigned to ‘kill off’ the parts of America’s Dodd-Frank Act that require extractive firms to be more transparent. How can NGOs such as Global Witness persuade companies that your goals (such as transparency) might actually benefit them in the long run?

ST: If I may be so bold, I see this question as now outdated. This is because the debate about extractive industry transparency has been taking place over 14 years, and we are way beyond discussions about benefits. Indeed many oil, gas and mining companies have clearly signed up to becoming more transparent about their payments to governments through their engagement with the Extractive Industry Transparency Initiative (EITI) – and that includes those companies that have played a substantial assisting role in the API’s legal attack against the Securities and Exchange Commission (SEC) and Provision 1504 (the transparency provision for extractive companies) of the Dodd-Frank Act (Dodd-Frank 1504). So I think the premise of this question is not quite correct – rather, the question comes back to what constitutes appropriate transparency.

Here, there remain differences between what some companies want and what is necessary. Dodd-Frank 1504, and following that, the EU’s Accounting and Transparency Directives, require extractive companies to disclose the payments they make down to the level of each individual project. This is because, as Global Witness has documented over the past 15 years, illicit (often massive) payments are frequently made both to obtain and to operate extractive-industry projects.

Sometimes governments demand payments from oil and mining companies for some ‘social’ purpose, but the projects for which the payments were theoretically intended turn out not to exist. In effect, corrupt officials are extorting money from extractive firms. In other cases, it is clear that the companies themselves are at fault.

Take, for example, the case of Shell and Eni’s acquisition of block OPL-245 in Nigeria, for which they paid US$1.1 billion dollars in the full knowledge (as documents demonstrate) that the funds would be transferred to Malabu Oil and Gas, a company owned by Dan Etete, a convicted money-launderer and former Oil Minister. Etete was Oil Minister during the regime of Sani Abacha, the dictator who ruled Nigeria from 1993-8. While Etete was in office, he gave OPL-245 to his company Malabu. Shell and Eni have insisted they only ‘paid the Nigerian Government.’ But if this were credible, they should have paid the funds into the ‘Federation Account’ as required under the Nigerian constitution. In the end, the only reason we (and Nigerians who ultimately own the asset the companies acquired) know about these payments at all, is because the middlemen involved in the deal sued for lack of payment, placing the documentation into the public domain.

It is interesting to note that just as this deal was being agreed and during the following year, Shell put a lot of effort into lobbying for the removal of ‘project-level’ disclosure requirements from proposed US and EU rules. Given Shell’s positive contribution to the revenue disclosure debate a decade ago, this was disappointing. The scandal prompts questions as to whether there may be other OPL-245-type deals in the closet. One wonders whether Shell (and, for that matter, other companies) wish to maintain an opaque environment in which payments like this can be made, keeping the citizens of the countries that own the resources in the dark.
In many natural resource-rich countries, it is impossible to see how ordinary people benefit from mining or drilling. This situation plays havoc with an extractive company’s ‘social licence to operate’. Such firms are often, and in some cases rightly, blamed for propping up dictatorial or autocratic regimes and leaving citizens to bear the brunt of any environmental fall-out from extraction projects.

Companies that think long-term (which reputable extractive firms must, since many projects span decades) should be very concerned about this. In many of the countries where we work, patience is wearing thin. Unless local people start to see better outcomes, the consequences for the companies concerned could be unpleasant.

One of the key tools needed to address this situation is transparency. People need to be able to hold both companies and governments to account for how resources are exploited and what happens to the wealth that is generated, so that the benefits accrue to the citizens who own them. This must involve disclosure down to a project level. 

Anything less is ‘pseudo-transparency’, where insufficient detail aids and abets looting.

RG: Global Witness has often highlighted the link between mineral wealth and corruption. In June 2013 you said that we now have an opportunity to create a new global standard of accountability. How?

ST: Global Witness conceived the Publish What You Pay campaign, and in June 2002, I was one of its co-launchers. This followed roughly five years of Global Witness’s investigations and exposés of a wide variety of corrupt relationships and deals in the oil sector. The launch of Publish What You Pay called for an international mandatory disclosure regime to require oil, gas and mining companies to make public what they pay, everywhere they operate.

The thesis was that you (a citizen of an oil-rich country) cannot easily ask where all the petrodollars went, unless you know how many there were and to whom they were paid. This simple call, which amounted to little more than standard practice in many EU countries and the United States, was largely seen at the time as outrageous and naïve. For the previous three or so years, I remember my numerous meetings with policymakers – even those who expressed support for our aim – being flavoured with incredulity. Often we were laughed at as hopelessly unrealistic.

During those three years, we had also been talking to a number of companies that had expressed support for an effort to create transparency around their payments. They had made it clear they wanted to create a voluntary mechanism to achieve this. 

Unfortunately, this effort was failing, for reasons too complex to go into here, one of which was the fact that only a handful of companies would even discuss the issue. We were not interested in only a few companies disclosing their payments. Instead, we needed to see all companies in a given country do it. How else could people find out how much money was being forked over, and examine the relationships between each company and the government? Thus it was time for something different.

To its credit, UK Prime Minister Tony Blair’s government responded to Publish What You Pay by launching the Extractive Industry Transparency Initiative (EITI). This multi-stakeholder initiative brings together companies, governments and civil society on an equal footing. Also to their credit, an increasing number of natural resource-rich countries have signed up to EITI, committing to disclose the payments they receive. This in turn ensures that the companies operating in those countries have to disclose the payments they make. The task of civil-society organisations is then to demand accountability. If, after a validation process, discrepancies come to light, they can ask for an explanation. Since its launch, the EITI Secretariat has become independent, and now resides in Norway. Its board has improved the minimal standards for compliance, and included in its new standards will be the requirement that companies disclose payments down to a project level. Some countries have expressed an interest in starting to road-test contract transparency, too.

This progress has been remarkable, given where we started. And some companies should be congratulated for their effort in helping to bring us to this point. That said, the EITI still has flaws. For example, the quality of disclosure varies a lot from one country to the next. Frequently, the information disclosed is out of date, making it hard to address inconsistencies. Also, the behaviour of some companies at the board has been less than helpful: some seek to minimise disclosure to the point where its benefits are questionable. Finally, there are many countries, some of which we have major concerns about, which are not participating in the EITI. Short of regime change, it is difficult to imagine when they are likely to do so.

Unfortunately - and this is not EITI’s fault - one of the consequences of some companies’ involvement has been to create a platform from which they have been able to present themselves as being pro-transparency, gaining kudos in the process. Meanwhile these same companies have simultaneously opposed efforts to create meaningful transparency - either within the EITI by resisting improved standards, or externally, by aggressively using legal means. (A good example is the companies that have sought to destroy Dodd-Frank 1504 through the US courts.)

EITI remains a work in progress. We expect it to continue to be refined as the new standards come into effect, ensuring a gradual ramp-up in the quality of disclosure in participating countries. This is good news, but it is not enough. We are still pursuing new global standards of mandatory disclosure, as originally envisaged with the launch of Publish What You Pay. This is vital, for two main reasons:

  • 1. So long as some countries do not join the EITI, this remains the only way to ensure the disclosure of payments made by extractive companies in those countries.
  • 2. Many companies have made and continue to make corrupt payments. These may not always be illegal, thanks to the efforts of expensive in-house lawyers, but often there is no other way to describe them. They form part of an often predatory relationship between the resource extractor and the country in question.

Mandatory disclosure of payments project by project, as required by Dodd-Frank 1504 and the EU Accounting and Transparency Directives, will make it more likely that illicit payments will be uncovered. And that, we would suggest, will mean they are less likely to be contemplated in the first place. Once these US and EU rules come into force, some 70% (by value) of the world’s extractive companies will be disclosing payments down to a project level.

This example is being copied elsewhere. Hong Kong has already required new issuers to disclose payments, and (as of the time of writing) there are moves underway in both Canada and Australia to create similar mandatory disclosure rules. We expect other jurisdictions will follow.
The scale of change, already undertaken and underway, strongly suggests that we now have a chance to create a new global standard of transparency, and therefore accountability, for the extractive sector. In my view this cannot come soon enough. The extractive industries have a history of predatory and corrupt behaviour, as we and others have documented. Though there are corporate supporters of transparency – and they should be congratulated - the continued effort by some to undermine it is regrettable. What have these companies got to hide?

One thing is for sure, the nay-sayers are now on the wrong side of history, and they are going to lose this fight.

RG: In your experience, what works best for an NGO: confronting global companies, co-operating with them, or working behind the scenes to trigger change in the way they operate? How do you decide which approach to take? Please give examples.

ST: I don’t think there is any one best approach. We at Global Witness have done all of the above. We choose how to proceed after considering the circumstances and the kind of company we are dealing with.

As a sweeping generalisation, persuading ‘Big Oil’ to change the way it does business is not easy. As I mentioned already, prior to the launch of Publish What You Pay, we had already spent nearly three years in various forms of engagement with those companies that would speak with us. These were the ‘usual crowd’ at the forefront of the so-called Corporate Social Responsibility (CSR) debate – and included Shell, BP, (then) Norsk Hydro, Statoil and a few smaller oil companies. They were keen to be seen as engaging with NGOs. But other big companies, such as Exxon, Chevron, Elf and Total, would simply not respond to any approaches we made. In the end, the launch of the Publish What You Pay campaign, and the subsequent creation of EITI, created the circumstances in which even these companies felt they had to engage.

I should emphasise that our approach is always to meet and discuss key issues with all stakeholders, and that includes the companies. Sadly, sometimes the only way to have such a dialogue is first to expose the company as being involved in some malfeasance. Obviously there has to be sufficient evidence for us to do this. But it works.

Exposures increase pressure on the company and the wider sector, or create enough public outrage that the company has to account for its behaviour. But that is not the only reason why we conduct investigations. The knowledge we gain while gathering evidence for an exposé is critical. It helps us understand corruption better, which is essential if we are to work out what to do about it. To ensure that anti-corruption measures are effective, all stakeholders need to be involved in implementing them- even if some of the players have to be pushed to do their bit.