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Richard L. Cassin Publisher and Editor

Julie DiMauro Executive Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Contributing Editor

Eric Carlson Contributing Editor

Michael Kuria Contributing Editor

Thomas Fox Contributing Editor

Philip Fitzgerald Contributing Editor

Marc Alain Bohn Contributing Editor

Michael Scher Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

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« Compliance Program Rankings – What Factors Really Matter? | Main | A Granular Look At Latin American Corruption »
Wednesday
Jul252012

Pro or Con? The Extractive Industries Disclosure Debate

The SEC will decide in August on implementing rules under Dodd Frank whereby natural resource extraction companies (public ones) will have to disclose all payments to foreign governments -- even payments that are entirely legal and above board.

Many companies oppose the proposed rule. They think it's intrusive and unnecessary and may compromise proprietary commercial data (such as costs of overseas concessions).

Those favoring disclosure -- most vocally certain NGOs -- believe it is the only way to hold rulers accountable, particularly those in poor, energy-rich countries where billions of dollars are changing hands.

We asked the editors for their views.

Michael Scher

Dodd-Frank is already the law and thus the issue is not whether such transparency should become the law. The larger policy issue has been resolved by passage of the law.

The opposing argument is primarily that U.S. companies will lose out to other countries that do not have this kind of transparency requirement. That is, the foreign governments will pick countries that can keep secret (non-transparent) the payments to government officials.  

I do not find that argument persuasive without more support. Why? U.S. business is attractive for many reasons, such as superior technology. Other countries may have similar laws now and in the future -- just as the FCPA spread through the OECD. American policy does not support competition by using bribes and other illegal means -- a point long made under the FCPA.

I support the long-term view that global business (American included) requires new, global ethical thinking. The global public should and will demand it. For example, Apple recently revised its global supply chain audits in response to pressure on its labor practices in China. If American business has the leverage of $100 billion invested annually, it can expect demands for transparency to balance that leverage. How would Americans feel about secret contributions in the billions to American government officials?

Philip Fitzgerald

Throughout my thesis I was never totally satisfied that I knew the reasons why the FCPA was enacted. I wrote that it rose from the burning embers of the Watergate scandal and was signed into law by President Carter partly on moral grounds. I couldn't, however, help thinking that the FCPA is also a way of controlling who does what and where (especially with regard to extra territorial jurisdiction). Moreover, the FCPA is now, in a way, international law, as several of the international anti-bribery conventions are based on it, notably the OECD Convention.

How is that history relevant to the proposal under Dodd Frank?

With reference to Prof. John Ruggie, I've written that blending the protection of human rights with good business could be the future of the combat against bribery. If one can say that the true motivation behind the proposed Dodd Frank disclosure rule is ethics (in this case public accountability), then I think it's a very good proposition.

Last thought (and without research): could some of the Dodd Frank provisions become international law in the way that the FCPA has done (through notably the OECD Anti-bribery Convention)? Could that be a long term goal?

Elizabeth K. Spahn

We have a history of trying less draconian measures to ameliorate what Nobel Prize economist Joseph Stiglitz called the natural resources curse (NRC).

We tried economic and sociological analysis so that foreign investors/resource developers were more aware of very harmful collateral consequences. Turned out it was not a problem of lack of understanding the harm. 

The Publish What You Pay Initiative, originating in a 1999 report "Crude Awakening" by Global Witness, was formed by a coalition of 6 major NGOs in 2002. A voluntary initiative of resource rich nations, natural resource developers and local NGOs in 50 countries, the coalition now has 650 members. Under pressure from the PWYP coalition, the European Union is considering mandatory disclosures of payments to foreign governments for access to natural resources. A primary goal of the PWYP initiative is to enact hard laws requiring mandatory disclosure of payments to governments for access to natural resources.

When voluntary private market and NGO checks have been tried and found ineffective, and where the harms are well documented and very significant, then it seems to me that 'smart' regulation is called for.

Regulating by presumptive disclosure, with an administrative appeal process to protect actual proven trade secrets or intellectual property rights, should be fine. Transparency in disclosure of market prices, commissions, fees, and other overhead costs will aid competitive markets. The goal is more competitive markets, more transparency in the interactions between private sector developers and governments controlling valuable natural resources.

It's not rocket science, the SEC has plenty of horsepower to figure this out -- maybe talk to the Patent Office about genuine intellectual property protections. I do think the SEC will need additional staff to implement and get it up and running.

Andy Spalding

On Section 1504:

As you all know (all too well), I think about whether the effort to deter bribery will result in deterring FDI in developing countries. I tend to think that here, the investment deterrence would be minimal because the rule does not prohibit any additional conduct. It merely imposes a reporting requirement that strikes me as only slightly cumbersome. To the extent that this is true, I support the rule. But I would add one caveat: the SEC should not require companies to disclose with any greater specificity than is absolutely necessary, so as to reduce the risk of revealing proprietary information. Let companies report ballpark figures.

Richard L. Cassin

Let's promote voluntary disclosure (publish what you pay) instead. Let directors, officers, and shareholders (under pressure from NGOs, the press, and public opinion) decide when and how to report legal payments to foreign governments.

Kleptocrats need to go. But capitalism needs to stay. It's like an eight-lane superhighway. Without any rules of the road, capitalism is dangerous for everyone and people get hurt. With too many rules, traffic slows to a crawl and finally stops.

On America's capitalist superhighway, corporations already face dizzying tax and regulatory regimes. And as anyone who has to report foreign corporate ownership to the IRS knows, disclosure requirements always grow and never stay the same.

Let's draw the line somewhere. Congress should roll back this part of Dodd Frank. We can all push for voluntary disclosure. At the same time, the DOJ and its foreign counterparts can target all rulers (friends and foes) who abuse the international banking system, launder money, and commit crimes against humanity. That should cover every kleptocrat on the planet.

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