The state of oil, gas, and mining transparency on International Anti-Corruption Day
“Public enemy No. 1.” ~The World Bank
“A cancer.” ~Vice President Joe Biden
“Like bad breath, it is hard for the one who has it to realize it; others realize it and have to tell him.” ~Pope Francis
Today is International Anti-Corruption Day, created by the United Nations to raise awareness of corruption and its consequences, whatever you call it.
Corruption robs people in the developing world of billions of dollars every year. The oil, gas and mining sector is particularly vulnerable. Oil and mining projects can generate hundreds of millions of dollars, but in too many countries, these moneys flow through weak institutions, whose inner workings are completely hidden from the public and even legislators. These environments are a breeding ground for corruption around oil and mineral development, robbing local communities of resources to fund essential services like health, education and sanitation.
The breadth of corruption
- According to the Organization for Economic Cooperation and Development, nearly 20% of foreign bribery cases analyzed involved the extractives industry.
- Africa loses $148 billion per year to corruption, far more than it receives in aid, according to the African Union.
- More than 60 percent of the world’s poorest people live in countries rich in natural resources—but they rarely share in the wealth.
- In Africa, an estimated $50 billion every year is lost to illicit financial flows. This is equal to 5.7 percent of Africa’s GDP, and exceeds public spending on health.
This is a huge problem and is why Oxfam’s extractive industries campaign is focused on fighting corruption in the extractives sector by increasing transparency in the massive financial flows between companies and governments. Transparency about payments that companies make to governments can help communities and citizens track those revenues and ensure they are not lost to corruption and waste, but instead are managed responsibly by local and national governments.
Transparency and how corruption works in the extractives sector
While transparency will not solve all of the issues surrounding extractive projects, it is “low hanging fruit” and is a necessary ingredient to prevent and resolve conflicts and fight corruption.Some companies will argue that transparency laws aren’t needed since they are covered by the US Foreign Corrupt Practices Act or the UK Bribery Act, for example. But these laws only cover bribes paid and don’t require disclosure of “legitimate” payments made under oil contracts or mining agreements. Those companies that continue to obstruct transparency are themselves complicit in helping to foster an environment of government corruption and mismanagement in the use of these revenues.
In many countries, including many where U.S companies have a presence, a percentage of the total project payments these companies make is received by national governments and then transferred to local governments in the project area. But corrupt officials routinely skim money off of these transfers and collude with local private sector contractors to inflate project costs to reduce their tax liabilities. As a result, countries rich in natural resources often have higher rates of poverty and inequality.
The negative impacts caused by corruption in resource-rich countries
- In Nigeria, $300 billion in oil revenues has ‘disappeared’ since the 1960s, leaving little tangible impact on a nation virtually devoid of paved roads, where more than 60 percent of the population lives on less than $1.25 a day.
- Equatorial Guinea is one of Africa’s biggest oil producers and has one of the highest GDPs per capita in sub-Saharan Africa. Yet most of the country lives in extreme poverty: 75 percent of the population is below the poverty line, 50 percent don’t have access to safe drinking water, and 10% of children die before the age of five. The most striking and blatant corruption? The president’s son lived a lavish lifestyle, spending millions of dollars on mansions in California and an impressive collection of Michael Jackson memorabilia, despite having a small government salary.
- In Peru, the Antamina Project earned $1.4 billion in profits in 2013. But as of today, the district of San Marcos, where the mine is located, has no paved highways, no hospital, and no water treatment plant. Nearly one third of toddlers suffer from chronic malnutrition – double the national average. San Marcos receives large royalty transfers from the national government, and the Antamina project sponsors have spent $314 million between 2007 and 2013 on infrastructure and social projects in the region, but poor communities are not seeing the results.
- Despite being the fourth largest producer of gold in Africa, Burkina Faso ranks among the 10 poorest countries in the world, and nearly half of its 17 million citizens live in poverty. Last year, the country generated $390 million from gold mining at about eight different active mines. With such large amounts flowing into government coffers and the recent overthrow of the President, Burkina is at a dangerous crossroads. Transparency, especially around the lucrative mining sector, will be essential during this transition period to maintain stability and prevent the state looting and conflict we’ve seen in other resource-rich countries transitioning from dictatorship. Corrupt officials will be jockeying for power over mining projects, and incentives will be ripe for them to siphon mineral revenues away from already impoverished and suffering local communities.
The state of the fight for transparency on International Anti-Corruption Day
In order to reduce corruption and hold governments accountable, transparency laws for the oil, gas and mining industry are moving forward in the US, Europe, Norway, and Canada, which will cover most of the companies operating oil and mining projects in developing countries. This month, UK transparency regulations have come into force, meaning companies such as BP and Shell will have to report their payments in every country of operation – down the project level – starting in 2016. Several other countries have also committed to finishing EU transparency laws quickly, including France, Germany and Sweden. By mid-2015, all 28 EU member states will have implemented rules.
We’re hoping the US finishes its own oil, gas, and mining transparency law by early next year, so that corruption stops robbing the lives of thousands of communities around oil, gas, and mining projects all over the world.