Author
Joseph WilliamsToday the Extractive Industries Transparency Initiative (EITI) released new reporting guidelines for commodity traders that buy oil, gas and minerals from governments. These guidelines are a positive development and companies should choose to follow them.
However, their voluntary nature means that comprehensive disclosure of detailed information is unlikely in the near term. For this reason, authorities in jurisdictions where commodity traders are based should move to legally require the disclosure of these sizeable payments.
Commodity trading firms like Vitol and Trafigura and the trading divisions of international oil companies like BP and Shell make significant payments to government-controlled national oil companies (NOCs). Such payments constitute some governments’ largest revenue streams––as in Angola, Iraq, Libya and Nigeria. NRGI research into ten NOCs found that, in 2018, oil and gas sales amounted to over 70 percent of these countries’ overall income, totaling over USD 860 billion.
These transactions present major corruption risks, which can result in citizens being robbed of revenues. In 2019 it was reported that the U.S. Department of Justice (DOJ) was investigating an oil trader working for Brazil’s NOC, Petrobras, who has been charged in Brazil with “taking part in a corruption scheme involving commodity traders Vitol, Glencore and Trafigura.” Last week, the DOJ indicted an oil trader for “his alleged participation in a five-year international bribery and money laundering scheme involving corrupt payments to Ecuadorian officials,” including at Ecuador’s NOC, Petroecuador.
Despite the scale and corruption risks of such transactions, only three trading companies have voluntarily disclosed any details about them to date. This is wholly inadequate. All trading companies, including those which helped to develop the new guidelines (BP, Equinor, Glencore, Gunvor, Mercuria, Shell, Total, Trafigura and Vitol), should quickly implement the new EITI guidelines.
The guidelines provide flexibility on the level of detail that companies should report on their purchases from governments and government-owned companies. However, the EITI has also made clear that citizen oversight will benefit from more detailed disclosures, such as on a cargo-by-cargo basis. The guidelines can also be applied to all commodity-producing countries––rather than only to EITI member countries, which only account for approximately 10 percent of global oil sales.
Importantly, the guidelines apply to situations where traders extend credit to resource-rich countries in return for oil, gas or minerals in the form of resource-backed loans. These loans can be risky for producer countries. They certainly deserve greater scrutiny, particularly given the debt crises resource-dependent countries are suffering during coronavirus.
Indeed, with the economies of resource-rich countries under immense strain given the pandemic, falling oil prices and the challenge of moving to a low-carbon future, transparent oversight of every dollar made from the extraction or sale of natural resources is more urgent than ever. The new EITI guidelines are an important step, but ultimately authorities in the world’s major trading hubs should require companies to disclose the payments they make to purchase oil, gas and minerals from governments.
Some governments are beginning to make progress in this direction. Earlier this year Switzerland passed a law that authorizes the Federal Council, the country’s executive, to apply new transparency provisions to Swiss commodity traders as part of an international process by which authorities in other major trading hubs would make a similar move. And last year the U.K. committed to “establish and implement a common global reporting standard” in this area, noting that “the largest payment stream missing from mandatory disclosure is payments to governments for the sale of publicly owned oil, gas and minerals (commodity trading), an area where corruption risk is acute.” Finally, the U.S. Securities and Exchange Commission has acknowledged the significance of these payments and has an opportunity to include them in final rules for its own transparency law expected later this year.
In order to give citizens, civil society and regulators sufficient visibility of these huge transactions, trading companies must use the new EITI guidelines to make disclosures now. For their part, the governments of trading hubs––including the Netherlands, Singapore, Switzerland, the U.K. and U.S.––should legally require trading firms to disclose their payments. Only in this way will we secure long-term transparency around this still-opaque corner of natural resource markets.
Joseph Williams is the advocacy manager of the Natural Resource Governance Institute.
However, their voluntary nature means that comprehensive disclosure of detailed information is unlikely in the near term. For this reason, authorities in jurisdictions where commodity traders are based should move to legally require the disclosure of these sizeable payments.
Commodity trading firms like Vitol and Trafigura and the trading divisions of international oil companies like BP and Shell make significant payments to government-controlled national oil companies (NOCs). Such payments constitute some governments’ largest revenue streams––as in Angola, Iraq, Libya and Nigeria. NRGI research into ten NOCs found that, in 2018, oil and gas sales amounted to over 70 percent of these countries’ overall income, totaling over USD 860 billion.
These transactions present major corruption risks, which can result in citizens being robbed of revenues. In 2019 it was reported that the U.S. Department of Justice (DOJ) was investigating an oil trader working for Brazil’s NOC, Petrobras, who has been charged in Brazil with “taking part in a corruption scheme involving commodity traders Vitol, Glencore and Trafigura.” Last week, the DOJ indicted an oil trader for “his alleged participation in a five-year international bribery and money laundering scheme involving corrupt payments to Ecuadorian officials,” including at Ecuador’s NOC, Petroecuador.
Despite the scale and corruption risks of such transactions, only three trading companies have voluntarily disclosed any details about them to date. This is wholly inadequate. All trading companies, including those which helped to develop the new guidelines (BP, Equinor, Glencore, Gunvor, Mercuria, Shell, Total, Trafigura and Vitol), should quickly implement the new EITI guidelines.
The guidelines provide flexibility on the level of detail that companies should report on their purchases from governments and government-owned companies. However, the EITI has also made clear that citizen oversight will benefit from more detailed disclosures, such as on a cargo-by-cargo basis. The guidelines can also be applied to all commodity-producing countries––rather than only to EITI member countries, which only account for approximately 10 percent of global oil sales.
Importantly, the guidelines apply to situations where traders extend credit to resource-rich countries in return for oil, gas or minerals in the form of resource-backed loans. These loans can be risky for producer countries. They certainly deserve greater scrutiny, particularly given the debt crises resource-dependent countries are suffering during coronavirus.
Indeed, with the economies of resource-rich countries under immense strain given the pandemic, falling oil prices and the challenge of moving to a low-carbon future, transparent oversight of every dollar made from the extraction or sale of natural resources is more urgent than ever. The new EITI guidelines are an important step, but ultimately authorities in the world’s major trading hubs should require companies to disclose the payments they make to purchase oil, gas and minerals from governments.
Some governments are beginning to make progress in this direction. Earlier this year Switzerland passed a law that authorizes the Federal Council, the country’s executive, to apply new transparency provisions to Swiss commodity traders as part of an international process by which authorities in other major trading hubs would make a similar move. And last year the U.K. committed to “establish and implement a common global reporting standard” in this area, noting that “the largest payment stream missing from mandatory disclosure is payments to governments for the sale of publicly owned oil, gas and minerals (commodity trading), an area where corruption risk is acute.” Finally, the U.S. Securities and Exchange Commission has acknowledged the significance of these payments and has an opportunity to include them in final rules for its own transparency law expected later this year.
In order to give citizens, civil society and regulators sufficient visibility of these huge transactions, trading companies must use the new EITI guidelines to make disclosures now. For their part, the governments of trading hubs––including the Netherlands, Singapore, Switzerland, the U.K. and U.S.––should legally require trading firms to disclose their payments. Only in this way will we secure long-term transparency around this still-opaque corner of natural resource markets.
Joseph Williams is the advocacy manager of the Natural Resource Governance Institute.