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Transparency in Extractives: EU, Canada and Switzerland

June 13, 2013

Solomon Appiah

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Introduction

One of the main themes of the fantastic Africa Progress Report 2013 on Equity in Extractives is

transparency. This lack of transparency in the extractives sector is the bane of many developing

countries—who cannot hold their governments accountable because the international

economic system is set up in such a way as to promote opaqueness. Is it any wonder financial

institutions were able to take advantage of this and so mismanage the global economy that a

global recession resulted? Lack of transparency costs developing nations billions of dollars each

year. It shields transnational corporations (TNCs) as well as governments in sub-Saharan Africa

and other developing regions from scrutiny. Behind this cloak of secrecy, tax evasion and

avoidance and other forms of illicit cash outflows are carried out with impunity with possibility

of detection being slim to none. Thankfully since the mid-2000s, there has been a growing

movement of civil society organizations pushing for more transparency specifically in the

extractives industry. If transparency becomes the order of the day, billions and possibly trillions

of dollars in illicit transfers could be detected and stopped. The good news is this has begun

and promises to continue. Much of the global north including the G8 seem to be moving more

and more in the direction of removing the opaque barriers that have stood in the way of

transparency for a very long time and this is to their advantage. Why? To quote from p.92 of

the Africa Progress Report 2013. “If the international community comes together to tackle tax

evasion [by promoting transparency], rich countries as well as poor will gain as the losses

associated with aggressive tax planning diminish. By the same token, when there is a deficit of

trust [because of upholding the culture of opaque deals and contracts] there are no winners –

and resource governance in Africa [and elsewhere] has long been blighted by a lack of trust”.

The portion in square brackets are my insertions. Sadly many folks are unaware of the true cost

of a lack of transparency and the resulting illicit transfers this facilitates. To have an idea of the

magnitude of loss that opaqueness facilitates, Kevin Watkins, Executive Director of the

Overseas Development Institute (ODI) explains in a recent article that, "What is less widely

recognised is the harm inflicted on the poorest countries. Trade mispricing – a practice that

facilitates the shifting of profits to low-tax jurisdictions – costs developing countries in excess of

US$550bn annually: more than five times annual aid flows". This effectively means if the globe

would only practice equity in business and promote transparent business transactions and stop

trade mispricing, developing countries would not need aid anymore because they would have

the equivalent of five times as much money as they get from aid coming to them. Note this

US$550bn is with regard to only trade mispricing i.e. not inclusive of what is lost through tax

evasion and other forms of tax avoidance plus other illicit leakages. According to the latest

report by Global Financial Integrity, "Between 1980 and 2009, the economies of Africa lost

between US$597 billion and US$1.4 trillion in net resource transfers away from the

continent." It is therefore a no brainer to stand up for transparency in global economic

transactions that make such illicit transfers difficult to do without being caught. It is therefore

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a no brainer for any empathetic being to stand up for transparency in global economic

transactions. This is why the developments within this area are such a cause for hope. Let’s take

a look at some positive developments.

United States of America

An excerpt from the 2013 Africa Progress Report published by Mr. Kofi Annan and the Africa

Progress Panel (APP) which he chairs reads as follows:

“In July 2010, the United States Congress passed the Dodd–Frank Wall Street Reform and

Consumer Protection Act. Its Section 1504 represents a landmark, requiring full disclosure of

“any payment made by the resource extraction issuer, a subsidiary of the resource extraction

issuer, or an entity under the control of the resource extraction issuer to a foreign

government … for the purposes of the commercial development of oil, natural gas, or

minerals.” In 2012, the Securities and Exchange Commission (SEC), the principal government

agency responsible for regulating the US financial sector, adopted the final rules for

implementation of the legislation. Companies will be required to file annual reports with the

SEC. Critically, the reporting will require public disclosure of all payments in excess of

US$100,000 on a project-by-project basis”.

This is a great move by the USA taking the lead among the G8. Regrettably other countries who

are major players in the extractives industry like the EU, Canada and China were not as keen on

pushing for such regulations. Probable reasons for this are outlined in the aforementioned

report. Fortunately after much deliberation, the EU has agreed to follow the USA’s example.

European Union

On June 12, 2013, the European Parliament approved EU Transparency and Accounting

Directives. This move was applauded by Mr. Kofi Annan and the APP which he chairs. The press

statement from the APP states, “The vote in the European Parliament creates a binding legal

requirement for EU-listed and large privately owned oil, gas, mining and logging companies to

publish all payments over €100,000 to governments in every country where they operate. This

brings the EU in line with similar extractive industry transparency rules in the United States,

under the 2010 Dodd-Frank Act, that will take effect this year.” This is a great gesture by the EU

who initially resisted transparency in a bid to protect their business interests overseas.

Canada

Canada is home to some of the world’s largest mining companies yet had long resisted the

transparency movement in extractive transactions. On June 12, 2013, Canada announced that it

will “now establish new mandatory reporting standards brings the country in-line with the

direction taken by the US and the EU” says the press release from the Africa Progress Panel.

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What a landmark decision considering how much influence Canada wields in the extractives

sector.

Switzerland

Like Canada, Switzerland is a huge player in the commodities market. The Bern Declaration

issued a press release just a day before the EU adopted its new transparency measures which

reads, “On the eve of the adoption of new EU transparency rules for commodities companies,

Switzerland has now also taken the next political step. As today's decision by the National

Council shows, there is now broad consensus that the Swiss commodity trading hub needs

mandatory transparency standards.” This is again amazing and worthy of note. WOW! Now that

was not expected but very welcome. The press release concedes that, “The increasing pressure

on Switzerland is also reflected in the recent success of international transparency efforts”.

Kudos to the international movement for transparency.

China

China is still resisting the move. Hopefully she will join sometime. Ultimately, it is in China’s best

interest to join because the days of blatant opaqueness of deals impoverishing millions seems

to be numbered. China will have to either join sometime in the near future or risk possible loss

of trade to those who practice open business.

Why now?

For centuries, opaqueness of deals has been the modulus operandi in extractives sector. The

international system is set up this way. Why then such drastic moves towards transparency? In

an enlightening World Economic Forum blog entry titled, The crumbling silos of secrecy

authored by the Executive Director of the Africa Progress Panel Secretariat, Caroline Kende-

Robb, we get a clue as to a possible motivation for the agreeableness of the Global North

towards a shift to more transparency. Caroline Kende-Robb explains, “As austerity bites in

many G8 countries, citizens are demanding fairness and action. They feel cheated, and will no

longer tolerate secret deals, illicit financial flows and tax havens that stash money away for the

rich”. She adds, “In Africa, too, citizen opposition is growing to the squandering of oil, gas and

mining resources as evidence emerges of undervaluation, shady deal making and

mismanagement”. Who would have thought that any good thing could have come from the

global economic downturn? It makes absolute sense that the Global North and South would in

such a time of austerity measures push for more transparency as a means of stopping some of

the hemorrhages in the global economy. Needless to say, this should have been done eons

ago—but better late than never. Kudos to the US for leading the pack and to the EU,

Switzerland and hopefully Canada for following suit.

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The author Solomon Appiah is a native of Ghana and ardent advocate for strategic public policies that advance the development of sub-Saharan Africa.

Twitter: @solomonappiah5 Blog: http://solomonappiah.wordpress.com Email: phronesis@hushmail.com

The cover foto is courtesy of Mishel Churkin