The European parliament has overwhelmingly voted in favour of legislation compelling oil, gas and mining companies to publish payments they make to governments and release information on their earnings in each country.
The new accounting and transparency directives bring the EU into line with disclosure rules adopted under the Dodd-Frank Act in the US last year, boosting efforts to shine a spotlight on the extractive industries ahead of the G8 summit in Northern Ireland. Next week’s meeting, which will be chaired by David Cameron, will focus on the three Ts – tax, trade and transparency.
Under the new EU laws, European companies are obliged to report payments of more than €100,000 (£85,000) made to the government in the country in which they operate, including taxes levied on their income, production or profits, royalties, and licence fees.
Companies have to disclose the payments they make at project level as opposed to just government level, revealing the sources of taxable government income from the extraction or logging sectors. An oil company working in Nigeria, for example, will need to disclose the royalties paid to the Nigerian government relating to every project it operates in that country.
Euro MP Arlene McCarthy, the European parliament’s rapporteur for the new transparency laws, said: “The vote today is history in the making. The new rules will be a major new weapon in the global fight against corruption, ensuring that citizens of resource-rich countries can hold their governments to account for the exploitation of their natural resources.”
The EU directives go a step further than its US equivalent, including the forestry industry among the sectors that need to be more transparent about their global operations. Between them, the EU directives and US law will cover about 70% of the value of the global extractive industries.
“Today Europe sealed a deal that will enable ordinary people in Angola, Nigeria, and beyond to know how much oil, gas and mining companies pay to their governments – a great game-changer for activists fighting extreme poverty,” said Bono, co-founder of ONE, the anti-povery group. “It’s a great momentum builder for next week’s G8, when more progress on transparency must be made, to help turbocharge the fight against extreme poverty and hunger.”
The new transparency rules come amid concern that African governments are not benefiting as much as they should from the extractive and logging industries and that the wealth is not being spread evenly, particularly in countries such as Angola and Equatorial Guinea.
The African Development Bank (AfDB) and Global Financial Integrity (GFI), a US research organisation, last month said Africa lost up to $1.4tn in illicit financial flows in 1980-2009, far exceeding money coming in over the same period and seriously undermining the continent’s development.
Illicit financial flows involve the transfer of money earned through corruption, bribes, tax evasion, criminal activities and transactions involving contraband goods. But tax evasion and illicit financial flows are now of concern to western governments as well. There has been uproar in the UK that companies such as Google and Apple manipulate the tax system to their advantage to reduce payments to the British government.
The European commission estimates that the EU economy loses about €1tn as a result of tax evasion by both private persons and companies. Transparency campaigners say the EU legislation and the Dodd-Frank law are milestones in the campaign for transparency in the extractive industry and set a global benchmark for corporate transparency that should be replicated in other industries.
Crucially, the EU rules will not contain any exemptions. Oil companies, including Shell and BP, lobbied to water down the EU directives, claiming there were countries which forbid the disclosure of payments to governments in their criminal law. European MPs rejected the oil industry’s arguments, but oil industry lobbyists are currently attempting to block the US law through a legal challenge filed by an oil industry trade association, the American Petroleum Institute.
Transparency International is recommending that all national governments require companies to report on a country-by-country basis and said the G20 should endorse the EU’s legislation as the “global standard”, so that there is a level playing field for businesses.
“This is a huge victory for the transparency movement and we commend the parliamentarians and officials from the member states and the commission who have championed this legislation,” said Brendan O’Donnell, who leads Global Witness’s oil campaign. “The new EU laws show that momentum towards a global transparency standard for the extractive industries is virtually unstoppable. Shell, BP and others should stop swimming against the tide of transparency and rescind their effort to kill off similar legislation in the US.”
In a boost for transparency campaigners, Stephen Harper, the Canadian prime minister, confirmed that Canada will enact similar legislation.
Ali Idrissa, from the umbrella group Publish What You Pay in Niger, said: “In revealing payments, this legislation will support us in our campaigning so that we can call on our governments to spend the revenues in a way that will benefit current and future generations.”
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