The US withdraws whilst others persist

Last week, the United States decided to withdraw from implementing the EITI. The letter announcing the decision stated that “While the U.S government remains committed to fighting corruption in the extractives industry sector, and the ideals of the transparency enshrined in the EITI Principles and the EITI Standard, it is clear that domestic implementation does not fully account for the U.S legal framework”.

It is hard to tell what impact this reasoning may have on the stance of other EITI countries, in particular countries that are currently considering applying for membership. Indeed, until 2013, the EITI Rules stated that “where legal, regulatory or other obstacles to EITI implementation exist, it is required that the government removes these”. Although the EITI Principles recognise that “…achievement of greater transparency must be set in the context of respect for contracts and laws”, the EITI Rules suggested that, if deemed necessary, countries propose or enact legal or regulatory changes designed to enable transparency. When a country commits to open up its extractive sector and for the first time enable accountability for the payments that the government receives, it is to be expected that this might require institutional and legal reforms. This is why the EITI Standard still requires countries to identify and outline plans to address any potential legal or regulatory obstacles to EITI implementation, including, if applicable, any plans to incorporate the EITI Requirements within national legislation or regulation (Requirement 1.5.c.iii).

Many countries that are currently implementing the EITI have done just that. In 2007, Nigeria became the first country to enact legislation mandating NEITI to receive and publish information on taxes and other payments made by oil, gas and mining companies to the government. In 2009, Norway passed a regulation authorising the annual publication of payments from the companies operating on the Norwegian shelf. This regulation has subsequently been complemented with additional regulations mandating publication of taxes and other payments by each individual license in accordance with the Accounting Directive and Transparency Directive of the European Union. In 2010, Kazakhstan embedded mandatory disclosure of all payments to the government as part of the contractual obligations of all oil, gas and mining companies through its Law on Subsoil Use. Other countries have followed suit. Research conducted by the EITI in 2016 shows that about 20 implementing countries now have laws or contracts that mandate disclosure of payments by companies. Many more have managed to achieve similar results through Decrees or use of waivers. This shows that while tax secrecy and confidentiality clauses were indeed a challenge to tax transparency for many EITI countries in the early days, the recent experience both within in the EITI as well as with the implementation of mandatory reporting requirements in the EU is that such transparency is now a norm.  While the US was pursuing this track through Section 1504 of the Dodd Frank Act, it is unfortunate that the repeal of the implementing regulations earlier this year led the US government to conclude that the EITI is not compatible with the country’s legal framework.

As this week’s stories from the Paradise leaks have shown, we have a long way to go to ensure transparency for example in fiscal arrangements, how companies are awarded contracts and who owns and benefits from oil, gas and mining activities. The US withdrawal sadly puts an end to the contribution that the EITI could have played to ensure that companies that apply for or hold oil, gas and mining licenses in the US disclose who their beneficial owners are.

As the US withdraws from implementing the EITI, Mexico has joined, putting transparency at the center of its reforms of the oil and gas sector. Countries like Indonesia and Nigeria recently made unprecedented commitments to beneficial ownership transparency at the EITI’s beneficial ownership conference in Jakarta. It is encouraging that these large growing economies are acknowledging that we can do better and are taking the lead in bringing about change.