Panama papers and identifying hidden ownership in the oil, gas and mining sectors.
From outrage to solutions: Identifying who owns the world’s oil, gas and mining companies and preventing corruption in the extractive sector
On Wednesday 1 June 2016, people filled the Litteraturhuset on one of Oslo’s first beautiful summer days to participate in a panel debate about who owns extractive companies.
Speakers included: Fredrik Reinfeldt, EITI Chair; Zainab Ahmed, Minister of State Budget, Nigeria; Carine Smith Ihenacho, Chief Compliance Officer, Statoil; Siri Meling, Member of Parliament, Conservative Party, Norway; and Sigrid Klæboe Jacobsen, Director of Tax Justice Network, Norway. Kalle Moene, Professor of Economics, University of Oslo, moderated the debate.
Below are the EITI Chair’s opening remarks:
“The Panama Papers have raised unprecedented global attention around the issue of hidden ownership and this has confirmed how anonymous companies are too often used for money laundering, corruption and bribery; underscoring the stories that civil society for years have worked to put into light.
Hidden ownership is an issue all around the world and in all sectors. It is a particular challenge in the extractive sector for two reasons:
- Firstly, natural resources are finite and belong to the citizens of the country. Although there might be a need for beneficial ownership transparency in all sectors, the benefits of oil, gas and minerals should reach the people who live in the countries endowed with such resources. There is thus a case for demanding greater scrutiny over who owns and profits from the extractive activities.
- Secondly, in countries that are rich in natural resources, the extractive sector is often dominating the country’s economy, generating billions of revenues to companies and governments every year. In many cases, oil, gas and mining projects are run by responsible companies with the necessary technical and financial skills, and who intend to develop the resources for the benefit of both the company and the people who live in the country. However, experience has equally shown that in many cases, in particular in countries with weak institutions and governance, rights to extract oil and minerals may be given to companies that do not have such competence or intentions. Rather, companies may be given access to lucrative extractive projects because their owners are politically connected, or because their owners are willing to engage in questionable deals aimed at generating quick profits for a few rather than benefits for wider society. People who live in resource rich countries are at particular risk of losing out as extractive assets are often misallocated for corrupt reasons. It has been estimated that developing countries lose USD 1 trillion each year as a result of corrupt or illegal deals, many of which involve anonymous companies.
It has been estimated that the Democratic Republic of the Congo lost at least USD 1.36 billion in the period 2010-2012 from the sale of five mining deals to offshore companies whose owners were hidden behind a chain of shell companies. According to DRC’s EITI Reports, this is about the same as the country’s annual revenue from oil, gas and mining in the same time period.
Nigeria’s EITI Reports have shed light on how the Nigerian government lost over a billion USD in the period 2009-2014 due to connections between oil companies and influential beneficial owners acting behind the scenes. Tracing and recovering Nigeria’s stolen assets is now one of President Buhari’s top priorities, and beneficial ownership transparency is central to that goal.
Two years ago, Ukraine became one of the first countries in this world to pass legislation requiring beneficial ownership transparency. Their newly established beneficial ownership register has shed light on the ownership held by the ex-President’s son, as well as the ownership held by some hugely influential so-called oligarchs.
These examples help explain why the 51 EITI implementing countries agreed earlier this year to introduce new rules on beneficial ownership reporting. They agreed that any company that operates in, bids for or invests in extractive projects in their country must publicly disclose who the beneficial owners are. Although the global fight against secret company ownership has gained great momentum in recent years, no country has made complete beneficial ownership information publicly available. EITI’s new requirements will thus contribute considerably to the global movement against anonymous companies. Discussions about a public beneficial ownership register is moving forward in Norway.
A key reason for the outrage around the Panama papers is the extent to which they revealed that our leaders – presidents, ministers and other officials – have been implicated in dodgy deals. Although it might not be illegal for government officials - or so called Politically Exposed Persons - to hold ownership in oil, gas and mining companies, the Panama papers shed light on how such ownership has often been the result of conflicts of interests. This is why the EITI’s also requires any Politically Exposed Persons to be transparent about their ownership in oil, gas and mining companies.
There has been considerable attention in recent weeks on closing down the possibilities for hiding money in places like Panama. This is welcome. But it will not alone put an end to financial secrecy facilitating tax dodging and corruption. Such efforts have to be matched with better rules and enforcement in countries where the money is generated in the first place. This is why it is such a significant sign of leadership that the 51 implementing countries have committed to this form of ownership disclosure.
Getting the information about who owns the extractive companies out in the open is only half of the job. Law enforcers, civil society and others have a huge responsibility in scrutinizing the data, understanding what it means, and encouraging action to hold malpractice to account and prevent it in future. Only then will beneficial ownership transparency bring about change and ensure that the benefits of extractive activities are evenly distributed.
We should not underestimate the effort that it will require to compel companies to provide beneficial ownership information. It may require legislative changes, institutional reform and broad consultations. Many countries will need support and technical assistance in order to make progress. It is important that we work together so that we can learn from each other on what works and what doesn’t.”