The Panama files and the EITI’s ground breaking rules on ownership reporting

What role does the EITI play in revealing hidden owners?

The EITI is a standard for countries with oil, gas and minerals. The 51 EITI countries require all companies extracting oil, gas and minerals to publish what they pay in taxes and royalties and the government commits itself to publish what it receives, including other key information about the sector. The findings from early implementation concluded that such reporting was a good start, but that it was not enough. If transparency is a means to fight corruption and to improve accountability, it is important to include who actually owns the rights to extract. This is not so often a problem with big listed companies or nationally owned enterprises, but when privately owned companies are involved, the real owners behind the company are difficult to identify. The identity of the real owners – the beneficial owners – of the companies that have obtained rights to extract oil, gas and minerals is often unknown, hidden by a chain of unaccountable corporate entities. Often international companies are asked to go into partnership with companies about whom they claim to know little. Or companies buy up other companies claiming not to fully appreciate their history. Transparency of the payments have therefore to be accompanied by transparency of who is making the payments, of the companies and who is behind them.

Revenue transparency without ownership transparency is a bit like having number plates on cars but keeping the registry of who the plates belong to secret, even to the government itself. 

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.

This is why the 51 countries behind the EITI agreed earlier this year to adopt new rules on ownership reporting.

  • It is required that by 2020 the 51 countries request, and companies disclose, beneficial ownership information in the national EITI reports. The name, nationality, country of residence of the owner of companies that bid for, invest or operate extractive assets has to be reported. This is significant in that governments implementing the EITI should from now on know who owns the companies that express an interest in extractive assets and may thus take this information into account before they decide to award lucrative extractive assets to a company.
  • Politically exposed persons have to be identified.
  • The 51 countries have to already this year develop and agree roadmaps for how to achieve ownership reporting.

See further the Requirement 2.5 on page 20 of the EITI Standard.

Recent focus and talk about beneficial ownership reporting is welcome. Through the EITI, 51 countries are in an unprecedented way also collectively acting.

The Panama files confirm that persons behind oil, gas and mineral extraction may well use shell companies to hide behind. Attention on closing down the possibilities for hiding money in places like Panama is welcome. But it will not alone put an end to financial secrecy facilitating tax dodging and corruption. It has to be matched with better rules and enforcement in countries where the money is generated in the first place, which is why EITI’s new ownership requirements are so important.

It is not going to be easy for many of the 51 EITI countries to effectively put in place laws, regulations and procedures giving effect to the new EITI requirements. The EITI International Secretariat has estimated that it will cost some USD 14 million over the coming three years.

The international community, development agencies, centres of excellence and multi-lateral organisations like the OECD and targeted efforts like the EITI itself must now do their part by ensuring that poor countries with weak systems have the financial resources and capacity to bring an end to ownership secrecy when they sell their countries finite natural resources.

To find out more about the EITI beneficial ownership requirements see our factsheet.

For more information, please contact Victor Ponsford (vponsford@eiti.org)