Following the Money

Opening data, building trust

In many countries, corruption can deprive the population of resources needed to finance development and reduce poverty. This is why ‘following the money’ is at the core of the EITI’s mandate. By disclosing who owns the companies that hold exploration and operating licenses, the terms under which these projects are contracted and how much revenue governments are receiving, concerned citizens can better understand risks such as hidden ownership, opaque contracting procedures and unaccountable revenue collection and management. It also ensures a fairer and more predictable operating environment for companies.

 

Analysing the economic and social impact of a project works best when combining various forms of data. In addition to knowing how much companies are paying, one should also find out who is benefiting and under what terms. Therefore, project-level EITI reporting will be most effective when combined with beneficial ownership data and publicly-disclosed contracts.

 

Beneficial ownership transparency

Understanding who profits: publishing beneficial owners

The EITI facilitates peer learning between countries, encourages the adoption of data standards in the collection of beneficial ownership data, and the online publication of data to increase data use.

 

The 52 EITI countries are making progress towards the 1 January 2020 deadline for publishing beneficial ownership information for oil, gas and mining activities.

Complex corporate structures often disguise the identity of beneficial owners – those individuals who ultimately own or control companies. This lack of transparency can feed corruption, money laundering and tax evasion. The issue of beneficial ownership came to the fore in 2016, when a series of leaked documents known as the Panama Papers triggered an investigation resulting in the recovery of more than USD 1.2 billion in unpaid taxes and penalties. Beneficial ownership screening and disclosures play a fundamental role in governmental and corporate policies for reducing corruption.

The 52 EITI countries are making progress towards the 1 January 2020 deadline for publishing beneficial ownership information for oil, gas and mining activities. More than 30 EITI countries have collected beneficial ownership information as part of EITI implementation. Governments including Democratic Republic of Congo, Ghana, Indonesia, Kazakhstan, Kyrgyz Republic, Nigeria, Philippines, Senegal, Ukraine, United Kingdom and Zambia have strengthened ownership transparency, and considerable progress has been made in raising awareness of the issue and developing systems to make beneficial ownership information publicly accessible.

Contract transparency

Knowing the terms: disclosing contracts

Contract transparency is being established as a global norm, thanks to efforts by the EITI and global partners.

Contracts between extractive companies and governments are used to define the terms under which production takes place and taxation is levied. This is in instances where these terms differ from statutory and legislative principles or where sector legislation does not exist or provide full coverage.

The interpretation and benchmarking of these contracts is not always straightforward. Contractual terms vary between commodities or operations due to the range of potential operating conditions. However, contract transparency allows for the open review of contractual terms and for informed public debate to take place on their merits.

Thirty-one countries have published contracts albeit with varying levels of disclosure. Among those that have substantially disclosed contracts are Afghanistan, Chad, Ghana, Guatemala, Guinea, Honduras, Liberia, Malawi, Mexico, Mozambique, Peru, Philippines, Senegal, Sierra Leone, Timor-Leste and the UK. Benefits from contract transparency include improving monitoring and compliance with contractual obligations (Côte d’Ivoire, Liberia), and improving monitoring of impact of the extractive sector on affected communities (Albania, Cameroon, Mali). The EITI Board recently decided that countries will be required to publish oil, gas and mining contracts entered into or amended by 2021.

Connecting the dots in Myanmar

In 2018, Myanmar piloted disclosures for 20 companies, which resulted in 17 companies reporting a total of 32 beneficial owners. Building on the lessons learned to date, the government is planning to update its corporate registry to integrate beneficial ownership information. A Beneficial Ownership Task Force is drafting a Presidential Decree to require disclosures by extractive companies by October 2019, with detailed requirements for disclosures of politically exposed persons, such as persons holding political office.

Project-level reporting

Reporting at the level of the production unit: why the detail matters

The 2019 Standard introduces a definition of projects to guide reporting

Project-level reporting – where governments and companies publish information for a specific production unit or license area – allows citizens and government officials to assess and scrutinise government receipts. Reporting at the project level allows payments to be compared with the terms set out in laws or contracts governing each project. Without this information, payments associated with specific projects are impossible to distinguish from other projects or activities of a company.

Project-level disclosure is obligatory for reporting covering the 2018 fiscal year. Six countries (Armenia, Indonesia, Philippines, Timor-Leste, Trinidad and Tobago and United Kingdom) currently report by project. Thirty-four more disclose partially, meaning that data was not disaggregated for all projects or revenue streams.

Putting the data to use with financial modelling

Using information from contracts and from project-level reporting, financial modelling projects what should have been paid by companies to the government under existing agreements and enables comparison with actual payments. It can also be used to forecast expected payments from projects in the future.

Zambia conducts fiscal analyses

EITI undertook a financial modelling workshop to build capacity in government agencies, help inform public debate and government policy on taxation in the mining industry. EITI data is the main source of information for the government when conducting fiscal analyses on mining sector income.

Subnational payments

How local communities benefit: tracking subnational payments

Strengthening accountability and empowering subnational bodies

Subnational transfers – the portion of revenues from extractive activities transferred from the central government – is often less than 5% of total revenues. However, for local governments and local communities, these revenues can be a very significant source of income and are often a major focus of discussion and debate.

Disclosure of such transfers in many EITI countries has contributed to strengthening accountability and empowering subnational bodies, improving governance and public debate at the local level, and helping to operationalise and increase transfers to local government.

Tracking projects online in Colombia

EITI Colombia has created an online interactive tool that compares the theoretical amounts that a particular local government is entitled to with the value of its approved projects. This tool can be used in parallel with the National Department of Planning’s Mapa Regalías, which tracks the execution of projects benefitting from extractive revenues at the local level.