US Law May Mean Double Standards for Resource Industries

The financial regulatory reforms adopted Thursday by the US Senate, which will require US-traded natural resource companies to disclose all payments to governments worldwide, has been hailed by activists as a major step toward combating corruption in developing countries like Cambodia.

But experts say that the legislation could create double standards in resource-rich countries.

While the companies whose securities are traded in the US will be held to full transparency standards, others will be able to hide away in murkier areas of the extractive industries.

In theory, companies that are not traded in New York, Boston or Chicago may have the advantage of being able to continue making facilitation payments, or so-called “tea money.”

“We hope that if any gulf is created, [extractive industry] companies that are required to disclose their payments will be favored by the Cambodian government and that this new transparency will lead to an increase in positive foreign investment in Cambodia,” said Mam Sambath, chairman of the local extractive industry watchdog Cambodians for Resource Revenue Transparency.

Mr Sambath adding that both Canada and the EU are in the process of considering similar laws.

Whether or not the bill creates a double-standard scenario for companies operating in the extractive industries, Mr Sambath said the disclosure of revenues is the best way to improve good governance and thus curb corruption.

“It is worth noting that this law will empower investors and could increase investment in Cambodia, since foreign investors will now have access to a more complete picture,” he said.

The environmental group Global Witness also applauded the bill, which is expected to be signed into law by US President Barack Obama this week.

“These provisions are a huge victory for corporate accountability in the oil, gas and mining industries, and we commend the leadership of Members of Congress who have steadfastly championed them,” Corinna Gilfillan, head of the Global Witness office in Washington, said in a statement on Friday.

The rule requiring companies to come clean on payments to governments was principally drafted by US Senators Richard Lugar, a Republican from the state of Indiana, and Benjamin Cardin, a Democrat of Maryland, and was the subject of active lobbying by Global Witness.

In a July 15 post to his website, Senator Cardin said the provision “will add stability to markets through greater information and predictability and help protect investors from undue risks associated with corrupt or unstable governments in oil-rich or mineral-wealthy countries.”

He added: “We now have the tools to help people in resource-rich countries hold their leaders accountable for the money made from their oil, gas and mining.”

Despite trumpeting by advocates of transparency, major oil companies have so far been reluctant to adopt such measures independently.

Australian mining firm BHP Billiton, which said earlier this year it was under investigation by US authorities for payments to the government reportedly made in Cambodia, has reportedly decided to disclose all future payments to governments.

In May, the US oil giant Chevron Corp showed little interest in disclosing payments to host governments when just seven percent of shareholders voted in favor of the measure.

Doing so would jeopardize the “sanctity of existing contracts,” Chevron shareholders said in a notice after its annual meeting on May 26.

Industry experts claim that companies can benefit from disclosing payments as they reduce the risk of being accused of corruption–as has been the fate of BHP Billiton, which exited Cambodia last year, abandoning a Mondolkiri province bauxite project since taken up by Vietnam’s state mining company Vinacomin.

“[T]his new law will empower Cambodian citizens to hold their government accountable for the decisions they make regarding the oil, gas, and mining industries,” Mr Sambath said. “It will now be legally mandated that the public have access to detailed information from these companies.”

 

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