Published: August 7, 2008
The Policy Report
House Bill Would Require More Overseas Disclosure
By Paula J. Desio, ERC Chair on Ethics Policy
House Financial Services Committee Chairman Barney Frank recently introduced legislation (H.R. 6066) to require publicly traded oil, gas, and mining companies to disclose payments, by country and category, to the governments where these natural resources are extracted. Frank identified the intersection of “ethics, morality, and good business” as the primary motivation for the legislation.
In stark contrast to the 1978 Foreign Corrupt Practices Act, which first required disclosure of certain prohibited payments abroad in an effort to stem corruption in the overseas markets, this proposal has generated a remarkable lack of opposition from the business sector. Not only is it consistent with many of the voluntary ethics initiatives undertaken globally by international companies and non-government organizations (NGOs) in recent years, but it serves as a vehicle for enhancing incentives to comply with prohibitions on off-the-books payments in the Foreign Corrupt Practices Act.
The proposed legislation is also consistent with the voluntary disclosure objectives of the Extractive Industries Transparency Initiative led by the British government in 2002 and supported by many transnational corporations, including Alcoa, BP, Royal Dutch Shell, and Chevron. The bill acknowledges the growing consensus among companies in the extractive industries that such transparency benefits business by both improving the business climate in which they work and fostering good governance and accountability.
Chairman Frank notes that developing countries that are heavily dependent on the extractive industries have significantly greater poverty and conflict rates that other developing nations, despite the vast revenues collected by their governments One corporation alone, Shell Oil, for example, which supports greater transparency and disclosure, reports that in 2007 it paid $19 billion in corporate taxes and $1.8 billion in royalties, and collected $79 billion in excise taxes on behalf of governments.
Requiring companies to disclose taxes and royalty payments to foreign governments is intended to pressure such governments to be more transparent with their own citizens and the international business community about how those government-mandated revenues are used and thus reduce potential corruption in the government sector. It also allows shareholders to see better the risks associated with their investments, and would ultimately help to reduce costs associated with fraud and abuse, according to Frank
Earlier hearings held by the House Committee included expert testimony on the strong relationship between civil wars and resource rich companies, despite the fact that civil wars have declined overall since the end of the Cold War. Such instability makes businesses the primary targets of violence and increases the ultimate market cost to consumers.
At a hearing last month on Frank’s bill, witnesses agreed that, as one said, “with information the lifeblood of healthy markets and political societies,” Congress should adopt what has already become a best ethical practice among leading corporate citizens.