Rolling Back Extractives Transparency Measure Could Hamper National Security

Lawmakers in the House of Representatives are expected to introduce a controversial resolution to repeal a bipartisan anti-corruption safeguard, in a move panned by non-partisan anti-corruption experts.

Former Sen. Richard Lugar (R-IN) and Sen. Ben Cardin (D-MD) sponsored the Energy Security Through Transparency Act, as an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The provision protects U.S. national security and combats corruption in developing countries (particularly those plagued by extremist violence and conflict) by requiring oil, gas, and mining companies which report to the Securities and Exchange Commission to publicly report all payments made to host-governments.

As The Wall Street Journal reports:

Activists and industry observers have said for years such payments can be used to hide bribes to secure business…House Majority Leader Kevin McCarthy, (R, Calif.), in an op-ed published Wednesday in The Wall Street Journal, wrote the House of Representatives will “take the ax” to the rule, saying it “adds an unreasonable compliance burden” on American energy companies that doesn’t apply to their foreign competitors…

Lawmakers would use the Congressional Review Act to repeal the rule, Mr. McCarthy said in the op-ed. That law gives Congress the right, with a simple majority vote, to overturn rules finalized in the past 60 legislative days. The SEC approved the [implementing] rule on extractive disclosure in late June, which falls within the 60-day legislative deadline.

Rep. Bill Huizenga (R-MI) is expected to introduce the “Congressional Review Act” resolution Monday in the House of Representatives to nullify the bipartisan Cardin-Lugar Amendment.  The House is expected to vote on the controversial measure within a couple of days.

The FACT Coalition sent a letter to lawmakers Thursday urging them to reject the resolution. FACT’s Gary Kalman and Clark Gascoigne explain in the letter:

It’s inaccurate to suggest that the implementing rules promulgated by the SEC in July put U.S. companies at a competitive disadvantage. 30 other countries—including Norway, Canada, and all 28 members of the European Union—have instituted the same disclosure requirements on extractive companies.  This means that over 90 percent of internationally operating companies in the extractives sector are covered by these transparency measures.  And, there are already reports coming out of these countries. We have seen reports from BP, Shell, and BHP Billiton—among other major multinational oil and gas companies.  Despite this, no European company has suffered any disadvantage as a result of disclosures it has made.

Moreover, it’s estimated that Cardin-Lugar would result in negligible compliance costs for American businesses, as was noted by one company, Tullow Oil, which has been reporting under requirements equivalent to Cardin-Lugar for several years.  The rule requires disclosure of payments that companies track in the normal course of doing business.

Additionally, the SEC issued an equivalency order alongside its implementing rule for the Cardin-Lugar provision determining that companies reporting under EU rules, Canadian rules, or the U.S. Extractives Industry Transparency Initiative (EITI) standard would be deemed substantially similar to the SEC rule.  As such, companies reporting under the above equivalent rules may submit those existing required reports to fulfill the SEC disclosure requirements, and would not add any new burdens or compliance costs for those companies.

The letter goes on to say:

Corruption is more than just a threat to economic growth and human rights; corruption threatens U.S. national security by fueling and funding terrorism and driving conflict globally.  Disclosure of company payments to governments for access to natural resources, and government commitments to publish receipts of those payments, are key to battling corruption and ensuring citizens benefit from their country’s natural resource wealth.

Conservatives in the House wrongly see this as regulatory overreach as noted in a recent blog by the right-of-center Hudson Institute’s Kleptocracy Initiative:

Financial arrangements with foreign-owned extractives operations are often the only significant source of government revenue in underdeveloped countries. Where democracy and rule of law are weak, gaining control of this revenue stream presents local elites with unparalleled opportunities for illicit personal enrichment, the creation of political patronage networks, and ultimately the chance to entrench themselves in power. When the stakes are so high, political competition can swiftly descend into open violence.

This downward spiral of corruption and conflict has been repeated with tragic consequences in dozens of countries worldwide—but it isn’t territorially confined to them. Their instability also hurts the U.S. financially, through global economic and market disruption, lost trading opportunities, and the cost of development and humanitarian assistance. When the U.S. intervenes to quell armed conflicts or confront extremist movements which have their root causes in corruption, the lives of American service men and women are threatened directly…

Payments made by American extractives firms to corrupt foreign governments are an important part of this global “Kleptocracy Curse.” Removing the requirement to report them would effectively blind the U.S. government to the role played by its own citizens.

It is alarming that Congressional leadership would consider undermining American efforts to combat violent extremism abroad by rolling back this anti-corruption measure which protects American companies and democratic interests around the globe.  It is especially surprising that Congress would prioritize such a move in the first days of a new Administration.