13 Dec 11

EU transparency legislation: The need for effective reporting

By Michael Hammer

The secrecy surrounding financial payments made by multinational companies to many governments in exchange for access to natural resources continues to pose a barrier to those seeking to hold their governments to account over their financial agreements. Too often, communities are denied the financial benefits – such as investments in local services – which they should be seeing as a result of the exploitation of their country’s natural resources. A lack of transparency concerning the financial dealings between many multinational companies and national governments means that, all too often, the flow of royalties, taxes and other payments that are made to governments cannot be traced by outside observers.

Ensuring transparency and accountability is crucial to guaranteeing responsiveness to the needs of a country’s population; by allowing the public to access financial information regarding such payments, citizens are better able to hold their governments to account. Through making this information publicly available, local communities, businesses, politicians and anyone else with an interest in the needs of a particular community or country, are able to assess whether they are getting their fair share of the profits which are being generated from the exploitation of their country’s natural resources.

With such considerations in mind, the European Parliament and member states will be considering a proposal to amend the EU’s Transparency and Accounting Directives over the coming months. The proposal, which was put on the table on 25th October 2011, advocates the introduction of European legislation which would require extractive companies listed in Europe to publish details of payments that are made to national governments. This proposal has taken its initiative from the US Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act, which was brought into law in July 2010, requires that oil, mining and gas companies registered with the US Securities and Exchange Commission report the payments that they make to governments.

This piece of European legislation, if introduced on a sufficiently rigorous basis, could make a significant contribution to ensuring an increase in development investment for many low-income countries. It would build on the Extractive Industries Transparency Initiative (EITI), a voluntary initiative of which Ghana (our country case study for the Global Climate Change Governance project) is already a member. However, for the EU legislation to be effective, it must take into account both listed and non-listed firms, as well as ensuring that no exemptions are in place which would jeopardise effective reporting of payments by European firms.

Recent coverage of the situation in Colombia has helped to highlight the need for such legislation. The Colombian government demands that mining companies pay royalties in order to access the country’s natural resources; although 80% of these payments are supposed to be invested in development projects in the producing region, local communities are unable to access any information regarding the status of these payments. If rigorous legislation on reporting by EU companies were brought into law, local communities and decision-makers in developing countries could hold their governments to account over the status of such payments.

Our Global Climate Change Governance project is assessing the accountability policies and quality management systems of key global institutions, as one way of understanding how responsive they are to the needs of citizens in the face of climate change. In the same manner, the need for greater accountability and transparency concerning financial transactions between companies and governments is critical to ensuring that communities in some of the poorest countries benefit from natural resource extraction. We hope that the new EU legislation, when passed, will go some way to achieving this.

 

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