Natural Resources, Natural Corruption?

The abuse of public office for private gain — corruption — is rampant in many of the poorest countries of the world and in Central and Eastern Europe. Greed and arrogance by dictators and their cronies has cursed too many countries trapped in poverty.

Some of the worst nightmares are in countries rife with massive poverty, despite being endowed with enormous reserves of oil, gas and vital metals.

The villains are the leaders of these countries, but major Western governments shoulder a portion of the blame. They have turned a blind eye to the corruption and the international laundering of stolen cash and they have made it very difficult for stolen assets to be repatriated.

The Western willingness to be, in effect, co-conspirators in the corruption is due to Western dependence on vital natural resource imports. It is seen as a question of security.

For decades, Western governments, operating hand-in-glove with major oil, gas and mining companies, forged deep ties with the governments of resource-rich nations, from Libya to Nigeria and from Indonesia to Saudi Arabia. The companies secured exploration and then production rights in these countries in return for agreed royalty payments.

They did not ask what the host governments did with the massive revenues that they obtained. If the leaders of these countries wanted to deposit the funds in their own personal bank accounts, or those of their families, in London or Zurich, then they found no objections from the British or Swiss governments, or the bankers who took the deposits.

More than five million people have died in the Democratic Republic of Congo in recent years as warlords and public officials have illicitly claimed control of vast quantities of minerals. Constant civil wars and horrendous human rights abuses have run alongside the production and sale of minerals by diverse warlords to foreign companies.

The cash disappears. The people of the DRC live in absolutely appalling conditions.

For decades oil companies have had cozy and secret ties to the governments in whose countries they operate, from Russia and Central Asia, across Asia and through the Middle East and into sub-Saharan Africa.

It is with intense frustration that anti-corruption activists watch the dealings between major global oil companies and a host of African countries that have vast oil reserves, such as Nigeria, Angola, Equatorial Guinea, Chad and others.

Given their oil resources, the living standards of the people of these countries should be high. Instead, living standards are among the very lowest in the world.

The royalties that ExxonMobil, BP, Chevron and other giant firms pay to the host governments in order to have the right to extract oil should be going into new schools and hospitals and public infrastructure, but they are not.

Oil royalties are among the world’s single largest source of corrupt spoils for a relatively small number of governments in countries where general living conditions are appalling. Exposure of these royalties is now, after many years of campaigning by civil society, likely to become a reality.

French governments have for years maintained close and largely secret relationships with former oil-rich West African colonies. The French get steady oil supplies, and the leaders of these countries deposit vast sums into their personal bank accounts in France. The French authorities have shown scant interest in the destitution of the peoples of these former colonies.

As a result, one of the world’s richest men is Equatorial Guinea’s president, Teodoro Obiang Nguema Mbasogo, who has been in power since 1979. The Obiangs own real estate in Beverly Hills, California (paid for in part through phony shell corporations with names like Unlimited Horizon and Beautiful Vision) and in Cannes, in the south of France.

Their assets have been investigated by a U.S. congressional committee and are under investigation by a French judge. President Obiang undoubtedly feels confident that he is not only secure, but that he can continue to pocket his nation’s formidable oil revenues — because France needs his oil.

The same holds true for the Bongo family in nearby Gabon. Former French presidents Nicolas Sarkozy and Jacques Chirac paid tribute to one of Africa’s most corrupt ruling families when they attended the funeral, in June 2009, of Omar Bongo, who had been Gabon’s president for 42 years and who was succeeded by his son, Ali-Ben Bongo.

U.S. and British oil companies (including Shell, which is a joint UK-Dutch company) have been the prime sources of enormous royalty payments to the governments of Nigeria and Indonesia, whose respective former leaders, Sani Abacha and Suharto, are among the past giants of grand corruption.

Then, there is zero transparency related to the oil deals (for example, with Chinese companies) that are done by President Omar al-Bashir of Sudan — who is wanted under an arrest warrant from the International Criminal Court for perpetrating genocide in Dafur.

Chinese and Russia interests

What makes the issue of corruption in natural resources far more complicated from a global security perspective is that Western interests are increasingly colliding with Chinese and Russian interests.

As the Russians strive to build global corporations in the extractive industries, they have no national laws to worry about that suggest they could be prosecuted for bribing foreign officials, and they have the strong strategic backing of the Russian government.

China’s state-owned enterprises are investing on a massive scale across sub-Saharan Africa to bolster the country’s resource security. The deals that the Chinese do with host African governments from Sudan to Angola are secret.

However, the last decade has seen remarkably productive actions, mostly led by civil society, to bring explicit transparency and accountability to the world of extractive industry contracting. It is already clear that it will become ever harder for bribe-payers and bribe-takers in this sector to hide.

Leaders at the 2003 G8 summit conference in Evian, France, ratified a great deal of planning — led by the Publish What You Pay coalition of civil society groups and others — to set the stage for the establishment of the Extractive Industries Transparency Initiative (EITI).

The goal was to shed transparency on the dealings between major global minerals’ companies and the governments of resource-rich countries. At a key EITI planning conference, in June 2003, British Prime Minister Tony Blair stated the objectives this way:

The extraction of oil, gas and minerals from the ground underpins our modern life style. We depend on predictable supplies. Around the world there are millions of jobs in this sector. Some 3.5 billion people live in countries dependent upon their natural resource wealth for improving standards of living. They are directly affected by the way the revenues are used.…

Some people underestimate the importance of transparency. Together with improving standards of governance and democratic accountability, it is a central plank of a wider accountability agenda. This, in turn, is essential to improve development and the prospects of achieving the Millennium Development Goals for global poverty reduction.

Conversely, a lack of transparency undermines public confidence in the legitimacy of the state. When there is corruption, it is always the poor who suffer most. We need to use transparency in revenue and financial management to allow people to hold government to account and build public trust. Increased transparency will also help to create the right climate for attracting foreign investment, and encourage an enterprise culture.

Governments need to create this favorable environment, but companies have an interest in promoting transparency too. Transparency should help companies to reduce reputational risk, to address the concerns of shareholders and to help manage risks of long-term investments. And transparency is a positive contribution to development as it increases the likelihood that revenues will be used for poverty reduction.

EITI, working with a rising number of companies, governments and civil society organizations, is today one part of a chain of approaches that is bringing sunlight to the oil, gas and minerals sector.

Considerable pioneering research and campaigning work to force oil, gas and mining companies to declare their royalty payments to foreign governments has been undertaken by the Publish What You Pay coalition, the Revenue Watch Institute, and by Global Witness.

In 2008, Transparency International (TI) published a landmark study, Report on Revenue Transparency of Oil and Gas Companies. When TI researcher Dr. Juanita Olaya began the project, she was almost overwhelmed by the sheer magnitude of the operations of the companies that she was looking at.

Oil export revenues alone were estimated at $866 billion in 2006. This was equivalent to approximately 1.8% of gross world product for that year — and more than half of the combined GDP of the 53 lowest-income nations in the world.

The TI research looked in-depth at 42 oil companies in 21 countries of operation to determine, on the basis of their published materials, how substantially they reported information on their revenues. The companies were directly surveyed for comments and for responses to findings.

The study found that, “A majority of leading oil and gas companies are far from transparent when it comes to the payments they make to resource-rich countries, leaving the door open to corruption and hampering efforts to fight poverty.”

TI’s research sought to evaluate the leading companies in terms of their current policies, management systems and performance in areas relevant to revenue transparency in their upstream operations. Revenue transparency in this context included:

  Corporate action where disclosure can contribute to improved accountability in the management of extractive revenues,

  Payments to host governments, and

  Corporate anti-corruption programs.

A complex system of scores was assigned to place the findings for each company evaluated within a high, middle and low range relative to their revenue transparency.

Companies that made it into the “High Performers” category included BG Group, BHP Billiton, Nexen, Petro-Canada, Shell, StatoilHydro, Talisman Energy and Petrobras.

Significantly, their example undermined arguments by some of the firms that to reveal details on revenue transparency would place them at a competitive disadvantage. After all, if giants like Shell and BHP could strive for substantial transparency, then why could not many more?

The list of “Low Performers” included China National Offshore Oil Corporation (CNOOC), China National Petroleum Corporation (CNPC), ExxonMobil, INPEX, Kuwait Petroleum Corporation, Lukoil, Oil and Natural Gas Corporation Ltd. and Petronas.

A legislative victory for transparency

Thanks to work by the Revenue Watch Institute and the Publish What You Pay coalition (both strongly supported by George Soros’s Open Society philanthropy), the Dodd-Frank financial reform law of 2010 included provisions calling on extraction companies to provide independently audited annual statements to the Securities and Exchange Commission (SEC) on all of their payments to foreign governments.

The industry opposed the initiative, but the SEC is going ahead and has set deadlines to ensure that hundreds of firms make their first filings in 2014.

The SEC’s decision is of enormous significance. First of all, it is helping campaigners to push the European Commission in Brussels to follow the U.S. lead and press for greater revenue transparency for EU-based companies.

Second, as the companies release crucial royalty payment information, so civil society will be publicizing the results to ensure that everyone is keenly aware of just how vast is the theft of such payments by government leaders in many resource-rich countries.

Furthermore, as public awareness rises, the spotlight will then focus on the banks where the cash is deposited. The pressure will mount on banks and on the monetary authorities in major money centers to put an end to the use of major financial services firms as the repositories of stolen cash.

And, finally, as this pressure rises, so too will efforts to ensure that the stolen cash is repatriated to the people of the resource-rich countries to alleviate their poverty.

Yes, this is a big agenda — but it is no longer an unrealistic one.

Editor’s note: This article is adapted from Waging War on Corruption: Inside the Movement Fighting the Abuse of Power (Rowman & Littlefield) by Frank Vogl. Published by arrangement with the author. Copyright © 2012 by Frank Vogl.