[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]





                  H.R. 6066, THE EXTRACTIVE INDUSTRIES
                      TRANSPARENCY DISCLOSURE ACT

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 26, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-124












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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio                 JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma                  KEVIN McCARTHY, California
BILL FOSTER, Illinois                DEAN HELLER, Nevada
ANDRE CARSON, Indiana

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 26, 2008................................................     1
Appendix:
    June 26, 2008................................................    23

                               WITNESSES
                        Thursday, June 26, 2008

Detheridge, Alan, Former Vice President for External Affairs, 
  Royal Dutch Shell Group........................................    11
Jenkins, Robert, Chairman, F&C Asset Management..................     9
Lissakers, Karin, Director, Revenue Watch Institute..............     6
Stevelman, Faith, Professor of Law, New York Law School..........     8

                                APPENDIX

Prepared statements:
    Carson, Hon. Andre...........................................    24
    Waters, Hon. Maxine..........................................    25
    Detheridge, Alan.............................................    27
    Jenkins, Robert..............................................    29
    Lissakers, Karin.............................................    35
    Stevelman, Faith.............................................    44




















 
                  H.R. 6066, THE EXTRACTIVE INDUSTRIES
                      TRANSPARENCY DISCLOSURE ACT

                              ----------                              


                        Thursday, June 26, 2008

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Gutierrez, 
Sherman, Moore of Kansas, Scott, Green, Cleaver, Moore of 
Wisconsin, Carson; Paul, Roskam, and Heller.
    The Chairman. The hearing today is on a very important 
issue: the impact that the presence of valuable resources has 
in poorer countries. Obviously, the question of mineral 
resources and others is particularly important right now 
because of the pricing impact. But this is a very important 
aspect of it, and we have the paradoxical situation where the 
discovery of wealth that should be very helpful to the people 
of particular countries has often had a somewhat negative 
effect.
    As I was saying this morning, for people who think this was 
purely about value or ethics, the question of the corruption 
that sadly sometimes accompanies the ability to get at a 
resource can have very important implications. There are a lot 
of arguments about what is causing the price of oil to be so 
much higher than we would like, but everybody agrees that the 
problems in Nigeria are an important part of this.
    So if anyone wants to see what the broader implications on 
a global basis can be for everybody, they can look in Nigeria, 
because it is clear the dispute over how much money is being 
paid and where it is going and how it is being distributed for 
oil in Nigeria contribute greatly to the turmoil that is one of 
the upward pressures on price. And it also was an argument to 
me about why people in industry ought to be supported.
    I know many are an involuntary transaction and I believe it 
is often the case that the dissatisfaction that exists in 
various countries is based on a few of the things worse than 
they are. That is, I think it is not a case where if these 
things were made public, people would learn all these terrible 
things, exclusively. In some cases, if people trusted us, it 
would not be as bad as they think. But it seems to me that it 
is in everybody's interest to do this. And, as I said, the 
Nigeria situation, I think, is an example of why this has 
broader implications.
    We in this committee have reached a consensus on a couple 
of bills: one on the funding for the International Development 
Association; and another one on the question of debt relief. We 
talk about conditionality. And we generally had a bipartisan 
agreement that the international institution shouldn't be 
dictating specific economic policy choices, but that it is 
reasonable, indeed necessary, to dictate or to make as a 
condition certain procedural issues such as openness and 
democracy.
    I really believe that what we are talking about today is 
part of that set of concerns. We aren't telling anybody how to 
spend the money. We aren't telling anybody in this legislation 
how much money they should or shouldn't pay. We are saying that 
the processes of democracy in these countries, and, even if we 
are not quite a democracy, openness, are very important. And so 
it is in line with this sort of procedural conditionality.
    We have rejected substantive conditionality, but we have 
argued for the procedural conditionality and that is what is 
here today. I look forward to the testimony. And, particularly, 
I would say there was the one issue that we would have to 
address, which is, and we will be told, we have heard about the 
problems with unilateral disarmament, I guess. It is a part of 
unilateral disclosure, and does that put American companies at 
a disadvantage vis-a-vis others?
    It is one of the things we have to address: Are there 
governments so interested in concealing from their own people 
that they would reject American companies if they were to be 
subjected to this rule? To take others would be less 
scrupulous, and that is a legitimate concern that will have to 
be addressed if we are to be able to go forward here.
    With this, I will now recognize the ranking member of the 
Subcommittee on Domestic and International Monetary Policy, 
Trade, and Technology, the gentleman from Texas.
    Dr. Paul. Thank you, Mr. Chairman. You know, when we deal 
with problems like we are talking about today, and trying to 
solve them through more regulation, I am always concerned about 
what might happen because too often there are unintended 
consequences. If we regulate personal behavior to improve 
people's lifestyles, there is always an attack on their 
personal liberties and unintended consequences.
    When we deal in economics, the same thing occurs, so the 
intentions are always good, whether it is dealing with personal 
behavior or economic behavior. I understand the concerns that 
are expressed here. And I think we can all agree that greater 
transparency regarding the deal between companies listed on 
American stock exchanges and foreign governments regarding 
giving those companies rights to extract that country's natural 
resources are a good thing.
    However, there are legitimate questions about the 
legislation, H.R. 6066 is the proper way to achieve this goal 
and the legislation may well have consequences that were 
intended. This is what happened with Sarbanes-Oxley. Everybody 
was very excited about Sarbanes-Oxley and there were a total of 
three of us who voted against it, and it was the fear of what 
happened with Enron. And yet Enron was taken care of by the 
market as well as fraud laws, and it was settled. We didn't 
need more regulation. So this idea that we just have to have 
more regulation doesn't solve these problems.
    One thing that happened after Sarbanes-Oxley, there was 
delisting from American capital markets which continues, and 
that really doesn't help us. I think delisting from capital 
markets puts pressure on a dollar, pressure on a dollar. It is 
another reason why they need more dollars to buy euros, and why 
oil prices go up, and why gasoline is up, one of the reasons, 
as well as the problem in Nigeria.
    In addition, since many of the extractive industries are 
authoritarian governments, I doubt simply requiring 
transparency will result in the type of political reform of 
those countries desired by the supporters of this legislation. 
It won't solve that problem.
    Probably a much more effective way of dealing with that 
subject is to break the resources curse, at least in the oil 
nations, by making or encouraging more competition by expending 
our domestic production encouraging greater development of 
alternative fuels and even nuclear power, plus ending those 
foreign policies that prompt these regimes up, which is 
frequently the case too.
    We always help the people, send over food, programs which 
end up as weapons in these authoritarian regimes. It has 
happened numerous times, and I think this approach lends itself 
to misallocating resources and ending up having unintended 
consequences, but I look forward to the testimony today, and I 
yield back.
    The Chairman. The gentleman from California.
    Mr. Sherman. Thank you, Mr. Chairman. And thank you for 
having this hearing. With good governance, exploitation of 
natural resources can generate large revenues to foster growth 
and reduce poverty in some of the world's poorest countries. 
Right now, we have two problems: one is corruption; and the 
other is a lack of information and suspicion of corruption.
    Even where there is no corruption, suspicion itself is 
corrosive. But, apparently, in many places, there is 
corruption. For example, the Democratic Republic of the Congo 
claims to have received a mere $86,000 in mineral royalties, 
despite having 80 percent of the world's colton, which is used 
in cell phones and DVD players, etc.
    We see poverty in Africa's largest oil producer; poverty in 
Sierra Leone in spite of large exports of diamonds. Now, maybe 
there isn't corruption in Nigeria and Sierra Leone, but the 
people of those countries certainly don't have access to all 
the information to allay their suspicions, suspicions that I 
think are probably grounded.
    The extractive industry's transparency initiative announced 
that the world summit for sustainable development in 
Johannesburg offers a real way to deal with this. The Bush 
Administration announced its support in June of 2004. Last 
year, we were able to pass through the House the Overseas 
Private Investment Corporation Reauthorization Act, through the 
subcommittee that I chair, on the Foreign Affairs Committee. 
This bill passed overwhelmingly, and on a bipartisan basis, 
both committees and the House, and passed in substantially the 
same form through the relevant Senate committee.
    It is, I believe the first piece of legislation to get that 
far that requires that those who benefit from a government 
program, in this case OPIC, adhere to EITI principles. It makes 
perfect sense to require that those who seek capital in our 
capital markets and disclose what's relevant to shareholders, 
will also disclose what is relevant to the citizens of those 
countries from which they extract natural resources.
    That information may also be relevant to shareholders who 
may decide how to invest, based in part on whether they think 
the regimes getting money from the corporation are regimes from 
which they think a company they own stock in should be getting 
money. So this bill will help investors, which is the primary 
purpose of the SEC. It will help the countries receiving this 
money through a reduction in suspicion and a reduction in 
corruption.
    Finally, and perhaps most important to my constituents, is 
that the corruption and the suspicion of corruption is 
undermining oil production around the world. One need only look 
at the Niger River Delta in Nigeria. There should be a lot more 
oil production there.
    If we could go to the people of that region and say, this 
is the amount of money your government is getting, and here 
your government will account to you for how that money was 
being spent--if we could allay the suspicions--if we could 
reduce the corruption, we might very well see peace in that 
region of Nigeria and in many other places.
    And we might see an increase in the production of oil and 
some of the other commodities whose world price endangers our 
economy. So this is important for American consumers, for the 
residents of our individual districts, as well as the effort to 
eliminate poverty in the countries that are blessed with these 
natural resources.
    I yield back.
    The Chairman. The gentleman from Georgia.
    Mr. Scott. Thank you, Mr. Chairman.
    I want to thank you and the ranking member for holding this 
hearing. This is a very important hearing, because we are 
dealing with precious natural resources being extracted from 
the ground, which means you're not going to be replenished. And 
as we move on into the future, they are going to become scarcer 
and scarcer, and the need becomes greater and greater.
    And, of course, what is even more troubling is the fact 
that so many of these scarce vital resources are coming from 
very troubled nations, developing nations, where we do have an 
unfortunate amount of corruption and civil wars.
    So this is a very important, timely, and fascinating issue. 
Our bill, H.R. 6066, serves as an important tool. It offers 
initiatives in order to build more stable economies and address 
security issues that are very important around the world. Just 
as an example, take the continent of Africa. What could be more 
startling in the opposites? There we have a continent that is 
just overwhelmingly rich in oil and gas and diamonds, all of 
these resources. One need only view the film ``Blood Diamond'' 
to see a more realistic picture of why this bill is so 
important and why this whole effort is so important. And at the 
same time that Africa has this abundance, it probably has the 
most ravaging situations of poverty and hunger than any other 
place in the world. So it is very, very important that we 
ensure prudent management of resources, that we promote 
accountability and openness, and that we allow vital 
information to be put in the hands of the citizens. I am very 
interested, and I would be very interested for the committee to 
know the progress that the extractive industries transparency 
initiative is making towards reforms, especially in improving 
transparency and payment and management of the country's 
resources, because it is one thing to enact an initiative, but 
it is yet another thing to follow through with the 
implementation, and, it is my understanding that neither a 
single candidate country nor a potential candidate has fully 
implemented EITI.
    I would be very interested to hear your comments on that, 
and with many conflicts as a result of a country's extractive 
industry, as I mentioned before, we also have, as my good 
friend from California, Mr. Sherman mentioned, look into the 
corruption, the level of corruption behind a country's 
extractive industries and how we might be able to remedy that; 
and, again, that turning into a crisis where poverty increases 
and social investments are put by the wayside, funds that are 
put there, misappropriated, and misused.
    Greater accountability for large revenues coming from these 
industries, working to generate economic growth from these 
revenues in reducing poverty, are all important aspects of the 
EITI that we should focus on. So I look forward to this 
distinguished panel, your thoughts and your opinions on this 
important legislation and on what is happening around the world 
in some of these developing countries and how we can move 
forward.
    This is a very, very critical, critical issue. 
Unfortunately or fortunately, depending on which way you look 
at it, so much of the resources that the world needs today, 
unfortunately or fortunately, is coming from some of these most 
troubled regions where today's discussion is most topical, and, 
so, I am looking forward to a very, very important hearing, a 
very informative one.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from Missouri.
    Mr. Cleaver. Thank you, Mr. Chairman.
    I appreciate the opportunity to have an exchange and to 
come to our panel today. I am just in the beginning stages of a 
new book called, ``Banana Republic.'' It is very interesting, 
and while the banana industry is not an extracted industry, I 
think the parallels are very similar. I didn't know, for 
example, that bananas are not indigenous to South America. They 
were brought in and exploitive corporations actually put 
governments in place to help the banana industry. And so they 
became known as ``banana republics.''
    And essentially major corporations, some are still in 
existence, I won't call their names now, just came in and kind 
of ripped off the people in that country, planting these vast 
banana plantations all over South America. And that same kind 
of thing is happening here with extracted industries. I was 
very, very interested in and conversant with the panel that 
appeared here back in October.
    It was, I think, a very interesting meeting because we 
found out, I think, that to some degree exploitation and 
exploration are parallel in resource-rich countries like 
Nigeria and like Tanzania where I have family members. And when 
you look at the enormous wealth generated in those countries, 
and the enormous poverty that exists in those countries, 
something seems to have gone awry.
    A worse deal that we end up seeing in many of these 
countries is greater armed conflict, mass murder, corruption, 
and weakened economic development. And my concern is the 
devastating impact of these conflicts and the resulting chronic 
underinvestment and the national economies and the health and 
education investments of the citizens of those countries. I 
think the United States can be better than we have been. We can 
become a shining light.
    I do have one disagreement with the legislation. The 
legislation does not put in place criminal or civil penalties. 
I am concerned that corporations may not think twice about 
ignoring this Act, if in fact it is put in place. I agree with 
everything in the legislation, except that part of it. I am 
having some difficulty with that, but I would like to have an 
exchange with you about it.
    I yield back the balance of my time, Mr. Chairman. Thank 
you.
    The Chairman. Without any further opening statements being 
requested, we will proceed with the testimony.
    I will explain in advance that in about 15 minutes, I have 
to leave the hearing. The chairman of the Subcommittee on 
Domestic and International Monetary Policy, Trade, and 
Technology, Mr. Gutierrez, will preside from then on. But let's 
begin with a returning witness here, Karin Lissakers, who is 
the director of the Revenue Watch Institute.
    Ms. Lissakers.

STATEMENT OF KARIN LISSAKERS, DIRECTOR, REVENUE WATCH INSTITUTE

    Ms. Lissakers. Thank you very much. Mr. Chairman, and 
members of the committee, last October, when you explored the 
so-called resource curse phenomenon and the paradox of plenty 
and its implications for both resource-rich countries and for 
the United States and other consuming countries, you, Mr. 
Chairman, asked the question. You said, what can the United 
States do to encourage policies that would help make extractive 
resources a positive rather than a negative for resource-rich 
countries.
    I believe that this bill provides a strong answer. There 
are two reasons. First, secrecy is a big part of the problem in 
these countries. The lack of public insight and public 
oversight over the natural resources creates huge opportunities 
for misappropriation and increases the risk of conflict over 
control over these highly valuable resources.
    The disclosure of extractor payments that will be mandated 
by this bill will give citizens in producing countries a very 
powerful tool with which to hold their own governments 
accountable for how the money is managed. We already have seen 
that when people know how much money is coming in from 
extractive resources, they begin to demand to know where the 
money is going. And this is the first step to changing the 
country's policies for the better.
    The second reason I think this law is excellent is that it 
is fully consistent with what companies and countries are 
already beginning to do. The law will in fact codify what is 
becoming widely accepted best practice disclosure in extractive 
industries. For the last 6 years, companies like BP, Shell, 
Exxon, Chevron, Petrobras, Rio Tinto, and Anglo American, have 
joined with governments, investors, and civil society to 
develop a voluntary disclosure process.
    The so-called extractive industry's transparency 
initiative, EITI--23 countries are now implementing EITI, which 
requires the dual disclosure and reconciliation of company 
payments and government receipts from the extractive sector.
    Similarly, along the same lines, the World Bank's 
investment arm now requires each company participating within 
an oil, gas, or mining project to publish the company's 
payments to the government in question, broken down by type of 
payment. The OPIC bill still pending before Congress includes 
similar language. And, sometimes, companies just go ahead on 
their own, particularly where political or social tensions run 
high.
    Conoco-Philips regularly reports its payments in Timor-
Leste. BP decided to publish its payments in Azerbaijan in 
relation to a controversial pipeline. When Bolivia threatened 
to expropriate gas properties, Petrobras went out of its way to 
tell investors how much it was paying in taxes to Bolivia.
    Mining giant Newmont publishes its government payments 
around the world, as does Talisman Energy, which works in non-
EITI countries like Algeria, Colombia, Malaysia, and Vietnam. 
And Lukoil, one of the biggest taxpayers in Russia, makes a 
point to regularly publish what it pays at home.
    As we know, the Russian government has been using charges 
of underpayment of taxes to pressure oil and gas ventures to 
make concessions and yield more control to the state or state-
related interests. It appears that many companies believe that 
disclosure improves their public standing and builds trust and 
better relations in the countries where they had vital, 
billion-dollar, long-term investments.
    H.R. 6066 will bring 27 of the 30 major international oil 
and gas companies, plus the major international mining 
companies, under one disclosure standard. With such broad 
coverage, it is hard to believe that American companies would 
be put at a competitive disadvantage if they comply with the 
law. Indeed, I believe that once the law is passed, the 
companies that won't be reporting their payments will stand out 
like a sore thumb.
    There is limited risk of the law creating a conflict with 
confidentiality provisions in EI contracts, as these clauses 
typically, specifically exempt disclosure to stock exchanges or 
offer a general exemption for compliance with law. Columbia 
University Law School has done an exhaustive examination of 
extractive contracts and these are their findings.
    Further, this aggregation of payments for major types 
mirrors the reporting companies are already doing under EITI 
and in some countries, and in IFC-linked investments, and this 
is vital to achieving the transparency objectives of H.R. 6066. 
Investors will have better insight into the company's risks.
    The companies will have great reputational protection, and 
most importantly, citizens will be able to differentiate the 
payment streams that are collected by different agencies and 
their governments and this break-out will give them greater 
powers of demanding accountability of their government.
    Mr. Chairman, international lending agencies aid donors, 
investors, and the extractive industry majors have all 
recognized the value of transparency of payments and revenues 
as a means to promote better government stability and 
development in resource-rich countries. This bill is not a full 
cure for the resource curse. Neither is EITI, but together they 
will make a very significant advance.
    Today's commodity boon should by all rights produce a 
development windfall for resource-rich countries. Passage of 
H.R. 6066 into law will make that much more likely. Thank you, 
Mr. Chairman. I would like to submit my full remarks for the 
record.
    [The prepared statement of Ms. Lissakers can be found on 
page 35 of the appendix.]
    The Chairman. Yes, without objection, all of the remarks 
and the supporting material of the witnesses will be made a 
part of the record.
    Next, we will hear from Professor Faith Stevelman from the 
New York Law School.

 STATEMENT OF FAITH STEVELMAN, PROFESSOR OF LAW, NEW YORK LAW 
                             SCHOOL

    Ms. Stevelman. Thank you, Chairman Frank, and members of 
the committee. I have now spent 15 years teaching and writing 
about corporate and securities law and my remarks reflect my 
interest in and appreciation for Congress' role in protecting 
U.S. investors and building strong U.S. capital and securities 
markets. In my view, this bill advances both of these important 
goals, while it would also produce broader social and anti-
corruption benefits for resource-rich developing countries.
    First, the bill fits neatly into the broader, crucially 
important work already done by Congress in enacting the Federal 
securities laws' reporting requirements and overseeing the 
SEC's implementation of them. The bill is effectively an 
industry-specific, more precise application of already existing 
but more general disclosure mandates operating in the Federal 
securities laws, for example, risk factor analysis, 
management's and discussion and analysis, and standards of 
qualitative materiality acknowledged by the SEC. The bill would 
enhance shareholder protections in covered firms. It would 
foster shareholders' ability to make more informed judgments 
about their firm's business practices, the scope and costs of 
the natural resource rights their firms have purchased, and the 
potential legal and financial risks these firms face. On this 
basis, shareholders could analyze their best interests in terms 
of holding, buying, or selling securities in international 
extractive enterprises.
    The bill would benefit covered companies by fostering 
confidence that such companies are doing business 
internationally in ways that respect free-market principles and 
build long-term corporate wealth. In particular, extractive 
enterprises that are conducting business in a fair, 
professional manner should derive a benefit from the bill's 
reporting requirements. Companies that are conducting 
legitimate market-based negotiations with host nations and are 
paying fair prices for the resource rights and contracts they 
receive and are committed to honest recordkeeping are building 
corporate wealth. Hence, they should benefit from the bill's 
mandatory disclosure requirement, which would make this more 
apparent.
    Extractive enterprises that are doing the right thing in 
these respects will develop a record and reputation for honesty 
and fair dealings, which is in itself a commercially valuable 
asset. Such a positive record and reputation would be a 
meaningful asset, for example, if the firm were subject to 
unfair criticism from foreign governments or citizens.
    Also, enhanced transparency regarding business practices 
can help companies fend off intrusive conduct-based 
regulations. This leads me to point out that apart from 
disclosure, this bill does not create any conduct-based 
requirements for this industry. Nor does it make any conduct 
unlawful that is presently lawful.
    Also, companies can capture full value for reporting that 
they have dealt fairly and paid fair value for their natural 
resource rights only if such disclosures are backed by legal 
mandates. In this sense, this bill complements voluntary 
disclosure, but would make such disclosures more beneficial for 
companies.
    Furthermore, companies should be able to obtain these 
benefits from increased transparency at little administrative 
cost, because they should already have this information readily 
at hand, assuming they are well-run. Moreover, in companies 
where the bill's reporting requirements did indeed flesh out 
problematic business practices, shareholders would be able to 
agitate for change early on, before the risks accumulated to 
the point of endangering their own and their company's 
financial welfare.
    In addition, the bill's required disclosures should help 
executives in these extractive enterprises be maximally 
diligent and attentive to their fiduciary duties, because it is 
only human nature that we more diligently attend to what we 
must account for publicly. This is another way that the bill 
would help build corporate value in this industry.
    Finally, the bill would contribute to enhancing the 
efficient functioning of the U.S. securities market in this 
sector of industry. That is, investing is most attractive, so 
that investment capital is more available at a better cost of 
capital, and markets more liquid and less volatile, where 
investors have confidence that they are being kept fully 
informed. This is consistent with the bill's objective of 
allowing investors in international extractive enterprises to 
see more information about their firm's transactions and 
payments, its claims to natural resource rights and assets, and 
hence the soundness of its executives' business judgment.
    Furthermore, with respect to reducing market volatility in 
this sector of the securities markets, especially because other 
forces are putting pressure on securities prices in this area 
and adding uncertainty, there is a strong motive for Congress 
to support greater transparency regarding the legitimacy of 
these extractive businesses' claims to fair dealings with 
foreign governments and the credibility of their having durable 
claims on natural resource rights.
    Thank you very much.
    [The prepared statement of Professor Stevelman can be found 
on page 44 of the appendix.]
    The Chairman. Next, Mr. Robert Jenkins, who is chairman of 
the F&C Asset Management.

  STATEMENT OF ROBERT JENKINS, CHAIRMAN, F&C ASSET MANAGEMENT

    Mr. Jenkins. Thank you. You have my background in the 
written statement. I am addressing you primarily today in my 
capacity as an investment professional and chairman of a major 
investment management group.
    Mr. Chairman, I have four key points to make today: Number 
one, that the investment management industry welcomes 
transparency; number two, that the transparency approach 
enshrined in the EITI remains our ultimate goal; number three, 
I believe that this particular bill will increase transparency 
in a very important area; and number four, that this bill is 
therefore both in the spirit of and complementary to the 
broader goals of the EITI.
    Mr. Chairman, before investing, every professional weighs 
or should weigh his potential risk versus his potential reward. 
The greater the uncertainty of the risk, the greater the reward 
required. Information and transparency shape this calculation. 
The more transparent the information, the easier it is to 
quantify the downside and the more understandable the downside, 
the more confident one can be in pursuing the upside; and thus 
can transparency breed confidence, confidence reputation, and 
reputation at lower cost of capital. This is true for 
individual companies, but it also and equally true for nations, 
to which investors might wish to direct capital.
    Now it happens that the extractive industries operate in 
some of the world's riskier places. Transparency at the company 
and country level can lower the risk, stimulate investment 
flows, and expand investment opportunities more generally. And 
this is precisely why many of the world's leading investors 
support the EITI.
    Disclosure of what is paid together with transparency in 
what is received promises a payoff of a different kind. 
Political accountability and resource rich, but often the 
standard of living poor nations.
    The view is that these two pillars plus civil society 
monitoring hold the key to reduced corruption, increased 
political stability, and ultimately greater national 
prosperity.
    This in turn translates into less risk for a company's 
foreign operations, and more and better risk return 
opportunities for investors. This is the ultimate goal.
    The bill targets only one side of the equation, but it is a 
side that is extremely well worth targeting. Pitched at the 
level of the company, the bill will help investors better 
understand and get greater comfort with key details of the 
industry.
    But perhaps more importantly, the bill should reduce the 
operational and political risks run locally by the extraction 
industries. Detailed transparency in reporting will give host 
nation critics little room for accusations of non-payment of 
tax and less room generally for claims of wrongdoing. 
Disclosure of payments to the authorities should therefore help 
to shift the public spotlight away from the company and onto 
the host government.
    Now some will no doubt label this initiative as unnecessary 
interference, interference in company matters and interference 
in the affairs of other nations. As a full-time capitalist and 
a part-time lobbyist, I can certainly sympathize. I rarely 
endorse, much less ask for, additional rules.
    But increased transparency is a positive, and on this all 
parties can agree. A number of competitors already embrace its 
essence, and what harm then in raising to a global standard 
what is for many already industry as practiced? In the arena of 
corruption, real and implied, volunteerism does not always do 
the trick.
    As for the charge of international interference, this is a 
tough one. It can certainly be misconstrued as such. It is an 
accusation that will have little substance, but it is one which 
you can be sure will be made.
    In summary, the investment world benefits from 
transparency. We seek transparency wherever possible, not out 
of moral goodness, but in hard-nosed pursuit of better risk-
adjusted returns. The riskier the arena, the greater the 
craving for transparency. Extractive industries operate in 
risky arenas. And though the bill does not and cannot achieve 
all of the aims of the EITI, it is complementary to it, and 
should prove supportive of it.
    As an investment professional and industry spokesman, I 
therefore view the bill as a very positive step.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Jenkins can be found on page 
29 of the appendix.]
    Mr. Gutierrez. [presiding] Thank you.
    Next, we have Mr. Alan Detheridge, former vice president 
for external affairs, Royal Dutch Shell Group.

    STATEMENT OF ALAN DETHERIDGE, FORMER VICE PRESIDENT FOR 
           EXTERNAL AFFAIRS, ROYAL DUTCH SHELL GROUP

    Mr. Detheridge. Thank you, Mr. Chairman, and members of the 
committee, for the opportunity to speak in support of this 
bill. I retired from Shell about a year ago and now work on a 
voluntary basis with the not-for-profit organizations.
    During my time at Shell, I was, along with a small group of 
industry and NGO colleagues, one of the instigators and early 
supporters of the Extractive Industries Transparency 
Initiative. And it is that background that I bring to this 
hearing. I speak, of course, only in a personal capacity and 
don't claim to represent my former employer or the industry.
    I support this bill because I believe that transparency of 
payments made by companies to host governments is in the 
companies' own best interests. Too often companies are 
exclusively blamed for the lack of economic and social 
development in many parts of the world where they work. What is 
often not known by citizens of those countries is the 
significant sums of money paid by companies to host governments 
in the form of taxes, royalties, and signature bonuses.
    For example, in Nigeria some 95 percent of the revenues 
from on-shore oil after costs go to the Federal Government. 
Making those revenues transparent, as Nigeria now does under 
its EITI initiative, helps put the accountability for 
development where it belongs and that, in my opinion, is in the 
long-term best interest of both companies and the citizens of 
oil-producing countries.
    Having said that, let me comment on three arguments that I 
understand are being made against this bill. The first is that 
the proposed bill would undo the good work being done by the 
Extractive Industry's Transparency Initiative and that it would 
lead to that initiative's demise.
    Personally, as one of the instigators of EITI, I do not 
believe that to be the case. Otherwise, I wouldn't be 
testifying here today.
    EITI is a country-led and owned initiative, and it does 
lead to worthwhile discussion between in-country stakeholders 
on extractive industry revenues, not least the use to which 
those revenues are put.
    In my view, this bill is compatible with EITI's in-country 
approach. But more importantly, having raised the matter with 
Peter Eigen, the chairman of EITI's international board, he 
told me that EITI was following this bill with interest. He 
went on to say that he welcomes efforts to improve resource 
revenue transparency that are consistent with the goals of 
EITI, and that he also welcomes any legislation that reinforces 
these efforts. And if necessary, Dr. Eigen will be happy to 
issue a statement to that effect.
    A second argument against the bill is that companies would 
need to make significant accounting and reporting modifications 
in order to disclosure the required information. In other 
words, it would cost too much. I don't disagree that some 
disclosure cost would be incurred by companies. But I don't see 
how companies that support EITI, which includes, of course, all 
the major U.S. and European oil and mining companies, can 
reasonably claim that these costs would be prohibitive.
    In supporting EITI, companies implicitly accepted that they 
were prepared to assume the costs of disclosure wherever and 
whenever the initiative was implemented. Since this bill's 
requirements are in line with those called for by EITI, it is 
difficult for me, at least, to see how it places an undue and 
indeed unforeseen burden on companies.
    The final argument that I would like to begin to address is 
that of U.S. competitiveness, which some believe would be 
adversely affected. Those against the bill contend that many of 
the largest global competitors would not be subject to this 
bill, and that these entities could benefit from the disclosure 
of payments to host governments by their U.S. competitors.
    Firstly, I think it's worth making the point that this 
proposed bill would in fact apply to a very high percentage of 
those companies listed on stock exchanges around the world. 
According to figures from ``Publish What You Pay,'' 90 percent 
of the top 30 companies buy reserves of oil and gas.
    Secondly, this bill mandates only the disclosure of 
payments made to governments, and not more commercially 
sensitive information, such as costs, profits, or contracts. I 
don't believe that there is a competitive disadvantage in 
disclosing payments to governments.
    But even if there is, should this outweigh the benefit of 
legislators and citizens of a country having access to that 
information? Mr. Chairman, in my view, it should not.
    Thank you very much for the opportunity to testify.
    [The prepared statement of Mr. Detheridge can be found on 
page 27 of the appendix.]
    Mr. Gutierrez. Thank you very much, Mr. Detheridge.
    The Congresswoman from Los Angeles, Congresswoman Waters?
    Ms. Waters. Thank you very much, Mr. Chairman, for being 
here today and for providing the leadership, along with 
Chairman Frank, so that we can learn more about extractive 
industries and try and get more transparency in this Act that 
we are putting together. There is so much that we don't 
understand about what really is taking place in many of the 
countries who are very rich in minerals and other kinds of 
resources, yet they are so very, very poor.
    And the people are suffering so much. It is hard to 
understand as you look at some of the African countries, 
Liberia for example, that is endowed with the wealth of 
diamonds. And you would think that these diamonds would be a 
blessing for Liberia's impoverished people. Instead, they 
fueled a civil war which lasted 14 years and took the lives of 
270,000 liberians. Seventy-five percent of Liberia's population 
lives on less than $1 per day, and Liberia owes $3.7 billion to 
foreign countries and multilateral financial institutions.
    So all of this is very hard to understand, and we hope that 
as we move on with transparency, we can better understand this.
    I would like to ask a question of Mr. Alan Detheridge, is 
it?
    Mr. Detheridge. That's right.
    Ms. Waters. You know and understand how Shell, for example, 
works with these African countries and how the payments are 
made, how the contracts are put together, etc. My number one 
question is: When you are in countries where you have dictators 
or very corrupt leaders who obviously are taking the money, the 
proceeds, the profits, and they are cutting deals, not on 
behalf of the people, but instead, the money is going in their 
pockets. How do you work with this? What do you say and what do 
you do?
    Mr. Detheridge. Thank you very much for the question. In 
truth, I'm tempted to say, ``Well, I no longer work for Shell, 
so I shouldn't answer that question.'' But let me nevertheless 
try to do so.
    Let me take the example of Nigeria, which as you know for 
many years was ruled by corrupt dictators. In fact, I think 
that's the reason why my former company was so very supportive 
of the Extractive Industries Transparency Initiative, and why, 
along with a number of other people, they lobbied the then-
Nigerian government of President Obasanjo to undertake that 
initiative in Nigeria.
    Our thought, Shell's thought at the time, was that making 
payments to governments transparent was a very necessary part 
of reforming Nigeria. It wasn't the only thing that needed to 
be done, but it was something that was definitely required.
    Nigeria did indeed implement the Extractive Industries 
Transparency Initiative, and it hasn't solved all of Nigeria's 
problems, that is true. But what it has done is make it very 
apparent as to who is getting what money, because Nigeria 
publishes not only what the federal government receives, it 
publishes what state governments receive, and what each local 
government area receives.
    That has led in Nigeria to a lot of questioning of local 
elected representatives from people saying, ``Look, you get all 
this money, and I don't see the results of that in my back 
yard.'' That's a very healthy debate. It's also a debate, I 
should say, that has led to three state governments being put 
on trial and some of them going to prison for stealing money.
    So the answer to your question, I think it is difficult for 
companies to deal with countries that are repressive and 
corrupt. Transparency is a help in that respect. This bill 
promotes transparency, and that is why I am supportive of it. 
Thank you.
    Ms. Waters. Thank you very much. I suppose, Mr. Chairman, a 
lot more could be raised about this, but, you know, we don't 
have the time to talk about it much, and your past companies' 
relationship with Abacha and what occurred in Nigeria.
    But Angola is another prime example of a country that is 
very, very rich, and a country that was at war for a long time. 
And I guess while I think that transparency is very, very 
necessary, there are some other things that I think we need to 
do. But I'm going to yield back the balance of my time, so that 
the chairman can get to some other people, and perhaps we will 
have another round and I can ask another question.
    Thank you.
    Mr. Gutierrez. I will be here for it.
    Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Ms. Stevelman, I was reading in your prepared remarks on 
page 7, I thought we were closing in as really good friends 
with regard to when you began to address the enforcement 
mechanisms. If there is no penalty provision, why should 
corporations comply?
    Ms. Stevelman. Thank you for that question. I think I may 
have overstated that there is no punitive provision. I meant to 
emphasize that this would not create a basis for private 
investor litigation, because I know that there is significant 
popular sentiment against private investor suits.
    I also do agree with you that it would be the exception for 
there to be highly aggressive enforcement by the SEC. What 
usually happens is that the SEC allows companies a little bit 
of time to adjust to these new disclosure provisions. It puts 
out some interpretive releases, it brings an injunctive action 
where it slaps a company on the wrist. Maybe another one of 
those. Then the penalties start to escalate gradually.
    The initial fine in Federal court that it might win would 
be consistent with that small $50,000 amount, but if a company 
was found to be culpable of repeat violations, or if subsequent 
companies made the same mistakes that had already come to light 
in an earlier enforcement action, at that point the penalties 
do rise significantly.
    So for example, there is a famous case of MD&A non-
reporting by the Caterpillar Company, where I believe the 
result was just a civil injunction, a slap on the wrist that 
says, ``Don't do this again.'' But a year later, there was an 
MD&A enforcement action--I forget the company--but the fine at 
that point went up to $1 million. So there is the possibility 
for a gradual escalation in civil monetary fines that would be 
brought by the SEC and awarded as a result of process in the 
Federal courts.
    Mr. Cleaver. Thank you.
    Mr. Detheridge, as a former executive with Shell, in 
listening to Ms. Stevelman's comments, do you believe that 
major corporations would comply to the law in an attempt to 
escape a private cause of action?
    Mr. Detheridge. Thank you for the question, Mr. Cleaver. My 
personal belief is that certainly 40 U.S. companies would 
comply with this legislation, and all European companies would 
comply with this legislation. And I think other companies would 
do so as well, because the reputational damage that would fall 
out from not complying with this legislation would far outweigh 
any advantage I think that would be gained by them. Companies 
list on stock exchanges to raise capital. And not complying 
with the regulations imposed by those exchanges is a very 
serious matter, which I'm sure--Mr. Jenkins could comment on 
this--would be looked at very seriously by the investing 
community.
    Mr. Cleaver. Of course, a company out of China is not going 
to be publicly traded; in all likelihood, you're right; 
publicly-traded companies here in the United States and London, 
in the EU, they would. But if you look at what's going on right 
now in Darfur, where China is deeply involved in an extractive 
industry, we can't even count on China to try to discourage the 
genocide that's taking place there.
    It's a little frustrating to me, because I just simply do 
not believe that we would have worldwide compliance. And in the 
case of the Sudan, China is the 800-pound gorilla, in that 
China is the industry in that country.
    I don't know what the answer is. You know, we need a 
professor in law like Ms. Stevelman, to come up with the 
solution.
    Ms. Stevelman. Can I make one remark relevant to what you 
said?
    Mr. Gutierrez. Briefly, if you please.
    Ms. Stevelman. There are pieces of these Chinese 
enterprises that are listed, and Darfur would be accessible to 
U.S. law enforcement.
    Mr. Cleaver. Yes.
    Mr. Gutierrez. I'm going to try to get everyone in. 
Apparently, there's a vote coming up, and so, we will see if we 
can get one round, and then I will be happy to come back for a 
second one.
    Congresswoman Moore?
    Ms. Moore of Wisconsin. Thank you so much, Mr. Chairman.
    I guess I would like to start with Mr. Detheridge. This 
bill obviously is a great first step in transparency. The 
voluntary Extractive Industries Transparency Initiative has 
been partially implemented by 23 countries already. I guess 
there are countries prospectively and currently that would like 
us to go a little bit further, and I want your comments on 
that. That there be some--and since you brought up this up, Mr. 
Detheridge--some mandatory revenue disclosure. And because it's 
one thing to say, ``This is how much we have paid a 
government,'' but we still don't know what the volume of the 
extraction was or the mass of the extraction was, what profits 
were involved. You know, we need some contract transparency.
    So I guess I would like to hear your comments on more 
contract transparency.
    Mr. Detheridge. As I said earlier, I can only speak in a 
personal capacity. In answer to your question about 
transparency of contracts, that is actually something that I 
fully believe in. I think contracts, that the parliaments, 
legislators should have access to those contracts. It is 
something that I personally support. As you can imagine, that 
is not a universally held opinion within the oil industry.
    Ms. Moore of Wisconsin. Mr. Jenkins? Ms. Stevelman? Others? 
Ms. Lissakers?
    Ms. Lissakers. Yes. Certainly the Revenue Watch Institute 
and the civil society groups that we work with, both 
internationally and especially in the producing countries, are 
very strongly in favor of contract transparency. In almost 
every country in question, the resources that we are discussing 
are public assets. They are not private property. They are 
public assets by law in most countries. And therefore, 
contracts between the state and an operating company should be 
made public. That would greatly enhance the accountability 
aspects as well as help to ensure that the country itself is 
getting a good deal from the extractive sector, a fair deal 
from the industry.
    A number of countries have changed their approach and are 
now submitting large extractive concessions to their own 
parliaments for review before the contracts are consummated, 
and that of course makes them public. We think that is a very 
healthy, strong move in increasing accountability.
    Ms. Moore of Wisconsin. Thank you. You know, the chairman 
has heard the cry about regulation and, you know, many 
observers or critics have said that there are already many 
onerous reporting requirements, as in Sarbanes-Oxley. Can you 
please just reassure us or explain how this EITD Act would not 
risk exacerbating this difference. In other words, the U.S.-
listed companies, there wouldn't be an incentive for them to 
de-list because of these provisions.
    Yes?
    Mr. Detheridge. I don't think that companies can reasonably 
say that these reporting requirements are onerous. And the 
reason I say that is simply because most of the major oil and 
gas companies--certainly all of the major U.S. companies and 
all of the major European companies--supportive the Extractive 
Industries Transparency Initiative.
    And the Extractive Industries Transparency Initiative is 
very much--or I should say this bill--is very much in line with 
the reporting requirements of EITI.
    Now in supporting EITI, companies implicitly have accepted 
that they will bear the costs of making those numbers available 
wherever and whenever the initiative is implemented, hopefully 
worldwide.
    And so I don't see how they can reasonably claim that, you 
know, this is too costly; they have already implicitly admitted 
that they are prepared to bear those costs. I mean this 
information is, of course, known to the companies. It is in 
their books.
    Now I don't doubt that there is going to be some additional 
cost in extracting that information from the books; they will 
probably need to have it vetted in each country by external 
auditors just to make absolutely certain that they are putting 
forward the right numbers.
    But as I say, I don't think it can be reasonably claimed to 
be a prohibitive cost; so the argument on cost, to me 
personally, doesn't stand up.
    Ms. Moore of Wisconsin. That is great information for the 
record. I yield back.
    Mr. Gutierrez. Thank you very much. Thank you.
    My colleague from Illinois, Congressman Roskam, for 5 
minutes.
    Mr. Roskam. Thank you, Mr. Chairman.
    Mr. Detheridge, you mentioned in your opening that it is in 
the company's best interest to make these disclosures. If that 
is the case, why don't they all do it?
    [Laughter]
    Mr. Detheridge. You will have to ask them. I--
    Mr. Roskam. I mean, you can appreciate the nature of the 
question. It's one thing for somebody who was previously 
employed to say, ``This was a great idea and I have had this 
revelation since I have left the company.'' Do you know what I 
mean? Or--and I'm not criticizing you personally--but my 
question is, you said that it is in the company's best interest 
to do it.
    Mr. Detheridge. Yes.
    Mr. Roskam. Why don't they?
    Mr. Detheridge. Let me explain why I think that. And that 
is not a revelation I had when I left.
    Mr. Roskam. I understand that; you mentioned that.
    Mr. Detheridge. But it is one that came to me when I was 
working for the company, which led to me helping to instigate 
and support the Extractive Industries Transparency Initiative.
    Let me just explain for a second why I think it's good for 
companies. And it's not just an argument that it shifts the 
blame for the lack of development to where it belongs, you 
know, to the governments and away from the companies; it's also 
that the oil and gas business is a very long-term business. You 
make an investment this year; you're not going to get a payback 
from that investment for several years to come, possibly 7 
years, possibly 10 years.
    The places where you want to work are places where people 
are happy, healthy, there is a thriving economy, and they have 
jobs. Too often, that is not the case.
    Mr. Roskam. Let me, just because time is short, let me 
redirect your question. My question is: Why don't they do it, 
if it is a good idea and good for them? What are the arguments 
that you have heard? What is the reluctance when you are 
advocating this, and their eyes began to glaze over. What was 
behind the glaze?
    Mr. Detheridge. I think part of the reason behind the glaze 
is by putting more information into the public domain, more 
questions will be asked by investors, querying why, you know, 
you're investing in this particular country, by non-
governmental organizations, possibly by people like yourselves. 
So more information leads to more questions, and there is a 
natural reluctance against that. That has been, in sum, the 
argument that I have heard.
    Mr. Roskam. Thank you. Mr. Jenkins?
    Mr. Jenkins. Thank you.
    If I may just turn it around, do you think that--
    Mr. Roskam. Oh, no, I'm not in the question-answering 
business. Let's just make that clear.
    Mr. Jenkins. Right. Well, would companies have 
wholeheartedly volunteered to disclose their executive 
compensation, had there not been outside pressure to do so? Is 
there any company today that would say that disclosing such 
information is bad for that company? And I think you have in 
that a parallel with this particular problem.
    There are companies of great stature who already fully 
disclose. Numont Mining is not a lightweight. They are not 
stupid, they generate a good shareholder return, and they 
believe that they are at no competitive disadvantage in 
disclosing.
    There are many companies who simply don't want to give away 
information that they don't have to.
    Mr. Roskam. Fair enough.
    Let me ask a question for the whole panel--Mr. Detheridge 
kind of touched on this a little bit--and that is, could you 
speak to the challenge that is out there? Limited resources 
worldwide. Let's say you have a nefarious head of a country who 
controls the natural resources in that country, but makes a 
decision, and he says, ``Look, if I do business with this 
company that's listed, this information is going to be 
disclosed. If I do business with the Chinese, if I do business 
with one of these other entities, I'm not going to have to 
disclose this; therefore, I'm going to do business with the 
non-disclosing entity.'' How does this bill drive towards the 
unlocking of resources worldwide at a time when we need to do 
that more and more? Can you speak to that challenge, anybody?
    Yes, ma'am?
    Ms. Lissakers. Let's take Angola. Congresswoman Waters 
mentioned Angola. And it goes to both your first question and 
then this one. In Angola, British Petroleum proposed 
unilaterally to disclose its payments to the government, and 
the government then threatened to kick them out, so BP withdrew 
and became an active supporter of EITI. And Angola has not 
signed on to the EITI.
    On the other hand, the Norwegian State Oil Company, 
StatOil--
    Mr. Roskam. Can I just stop you there? And we will get back 
to that. One, did anybody come in the intervening period of 
time and take the place of BP in Angola?
    Ms. Lissakers. No, they were not kicked out. They did not 
disclose the payments, and they remained, their contract 
remained.
    Mr. Roskam. Oh, I see. I misunderstood.
    Ms. Lissakers. Angola is one of the few countries where the 
production sharing agreements stipulate that an approved 
disclosure could be grounds for termination. However, StatOil, 
the Norwegian oil company, is also operating in Angola, and has 
been for a long time. They publish their payments to the state 
of Angola, because they are required by Norwegian law to do so, 
and the Angolan authorities have not said ``boo'' about it. 
They haven't protested, they haven't pushed them to get out. 
They have not interfered with their business.
    So the existence of law provides protection for the 
companies that want to operate transparently and properly.
    Mr. Gutierrez. The time of the gentleman has expired.
    I'm going to return for a second run to the gentlelady from 
California, Congresswoman Waters.
    Ms. Waters. Thank you very much. This transparency issue is 
very important and it is somewhat complicated. And as we just 
heard testimony that said some do, some don't--in the case of 
Angola the threat was not followed up on--I'm wondering what 
actions could be taken to make certain that the disclosures are 
accurate? How could SEC and law enforcement determine if 
they're not accurate?
    Because as I believe that the oil companies in particular 
that are operating in many of these so-called third-world 
countries don't just have transparency and contracts that are 
above-board. I think they're paying underneath the table to the 
leadership of those countries. And I don't think that's ever 
going to be disclosed. Am I wrong? Am I too suspicious? Am I 
too distrusting? I'd like anybody to respond to that. How can 
we make sure it's accurate?
    Ms. Stevelman. I would like to say something about that. I 
think that is where this bill fits in nicely with certain other 
securities laws and other criminal laws. I think that is where 
you get a really good yield from Sarbanes-Oxley, where Congress 
has worked hard to make sure that companies that access the 
U.S. capital markets are subject to stringent internal 
controls. And before that, in the Foreign Corrupt Practices Act 
of 1977, prohibiting bribery and requiring companies to 
maintain books and records that are accurate and systematic. 
These things need to be audited, if these companies are going 
to access the securities markets. Where auditing failures come 
to light, there is tremendously bad publicity. There is the 
potential of criminal enforcement.
    And so while I believe that there would be soft enforcement 
at the beginning with respect to this law, there is the 
opportunity for much harder enforcement under other laws, for 
example, the Foreign Corrupt Practices Act, where under-the-
table payments were discovered.
    Ms. Waters. Also, many of these governments do not disclose 
to their people how the money that they're receiving is being 
allocated or being spent. Is there ever any conversation from 
the oil companies, for example, with the government about their 
government processes? Now I know it's probably unreasonable to 
ask our companies to try and enforce good government on the 
countries that they are doing business with.
    But I'm wondering if there's any kind of conversation that 
takes place about that, because as was indicated here, by Mr. 
Detheridge, many of the people in the people in those countries 
believe that the oil companies are in bed with the corrupt 
dictators, that they're not paying the amount of money they 
should be paying, that they support that government's attempt 
to protect the oil fields for the companies with their military 
or paramilitary.
    So what kind of discussion goes on? I know you're not with 
them any more, Mr. Detheridge, and perhaps we're putting too 
much attention on you. But what we really want to know is what 
goes on behind the scenes?
    Mr. Detheridge. You're asking some very good questions. 
Such conversations, of course, are very delicate. But let me 
just give you one example which comes back again to Nigeria, 
and I do that because I'm familiar with the case. And indeed, 
in discussions with the Nigerian federal government about 
implementing EITI, which I have to say President Obasanjo was 
very enthusiastic about, as was his finance minister.
    Ms. Waters. Then why did he have so much disruption of the 
pipelines? I know him too, and I think he certainly was better 
than Abacha--
    Mr. Detheridge. Sure--
    Ms. Waters. And you know, but why was there so much 
disruption?
    Mr. Detheridge. Well--
    Ms. Waters. To the point where people lost their lives?
    Mr. Detheridge. Let me get to that point, if I may.
    Ms. Waters. Okay.
    Mr. Detheridge. And there was a conversation about: Well, 
look, if we just publish the numbers at the federal level, that 
is very helpful, it is very good, it is a step in the right 
direction; but wouldn't it be much better if you published how 
much money went to the state and the local level? And that 
indeed is done; as I said before, it has led to some state 
governors and others being arrested on corruption charges.
    Now, it's a reasonable question to ask, well, since this is 
all now in the public domain: Why haven't things changed more 
quickly in the Niger Delta? And my answer to that is that 
things take time. You cannot expect a citizenry in a country 
that, as you say, has been ruled by dictators, is unused to 
holding its public officials to account for the money which 
they have spent.
    You can't expect that to change overnight. I've been 
following Niger for a number of years now, and I can tell you 
things are beginning to change in Nigeria. I mean before it was 
unheard of that state governors would be arrested and put in 
jail. That is happening now.
    It's going to take time, and in my view, this bill is a 
step in the right direction. It enables those kind of 
conversations to take place.
    Thank you.
    Ms. Waters. Thank you.
    Ms. Lissakers. Could I just add something?
    Mr. Gutierrez. Sure.
    Ms. Lissakers. We are working now actively in the Niger 
Delta with a very large coalition of NGOs based in the Niger 
Delta, and with a governor in one of the big oil-producing 
states. In the most recent election, every single person who 
ran for governor in the oil states in the Niger Delta 
campaigned on transparency because they were feeling pressure 
from the grass roots.
    And the governor we are working with--remains to be seen--
has committed to implement what he is calling the Bayelsa State 
Transparency Initiative, in cooperation with the civil society 
activists and trying to get at least eight local government 
authorities to cooperate as well.
    The fact is that between the capital and the governors and 
the local government authorities, all of the oil money 
disappears. And virtually nothing hits the ground. The schools, 
health clinics, roads, water, or anything else. And the only 
way you're going to change that is work down at that level 
where the public services should be delivered, and that's 
what's beginning to happen now, and it's beginning to happen, 
it started with Minister Ngozi's decision to publish every 
month in the newspapers the amount of money that was being 
transferred to the states and to the local government 
authorities.
    And the civil societies we worked with said, ``You know, we 
used to say the companies aren't paying enough. Abuja isn't 
paying enough.'' And now when we saw the numbers, we said, ``My 
God, there's a lot of money coming into our regions. Why aren't 
we seeing any public services?''
    And that's what is the beginning of real change that 
changes people's lives. But information was the first opening.
    Mr. Gutierrez. If any of the panelists would like to 
comment, there's an argument made that mandatory revenue 
disclosures would force companies to breech their contracts if 
they included nondisclosure provisions. Would anybody like to 
comment on that?
    Ms. Lissakers. I'm happy to. This has been a big issue in 
the transparency issue debate. And the Revenue Watch Institute 
commissioned a study from the Columbia University Law School, 
which has access to a very large database of oil and mining 
contracts. They have now reviewed more than 100 major 
contracts, specifically looking at the confidentiality 
requirements. And the standard clauses in these contracts, 
which say that information may not be released without the 
permission of the counterparty--those clauses typically either 
explicitly exempt disclosures required by stock exchanges, or 
give a broad exemption for ``compliance with law.'' In other 
words, this bill would in no way put U.S.-listed companies in 
conflict with their contractual obligations as far as we have 
been able to determine.
    Mr. Gutierrez. I would like to thank the panel. It seems to 
me that we should continue to work on this legislation, 
Congresswoman Waters. I think it has great public benefit, not 
only for us here, but around the world.
    And we work here a lot on transparency, because we think 
transparency just leads to better consumers. It allows them to 
make decisions. And it allows companies to change. Because once 
the public knows, they move their assets around, or they buy--
you know, they buy differently, and they acquire goods from 
different places, once there is transparency.
    So I think transparency--especially as I've learned that 
let me see if I want to overthrow a dictatorship, it's pretty 
good for me to know what assets the dictatorship has, so that I 
can say what I would do differently. And thereby not allow the 
dictatorship maybe to put the onus on the company that's 
extracting, but on me that's already receiving the money. Not 
that we shouldn't--there are some good politicians out there 
who probably do both, but they wouldn't be blinded on the one 
side by saying the company--because you know, I do kind of come 
from, it's the company. Some of us come from that point of 
view. But maybe they could have another point of view, and then 
they could say what they do better with the resources, or 
whether or not they made a good deal. I mean, because as we get 
transparency, maybe they're not paying enough for the barrel of 
oil or for the ton of magnesium. And it would be interesting to 
see how much money the same company would be paying different 
countries for the same natural resource.
    I mean all of that knowledge is going to allow countries to 
develop their natural resources and to be more competitive, as 
they take those natural resources.
    So I think it's something we should sit down and talk some 
more about with our colleagues. I am happy that the chairman 
has proposed this legislation.
    And Congresswoman, would you like to close?
    Ms. Waters. Yes. If the gentleman would yield?
    Mr. Gutierrez. Sure.
    Ms. Waters. Just for a minute.
    As you said, we have always looked with a jaundiced eye at 
the companies, and we have always wanted more scrutiny on the 
companies, and felt that perhaps they were exploiting, they 
were not paying enough, that they were in bed with the 
dictators, and they didn't really care about the people. And I 
think as you said and as I'm saying, we're willing to look 
closer at the governments also.
    Mr. Gutierrez. Sure.
    Ms. Waters. And not only do we want transparency from the 
companies and what they're paying, we need to find ways to 
leverage whatever power or relationships we have to get more 
transparency from the governments about how they spend their 
money. I worked on debt relief for Nigeria, and I kept asking 
myself, ``Why am I working on debt relief for Nigeria?'' They 
are rich in all this oil, and these resources. And so I'm 
convinced that I cannot credibly continue to talk about how 
poor these countries are, when they are so very rich. And we 
are not doing enough to put the pressure on the leadership of 
those governments. So I want to get them both, the companies 
and the governments.
    Mr. Gutierrez. Well, I think this will help us all.
    I thank all of the panelists so much for their time and 
their energy and their enthusiasm for this issue. Thank you so 
much.
    This hearing is adjourned.
    [Whereupon, at 11:30 a.m., the hearing was adjourned.]

                            A P P E N D I X



                             June 26, 2008



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