[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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44-189 PDF WASHINGTON DC: 2008
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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
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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
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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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