Sector News

New SEC Anti-Corruption Rules Make It Harder For Oil Companies To Bribe Foreign Countries

July 8, 2016

The Securities and Exchange Commission (SEC) issued landmark transparency rules on June 27 requiring oil, gas and mining companies listed on U.S. stock exchanges to disclose all payments they make to the U.S. and foreign governments. Under the new rules, companies and their subsidiaries are required to file annual reports starting in 2018 disclosing how much they pay governments in taxes, royalties, fees, production entitlements, bonuses and dividends for exploration, extraction and other activities.

“I am pleased that the Commission has completed these final rules, which will provide enhanced transparency to further the statutory goal,” said SEC Chair Mary Jo White.

The SEC rules cover many international oil, gas and mining companies, such as Exxon, Chevron and Shell, as well as some state-owned companies, such as Brazil’s Petrobras, and China’s PetroChina and CNOOC which trade in the U.S. stock market.

The decision, which comes after decades of lobbying by transparency advocates, was welcomed by major non-governmental organization as a “historic” step in the fight against corruption. “This is a huge victory for investors and for citizens in resource rich countries around the world who wish to follow the money their governments receive from oil and mining companies,” said Ian Gary, Associate Policy Director at Oxfam America.

The June 27 deadline for the SEC was imposed by a U.S. federal district court after Oxfam America sued the SEC for lack of compliance with Section 1504 of the 2010 Dodd-Frank Wall Street Reform Act which mandated greater transparency about payments related to resource extraction.

Since then the UK, the European Union, Canada and Norway have adopted similar mandatory disclosure laws and companies such as Shell have already started reporting on their payments to governments under the implementing regulations.

The new rules come as Mexico is in the midst of opening up Pemex, Mexico’s state oil company, to private investment after a historic energy reform that ended 76 years of oil monopoly.

Gary said that a number of international oil companies that trade in New York, including  Chevron, Exxon, Shell, Total and Statoil, are expected to participate in the first deep-water drilling prequalification for the license round scheduled to end on December 5.

Asked what the impact of the new rules would be on these companies, Gary told me that it would not be negative. “In the energy reform the Mexican government prioritizes transparency in the process of licensing as well as transparency in the payments. I don’t think these companies would face any negative consequences and it is likely that the Mexican authorities would view the fact that these companies have to be transparent about payments to Mexico as a positive attribute,” Gary opined.

In the past two decades, Mexico has become a global trade and investment partner, but it also remains a nation struggling with a history of corruption. American companies have played along with Mexico’s corruption culture, where bribes are a normal part of doing business. Two years ago computing multinational Hewlett-Packard (NYE:HPQ) agreed to pay U.S. regulators $108 million to settle a corruption case involving employees at subsidiaries in Mexico and other countries charged with bribing government officials. U.S. prosecutors said that HP paid a $1.41 million “commission” to win a software deal with Pemex.

Dominic Eagleton, from Global Witness, a Washington-based NGO that fights against environmental and human rights abuses by the extraction industry, believes the new rules could help Mexico. “Oil industry corruption is made possible because multi-billion dollar deals are done behind closed doors. By bringing payments out into the open, the SEC rule will deter companies and state officials from striking corrupt deals. Mexican citizens will be able to monitor the payments that companies funnel into the public finances, and hold the government to account for how their oil wealth is used,” Eagleton told me.

By Dolia Estevez


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