Inspiring People. Shaping the Future.

WASHINGTON, DC1101 New York Avenue, NWSuite 901Washington, DC 20005 USA

Contact: Tyson Barkertyson.barker@bfna.org(+1) 202.384.1993www.bfna.org

BRUSSELSRésidence PalaceRue de la Loi 1551040 Brussels, Belgium

Contact: Thomas Fischerthomas.fischer@bertelsmann-stiftung.de(+32 2) 280.2830www.bertelsmann-stiftung.de/brussels

©Copyright 2010, Bertelsmann Foundation. All rights reserved.

The Brussels Connection to Capitol Hill

CapitolWire

CapitolWire is a joint publication of the Bertelsmann Foundation offices in Washington, DC and Brussels. It connects the European Parliament

to Congressional policy and politics, and contributes to a common trans-Atlantic political culture. CapitolWire is an occasional publication that

highlights issues, legislation and policymakers relevant to the European Parliament’s legislative cycle. This publication also looks at the Congress

from the point of view of European Parliament staffers and offers timely operational analysis.

The Bertelsmann Foundation is a private, nonpartisan operating foundation, working to promote and strengthen trans-Atlantic cooperation. Serving as a platform for open dialogue among key stakeholders, the Foundation develops practical policy recommendations on issues central to successful development of both sides of the ocean.

©Copyright 2012, Bertelsmann Foundation. All rights reserved.

FE

BR

UA

RY

20

12

KEY POINTS

• In July 2010, the US Congress passed the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The bill contains Section 1504 (the Cardin-Lugar provision), which requires publicly listed extractive-industry companies in the US to report their payments to governments at home and abroad to the SEC. Civil-society groups, communities, investors and governments will then have access to this payment information.

• The Cardin-Lugar provision has some significant differences from EU legislative proposals under consideration. Cardin-Lugar includes the oil, gas and mining sectors, and it is limited to publicly traded companies. The EU draft legislation includes the timber industry and applies to public and private companies. It also permits exemptions based on host-country prohibitions.

• Originally slated for regulatory promulgation in April 2011, the new rules under Section 1504 have been delayed and are now scheduled for release in 2012. This could push back full implementation to 2013.

The State of Play: Transparency in Extractive Industries

In 2010, the US Congress passed the Dodd-Frank Act, the most sweeping reform of financial regulation in more than a generation. One of the bill’s most innovative legislative components was Section 1504, also known as the Cardin-Lugar provision in recognition of its chief sponsors, Senators Ben Cardin (D-MD) and Richard Lugar (R-IN).

The legislation requires oil, gas and mining companies reporting to the Securities and Exchange Commission (SEC) to disclose their public payments made to governments in every country of operation. US publicly traded companies will be required to report on a country-by-country and project-by-project basis. The data will be available in an annually updated, interactive database that will show comparisons across countries and projects, and track the traffic of payments to government departments and officials for licensing, leasing and/or other concession-level arrangements.

The provision’s goal is to increase the transparency and accountability of government revenues generated from these industries in resource-rich countries, including those in Africa, Asia and Latin America. Some observers have noted that the law could change the way that the developed world interacts with governments of resource-rich countries and begin the process of lifting the resource curse.

Inspiring People. Shaping the Future.

WASHINGTON, DC1101 New York Avenue, NWSuite 901Washington, DC 20005 USAContact: Tyson BarkerE-mail: tyson.barker@bertelsmann-

foundation.orgTel: (+1) 202.384.1993www.bertelsmann-foundation.org

BRUSSELSRésidence PalaceRue de la Loi 1551040 Brussels, BelgiumContact: Thomas FischerE-mail: thomas.fischer@bertelsmann-

stiftung.deTel: (+32 2) 280.2830www.bertelsmann-stiftung.de/brussels

©Copyright 2010, Bertelsmann Foundation. All rights reserved.

The Brussels Connection to Capitol Hill

CapitolWire

2

The Long Road to Passage

The quest for including disclosure

requirements in US law goes back to

debates around the Foreign Corrupt

Practices Act (FCPA) in the mid-1970s.

The FCPA prohibits “improper payments

to foreign government officials to assist

in obtaining or retaining business”. At

that time, Congress had considered

including disclosure requirements.

Instead, it settled on a version of the bill

emphasizing mandated prohibitions

on “types of payments” that companies

could provide. It did not, however, include

any means of disclosure for more public

oversight. More recently, efforts have led

to a breakthrough in injecting transparency

into the relationships between US-based

extraction companies and the resource-rich

host countries in which they operate. These

efforts were led by organizations such as

Publish What You Pay (PWYP) and included

an amalgamation of NGOs, investors and

politicians.

The push for transparency legislation was

originally planned as an independent piece

of legislation, the 2009 Energy Security

Through Transparency Act (ESTT). This

bipartisan, Senate-based legislation built

on previous bills such as the proposed

Extractive Industries Transparency

Disclosure Act (EITD), originally introduced

in 2007 and 2008. But it became clear that

the most effective way to pass ESTT was to

tack it on as a “rider” to mammoth financial-

services-regulatory reform. The amendment

was slated for a Senate vote in May 2010 but

did not reach the floor due to procedural

restrictions. That rider, Section 1504, was

championed by Senator Patrick Leahy (D-

VT) and Congresswoman Maxine Waters

(D-CA) during the conference process, in

which parallel bills passed in the House

and Senate are reconciled.

On July 15, 2010, the Dodd-Frank Act

passed Congress. Once implemented,

the rule will capture a large swath of the

global extractive sector. Of the world’s top

ten mining companies, eight are listed on

US stock exchanges. For international oil

companies, 29 of the top 32 are US-listed.

These companies include PetroChina,

ExxonMobil and BP. Not included are

Petronas (Kuala Lumpur), Gazprom

FE

BR

UA

RY

20

12

How the EITI Works

Independent Administrator Reconciles the Payments

Extractive Companies Disclose Payments

Government Discloses Receipt of Revenues

Oversight by a Multi-Stakeholder Group (representatives from government, extractive corporations, and civil society)

EITICountryReport

Source: Olcer, D., 2009. Extracting the Maximum from the EITI. Working Paper No. 276. OECD Development Centre.Available at: www.oecd.org/dataoecd/56/60/42342311.pdf

The Senate sponsors of the legislation with Bono. The One Campaign strongly supports Section 1504.

President Obama with other world leaders at the UN, launching the Open Government Partnership in September 2011.

http://www.bfna.org/category/publication-type/capitolwire

Inspiring People. Shaping the Future.

WASHINGTON, DC1101 New York Avenue, NWSuite 901Washington, DC 20005 USAContact: Tyson BarkerE-mail: tyson.barker@bertelsmann-

foundation.orgTel: (+1) 202.384.1993www.bertelsmann-foundation.org

BRUSSELSRésidence PalaceRue de la Loi 1551040 Brussels, BelgiumContact: Thomas FischerE-mail: thomas.fischer@bertelsmann-

stiftung.deTel: (+32 2) 280.2830www.bertelsmann-stiftung.de/brussels

©Copyright 2010, Bertelsmann Foundation. All rights reserved.

The Brussels Connection to Capitol Hill

CapitolWire

3

Next Steps in the US and Around the GlobeTransparency and development advocates

have turned their focus to two subsequent

goals: 1) creating an international

framework of similar transparency laws; and

2) expediting the rule-making process at

the relevant US regulatory agency, the SEC.

EU Internal Market Commissioner Michel

Barnier has released revisions of the

Transparency and Accounting Directives

that would re-frame Europe’s regulatory

environment and compel Europe-based

industries to adhere to similar provisions.

According to Ian Gary of Oxfam America, passage of the EU law would bring 60 percent

of publicly traded companies in the extractive industry under a transparent regulatory

framework. This would allow consumers, shareholders and good-governance advocates

access to a large reservoir of data on how industry money is being spent in resource-rich

countries from Angola to Libya.

However, significant discrepancies between the US and EU provisions remain. While EU

legislation exempts companies when a host country prohibits disclosure, Section 1504 does

not. Some organizations working on transparency, such as the European Network of Debt and

Development (Eurodad), have speculated that these exemptions could lead to a proliferation

of host-country restrictions that could render the legislation less effective.

FE

BR

UA

RY

20

12

(London) and Petrom, the Romanian

national oil company (Bucharest), although

the last two would fall under EU legislation.

Since the Dodd-Frank Act’s passage,

Washington has continued to highlight

resource transparency as an effective

development and anti-corruption tool.

At the Millennium Development Goals

summit in September 2010, US President

Barack Obama noted the role of payments

to governments by oil, gas and mining

companies as a source of corruption in

resource-rich countries. He called on the

G20 “to put corruption in its agenda and make it harder for corrupt officials to steal from

their own people and stifle their nation’s development”. President Obama announced that the

US would implement the Extractive Industries Transparency Initiative (EITI) at the launch of the

Open Government Partnership (OGP) in New York in September 2011.

Since 2006, the EITI has been a set of disclosure principles to which governments can

voluntarily adhere. However, EITI does not have a requirement for project-level disclosure.

One reason that it lacks teeth is that the reporting requirements are extremely broad,

making it easier to hide where payments are received. This can render EITI less meaningful.

Advocates for Section 1504 argue that the Cardin-Lugar provision and EITI compliance in the

US are complementary. Provisions such as Section 1504 compel companies to disclose the

money they contribute while EITI stipulates that governments disclose what is done with

that money. As such, the two legislative provisions, taken together, capture both sides of the

equation.

Waiting for the SEC RulingIn the Dodd-Frank Act Congress required

the SEC to issue rules on Section 1504

by April 15, 2011. Despite strong support

letters from members of Congress and

other government agencies, including

USAID, the promulgation of these rules has

been delayed twice, first to December 2011

and now well into 2012. Congressman Jim

McDermott (D-WA), one of the legislation’s

chief proponents in the House, admonished

the SEC, saying that “the law gave 270 days

to promulgate regulation [that it is currently

much] overdue and could lose another

calendar year [if action is not taken].”

As in the EU, one of the most prominent points of contention in setting the rules for

implementing Section 1504 will be the definitions of “project”, “foreign government” and

“commercial development”. The SEC has yet to release its final definition on what constitutes

a project, although that is expected with the other rulings in 2012. Many US advocacy groups,

such as Oxfam US and PWYP US, have pushed for reporting to be required at the lease or

licensing level. They have received support from the US Department of Interior, among

others, for this effort.

bfna.org