Company disclosure laws introduced for UK extractives companies
A new commitment by the UK under the Extractive Industries Transparency Initiative (EITI) forces extractives companies operating in the UK to disclose ownership.
The UK's announcement to mandate the disclosure of ownership of extractives companies is being cheered by NGO Global Witness, which is campaigning for full disclosure of all companies’ ownership globally.
UK oil, gas and mining companies should disclose the identities of all beneficial owners with a controlling share of more than 25%, according to the agreement. All the information is scheduled to be published in the UK’s first EITI report, expected to be released in early 2016.
“It’s a standard for good governance of natural resources and the fact that they are doing it under EITI is a sign that it is important,” says Eddie Rich, deputy head and regional director for Africa and Middle East, EITI International Secretariat. Besides disclosing ownership, companies are asked to reveal any connections with politicians or government officials.
“It’s of interest to the public to know where the flesh and blood owners reside and the country where the company is, and whether it is politically exposed or connected,” he adds. “Our end goal is to help effective management of this sector in a country – we’re trying to inform good policy and strengthen government systems.”
“For us, this is a major achievement, getting oil, gas and mining to operate more transparently,” says Rachel Owens, senior campaigner, oil team, for Global Witness. The goal of Global Witness is to increase transparency in the extractive industries – mining, logging, oil and gas – to ensure business agreements are legitimate and revenues from extractive agreements are not diverted away from the countries that need them.
The group has done extensive research on the problem of anonymous companies – those whose actual owners cannot be identified or located. “Finding out who is at the top of the corporate chain allows us to find out who is actually profiting from natural resources,” Owens says. “ Political links will have to be exposed. We can see if people have connections with people in government and the military, which is important to know if someone is awarding contracts.”
Global Witness is eager to see more countries adopt disclosure regulations like those of the UK. Much of Global Witness’s focus is on resource-rich countries, since one-third of the poorest countries in the world are the resource-richest and often exploited by large extractive companies. Some companies bid for oil licences in a nation and wind up with extremely high profits because of their political connections or bribes. Sometimes money paid for extraction rights gets diverted to another company and the country loses billions of dollars in revenues.
A Global Witness investigation showed that two major oil companies in 2011 paid the government of Nigeria $1.1 billion for rights to an oil block. The money landed in a company owned by the country’s former oil minister; none of it went into the government’s coffers. The people of Nigeria received no benefits from this windfall.
“No one really knows who the real owners [of many of these companies] are – in some cases, they are owned by friends of politicians,” Owens says. “At least making this public goes a long way toward making deals transparent. It ensures the right companies are being hired, which are qualified to do the work and are aware of any environmental impact.”
Global disclosure standard
EITI has included its recommendation for disclosure of company ownership to member companies since March 2013, Rich says. About 15 EITI countries have begun to disclose this information under the EITI process; to gather this information, they are developing a pilot to determine what EITI requirements should look like in terms of ownership and what information would be disclosed while taking into account the differences among nations. “They are discussing how to standardise the requirements with suitable realistic guidance,” says Rich.
Ideally, a global standard would go a long way toward eliminating the problem of anonymous companies, Owens says. Currently, the European Union is passing legislation requiring all 28 member states to bring in registries of companies to show actual owners, she adds. “Another big step is getting the US and China on board.”EITI extractives transparency MOG Nigera Oil mining gas