Corrupt Practice

Last week, along largely partisan lines, Congress voted to repeal a Securities and Exchange Commission rule requiring oil, gas, and mining companies to disclose the payments they make to governments for access to natural resources. According to congressional Republicans and some in the oil and gas industry, the rule creates unacceptable burdens and puts U.S. companies at a disadvantage to foreign competitors. Validity aside, these claims ignore the central purpose of the law. Mandated by Section 1504 of the 2010 Dodd-Frank Act but not scheduled to go into effect until late 2018, it has already become a core element of U.S. leadership in fighting corruption around the world. Since passage of Section 1504, 30 other countries have passed similar disclosure rules for the extractives sector. And because large-scale corruption is a driver of insecurity, conflict, and terrorism, repeal of the SEC rule makes Americans less safe.

Resource-rich, underdeveloped countries often have weak institutions and rule of law. Payments by foreign companies can easily end up in the overseas bank accounts of a tiny, corrupt elite and do nothing to spur economic growth, provide basic services to deprived populations, or build capable, professional security forces. 

At its core, Section 1504 (also known as the Cardin-Lugar amendment) aimed to prevent the curse that afflicts so many resource-rich countries simply by bringing more transparency to the natural-resource business. Government officials have a harder time hiding money when that money is publicly recorded. In turn, instead of enriching the few, vast mineral wealth can set poor countries on a path to greater prosperity and peace. 

That is good for the citizens of such countries, but it is also good for Americans. Serious threats to the United States emanate from countries where systemic corruption has undermined the government’s legitimacy and ability to function. For example, corruption has hollowed out security forces that are needed to fight terrorist groups or counter external aggression, as in Nigeria and Ukraine. Corrupt patronage networks also channel funds and materiel to insurgent and terrorist groups, as in Iraq and Syria. Moreover, by eroding citizens’ trust in their governments, corruption has shattered the state-society compact that underpins stability in many nations. Look no further than Iraq, Libya, Nigeria, Somalia, Syria, and Venezuela to see how the resulting grievances fuel unrest, insurgency, and terrorism. 

Even so, starting in 2012, the American Petroleum Institute, the U.S. Chamber of Commerce, and two other trade associations challenged the rule in court on First Amendment grounds. ExxonMobil also lobbied heavily against it. In July 2013, the D.C. District Court declined to judge on the First Amendment challenge but vacated the rule on procedural grounds, requiring the SEC to rewrite it. In June 2016, the SEC promulgated a revised rule, which closely resembled the previous version and would have gone into effect in late 2018.

The SEC rule would have been a common-sense way to counter corruption and abuse. It granted citizens the most basic tool—information—for holding their governments accountable. And it in no way limited or restricted to whom, how much, or for what purposes companies could make payments. Investors with a net worth of more than $10 trillion publicly supported the rule because it helps them assess risk in volatile countries. And, in many cases, companies already collected the required reporting information.

In fact, many leading U.S.-listed companies, including Royal Dutch Shell, BP, Statoil, and Total, as well as Russian state-owned companies like Gazprom and Rosneft, have begun complying with similar disclosure rules in Canada, Norway, and all 28 European Union countries. Those countries modeled their rules on the SEC rule, which was the first of its kind and spurred momentum in the push for transparency. Thus, U.S. firms should not feel overburdened by conflicting reporting requirements, nor are they at a competitive disadvantage, contrary to Congressional Republicans’ claims. According to the Natural Resource Governance Institute, subsidiaries of ExxonMobil, Chevron, and ConocoPhillips have already reported under British rules. Still, the SEC rule would have covered an additional 425 firms, including ExxonMobil and Chevron, which have lobbied heavily against it.  And even if the reporting obligations were somewhat onerous, that might be a small price to bear in return for the added value of subjecting state-owned companies like Brazil’s Petrobras and China’s CNOOC to these rules.

And so, ironically, a legislative change that makes corrupt practices easier might be one of the first to land on the desk of a U.S. president who campaigned on “draining the swamp” and fighting special interests. Killing the SEC rule would not only be a defeat for human rights, democratic governance, and U.S. moral leadership, it would also run counter to U.S. national security interests.