Nicholas Shaxson
25 June 2004
column
Johannesburg — THIS week, the United Nations expanded the nine principles of its voluntary global compact for corporate behaviour to include a tenth: that businesses should combat corruption in all its forms.
So far, the main efforts to tackle corruption have led to two complementary initiatives: the Publish What You Pay coalition led by London-based nongovernmental organisation (NGO) Global Witness, and the Extractive Industries Transparency Initiative set up by the UK government.
Both contain good ideas. The former's mandatory approach would target companies: it would upgrade international rules, such as stock exchange listing requirements, to make oil and mining firms reveal more on their deals with producer nations.
The UK body's voluntary approach focuses rather on helping producer countries to change their behaviour.
Yet the mandatory approach faces stiff resistance. Foes of the NGOs' more radical, mandatory approach raise several objections. First, forcing companies to disclose more would still leave gaps in the picture of producer governments' revenue: a western company could not be made to reveal an African state oil firm's cash flow.
By bringing host governments on board, the transparency initiative would fill the gaps because countries would agree to declare all their revenue.
Second, western firms fear corruptionprone nations might favour companies from, say, Russia or China, whose rules did not require data disclosure, over rivals obliged to be more transparent. Third, forcing firms to disclose more data would clash with contract confidentiality clauses.
These, though, are excuses for the fainthearted. For example, in Angola and Kazakhstan, reformers are struggling against secretive presidencies to try to track national revenue and limit scope for corruption. A requirement for properly published company data would aid these reformers.
Wood Mackenzie, a consultancy, thinks sub-Saharan Africa might produce oil valued at than $500bn in the next 10 years; nearly half will flow to foreign companies. Poor reporting would create temptation to misuse the funds. Better reporting would at least constrain corruption.
Fighting graft is not about slaying dragons but about partial victories and cumulative success. Several firms say mandatory disclosure is wrong, as it would favour less scrupulous competitors. This argument was used by US companies to oppose the 1977 US Foreign Corrupt Practices Act.
In fact, their worries they would be held to a higher standard prompted the US to press for an antibribery convention in the Organisation for Economic Co-operation and Development. This is progress.
In April Nigeria and So Tomé called off most of an oil licensing round on their shared border because it attracted dubious Nigerian firms. These countries know they need to lure big, serious players to find oil.
What serious firm would delist from bourses that required them to publish data? As for the confidentiality argument, many existing oil or mining contracts already have clauses giving western regulators a right to override commercial secrecy.
Voluntary initiatives will boost transparency in producer states. Yet policy makers should use the best of both routes, or they will reward the lobbyists and dictators who would prefer to let firms go on hiding behind opaque data. Financial Times
Shaxson is an associate fellow at the Royal Institute of International Affairs.
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