Unhappy anniversary: U.S. withdrawal from the Extractives Industries Transparency Initiative, one year later

Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford - RC1B5EE7E390

When the United States withdrew as an implementing country from the Extractive Industries Transparency Initiative (EITI) one year ago this month, it did not garner the same attention as the Trump administration’s decisions to withdraw from the Paris climate agreement, the Iran nuclear deal, or the UN Human Rights Council. However, it was still deeply disturbing for all those who care about fighting against corruption in natural resource extraction. The concern among transparency advocates was that the U.S. exit from this global multistakeholder organization dedicated to ensuring accountability could have, among other things, created a domino effect—weakening the EITI and the fight for good governance of the sector more generally. Fortunately, one year later, that has not happened. Others have stepped forward to help lead the fight and continue momentum, even while the U.S. vanguard role is sorely missed.

The policies controlling natural resource governance in the United States, home to some of the world’s largest oil companies, reverberate far beyond our borders. The United States has for decades been a leader in this area, with such pioneering efforts as the Foreign Corrupt Practices Act helping to curb corruption in extractives and other industries across the globe.

One of the notable exceptions to U.S. leadership, however, has been mandating transparency around extractive companies’ disclosures of what they pay to countries where they drill. Those details are important to “following the money,” and thus to fighting corruption in those lands. The United States lagged behind other developed countries in this respect, with progress often stymied by what the bipartisan senatorial transparency champions Ben Cardin and Richard Lugar referred to as the “Big Oil lobby.”

Those senators’ response was to advance Section 1504 of the Dodd-Frank Act, also known as the Cardin-Lugar amendment. Enacted in 2010, it required oil, gas, and mining companies listed on U.S. stock exchanges to disclose their taxes and other payments to both the U.S. and foreign governments. Section 1504 reverberated around the world, with the European Union and Canada (the second and third largest extractives markets in the world, respectively) enacting “nearly identical” legislation almost immediately after its passage. Unfortunately, special interest and other opposition to 1504 has continued, and implementation of the law remains stalled as we currently await a new set of proposed regulations from the Securities and Exchange Commission (SEC) to give it effect.

On a parallel pro-transparency track, then-President Obama committed in 2011 to implementing the EITI. EITI-implementing countries commit themselves to disclosing the resource revenues of companies and their tax payments within two years to become compliant with the EITI Standard. As part of the roadmap to achieve this goal, the U.S. formed a domestic multistakeholder group to oversee EITI implementation. It was a collection of representatives from U.S. government agencies, civil society groups, and companies working in the extractives sector. In 2013, the United States formally submitted its EITI candidacy, which was accepted in 2014. One year later, we saw the release of the United States’ first EITI country report, which contained data from 2013.

From the beginning, however, major U.S. oil companies—even ones that, to this day, sit on the global EITI board, like Chevron and ExxonMobil—fought against EITI implementation in the U.S. as they did Dodd-Frank 1504 and other transparency initiatives. In 2015, the year of the first EITI country report, these companies refused to disclose their tax payments to the U.S. government as required by the EITI Standard. This prompted civil society representatives of the U.S. EITI group to file a grievance against Chevron and ExxonMobil for their noncompliance. The EITI Secretariat agreed that, without this information from the corporations, the U.S. could not be determined to have met the EITI’s reporting standards.

These oil companies did not disclose their tax payments in subsequent EITI reports either. One year ago, in November 2017, they won a huge victory when the Trump administration officially withdrew the United States as an EITI-implementing country, claiming that it was incompatible with U.S. domestic law. This claim was, and remains, nonsense. Dodd-Frank 1504 continues as the law of the land, despite delays in the SEC issuance of regulations for its implementation. There is certainly nothing on the books that prevents disclosure. Indeed, U.S.-based companies such as Kosmos Energy have consistently reported according to the EITI Standard; Kosmos has a comprehensive transparency page detailing payments to the U.S. and other governments of countries in which it does business.

However, most other companies have fallen far short. As 2019 approaches, company reports for 2018 will contain the first disclosures since U.S. withdrawal. We expect they will be similarly anemic. Meanwhile, corruption in the extractives industries, aided by opaque reporting requirements, runs rampant, with an estimated one in five cases of transnational bribery taking place within this sector.

The news is not, however, all bad. Though some predicted that U.S. withdrawal would erode EITI participation across the globe, the initiative remains robust. American companies continue to disclose in foreign countries when required to under the EITI, and Mexico and Guyana became implementing countries just days before the U.S. withdrew.

There are even some reasons for optimism within the U.S. The SEC must issue new rules for Dodd-Frank 1504 implementation, and civil society groups are calling for them to be robust. The midterm elections returned the majority in the House of Representatives to Democrats, who have been more willing to call for extractive industry transparency. That suggests at least a possible renewal in oversight efforts, even if EITI membership itself remains in the hands of the Trump administration. And, as an EITI-supporting country, the U.S. is still formally committed to promoting good governance in the extractives industries.

Finally, civil society and other stakeholders all over the world are engaging in efforts to achieve transparency, accountability, and participation in natural resource governance. These include Brookings’ own Leveraging Transparency to Reduce Corruption project on which we work. It is a five-year global study that aims to test anti-corruption approaches across the natural resource value chain. We join hundreds of organizations and thousands of individuals working elsewhere in the U.S. on similar issues, programs, and ideas.

One year after U.S. withdrawal from EITI, there are still many hopeful signs that others in the U.S. will pick up some of the slack left by the Trump administration’s withdrawal from this critically important transparency initiative.

The authors thank Adrienne Epstein, Colby Galliher, and Kiersten Rhodes for their research assistance.