NRC

Governments under whose jurisdiction the parent companies of resource extraction entities reside have often acted in ways that undermined the good governance of resource extraction. For example, some governments have used their diplomatic power to lobby for special deals for their own companies, undermining the integrity of both the fiscal system and the process by which extraction rights are awarded. This use of diplomatic power is in excess of the influence commonly employed in normal tax treaty negotiations and other trade negotiations. Where the governments of resource-rich countries have decided to use transparent procedures such as auctions to award extraction rights, companies and the governments in which the parent companies of extraction entities reside should not use their influence to circumvent or to otherwise compromise these procedures.

Similarly, transparency of extraction revenue streams is vital to effective public oversight. Therefore, home governments should require the parent companies and all related entities over which they have jurisdiction to report their payments to governments in a form that enables public oversight while being consistent with taxpayer confidentiality rules. They should support EITI, and meet EITI reporting standards themselves where relevant and material. To universalize disclosure and to level the playing field for extraction companies, they should support an international accounting standard for reporting such payments and for reporting production, costs and revenues country-by-country. The latter would make it easier for producing countries to administer resource taxes effectively.

The major financial centers can help to limit the leakage of public resources through illicit channels, which is a problem particularly prevalent in some resource rich countries. The supervisory authorities of international banks should bar banks from engaging in transactions that involve looted assets. Due diligence requirements for transactions which could reasonably be suspected of being the diversion of resource revenues from their proper uses should be as strict as those that apply to the laundering of drug money or financing of terrorist organizations.

A concerted policy shift along these lines, perhaps coordinated through the G-8/G-20, would have the greatest impact. Extractive companies say that the greatest constraint on disclosure comes from the governments in producing states. Comprehensive home country regulation or an international accounting standard would protect companies from retaliation or discrimination and level the international playing field for the industry. Effective limits on the flow of looted assets through the international banking system requires the cooperation of the major financial centers, which already coordinate on drug and terrorist financing through the Financial Action Task Force and the Basel committee on banking supervision.