Oil Companies, Corrupt Governments to Benefit as Congress Guts Transparency Rule

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On February 3, the Republican-led Senate used an obscure procedural tool to end a bipartisan provision meant to fight corruption and overseas oil bribery, a rule opposed by Rex Tillerson as head ofย ExxonMobil.

The Securities and Exchange Commissionโ€™s (SEC) transparency rule, part of the 2010 Dodd-Frank financial reform bill, was created to reduce corruption by requiring drilling and mining companies to disclose royalties and other payments made to governments in exchange for oil, gas, and mining extractions.ย Critics say overturning the rule could threaten nationalย security.

Written by Sen. Ben Cardin (D-MD) and Sen. Richard Lugar (R-IN), the transparency rule mandated that extractive companies listed on the U.S. Stock Exchange โ€” including Exxon, Chevron, and several Chinese oil conglomerates โ€” publish details of the hundreds of billions of dollars paid for the rights to a nationโ€™s naturalย resources.ย 

The transparency rule was implemented in 2016 with broad support from community leaders throughout the world. It took years to finalize due to lawsuits by the petroleum industry and the U.S. Chamber of Commerce. The industry argued that disclosures would hurt publicly traded companies competing with foreign or state-run companies and that reporting would beย burdensome.ย 

The American Petroleum Institute (API) strongly supported overturning the SEC transparency rule via the Congressional Review Act, issuing a fact sheet on it toย Congress.ย 

Voting strictly along party lines, the Senate decisionย to repeal the transparency rule followed a similar vote in the House and was accomplished with a little-used parliamentary provision called the Congressional Review Act (CRA). The CRA, until this month used only once in two decades, allows the majority party to push fast repeal of regulations without writing a newย bill.ย 

This came the same week Rex Tillerson, a fierce opponent of the rule while CEO of ExxonMobil, was confirmed as Secretary of State and the same week the U.S. Department of Treasury eased sanctions against the Russian intelligence agency FSB.ย ย 

Whyย Transparency?

The transparency rule was a step to increase accountability in countries with a history of government corruption, according to its co-author Sen.ย Cardin.ย 

In many cases a huge gulf exists between what companies say they paid a government and what the government tells its citizens it received. Human rights groups like Oxfam International backed the Cardin-Lugar rule, as itโ€™s also known, saying it was a tool for fighting poverty by preventing leaders of corrupt governments line their pockets with money from large oilย companies.

Congressโ€™ move to gut the Cardin-Lugar rule sets the U.S. apart from a global trend toward greater accountability in how revenues from resource extractions are managed.ย  The UK, Canada, Norway, and all 27 members of the European Union have laws requiring their oil, gas, and mining companies to disclose their payments to governments, and the UK and Canadian laws were modeled on the Cardin-Lugarย provision.ย 

The fact that so many oil companies around the world are disclosing payments invalidates the claim that the Cardin-Luger rule puts companies at a competitive disadvantage, Jana Morgan, co-founder and director of Publish What You Pay Coalition, toldย DeSmog.

โ€œThe oil industry has also claimed that host country laws exist that would prevent disclosure, and that would force U.S. firms to stop doing business there,โ€ Morgan said. โ€œThe oil industry has yet to provide credible evidence to support that assertionย either.โ€

Morgan says that it speaks poorly about the U.S. when thirty countries around the world have implemented similarย regulations.

Morgan and other supporters of the transparency rule say the CRA is a blunt tool that also prohibits government bodies like the SEC from creating similar rules in the future. โ€œUndoing a regulation that took six years to create with no debate is an insult to our democracy,โ€ Morganย said.

DeSmog contacted Exxon, API, and the U.S. Chamber of Commerce, but none provided comments for thisย story.ย 

At Exxon Tillerson Fought Transparencyย Rule

In his Senate confirmation hearings, Rex Tillerson was never asked directly whether he would support or oppose repealing the Cardin-Lugar transparency rule as Secretary of State. But as Exxon-Mobil CEO, he did everything in his power to kill theย rule.ย 

In 2010, Tillerson flew to D.C. to visit to the amendmentโ€™s Republican co-author, then-Sen. Richardย Lugar.ย 

Jay Branegan, who in 2010 was a staffer on the Senate Foreign Relations Committee, which developed the legislation, told DeSmog that a colleague, one of Lugarโ€™s top aides, characterized the meeting with Tillerson as a lobbying effort to scuttleย transparency.ย 

โ€œThey talked for about half an hour, and among other things, Tillerson said the rule would hurt Exxonโ€™s relations with Russia,โ€ Branegan told DeSmog. Branegan added that neither Lugar nor his aide shared the reasons why Tillerson thought it would hurtย relations.ย 

Branegan, now a senior fellow at the Lugar Center, said that to his knowledge, Tillerson was the only oil company executive to visit Lugar regarding the transparency rule, and he didnโ€™t know if other companies had visited otherย senators.ย 

Foreign Corruption Could Affect U.S. Nationalย Security

In addition to depriving some of the worldโ€™s poorest people of natural resource wealth that is rightfully theirs, oil money that is pocketed by kleptocratic leaders can breed extremist movements in these countries, according to someย experts.ย 

Lt. Col. Jodi Vittori, an adjunct professor at Georgetown University and author of the book Terrorist Financing and Resourcing, wrote a blog post denouncing the repeal of the transparency rule, saying that it puts troops serving overseas in greaterย danger.ย 

โ€œMany corrupt governments outsource their security, using the money from the oil, gas, and mining projects to pay off a variety of militias, warlords, and private security companies. These militias and warlords use some of the money to pay and equip their private armed forces. And they do so right where American troops are stationed today, placing these troops in harmโ€™sย way.โ€ย 

The anti-corruption organization Global Witness published a fact sheet on how lack of transparency can increase the risk of crime and terrorism on a regional and globalย scale.ย 

Zorka Milin, senior legal advisor for Global Witness, told DeSmog that the Exxon-Russia connection is a big factor in the overturning of the Cardin-Lugarย rule.ย 

โ€œExxon has to pay for the right to extract oil in Russia,โ€ Milin said. โ€œIf it is publicly known how much Russia is being paid, the Russian public would likely beย upset.โ€

Exxon has been pushing to drill in the Russian Arctic for years, but couldnโ€™t do so with the sanctions imposed by the U.S. Now with a Russia-friendly president and Secretary of State, it is widely speculated that Russia will soon have that opportunity.ย 

Milin also speculated that Exxon could be trying to prevent disclosure of taxes, in a break from many companies that do so voluntarily through the Extractive Industries Transparency Initiative.

Whatโ€™s most infuriating to Milin is that most Republican members of Congress appear to have no idea of what theyโ€™ve just votedย for.ย 

โ€œTheyโ€™re doing the bidding of big oil without understanding the corruption this will lead to. Because of the process [through the CRA] there was no debate,โ€ saidย Milin.

Milin added that if President Trump really cared about the threat of terrorism as heโ€™s said, he would not sign thisย legislation.

However, Congressional watchers expect him to sign the rollback of the transparency rule and two other Obama-era environmental regulations into law thisย week.ย 

Main image: As CEO of ExxonMobil, Rex Tillerson met Russian President Vladimir Putin on several occasions. Credit: Kremlin.ru,ย CC BYย 4.0

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