Guest Post: U.S. Implementation of the EITI–Good Progress, But Needs Improvement

GAB is delighted to welcome back Daniel Dudis, Senior Policy Director for Government Accountability at Transparency International-USA, who contributes the following guest post:

The United States recently published its first narrative report and payment reconciliation report under the Extractive Industries Transparency Initiative (EITI). The EITI was founded in 2003 to help end the “resource curse” by which the revenues generated from natural resource extraction benefit a small group of politically-connected insiders and do nothing to improve the lives of the vast majority of people in many resource-rich countries. The concept that underpins the EITI is simple: by requiring participating resource extraction companies to report the payments they make to all levels of government in a country, while simultaneously requiring participating governments to report the revenues (including royalties, bonuses, rents, penalties, fees, and corporate income taxes) received from those companies, one can compare the reported figures and bring transparency to an often opaque sector. This transparency can in turn be used to hold governments accountable for how they distribute and spend resource wealth. Membership in the EITI is voluntary; there are currently 49 countries participating. The EITI is governed at both the international and national levels by multi-stakeholder groups composed of representatives of government, civil society, and industry.

The recently published U.S. EITI report covers payments made and received in 2013. There is much valuable information in the both report and the accompanying U.S. EITI website. The Department of Interior is to be commended for publishing 100% of payments it received in 2013 from companies producing on federal lands and in federal waters (totaling approximately $12 billion), as well as state-by-state royalties for 18 resource-rich U.S. states. The report also provides detailed information on natural resource extraction governance at the federal, state, and tribal levels, statistics on the size of the extractives sector (in terms of economic output and employment), as well as a valuable assessment of the revenue sustainability in 12 resource-dependent counties.

That said, there are a couple of important respects in which the report falls short:

On the central question of resource extraction payment reconciliation, only 31 of 45 companies (69%) that meet the criteria for reporting payments to the DOI actually did so. Perhaps even more troubling, only 12 of 41 companies (29%) that should have reported resource-related corporate income tax payments to the U.S. Internal Revenue Service actually did so, and only 5 of 41 (12%) agreed to reconciliation with IRS figures. (Where reconciliation was possible, all material variances between company and government figures were resolved.) The lack of tax reporting by companies is problematic: Unlike payments received by DOI, federal corporate income taxes paid by companies are confidential, meaning that the IRS cannot unilaterally publish the payments it receives. Without corporate participation, this critical information will remain hidden. This is a problem, for two reasons:

  • First, while the U.S. does not have a kleptocratic elite siphoning off money from the extractives sector as do some developing countries, significant resource extraction in the U.S. takes place on federal lands and waters. Americans (particularly those in local communities where extraction is taking place) should have a right to know if they are receiving a fair return for the resources that effectively belong to them. Revenues from corporate income taxes are part of this return. Of the 12 companies that did report corporate income tax payments, several large, highly profitable companies reported having paid minimal or even negative taxes. While there may be reasonable explanations for this, greater reporting on corporate income taxes paid would help Americans to better assess if they are receiving a fair return and fulfill the EITI’s mission of making the extractives sector more transparent.
  • Second, the U.S., through its implementation of the EITI, has an opportunity to serve as a model of transparency to the same countries it urges to embrace greater transparency. If the U.S. cannot hold itself to the same standard which it asks other countries to uphold, then the U.S. government’s arguments in favor of greater government transparency and accountability lose much of their credibility

In 2016, the U.S. will have to produce its second EITI report covering payments made and received in 2014. Unlike the first report, this second report must be validated by an international board, which independently evaluates the report and its compliance with EITI standards. Without significantly improved tax reporting by companies, it is unlikely that this second report will meet the EITI standard for validation, thereby jeopardizing U.S. chances of obtaining EITI compliant status. It is therefore critical that companies, including those U.S. companies represented on the multi-stakeholder group charged with implementing the EITI in the U.S., report their corporate income tax payments in the second report. Although the SEC has just issued a proposed rule that would require all extractive industry companies listed on U.S. stock exchanges to publish payments (including taxes) on a project-by-project and country-by-country basis, this rule would likely apply to payments made in 2017 at the earliest. Companies should therefore agree to voluntary comply with the proposed rule by providing data for 2014 and the following years to ensure a useful and robust EITI and set a strong example for all countries.

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