Transparentizing the Commodity Trading Sector: Why Trading Companies Must be Subject to Mandatory Payments Disclosure

Commodity trading companies (CTCs) mainly operate as middlemen in a business model called “transit trade,” where CTCs administer the delivery chain for primary economic products (energy, metals, agriculture, etc.) from the extraction site to the ultimate buyers. Though CTCs rarely have physical possession of these commodities, the CTCs are the ones that typically build connections with foreign officials and politicians, pre-finance extraction activities by indebted governments (often through loans pledged on future commodity deliveries), and sell raw materials across the globe. Because of CTCs’ frequent interaction with foreign governments and state-owned enterprises, their complex structure, and the opacity of the commodities market, the corruption risks—particularly in the markets for “hard” commodities like oil, gas, or minerals—are especially large, as a few recent cases have highlighted (see, for example, here, here, and here). Politically exposed persons (PEPs) also take advantages of the opacity in commodity trading to launder illicit proceeds derived from corruption.

Yet in stark contrast to the focus on the corrupt activities of those companies engaged directly in extractive activities, as well as by the ultimate purchasers “upstream,” corruption by CTCs has not received much attention. This oversight should be corrected, in part by covering CTCs under the “Publish What You Pay” (PWYP) laws of their home countries—laws that usually only mandate payment disclosures relating to exploration, extraction, and processing, and that often explicitly exclude payments related to “commodity trading-related activities.” This exclusion is a mistake, as there are at least two good reasons to apply PWYP rules to CTCs: Continue reading