Options for Operationalising Transparency in Commodity Trading Transactions

1. The development of a global standard on payment disclosure by buying companies

The trade of commodities and the transactions that underpin those trades take place on a global scale involving a vast network of actors from a wide array of jurisdictions – both developed and developing and both public and private. In that regard, the challenge of improving transparency and accountability in commodity trading should ideally be addressed through an internationally agreed framework on corporate payment disclosure between jurisdictions involved in those transactions, including key home jurisdictions of buying companies, trading hubs, offshore financial centres, and jurisdictions where production occurs.

In 2017, the OECD Secretary-General’s High-Level Advisory Group on Anti-Corruption and Integrity recommended the development of transparency instruments to require commodity traders to disclose payments to governments and SOEs, and to accelerate the global trend towards requiring mandatory disclosure of revenue payments to governments by all oil, gas and mining companies (OECD Secretary-General's High-Level Advisory Group on Anti-Corruption and Integrity, 2017[4])

Further recognition of the need for a global standard on payment disclosure has already been made by some trading hubs and home jurisdictions of buying companies. This includes a commitment by the European Commission at the 2016 Anti-Corruption Summit to “explore the scope for a common global reporting standard” (European Commission, 2016[5]), and the United Kingdom “to establish and implement a common global reporting standard” on payments to governments for the sale of oil, gas and minerals as part of its National Action Plan for Open Government 2019-2021 in June 2019. As part of this commitment, the United Kingdom noted that “the largest payment stream missing from mandatory disclosure is payments to governments for the sale of publicly owned oil, gas and minerals (commodity trading), an area where corruption risk is acute” (Government of the United Kingdom, 2019[6]).

More recently, in June 2020, the Swiss Parliament recognised the need for a global approach to payment disclosures by buying companies during a package of wider reforms to Swiss company law. The new law delegates authority to the Federal Council to apply new transparency provisions to Swiss commodity traders buying oil, gas and minerals, in accordance with an international procedure where other key trading hubs would enact similar provisions (Parliament of Switzerland, 2020[7]).

Non-governmental organisations, such as the Natural Resource Governance Institute (NRGI) have called for governments in key commodity trading hubs including Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States to require these buying companies to disclose the payments they make to purchase oil and gas and minerals from governments and national oil companies (NOCs) (Malden and Williams, 2019[8]) (NRGI, 2020[9]).

The development of a global standard on payment disclosure by buying companies could lead to the creation of a level playing field across jurisdictions with trading hubs able to compete on the same ground while maintaining high standards of integrity. A global standard on payment disclosure can also improve the usability of information through consistent reporting across different jurisdictions from one year to the next on payments made by buying companies for the purchase of publicly-owned commodities.

A collective process to develop a global standard on payment disclosure could build a common understanding around key concepts and issues associated with commodity trading payments, thus fostering harmonisation of efforts and consistency in interpretation – for example, the scope of information to be disclosed, addressing concerns of commercial sensitivity and confidentiality, and setting a time lag for disclosure. The scope of the information to be disclosed should reflect the full spectrum of the corruption risks arising across jurisdictions through which transactions are routed, as identified by the OECD Development Centre, in order for the global standard to meaningfully translate into improved accountability (OECD, 2021[10]). This process would lead to the disclosure of comparable, understandable and readily accessible data that can enable governments, civil society organisations, and other interested stakeholders to have a fuller picture of the revenues that resource-rich countries receive for the sale of their commodities as well as information that may trigger corruption red flags.

In addition, the introduction of a global standard on payment disclosure would reduce the burden on buying companies by harmonising their reporting requirements across jurisdictions.

EITI Reporting Guidelines for companies buying oil, gas and minerals from governments: A basis for a globally scalable standard?

The Extractive Industries Transparency Initiative (EITI) is a global standard to promote good governance and open and accountable management in the oil, gas and mineral sectors. The EITI Standard requires the disclosure of specific information along the extractive industry value chain – from extraction, to revenue collection and spending.

In 2013, the EITI moved to require the disclosure of information about the sale of the state’s share of production of oil, gas and minerals.

In response to a growing international recognition of the significance of revenues from commodity sales for the development of many resource-rich countries, this requirement was strengthened in the revision to the EITI Standard in 2016, where governments, including SOEs, were required to disclose the volumes sold and revenues received from sales of publicly-owned oil, gas and minerals. The published data must be disaggregated by individual buying company and to levels commensurate with the reporting of other payments and revenue streams.

Subsequently, the EITI established a working group to support a number of countries in voluntarily implementing the requirements of the 2016 Standard. As part of that process, 11 countries (SOEs and relevant government agencies) began to disclose information on the sales of their states’ share of production.

However, as these disclosure requirements were primarily targeted toward governments and SOEs, there was a transparency gap in respect of the other side of the transaction – the buyers, as only a few EITI countries, Iraq (2013), Ghana (2018) and Nigeria (2019), published reports that included payments reported by buying companies. Furthermore, only one major buying company was in the practice of voluntarily disclosing its payments to governments in EITI countries.

The development of guidelines and a reporting template for the disclosures of payments by companies buying oil, gas and minerals from governments or SOEs was subject to extensive discussions within the EITI Working Group on Transparency in Commodity Trading, and at the OECD Thematic Dialogue on Commodity Trading Transparency.

Following these discussions, the disclosure requirement was amended in the 2019 revisions to the EITI Standard (Requirement 4.2(a)) with the aim of ensuring enhanced transparency in how the state sells its oil, gas and minerals. Under the 2019 revisions, governments, including SOEs, are required to disclose the volumes sold and revenues received, as well as the revenues transferred to the state from the proceeds of oil, gas and minerals sold. Furthermore, the 2019 EITI Standard encourages governments to consider whether disclosures should be broken down by individual sale, type of product and price, and to disclose a description of the process for selecting the buying companies, the technical and financial criteria used to make the selection, the list of selected buying companies, any material deviations from the applicable legal and regulatory framework governing the selection of buying companies, and the related sales agreements.

In addition to the disclosure requirements for SOEs and relevant government agencies, the revised 2019 EITI Standard also includes provisions to encourage disclosures by companies buying oil, gas and minerals from governments or SOEs. Requirement 4.2(c) of the 2019 EITI Standard provides that:

Companies buying oil, gas and/or mineral resources from the state, including state-owned enterprises (or third parties appointed by the state to sell on their behalf), are encouraged to disclose volumes received from the state or state-owned enterprise and payments made for the purchase of oil, gas and/or mineral resources. This could include payments (in cash or in kind) related to swap agreements and resource-backed loans. The published data could be disaggregated by individual seller, contract or sale. The disclosures could for each sale include information on the nature of the contract (e.g. spot or term) and load port (EITI, 2019[11]).

During the development of Requirement 4.2(c) there was recognition that company-level reporting can support the existing transparency efforts by the state or SOE, and additional disclosures by companies buying oil, gas and minerals can complement information on receipts published at the country level. Company reporting can also contextualise the information being disclosed by the state and SOE through the EITI process, which can assist interested stakeholders to better understand that nature of the disclosures.

In September 2020, the EITI published specific guidance for buying companies to encourage increased disclosures under Requirement 4.2(c) (EITI, 2020[12]). The Reporting Guidelines for companies buying oil, gas and minerals from governments (EITI Guidelines) have been be developed by the EITI Working Group on Transparency in Commodity Trading, and informed by the discussions at the OECD Thematic Dialogue on Commodity Trading Transparency.

The EITI Guidelines are for use by companies buying oil, gas and minerals from governments to guide their disclosures on payments to governments in their own company reports. They aim to ensure the consistent disclosure of payments for purchases of the state’s share of production and other in-kind revenues from EITI countries where the selling entity is a government agency or SOE or a third party appointed to sell on their behalf (i.e. where EITI Requirement 4.2 is applicable).

The EITI Guidelines also recommend that disclosures cover purchases from SOEs in EITI and non-EITI countries where the state or SOE has explicitly or publicly stated its support for buyers disclosing information on their sales or has reflected this in its general terms and conditions for the sale of commodities or where disclosures of volumes and values of sales are already being made to the public with the cooperation of the seller.

The EITI Guidelines set out a number of steps that buying companies can take to give effect to Requirement 4.2(c). These steps include: mapping selling entities and transactions, considering the data set to be disclosed, providing data assurances, communicating disclosures to selling entities, and presenting and publishing data. The EITI Guidelines also set out provisions for the disclosure of non-conventional commodity trading transactions, such as pre-payment deals, resource-backed loans and swap agreements. Annexed to the EITI Guidelines are three different reporting templates1 that buying companies can use for their disclosures (EITI, 2020[12]). As of May 2021, no buying company has made disclosures under the most detailed reporting template.

The EITI Guidelines represent an important first step toward closing the transparency gap surrounding payments to governments for the purchase of oil, gas and minerals. They were developed through a rigorous multi-stakeholder process with significant buy-in from buying companies and from countries implementing the EITI Standard. The EITI Guidelines provide a useful basis for the possible future development of a global reporting standard, which would require getting the buy-in from trading hubs and home jurisdictions of buying companies, and which would be global in its reach and applicability.

The EITI is raising awareness of the EITI Guidelines to encourage their uptake and use by companies that purchase commodities from governments and SOEs, including through outreach to financial institutions involved in commodity trade finance. As of June 2021, three commodity trading companies and two international oil companies (Equinor, Glencore, Gunvor, Trafigura and TotalEnergies) have released payment to government reports based on the EITI Guidelines, and some of these companies have also reported aggregated information on payments made to governments in non-EITI countries. For example, Glencore has published disaggregated payments data for non-EITI countries where legislation allows for such disclosures, as is the case in South Sudan. The EITI International Secretariat is currently in discussions with other trading companies and IOCs to encourage further uptake of the EITI Guidelines.

In contrast to the disclosure requirements for SOEs and relevant government agencies in Requirement 4.2(a), the EITI Guidelines are not explicitly binding on buying companies as Requirement 4.2(c) only encourages these companies to disclose information in relation to commodities purchased from governments and SOEs. There are expectations from governments and civil society organisations that buying companies operating in EITI countries will give effect to the disclosures contemplated by Requirement 4.2(c), especially where such companies have made public statements in support of the EITI and where companies sit on the EITI Board. In fact, the EITI Board has clarified that companies supporting the EITI are expected to “ensure comprehensive disclosure of taxes and payments made to all EITI implementing countries” (EITI Board, 2018[13]). However, there is no guarantee that companies will disclose the requested information for commodity transactions if not explicitly required to do so. To increase the likelihood of these disclosures, EITI countries should adopt a general disclosure policy and include specific disclosure obligations in their commodity sales contracts – see Section 4: Setting out expectations on payment disclosure by buying companies: Options for host governments and SOEs.

In order to increase the uptake of the EITI Standard and its implementing EITI Guidelines, support from major trading hubs is essential. The Netherlands and the United Kingdom (EITI implementing countries) and the United States (an EITI supporting country) can play an important role in promoting the use of the EITI Standard as an agreed framework for disclosures of payment to governments. However, other important trading hubs, including China; Hong Kong, China; the Russian Federation; Singapore; the United Arab Emirates (Dubai) are not members of the EITI.

Furthermore, although the EITI counts 55 resource-rich countries among its members, many important producing countries, including Algeria, Angola, Bolivia, Brazil, China, Egypt, Equatorial Guinea, India, Russia, South Africa and Zimbabwe are not members of the EITI. This discrepancy between EITI and non-EITI resource-rich countries and the corresponding effect on payment disclosures can be significant. For example, an NRGI study showed that in the year 2016, buying companies purchased oil and gas from governments to the value of USD 1.5 trillion. However, only 10% of these sales took place in countries that implement the EITI Standard. The remaining 90%of sales took place outside the jurisdiction of the EITI (Malden and Williams, 2019[8]). Despite these shortcomings, there is no global initiative that includes all resource-rich countries and at present, the EITI provides the widest coverage and access at an international level. Its membership is also increasing – for example in 2020, Angola committed to join the EITI.

Consequently, the development of a global standard on payment disclosure that builds on the EITI Guidelines but also includes the participation of trading hubs and jurisdictions where buying companies are registered would cover a significantly greater number of global commodity trading transactions. A global standard building on the EITI Guidelines could also assist buying companies in their discussions on disclosures with SOEs in non-EITI countries as the standard would provide companies with the legal certainty to make disclosures and to promote transparency in these important non-EITI jurisdictions (OECD Development Centre, 2019[14]).

Precedents for requiring the disclosure of payments to governments: Exploration and production activities extractive sector

During the last decade, Canada, the European Union,2 Norway, Switzerland and the United States have adopted legislation to require the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals. These examples set a useful precedent about the introduction of transparency requirements for payments to governments by extractive companies, and the way they were designed and implemented offers lessons for possible future development of a global reporting standard for the disclosure of payments made for the purchase of publicly-owned commodities.

Since the introduction of these reporting requirements, publicly-listed and large private companies in the petroleum and mining sectors have disclosed project-level payments made to governments of USD 1.16 trillion as of July 2021 (NRGI, 2015[15]).

Canada

Canada adopted the Extractive Sector Transparency Measures Act (ESTMA) in 2014, based largely on the EU Accounting and Transparency Directives and this legislation has led to the publication of hundreds of company reports on payments to governments. The ESTMA and the EU Accounting and Transparency Directives are functionally equivalent and both the EU and the Canadian Government have stated that reports compiled to meet requirements in one jurisdiction are fully substitutable with the other jurisdiction. The extractive industry welcomed this equivalence because it will avoid double reporting for companies operating in Canada and the EU (Government of Canada, 2018[16]).

However, there are some differences between the EU and Canadian reporting standards. ESTMA applies broadly to all entities listed on a Canadian stock exchange, whereas the EU Transparency Directive is more restrictive as it only covers entities listed on a regulated market. The deadline to provide the report is shorter in the case of the Canadian legislation (150 days) than in the case of the Transparency Directive (six months) or the Accounting Directive (12 months). Furthermore, ESTMA stipulates that reports shall remain publicly available for no less than five years, whereas in the EU, this period is at least ten years for companies complying with the EU Accounting and Transparency Directives (European Commission, 2018[17]).

European Union: Accounting and Transparency Directives

In 2013, the European Union (EU) adopted the Accounting and Transparency Directives requiring large oil, gas, mining and logging companies listed and registered in the EU to disclose their revenue payments to governments around the world for the rights to explore and produce oil, gas and minerals.3 The scope of the Accounting and Transparency Directives does not include payments for the sale of oil, gas and minerals as a payment category on which companies should report.

The objective of these new requirements was to improve the transparency of payments made to governments by the extractive and logging industries. The European Commission noted that such disclosures could provide civil society in resource-rich countries with the information needed to hold governments to account for any income made through the exploitation of natural resources and to better understand whether the cost to society of extracting that natural resource is adequately compensated. Consequently, civil society will be in a better position to question whether the contracts entered into between the government and extractive companies had delivered adequate value to society and government (European Commission, 2013[18]). The European Commission also noted that the legislation provides for greater accountability on the part of extractive companies and can serve as a tool for enhancing transparency and building trust (European Commission, 2011[19]).

In terms of operability, the Accounting Directive requires the reporting of payments to governments on a country-by-country and a project-by-project basis by limited liability companies registered in the European Economic Area (EEA). In order to level the playing field between different companies, the same disclosure requirement was incorporated into the Transparency Directive, which applies to companies publicly listed on EU regulated markets even if they are not registered in the EEA and are incorporated in other countries (European Commission, 2013[18]). The EU Accounting and Transparency Directives also set out a size thresholds to determine which companies are subject to the reporting requirements. Companies that exceed two of the three following criteria are required to report their payments to governments: (1) balance sheet total assets exceed EUR 20 million; (2) net turnover of EUR 40 million; or (3) average number of 250 employees for the year.

The European Commission commissioned a review of the effectiveness of the Accounting and Transparency Directives in 2018 and found that the reporting requirements had been effective in increasing the transparency of payments made by companies to governments for the exploitation of natural resources. The Directives resulted in the generation and publication of data that was not available previously and that data enabled civil society to compare data on payments to governments across several sources and therefore make it better equipped to hold governments to account (European Commission, 2018[17]).

The European Commission conducted its own review of the Accounting and Transparency Directives in 2021. The European Commission noted that reporting under the Directives is still relatively recent and that a longer observation period would be necessary to more thoroughly assess certain aspects of its effectiveness. However, the European Commission did find that the policy overall undeniably makes the extractives sector more transparent. The Commission noted that while it is still too early to notice significant changes in government accountability (especially in the case of less democratic or open governments) or in resource governance in resource-rich countries, the disclosures made by companies under the Directives have enabled civil society organisations to question governments and companies and to hold them to account (European Commission, 2021[20]).

Several civil society organisations themselves have also noted the improvements to transparency and accountability brought about by disclosures made by companies under the EU Accounting and Transparency Directives (European Commission, 2021[20]). For example, Transparency International EU has noted how public understanding of extractive companies’ activities and payments has increased as citizens in resource-rich countries have greater access to the information needed to hold governments and companies to account for public revenues derived from natural resource extraction (Transparency International EU, 2018[21]).

The NRGI has noted how the introduction of the Directives has brought unprecedented levels of relevant and timely project-level payment data into the public domain in Nigeria, and that this data, especially when combined with data from other sources (including companies’ annual reports, EITI reports and government statistics), can lead to better-informed public debate on the management of the country’s natural resources (Malden, 2017[22]). In another example, the NRGI demonstrated how the disclosure of payments to governments’ data under the EU Directives had enabled accountability actors in Indonesia to verify the size and recipients of oil and gas project signature bonuses, to estimate and verify the revenue that local and regional government entities should receive from an oil and gas project in their region, and to verify the government’s share of production under a new gross split production-sharing contract (PSC) model (Malden and Muhammadi, 2019[23]).

Furthermore, as the enabling legislation is set out by the jurisdictions where extractive companies are listed and registered, rather than where the exploration and production takes place, disclosures are not dependent upon the political will, capacity and financial resources of governments in the host country. Consequently, reports generated under the EU Accounting and Transparency Directives can shine light on non-transparent regimes who may or may not be members of voluntary transparency initiatives, such as the EITI (Publish What You Pay, 2017[24]).

The frequency of reporting under the EU Accounting and Transparency Directives has also be highlighted as a positive step toward greater transparency. Disclosures are required relatively quickly following the end of a financial year so the data is considerably more timely than information released in the EITI reports, as those reports are usually published at least two years after payments were made (Publish What You Pay, 2017[24]).

Reporting under the EU Accounting and Transparency Directives has generated a significant amount of data since its inception. Data from 2018 shows that over 100 publicly traded and large companies, including BHP Billiton, BP, Gazprom, Glencore, Rio Tinto, Rosneft and Shell have reported their payments to governments for the right to explore and produce oil, gas and minerals under the requirements of the EU Accounting and Transparency Directives (Poretti, 2018[25]).

However, this reporting has identified a number of challenges with the implementation of the EU Accounting and Transparency Directives. The Directives require companies to report on payments to governments on an annual basis in a form and manner “as laid down by the laws of each Member State”, and therefore there is flexibility on reporting across different EU jurisdictions. This flexibility has caused discrepancies in the manner that information is reported under the Directives.

First, the rules of publication of the reports are not harmonised across different EU jurisdictions. Several national legislations indicate that the reports should be submitted to a national registry where accounting and financial information about companies can be consulted. For example, the United Kingdom has a centralised repository established by the Companies House for disclosures by all companies registered in the United Kingdom. Implementing legislation in France and Italy requires that the reports should be published on the company website. In other jurisdictions, such as Cyprus and Belgium, relevant legislation requires that the reports must be enclosed in the companies’ annual report (European Commission, 2018[17]). In Denmark, companies are given the option of publishing their payments to governments’ reports in a management review, an annual report or on their website. In Sweden, there are different requirements for companies that are listed (and that are regulated by the Swedish Financial Supervisory Authority) and those that are private (Swiss Institute for Comparative Law, 2017[26]).

Further inconsistencies can be found in the verification of the data disclosed. Audits or assurance is not mandatory in the reporting requirements and their national transpositions. Some multinational companies, though, already make use of the services of independent auditors or provide additional assurance on a voluntary basis (European Commission, 2018[17]).

Due to the lack of implementation guidelines, extractive companies have adopted different interpretation of the scope of the reporting requirements. For example, companies have adopted different approaches regarding the reporting of the payments of joint ventures – some report only payments when they are the controlling party while others report the payments even if they are not the controlling party. Some companies report payments to governments in full, proportionally or do not report such payments at all (European Commission, 2018[17]). In another example, the requirements to report at project level are complicated by the reference to “substantially interconnected agreements” as the basis for defining a project, as companies have adopted different interpretations of what this means. Consequently, reporting on each project varies across companies, making it difficult to have a complete and consistent overview of projects involving several companies. These discrepancies and a lack of contextual information have resulted in a lack of comparability across reports (European Commission, 2021[20]).

The European Commission has noted that there is limited monitoring and oversight of the different national authorities on the compliance with the reporting requirements. Therefore, issues with the reporting requirements have been identified mostly through the efforts of civil society organisations and academics (European Commission, 2018[17]).

Norway

Norway adopted new transparency rules in December 2013 on country-by-country reporting (cf. Prop. 1 LS (2013-2014) Chap. 20) to require extractive industries to publish data in their annual reports, indicating the flows of income, costs, taxes paid, and sign-on fees per country in which they operate.

The Norwegian legislation is largely aligned with the EU Accounting and Transparency Directives. For example, the scope of entities that must report under the Norwegian legislation is determined in accordance with the criteria set out ​​in the Accounting and Transparency Directives in respect of the companies that are subject to reporting requirements. In Norway, companies are required to report if their annual sales revenue are more than NOK 320 million, balance sheet total is more than NOK 160 million, if the average number of employees during the financial year more than 250 or if the company is an issuer with Norway as its home state pursuant to the Securities Trading Act (Ministry of Finance (Norway), 2013[27]).

Switzerland

In June 2020, Switzerland enacted a law requiring Swiss extractive companies to disclose the payments they make to governments for the right to explore for and extract oil, gas and minerals (Parliament of Switzerland, 2020[7]).

The new provisions in Articles 964a et seq. of the Swiss Code of Obligations are modelled on the EU Accounting and Transparency Directives. The new provisions are applicable to companies which are required by law to have their annual financial statements audited, which in practice refers to listed and large companies. Companies are required to disclose in a written report payments of at least CHF 100 000 per financial year made by the company to government bodies. In terms of publication, the report must be published y by the company in an electronic format (GHR Rechtsanwälte AG, 2020[28]).

Although the scope of the new provisions in the Swiss Code of Obligations is restricted to payments made to governments for the right to explore for and extract commodities, the amendments also empower the Federal Council to apply these new transparency provisions to companies that purchase publicly-owned commodities, as part of a coordinated international process (Parliament of Switzerland, 2020[7]).

United States: Dodd-Frank Act

In 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Section 1504 directs the Securities and Exchange Commission (SEC) to issue rules that would require oil, gas, and mining companies listed on US stock exchanges to report the payments they make to governments for the commercial development of oil, gas or minerals. The legislation provides that reports should be filed in an interactive data format and should include the type and amount of payments per project and per country.

The SEC drafted rules in 2012 and 2016 but these were never implemented due to challenges from industry associations, a disapproval by a joint resolution of Congress, and the scrutiny of a federal court. On 16 December 2020, the SEC finally issued rules on the disclosure of resource extraction payments.

These rules do have some similarities to the requirements in the EU Accounting and Transparency Directives requirements, but there are significant differences. The US requirements allow companies to aggregate payments for multiple projects in their reporting, whereas the EU requirements require that payments to governments are reported on a country-by-country and a project-by-project basis (Securities and Exchange Commission, 2020[29]).

In terms of the frequency of reporting, the EU Accounting and Transparency Directives require that reports are made available after 6 months (Transparency Directives) or 12 months (Accounting Directive), whereas the US requirements stipulate a filing deadline of 270 days after fiscal year end.

In terms of the scope of the companies that are required to report, the US requirements apply to listed extractive companies only, whereas the EU requirements apply to large unlisted companies, as well as listed companies (European Commission, 2013[18]).

Furthermore, the US rules provide a number of exemptions for their reporting requirements. For example, smaller and emerging growth companies are granted certain exemptions from compliance, and newly public companies are granted a grace period until after their first full fiscal year as a public company. Additional exemptions include where disclosure is prohibited either by foreign law or by a pre-existing contract (Securities and Exchange Commission, 2020[29]).

Although the focus of the US requirements is in respect of the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals, the SEC did acknowledge in its 2020 rules the significance of payments made by buying/trading companies or similar companies to purchase natural resources. In that regard, the SEC rules also includes a requirement to disclose payments for the purchase of in-kind commodities in certain circumstances (Securities and Exchange Commission, 2020[29]).4

Lessons learned from the disclosure of payments to governments from the upstream exploration and production sector

The implementation of legislation requiring the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals in Canada, the European Union, Norway, Switzerland and the United States can offer a number of lessons for the possible development of a global standard on payment disclosure for the purchase of publicly-owned commodities.

Firstly, consideration will need to be given to the scope of the coverage of a global standard. For example, the EU Accounting and Transparency Directives apply to companies publicly listed on EU regulated markets but also to limited liability companies registered in the EEA (European Commission, 2013[18]). Whereas in the United States, Section 1504 of the Dodd-Frank Act extends to oil, gas, and mining companies listed on US stock exchanges only. Private companies therefore would be exempt from these reporting requirements (Securities and Exchange Commission, 2020[29]). In the commodity trading sector, many of the major companies are held privately and are not listed on stock exchanges. Therefore, in order to capture a significant share of commodity trading transactions, a global standard on payment disclosure for the purchase of publicly-owned commodities should extend to both listed and non-listed companies in line with the approach taken in the EU Accounting and Transparency Directives.

Consideration should also be given to ensuring that a global standard on payment disclosure is interpreted consistently across different implementing jurisdictions. The experience of EU countries in implementing the EU Accounting and Transparency Directives shows that inconsistent applications can occur, and this can have an impact on the comparability and usability of the information that is disclosed. For example, due to a lack of implementation guidelines, extractive companies have adopted different interpretations of some of the key elements of the reporting requirements (e.g. definition of a joint venture), and as the publication of the reports are not harmonised across the EU, different jurisdictions have adopted different approaches to reporting (e.g. submission to a national registry, publication on the company website, annexed to a company’s annual report) (European Commission, 2018[17]).

Lastly, given the existence of legislation in Canada, the EU, Norway, Switzerland, the United Kingdom and the United States for the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals, there may be scope to extend these legislative instruments to cover the payments to governments for the purchase of publicly-owned oil, gas and minerals. This option has already been recognised by the Swiss Parliament, as its recent law requiring Swiss companies to disclose payments to governments for the right to explore and produce oil, gas and minerals also delegates authority to the Federal Council to apply these new transparency provisions to companies that purchase publicly-owned oil, gas and minerals as part of a co-ordinated international process (Parliament of Switzerland, 2020[7]).

Notes

← 1.  Template 1: Disclosure of volumes and value by individual seller; Template 2: Disclosure of volumes by sale/cargo and of value by individual seller; and Template 3: Disclosure of volumes and value by sale/cargo.

← 2.  The United Kingdom was a member of the European Union when these directives were adopted and the directives were applicable in the UK. Since leaving the EU, the UK has retained its reporting requirements.

← 3.  Directive 2013/34/EU1 and Directive 2013/50/EU2.

← 4.  If a resource extraction issuer makes an in-kind production entitlement payment under the rules and then repurchases the resources associated with the production entitlement within the same fiscal year, the resource extraction issuer must report the payment using the purchase price (rather than at cost, or if cost is not determinable, at fair market value).