In the absence of a global standard, home governments, including trading hubs may choose to introduce regulations requiring buying companies to disclose information in respect of payments to governments. This approach could be undertaken on a unilateral basis or could involve two or more hubs introducing regulatory requirements in a co-ordinated manner.
Such actions by home governments and/or trading hubs to require buying companies to disclose their payments for the purchase of oil, gas and minerals from governments and SOEs globally would provide enhanced transparency around the details of these transactions. These disclosures could increase public understanding around the volumes and values of the transactions and their associated revenue streams, particularly in countries where SOEs have not provided such information to citizens in their home jurisdiction. For buying companies subject to corruption investigations related to commodity trading, the provision of payment disclosures could act to rebuild public trust in their business dealings (Malden and Williams, 2019[8]).
Home governments that wish to introduce requirements for buying companies to disclose information in respect of payments to governments may consider different options for implementation. For example, through the adoption of legislative instruments (laws, regulations, decrees etc.) applicable to all buying companies in their jurisdiction. Alternatively, in jurisdictions where commodity exchanges operate, home governments may introduce specific regulations applicable to companies operating on that exchange in respect of payment disclosure.
The introduction of reporting requirements by one or by a few key jurisdictions could have a significant impact on global commodity trading transparency due to the concentration of buying companies in these key jurisdictions. For example, a report by the Swiss Federal Government in 2013 estimated that 70% of the global trade in metals took place in only three trading hubs (London, Singapore and Switzerland), while 95% of the global trade in crude oil took place in just four hubs (London, New York, Singapore and Switzerland) (FDFA, EAER and FDF, 2013[30]). Recent research from the OECD Development Centre has also highlighted the concentration of buying companies and their trading entities across five key trading hubs – The Netherlands, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States (OECD Development Centre, 2021[31]).
Furthermore, the introduction of reporting requirements by one jurisdiction may encourage other jurisdictions to follow, as evidenced by the adoption of regulations requiring the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals. In that case, the United States passed initial legislation in 2010, followed by the EU and Norway (2013), Canada (2014) and Switzerland (2020).
However, if reporting requirements are introduced by home jurisdictions on a unilateral basis, this could lead to a fragmentation of reporting and challenges with usability of data by end-users, including for comparability purposes. For example, the flexibility granted to national multi-stakeholder groups in the implementation of the EITI Standard (in terms of whether buyers are required to disclose: the availability, scope, and granularity of trade-related payments) has demonstrated that disclosures across host producing countries vary from one country to another.
The experience of the EU in introducing legislation to require the disclosure of payments to governments for the rights to explore and produce oil, gas and minerals further demonstrates the problems with the implementation of reporting requirements where the interpretation of the scope and content of the disclosures varies across implementing jurisdictions.
Unilateral reporting requirements would also act to increase the reporting burden and compliance costs for companies operating in multiple jurisdictions. A review of the EU Accounting and Transparency Directives in 2021 found that global alignment remains a major concern for the industry, and that a global reporting standard, applicable to all sector participants would improve the ability to compare payments accurately across companies. The European Commission noted that civil society and industry both agreed on the need for a global level playing field, and that regulators should to step up their efforts to meet this goal (European Commission, 2021[20]).
Given the proliferation of regimes and the failure to achieve fully consistent reporting legislation among EU Member States even while adhering to EU requirements, extractive companies participating in the review process recommended that a global reporting standard ideally should be developed by an international organisation, such as the OECD (European Commission, 2018[17]).