Developing Resources, Ignoring Poverty: Why the Cardin-Lugar Amendment Matters
Section 1504 of the Dodd-Frank Act calls for the SEC to adopt a transparency rule for the oil, gas and mineral industries. If the agency misses the deadline, the world's poor will suffer
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. A response to the recession, Dodd-Frank is a major piece financial regulatory reform legislation meant to increase corporate accountability and transparency, putting an end to the "too big to fail" ideology that led to taxpayer-funded bailouts.
Buried deep within the act is Section 1504, "Disclosure of payments by resource extraction issuers," also known as the Cardin-Lugar Amendment, which mandates that the Securities and Exchange Commission (SEC) issue final rules requiring corporations to disclose payments made to any government for the right to extract oil, gas and minerals -- rules that the law says "shall support the commitment of the Federal Government to international transparency promotion efforts." The amendment also instructs the SEC to make the information accessible to the public via the Web. The deadline for the SEC to act is April 17, 2012.
TIME IS RUNNING OUT
But 14 members of Congress are worried that the agency will not do as they are required. On February 15, this Democratic-led group, which did not include any Republicans, sent a letter to the SEC urging the adoption of a final rule on Section 1504, saying that they are "concerned that the Commission is far behind in meeting the statutory deadline" and "aware of efforts by industry to press the SEC to throw out a year and half of important work and start the rulemaking process anew, or to release a watered down rule that does not reflect the statutory language as well as the legislative intent of Section 1504."
"We urge you to resist this pressure and promptly release a strong and effective final rule," write the representatives, who included the Democrats Rosa DeLauro (CT), Norman Dicks (WA), Barney Frank (MA), Alcee Hastings (FL), Marcy Kaptur (OH), Jesse Jackson, Jr. (IL), Barbara Lee (CA), Nita Lowey (NY), Gregory Meeks (NY), Donald Payne (NJ), JosÃ© Serrano (NY), Henry Waxman (CA), Maxine Waters (CA), and Betty McCollum, a member of the Democratic-Farmer-Labor (DFL) party, from Minnesota.
OPAQUE GOVERNMENTS: A CLEAR THREAT TO INVESTMENT
"e believe extractive industry revenue transparency will be of great value to investors as they assess the commercial, political and reputational risk faced by companies in often volative locations," write the representatives. "This kind of mandatory disclosure can help diminish the political instability caused by opaque governments, which is a clear threat to investment. In addition, since extractive industries are capital-intensive and dependent on long-term stability to generate returns, transparency of payments made to a government can help mitigate political and reputational risks and also allow shareholders to make better-informed assessments of opportunity costs, threats to corporate reputation, and a company's dependence on such ventures."
They add: "Public disclosure of extractive industry revenues and how they flow from industry to governments is also fundamental to improving governance, curbing corruption, improving revenue management, and allowing greater accountability from governments for spending that serves the public interest."
THE PEOPLE'S VOICE: MORE THAN 100,000 SIGNATURES AND COUNTING
The public is also speaking up and joining what One.org blogger Paulena Papagiannis describes as "the fight against big oil as they lobby to kill the best parts of a law that would put an end to their secret moneymaking deals." A grassroots petition has been circulating online that is part of a joint campaign by One.org, an international non-profit fighting extreme poverty and preventable disease in Africa; Jubilee USA, a Washington, DC-based non-profit which advocates debt relief to fight poverty and social injustice in Asia, Africa and Latin America; and Publish What You Pay, a global network of civil society organizations advocating transparency in the oil, gas and mining industries.
According to Eric LeCompte of Jubilee USA, the petition has already garnered over 100,000 signatures urging the SEC "to stand up to big oil and protect our gains that cut across debt relief to tax justice."
DIAGNOSIS: RESOURCE CURSE
In his 1993 book Sustaining Development in Mineral Economies, Richard Auty developed a concept he termed "resource curse," arguing against the conventional wisdom that natural resources were critical to the positive development of a nation's economy and that, in fact, countries that were rich in natural resources -- Bolivia, Chile, Peru and Zambia, for example -- counterintuitively experienced slower economic growth than countries with fewer natural resources. Resource curse can be provoked by a corrupt government, many of which run the world's poorest yet resource-rich nations.
It can also be lead to "Dutch disease," an economic phenomenon in which increased revenues from the export of natural resources leads to an increase in real exchange rates. This in turn drives up the prices of exports in its other industries, most notably the manufacturing sector, as other nations can no longer afford to buy their higher priced goods. When The Economist coined the phrase in 1977, it was used to describe the adverse effects on the Dutch manufacturing sector following the discovery of a massive natural gas field in the northern province of Groningen in 1959.
POVERTY FIGHTER: TRANSPARENCY
One.org, Jubilee and Publish What You Pay have connected the dots between corporate payments to resource-rich governments and poverty. If a corrupt government is receiving extractive industry payments, this revenue is rarely spent on the public good. Poor populations suffering under abusive regimes across the globe are not able to enjoy the fruits of their sovereign land. They see little to none of the oil, gas and mineral wealth that their unscrupulous leaders amass from private corporations, wealth that helps to keep such regimes in power. Mobutu Sese Seko, the former dictator of the former Zaire is often cited as an exemplary practitioner of this iniquitous practice.
"Debt relief is vital in fighting extreme poverty," asserts Jubilee USA. "ountries are able to invest the savings from debt relief into public infrastructure, helping to alleviate and combat poverty and moving nations closer towards reaching the Millennium Development Goals. But corruption in both the government and private sector undermines the pro-poor goals of debt relief by taking these poverty-alleviating funds away from the world's poorest and into greedy hands. While financial interactions lack transparency, it's easy for exploiters to siphon off funds, and for promised investment in infrastructure, education and healthcare to go unfulfilled."
ONE EXAMPLE OF THE "LOCURA": CHAD
Significant amounts of foreign direct investment (FDI) started pouring into Chad's oil industry in 2000. Today, the Chad Oil and Pipeline Project is a principal example of the expanding sector. The USD 3.7 billion development project is owned by a consortium of three oil companies -- Exxon/Mobil (40 percent), Petronas Malaysia (35 percent) and Chevron (25 percent). And the project's 300 or so oil wells, located in the southwestern region of the country, are expected to extract one billion barrels of oil over a quarter of a century.
But Chad is also notorious for extensive human rights abuses and ranks as one of the top ten most corrupt countries in the world, according to the 2010 Corruption Perception Index (CPI), produced by Transparency International. And according to the World Bank, the landlocked central African nation suffers from a poverty rate of more than 40 percent. It is not a stretch to assume that Chad's poor will not see very much of the revenue generated by the pipeline project. But Chad is just one of many examples. Untold billions of resource extraction dollars are currently supporting corrupt and opaque governments around the world.
In the 1970's, former Venezuelan oil minister Juan Pablo Perez Alfonso, a founder of the Organization of Petroleum Exporting Countries (OPEC), presaged Auty's "resource curse" thesis. "I call petroleum the devil's excrement," Alfonso said. "It brings trouble. Look around you. Look at this locura -- waste, corruption, consumption, our public services falling apart. And debt, we shall have debt for years." While it won't put an end to the continuing "locura" stemming from humankind's resource depletion, the Cardin-Lugar amendment will add a much-needed layer of financial transparency that represents a big step in a more sane and humane direction -- towards poverty alleviation.
111th Congress of the United States of America. H.R. 4173. Dodd-Frank Wall Street Reform and Consumer Protection Act. Library of Congress. January 5, 2010. Accessed February 20, 2012.
DeLauro, Rosa, et. al. Letter from 14 members of Congress to Securities and Exchange Commission regarding Section 1540 of the Dodd-Frank Act. February 15, 2012. Accessed February 20, 2012.
Papagiannis, Paulena. "ONE Act a Week: Thank these 14 congressional leaders for speaking out against corruption." February 17, 2012. Accessed February 20, 2012.
Email from Eric LeCompte, Jubilee USA Network. Received February 19, 2012.
Jubilee USA. Tell the SEC to stand up against big oil." February 14, 2012. Accessed February 20, 2012.
Weiss, Erin, and Robert Test, Ashley Wright, Brooke Wright and Danielle Mccabe. The Chad-Cameroon Pipeline. Virigina Tech College of Natural Resources and Environment. March 12, 2010. Accessed February 20, 2012.
Transparency International. Corruption Perception Index. 2010. Accessed February 20, 2012.
World Bank. Chad. Accessed February 20, 2012.
Dell, Melissa. "The devil's excrement: the negative effect of natural resources on development." Harvard International Review. Fall 2004. Accessed February 21, 2012.
image: Diamonds from Angola (credit: naamansar, Creative Commons)