Enforcing the Dodd-Frank Act Would Promote Transparency and Development in Africa
By Joseph Kraus, Ph.D.
The recent “Arab Spring” uprisings in North Africa and the Middle East emerged in part out of citizens’ frustration with the secrecy and corruption of nondemocratic governments, whose officials enjoy lavish existences while ordinary citizens live in poverty. For instance, Muammar el-Qaddafi and his family accumulated more than $50 billion in foreign assets, while one in three Libyans today live below the poverty line.
A law set to go into effect in the United States in the coming months could mark a significant step forward in the battle to sever the secrecy surrounding natural resource revenues and ensure that a country’s wealth benefits its people. A provision in The Dodd-Frank Wall Street Reform and Consumer Protection Act, approved by the U.S. Congress and signed into law by President Obama one year ago this month, aims to spur reform in resource-rich countries by providing citizens with information about payments made to foreign governments for oil, gas, and minerals.
Section 1504 of the Dodd-Frank Act, which requires all foreign and domestic companies listed on a U.S. stock exchange to report their payments to governments for oil, gas, and mineral resources, will help lift the veil of secrecy that is currently the norm in resource-rich poor countries. In doing so it will provide citizens with information necessary to fight corruption and pressure governments to invest money in long-term development.
The U.S. Securities and Exchange Commission (SEC)””tasked with drafting the rules that will enforce the Dodd-Frank Act””is under intense pressure from the oil and gas industry. The big five U.S. oil companies, which had combined profits of nearly $1 trillion over the past decade, and the other members of the oil industry’s U.S. lobbying arm, the American Petroleum Institute, are pressuring the SEC to devise weak rules that would allow for company exemptions and keep the information companies disclose to the SEC a secret.
Weak rules would ultimately undermine the effectiveness of the law and rob impoverished citizens in resource-rich countries their best””and in many cases, their only””chance to gain access to information that could be used to ensure that revenues from their country’s natural resources get channelled into development projects, rather than into the pockets of corrupt government officials.
Weak rules that dilute the regulation would have a broader impact: other legislative bodies, including in the European Union and the United Kingdom, have signalled their interest in designing legislation that parallels the U.S. law, and are closely monitoring the SEC’s progress. It stands to reason that the robustness of the SEC’s final rules will impact the strength and scope of parallel regulations drafted in other markets.
A strong U.S. law that maximizes citizens’ access to information will benefit African countries that are rich in natural resources but lack transparency and good governance.
Take Equatorial Guinea for instance, the third largest producer of oil in sub-Saharan Africa. Last year Equatorial Guinea was delisted from the Extractive Industries Transparency Initiative (EITI)””a voluntary initiative intended to increase revenue transparency””after failing to meet the initiative’s benchmarks for transparency and civic participation. It is unclear if or when the country will attempt to rejoin the EITI. For the foreseeable future, therefore, the Dodd-Frank Act will be the singular mechanism that provides the citizens of Equatorial Guinea with credible information about the amount of money their government receives from the exploitation of the country’s oil and gas – a necessary step for curbing corruption and holding the government accountable for its use of natural resource revenues.
Ranked as one of the world’s 10 most corrupt countries in Transparency International’s 2010 Corruption Perceptions Index, Equatorial Guinea has been led for the last 32 years by President Teodoro Obiang. President Obiang has publicly claimed that the country’s oil resources are a “state secret,” and evidence suggests that government officials channel oil revenues into corrupt activities. A February 2010 report by the U.S. Senate Permanent Subcommittee on Investigations found that the president’s son and potential successor, Teodoro Nguema, used shell companies to evade money-laundering laws and to channel more than $100 million into the United States to finance several luxury items, including a $35 million seafront mansion in Malibu, California. A French investigation revealed that Teodoro Nguema””whose official salary as the country’s Minister of Forestry and Agriculture pays less than $7000 per month””spent $16 million on 26 luxury cars and motorbikes in November 2009.
Meanwhile, a walk through Malabo, the capital of Equatorial Guinea, reveals trash littered slums where citizens lack access to reliable electricity, running water, and affordable, quality health services.
The Dodd-Frank Act can help citizens in Equatorial Guinea, across Africa, and beyond hold their governments accountable for the use of natural resource revenues. To do so, they need access to robust information about payments made to their governments for the sale of natural resources. The SEC must stand up to industry pressure and deliver a set of strong rules that guarantees these citizens access to meaningful information.
Joseph Kraus, Ph.D., is the Program & Development Director at EG Justice. His recently completed doctoral dissertation analyzed the impacts of oil company Corporate Social Responsibility projects in Equatorial Guinea.