Fighting Corruption in a Global Economy: Transparency Initiatives in the Oil and Gas Industry

Abstract

I. INTRODUCTION II. GROWTH OF THE ANTICORRUPTION MOVEMENT A. OECD and Other Conventions B. Civil Society Growth III. EITI--DEVELOPMENT A. The Challenge B. History C. The EITI Framework 1. Basics 2. Six Criteria 3. Misunderstanding on Terms: Voluntary Versus Mandatory D. Benefits IV. EITI--EXAMPLES A. Nigeria B. Azerbaijan C. Other Countries V. EITI--ISSUES A. Legal Implementation B. Contract Confidentiality C. Civil Society Involvement D. Whitewash VI. EITI--SKEPTICAL VOICES VII. EITI--INTERNATIONAL ADVISORY GROUP VIII. THE FUTURE OF REVENUE TRANSPARENCY IX. CONCLUSION X. APPENDIX 1 XI. APPENDIX 2 XII. APPENDIX 3 XIII. APPENDIX 4 I. INTRODUCTION It is a privilege to be able to speak to you today. I want to start by expressing my thanks to Professor Steven Zamora for inviting me to this exciting event. The timing is superb: I just returned from a meeting on oil and gas in Baku (Azerbaijan) last week and will share with you some new information--hot from the press. I can well recall visiting Houston for the first time for a conference on the Oil and Gas Industry twenty five years ago when, as Division Chief at the World Bank, I tried to promote an investment in a miniscule petroleum project in Chad. At that time I was not successful. The known deposit was considered too small, the political situation too unstable, and the global appetite for energy resources still too moderate--the time was not yet ripe for my program. Then I visited Houston again in 1995, as founder of Transparency International. My objective was to convince the top management of Enron that there were dangers of corruption, and to obtain some funding for our embryonic NGO in Berlin. This time I was mildly successful but only with the second half of my objective. II. GROWTH OF THE ANTICORRUPTION MOVEMENT Today I want to talk again about the oil and gas sector, and more specifically about an initiative to increase the transparency surrounding revenues flowing into countries blessed with valuable natural resources. Since its inception, Transparency International has been the leading member of a growing and accelerating movement against corruption, and has been actively engaged in improving fiscal oversight and tackling the supply side of bribery all over the world. (1) Transparency International has been heavily involved with others in civil society organizations, governments, and industries in the development of the Extractive Industries Transparency Initiative (EITI). (2) Last year, I was asked by the British government to chair an International Advisory Group to help design EITI's future. EITI does, of course, cover solid minerals as well as hydrocarbons, but, being in Houston today, I shall focus primarily on oil and gas. Before proceeding to the discussion of EITI, however, I would like to paint the background picture. Different constituencies see EITI in different lights, but it is principally an exercise aimed at better governance and improved fiscal management at the national level in resource-rich states. A. OECD and Other Conventions Today, it is hardly conceivable that until about six years ago, governments in most industrialized countries allowed their citizens--in particular their exporters--to bribe foreign officials. (3) In fact, through generous tax deductions of bribes, these governments even subsidized and promoted corrupt behavior of their corporate sector in global markets. (4) A major exception to this scandalous reality was the Foreign Corrupt Practices Act of 1977 passed by the United States under the leadership of President Jimmy Carter. (5) The other industrialized countries did not follow the American example. (6) Today it is necessary to recognize that a system of widespread grand corruption has evolved in the globalized economy; this corruption is one of the main causes of poverty, conflict, violence, and even terrorism--particularly in the developing world. …