Time for Transparency

Report – 25/03/2004

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Download the full report above in English as a PDF or as a text file. You can read the introduction, summary and country specific chapters in French, Spanish, Russian and Portugese.

Revenue Transparency: A Priority for Good Governance and Energy Security

Across the globe, revenues from oil, gas and mining that should be funding sustainable economic development have been misappropriated and mismanaged. This Global Witness report considers five major examples of this problem: Kazakhstan, Congo Brazzaville, Angola, Equatorial Guinea and Nauru.

In these countries, governments do not provide even basic information about their revenues from natural resources. Nor do oil, mining and gas companies publish any information about payments made to governments. Huge amounts of money are therefore not subject to any oversight and crooked elites can extract all sorts of ‘facilitation payments’ from firms that would probably prefer not to pay bribes. Investigations also reveal that some companies have played a willing role in facilitating off-the-books payments, misappropriation of state assets, and other nefarious activities such as arms shipments, as part of an anti-competitive, under-the-table method of winning business with unaccountable regimes. Ordinary citizens, who often own a country’s resources under its constitution, are thus left without the information to call their governments to account over the management of their revenues. The end result is a litany of corruption, social decay, increased poverty, reinforcement of authoritarian government and political unrest, which can ultimately lead to state failure and the spread of instability across regions.

In Kazakhstan, the largest-ever foreign corruption investigation in US legal history has uncovered a major international corruption scandal that ‘defrauded the Government of Kazakhstan of funds to which it was entitled from oil transactions and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials’.

Congo Brazzaville is one of the petro-states most closely associated with the legacy of influence peddling and dirty deals in Africa by the now-notorious French state oil company Elf Aquitaine (now Total). Elf treated Congo as its colony, buying off the ruling elite and helping it to mortgage the country’s future oil income in exchange for expensive loans. The company even financed both sides of the civil war, as it also did in Angola.

In Angola, new evidence from IMF documents and elsewhere confirm previous allegations made by Global Witness that over US$1 billion per year of the country’s oil revenues - about a quarter of the state’s yearly income - has gone unaccounted for since 1996. Meanwhile, one in four of Angola’s children die before the age of five and one million internally-displaced people remain dependent on international food aid. This report highlights the latest revelations from the ‘Angolagate’ scandal, in which political and business elites in France, Angola and elsewhere exploited the country’s civil war to siphon off oil revenues.

In Equatorial Guinea, oil companies appear keen to do business with the brutal regime of President Obiang Nguema. The country’s government has been tarnished by allegations of corruption, political violence, human rights abuses, and narcotics trafficking. Although the country’s oil boom has resulted in a dramatic increase in GDP, its living standards remain among the worst in Africa. This may be because much of the country’s oil money stays abroad: journalists have recently uncovered evidence that major US oil companies are paying revenues directly into an account under the president’s control at Riggs Bank in downtown Washington DC.

Finally, the opaque and unaccountable management of phosphate reserves has transformed tiny Nauru from the richest nation in the world (per capita) to a bankrupt wasteland. Phosphate mining took place in a country synonymous with secret banking and money-laundering, where over US$80 billion was laundered during Russia’s economic transition in the 1990s. In this tax-free, reporting-free environment, the island’s phosphate revenues were squandered by irresponsible officials, frivolous speculation, and in the words of one observer, ‘a steady stream of carpetbaggers and outright crooks’.

The major finding of this report is that none of the revenue embezzlement scandals discussed herein could have happened if multinational companies had been required to disclose publicly their basic payments for resources to the state.

The last section of this report looks at the pressing need for international regulations and a systematic foreign policy approach to promoting revenue transparency. International stock markets and accounting standards should require oil, mining and gas companies to disclose their payments worldwide. A requirement for transparency about a country’s resource income and expenditure should become a standard condition in all international financial assistance to all countries where such transparency does not exist. Transparency should also be a condition of resource-backed loans from private banks. Export credit agencies, which insure many major extractive investments, should also require disclosure of revenues.

The public disclosure of revenues by extractive companies and governments in resource-dependent countries will not stop all corruption overnight. But without transparency, there can be no accountable government, and efforts to ensure that resource revenues are well spent are likely to fail, with the effect of deepening poverty, instability, conflict and state failure. It is time for companies and governments to come clean on the revenues generated by natural resource exploitation.

Download the full report below in English as a PDF or as a text file.

You can read the introduction, summary and country specific chapters in French, Spanish, Russian and Portugese.