Switzerland Adopts Extractive Sector Transparency Law, Opens Door To Improved Commodities Trading Transparency
19 June 2020
LONDON—The Swiss parliament today adopted a new law requiring Swiss extractive companies to disclose the payments they make to governments around the world. The law covers payments made for the right to explore for and extract oil, gas and minerals.
The new law is aligned with rules already in place in Canada, the European Union, Norway and the United Kingdom. Together these laws have led to the disclosure of over USD 900 billion in taxes, royalties and other payments made to governments worldwide since 2015. The United States also has an extractives payment transparency law in place but implementation has been beset by legislative and legal challenges for almost a decade.
The laws are designed to assist citizens in demanding that their governments use public funds to fight poverty and contribute to sustained economic growth, rather than lose crucial revenues to corruption or mismanagement. Investors also use the disclosures to manage risk.
Switzerland is a major commodities trading hub. The new law, part of a new package of wider reforms on Swiss company law, includes an important clause which delegates authority to the Federal Council, the country’s executive, to apply the new transparency provisions to Swiss commodity traders buying oil, gas and minerals abroad. The council can activate this part of the law as part of an international process by which authorities in other major trading hubs would make a similar move.
Joseph Williams, advocacy manager at NRGI said: “While Switzerland has opted not to include commodity trading payments directly in this new law, it has thrown down the gauntlet to other major trading hubs such as the Netherlands, Singapore, the United Kingdom and United States. Switzerland has sent an important signal today and it is time for international action to make the massive payments that traders make to governments open to citizen oversight.”
Williams continued: “There is no time to waste. With the economies of resource-rich countries under immense strain given the coronavirus pandemic, falling oil prices and the challenge of moving to a low-carbon future, transparent oversight of every dollar made from the extraction or sale of natural resources is crucial.”
Payments made by commodity traders like Vitol and Trafigura and the trading divisions of international oil companies like BP and Shell to government-controlled national oil companies (NOCs) are significant and can constitute a government’s largest revenue stream in countries like Angola, Iraq, Libya and Nigeria. Recent NRGI research into ten NOCs found that in 2018 oil and gas sales amounted to over 70 percent of these countries’ overall income, totaling over USD 860 billion.
At the same time, these transactions are subject to major corruption risks which can result in citizens being robbed of revenues. In 2019 it was reported that the U.S. Department of Justice was investigating an oil trader working for Brazil’s NOC, Petrobras, who has been charged in Brazil with “taking part in a corruption scheme involving commodity traders Vitol, Glencore and Trafigura.” Traders often also extend credit to resource-rich countries in return for oil, gas or minerals in the form of resource-backed loans. Some of these deals have been criticized and deserve greater scrutiny, particularly given the debt crises resource-dependent countries are suffering during the pandemic.
“To have a real impact, the Swiss should activate the extension of the law to include commodities trading payments swiftly,” Williams said. “Without this, the current provisions focused on upstream payments will only cover a handful of additional companies beyond those already reporting in other jurisdictions. Similarly, the world’s other major commodities trading hubs have a responsibility to ensure companies under their jurisdiction report payments to state entities. Only three trading companies have voluntarily disclosed some relevant transactions to date which is wholly inadequate.”
Other authorities have made moves toward greater transparency in commodities trading payments. Last year the U.K. committed to “establish and implement a common global reporting standard” on payments to governments for the sale of oil, gas and minerals. The U.S. Securities and Exchange Commission has acknowledged the significance of these payments and has an opportunity to include them in final rules for its own transparency law expected later this year. The European Commission is currently reviewing its own payment transparency regime and has previously committed to improve company reporting in this area. Next week the Organisation for Economic Co-operation and Development will host a meeting on the role of trading hubs and commodity trading companies in addressing corruption risks in commodity trading transactions. Finally, the Extractive Industries Transparency Initiative, which has required its member governments to disclose sales of oil, gas and minerals for a number of years, is currently working on guidance for firms that purchase resources to improve their own voluntary disclosures.
“The architecture is there for action, what is needed now is the political will to make it happen. Switzerland’s new law should now be the impetus for rapid progress,” said Williams.