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Switzerland Should Oblige its Traders to Disclose Payments

Note: This post first appeared as a commentary in German in Switzerland's NZZ am Sonntag newspaper.

Switzerland is a small country, but as the world's largest commodity trading center, it plays an essential role for many developing countries. Estimates suggest Swiss companies account for over one-third of the world’s oil trading, for example.
When a trader purchases natural resources from a government, there is an abundantly clear need for that transaction to be transparent: in almost all countries, the resources belong to citizens. In places like Angola and Nigeria, the sale of oil and gas are the states’ largest source of income.
The organization I head, NRGI, is focused on defeating what is known as the “resource curse,” by which developing countries with enormous reserves of oil, gas and minerals remain among the world’s poorest due to major governance challenges and pervasive corruption. Part of the solution lies in improved transparency in what has traditionally been an opaque sector. Transparency reduces corruption and improves accountability and trust. In fact, my own research has shown that countries that improve their governance and control corruption can improve their per capita income three-fold in the long term.
Over the last decade, great strides have been made in improving transparency in the natural resource sector. This required a combination of “host country” initiatives led by resource-rich countries themselves, such as through the Extractive Industries Transparency Initiative (EITI), and by “home country” governments which have chosen to require transparency in the global activities of the resource companies registered and traded within their borders.
Canada, the member states of the European Union and Norway have all implemented “home country” laws requiring oil, gas and mining companies to disclose the payments they make to governments around the world for natural resources extraction. Compelled by these laws, hundreds of companies, including BP, Royal Dutch Shell and Total have now disclosed over USD 300 billion in payments to governments around the world. These disclosures are contributing to improved accountability.
However, the largest and most opaque payments in the natural resource sector flow from trading companies to governments (normally national oil companies). The sale of raw materials by national oil companies to commodity traders is not included in these laws, which only relate to taxes and other payments made in relation to extracting raw materials.
Disclosure of traders’ payments to governments for commodities can play a vital role in improving governance. To date, only one trader, Switzerland-based Trafigura, has revealed its payments of its own volition. The company’s total payments to governments, amounting to USD 21.2 billion in 2016, even exceed the USD 15.1 billion which Royal Dutch Shell, Europe’s largest oil company, paid to governments for extraction of resources in the same year.
Trafigura has demonstrated the feasibility of disclosure by trading companies. But no other trader is following Trafigura’s example. Furthermore, Trafigura's data disclosure is limited to countries that are members of EITI, but 90 percent of its payments go to the various countries that don't implement the initiative.
The logical solution is for “home country” trading hubs to require traders to disclose the payments they make to governments globally, just as many “home countries” already require disclosure of extractives-related payments.
It is here that Switzerland has a major opportunity now. The National Council's Legal Affairs Committee will soon decide on transparency rules for Swiss natural resource companies. It is absolutely essential that trading transactions be included within this law. Not including such transactions would lead to Switzerland adopting a law devoid of any real impact.
Switzerland should have nothing to fear in adopting a law which includes trading transactions. Other major trading hubs such as the U.K. and the Netherlands have already committed to greater transparency in this area. The U.K., the world’s second-largest trading hub, is looking at how commodity trading could be included in its own law. As January ended, the OECD convened a meeting to tackle this issue.
If Switzerland acts, it will not act alone. And other countries will follow suit.
Daniel Kaufmann is president and CEO of the Natural Resource Governance Institute (NRGI).


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