By a wide margin, U.S. authorities have pursued more corruption cases in oil and mining than any other sector. In the last five years, U.S. authorities nabbed the bosses of a company called Unaoil that bribed officials in nine different countries, including Angola, Iraq and Syria. They seized a giant yacht allegedly purchased with proceeds from Nigerian oil trading schemes, and a swank Miami condo that a top Congolese official allegedly bought using embezzled oil funds. U.S. investigations revealed how an American hedge fund paid off officials to access the Congolese diamond industry; how state oil company bosses in Brazil, Ecuador and Venezuela took home bribes; how an Abu Dhabi oil fund helped run one of the largest-ever corruption schemes; and how oil and mining deals within the U.S. turned dirty as well.
As the Biden administration ramps up its anticorruption efforts, officials should pursue policies that heed lessons from these past investigations and that reflect the world’s fast-changing energy and mineral markets.
This week the administration gave clear signs of its commitment to anticorruption. The White House released a memorandum “establishing the fight against corruption as a core U.S. national security interest” and kicking off the process to develop an ambitious cross-agency anticorruption strategy. The Treasury Department recently issued the largest-ever use of the Magnitsky sanctions for anticorruption purposes. These events coincided with the UN General Assembly’s special session on anticorruption, where U.S. officials emphasized their intention to prioritize fighting graft. Meanwhile, on Capitol Hill, a bipartisan counter-kleptocracy caucus will launch this month as well.
In the coming weeks and months, the U.S. anticorruption agenda will take further shape, as the various agencies stand up new programs, key champions such as USAID administrator Samantha Power get up to speed, and the Summit for Democracy approaches, where fighting corruption and kleptocracy will be a main theme.
To stop corruption from ravaging the world’s oil and mineral industries and hindering the green energy transition, several U.S. agencies, including USAID, the State Department, the Treasury Department and the various climate-focused units, should prioritize the following actions. These ideas emerge from a study of over one hundred oil and mining corruption cases, and from the Natural Resource Governance Institute’s work in many resource-rich countries and international forums, and they complement leadingrecommendationsfromother NGOs and experts.
1. Prevent corruption in critical mineral supply chains
The International Energy Agency estimates that meeting Paris climate goals will require a quadrupling of the minerals used by clean energy technologies by 2040. For the countries that produce cobalt, lithium, copper and other critical minerals, especially those with weak institutions, this spike in demand could trigger surges in corruption like those associated with past oil booms, which contributed to authoritarianism and economic decline. For mineral-consuming countries like the U.S., corruption could threaten their energy transition plans by interrupting the steady supply of these commodities.
While much was made of the U.S. re-blacklisting mining magnate Dan Gertler over alleged corruption in the DRC, where Gertler’s companies control royalty streams from three of the world’s biggest cobalt projects, governance and corruption are barely on the agenda when it comes to the hot topic of clean technology supply chains. The U.S. could both help safeguard supplies and protect the interests of producer country citizens by correcting this trend. Specifically, U.S. technical assistance to producer countries, including through the State Department’s Energy Resource Governance Initiative (ERGI), should prioritize transparency, accountability and anticorruption, and should include support for civil society groups and other oversight actors. U.S. leadership could also push anticorruption onto the agendas of various international mineral supply chain initiatives and standards. Unless global standards include robust measures around transparency, beneficial ownership reporting, payment verification, anti-money laundering, conflict of interest procedures and other practices, the critical mineral boom could trigger an ugly “race to the bottom,” with consumer countries scrambling to secure supplies, a few well-connected parties getting rich off the rents, and producer-country citizens left facing the results.
2. Tackle oil sector corruption and kleptocracy as part of U.S. climate policy
In addition to anticorruption, the Biden administration has prioritized climate action, and the two agendas must intersect given the oil and gas industry’s predilection towards state capture and kleptocracy.In the Trump administration, the head of the Environmental Protection Agency and the Interior Department were former fossil fuel lobbyists. These appointments were among many recent reminders of how oil and gas producers, thanks to decades of lobbying, campaign donations and revolving-door staffing, exert undue influence over U.S. policy and climate debates. Much of this behavior falls in the categories of legal corruption or state capture, through which narrow vested interests influence public policy to suit their needs. Other oil-producing countries face a similar challenge: corruption and political agendas can cause leaders to greenlight fossil fuel projects, lavish the industry with subsidies and neglect greener energy sources, even when these steps run counter to climate goals and country’s own economic and environmental interests.
To guard against corruption, capture and political stalemates around decarbonization, the U.S. should encourage fossil fuel producing countries to accelerate transparency and oversight. First, citizens need basic information about the government’s fossil fuel activities and adaptation plans, including project-level data on reserves, production, breakeven price assumptions, carbon emissions and government spending. Second, transparency must increase wherever industry and government interact; this applies to lobbying, campaign donations, asset-development contracts, subsidy payments, as well as national oil company affairs.
Much more than transparency will be needed when it comes to oil-rich kleptocracies and their impact on global climate responses. Half of the world’s oil is produced by 13 authoritarian countries, including several run by kleptocratic regimes. Tackling kleptocracy is notoriously difficult, and U.S. officials should look closely at how Western enablers help kleptocrats to profit and thrive. Some players in the oil sector are complicit, as many Western investors, companies and service providers have supported suspicious deals involving the governments and national oil companies of Russia, Venezuela, Equatorial Guinea and other kleptocracies. Since these oil industries contribute to both global warming and kleptocracy, the role of these enablers is worth a careful look as part of the US’s wider approach to fighting kleptocracy.
3. Shower anticorruption attention on obvious areas of risk
In recent years, thanks to the Panama Papers and other revelations, international anticorruption efforts are devoting greater attention to how dirty money flows offshore, and the damage it then causes. As the U.S. responds to this vital agenda, such as by implementing the Corporate Transparency Act and, hopefully, expanding the U.S. Treasury’s Geographic Targeting Orders, officials should not overlook how the money escapes in the first place. Even a quick skim of the Justice Department’s asset seizure actions makes clear: a lot of dirty money comes from the oil or mineral sectors of resource-rich countries. And it often escapes from a few high-risk areas:
State-owned enterprises. National oil and mining companies feature in many corruption schemes, with Brazil’s Car Wash as the most prominent recent example. State-owned enterprises control large amounts of money and are themselves easily controlled by political elites—a recipe for corruption in contexts ranging from Russia to South Sudan, Iraq to Venezuela.
Commodity trading. The Justice Department has pursued bigcommoditytradingcases, so U.S. authorities know how dirty, opaque and damaging this side of the industry can be. And yet, there has been no cross-agency response. As leading energy journalists Javier Blas and Jack Farchy recently argued, “It’s high time that politicians in the United States and elsewhere started paying attention” to the fact that traders are “scarcely regulated.”
The participation of political elites in the industry. Among the Kremlin allies facing U.S. sanctions are oligarchs who profited hugely off juicy contracts from Gazprom, the Russian national gas company. Political elites often hold interests in oil and mining companies and get rich off the proceeds—usually via inflated contracts or other lopsided deals. Beneficial ownership reporting is a necessary but insufficient response to this challenge. The Luanda Leaks revealed how U.S. entities supported the business ventures of Isabel dos Santos, despite knowing that her father was Angola’s president and other warning signs around the deals. Since oil and mining industries are widely politicized, the sector is a strategic area where the US could work to develop stronger standards regarding who constitutes an appropriate business partner.
As part of an evidence-based approach, the U.S. should learn from past cases and ramp up anticorruption interventions in these known areas of risk. In each one, stronger global standards, attention from regulators and law enforcement, attention from international financial institutions, technical assistance, support for civil society and other actions could make a huge difference. If the U.S. and its allies ignore these proven areas of corruption risk, they leave doors open for more dirty money to escape.
The above ideas resonate with many elements of last week’s White House anticorruption memo. As U.S. officials take this directive and turn it into policy, they can prevent another generation of oil and mining corruption and avert negative impacts on the lives of millions. The Summit for Democracy is one venue where the U.S. could lead on this work and acquire allies; COP 26 and the Open Government Partnership Summit are others.
As resource-producing countries face unprecedented change, corruption could derail their efforts to build more resilient economies, while also threatening U.S. climate, security and economic interests. Thanks to U.S. law enforcement action, we know a great deal about the dismal corruption record of the natural resource sector. These cases point to practical strategies the U.S. can now adopt to avoid a repeat of history.