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Transparency Regulations Should Not Ignore Trading

The U.S. Securities and Exchange Commission (SEC) should explicitly include payments arising from commodity trading in the final version of the rules implementing Section 1504 of the 2010 Dodd-Frank Act. In a February 16 submission to the SEC, we at NRGI made three arguments in support of the SEC including extractives-related payments from traders to governments in its final rules. The Publish What You Pay US coalition also argued for the inclusion of trading payments in its submission.
First, the payments made by companies to governments in exchange for raw materials are economically important and prone to corruption. In many oil-producing countries, the government sells a portion of oil production, often via the national oil company. The proceeds from these sales constitute a major public revenue stream. In countries like Iraq, Nigeria, Libya and Angola, the majority of all government revenues come from crude oil sales by the national oil company. The sales, usually conducted in secret, are prone to corruption, as evidenced by scandals in Iraq, Nigeria, Congo-Brazzaville, Angola, Indonesia and other countries. Just as with other payments governments (e.g., taxes, royalties), transparency can help ensure that government revenues from commodity sales benefit the public.
Second, the statutory language for Section 1504 of Dodd-Frank clearly allows for the inclusion of such payments in the SEC’s final rule.  The commission has the authority to modify its definition of the term “export” so as to include trading in the commercial activities covered by the rule, and to include trading payments in its list of payment types. The statute already allows for reporting on “other material benefits,” and trading payments are in fact the most material revenues in some resource-rich countries. 
Third, US action could accelerate the growing international support for reporting on trading payments.  Since 2013, the Extractive Industries Transparency Initiative (EITI) has required reporting on commodity sale transactions between companies and governments or state-owned companies. In fact, at this week’s EITI Global Conference in Lima, Peru, the EITI board further strengthened this rule, making it clear that the data should be broken down by individual buying company. The SEC rule should keep pace with such developments. EITI reports from countries like Iraq and Nigeria already contain trading payment data, including on sales to US-listed companies. Commodity trading giant Trafigura has begun disclosing payment data and touts the benefits of such disclosures, suggesting the corporate feasibility (and desirability) of this reporting. The Swiss government has indicated that it might incorporate trading into its mandatory reporting regime “as part of an internationally agreed process,” which the SEC could instigate by explicitly including trading payments in its rules.
When governments sell natural resources, the resulting revenues should benefit citizens. To ensure that this happens, trading payments must be made public. We look forward to the SEC’s decision on this matter, and urge governments of other countries home to trading companies, such as Switzerland and the UK, to pursue a similar course.
Alexandra Gillies is the director of governance programs at the Natural Resource Governance Institute (NRGI) and Joseph Williams is its senior advocacy officer.