Publish What You Pay: Confronting Corruption and the Natural Resource Curse

Many of the poorest developing countries have significant natural resources, and the income from these resources should be used to support growth and development. But all too often this income is misappropriated by corrupt officials. Moreover, corruption often fuels internal grievances that cause conflict and civil war. This pattern is widely referred to as the “natural resource curse”—natural resource wealth creates stagnation and conflict, rather than economic growth and development.

The natural resource curse is vividly illustrated by events in Angola, where an International Monetary Fund fiscal audit has been unable to account for hundreds of millions of dollars of oil revenues. In Nigeria, Cameroon, and Congo-Brazzaville, oil wealth has failed to generate development. Sudan is marked by strife over oil. And in Aceh, Indonesia, regional separatism has been fanned by secrecy about oil payments and public misunderstanding about the scale of those payments.

The problem of natural resource related corruption also extends to the Western hemisphere. Ecuador, a country rich in oil and where U.S. companies are active, ranks as one of the most corrupt countries in Latin America. And in Venezuela, democracy is threatened, in part due to accumulated resentments over the way its oil wealth has been distributed.

For the last twelve months, philanthropist George Soros and the Open Society Institute have been working to address the problem of corruption connected with natural resource extraction through the international Publish What You Pay campaign. This campaign proposes legislation requiring publicly listed oil and mining companies to disclose information about payments to government, as a condition of stock exchange listing. Relevant payments that would have to be disclosed include tax payments, royalty and license fees, revenue sharing and payments-in-kind, forward sales of future revenues, and commercial transactions with government and public sector entities.

Lack of transparency facilitates corruption. When oil and mining companies fail to disclose payments to governments, it is easier for government officials to steal and difficult for citizens to hold officials accountable. The Publish What You Pay campaign seeks to make the information public so that governments will be accountable. In doing so, it can help break the “natural resource curse.”

Investors and citizens everywhere stand to benefit from Publish What You Pay. Reduced corruption will stimulate investment and growth, which is good for business and good for developing countries. Reduced corruption will also strengthen the rule of law and property rights, which is also good for investors. And reduced corruption will lessen the likelihood that business gets drawn into corrupt activities, which can damage a company’s reputation and put a company legally on the line.

Additionally, U.S. national security interests would be served by putting a stop to the natural resource curse. Iraq under Saddam Hussein exemplifies the natural resource curse, and the oil monies he pilfered were used to finance his repressive anti-democratic regime. The strife and instability in the Congo is another example of the natural resource curse. The bottom line is that poverty and political instability caused by this tragic pattern is a danger to U.S. security interests and the global community.

Corruption is the mortal enemy of both capitalism and democracy. Corrupt government promotes corrupt business, and corrupt business promotes corrupt government. This inexorable logic means that citizens and investors everywhere have a public and private interest in combating corruption.

Publish Want You Pay is part of the international governance agenda needed to address corruption in today’s globalized economy. The campaign has the support of over 130 groups from all around the world. Several large companies, including BP, Shell, and Newmont Mining, have expressed positive views about it. And a group of major European and US asset management funds representing $3 trillion dollars has endorsed companies being more transparent about the payments they make to government.

Sadly, U.S. oil companies have thus far resisted Publish What You Pay, claiming that corruption is a government problem. The reality is that corruption is a systemic problem, and the system casts companies as de facto fencers of oil and other natural resources. Publish What You Pay can change the system. Investor interest, enlightened business interest, and the public interest call for Congressional legislative action to advance this important and sensible initiative.