Don't Look Back, Transparency May Be Gaining on You

Abstract: With techniques ranging from public to espionage, NGOs are upping the pressure to reveal where oil and gas money goes.

Analysis: Last Tuesday, Berlin-based Transparency International issued its 2003 Corruption Perceptions Index. The index ranks levels of corruption in 133 countries on a scale of 1 to 10. TI finds few shining lights: Seven out of 10 countries score less than 5, while five out of 10 developing countries score less than 3. Finland topped the rankings this year with a score of 9.7. Bangladesh ranked last at 1.3.

The 2003 CPI provides the latest example of the tools that nongovernmental organizations (NGOs), such as TI, Management Excellence, Oxfam, Save the Children, and Global Witness, are using to focus light on international minerals extraction industries and the countries in which they operate to illuminate where the money goes. In most cases "minerals extraction" means oil and gas. These NGOs have been gaining in credibility and competence over the last decade or so. Now their presence is increasingly being felt.

The CPI is a sophisticated analysis of perceptions based on polls both within and outside a country. Business people, academics, and risk analysts are asked how corrupt they believe a country's officials and politicians are. Their answers are scored and ranked. First taken in 1995, the CPI has become widely used and is the most reliable comparative corruption indicator available, according to TI. This year's poll covers 113 countries. Other rankings place Canada at number 11, the U.S. at number 18 tied with Ireland, Mexico and Poland at 54, and Haiti and Nigeria at 132 and 133, respectively, just ahead of Bangladesh.

NGOs provide an increasingly important pragmatically ethical function in the global society. TI's founder, Peter Eigen was a World Bank official when he became convinced that the prevailing practice of "buying" public officials and politicians in developing countries was leaving native populations impoverished, demeaning their human rights, threatening the environment, and, in the end, making sustainable development impossible, harming everyone. When the World Bank took no interest, Eigen founded TI in early in 1990 to focus on corruption in international business transactions. He and others in the Global Coalition for Africa first planned confrontational activities, then hit on the idea of coalition-building with the affected countries so everyone could benefit and join in the search for solutions. Many development agencies have since recognized the validity of the work and provided money and other resources. TI's mandate has been broadened to cover domestic corruption as well as international, and its offices in individual countries have been given near autonomy from its Berlin headquarters. In 1995, TI economists developed the Corruption Perceptions Index, measuring degrees of corruption perceived by international and domestic business communities.

Many Players
TI is far from alone in trying to raise the visibility of monetary transactions in developing countries. Madrid-based ethics specialists, Management & Excellence, reviewed nearly 300 ethical areas (the following are a few examples: how a company treats employees and the environment, litigation history, and transparency), assigning letter grades to the total ethical performance and ethical risk of each company. M&E was one of the first ethics rating agencies, founded a year before the Enron debacle, and has rated more than 60 companies worldwide in all industries.

British Petroleum and Royal Dutch Shell did well in this year's M&E ratings for improving their ethics, transparency, and corporate social responsibility. Both got B ratings on a scale of A (highest) to D (lowest). These are the first ethics ratings M&E has given to oil companies. It classifies oil companies as ethically high-risk if they are regularly plagued by oil spills, chemical explosions, fatalities, litigation, and management scandals.

Now this latest study finds that oil companies are investing more in equipment, social policies, and employee training, resulting in fewer mishaps. Major oil spills larger than 700 tons worldwide have declined to three annually over the past three years, down from 50 in 1990. In 2001, a total of only 8,000 tons of oil was spilled, compared to 435,000 tons in 1991, M&E says. Fatalities are still among the highest of all industries but are declining. For example, in 2001, M&E says "only" (emphasis added) 16 people lost their lives at BP, mostly in road accidents transporting oil in underdeveloped countries. M&E says that years ago this figure was several times higher, and many accidents at oil companies result from poor employee training.

Other M&E rankings include Total Fina Elf: B; Repsol: C; ExxonMobil: B; ChevronTexaco: B-; Petrobras:C+; Pemex: C; and LukOil: C.

Global Witness, a London-based organization, was founded in 1993 by George Soros and two partners. The organization has developed pragmatic methods to "help resolve conflict and corruption in countries rich in resources where the welfare of the resident population seems to decline as the exploitation of resources increases."

Unlike TI, Global Witness uses some confrontational as well as crime-fighting techniques. The organization targets the source of the revenue funding the conflict or corruption, then aims to break the connection by presenting overwhelming evidence to those "in a position to ensure change." Using a combination of covert and conventional investigative techniques, Global Witness identifies and documents the mechanisms through which natural resources are exploited and removed from countries such as Angola, Cambodia, Liberia, and the Democratic Republic of Congo.

Reports are presented to policy makers, so governments and regulatory bodies all over the world are pressured to push for a more sustainable use of resources and a more equitable distribution of revenues.

An example of Global Witness's work and tactics became public in April, when, anticipating U.S. President Bush's Africa trip, the organization called on him to demonstrate the United States' commitment to helping the continent address its most pressing problems. Noting that timber, oil, diamonds, and other natural resources have financed brutal civil wars in Africa, and currently fund ongoing conflicts in Liberia and the Democratic Republic of Congo, Global Witness said it had uncovered evidence that diamonds have been used by al Qaeda to finance its activities and launder money, threatening not just regional but global security.

"I commend President Bush for supporting the recent renewal of sanctions on Liberia, and adding timber to the list of conflict resources to be embargoed, but his administration is still dragging its feet on fully implementing [an effective process] to tackle conflict diamonds," said Corinna Gilfillan, Campaigner with Global Witness. Global Witness has been co-nominated for the 2003 Nobel Peace Prize for uncovering how diamonds have funded civil wars across Africa.

"Bush must push Africa to come clean on the money generated by natural resources," said Simon Taylor, Director of Global Witness. "At the moment, the opposite is happening. U.S. companies close to the administration appear to be mired in allegations of millions of dollars of financial impropriety in Nigeria and elsewhere."

Last month, Global Witness flatly accused the World Bank and the IMF of failing to take steps to curb the misuse of billions of oil dollars by dishonest officials in some of the world's poorest countries.

The NGO said, "A forthcoming Global Witness report, compiled partly by undercover investigations, will show that billions of dollars of oil money have gone missing in countries like Angola, Kazakhstan, Congo-Brazzaville and Equatorial Guinea." Much of the money appears to have subsequently turned up in offshore bank accounts controlled by state officials or their families, Global Witness reported.

The citizens of these countries have little or no information about how much their governments are being paid for their oil or how the money is spent. The Bank and the IMF must now press governments in resource-rich-but-poor countries, and companies that do business there, to publish this information so their own citizens can better hold them to account. "The World Bank and IMF play a central role in reforming the economies of many oil-rich countries. In some of these countries, top officials divert huge sums offshore while ordinary citizens remain destitute and their children die of preventable diseases," said Global Witness campaigner Gavin Hayman. "The Bank and the Fund can and should deliver real change by making revenue transparency a condition of all their financial support around the world, whether to governments or to oil and mining companies."

Publish What You Pay
Overlaying and connecting NGOs such as TI and Global Witness is the Publish What You Pay campaign, launched in June 2002. It now has more than 160 members, including TI and Global Witness (see The coalition calls for stock market and international accounting rules to require oil, gas, and mining companies to disclose their net payments to governments for resource access on a country-by-country basis. The coalition says it believes that revenue transparency is an essential condition for alleviating poverty, promoting just and equitable development, improving corporate social responsibility, and reducing corruption in resource-rich developing countries, such as Algeria, Angola, Azerbaijan, Cambodia, Chad, Colombia, Congo-Brazzaville, Democratic Republic of Congo, Equatorial Guinea, Gabon, Guinea Bissau, Indonesia, Iraq, Kazakhstan, Nigeria, Papua New Guinea, Sudan, Turkmenistan, and Venezuela.

Problem Scorecard
A look at some recent reports indicates the scope of the problems--and even reveals a few successes.

In the Chad-Cameroon oil pipeline project, the World Bank has insisted that all revenues and fees must be published and independently audited.

The IMF has persuaded the Angolan government to publish a summary of a recent report on Angola's oil income--though not the whole report--and suggested that oil companies in Congo Brazzaville should publish the amount of their payments to the government.

At Statoil in Norway the chairman, CEO, and head of exploration all resigned following an investigation into a $15 million contract with a group of Iranian consultants. The investigation centers on whether some of the fees were used to pay off Iranian officials.

The World Bank is considering financing for a crude oil pipeline from the Caspian region to the Mediterranean via Turkey. The financing has been under consideration for years. Approval apparently is now close, awaiting evaluation of the environmental and transparency standards, including disclosure of Azerbaijan's oil revenues.

But Global Witness says these are ad hoc measures and events, and fall far short of what is needed. "There needs to be a comprehensive and determined approach to deal with this problem, which is discrediting the entire oil industry and causing massive human misery," said Hayman.

All these organizations collaborate to bring visibility, publicity, and pressure to bear on companies and countries to conduct their transactions out in the open where they can be seen to benefit whole countries and populations. In the end, it is the oil companies that can start things rolling by publishing what they pay. It can't be easy for an oil executive to say anything against this. Second-hand information and rumors, however, indicate that there are at least two concerns. Going public with numbers may raise restraint-of-trade issues--price fixing by press release. And a company that plans to publish what it pays may find itself shut out or at a disadvantage when seeking a concession in a country.

These are two reasons many NGOs believe laws with teeth will be necessary--that is, if they hope to bring honest accounting of payments and prosperity to citizens of mineral-rich countries all over the world.