VideoAnticorruption activists are urging oil companies and other extractive industries to come clean on their payments to governments in developing nations.
Groups like Global Witness and Catholic Relief Services are calling for international accounting and stock exchange rulesto require oil, gas, and mining companies to disclose, on a country-by-country basis, net payments to governments for access to natural resources. Transparency of such payments, say advocates, will ensure the public funds are used by these nations to alleviate poverty and foster development, instead of lining the pockets of corrupt officials. (As much as $1.4 billion in revenues and loans in Angola's oil sector — about a third of state revenues — went missing in 2001, says Global Witness, a London-based advocacy group.)
ExxonMobil and ChevronTexaco, the two largest U.S. oil companies, have opposed new regulation. They argue that disclosure should be voluntary on the part of their host nations. "Disclosure of payments made to a host country government can be made only with the agreement of that government," says ExxonMobil spokesman Tom Cirigliano.
Yet those who favor change say the voluntary approach doesn't work. Ian Gary, co-author of a report calling on the World Bank and the International Monetary Fund to help create transparency in African oil revenues, says that if disclosure isn't universal, an unlevel playing field results. "When one company speaks out and others don't follow, they can suffer negative competitive pressures," he says.
Gavin Hayman of Global Witness says oil companies often face extortion by these governments. In 2001, for example, British Petroleum was threatened with expulsion when it tried to disclose tax payments to the Angolan government. "Big oil just wants a quiet life," he says.
The Bush Administration has opposed the disclosure over concerns about maintaining energy security. With elections on the horizon, Republicans could also be leery of alienating the oil lobby. The position is a departure from that of the Clinton Administration, which pressured Europe to crack down on bribes.
Oil-industry finance expert James L. Smith of Southern Methodist University says U.S. companies would do well to push for stronger disclosure rules in Europe and the United States. "Just as disclosure protects in-vestors against corrupt ex-ecutives who would offer bribes," he says, "it also protects honest executives from those officials who would make such demands." —David Campbell
Over Site
As of June 30, all insider transactions were required to be filed electronically with the Securities and Exchange Commission and posted on company Websites. Yet on July 1, dozens of companies had failed to comply.
According to a survey of 300 small and mid-cap companies by Toronto investor-relations consulting firm Blunn & Co., 11 percent missed the deadline. "For the most part, this is an oversight, not a conscious effort to avoid compliance," says Dominic Jones, head of Blunn's online IR research practice. Jones says that that while the SEC is slowly starting to recognize the role Websites can play in disclosure, many companies are careless about keeping them up-to-date. "In many cases, their sites are in a state of neglect. That so many companies failed to meet the requirement is really quite shocking."
In addition, the SEC received more than 600 paper copies of insider-trading reports after the deadline. The commission says the copies will be returned to senders, which could put them in violation of another provision of the Sarbanes-Oxley Act of 2002: insiders must now disclose most transactions in company stock within 2 business days. The former deadline? A snail-mail-friendly 41 days. —Joseph McCafferty
Signature Move
"It is the sense of the Senate," reads a little-noticed section of the Sarbanes-Oxley Act of 2002, "that the Federal income tax return of a corporation should be signed by the chief executive officer." Tax experts, who breathed a collective sigh of relief when no immediate action was taken on this oblique statement, would likely disagree with the logic of such a requirement. In fact, 96 percent of tax directors recently surveyed by Deloitte & Touche said "their CEO was not very knowledgeable about [tax] issues reflected in the corporate return." But if a subsequent provision wedged into the Senate-approved CARE Act of 2003 makes it through the House of Representatives, tax departments everywhere may be saddled with teaching Tax Accounting 101 to CEOs.
Unlike the controls certification now required for financial statements by Sarbanes-Oxley, the tax-certification rule would implicitly ask the CEO to vouch for the accuracy of tax documents, says San Francisco-based Pillsbury Winthrop attorney Keith Gercken. Mistakes in the thousand-plus-page returns could lead to fines (and possibly even jail time) unless the CEO has a good-faith belief that the information provided was correct and complete. "It would be an incredible burden to get CEOs sufficiently educated that they would be willing to sign the return," says Gercken. And for CFOs, "the issue is how many more people will you have to hire in your tax department?"
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