SEC ruling will spotlight financial dealings of firms in Africa

The world is set to know a bit more about the billions of dollars that US-listed companies spend to scoop gold and gas and diamonds and oil out of the earth.

In a 2-to-1 vote yesterday, the US Securities and Exchange Commission approved a thorny clause nestled near the back of 2010's 800-page US Financial Reform Act. Section 1504 – the “Disclosure of Payments By Resource Extraction Issuers Section” – forces any oil or mining company listed on a US stock exchange to produce an annual report detailing each check, bank transfer, or cash-flushed suitcase above $100,000 that they submit to foreign governments.

In a second ruling today, the SEC also backed Section 1502, the so-called “conflict minerals clause,” which would make miners tell the public if any of their minerals come from Democratic Republic of Congo, where sales of precious stones have financed more than a decade of war.

Human rights advocates have reason to cheer both decisions, especially in resource-rich Africa.

Oil companies are not likely to be as happy. Today's ruling tops off a mountain of new anticorruption laws in the US and Europe that have trapped the biggest oil and mining corporations between their home governments, increasingly eager to pry open company books, and foreign governments that mostly prefer to keep big business deals under wraps.

“This is going to be a real step change in the way these deals are ... made public to the wider society,” says Carl Dolan, senior policy officer of Transparency International. “We're going to have a very, very clear picture of the kinds of money that are going to national governments.”

How firms see the ruling

Company lobbyists spent more than a year pushing the SEC to have Section 1504's phrasing watered down. Many wanted it defined as broadly as possible, to let companies keep under wraps payments that could help rivals figure out their strategy and outbid them. “Foreign firms could plunder this information,” said John C. Felmy, chief economist for the American Petroleum Institute, in response to the ruling.

His lobby also requested exemptions for companies operating in Angola and Cameroon where, it argues, local laws forbid disclosure of government payments.

The law will leave your average miner "forced to choose which law it would violate – the US or the host country law," said Rio Tinto, the world's third-largest mining company, in its initial complaint to the SEC.

Rio Tinto mining executives aren't likely to sit in an Angolan jail cell any time soon, industry analysts say. Most contracts contain clauses demanding that US law supersede local law. But such executives are probably in for a heated conversation with a minister or two the next time they make public the amount of money they're wiring to governments whose citizens – wrongly or rightly – suspect oil and mining revenue is being embezzled, not spent on the public good.

US-listed companies argue that such disclosure will only put US-listed companies at a further disadvantage to Chinese and Russian miners and oil scouts who in recent years have won swaths of the continent's best mining and oil concessions and wouldn't have to abide by the same rules as the US companies.

US and European companies are already up against Britain's 2010 antibribery act, not to mention the 1978 Foreign Corrupt Practices Act that Washington has, over the past decade, begun enforcing with greater vigor.

The recent stream of high-profile Corrupt Practices Act cases has rung a warning bell not so much for major oil companies, but for the bevy of pint-sized operators they contract out to. Industry personnel say smaller companies, not the world's massive oil giants, face the most direct pressure to mete out bribes to bureaucrats who take months to grant import permits for urgently needed gear or work visas for staff.

For major companies tasked with winning hundred-million dollar mining concessions, straight bribes are an increasingly archaic practice, says Goncalo Falcao, a Africa oil and gas law specialist and partner at law firm Tauil & Chequer. 

“Corruption is getting more and more sophisticated. It's not in the awarding of the concession where you get problems," he says.

Companies, he adds, are free to tack on a multimillion dollar signing bonus to governments hawking prized land. As long as the bonus isn't, say, wired into someone's bank account, "you don't have any issue," he says. “Of course, what happens to that money afterwards is none of your business.”