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Transparency: the only way to do business with despots

The current opacity on how money changes hands has cooked up predictable outcomes. According to Nigeria’s corruption agency, as much as $400-billion (U.S.) in oil cash has been stolen or wasted during the past 50 years…

TOBY HEAPS

From Tuesday’s Globe and Mail Published Tuesday, Mar. 22, 2011 2:00AM EDT

The simultaneously shifting sands under the feet of North African despots and resource companies listed on the New York Stock Exchange provide an extraordinary opportunity for Canada to become the gold standard for corporate transparency.

Canada punches way above its relative lightweight status in the global economy (2 per cent of global GDP) because more than two-thirds of the world’s mining companies are listed on our stock exchange. Since acquired by Suncor, Petro-Canada’s $1-billion signing bonus to the Gadhafi regime is only the tip of the iceberg. From Burma to Madagascar, there are more than 25 despotic states where Canadian-listed companies are the No. 1 foreign investor.

Beyond the most egregious military juntas (Burma, for instance), the question isn’t whether we should be doing business with despots, but rather how we can constructively engage these regimes to unlock the vast potential of their mineral wealth in ways that serve their people, stability and, in turn, our investments?

The full scope of where this question leads is hard to say, but it’s crystal clear where to start. It begins with letting everyone know how much our oil, gas and mining companies are paying foreign governments. If the public doesn’t have this information, companies can’t be held accountable by their shareholders, and governments can’t be held accountable by their people.

A transparent money trail would allow investors to better gauge political risk (when it turns out a country is getting a bad deal, there’s a good chance that deal could be renegotiated, especially when regimes change). And along the U.S. Supreme Court justice Louis Brandeis principle that “sunlight is the best disinfectant,” it also adds a dash of government accountability to the equation by making it more difficult to misappropriate resource revenues.

The current opacity on how money changes hands has cooked up predictable outcomes. According to Nigeria’s corruption agency, as much as $400-billion (U.S.) in oil cash has been stolen or wasted during the past 50 years, while investor vertigo is setting in as “too good to be true” contracts unravel from the Gobi Desert to the jungles of Africa.

While Canada requires oil companies to disclose payments to foreign governments to a limited extent via National Instrument 51-101 Standards for Disclosure for Oil and Gas Activities, other jurisdictions around the world are quickly leaving us in a cloud of opaque dust.

Last summer, U.S. Senators Benjamin Cardin and Richard Lugar introduced groundbreaking legislation into the Dodd-Frank Act requiring oil, gas and mining companies on all U.S. stock exchanges to report their payments to governments on a country-by-country and even project-by-project basis. Canada should follow suit – after all, large New York Stock Exchange-listed Canadian companies such as Nexen, Suncor, EnCana, Talisman, Goldcorp and Barrick all want a level playing field.

The U.S., British, German and French governments have already endorsed these rules. The Hong Kong Stock Exchange already has similar rules in place. The European Union Council of Ministers has endorsed the Dodd-Frank provisions and is looking at taking the transparency up a notch to include production levels (i.e., barrels of oil), sales and profits. While the Europeans get their act together, there’s a window of opportunity open for Canadian securities regulators to lead the way, and define the gold standard for corporate transparency.

Pushback can be expected. As Robert Kennedy once said, one-fifth of the people are against everything all of the time. Royal Dutch Shell CEO Peter Voser recently expressed concern at a Paris conference that requiring companies to publish what they pay foreign governments could “destroy” the existing transparency movement, because it could break secrecy laws in producing countries. But the truth is that the oil or mining lobbies have not been able to cite a single case where these laws exist and are applied.

In a funny way that only non-fiction makes plausible, Mr. Voser shares something in common with the anti-corporate activists who oppose all business engagement with despots: They both hanker for a version of a world that no longer exists.

Twenty-nine of the world’s top 32 oil companies (including Shell) are listed on the NYSE, and they’ll have to comply with the Dodd-Frank transparency provisions when they come into force. And by virtue of being the home exchange to the world’s miners, Canada’s economic fate is intertwined with many of the world’s despots who sit atop the minerals we mine.

As the recent spate of sand revolutions makes clear, people are increasingly intolerant of being cheated by their governments. The U.S. has already blown the train whistle with the Dodd-Frank Act. Canada now has a choice: Hitch our economic future to the caboose of corporate opacity or jump ahead to the locomotive of transparency.

Toby Heaps is editor of Corporate Knights magazine.

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