CPO3204-ProfitingFromPeace

8/2/2019 CPO3204-ProfitingFromPeace

1/26

Profiting

fromPeace

Managing the Resource Dimensions of Civil War

EDITED BY

Karen Ballentine Heiko Nitzschke

L~ ER I ENN E R

P U BLI S HE RS

B O I I L D R

L O N D u N


2/26

Publi shed in the United States of America in 2005 by Lynne Rienner Publishers , Inc . 1800 30 th Street, Boulder. Colorado 8030 I www .rienn er.com

and in the United Kingdom b y

Lynne Rienner Publishers , Inc . 3 Henrietta Street, Covent Garden, London WC2E 8LU

2005 by the International Peac e Academy, fnc . All rights re serve d by the publisher

Library of Congress Cataloging-in-Publication DataProfiting from peace : managing the resource dimen s ions of civil war I

Karen Ballentine and Heiko Nitzschke (eds.).p . cm. - (A project of the Intern ational P eace Academy .)

Include s bibliographical references and index .ISBN 1 -58826-262-6 (hardcover: alk. paper) - I S B N 1-58826 -287- 1

(pbk . : alk. paper) l . Civil war-Economic aspects. 2. Natural re so urce s . 3. Conflict management. 4. Peace . I. Ballentine , Karen. II. Nitzschke. Heiko . III. Series: Project of the International Peace Academy . HB 195 .P765 2005 33O--dc22

2004029657

British Cataloguing in Publication DataA Cataloguing in Publication record for this bookis available from the Briti sh Library .

Printed and bound in the U niled States of America

Th e paper used in thi s publication meets the requirement sof the American National Standard for Permanence ofPaper for Printed Library Mat erials Z39.48-1992.

5 4 3 2 1
http:///reader/full/www.rienner.comhttp:///reader/full/www.rienner.comhttp:///reader/full/www.rienner.comhttp:///reader/full/www.rienner.comhttp:///reader/full/www.rienner.comhttp:///reader/full/www.rienner.com


3/26

1 1

Revenue Transparency and thePublish What You Pay Campaign

Gavin Hayman and Corene Crossin

There is a growing literature linking the dependency of a country on pri-extractive industries with unaccountable and corrupt state institutions,

poverty, and conflict.' Stanford academic Terry Lynn Karl has describedthe way that natural resource wealth can create poverty as the "paradox ofplenty."l This paradox of poverty in the midst of wealth partly existsbecause the political structures that accrete around resource "bonanza"economies seldom convert this weal th into long-term social developmentpolicies, especially where public institutions are relatively young. I f a statehas direct access to substantial rents from natural resources, typically fromforeign investors, it is freed from the pressures for public accountability

that emerge in a state dependent on broad-based domestic taxation. Insteadof trying to appeal to a broad domestic constituency, ruling elites may focuson controlling resource rents. "Crony capitalism" soon develops, with government officials diverting resource revenues away from the public purseand into systems of patronage to line their own pockets, to fund internalsecurity control, and sometimes to finance military adventurism. Domesticpolitics itself becomes a struggle between different constituencies foraccess to resource rents, mediated by a ruling elite that bases its patronageon communal, regional, or other factional considerations. This "rentier"model of state (mis)behavior is inherently unstable and vulnerable to dissolution into armed conflict, as competing groups may resort to violence. 3

This depressing picture of political volatility and insecurity is evidentin many resource-dependent developing countries today, including Algeria,Angola, Burma/Myanmar, Bol iv ia , Cambodia , Colombia , CongoBrazzaville, the Democratic Republic of Congo, Equatorial Guinea,

Guinea, Indonesia, Kazakhstan, Nauru , Nigeria, Papua New Guinea, the

263


4/26

1 1

Revenue Transparency and thePublish What You Pay Campaign

Gavin Hayman and Corene Crossin

There is a growing literature linking the dependency of a country on pri-mar y extractive industries with unaccountable and corrupt state institutions,poverty, and conflict.' Stanford academic Terry Lynn Karl has described

the way that natural resource wealth ca n create poverty as the " paradox ofplenty." 2 This paradox of poverty in the midst of wealth partly existsbecause the political structures that accrete around resource " bonanza"economies seldom convert thi s wealth into long-term social developmentpolicies, especially where public institutions are relatively young. I f a statehas direct access to substantial rents from natural resources, typically fromforeign investors, it is freed from the pressures for public accountabilitythat emerge in a state dependent on broad-based domestic taxation. Instead

of trying to appeal to a broad domestic constituency, ruling elites may focuson controlling resource rents. "Crony capitalism" soon develops, with government officials diverting resource revenues away from the public purseand into systems of patronage to line their own pockets, to fund internalsecurity control, and sometimes to finance military adventurism. Domesticpolitics itself becomes a struggle between different constituencies foraccess to resource rents, mediated by a ruling elite that bases its patronageon communal, regional , or other factional considerations. This "rentier"

model of state (mis)behavior is inherently un s ta ble and vulnerable to dissolution into armed conflict, as competing groups may re sor t to violence. 3

This depressing picture of political volatility and in se curity is evidentin many resource-dependent developing countries today, including Algeria,Angola, Burma/Myanmar, Bolivia , Cambodia, Colombia , CongoBrazzaville, the Democratic Republic of Congo, Equatorial Guinea,Guinea, Indonesia, Kazakhstan, Nauru , Nigeria , Papua New Guinea, the

263


5/26

264 IMPROVING CORPORATE RESPONSIBILITY

Solomon Islands , Sudan , Turkmenistan , and Venezuela. The se and othercountries possess natural resource wealth that is starkly at odds with theirwoefully inadequate provision of basic public services and generally pooreconomic performance , and they are characterized in varying degrees by

the rentier politics desc ribed above .In sugg e sting mechanisms to more effectively address the linkages

among natural resource exploitation, corruption, and armed conflict, thischapter focuses specifically on the problem that governments in resourcerich developing countries frequently do not publish any information onwhat they earn from natural resources, while multinational corporations donot publish what they pay to these governments for access to resources .4

This opacity makes it much ea s ier for officials to reap colossal per sonal

reward s from resource extraction without fear of being held accountable forrevenue mismanagement either by their own peoples or by the internationalcommunity, which is often a major provider of development aid to suchcountries .

In simple terms, the greed and concealment of governments and, byextension, the multinational resource extraction companies they do businesswith may ag gravate political and social grievances that can result in conflict.Sometimes there is an even more explicit link amon g natural resource rev

enues, lack of transparency , and conflict. In Sudan, for instance , oil revenuesof $1 million per day helped to fund the government ' s wa r in the south inthe 1990s. 5 In Congo-Brazzaville in 1997, the anns used by President DenisSassou-Nguesso's private militia during a bitter four-month wa r againstincumbent president Pascal Lissouba were paid for, in part, by moneyobtained by the sale of rights to Congo's future oil production .6 Perhaps thestarkest example of the links among resourc e wealth, lack of financial transparency, and armed conflict is Angola, where natural resources provided

revenues to both sides of the bitter thirty-year civil war. The ruling elite usedAngola 's vast oil reserves for personal enrichment and set up elaborate oilfor-arms deal s, which enabled government officials and their internationalbusiness partners to profiteer directly from the war . This grand-scale corruption was facilitated by the opacity of the arrangements made between foreign oil companies and the government of Angola, which hampered effective scrutiny from the outside. At the same time, the rebel movement, theNational Union for the Total Independence of Angola (UNITA), funded its

war effort through revenues from diamonds'? The result was to perpetuatethree decades of violence and despair.

While natural resource wealth cannot be said to be the only source ofconflict in a given country, it is clear that the mismanagement of thoseresources can aggravate existing political, social, and other grievances andheighten the risk of conflict. Policies that inc re ase the likelihood of revenues' being used to alleviate such grievances through spending on poverty


6/26

TRANSPARENCY AN D THE PUBLISH WHAT YOU PAY CAMPAIGN 2 65

reduction, health care, education, and other public services, rather than

being squandered or misappropriated by state officials, may prevent theoccurrence of conflict in resource-dependent developing countries . Suchpolicies could also strengthen the process of postconfl ict recovery. In short,

a necessary condition for the effective and accountable management ofresources is financial transparency .

The Publish What You Pay Campaign

The Publish What You Pay (PWYP) campaign was officially launched inLondon in June 2 002 by an international coalition of nongovernmental

organizations (NGOs) amid this growing consensus that the lack of transparency in the ex-tractiv e industry se c tor was a particularly malign governance issue and that voluntary initiatives from extractive companies toaddress the problem had all but failed . The campaign was bolstered by thesupport of international financier George Soro s , who believes that raisingthe governance standards of c orporations that are geared toward exploitingmarkets in the developing world would go a long way toward amelioratingthe neg a tive effects of globalization. Since the laun c h of the c a mpaign,

more than 200 NGOs around the world have become members-and thenumber continues to grow .8

The key message of the campaign is that extractive companies shouldpublish all their payments to governments and public agencies in the countries where they do business and that ho s t governments should publish theirreceipts of such payments. Disclosure by both companies and governmentsshould allow citizens and other concerned parties to double-check the accuracy of the figures, so that they can begin the task of holding their govern

ments to account fo r the way resource revenue s are spent. Such disclosureis seen as part of a wider strategy for reform of the rules and institutions ofnatural resource extra c tion to make them more open and accountable andthereby to reduce the risk of resource mismanagement and its contributionto conflict. Once publi c information on revenues is available, it should bescrutinized by local civil society , aid donors, and other concerned parties.Although publication of revenue data by companies and governments willnot in itself curb corruption, nor will it change the ethos of non transparencyovernight, it provide s a foundation on which wider efforts at reform can bebuilt. When the public does no t know how much money is being paid towhom by whom and for what purpose, it is difficult to see how any anticorruption strategy c an make progre ss in countries that rely on resour ce rentsas their main economic driver.

Th e PWYP c ampaign is perhaps unusual among international initiative s that address th e economic dimensions of conflict and white-collar


7/26


crime . Rather than addressing money laundering , organized crime, smuggling , or other clearly illegal activities per se , the campaign is tryin g to target the basic financial interactions between companies and governments toaim for the disclosure of legitimate payments that may be illegitimately

used.

Extractive Industries and Governments:Changing the Rules of the Game

Grand-scale corruption scandals uncovered in Africa and Central Asi ademonstrated that revenue transparency is need ed not only for the sake of

developing countries but al so for the good of th e extractive industriesthem selve s. Misuse of company funds by employees of the French oil company Elf Aquitaine during the 1980s and 1990s, for instance, resulted in theconviction of thirty former senior executives of the company (now mergedinto Total) in mid-November 2003 9 The trial revealed that senior executives, un constrained by an y disclosure requirements in Africa and elsewhere, had over a period of many year s paid vast sums in bribes to politicians in several African countries, including Angola. Those executives in

charge of paying the bribes also enri ched themselves at the company'sexpense (and were prosecuted for this e mbezzlement rather than for. thebribery and corruption itself), including s iphoning off commission s IOtosecret bank accounts , buying multimillion-dollar properties and expen sivejewelry , and embezzling money for divorce and alimony fees . o . .

Similarly, in Kazakhstan, the l arge st-ever foreign corruptIOn IOvestlgation in U .S. legal history uncovered a major international corruption scandal that " defrauded the Government of Ka zakhstan of funds to which it was

entitled from oil transactions and defrauded the people of Kazakhstan ofthe right to the honest services of their elected and appointed officials."11As a result, over $1 billion of Kaz akhstan's oil income paid by the U .S. oilcompany Mobil (now ExxonMobil) appears to have ended up offshore andout of sight under President Nursultan Nazarbayev's direct control in asecret fund in Switzerland . 12 Rigg s Bank in Washington, D.C. , was recentlyfined $ 25 million for its role in laundering revenues from , among others, anoffshore and out-of-sight bank account run by Equatorial Guinea s dictato

rial president Teodoro Obiang . l3 It is hard to imagine that corruption ofthese proportions would have been po ssible if companies had been obli gedfrom the start to be transparent about their payments to governments .

Understanding the Rules o f the Game

Mechanism s fo r achieving transparen cy have to be specifically geared tothe compl e x business relationships between extractive companies and host
http:///reader/full/Obiang.l3http:///reader/full/Obiang.l3http:///reader/full/Obiang.l3http:///reader/full/Obiang.l3


8/26

TRANSPARENCY AN D THE PUBLISH WHAT YOU PAY CAMPAIGN 267

governments. This requires an appropriate understanding of the financialand contractual arrangemen ts that characterize the extractive industry sector. 14 For instance, payments that oil , mining, and gas companies make tohost governments typically include royalty payments denominated as a per

centage value of production ; bonus payments made to governments onsigning a contract ("signature bonuses"), on locating commercial mineraldeposits, or on reaching certain production levels; and corporate incometax, paid on income after permitted deductions for operating, exploration,interest costs, and depreciation of ass ets. In addition, companies pay withholding tax on dividend payment s, excise tax, customs duties, sales orvalue-added tax, and property taxes . In some countries, company paymentsto state agencies ca n take other forms, s uch as contributions to the expenses

of public or paramilitary security force s that guard their facilities.There are two main type s of contractual arrangements through which

extractive companies interact with governments. Most mining contracts,and many oil and gas contracts signed before the mid-l980s, are "concessionary agreement s. " Under such an agreement, companies are given theright to explore , develop , produce , tran s port , and market a commoditywithin a certain area for a specific amount of time. The company holds titleto the resource s produced , but production and sale from the conces s ion area

are subject to rentals , royalties, bonuses, and taxes. Concessionary agreements often take the form of a "joint venture ," in which companies take upa percentage of an operating licen se for a given concession, pay proportionate development and operational costs, and, after the payment of taxes androyalties, receive any remaining profits in proportion to their shareholding.In such cases, requiring conce ss ion holders to disclose their payments to agovernment would provide a clear picture of a government's income fromthese types of concessions .

Most of the more recent oil and gas contracts, by contrast, leave theownership of hydrocarbon and mineral reserves with the host government.The extractive company or companies bear all exploration costs and risks,as well as the development and production costs, in return fo r a stipulatedshare of the resulting oi l or gas production. Most commonly these arrangements take the form of production sharing agreements (PSAs). In the oilindustry, where PSAs are most important, contracting companies are entitled to recoup their costs from a share of the oil ("cost oil") extracted from

a production area or " block ." After payment of taxes and other charges , theremaining oil (" profit oil ") is divided among the equity partner s , u s uallyincluding the state oil company of the host country , in proportion to the sizeof their shareholdings in the block . The theoretical advantage of a PSA overa joint venture , from a host government's point of view, is that the government gets its own share of the oil , which it can control and sell independen tly of the marketing networks of its private-sector partners . However,PSAs tend to be less transparent than concessionary agreements. Becau se


9/26


the government is receiving revenues both directly (through signaturebonuses, royalties, taxes, etc.) and indirectly (through the sale of its shareof the oil), efforts to reach the disclosure of the complete income becomemore complicated.

Mechanisms for Corporate Disclosure

Because of the complexity of corporate-government agreements in theextractive industries, there is no one regulatory mechanism that wouldbring about revenue transparency from all the companies involved. ThePWYP campaign advocates various control mechanisms, the l ist ofwhich is expanding as the campaign's knowledge and experience grows.

A revision of stock market listing rules and international accountingstandards ar e two mechanisms that exemplify the current thinking of thecampaign.

Stock exchange listing rules. In order to be listed and have their securi-ties admitted to trading on financial markets, companies must publish aprospectus outlining their activities and regularly report on their financialrecords. The PWYP campaign proposes that, as a condition of listing on

stock exchanges , extractive companies should be required by financial marke t regulators to disclose information about tax payments, royalty fees, rev-enue-sharing payments, and commercial transactions with government andpublic-sector entities on a country-by-country basis. This requirementwould not necessitate a dramatic reform of current practices.

Most stock exchanges already require that risks to investors be clearlydisclosed, and they have the power to require disclosure in the public inter-est. Although the legal provisions pertaining to disclosure in the public

interest are often interpreted narrowly, the history of securities regulationshows that disclosure of corporate financial data has long been used toeffect change in the way that corporations are managed and held account-able for their actions. The 1934 Securities Exchange Act, which created theU.S. Securities and Exchange Commission (SEC), for example, specifiesthat disclosure requirements for securities are subject to conditions, rules,and regulations that the SEC prescribes "as necessary or appropriate in thepublic interest or for the protection of investors."15 In this light, it could

reasonably be argued that th.e promotion of transparency and good gover-nance in corrupt and conflict-prone countries where listed companies oper-ate would be "appropriate" and in the public interest, no t least given thecostly effects of corruption scandals on domestic markets and taxpayermoney in the companies' home countries.

To date there has been reluctance on the part of multinational compa-nies to publicly support this form of regulation. An objection sometim es


10/26

TRANSPARENCY AN D THE PUBLISH WHAT YO U PAY CAMPAIGN 269

raised is that listings-based disclosure would not capture privately heldcompanies or state-owned enterprises , particularly from those countriesthat may not value corporate social responsibility. This is a valid point butnot an insuperable barrier to tran sparency . An important step toward over

coming this " collective action problem " would obviously be to applychanges to disclosure rules and reporting requirements across all majorsec urities markets and jurisdictions, so that compliant companies cannot beundercut by less cooperative ones. Rather than forcing changes to companylaws at the national level, listing rule s and reporting requirements wouldthen apply to multinationals quoted on securities markets beyond the jurisdiction in which they are incorporated .

Furthermore, privately held or state-owned companies that wish to

engage in resource extraction on an international scale increasingly need toraise the large sums required for investment on the global equity or capitalmarkets. Transparency conditions attached to loan financing from banks orthe underwriting commitments from insurance companies, for instance,would further shrink the number of companie s that remain outside the circle of mandatory transparency . Encouragingly, in June 2003, a group of private-sector investors controlling some $3 trillion in funds (by February2004 the group represented $6.9 trillion) issued a public statement warning

that lack of transparenc y could have negative reputational impacts on companies. t 6 The investors, including CalPers (the largest pension fund in theUnited States) , Merri l l Lynch Inves tment Managers , ISIS FundManagement, and Fidelity Investments, state that

legitimate, but undisclosed, payment s to governments ma y be accused ofcontributing to the conditions under which corruption can thrive. This is asignificant business risk, making companies vulnerable to accusations ofcomplicity in corrupt behavior, impairing their local and global ' license tooperate,' rendering them vulnerable to local conflict and insecurity, an dpossibly compromising their long-term commercial prospects in thesemarkets. 17

The group of investors is therefore actively encouraging the companies thatthey invest in to adopt transparent business practice s .

There is a need for further creative thinking on other areas for policyintervention that could address the issue of potential competitive disadvan

tages of more progressive companies vi s -a-vi s less responsible companiesthat lack domestic pressure. In the interim , the changes to listing rules suggested by the PWYP campaign would apply to the overwhelming majorityof significant players in the extractive industries , including such publicIytraded oil supermajors as ExxonMobil, ChevronTe xa co, British Petroleum(BP), Royal Dutch/Shell, and Total. When their potential competitors, suchas PetroChina or Lukoil, seek to tap the world's major capital markets to


11/26


compete more effectively with the world's major players, these changeswill apply to them too.

International accounting standards. Another potential mechanism for

disclosure of company payments to host governments consists of theInternational Accounting Standards (lAS) , a set of reporting requirementsfor companies presently adopted by thirty st a tes. All listed companies in theenlarged European Union (EU) and Au stralia will report under th e lASfrom 2005 onward. In addition, there are signs of convergence between thelAS and the Generally Accepted Accounting Principles (GAAP) applied inthe United States, which have come under pressure for reform in the wakeof the Enron scandal. Although there continues to be disagreement between

supporters of the two sets of standards, much of the international financialcommunity recognizes the value of a single , principles-based reportingstandard like the lAS.

In the United Kingdom, accounting principles generally comply withth e current incarnation of the lAS . Companies file their end-of-yearaccount s at the UK Registrar of Companies , according to UK StandardAccounting Prin c iples . Declaration s of tax pa y ments are currentl y listed as"UK tax payments" and then " over sea s taxation ." In the United Kingdom,

as e lsewhere in Europe, the United States , and other developed jurisdiction s , one can find out what tax a company has paid in that jurisdiction bysimply requesting the information from their country's equivalent of theUK ' s Companies House. But if a UK-registered company operates in anumber of different countries, the overs eas tax payment data included inannual accounts are an amalgamation of separate information for all locations . Therefore, examination of the accounts of such companies would notrev eal data on tax payments to individual countries like Angola. This prob

lem i s further compounded by the fact that better-regulated jurisdictionsgen e rally do not demand the same degree of detail in reporting of companie s ' ov e rseas operations as the y do for activiti e s at home.

The campaign advocate s that the r e porting requirements of the lAS(and other standards such as the GAAP in the United States) be adjusted toinclud e the disclosure of tax and other payments made by extractive industries , broken down not only per country but also, importantly, for all theircountries of operation.

A significant shortcoming of this mechanism of disclosure is that thelAS is c urrently not a global accounting standard. The lAS requirementsare generally not enforced by developing countries , and so this mechanismwould not apply to extractive companies and related commercial entitiesbased in these countries, such as Angola's state-owned oil company,Sonangol. Like the listings-based mechanism discussed above, the lASoption would be most effective if it were to appl y to all extractive business-


12/26

TRANSPARENCY AND THE PUBLISH WHAT YO U PAY CAMPAIGN 27 1

es irrespective of their domicile. Again, there is a need for lateral thinkingabout policy options on how to harmonize disclosure requirements acrossall jurisdictions. One option, once transparency requirements have beenwritten into the lAS, would be to condition development aid on a govern

ment's incorporation of the lAS into domestic law.

The Need for Mandatory Disclosure

Th e intricacies of extractive companies' financial dealings with host governments are frequently concealed by confidentiality clauses in their contracts. These clauses are sometimes cited by companies as a reason thatthey are legally unable to disclose their payments to governments, and it is

true that the latter may have no hesitation in using such clauses to muzzlecompanies that might otherwise be willing to publish their payments. Thisproblem in fact demonstrates th e need fo r mandatory and industrywidemechanisms advocated by the PWYP campaign, rather than voluntary dis-closure by individual companies. The case of BP in Angola is instructive.In 2001, after twelve months of dialogue with the nongovernmental organi-zation Global Witness about the role of extractive industries in encouragingtransparency and good governance, BP publicly announced its intention to

reveal its total net oi l production by block and aggregate payments toSonangol-both in respect to its PSA terms. BP also said it would publishtotal taxes and lev ies paid to the Angolan government. As a consequence ofBP's announcement, Sonangol, in a letter copied to all other multinationaloil companies in Angola, threatened to terminate BP's contract if it pub-lished the data. IS

Although contractual confidentiality clauses may prevent companies

from disclosing their payments voluntarily, they often contain an opt-out,

which allows companies to make such disclosures if required by the laws orregulations of their home countries. The standard Deep Water ProductionSharing Agreement in Angola, for example, states that "either Party may,without such approval [i.e., the approval of the national government or thestate oil company], disclose such information . . . to the extent required byany applicable law, regulation or rule (including, without limitation, anyregulation or rule of any regulatory agency, securities commission or securities exchange on which the securities of such Party or of an y of such

Party's affiliates are Iisted)."19Clauses such as this are one reason the PWYP campaign champions

mandatory measures that would eventually capture all extractive companies, rather than voluntary initiatives like that undertaken by BP. Followingthe mandatory route would mean that a company like BP, along with itscompetitors, would disclose all its payments to a government like Angolaas a routine aspect of its compliance activities, not as a political or ethical


13/26


statement. In such circumstances , the host government would have no contractual argument with which to retaliate. Although certain companiesappear resolutely opposed to greater disclosure of financial information,public statements and private discussions suggest that others could accept

the case for mandatory measures as long as they are enforced comprehensively , so that fair competition is preserved .

Disclosure by Governments

There is another strand to the PWYP campaign's activities that bears on theother side of th e revenue equation, namel y the receipt of pa y ments by gov

ernments that are host to resourc e extraction operations. Some governmentshave decided to require transparency through domestic legislation . In 2003,the government of Nigeria, the most notable example, stated its intention tocreate laws that would require double disclosure of revenues in the oil sector , so that companies publish what they pay and state agenci es (such as thefinance ministry ) publish information about what they receive. 2D Any discrepancies would then be investigated. The motivation for this stanceappears to be that a group of reformers within the government, led by

President Olusegun Obas anjo, are attempting to demonstrate to the worldthat Nigeria can tackle its huge and destabilizing problem with oil-relatedcorru ption.

Clearly, there are also some governments that have no interest in transparency because the ruling elites that dominate them are enriching themselves from oil and mining revenues, at the expense of other citizens . Thesegovernments may look for ways to signal their commitment to transparency, for example by signing up to international processes that promote it,

while stalling an y real action on the ground for as long as possible.Although these governments may make limited and cosmetic gestures toappease international sentiment , they are unlikely to volunteer to takeaction that constrains the freedom of corrupt officials to loot state assets.Thi s is the major flaw with the voluntary approach to transparency , which,as will be discussed later, currently dominate s the debate among donor governments.

I f governments will not open their books, even when their own citizens

want them to, then what levers can be brought to bear? One obvious leveris development aid condition a lity. Revenue transparency could and shouldbe made a condition of al l loans by the World Bank, the InternationalMonetary Fund (IMF), regional development banks, and all developmentassistance from bilateral donors, as well as of all funding or guarantees toprivate-sector extractive projects given by export credit agencies . ThePWYP campaign is currently campaigning for the World Bank and IM F to
http:///reader/full/receive.2Dhttp:///reader/full/receive.2Dhttp:///reader/full/receive.2D


14/26

TRANSPARENCY AND THE PUBLISH WHAT YOU PAY CAMPAIGN 273

mainstream revenue transparency requirements into all their operations inthe more than fifty countries where , according to the World Bank 's ownmeasure, natural resources are economically significant. 2 1 There may beother economic and diplomatic pressures that could be brought to bear, for

example the use of trade preferences and reduced tariff charges for countries that are perceived to be taking concrete steps to encourage fair andaccurate revenue reporting and budgeting or conditional provision of eco-nomic assistance on the same basis.

Conditionality on development assistance and trade is controversial inmuch of the developing world because of its use in support of the geopolitical and commercial interests of Northern countries. Thus, in some developing countries, civil society organizations that on the one hand favor exter

nal support for domestic revenue transparency may fo r other reasons bebitterly opposed to the influence exerted on their governments by the WorldBank, the IMF, and other international financial institutions. There is noinconsistency, however, in arguing that the role of these institutions in thedeveloping world should be debated and challenged and at the same timearguing that where they do make loans or provide technical assistance, revenue transparency should be among the attached conditions. Lending conditionality is not flawless , but if it is to be used, promoting transparency

must be among its main goals. 22Assuming that a government has consented to publish its receipts from

natural resource exploitation, there are still some technical complexitiesthat need to be overcome . An extractive company in a country like Nigeriaor Indonesia, for instance, may be making dozens of payments to differentstate agencies, in more than one currency, and at national, regional, andlocal levels. Any transparency regime would need to create accounting systems for tracing and adding up all these receipts in such a way that they ca n

be reconciled against the data published by companies or, in cases wherethe numbers do not add up , finding the source of the discrepancy . One possibility is that a third party, such as an international accounting firm , couldtake on responsibility for reconciling the data, while donors like the WorldBank could help countries and their civil societies to build the technical andadministrative capacity to perform this accounting themselves.

It is very important, however , that all this monitoring proceed on abasis of complete openness of revenue data, not along the lines of the

"aggregated disclosure" currently touted as a model by some industry representatives and the World Bank . In the aggregated disclosure model, athird party such as the World Bank would collect revenue data on paymentsfrom companies in confidence and would publish only an aggregated figureof total payments by aJl companies operating in that country. There are twoobvious problems with this model. The first is that it is only quasi-transparent; the data from each company are revealed not to the wider public but to
http:///reader/full/significant.21http:///reader/full/significant.21http:///reader/full/significant.21http:///reader/full/goals.22http:///reader/full/goals.22http:///reader/full/significant.21http:///reader/full/goals.22


15/26


an intermediary whose own objectivity may be controversial in the countryconcerned. In some developing countries, for example, the World Bank isno t regarded as an honest broker because of its perceived associ ation withthe interests of Northern governments and multinational companies. Thus

civil society, meaning the whole range of in st itutions and individuals in agiven country that need to know how their natural resources are being managed, is cut out of a significant part of the monitoring process.

Th e second problem is that "aggregated disclo su re" would underminethe principle that companies are individually responsible for their actions.Companies do not aggregate the data they publish about their financial

operations in their home countries, so wh y should they do so in the developing countries where th ey operate? The proponents of aggregated di sc lo-

sure are therefore touting an internation a l double s ta ndard. The only obvi-ous beneficiaries of aggregated disclosure would be oil and miningcompanies, which would thereby be relieved of the need to reveal the con-tract terms they h ave struck with different countries (which may vary con-siderably) or global tax minimization arrang e ments (which may be legalbut are controversial). Although the thought of provid ing an y informationthat may help developing co untries in collective bargaining is an anathemato many large multin a tional companies , such concerns are unlikely to gen-

erate much sympathy elsewhere, given the desperate poverty of manycountries in which these companies do busines s.

A Principle with Wider Implications

The mechanisms proposed by the PWYP campaign are closely ti ed to thenotion that a country's natural resources are held in trust and managed by

the host government fo r the benefit of ord inary citizens, wh o as the trueowners have a right to enjoy the benefits derived from the exploitation ofthose re so urces. In fact, UN General Assembly Resolution 1803, concern -ing permanent sovereignty over natural resources , states that foreign inve st -ment agreements entered into by a state shall "s trictly and conscientiously "respect the sovereignty of peoples over their natural resources and theirright to development and shall be observed in good faith.23 Opaque t r a n s ~ c -

tions between extractive industry compani es and host governments fallshort of complying with the "good faith " requirement in Resolution 1803.It is difficult to see how opaque business agreements that encourage badstewardship of revenues can also be said to respect the right of people todevelopment.

The policy reforms proposed by the PWYP campaign for re so urce rev-enue disclosure need not be viewed as contrary to state sovereignty doc-trines, where these are interpr e ted in terms of government's custodial rights
http:///reader/full/faith.23http:///reader/full/faith.23


16/26

TRANSPARENCY AN D TH E PUBLISH WHAT YOU PAY CAMPAIGN 2 7 5

and responsibilities over resources belonging to the nation. Such disclosurerequirements could also assist in assuaging industry and investor concernsover the need for socially responsible corporate practices. The campaignseeks to change the rules of natural resource extraction to sever the nexus

among revenue opacity , corruption, poverty, and the propensity for violentconflict in resource-dependent countries. There is al so a clear need for pari-ty between the North and South. Extractive companies routinely publishtheir payments to governments in Europe , North America , and Australasia .Promulgating a lower standard in the South impJies that citizens in thedeveloping world are not entitled to the same standards of disclosureaccepted in the North .

There have been encouraging indications that the principles advocated

by the PWYP campaign will become part of a global government-ledmovement toward transparency in the extractive sector. Responding to theissues raised by the campaign , UK prime minister Tony Blair announced atthe World Summit for Sustainable Development in September 2002 that hi sgovernment would lead an initiative working toward the creation of aninternational framework for revenue disclo s ure . The result was theExtractive Industries Transparency Initiative (ELTl)24 A large number ofinternational extractive companies and national governments are broadly

supportive of the scheme, though many have raised questions over itsdetails.

The EITI, the most significant response to date to th e work of thePWYP campaign, has brought together representatives of governments,industry, and civil society. It has also broadened international dialoguebeyond the issue of company disclosure to also consider how to promotethe transparency of governments ' revenue streams. A broad set of principleshas been agreed upon that " underline the importance of transparency by

governments and companies in the extractive industries," "the principle andpractice of accountability by government to all citizens for the stewardshipof revenue streams and public expenditure," and the need for double disclosure (by both companies and governments) to reconcile company figureswith government accounts. 25 The EITI has demonstrated that transparentreporting of revenue flows is neither burdensome nor difficult, and it hasidentified a number of pilot countries willing to begin the process, including Nigeria, Azerbaijan , and Ghana. Sao Tome and Principe, on the eve of

significant oil exploration efforts, also indicated its interest in following theEITI approach.

Alongside the ELTI, the June 2003 declaration of the Group of Eight(G-8) countries also supports revenue transparency in the extractive industries, along with a commitment to encourage governments and both privateand state-owned companies to disclose their revenue flows and payments.The G-8 pledged to work with participating governments to achieve high
http:///reader/full/accounts.25http:///reader/full/accounts.25http:///reader/full/accounts.25


17/26


standards of transparent public revenue management, extending to theprocesses for awarding contracts and concessions; to provide capacitybuilding support where needed; and to encourage the IMF and World Bankto give necessary technical support to this end. 26

Policymakers sometimes confuse or simply conflate the PWYP campaign with the EITI, which makes it important to stress the differences incharacter and focus between the two . The former is an NGO campaign thatemphasizes the role of companies in promoting transparency and arguesthat mandatory measures are needed to achieve its goal. The EITI, by contrast, is a framework for discussion and action that involves governments,companies, and civil society (including representatives of the PWYP campaign), which until now has emphasized a purely voluntary approach t?

publishing information. This voluntary approach is a major flaw, because Itwill inevitably mean much slower, if any, progress in those countries whereruling elites have the most to hide. Without strong international p r e s s ~ r ~ ,

the leaders of countries like Angola have little reason to implement an InItiative that would threaten their personal enrichment. Indeed, concertedinternational pressure was credited fo r the Angolan government's 2003decision to publish a signature bonus received from ChevronTexaco. 27

Th e attractiveness of the PWYP campaign, and one of the reasons for

its success in catalyzing the debate on revenue transparency, is its simplicity. It merely asks extractive companies to do abroad what they are alreadyobliged to do in their home countries. Yet it comes as no surprise that eventhis simple measure encounters many problems.

Opportunities and limitations

The governance of a sovereign state comes with rights and r e s p o ~ s i ~ i l i t i e ~Governments have a legitimate right to maintain law and order wlthm the Irstate's borders by using revenues derived from its resources. As highlighte din Resolution 1803, however, governments also have the responsibility toact conscientiously in the stewardship and management of these resources.Although the primary responsibility for good management of a state's natural resource revenues rests with its government, the PWYP campaign hasfocused predominantly on the corporations that do business with it. Thereare several reasons for this.

First, there are various levers that can be used to press a government tochange the way it runs its country, but not all of them are effective all thetime. Development assistance is one such lever, but it can be of limited usein countries with significant natural resources, as a government whose officials embezzle billions of dollars of resource rents can easily afford torefuse tens of millions of dollars in external aid . There are other problems
http:///reader/full/ChevronTexaco.27http:///reader/full/ChevronTexaco.27http:///reader/full/ChevronTexaco.27


18/26


with development assistance too . For example, donors often continue toprovide generous aid to resource-dependent countries for short-tenn geopolitical reasons even when it is clear that massive resource revenues arebeing squandered by those countries' rulers in ways that contradict the aid's

stated aims .A second reason for the focus on companies is that th e number of

multinationals that actually pay revenues to governments in the developingworld is quite small, given the massiv e capital costs and the technicalsophistication of investments required in resource extraction. For a coalition of NGOs , it is easier to influence a small number of companies toadopt more progressive disclosure policies than to target a large number ofgovernments, many of which are highly resistant to imposing greater

accountability on themselves . Once companie s have started declaring whatthey are paying to a particular g overnment, it will become progressivelyharder for the latter to avoid disclosing what it is doing with the money .

Third, the PWYP campaign does not focus on companies purely as alever for changing the behavior of governments. While the principalresponsibility for action on transparency lies with governments , thisresponsibility does not end with them. All direct and indirect participants inthe extractive industries, which include extractive companies and the homegov e rnments in the developed world that regulate their activities, have anobligation to act in good faith with respect to the sovereign owners of natural resources-the ordinary citizens of resource-rich countries . Clearly , thenature of this obligation needs to be further explored . Technically speaking,there is no direct international legal obligation owed to " the people, " inrelation to the exploitation of their natural resources, by entities withoutinternational legal personality , such as multinational companies . However,it is evident that natural resource extraction companies do no t operate in amoral vacuum, nor is it in their own commercial interest for them to do so.

In fact , it is easy to argue for a "business case" for corporate transparency. There is little value to companies in having their legitimate payments to governments misappropriated and squandered, if this may lead tosocial divisiveness and instability that may eventually threaten their operations. As Shell and Chevron have experienced in Nigeria , the long-termreputational damage from dealings with a corrupt regime can be huge andcan have direct impact on the bottom line. For instance, poverty, ethnicunrest, and resentment against oil companies boiled over in the Niger Deltaregion in March 2003 , and the ensuing turmoil slashed Nigeria's oil outputby more than 750,000 barrel s pe r d a y - a loss of one-third of the total production of sub-Saharan Africa's biggest oil producer.28 Because of th eunrest, some oil tankers loading in Nigeria have even been required to takeout war risk insurance. 29 Even in relatively peaceful poor countries, companies whose legitimate payments are squandered by host governments are
http:///reader/full/producer.28http:///reader/full/insurance.29http:///reader/full/insurance.29http:///reader/full/insurance.29http:///reader/full/producer.28http:///reader/full/insurance.29


19/26


vulnerable to accusations of complicity with corruption, which can damagetheir reputation locally and internationally.

Increasing awa reness of the costs of bein g associated with "bad" ornontransparent bu s iness in developing countries is tied in with the growth

in recent years of initiative s to promote corporate social responsibility moregenerally . Transparency is therefore in the interest of companies, bothmorall y and commercially. The additional costs of being tran sparent ar efew, because companies already possess revenue data . It is simply a matterof publishing the se data. Irre spon si ble companies will inevitably try toevade transparency requirements, perhap s by looking for ever-more complex or obscure route s through which to channel their payments to government s . But once the need for mandatory disclosure has been accepted by

governments and industry, dealin g with this problem becomes a question ofclosing off loophole s, just as in any other area of regulation.

The Need fo r Global Action

Collective action is key to the success of all the mechanisms advocated bythe PWYP campaign to compel extractive companie s to disclo se their pay

ments to host governments. In addition, the se mechanisms would work besta longside multilateral efforts to compel gove rnmental tran s parency. A systematic policy approach is needed to main st ream transparency as a tool forconflict prevention in resource-rich countries, supported by in s titutionssuch as the World Bank, the IMF, and export credit agencies.

The Role of the World Bank an d the IM F

Despite widely documented links among re source dependence, corruption,and the prevalence of poverty and conflict, the issue of revenue transparency ha s s till not received sufficient prominence in the policies and practi cesof the World Bank and the IM F. Both ar e frequently criticized for their fa il-ure s in demon s trably committing to opennes s and accountability in all projects they ar e involved in. For instance, although the World Bank made disclosure and auditing of revenues from the Chad-Cameroon oil pipeline acondition for its support for the project , it failed to apply s uch conditionali

ty to the s ignature bonu ses paid by participating companie s. In addition, theWorld Bank's showpiece disclosure agreement with the government ofChad will come up for renegotiation at the sa me time that the first significant revenues wilJ be flowing back from the pipeline. Similarly . althoughan independent panel wa s set up to oversee the di sb ur se ment of reve nues.the panel currently lacks the capacity to fulfill its mandate .3o A 2002 WorldBank and IMF review of their national poverty reduction strategies con
http:///reader/full/mandate.3ohttp:///reader/full/mandate.3ohttp:///reader/full/mandate.3ohttp:///reader/full/mandate.3o


20/26

TRANSPARENCY AN D THE PUBLISH WHAT YO U PAY CAMPAIGN 2 7 9

cluded that transparency within countries and international developmentpartnerships is critical if efforts to reduce poverty are to succeed 31 Yet boththe IMF's "Oil Diagnostic" revenue-tracking exercise with the Angolangovernment and the IMF-World Bank audit of oil revenues in CongoBrazzaville have lacked any commitment to publish publicly any results ,and it is not clear how those results will be factored into a future assistanceprograms. 32

Notwithstanding their weaknesses, the IMF and World Bank do havethe capacity to effect positive change and encourage the publication ofearnings by host governments and domestic companies. They can, forexample, assist in the comparative analysis of data published, can providetechnical support to host governments to accurately compile and publish

earnings, and have the power to penalize governments that do not discloserelevant data. The Extractive Industries Review, a two-year multistakeholder consultation by the World Bank that completed its final report at the endof 2003, states that

the WBG [World Bank Group) should vigorou s ly pursue transparency atcountry and company level in al l th e resource-rich countries it work swith. The W BG should par tner with, for ins tance , the Ext rac t ive

Industries Transparency Initiative and Publish What You Pa y to promoterevenue transparency in its client countrie s an d should use its power as aconvener to vigorously support existing efforts to build common actionagainst corruption. WBG requirements need to be in line with these initiatives 33

The Role o f Export Credit Agencies

Export credit agencies (ECAs) are another group of international financial

players able to influence government monetary policy and fiscal transparency.34 These are public agencies that provide government-backedloans, guarantees, credits, and insurance to private corporations from theirhome country to do business abroad, particularly in the financially andpolitically risky developing world. ECAs often back projects consideredtoo risky by multilateral banks. They work to reduce the risk for theirnational companies wishing to invest overseas, and in this way ECAfinance is a form of subsidy for companies from the ECA's home country

by taxpayers of that country. Financing, either in terms of direct loans toparticipating companies or as a form of credit insurance to mitigate the riskof project payment default, is normally provided in return for the contractors' obtaining required equipment or some of th e necessary workforcefrom the country that is providing the underwriting insurance. Leadingagencies include COFACE in France, the Export-Import Bank (or the Ex1m Bank) in the United States, Mediocredito Centrale SpA in Italy , and the
http:///reader/full/programs.32http:///reader/full/programs.32http:///reader/full/parency.34http:///reader/full/programs.32http:///reader/full/parency.34


21/26


Export Credit Guarantee Department (ECGD) in the United Kingdom.These and other ECAs make up the world's biggest class of public international finance institutions, collectively exceeding the World Bank Group in

the value of loans provided . They are also the primary sources of financefor oil, gas, and mining projects throughout the world. However, unlike themultilateral lending institutions, most ECAs are not required to considerthe social and environmental impacts of the projects they suppor t -nor dothey have firm transparency standards. Current UK practice is illustrativeof the need for transparency. In the case of the ECGD, projects covered byoverseas investment insurance (OIl) continue to be treated as " commercialin-confidence." Between 1988 and 1996, th e worldwide value of new

export credit plans and guarantees increased fourfold , from $26 billion to$105 billion per year. 35 orr is issued mainly in developing and transitioningcountries, where the problems of corruption and unproductive expenditurehave a disproportionate impact. I t is a concern, therefore, that this part ofthe ECGD's work remains secretive.

Against this background, the PWYP campaign argues that ECAs thatextend support to extractive projects could require as a condition of supportthe disclosure of payments to the state by the investors in those projects. I f

taxpayers are to subsidize companies through ECAs, then public-interestcriteria on social and environmental standards, including transparency,should be considered. Such conditionality would not affect state-owned oilor mining companies in host countries, however, except in cases where thestate company is a partner in the particular investment sponsored by theECA . Only then, in line with other partners, could it be required to publishits payments to the national treasury. There is no overarching internationalbody that oversees the activities of ECAs, and so it will be difficult to

implement coordinated, collective policy reform by all ECAs. Again , thereis no simple method of ensuring collective action, and ultimately, whetherreforms are implemented will depend on the leadership and commitment ofthe Northern governments allied with the world's largest ECAs.

The Role o f Regional Organizations

There are other steps that can be taken at regional and global levels to

enhance both corporate and government transparency . Multilateral ini tia-tives and institutions like the New Partnership for African Develop ment(NEPAD) and the Organizat ion for Economic Cooperat ion andDevelopment (OECD) could, for instance, encourage the adoption of bestpractices in revenue disclosure and insist that all companies registered intheir member states disclose taxes paid to individual countries. NEPAD, inparticular, could play an important role in influencing host governments in


22/26

TRANSPARENCY AN D THE PUBLISH WHAT YOU PAY CAMPAIGN 28 1

Africa to provide their consent to the di sclosure of information. Supportedby the international donor community , NEPAD could also playa role inbuilding the capacity of governments to negotiate fair deals with extractivecompanies according to strict standard s of transparency. The DECO also

could as s ist in ending " secret deals" by structuring clear rules for transparent financi al relationships between multinational companies and host government s. The DECD Anti-bribery Convention may offer a useful platform.Similarly, the EU could extend its recognition of the importance of transparency in the proper functioning of capital markets to its development aidprojects . The EU's Cotonou Agreement with African, Caribbean, andPacific recipients of development assistance already recognizes that fighting corruption is a fundamental element of future development assistance ,

and there i s scope to use EU funds earmarked for promoting transparencyto pay for local capacity-building and revenue-monitoring projects.

Conclusion: Will Revenue Transparency Prevent Conflict?

I f the problem s and challenges raised above were resolved and mandatorydisclosure requirements were put in place, what would be the effect of disclosure of revenues in conflict-prone, resource-rich countries? Transparencyin revenue p ayments is not a panacea for problems of revenue mismanagement. Rather , it is a necessary first step for corporate and governmentaccountability-you cannot manage what you cannot measure. The PWYPcampaign does not suggest that extraction companies tell host governmentshow to spend their money but rather that they should publish informationthat will help ordinary citizens-perhaps with external assistance-to holdtheir ow n government accountable . The logic is simple . When greateraccountability is achieved through transparency and revenues are redirectedtoward poverty alleviation and improved governance, the propensity fo rgrand-scale corruption by government officials and violent conflict inresource-dependent poor countries is likely to be diminished.

In the 1930s , U .S. legal scholar and future Supreme Court justice FelixFrankfurter identified the power of public scrutiny to this end as he pilotedthe landmark Securities Act through Congress. He wrote,

The Securitie s Act is strong insofar as publicity is potent ; it is weak insofar as publicity i s not enough . . . . The existence of bonu ses, excessivecommi ss ions and salaries , of preferential li s ts and the like , may all beopen secrets among the knowing, but the knowing a re few . There is ashrinking quality to such transactions; to force the knowledge of them intothe open i s largely to restrain their happening. Many practices safely pursued in private lose their justificat ion in public .36
http:///reader/full/public.36http:///reader/full/public.36http:///reader/full/public.36http:///reader/full/public.36


23/26


A possible argument against the publication of what is paid to hostgovernments is that disclosure could ignite conflict in already politicallyand socially unstable countries. That is , publication of data on what a government earns may further anger already marginalized peoples and lead toviolent opposition to s uspec ted government malfeasance. However, it isdifficult to predict whether publication of payment s or earnings fromresource revenue s will have this effect. Any potential adverse impact ofpublication could be mitigated by planning and by providing local civilsoc iety organizations with tools to accurately interpret data and manage thenationwide dissemination of information. Indeed, the way information onpayment s and earnings can be managed and used to lobby for greater government accountability will vary depending on the particular country

involved.This highlight s the need for a comprehensive, long-term s trategy for

integrating transparency and accountability at all levels of the extractivesec tor- f rom multinational companies to governments and s tate-ownedcompanie s and their in t erna tional financial supporters. What is mostimportant, of course, is transparency on the side of governments, not onlyin what they receive but ultimately in what they spen d and ho w th ey spendit. The reform of revenue management from the extractive sec tor is only asubset of larger public finance management issues. These are outside thereach of the campaign on resource revenue transparency a t the moment,but getting companies to publish their payments and governments to publish their revenue s is part of an enabling environm en t for such largerreform issues.

A balanced perspective is r equired . The rang e of reforms proposed bythe PWYP campaign are not a magic solution to the poverty and conflictassociated with the parado x of plenty. A great deal of additional thoughtand planning is needed to handle carefully the transition from secrecy toopenness in weakly democratic or undemocratic countries that have suffered years of poor economic performance. In particular , a major challengewill be to devise methods of st rengthening democratic institutions to provide a secure domestic environment for people to question th eir leaders andair grievances about the management of national resources. This willinclud e putting in place workable procedures to bring corrupt officials toju stice .

Ultimately, whether the regulations and policy reforms advocated bythe PWYP campaign are adopted will depend on the commitment of theresource extraction sector , international organizations, governmcnts in thedeveloped world, and th e ir counterparts in deve loping countri es to bringtranspar e ncy to the fore of poverty reduction and conflict prevention strategies. All stakeholders need to act in concert to institutionalize transpar ency.good governance, and accountability. Simple and logical adjustments to


24/26

TRANSPARENCY AN D THE PUBLISH WHAT YOU PA Y CAMPAIGN 2 8 3

existing policies of company disclosure , international accounting standards,and legislation to require the disclosure of company payments to host governments will guarantee collective action, create a level playing field for alloperators, and provide the extractive industries with a "social license to

operate."Much work remains to be done by a wide range of actors before trans

parency can be established at the center of the extractive industries.Nevertheless , considerable progress has been made since the inception ofthe PWYP campaign in 2002 and the subsequent work of the UK government and others. Strong leadership will be needed from governments in thedeveloped world and industry to tackle the major problems of the statusquo and ensure that natural resource revenues, instead of becoming a cause

of massive injustice and human misery, are used to prevent conDict andalleviate poverty, to the ultimate benefit of all.

Notes

I. See, for example, Halvard Buhaug and Scott G . Gates, "The Geography ofCivil War," lournal of Peace R esea rch 39, no . 4 (2002): 417-433; Paul Collier andAnke Hoeffler, " On Economic Causes of Civil War, " Oxford Economi c Papers 50(1998): 563-573; Paul Collier , Anke Hoeffler , and Mans Soderbom, "On th eDuration of Civil War ," paper pre se nted at the Work shop on Civil Wars and Po stconflict Transitions, University of California, Irvine , Ma y 18-20 , 200 I; Indra DeSoysa, "Paradise Is a Bazaar? Greed, Creed, and Governance in Civil Wa r ,1989-99," lournal o f Peace Res ea r ch 39, no. 4 (2002): 395-416; Philippe LeBillon, "The Political Ecology of War: Natural Resources and Armed Conflicts,"Political Geography 20 (2001): 561-584; Philip Swanson, Fuelling Conflicts: Th eOi/lndustry an d Armed Conflict (Oslo: Fafo Institute fo r Applied Social Science,2002); and Michael Ross, "How Do Natural Resources Influence Civil War?

Evidence from Thirteen Cases," unpubl., 2003.2. Terry Lynn Karl, The Parado x of Plenty: Oi l Booms and Petro-States

(Berkeley: University of California Press, 1997).3. Collier and Hoeffler, "On Economic Causes of Civil War"; and Paul

Collier, "Doing Well ou t of War : An Economic Perspective," in Mats Berdal andDavid M. Malone, eds., Greed an d Grie va nce: Economic Agendas in Civil Wars(Boulder: Lynne Rienner , 2000), pp . 91-111; Paul Collier an d Anke Hoeffler,"Greed and Grievance in Civil War" (Washington, D .C.: World Bank DevelopmentResearch Group, 200 I.

4 . This chapter draws on Global Witne ss, Time for Transparency: Comin gClean of Oil . Minin g. and Gas R even ues (WaShington, D.C. : Global Witnes s, 2004).as well as other reports publi s hed by Global Witness, which are available atwww .globalwitness.org .

S. Christian Aid , The Scorched Earth: Oil and War in Sudan (London:Christian Aid. 200 I), p. 18.

6. Global Witness, Timefor Transparency. pp. 18-33.7. Ibid., pp. 36-52; Global Witness. A Rough Trade: The Role of Companies

and Governments in the An go lan Conflict (London: Global Witness. (998); and
http:///reader/full/www.globalwitness.orghttp:///reader/full/www.globalwitness.orghttp:///reader/full/www.globalwitness.orghttp:///reader/full/www.globalwitness.orghttp:///reader/full/www.globalwitness.org


25/26


Global Witness, All lh e Presidel1l's Men: Th e Devaslali ng Story a/' Oil and Bankingin An go la 's Pri valised War (London: Global Witne ss , 2002).

8. For more information, see www.publishwhatyoupay.org .9. The tot a l embe zz led was estimated at around $370 million. "E lf: Une his

toire f r a n ~ a i s e , "Le M onde , November 13, 2003; "AFP P re views 'Mass ive 'Government Corruption Trial Invol v in g French Oi l Company," Agence FrancePresse, March 14, 2003; " Trente condemnations, dont quinze peine s de pri so nferme, et sept relax es," Le M ond e, November 14 , 2 003 .

10. "AFP Previe ws 'Massive' Government Corruption Trial "; "Le prod:s Elfen correctionnelle: 'Pour qui tous ces bijoux?' Alfred S in ' en interroge sur se semplettes place Vend6me ," Liheralion, April 9,2003.

II . The sc heme was based around Kazakh president Nursultan Nazarbayevand oil minister Nurlan Balgimbayev ' s demand that international oil companiessuch as Chevron (now ChevronTexaco) and Mobil (now ExxonMobil) pay a series

of unusual fee s to middleman Jame s Giffen on behalf o f the Republic ofKazakhstan. This arrangement, the indictment alleges, helped Giffen to skim moneyfrom the deals and sen d so me $7 8 million in kickbacks to President azarbayevandothers throuoh do ze n s of overseas bank accounts in Switzerland, Liechtenstein , andthe British Virgin Island s. See United SlaieS v. Jame s H. Giffen ( U.S. District Court,Southern District of New York, 2003), indictment , p. 3.

12. Global Witne ss . Timef o r Tr a n sp a r ency, p . 9.13 . Kathleen Day, "Record Fine Levied for Ri ggs Bank Violat ions,"

Washington POSI, May 14,2004, p. AI.14. See, fo r e xa mple , Philip Swanson, Mai Ol ga rd, and Leiv Lunde, "Who

Gets the Money? Reporting Re so urce Rev enu e s ," in Ian Ba nnon and Pa ul Collier ,eds ., NalUral R eso urc es and Vio/enl ConfliC/: Issu es and AClions (W a shlllgton ,D.C.: World Bank , 2003), pp. 43-96.

15 . As pe r sees . ] 2-15 of the U.S. Securities Exchange Act.16. "Investors' Statement on Tr a nsparen cy in the E x tractive s Sector," joint

statement by IS IS A ss et Management et a \., June 17,2003, rev ised February 2004 .17. Ibid.18. Global Witne ss, Time for Transparency, p. 72.19. Article 33(2) of the Slandard D ee p Wa le r ProduCii on Sharing AgreemclIl

Wilh Angolan slO te o il co mpa ny Sonango /, on file with the authors. .20. Transpar ency Internat io nal, "Niger ia Take s the L ea d on Oi l

Tr ansparency," pre ss release, Berlin, November 7,2003 . . .2l. This figure is a conserv a tive extension from th a t contallled )J l the World

Bank's 2002 report on the g lobal mining indu stry to incorporate developing-countryeconomies dependent on the oil and gas sector. World B a nk analysts used a 6 percent cutoff point as an indi ca tor that a se ctor is critically import a nt to an economy.

22 . See also Chapter l2 by James K . Boyce in this volume.23. Art. 8 of UN Gener a l Assembly Resolution 1803 , no . 17, December 14,

1963.

24. Se e UK Department of Int e rnational Development, Draft Reporl of tileEXlraCliv e Industri es Transparency IniliOli ve (EITI) Lond on Conference, J une 17,2003, available at http ://www. dfid.gov.uk .

25 . Se e ibid. , "Statement of Agreed Principle s and Actions."26. "Fighting Corruption and Improving Tran sparency : A G8 Declaration,"

./une 2003.27. Heath er Timmons , "A ngol a Set to Disclose Payments from Bi g Oil," Ne .....

Yo rk Tim es, May 13,2004, sec . W, p. l.
http:///reader/full/www.publishwhatyoupay.orghttp://www.dfid.gov.uk/http://www.dfid.gov.uk/http://www.dfid.gov.uk/http:///reader/full/www.publishwhatyoupay.orghttp://www.dfid.gov.uk/


26/26


28, " Shell Nigeria Closures Continue, " BB C News, March 24, 2003, availableat www .bb c.co. ul c/1/hI/busi ne ss/z880955.htm .

29, " In s urer s Put Nigeria on War Ri sks List," En ergy Compass, September 5,2003; " In sure rs Want War Premium ," Africa Intelligence, September 17,2003.

30. See, for example, "Chad Sees First Trickle of Cash from Pipeline," Lo sAngeles Times, December 26, 2003,

31, Joint IMF an d WBG Dev e lopment Committee, Pov e rt y ReductiollStrategy Paper s ( PRSP ): Pr ogress in Implementation, Report no, DC 2002 -0 0 16(Wa shi ngton , D .C.: Int ernational Monetary Fund and World B ank Group, 2002) .

32 . A poorl y edited s ummary of the Angola diagno s tic , ho wever, has nowbee n re lea sed.

33 . World Bank , Strikin g a Bell e r Balance , final report of the ExtractiveIndu s trie s Re view ( Was hin gton, D ,C.: World Ba nk , 2003),1:47,

34. See Chapter 10 by Nicholas Hildyard in this volume.

35 , Nicholas Hildyard, "Sno ut s a t th e T roug h : Export Credit Agencies,Corporate Welfare and Poli cy In co heren ce," Corner House Briefin g #14, Do r set:The Comer House , 1999 , available at www.thecornerhou se.org,uk ,

36. Felix Frankfurter , quoted in Global Witne ss, Time fo r Transparen c y, p, 83.
http://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.thecornerhouse.org%2Cuk/http://www.thecornerhouse.org%2Cuk/http://www.thecornerhouse.org%2Cuk/http://www.bbc.co.ulc/1/hI/business/z880955.htmhttp://www.thecornerhouse.org%2Cuk/

Documents

CPO3204-ProfitingFromPeace