Carlos da Costa, PhD Mining Engineering // Jan 29, 2015
The objective of the Extractive Industries Transparency Initiative (EITI) is to encourage the better use of natural resources (such as oil, gas, metals and minerals revenues) for economic growth and poverty relief through increased accountability and transparency. It encourages governments and companies to independently publish their payments and revenues and then present them to independent auditing.
But over twelve years after its launch it is evident that the EITI initiative continues to lack a real bite. Demanding transparency from governments and corporations in the resources industry is inadequate to guarantee good governance, economic progress and more equitable distribution of wealth. Governments and corporate entities still resort to creative ways of masking their bribes.
Energy and mining companies are linked infamously to numerous human rights violations, kidnappings, conflict, murder and environmental abuse. Uncovering corrupt practices (bribery, fraud, money laundering, tax cheating, etc.) can also be difficult. The EITI certifies compliance on a country-by-country basis. This allows companies with operations in various countries, through their subsidiaries, to hide bribery payments, which are usually masked as fees for consultancy services, in other countries that at times serve as tax havens.
Inflated expenses, questionable accounting practices, exaggeration of overheads, and highly inflated invoice billing to subsidiaries can all have adverse impact to a nation’s tax revenues. Unfortunately, tax authorities and other government agencies in some countries frequently lack the technical knowledge needed to tackle such illegal misdoings.
Many developing countries also lack the capacity to evaluate and qualify the costs involved in these resource-based industries and surrender the responsibility to experts provided by the United Nations, the International Monetary Fund and the World Bank. Unfortunately, these external experts rarely prioritize the interests of the local communities, particularly during contract negotiations. Once the contracts are signed, these countries may not possess the necessary expertise to evaluate the exact quantities of the resources extracted and have to accept whatever values a company declares.
So if the EITI provides only a questionable clean bill of health, should this initiative be maintained? The answer is YES since until just over a decade ago the resources industries in some countries were viewed as an exclusive elite club where governments entered into undisclosed contracts with mining, exploration and energy companies without any involvement of the local communities where such projects impact and the national well-being its respective nations. At least there now is limited publication of information in place, in some cases, where civil societies and its citizens are better informed and thus are better able to challenge their government’s questionable actions and to contest undesirable contracts which they enter into. Also in place countries such as the United States of America and the United Kingdom have implemented anti-corruption laws, such as the Dodd-Frank act and the Bribery Act (respectively).