Lugar Floor Speech on Transparency Amendment

Date: May 18, 2011
Location: Washington, DC

I join my distinguished colleague in commending the work of Senator Dodd and Senator Shelby and the privilege of offering this amendment now with Senator Cardin.

I rise to support the transparency amendment, No. 4050, introduced by Senator Cardin on behalf of myself, Senator Durbin, Senator Schumer, Senator Feingold, Senator Merkley, Senator Johnson, and Senator Whitehouse. This amendment builds on language introduced in the Energy Security Through Transparency Act of 2009. If passed, the amendment would help to reverse the "resource curse'' by revealing payments made here and abroad to governments for oil, gas, and minerals.

The Senate debate on financial regulatory reform has included a great deal of debate on transparency. Transparency empowers citizens, investors, regulators, and other watchdogs and is a necessary ingredient of good governance for countries and companies alike. Adoption of the Cardin-Lugar amendment would bring a major step in favor of increased transparency at home and abroad. Its passage would empower investors to have a more complete view of the value of their holdings. It would bring more information to global commodity markets, which would benefit price stability. More importantly, it would help empower citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas, and mineral resources and revenues.

In countries abundant in natural resources, corruption and authoritarianism, transparency is a vital tool. Yet in recent weeks we have also been reminded of the need for greater transparency in management at home. The amendment builds on the findings of a Senate Committee on Foreign Relations staff report entitled the "Petroleum and Poverty Paradox: Assessing U.S. and International Community Efforts to Fight the Resource Curse," which noted that many resource-rich countries that should be well off are, in fact, terribly poor.

History shows that oil, gas reserves, and minerals frequently can be a bane, not a blessing, for poor countries, leading to corruption, wasteful spending, military adventurism, and instability. Too often, oil money intended for a nation's poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments. A classic case is Nigeria, the eighth largest oil exporter. Despite $ 1/2 trillion in revenues since the 1960s, poverty has increased, corruption is rife, and violence roils the oil-rich Niger Delta.

This "resource curse" affects us as well as producing countries. It exacerbates global poverty which can be a seedbed for terrorism, it empowers autocrats and dictators, and it can crimp world petroleum supplies by breeding instability.

The essential issue at stake is a citizen's right to hold its government to account. Americans would not tolerate the Congress denying them access to revenues our Treasury collects. We cannot force foreign governments to treat their citizens as we would hope, but this amendment would make it much more difficult to hide the truth.

Transparency also will benefit Americans at home. Improved governance of extractive industries will improve investment climates for our companies abroad, it will increase the reliability of commodity supplies upon which businesses and people in the United States rely, and it will promote greater energy security.

This amendment requires foreign and domestic companies listed on U.S. stock exchanges and exchanging American depository receipts to disclose in their regular SEC filings their extractive payments to governments for oil, gas, and mining.

Nothing in this amendment accuses companies of malfeasance. Quite the contrary. Several oil, gas, and minerals companies have taken important steps in this arena. The aforementioned Foreign Relations Committee minority staff report details several examples of individuals going the extra mile to convince governments of the importance of transparency and to provide training to meet international standards.

Yet the value of companies themselves can be negatively impacted when there is not transparency. As noted in the findings of this amendment "Companies in the extractive sector face unique tax and reputational risks in the form of country-specific taxes and regulations. Exposure to these risks is heightened by the substantial capital employed in the extractive industries, and the often opaque and unaccountable management of natural resource revenues by foreign governments, which in turn creates unstable and high-cost operating environments for multinational companies. The effects of these risks are material to investors"

Many analysts say among the root causes of the current financial crisis was a failure by investors to have access to sufficient information about their investments and an excessive reliance on the judgments of the ratings agencies, which proved to be highly faulty. That experience argues strongly for more disclosure and information.

Considering the well-established link between oil payments and the business climate, many investors might be interested in this information--particularly socially responsible investors.

This domestic action will complement multilateral transparency efforts such as the Extractive Industries Transparency Initiative - the EITI - under which some countries are beginning to require all extractive companies operating in their territories to publicly report their payments.

We encourage the President to work with members of the G8 and the G20 to promote similar disclosures through their exchanges and their jurisdictions. As Secretary Clinton noted in her questions for the record on January 12, 2009, "President-Elect Obama has put a high priority on promoting transparency in government more broadly. I look forward to working with the President-Elect and the Treasury Department to promote greater transparency at the G-8 and now the G-20 as well."

In developing this amendment, our staffs consulted with the Secretary, the Securities and Exchange Commission, the Treasury Department, the Department of the Interior, energy companies, mining companies, the industry representatives, and nongovernmental organizations.

When financial markets see stable economic growth and political organization in resource-rich countries, supplies are more reliable and risk premiums factored into the process at the gas pump are diminished. Information is critical to maintaining healthy economies and healthy political systems. I ask for your support on passage of this important amendment.

I thank the Chair.