This post is part of WRI’s blog series, The Trump Administration. The series analyzes policies and actions by the administration and their implications for climate change, energy, economics and more.

The U.S. Congress, with President Trump’s help, recently eliminated rules to reduce corruption in the global oil, gas and mining industries.

Until last week, SEC regulations on Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required that oil, natural gas and mineral extraction companies begin reporting payments made to foreign governments. Congress, with sign-off from President Trump, eliminated Section 1504 last week.

The rules, for example, would have required companies to make public how much they paid the government of Angola for the right to extract oil, or the government of Turkmenistan for the right to tap into the nation’s gas reserves. Secrecy around such payments can fuel corruption and hinder the ability of citizens to benefit from government revenues.

Secrecy Breeds Corruption, Poverty and Insecurity

Countries that discover valuable natural resources are often cursed by increased poverty, wealth inequality and conflict, a phenomenon referred to as the “resource curse.”  In Nigeria, for example, the percentage of people in poverty has doubled since the 1980s (from around 30 to 60 percent of the population), despite the fact that the country received hundreds of billions of dollars in oil-related revenue. In many countries rich in natural resources like Nigeria, a small group of elites benefit from the extraction and sale of assets while the majority of citizens remain poor.   

While several factors contribute to whether citizens benefit or suffer from the discovery of natural resources, one very important one is corruption. Corruption allows officials to divert resources for personal gain through bribes, embezzlement or kickbacks. According to Nigeria’s auditor general, $16 billion in oil revenue went missing in 2014 alone.  Section 1504 of the Dodd-Frank Act was meant to reduce such corruption by increasing transparency. Information about how much money the government receives from oil, gas or mining companies can help citizens understand the financial arrangements their government has entered into, track the use of these resources and hold officials accountable.

Several oil companies fought long and hard against the regulations to implement Section 1504, including Exxon-Mobil, one of the world’s largest oil companies, then headed by now-Secretary of State Rex Tillerson. These companies argued the SEC rule would damage their competitiveness. However, the rule would have covered not only U.S. companies, but all companies listed with the SEC, including China’s CNOOC and Brazil’s Petrobras. In addition, similar laws now exist for companies listed in the European Union and Canada. With Section 1504, essentially all major oil companies would have been subject to the same rules, undermining the competition argument. Now, SEC-listed companies will fall behind their counterparts on efforts for transparency.

Pushing for Greater Transparency

In the vacuum left by the rollback of Section 1504, other actors can push these extractive companies to disclose payments to governments.

The most important set are the governments and citizens of countries where extractives companies invest. Governments themselves can choose to disclose payments received by companies; they do not need companies to take the first step. Many countries are improving their commitments to transparency through international initiatives like the Extractive Industries Transparency Initiative or the Open Government Partnership. Committing to strong national legislation on transparency and strong systems to implement such legislation can go a long way toward stemming corruption. Citizens can push their governments to take such action.

The institutions and individuals that invest in extractive companies can also play an important role. The SEC regulations would have provided more information to investors, who are increasingly interested in understanding the impact of their investments on people and the environment. This is not just a philanthropic act. Companies caught engaging in controversial or illegal activities can end up suffering financially, which can impact investors. A prudent investor may now choose to invest in companies following the more rigorous rules of the European or Canadian stock exchanges. Some financial actors, such as the International Finance Corporation, have already begun requiring payment disclosures for any extractives-related activities they invest in.

Finally, extractive companies themselves can voluntarily commit to publishing what they pay, thus embracing a more positive role in the fight for shared prosperity and against global corruption.

Congress and Trump may have squelched Section 1504 of Dodd-Frank, but the struggle is far from over. Foreign governments, investors and citizens wield tremendous power, and can take it upon themselves to help transform the industry.