Source: The Financial Times                              Date: 10 March, 2011

The Dodd-Frank Act, which the U.S. Congress passed last year, was designed to reform financial regulation. But it may also prove an important tool in the fight against international corruption. The legislation requires US-listed companies involved in oil, gas or minerals extraction anywhere in the world to report all payments they make to governments to the Securities and Exchange Commission, project by project and country by country. Those that fail to do so face exclusion from US capital markets. Moves are afoot to introduce a similar law in the European Union this year. This is good news.

Mineral deposits should be a blessing for the country where they are found. More often, however, they are a curse. When citizens do not know how much their governments are paid, they cannot ensure that resource revenues are well spent, or that their country is getting a fair deal. Transparency alone will not make resource-rich countries more open and stable, but without it, nothing will change.

Companies will benefit too. By leveling the playing field on which they compete, transparency legislation reduces the scope for unfair competition through bribes.

Requiring transparency for financial market listing is a simple and effective way to stamp this out. It is high time that the EU, and all countries where extractive companies are listed, followed the US lead.

Some companies dispute this, pointing to opaque Chinese state-owned corporations that they fear will hoover up contracts through underhand means, while law-abiding westerners miss out. But this is to misunderstand the risk. Chinese companies need not rely on bribery to secure deals. They are also able to succeed because they are willing to pay high prices for access because of the subsidies they receive from Beijing. Even this is not a conclusive advantage. The technological knowhow of western giants ensures that their services remain in demand.

Others fret that binding disclosure requirements would undermine the Extractive Industries Transparency Initiative, a voluntary code that has led to greater disclosure of financial flows between companies and host governments. The case is not compelling. A compulsory code, so long as it was widely applied, would surely be better for those who already voluntarily disclose. After all, it would prevent their less scrupulous rivals from competing unfairly.