Sunday 23. January 2022
#161 - June 2013


Transparency in extractive industries


European legislation in the extractive sector still has a long way to go before it can be an effective instrument against tax evasion.

Influenced by the “Publish What You Pay” campaign and inspired by the US Wall Street Reform and Consumer Protection Act of July 2010 (‘Dodd-Frank’ Act), the European Union will in the coming months adopt a European Directive obliging European companies to disclose all payments above €100,000 paid to the governments of the countries in which they operate. This transparency standard will apply to European industries in the oil, gas and forestry sectors that exploit the wealth of raw materials from developing countries. On the one hand, this is a major step forward in the fight against corruption, but on the other it is only a tiny advance in the fight against tax evasion.


Disclosing payments of this scope is, of course, important, but not enough. As suggested by Eurodad (the European Network on Debt and Development), if European legislation were also to force companies to disclose contextual information such as production volumes, staff, turnover, profits/losses and assets, this additional information would provide the authorities with a better basis for keeping tax evasion in check. Furthermore, the effect of the European directive could be significant if the transparency standard were to apply in particular to all contracts and tenders between European companies that extract raw materials and their host countries. According to Joseph Stiglitz, these contracts should stipulate that, if prices are increased, the benefits do not go solely to the companies exploiting the natural resources.


Even though the European legislation goes beyond the Dodd-Frank Act (by supplementing European regulations with the inclusion of the forestry sector and companies not quoted on the stock exchange), a lot still remains to be done if it is going to be an effective instrument against tax evasion and in the fight against corruption. The European Union could have shown itself to be much more exacting by further extending the disclosure obligation to include other key sectors that are prone to corruption. It would be necessary for the legislation to cover also the transport and export sectors, payments made to governments in connection with the security of extractive sector companies, the construction sector, the telecommunications sector insofar as it relates to “conflict minerals” and the banking services sector. While inclusion of the latter three sectors was voted for in 2012 by the “European Parliament Committee on Legal Affairs”, they have been kept out of the European legislation.


Also, while the American legislation fixes the threshold for relevant payments at $US 100,000, the equivalent of €80,000, the European threshold is as high as €100,000. This excessively high threshold means that it only barely benefits the local populations of developing countries. According to “Publish What You Pay ”, the relevance threshold should take account of the relatively modest sums that are often quite significant for local authority budgets. This is why €15,000 would be an ideal threshold for all NGOs. “This figure is compatible with that used for extractive companies by the Alternative Investment Market of the London Stock Exchange (£10,000)”.


The future European Directive on the transparency of the extractive industries follows in the wake of the Dodd-Frank law on financial sector reform but, in terms of transparency standards, it remains less effective than its US counterpart because its payment threshold is too high. Disclosure of payments is essential but is not sufficient to ensure that companies pay their fair share of taxes. The extension of this disclosure obligation to include other sectors involved with information, going beyond those covered by the European law, is essential for fighting more effectively against tax evasion, illicit flows of money and misappropriation of funds, all of which deprive the governments of commodity-rich developing countries of the means to combat poverty.

Kwinja Nako Muhaya



Translated from the original text in French

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