Back in 2010, a little-known section of the major Dodd-Frank financial reform act looked poised to upend the way fossil fuel and mining companies did business abroad. Section 1504, also known as the Cardin-Lugar amendment after its Senate co-sponsors, Republican Richard Lugar and Democrat Ben Cardin, proposed to require resource extraction companies to disclose payments made to foreign governments: essentially, to disclose bribes they might be paying for the right to extract various natural resource deposits. Lawmakers and advocates explained that enhanced transparency would benefit American investors and help stabilize global supply chains, while also empowering citizens in foreign countries to hold their corrupt leaders accountable for looting the public revenues of natural resource deals.
But nearly a decade on, this rule still hasn’t been implemented. Wednesday, the U.S. Securities and Exchange Commission is scheduled to vote for a third time on final language implementing the Cardin-Lugar amendment. Two previous attempts failed, the first struck down by a federal court in 2013 and the second rejected by the Republican-held Congress in 2017. The new rule, proposed early in 2020 by Jay Clayton, the outgoing SEC chairman appointed by President Donald Trump, wholly departs from Congress’s original intent to combat the so-called “resource curse” plaguing many developing countries. Senator Elizabeth Warren, writing Tuesday to request a delay of the vote, called the current draft language “grievously flawed”—so watered down as to be useless in holding “bad actors accountable.”
The Cargin-Lugar amendment started as a measure to counter corruption fueling the exploitative governance that keeps societies in many resource-rich countries cash-poor. But extractive industry transparency would offer global benefits, as well. As the climate crisis accelerates, the amendment has become especially relevant: Introducing more transparency around extraction concessions could help limit fossil fuel companies’ ability to continue bringing more oil and gas out of the ground.
Clayton’s nomination in 2017 to lead the SEC was controversial. During his long tenure as a partner at the law firm Sullivan & Cromwell, he represented some of the major corporations the SEC regulates, including, a Swedish telecommunications firm that agreed to pay the SEC, the Justice Department, and Dutch and Swedish regulators $965 million to resolve bribery allegations in 2017. TeliaSonera is one of several companies that have pleaded guilty to bribing Gulnara Karimova, daughter of Uzbekistan’s former president, to facilitate entry into the Uzbek telecommunications market. Karimova is now sanctioned by the United States and imprisoned in Uzbekistan on corruption charges.
Clayton has mostly avoided the limelight while at the SEC, aside from earlier this year, when news emerged that he was Trump’s pick for U.S. attorney for the Southern District of New York. (The previous occupant of the position refused to resign.) Now, on his way out the door, it looks like the chairman could undermine the Cardin-Lugar amendment’s much-anticipated anti-corruption potential.
Under the proposed language Clayton has backed, companies would only have to report their collective payments at the national or major subnational level, and payments under $150,000 would be exempt entirely. Furthermore, exemptions would be made in situations where foreign law prohibits disclosure. Gary Kalman, director of Transparency International’s U.S. office, commented to the SEC, “Under the rule, public officials who take bribes can block the disclosure of those very bribes by enacting local laws. How long does anyone think it will take for corrupt officials to pass local laws that cover their tracks? That’s not accountability; it’s an invitation for evasion.”
The two earlier incarnations of the rule required reporting payments at the project level, because the vast majority of corruption occurs around specific contracts. Once the proceeds of corruption enter complex international networks of banks, law firms, shell companies, and other service providers, it becomes extraordinarily difficult for regulators, law enforcement, and financial institutions to mitigate illicit finance. Reporting only the total sums of payments that extractive companies make to national governments lacks the precision necessary to alert citizens to corrupt deals cut at their expense.
While the U.S. has failed to finalize the regulations mandated by the Cardin-Lugar amendment, the European Union, the U.K., Canada, and Norway are enforcing their own laws based on the languishing U.S. law. The Extractive Industries Transparency Initiative, an organization established in 2003 around a system of voluntary policy commitments, and which has become the leading global standard for the good governance of natural resource exploitation, called on the SEC “to adopt the EITI Standard’s definition of project-level reporting,” and argued that “inconsistency between the SEC rule and other global reporting standards such as the EITI would likely lead to increased compliance costs for companies.” The U.S. withdrew from the EITI in 2017, after just three years as an implementing country. At the time, Senators Cardin and Lugar issued a joint statement calling the Trump administration move “a painful abdication of American leadership on transparency and good governance.”
Robust rules around corrupt resource extraction deals can make a big difference. To take just one example, Zimbabweans living near the Blanket gold mine learned in 2018 from Canadian disclosures, according to a Washington Post report that operating company Caledonia Mining had paid $144,760 to the Gwanda Rural District Council and almost as much the prior year. Locals did not recall ever being informed of the payments, and council members denied their existence. The information was only available to Zimbabwean citizens because Caledonia, which is listed on the Toronto Stock Exchange, is required by the Canadian equivalent of the Cardin-Lugar amendment to disclose its payments to foreign government bodies on a project-by-project basis.
If the SEC adopts the language Clayton has proposed, cases similar to the Blanket gold mine payments would not be reported: The company would only be required to report the total payments it made in Zimbabwe, without any indication of where the money went, and the payment amount Caledonia made is just under the arbitrarily high threshold of $150,000 that the proposed rule sets for reporting.
In theory, the SEC could respond to criticism of this proposed rule, or delay the vote in accordance with Senator Warren’s request. But instead, it seems likely that the commission’s three-to-two Republican majority, led by Chairman Clayton, will adopt a weak rule that renders the regulation of little use. By effectively voiding congressionally mandated transparency, the SEC will protect the ability of fossil fuel and mining companies to bribe foreign governments, enabling them to exploit natural resources at the expense of local communities and to continue extracting and producing goods that contribute to the worsening climate crisis and environmental degradation.
Amid the Trump administration’s destructive policy of deregulation, one bright spot was the State Department’s launch of the Energy Resource Governance Initiative last year. The ERGI initiative is focused on reducing U.S. dependence on China for mineral resources critical to renewable energy technologies, but it also places good governance and sustainability on the agenda. The incoming Biden administration could expand the initiative to cover broader mineral supply chains.
In addition to this, Biden could lead the U.S. to rejoin the 55 EITI-implementing countries and meet its disclosure standard for natural resource extraction. The move would have many advantages. It would help citizens in natural resource–dependent countries uncover the graft of their government officials. It could also result in more extractive industry revenue being redirected into public goods and services. Given the long history of imperialist exploitation of resource-rich countries, it would be a small step toward making American extraction companies’ relationship with the countries they get their products from less predatory. And it would also help climate policymakers start to regulate the terms by which fossil fuel companies keep extracting the products warming the globe.