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The US Department of the Interior announced last week that the United States would no longer seek to comply with the Extractive Industries Transparency Initiative (EITI), an international multi-stakeholder organization that aims to increase revenue transparency and accountability in natural resource extraction. The move—while disappointing—is not altogether unexpected. And sadly, it will put the United States further behind the curve when it comes to corporate transparency.

Why This Matters

EITI established a global standard for reporting financial flows in extractive sectors, a critical element of promoting good governance of oil, gas, and mineral resources—in what the OECD cites as the world’s most corrupt industry. While transparency alone is not enough, citizens and civil society can use published data to increase government accountability, protect revenues, and fight corruption. Given that natural resource wealth too often finances kleptocrats and wars rather than investment and development, this is surely a good thing.

The message from the Department of the Interior suggests that the US government “remains fully committed to institutionalizing the EITI principles of transparency and accountability,” but the decision to no longer implement EITI offers yet another instance of the United States walking away from an international commitment. And in doing so, the US government forfeits its ability to meaningfully champion extractive sector transparency at a time when evidence of EITI’s impact is growing.

The Unraveling

In February, Congress used the Congressional Review Act to kill a proposed rule from the Securities and Exchange Commission—scheduled to take effect next fall—that would have required public companies that extract oil, natural gas, or minerals to disclose payments made to foreign governments or the US federal government. The proposed rule was a long-delayed attempt to implement Section 1504 of the Dodd-Frank Wall Street Reform Act—also known as the Cardin-Lugar Provision after its Senate champions.

According to a report from the Department of the Interior’s Office of Inspector General (OIG) published in May, the United States had managed to fulfill seven of the eight requirements for EITI compliance. But the remaining requirement—for the federal government to reconcile its revenue collection data with extractive payment data provided by companies—was proving difficult. The Section 1504 rule would have mandated disclosures from oil, gas, and mining companies. Without it, the Department was left to rely on voluntary disclosures of data—and most companies weren’t providing it. The OIG pointed out that the US government had been pursuing an alternative avenue to fulfilling this requirement, but would ultimately need approval from the EITI board. And if the United States underwent validation (a required assessment of its EITI performance) without such an agreement and was found short of full compliance, its status would be downgraded from “implementing country” to “supporting country.” With the United State slated for validation in April 2018, the clock was ticking.

A Growing Problem?

So why exit EITI now? It is possible the US government was concerned about losing face following a validation process that results in a downgrade, which it sought to avoid by preemptively adopting the “supporting country” moniker. Or perhaps the Department of the Interior simply ceded to pressure from extractive industry companies concerned about privacy and compliance costs.

In any case, the challenge of US EITI compliance was certain to grow. The Initiative is slated to phase in another major requirement in 2020—one on beneficial ownership. EITI countries will be required to report the identity of individuals who own or control extractive companies. The motive behind public disclosure of beneficial ownership is to prevent anonymity that could conceal transnational financial crimes, from terrorist financing and sanctions busting to money laundering and tax evasion. But there are obstacles to mandating beneficial ownership disclosure in the United States (as discussed here), which is complicated by the fact that state governments manage the registration of corporations.

EITI initially had the support of both US industry and government. The American Petroleum Institute, an industry group, is a partner organization of EITI, and contrasted EITI’s level playing field with the Section 1504 Dodd-Frank provision in a press release last year. But times have changed. EITI’s disclosure requirements are growing more stringent. The considerable majority of the Initiative’s implementing countries appear capable of keeping pace. But, sadly, that does not apply to the United States. In extractives transparency, America has long since lost the mantle of leadership. The announcement on EITI suggests that these days it can’t even keep up with the pack.