This piece is part of our blog series on extractive transparency counting down to the SEC vote on the Cardin-Lugar Amendment. See past coverage here.
The Cardin-Lugar Amendment, also known as Section 1504 of the Dodd-Frank Act, requires ALL companies to report, on a country-by-country and project-by-project basis, the non “de minimis” payments they make to governments for extracting oil, metals and other minerals.
This Wednesday, the Securities and Exchange Commission will vote on its final rule implementing Cardin-Lugar. One of the three major areas of the rule is how the SEC will choose to define de minimis payments.
De minimis refers to a threshold of the lowest value of payment that is required to count towards the payments to be reported for a given project. That is to say, de minimis is an insignificant number. If the value of a payment is under the de minimis level that the SEC sets, it does not have to be reported.
This is because when numbers are so small, in the hundreds, they may cost a lot of time and paperwork to report, without adding much value to the overall data. Conversely, we do not want the SEC to set a de minimus threshold that is so high that large sums of money go unreported.
For instance, if de minimis is set at $1 million, then all payments at $999,999 will go unreported and several of these types of payments will ensure that millions of dollars in payments will slip through the loophole and go unreported, depriving citizens of mineral-rich countries the information they need to hold their governments accountable.
In order for the SEC to uphold the intent of Congress and preserve the effectiveness of Cardin-Lugar, it must set the de minimis threshold at a low level so that the vast majority of payments will be reported, and civil society get a more accurate picture of the revenues being generated from extractives projects. ONE and our PWYP partners feel that $15,000, which is used by the London Stock Exchange’s Alternative Investment Market would be the best number to use a a threshold.
Why does this matter? Well, when you think about it, to vaccinate a child against some of the deadliest preventable diseases cost about $7.00 per year, and anti-retroviral treatment for one person costs 40 cents a day. Every dollar we can hold governments accountable for is a dollar that can go toward saving and improving lives. It translates into a real difference for the citizens of mineral-rich countries. For instance, Senator Carl Levin’s comment to the SEC, culled from a Congressional investigation of oil exploration and development in Equatorial Guinea, revealed a wide variety of payments between $50,000 and $300,000, over multiple years, by oil companies towards the expenses and personal benefit of government officials and their families in Equatorial Guinea.
The oil company payments included the following scandalous transactions:
- $250,000 payment in one year for the educational expenses of the children of the EG President’s brother
- $130,000 in annual rent payments for buildings owned by the EG President, later raised to $175,500 per year;
- $445,800 in rent payments over 4 years to a 14-year old relative of the EG President;
- $45,020 and $236,160 in annual rent payments for houses owned by the EG Minister of Agriculture;
These payments add up to millions of dollars every year. A few months ago, EG Justice posted how corruption in Equatorial Guinea siphons off spending on development to fund a lavish lifestyle in France and the United States. Equatorial Guinea is one of the largest producers of oil in sub-Saharan Africa, yet nearly one out of eight children dies before the age of five, and the country ranks 136 out of 187 countries in the Human Development Index.
The Levin letter illustrates that the Equatoguinean government is receiving millions in secret payments from extractive companies, to fund the jet-set lifestyles of its government officials while thousands of its most vulnerable citizens die from preventable diseases.
The citizens of Equatorial Guinea and millions of other in dozens of countries need a strong SEC rule. For the SEC to produce a truly effective rule and set a high standard in extractive transparency, it must set a low payment threshold. If the SEC sets the payment threshold at $15,000, most of these payments would be reported and hopefully make a start towards President Obiang and his cronies eventually accounting for government revenue to the people of Equatorial Guinea.
Stay tuned here to the blog for continuing coverage on the SEC rule.