Financial reporting requirements for extractive industries within the proposals to amend the Accounting Directive

ONE welcomed the European Commission proposal in October 2011 for an Accounting Directive that would mean oil, gas, mining and forestry companies across Europe publish the payments they make to governments around the world, for individual extractive projects in those countries.

The Council has now taken a position on the Commission proposal. We believe there are four key areas where the Council position needs urgent improvement. We are calling on Council members to reconsider, and on the European Parliament to agree support for these four issues:

  1. The Council should support project-by-project reporting of payments. This is the only way to get an accurate assessment of what individual projects are generating in terms of revenues.Currently the Council is only proposing companies disclose payments according to where they are made (‘levels of government’), not their specific source (‘project’). As in most resource-rich developing countries the vast majority of payments are made to the central government, this approach would amount to country-by-country reporting by another name. Local communities would not know what specific extractive projects in their region are contributing in terms of payments. Limiting disclosure to levels-of-government would also undercut the US law – section 1504 of the Dodd-Frank Act – which clearly requires project-level reporting. While some aspects of Dodd-Frank are still to be finalised by the US regulator – the SEC – they have no power to overturn project-by-project reporting.
  2. The Council should support a definition of project which can apply across different countries and sectors and is fit for purpose to the end users of the generated data. Council’s current definition of project would not allow for comparability as it leaves it to companies internal accounting systems to decide. Instead project should be defined as “equivalent to activities governed by a licence, concession or similar legal agreement. Where any payment liabilities are incurred on a different basis, reporting shall be on that basis.”
  3. Council has retained an exemption clause which threatens to incentivise secrecy laws in the world’s most autocratic countries. By suggesting that companies should not have to disclose payments where secrecy laws exist, Council is extending an open invitation to tyrants around the world to clamp down on open information. Council should reverse its support for this exemption.
  4. Council’s proposed materiality level of EUR 500,000 is too high and would not reveal all the payments that are meaningful to local communities. The threshold should be no higher than EUR 100,000 to prevent significant payments remaining hidden.

The details of the Directive are essential to ensure that millions of people in developing countries are empowered to hold their governments to account for revenue received, cut corruption and reduce aid dependency. This is potentially a game-changing piece of European law that will improve the lives of people in some of the poorest countries in the world.

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