Interior Inspector General Misses Chance to Help Save USEITI

Interior Inspector General Misses Chance to Help Save USEITI

IG Report Ignores Industry Actions and Process Challenges That Threaten Transparency Initiative

On June 7 and 8, the U.S. Department of the Interior was to host the twentieth meeting of a multi-stakeholder group (MSG) focused on increasing transparency in this country’s oil and mining sector through implementation of the Extractive Industries Transparency Initiative (EITI) Standard. Those meetings did not happen. A month earlier, the Interior Office of the Inspector General (OIG) issued an assessment of the MSG’s efforts to implement the EITI Standard. [1] The OIG’s report not only failed to acknowledge why the MSG operations had been halted, but also put a positive spin on a challenging situation at a time when the clear voice of an inspector general would have been especially helpful.

Since 2012, the USEITI Advisory Committee, established under the Federal Advisory Committee Act (FACA), has overseen the implementation of EITI in the U.S. The USEITI MSG has published reports reconciling the payments of oil and mining companies with U.S. Government receipts for the calendar years 2013 and 2014. It has also prompted Interior to improve its payment reporting. Like 52 other EITI implementing countries, the U.S. took these steps in accordance the EITI Standard, which sets out the rules for MSG functioning as well as the disclosure and reconciliation of payments.

In assessing that USEITI implementation is in compliance with seven of the eight EITI Standard’s requirements, the OIG pointed out correctly that Interior’s unilateral reporting and the development of the USEITI data portal have been commendable. However, the OIG assessment ignores shortcomings discussed by the USEITI MSG and its working groups that remain obstacles to the initiative’s success.

For example, the report notes the refusal of many companies to disclose their U.S. taxes in compliance with the EITI Standard. These include current and former MSG members Chevron and ExxonMobil. However, the OIG misrepresents the alleged legal obstacles to tax reporting, in a way that can be read as letting companies off the hook for their refusal to report. Chevron, ExxonMobil and other U.S. oil and mining companies’ unwillingness to report taxes[2] is particularly disturbing because several of these companies disclose tax payments in compliance with laws in Canada[3] and the European Union. [4] Further, Chevron is part of the EITI International Board. [5]

The report also fails to mention evidence provided by civil society MSG representatives of bad faith demonstrated by the American Petroleum Institute (API), a member of the USEITI MSG. A February 9 civil society statement[6] outlines how API undermined the progress and goals of USEITI by supporting [7] a congressional resolution to nullify the Securities and Exchange Commission (SEC) rule that outlines how U.S.-listed extractive companies are to disclose payments made to governments for the development of oil, gas and minerals. (The OIG report does not even mention Section 1504 of the Dodd-Frank Act, the law which the SEC rule implements.)

As it happens, the law and its implementing rule are referenced in the EITI Standard[8] and are instrumental to USEITI implementation. In fact, the public notes of a January 11 USEITI workshop, at which OIG representatives were present, include the following references to the importance of Section 1504.

“Section 1504 reporting is necessary to ensure reporting by covered companies meets the requirements of the EITI Standard.

. . .

The group discussed the intrinsic nature of Section 1504 to the USEITI process and its equivalence to implementing legislation. As such, should 1504 be undone, USEITI would not have a path forward to implementation and validation.[9]”

Interior’s own shortcomings also escape scrutiny in the OIG report. For example, without MSG consent, Interior cancelled the remaining 2017 USEITI MSG meetings on March 9. On the same day, Interior sent MSG members a letter that thanked us for our involvement in USEITI, referenced the release of the MSG-approved USEITI reports in 2015 and 2016 and then stated “Building on your direction in December 2017, ONRR will complete a third online report.” Interior has yet to explain publicly why it took these actions, which undermine the USEITI process and make any action that requires MSG approval impossible.

As a result, while on May 25 Interior posted a Federal Register Notice that indicates the June 7 and 8 MSG meetings “will be rescheduled at a later date,”[10] the USEITI MSG is not functional at the moment. Therefore, contrary to what the OIG report claims, the U.S. is not “actively” pursuing mainstreaming, as it requires the involvement and approval of the MSG.

During the February 2017 USEITI MSG meeting, Deloitte, the USEITI Independent Administrator, made a presentation titled “Mainstreaming Feasibility In-Progress Update.” [11] The presentation indicates that at the time Deloitte was in the progress of “completing a feasibility study” of mainstreaming. The same slide indicates that MSG approval of the feasibility study would lead to the need for MSG agreement on a schedule for disclosure and assurance, which would form the basis for a mainstreaming application. The same slide states, “MSG must approve an application to the EITI Board seeking approval of the proposed workplan,” which must in turn be approved by the International Board. On June 6, Deloitte circulated a draft of the feasibility report for comment. However, without a functioning MSG and its public meetings this document cannot be approved and the subsequent mainstreaming steps cannot be taken.

On the point of mainstreaming, the OIG report states “(The) U.S. could be in compliance with Requirement 4 (of the EITI Standard), even if full reporting and reconciliation from the EITI international board is considered questionable.” This statement is flawed logically and clearly untrue. If the EITI International Board, particularly its Validation Committee, were to find USEITI reporting questionable that would be the end of the argument.

The OIG report also does not examine the evidence that the Federal Advisory Committee Act (FACA) committee under which USEITI is organized is not fit to the purposes of EITI implementation. In particular, a FACA committee’s purpose is to provide advice to a federal agency’s secretary whom may or may not act on those recommendations. This is not consistent with the function of an MSG, as outlined in the Standard and EITI’s accompanying guidance.[12]

Finally, the OIG report erroneously calls EITI a “voluntary initiative”. This statement is contradicted by the EITI Web site’s frequently asked questions[13], which states that once a countries choses to implement EITI “all companies and government agencies making or receiving payments must participate.” The necessity of in-scope company reporting is also emphasized in a 2010 blog post by the EITI International Secretariat’s Deputy Head [14].

My fellow USEITI civil society members and I are ardent supporters of EITI and its implementation in the U.S., and we are proud of our MSG’s accomplishments. I share this critique of the OIG report in the hope that the USEITI MSG will be restored to proper working order and will continue to provide the thorough and public natural resource payment transparency so greatly needed in the U.S. today and in the future.

(Paul Bugala has been a civil society member of the USEITI multi-stakeholder group since its inception in 2012.)