U.K. Financial Regulator Confirms Extractive Companies Must Name Government Entities to Which They Make Payments

In 2016 U.K.-incorporated and London Stock Exchange (LSE)-traded oil, gas and mining companies began to publicly disclose their payments to governments annually under the European Union Accounting and Transparency Directives and U.K. national law. The regulations require companies to file reports that are disaggregated and granular, providing data on each country where the company operates and on each individual project giving rise to payments. U.K.-incorporated companies report via the U.K. registrar Companies House extractives service and LSE companies via the designated National Storage Mechanism (NSM) of the U.K. Financial Conduct Authority (FCA), the U.K. financial regulator. Roughly 90 U.K.-reporting companies are now entering their fourth annual round of public payments to governments disclosures.
 
The U.K. and all other EU countries, Canada and Norway have all implemented laws requiring extractive companies to report their payments to governments. This has been a major breakthrough in the fight against corruption and fiscal mismanagement in the world’s oil, gas and mining industries. But some companies reporting in the U.K. have omitted important elements. In 2018 Publish What You Pay (PWYP) U.K. complained to the U.K. authorities regarding 20 or so companies that had failed to identify projects in their disclosures or failed to name each individual government entity they had paid. PWYP U.K. also notified officials about companies that failed to report to the NSM in the required XML (open and machine-readable data) format as well as in “human-readable” PDF or HTML, or that were at least two months overdue with their reports.
 
The U.K. government and its G7 partners recognized in their 2013 Open Data Charter that publication of extractives data in open and machine-readable formats is important to help “increase awareness about how countries’ natural resources are used [and] how extractives revenues are spent.” Unlike the NSM, the Companies House extractives service only accepts payment reports in XML, so the issue of companies not using the required format does not arise there.
 
The Natural Resource Governance Institute (NRGI) and PWYP U.K. have also engaged with a number of reporting companies individually, pointing out that U.K. and EU law requires both the naming of individual projects giving rise to payments and the identification of each government entity that receives a payment.
 
 
The FCA takes action
 
Earlier this year, the FCA took action. The February 2019 Primary Market Bulletin, which the FCA publishes to inform LSE-traded companies of important regulatory issues, clarified that oil, gas and mining companies reporting payments to governments must under Chapter 10 of the Accounting Directive identify each separate government entity receiving payments: “[A] government is defined as ‘any national, regional or local authority of a Member State or of a third country. It includes a department, agency or undertaking controlled by that authority’,” the FCA stated. “Some issuers … have only provided the payments made by country[,] which is not detailed enough to comply with … the Accounting Directive. The policy intention is that stakeholders should be able to assess to which precise government entity a payment has been made” (emphasis added).
 
As we have consistently argued, it is not enough for companies to provide only the recipient country’s name or only generic indications of government level such as “national”, “regional/local” or “municipal.” The EU Directives and U.K. regulations require companies to report the amounts paid to “each government,” including to state-owned enterprises. The rationale for this is clear: If citizens of producing countries are to hold their governments to account effectively, they need – and have a right – to know which specific government body receives payments, rather than having to guess or to seek the information elsewhere.
 
 
Consistency in transparency
 
Ensuring that companies identify each recipient government entity is fully consistent with the Extractive Industries Transparency Initiative (EITI) 2016 Standard, which requires that payment data “is presented by individual company, government entity and revenue stream”, as well as “at project level” (requirement 4.7, emphasis added). Similarly under equivalent Canadian legislation, the Extractive Sector Transparency Measures Act (ESTMA), “Payments must always be reported for a single Payee and not grouped together at the level of government. For example, each payment to a municipal government Payee must be reported separately in the ESTMA report from payments to other municipal government Payees” (Canadian government guidance, emphasis added).
 
PWYP, NRGI and our civil society allies are increasingly using extractive payments data to raise public awareness and improve public oversight of the sector – for example, here and here.  It is therefore important for companies to fully recognise that disaggregating and naming each recipient government entity, including state-owned enterprises, is the reporting requirement under both mandatory disclosure laws and the EITI Standard. This will help provide citizens with the information they need to hold their governments to account.
 
We have highlighted this point in our written submissions to the European Commission “fitness check” on company reporting, which includes in its scope chapter 10 of the EU Accounting Directive. And we have alerted individual extractive companies and the two leading industry bodies, the International Association of Oil & Gas Producers (IOGP) and the International Council on Mining and Metals (ICMM), to the U.K. FCA’s recent ruling.
 
 
Open/machine-readable and human-readable data
 
The FCA also reminded LSE-traded extractive companies of their obligation to report their payments to governments via the official online NSM platform and to do so in both open/machine-readable XML format and in “human readable” PDF or HTML. We will continue to engage with companies and the FCA where these requirements are not met. And once again we have emphasised the need for open data reporting for extractive payment disclosures – and for a central EU-wide online data repository – in our engagement with the EC’s “fitness check.”
 
We encourage civil society colleagues and other accountability actors to access the wealth of mandatory reporting data available via NRGI’s platform www.resourceprojects.org, as well as via Canada’s ESTMA index page and the U.K.’s Companies House and NSM platforms (see also PWYP U.K.’s short user’s guide here). Highly recommended too is Global Witness’s handbook on using and analysing extractive companies’ revenue disclosures, Finding the Missing Millions.
 
The more that civil society and other oversight actors use data to hold governments and extractive companies to account, the more effective we can be in tackling the resource curse.
 
 
Miles Litvinoff is the national coordinator of PWYP U.K. Joseph Williams is the advocacy manager at NRGI.