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Fueling Kleptocracy: Transparency in the Extractives Industry

Nate Sibley

The new administration’s commitment to reducing unnecessary regulation should be welcomed not only by Americans, but anyone who wants to do business with a more competitive United States. However, efforts reportedly underway to remove the legal requirement for American oil, gas, and mining firms to disclose payments made to foreign governments may have serious unintended consequences.

The payments in question may be entirely legitimate and made in good faith—taxes, for example. (If not, the firms involved could fall foul of other U.S. provisions such as the Foreign and Corrupt Practices Act.) The government officials to whom they are made, however, are sometimes anything but well-intentioned.

Financial arrangements with foreign-owned extractives operations are often the only significant source of government revenue in underdeveloped countries. Where democracy and rule of law are weak, gaining control of this revenue stream presents local elites with unparalleled opportunities for illicit personal enrichment, the creation of political patronage networks, and ultimately the chance to entrench themselves in power. When the stakes are so high, political competition can swiftly descend into open violence.

This downward spiral of corruption and conflict has been repeated with tragic consequences in dozens of countries worldwide—but it isn’t territorially confined to them. Their instability also hurts the U.S. financially, through global economic and market disruption, lost trading opportunities, and the cost of development and humanitarian assistance. When the U.S. intervenes to quell armed conflicts or confront extremist movements which have their root causes in corruption, the lives of American service men and women are threatened directly.

Unfortunately, foreign corruption has never been a one-way street. Public funds stolen by predatory elites are usually spirited out of their home country to offshore jurisdictions through a network of Western-registered anonymous companies, laundered by unscrupulous Western professionals, and ultimately re-invested in luxury Western assets. This complicity is not only morally wrong—nor is it even just a development, tax, or social justice issue. It is, most importantly, a core threat to U.S. and Western national security.

Payments made by American extractives firms to corrupt foreign governments are an important part of this global Kleptocracy Curse. Removing the requirement to report them would effectively blind the U.S. government to the role played by its own citizens.

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