Over the past 15 years, oil companies have paid more than $3 billion to resolve charges that they “regularly cheated the U.S. government and Native American communities out of royalties on oil and gas leases,” according to a new report based on research by the Thomson Reuters Foundation. Even more troubling, many of the companies that have had to pay major penalties, back payments, and settle lawsuits accusing them of fraudulently underpaying royalties, are the same companies that have simultaneously led the fight against revenue transparency in the U.S. and around the world.
The report focuses particularly on Shell and ExxonMobil, which have paid significant sums on multiple occasions to resolve accusations of knowingly submitting false data to the U.S. government and underpaying royalties. Other major oil companies have been accused of similar wrongdoing. Chevron agreed to pay more than $45 million in 2009 to resolve allegations under the False Claims Act that it “systematically under reported the value of natural gas” it took from federal and Indian leases for more than a decade. BP paid more than $20 million in 2011 to resolve similar claims for knowingly underpaying royalties.
At the same time, the same companies have spent enormous amounts of money to combat regulations issued by the Securities and Exchange Commission (SEC) to implement Section 1504 of the Dodd-Frank Act, which directs oil, gas, and mining companies to publish payments they make to the governments of the countries where they operate. Backed by the American Petroleum Institute (API), the U.S. Chamber of Commerce, and high-powered law firms like Gibson Dunn & Crutcher, these companies have even gone so far as to argue that they have a First Amendment right to keep the payments they make to governments secret. They’ve claimed that disclosure would result in catastrophic competitive harm and insisted that the SEC must keep payment disclosures confidential, publish only an anonymized compilation of country-level data, and grant massive reporting exemptions.
ERI and the Publish What You Pay coalition (PWYP) have long called for revenue transparency and advocated for strong disclosure rules. We’ve defended the SEC’s rules and refuted industry’s baseless claims of doomsday scenarios resulting from mandatory disclosures. Investors, affected communities, and civil society have also repeatedly made clear that they want this information, which can lead to reduced corruption, better governance and reduced friction between companies and communities.
Shell, a member of API, has strongly supported litigation against the SEC’s disclosure rule and submitted extensive comments to the SEC arguing that exemptions from reporting are necessary to avoid “irreparable harm” to investors. Shell has also been criticized for aggressively lobbying the Dutch government to oppose mandatory disclosure rules in the European Union. And yet Shell has claimed that it has “always supported a mandatory global reporting rule for all companies engaged in extractive industries.” Clearly something doesn’t add up.
Evidence of rampant revenue dishonesty by oil and gas companies in our own backyard raises serious concerns about what’s happening in poor countries with weak legal and regulatory frameworks, and should cast further doubt on the legitimacy of the industry’s opposition to disclosure rules. And, while implementation of the U.S. transparency rules has been delayed by API, the rest of the world has moved ahead with mandatory disclosure rules that will govern many of the same major companies, severely undermining any claims of “competitive harm” caused by reporting under the U.S. regime. By the time the SEC issues the new rule implementing Section 1504, API’s delay tactics may only have made the case for a strong rule all the more compelling.