Global rules proposed may fight Third World corruption

International accounting rules could become a new powerful weapon in the
fight against corruption in developing nations.

The International Accounting Standards Board is preparing a discussion paper
that may eventually force global mining and oil companies to declare financial
information on a country-by- country basis.

If the rule comes into effect, income received by resource-rich developing
nations from multinational companies could, for the first time, be made public.

The move has the potential to expose the so called “corruption gap” – the
difference between the money a country receives and the amount it spends.

The IASB’s aims are not primarily humanitarian. The organisation is exploring
whether the new standard would result in reputation risk and country-specific
investment risk being flagged in companies’ financial statements.

It’s this argument which has won some support from the analyst community who
believe the measures may help to disclose previously undeclared risks.

Senior officials and humanitarian activists have made strange bedfellows in
the negotiating rooms, but headway is being made according to those close to

Vanessa Herringshaw, London director of New York based lobby group Revenue
Watch, has spent the last year sitting across from BP, Shell and Eni

“Here are industries producing vast amounts of revenue, but that revenue
disappears into black boxes and citizens have no way of working out how much
money comes out and where it goes,” she said.

“It is important for citizens to know how much money they are receiving and
how much is spent on health and social services and to stop the money

The issue has resulted in a rare alignment of goals in the finance and
humanitarian communities.

“Investors want to see this sort of disaggregated information, they want to
see the risk profile and part of the risk profile comes from your exposure in
difficult countries and at the moment you can’t see that information,”
Herringshaw said.

At present, companies aggregate their data across their basis of operations
and it is near impossible to find out how much is actually spent in an
individual country.

The IASB said it will continue to talk with Revenue Watch and will next year
release an analysis of the proposals.

Concerns are being voiced from both the financial and humanitarian camps.
Preparers of financial statements fear the new rules may be too onerous and of
little value. The IASB and other regulatory bodies have been trying to demystify
company reporting by simplifying and shrinking reports, and there’s a fear the
new measures will only lead to more red tape.

At the other end of the spectrum some humanitarian groups argue that the
proposals don’t go far enough.

Christian Aid would like to see the program expanded to incorporate all
sectors, and not just extractive industries, as is currently being proposed.

Dr David McNair, the organisation’s senior economic justice adviser, said as
much as $160bn (£98bn) in tax revenue is lost each year as a result of transfer
pricing abuse and false invoicing.

“If we don’t deal with this in a comprehensive way and equip revenue
authorities to target companies who are abusing the transfer in all sectors, the
abuse of the system will just shift,” he said.


The IASB risks attracting criticism if it pushes ahead with
country-by-country reporting for the wrong reasons. There needs to be a clear
benefit for investors. Laudable as the aims of Revenue Watch might be, the
argument in the IASB will inevitably be won or lost on financial and not
humanitarian grounds.

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Fiona Westwood of Smith and Williamson.