UK oil and gas industry 'leading the charge' in global transparency drive, says expert

Energy and tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that if replicated by other countries and across different industries, the initiative would be “a valuable anti-corruption tool which will go a long way in the pursuit of tackling corrupt officials and stamping out revenue leakage around the world”.

“As UK big business is increasingly under the public microscope, this example of open, honest and independently-led reporting is a shining example which could be adopted and replicated across other industries,” she said.

The EITI is a global standard based on holding national governments accountable for revenue received from their country’s natural resources. Over 50 countries have signed up to the standard, committing them to publishing an annual report that reconciles the payments to governments that companies are required to disclose with government data on receipts and revenues. Countries are also expected to provide contextual information about their national extractive industries as part of their annual reports.

The UK’s EITI commitments are overseen by the UK EITI Multi-Stakeholder Group (MSG), which is made up of representatives from the government, industry and civil society. Its first report contains detailed information relating to over £3.2 billion worth of revenues received by UK government agencies including taxes, licensing fees and payments to the Coal Authority and Crown Estate. The independent administrator appointed by the MSG was able to reconcile over £2.4bn worth of these payments with disclosures made by 71 participating companies over the same period.

Unlike the country-by-country reporting requirements applicable to companies operating in the extractive industries that are set out in the EU’s Accounting and Transparency Directives, participation in the EITI process is voluntary. This means that companies within the scope of the initiative cannot be compelled to disclose the payments they have made to the UK government to the MSG. In its report, the MSG said that its focus in the coming years would be on encouraging those companies that did not participate in the process this time around to contribute to future reports.

Heather Self of Pinsent Masons said that the report showed the UK oil and gas industry was willing to “lead the charge” as part of global efforts to increase tax and corporate governance transparency.

“The sheer volume of reporting initiatives and regulations landing on the desks of senior executives is mind-blowing,” she said. “For large scale, multinational oil and gas companies with numerous operations and administrative centres, gathering the information required to satisfy the range of directives and regulations will be a burdensome task for many.”

“While such reporting is unwieldy for some, UKCS [UK Continental Shelf companies] is now leading the way in efforts to make disclosure the norm and has gone the extra mile by disclosing details of beneficial owners through the UK public register, which is now being implemented for all companies in the UK. Indeed, other initiatives could learn from the careful way that the EITI process has developed over time, with consensus among all stakeholders – rather than some of the current proposals which seem to require voluminous information, imposing compliance burdens without clearly identifying the expected benefits,” she said.

UK companies and limited partnerships have been obliged to keep a register of their beneficial owners, or ‘people with significant control’ (PSCs), since 6 April. They will have to supply the information to Companies House from 30 June 2016 when they file the company’s ‘confirmation statement’, which is the replacement for the annual return. A company’s PSC register will be available for inspection free of charge by those with a ‘proper purpose’, and most of the information supplied to Companies House will be publicly available.

In the UK, oil, gas and mining companies have been required to report on the payments over €100,000 that they make to governments in all the countries that they operate in since 1 January 2015. The Reports on Payments to Governments Regulations implement the requirements of the EU’s Accounting and Transparency Directives, which came into force in July 2015; and are also reflected in the UK’s Listing Rules.