Will Norway pioneer law on corruption and capital flight?

Norway may get the best legislation in the world against corruption and capital flight if the recommendations from the Ministry of Finance appointed committee becomes law and if the relevant connection to the audited financial accounts is made

Adaptation of opinion piece, previously published in Norway and written by Mona Thowsen, secretary general Publish What You Pay Norway

The Norwegian Ministry of Finance appointed a committee tasked with recommending which transparency level Norwegian citizens should demand in return from companies in the oil and mining sector for the non-renewable and finite natural resources the companies have been given access to. *Beyond the EU?* In their work, the committee took as a point of departure that the EU commission’s proposal on new rules on country by country reporting in the new consolidated accounting directive are adopted and incorporated into the EEA agreement, and that it should be implemented in Norwegian law. This is however a minimum position.

The work group in Norway was particularly asked to comment on and justify proposals that go further than the EU Commission's proposal.

The meaningful context

 The EU agreement and the Dodd-Frank law are necessary, but not sufficient, regulation on transparency. Reporting on isolated figures of tax payments, detached from any context, gives little meaning. How can a reader know if those tax payments are correct?

Extended demands for country-by-country reporting

 On May 3rd, the committee’s report and recommendations were clear: Norway should implement extended requirements for companies in the petroleum and mining industry. The rationale is very logical: only an extended country by country reporting standard will, in addition to reporting on tax payments, also put those tax payments into a meaningful context. By providing that context it can be possible to verify whether companies’ tax payments are credible and correct. The committee therefore recommends that the requirements should include, in addition to tax payments, production revenues, investments, costs and number of employees in every country where the companies are registered. The Norwegian Foreign Affairs and Defence Committee at the Parliament also "supports it

A proposal that can reduce systematized looting

 Such a law will be an innovative and necessary step that is robust enough to meet the challenges that both Norway and the international community are facing in a world where financial globalization has evolved much faster than the national authorities' ability to get an overview of the economic, legal and social effects this has caused some countries. And much faster than these countries have been able to take measures to handle the financial and social instability a systematized looting has created worldwide. Norway’s Minister of Finance, Mr. Sigbjørn Johnsen, said he is "positive" to the working group’s proposition for an extended country-by-country reporting requirement. However, the recommendation _did not include the basic and necessary connection with the audited financial statement which is a must in order for the law to be trustworthy for all constituents_, not the least investors who need insight into the companies they are putting their money and trust in. A minimum requirement is that the total country-by-country reporting should add up to the official financial statement numbers. These are audited already, and thus there is no need for further audits. Preferably, since the reporting is a more detailed reporting of financial statement numbers, the reporting should be part of the notes to the accounts. This is the most logical and least costly step that any government could make, as the company would then just reproduce what is in their reporting packages and consolidation tools.

What will we learn from the new law?

 Which natural resources exist? How large are the reserves of natural resources when the company starts to operate? How much is taken out during a year? How much is left when the year is over? How are the resources managed today? Which companies are set up in which jurisdictions? Which subsidiaries have the company set up where? How much profit did the company have before tax? What were the company's revenues, costs and investments before tax? How and where did they move the profits before they paid tax? Who are the owners? How many employees do they have? How much has the company earned from sales within their own company structure? How much has the company earned from external sales?

Moving profits to secrecy jurisdictions

 Prime minister Jens Stoltenberg said that multinational companies on paper have "30 percent lower profits than national companies":http://www.nrk.no/ytring/banebrytende-lov-mot-pengeflukt-1.11029906. He did not believe that this is because multinational companies have less profit than the Norwegian companies. “The possibility is that the international companies are much better at moving profits out of the countries to reduce tax”, he said. With en extended country-by-country reporting standard it will light up red on the map if a multinational company is trying to build up hidden profit somewhere.

A logical proposal

The work group's proposals are logical: Those companies given the opportunity to exploit natural resources and sell their products in transparent market must return the same transparency to society.

Investors that promote long-term and healthy value creation will get meaningful, reliable and comparable information that can be a base for good and ethical decisions.

The proposal can save millions in the court system by reducing the possibilities for grey zones around what is legal and what is not legal. * The proposal promotes transparent markets, something that will contribute to increased financial stability and counter build up of financial vulnerability

The proposal removes the possibility for corrupt companies that today create a cynical “race to the bottom” where we see conduct that we do not want to see in any country in the world. * The proposal will contribute to democratic control with capital streams that up until now have been hidden.

From “minimum requirements" to “meaningful requirements”* The US has already the minimum version in law and the EU will soon also have it in law. These regulations can expose corruption in developing countries if payments from companies and what the governments receive do not match. However, both the US and EU will fast learn that tax payment without its context is not enough, and it is expected that the regulation in these countries will be amended once these laws are amended at a future point. The recommendation that Norway should implement an extended requirements to country-by-country reporting is an advantage because it sets the standard where it should be: meaningful instead of minimum. Such a regulation is an advantage for resource-rich, but poor countries, it is an advantage for the capital markets that will be more transparent and it will be an advantage for investors, home states and the public at large.