From trawling filings made in British company registers and in United States and Canadian stock exchanges, Publish What You Pay (PWYP-Norway) has investigated: How many subsidiaries ten of the most powerful Extractive Industry Companies (EICs) control.
Also, it has investigated where those subsidiaries are incorporated; The proportion of Extractive Industry Company subsidiaries incorporated in Secrecy Jurisdictions; The Secrecy Jurisdictions most widely used by powerful Extractive Industries Companies; and the intense difficulties faced by journalists and campaigners in Bolivia and Ecuador in accessing key financial, and industrial performance indicators from major companies operating in their countries.
The Big Ten
The ten Extractive Industry (EI) giants largely featured in this study are based in Australia, Canada, Switzerland, the United Kingdom and the United States. Their operations and influence are global. The companies Piping Profits studied are ExxonMobil, ConocoPhillips, Chevron, BP and Royal Dutch Shell in the oil and gas sector and Glencore International AG, Rio Tinto, BHP Billiton, Anglo American and Barrick Gold Corporation in the broader extractive sector.
These ten global corporations state that they generate revenues of $1,824 billion, state their costs as $1,592 billion, make $144.7 billion profits net of tax and pay $106.9 billion in tax according to their 'consolidated' accounts. 'Consolidated' accounts are the sum of millions of separate transactions from thousands of subsidiary companies which EICs either own outright or enjoy substantial control over that are scattered throughout the world.
Piping Profits has looked beyond Extractive Industry Companies consolidated accounts and found that combined, the ten most powerful Extractive Industry giants own 6,038 separate companies. This in itself reveals the complicated nature of the Extractive Industries. BP, the UK based oil giant, lists 2,870 separate subsidiary entries in its 2010 Annual Report. But that is only part of the story.
Piping Profits also reveals that 2,083 or 34.5% of these 6,038 subsidiaries are incorporated in Secrecy Jurisdictions – places where among many other advantages for companies requiring secrecy, company accounts and beneficial ownership details are not publicly available.
This presents difficulties for citizens in resource-rich nations or shareholders with their pension money invested in Extractive Industry Companies wanting to understand the performance of a particular company's operations in a specific jurisdiction.
Publish What You Pay-Norway also mapped three Norwegian Exploration & Production firms: Statoil, DNO International and InterOil.
For instance how is it possible to work out the amount of natural assets depleted in a defined period by a particular company in a specific country? How is it possible to gauge the amount of revenues earned, profits made and costs incurred if they are largely hidden from view? And how can stakeholders establish the exact nature of tax deals and investment incentives struck by governments and executives behind closed doors?
Accurate information of an Extractive Industry Company's assets and performance in each country it operates would help investors quantify the risk of investing in it; Help generate information that could be used by civil society to assess whether Extractive Industry Company tax and royalty payments represent a good deal for their country; and Help civil society track how Extractive Industry taxes have been spent in their country.
But getting any specific operational and financial performance information from oil and mining firms, as proved by a number of journalists based in Bolivia and Ecuador working on the Piping Profits report, was difficult, if not impossible.
EI giants' corporate ownership structures, their use of secrecy jurisdictions and the lack of meaningful information they impart is a major reason why stakeholders in resource-rich nations often meet a wall of silence when asking questions about EICs. This makes it very difficult to hold their politicians and the companies that extract oil, gas and minerals to account.
These structures seem to hinder efficient markets, level playing fields and improved governance. Even worse, the same structures can potentially encourage corruption and aggressive tax avoidance, so depriving citizens in least developed and emerging nations of manifold political, economic and social opportunities.
Many multinational companies are adept at using controversial techniques to significantly reduce perceived profits. This in turn means they pay less tax in revenue generating countries.
These techniques include creating subsidiary companies to act as the ultimate owners of brands and assets in opaque jurisdictions like the Netherlands; The payments of large management fees by revenue producing companies in one country to another group company that is based in a tax haven; Shrouding revenues made by a revenue generating company through intercompany trading activity in an activity known as transfer pricing; and thin capitalisation which is when a loan is issued by a group subsidiary member to a revenue generating one at sometimes very steep interest rates.
There is nothing to suggest that the companies featured in this report act in this way or illegally evade tax. However, among the many findings of Piping Profits is that the global EI's favourite place by far to incorporate is the US state of Delaware. The so-called First State also happens to be the headquarters of global corporate secrecy where: Details of trusts on public record are not available; International regulatory requirements are not sufficiently complied with; Company accounts are not available on public record; Beneficial ownership of companies is not recorded on public record; Company ownership details are not maintained in official records; and Protected cell companies are allowed.
There are 915 Delaware subsidiaries owned by the ten Extractive Industry majors – 15.2% of the overall 6,038. The EICs sampled owned 1,154 subsidiaries incorporated in the United States with 78.9% of them located in Delaware. The second favourite EIC Secrecy Jurisdiction is the Netherlands, where 358 subsidiaries belonging to EI giants are based. The Netherlands does not put details of trusts on public record; require that company accounts or beneficial ownership be available on public record; and, maintain company ownership details in official records.
The Netherlands is the largest host of conduit companies worldwide and is an important jurisdiction for corporate internal debt shifting. It is why oil, gas and mining assets from all over the world are held, at least on paper in the Netherlands including diamonds from Mali, gas from Egypt and oil from West Africa.
The Piping Profit Report also established that the most opaque major EIC in the study is Chevron. Of Chevron's 77 subsidiaries, 62% are located in Secrecy Jurisdictions. Of Chevron's 33 American subsidiaries, 23 of them are in Delaware – over two thirds of its US incorporated companies. 21 of Chevron's 77 subsidiaries (27%) are in either Bermuda or the Bahamas. ConocoPhillips is the second most opaque oil and gas major in this report after Chevron with 57% of its 536 subsidiaries incorporated in Secrecy Jurisdictions. Exxon is almost as shy when it comes to the incorporation of its subsidiaries. Some 52% of its 170 reported subsidiaries are held in Secrecy Jurisdictions. Chevron, Conoco and Exxon are the three US EI major companies surveyed in this report. Combined, 439 (56.1%) of those three North American oil majors' 783 subsidiaries are incorporated in Secrecy Jurisdictions.
Glencore International AG is the most opaque mining company in PWYP-Norway's survey with 46% of its 46 subsidiaries incorporated in Secrecy Jurisdictions. This is relevant given information contained in Glencore's recent listing document which confirms that its effective tax rate for its 2010 $234m tax bill, 'was 9.3% compared to 12.6% for 2009' on revenues of $144.9 billion and profits of $4.1 billion. The Swiss-based firm controls 60% of the world's zinc, half the world's copper, 38% of aluminium and 9% of the global grain market.
The findings contained in this report are believed, to be of critical concern because natural resources offer perhaps the largest financial potential to improve the economic and social opportunities for hundreds of millions of people living in least developed and emerging countries. Aid will never reach necessary volumes, and developing countries should have the right to mobilise their own resources.
Yet this report offers a clear indication that a veil of secrecy might shroud those opportunities. That is why PWYP-Norway believes every company should publish their full revenues, costs, profits, tax and the amount of natural resources it has used, written off and acquired in any given year in every country it operates. This is full Country-by-Country Reporting (CBCR) and it is clearly urgently needed given the secretive nature of the EI industry.
If these policies are framed in the public rather than the corporate interest to produce a full CBCR international standard, they have the potential to improve problems associated with corruption, aggressive tax avoidance and secrecy immeasurably. This in turn will improve beyond recognition the political, economic and social progress made by least developed and emerging resource-rich nations.