United States' Implementation of the Extractive Industries Transparency Initiative

OIG inspected progress being made in the United States to meet the requirements of the Extractive Industries Transparency Initiative (EITI), which currently has 56 participating nations concerned about worldwide corruption and mismanagement of extractive resources  such as oil, natural gas, coal, gold, and renewable energy . The global nature of the initiative means that each nation is required to adhere to 8 requirements to be considered in compliance by the EITI international board, the governing body for the initiative. To date, the U.S. has achieved 7 of the 8 requirements and partially achieved one requirement, Requirement 4. OIG found several challenges associated with Requirement 4, making it difficult for the U.S. to achieve compliance. 

 

Participation in EITI is voluntary, so extractive resource companies asked to report have the right to decline to participate. For the U.S.’ EITI annual report, companies first have to report the extractive tax and non-tax revenues they pay to the Government, and then those revenues must be reconciled to what the Government has received. Such reconciliation is required as a key part of U.S. efforts to meet Requirement 4, but U.S. privacy laws make reporting and reconciliation difficult. For example, the Internal Revenue Service may not disclose tax return information unless authorized by the taxpayer, and few companies give this permission because they have no particular incentive or requirement to do so. Also, significant non-tax revenue streams such as royalties, permit fees, and civil penalties are not fully disclosed. This, along with a couple of other financial reporting issues, complicate the U.S.’ ability to fully meet Requirement 4. As a result, the U.S. is unable to achieve the level of financial disclosure required by the EITI standard.

 

OIG did determine, however, that the U.S. may be able to continue reporting 100 percent of non-tax revenues and could demonstrate accountability for 100 percent of natural resource revenue even though company identities are not disclosed. The U.S. accomplishes this level of accountability due to a series of processes and procedures followed by the Office of Natural Resources Revenue and other Federal agencies. Taking this approach would enable the U.S. to forego reconciliation, but it would have to be approved by the EITI international board. 

 

At the close of our field work, Government senior officials disclosed that the U.S. is considering all options regarding validation. It expects to produce its third annual report in December 2017 and undergo validation in April 2018.