Section 1504, better known as the Cardin-Lugar provision is an endowment of the 2010 American Dodd- Frank Financial Reform and Consumer Protection Act, which requires companies operating in the oil, gas and mining sector of the United States stock exchange to disclose payment information to governments.
The foundation of the provision was included in the in a bid to increase transparency in the mining industry and add stability to an already precarious environment, whilst protecting investors and taxpayers from financial mismanagement and corruption associated with the mineral trade.
The provision incorporates the mandate to ensure and require companies to include in their annual reports information relating to payments transacted in the extraction of the resources, sale and or resale of extracted goods to a foreign government. Minerals classified within this bracket included but were not limited to oil, gas, precious stones and minerals.
The US Congress voted against the provision following demands by the newly- elected administration to remove infrastructure- regulation projects labeled as roadblocks set up by the previous administration. The demand for the repeal was led by Congressman Bill Huizenga (Michigan-02). Senator Jim Inhofe (Oklahoma) said, “I am pleased to introduce this CRA against the SEC’s resource extraction rule, which would put our companies at a disadvantage by forcing them to disclose confidential business information to their private and international competitors.”
This move has immensely curtailed progress in increasing transparency and accountability in the extractive sector which is often associated with high financial secrecy. The vision of the Africa Mining Vision drives towards ‘transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development’. This move for transparency has also been greatly supported by the Africa Union, the High level Panel Report on Illicit Financial Flows which has made recommendations, stating that; transparency is key to all efforts to ending Illicit financial flows and greatly encourages country-by- country reporting in cross boarder transaction.
Tax evasion, illicit financial transactions and mispricing practices are sustained globally largely by secrecy and lack of information disclosure. Openly speaking, governments should have the highest standards of disclosure and should demand reasonable standards from jurisdictions in which they operate with.
Financial secrecy remains a hindrance to democracy and good governance in so far as exchange of information is concerned. The Cardin-Lugar provision aimed to inhibit misappropriation and abuse of resources whilst promoting citizen empowerment and scrutiny insofar as revenue transparency and public participation is concerned.
The ambition of transparency in the repealed section sought to curb illicit financial drain n from the extractives sector. Transparency and efficiency in the management of revenue paid to various governmental authorities should remain an important part of the mineral policy agenda. This change in policy has the opportunity to have a global ripple effect owing to the source and jurisdiction of extracted resources. Africa at large amounts to 30 percent of the world remaining mineral resources which means the continent will be prevalent region affected by the repeal of the provision.
The Kofi Annan African Progress Report 2013 titled Equity in Extractive Industries revealed that between 2010 and 2012, the Democratic Republic of Congo (DRC) lost over $1.3 billion in revenue through the undervaluation of assets and sales to foreign investors in “highly opaque and secretive deals.” The notion of encouraging transparency greatly supported by Tax Justice Network Africa would require:
- Disclosure of beneficial ownership information in political asset declaration,
- Establishment of government and or independent measurement mechanisms for extracted natural resources.
According to research from GFI, trade mis-invoicing accounted for 68.8% of all illicit outflows from Sub-Saharan Africa between 2003 and 2012, while recognizing Africa’s resource arm being the largest affected sector.
Financial and Tax administration continues to face vast challenges in detecting illicit outflows that occur through sophisticated tax policies and legislative provisions that enhance confidentiality by enabling schemes of transfer pricing mechanisms and exploitation of legislature loopholes.
The repeal of Section 1504 shall not only affect US policy but can be seen as a global set back to transparency.
For more information on the repealing of the 1504, Cardin-Lugar provision, please contact Leila Kituyi at firstname.lastname@example.org
 Africa Progress Report 2013, “Equity in Extractives: Stewarding Africa’s Natural Resources for All,” http://www.africaprogresspanel.org/ publications/policy-papers/africa-progress-report-2013/