Absence of beneficial ownership screening in oil industry creates fertile ground for corruption

Absence of beneficial ownership screening in oil industry creates fertile ground for corruption – NRGI cautions

Feb 24, 2023 News

Kaieteur News – In light of the fact that the oil and gas sector is prone to corruption, Guyana is being urged to increase beneficial ownership screening so as to reduce the sector’s risk to corruption.

This was recently noted by the Natural Resource Governance Institute (NRGI), an independent non-profit organisation dedicated to improving countries’ governance over their natural resources. Since 2015, the institution has been providing advice to Guyana’s authorities.

The Institute noted that in most natural resource-rich countries, when a company is seeking the right to explore for or produce oil, gas or minerals, sector, rules require that regulators check some basic information before granting the company a license and accompanying contract.

In this regard, NRGI said that the regulator is supposed to judge whether the company is technically competent, financially sound, and is in compliance with environmental and safety rules. It noted, however, that licensing rules generally do not require screening of whether public sector officials have interests in an applicant company, which could create serious conflicts of interest.

The Institute said, “We reviewed over 50 mining and oil laws around the world and found that about half contained prohibitions on government officials or their close associates – often called ‘politically exposed persons’ (PEPs) – holding interests in companies applying for extractives licenses, but none required regulators to actually check whether or not such PEP interests existed as part of screening license applications.”

It added, “This is a potentially critical gap in regulatory oversight, because a large body of real-world cases suggests that the ability to hide a company’s true beneficial owner is a major enabler of corruption in the granting of extractive rights.”

In Guyana, there is no legislation or piece of regulation, which requires beneficial ownership screening. On that note, NRGI has pointed out that a growing number of governments are developing legal policies and information systems for collecting and publishing data about the beneficial owners of extractives companies – the real people who own, control, or economically benefit from a company.

It stressed that these reforms range from amending company registration laws and creating national public registers to sector-specific approaches like establishing extractives transparency laws and licensing requirements.

But to have an impact, NRGI said that extractive sector reforms may need to go beyond just requiring beneficial ownership disclosure, namely by establishing rules on what types of beneficial ownership linkages will be considered unacceptable self-dealing or corruption, and by determining the consequences that will apply when that line is crossed.

Further to this, NRGI research shows that a number of countries have already established such rules, but monitoring and enforcement is lacking. Given the corruption risks, the Institute said that improving national policies and practices on allocating extractives licenses should be at the forefront of these efforts.

Going forward, NRGI said that resource-rich countries such as Guyana will need to choose beneficial ownership assessment rules that best address the political, legal and industry realities in which they award licenses.

Given the relative newness of evaluating corruption risks using beneficial ownership information in licensing decisions, NRGI said that officials may want to put much of the detail into less formal documents such as guidelines, so that the rules will be easier to amend based on lessons learned.

Regardless of where rules are stipulated, NRGI commented that they should be subject to public consultation during their development, and publicly disclosed once finalised in order to facilitate monitoring and accountability.

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Absence of beneficial ownership screening in oil industry creates fertile ground for corruption – NRGI cautions

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