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TRANSPARENCY OF EXTRACTIVE INDUSTRIES:

HIGH STAKES FOR RESOURCE–RICH COUNTRIES,

CITIZENS, AND INTERNATIONAL BUSINESS

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 25, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–75

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

October 25, 2007 ............................................................................................... 1

Appendix: 

October 25, 2007 ............................................................................................... 27

WITNESSES 

THURSDAY, OCTOBER 25, 2007

Baker, David, Vice President for Environment and Social Responsibility, 

Newmont Mining Corporation ............................................................................ 12

Gary, Ian, Senior Policy Advisor for Extractive Industries, Oxfam America ..... 6

Karl, Terry Lynn, Professor of Political Science, and Gildred Professor of 

Latin American Studies, Stanford University ................................................... 4

Lafon, Father Patrick, former Secretary General of the Catholic Bishops 

Conference of Cameroon ...................................................................................... 7

Mitchell, Paul, President, International Council on Mining and Metals ............ 9

APPENDIX 

Prepared statements: 

Waters, Hon. Maxine ........................................................................................ 28

Gary, Ian ........................................................................................................... 31

Karl, Terry Lynn .............................................................................................. 40

Lafon, Father Patrick ....................................................................................... 58

Mitchell, Paul .................................................................................................... 62

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Baker, Hon. Richard H.: 

Statement of the International Council on Mining and Metals ................... 70

(1)

TRANSPARENCY OF EXTRACTIVE 

INDUSTRIES: HIGH STAKES FOR 

RESOURCE-RICH COUNTRIES, CITIZENS, 

AND INTERNATIONAL BUSINESS 

Thursday, October 25, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Present: Representatives Frank, Waters, Watt, Scott, Green, 

Cleaver, Moore of Wisconsin; and Baker. 

The CHAIRMAN. The hearing will come to order. This committee 

has under its jurisdiction the American relationship with the international financial institutions. It has been a subject in which I 

have long had a very strong interest and the last time the Democrats were in power I chose to chair the subcommittee which had 

jurisdiction over the international financial institutions. 

For much of this year, we have been dealing with some housing 

issues and some other domestic issues which demanded attention, 

but this whole set of issues involving development and particularly 

our moral responsibility to try to reduce poverty in the world have 

been very much on our mind. We are now going to be focusing—

we have already begun in the latter part of this year and next 

year—on development issues. And we will be dealing with such 

questions as debt relief. 

We had a hearing on the question of whether or not there is, in 

certain World Bank documents, a bias against improved social conditions for working people. We will have next year the request I believe for an increased allocation for the International Development 

Association, and we will be raising some policy concerns in conjunction with that. And we ultimately are supportive of that, many of 

us on the committee, but not without some policy considerations 

being addressed. 

This hearing today is on one of those subjects which is quite important, but not generally well known. It is one of those that is important to discuss because it is counterintuitive. Intuition says that 

if a particular country is lucky enough to have physical resources 

that are valuable in world commerce, that’s a good thing, and it 

certainly ought to be. There is considerable evidence that this does 

not in practice work out as it should in many cases. 

2

Now this is an area where we do not have direct policy control 

as we do in the subprime area or in housing or securities regulation. But the United States is a major factor in the World Bank 

and the regional development banks in our own domestic—in our 

own bilateral foreign aid programs, and we think it is very important to focus attention on this issue, and it’s important for this reason: Some problems are very difficult to resolve. 

Some things are intractable. If you have abject poverty and no 

source of revenue to alleviate it, that’s a tough issue. Here we have 

a situation in which we are talking about countries when we deal 

with this by definition that are potentially quite wealthy, that are 

wealthy as entities, that have a great source of wealth. And the 

question is, how do we encourage policies that make sure that this 

resource is a positive rather than a negative? And as I said, it’s 

counterintuitive, and I hope that people will be paying attention as 

we hear from our witnesses about how this has gone bad. 

And what is both discouraging and encouraging about this issue 

is that it is a case where people’s mistakes are the problem. If you 

are dealing with inherent problems, that can be harder to deal 

with. If you are dealing with physical shortages, if you are dealing 

with terrible problems of climate, it’s often hard to figure out how 

to deal with them. But when the problem is, as it is here, that 

human decisions are the source of the problem, and that’s clearly 

the case, we have the resources. We have resources that by any rational reckoning ought to be a great boon for the people in the 

country in which these resources are located, but in many cases, 

bad public policy, i.e., lousy decisions, corrupt decisions, incompetent decisions by people in charge have had a counter effect. And 

our job is to try to talk about the policies that counteract that, and 

then, to the extent that the United States can, encourage their 

adoption. 

I would just close by saying this: This is particularly an area 

where this committee will be engaged in international cooperation. 

It is our intention to seek out members of parliaments in other 

countries who share our jurisdiction and our interest in fighting 

poverty. Several of the members are very interested in this. So this 

is part, it’s still the early part, but it will become very much a part 

of this committee’s agenda over the next year and beyond to do 

what we can to think about, help evolve and encourage the adoption of public policies that maximize our ability to reduce poverty. 

And this is one, as I said, where what ought to be a boon to people 

has in some cases been either neutral or, sadly, the opposite. And 

it’s one that we think should be amenable to the kind of processes 

that we engage in. 

The gentleman from Texas wanted to make an opening statement. 

Mr. GREEN. Thank you, Mr. Chairman. I really do appreciate 

your having this hearing, and if I may, I’d like to compliment the 

staff. This three-page report is quite revealing and well put. It does 

not draw unnecessary conclusions, but it gives the reader an opportunity to really extrapolate and synthesize ideas with reference to 

how a blessing not properly utilized—and these are my words—can 

become a curse. 

3

That has just—this phenomenon of resource curse and the paradox of plenty is in my opinion something that merits much more 

study. I assure you, Mr. Chairman, that I’m going to look closely 

into this. Because when I read this report and realized that having 

natural resources can in a sense—not properly utilized—can in a 

sense be a barrier to the democratic process developing properly in 

a country, because you don’t have the tax base that you might ordinarily have, meaning the populace contributing to the taxes. As a 

result of their not contributing to the taxes, they don’t show the interest in democracy that they might ordinarily show. And by not 

showing the interest in democracy that they ordinarily would show, 

authoritarianism has an opportunity to flourish. 

Now I’m not advocating that we increase taxes. I want to make 

that clear. But the connectivity that is made between taxes and democracy is quite interesting as it relates to this report. It also 

makes it clear to us that these natural resources can create a talent drain, which is most revealing in that the natural resources 

will tend to attract the talent from—that could go into other industries—agriculture, for example, and manufacturing. And when 

these industries lose that talent to the natural resource industry, 

then they don’t flourish. They don’t develop as they properly 

should. Workers are displaced. They are working only with these 

natural resources. Manufacturing is declining. Agriculture is declining. And it creates additional problems for workers. You get 

poor governance as a result. 

So I am exceedingly complimentary, hopefully, of the persons 

who put this together. And I am very much concerned about how 

we can effect policies that will create the transparency such that 

countries that have these great natural resources will use them efficaciously and hopefully democracy will have an opportunity to 

flourish. 

Mr. Chairman, I thank you for the opportunity, and I yield back 

the balance of my time. 

The CHAIRMAN. I thank the gentleman. I thank him particularly 

for correctly noting the high-quality work we have gotten from our 

staff here. 

We have to vote, and I apologize. I will explain. We are taking 

a very important vote today on a new version of the Children’s 

Health Insurance Program. Sadly, the fires in California are raging, and some Members have gone back to the fires, and other 

Members think it’s inappropriate for us to be having a vote on a 

day when people are back with the fire. So we will be harassed 

today. I apologize for this. We can’t control that. 

Do either of the other members wish to make an opening statement? We would be able to accommodate that. If not, we will take 

our—well, I take it back. If you don’t mind, we’ll have time. We 

have 15 minutes. We can take the first opening statement. We will 

then recess and come back. 

So, Professor Karl, do you want to begin, please? This is our first 

witness. Professor Terry Lynn Karl, who is a Professor of Political 

Science, and the Gildred Professor of Latin American Studies at 

Stanford University. Professor, please begin. 

4

STATEMENT OF TERRY LYNN KARL, PROFESSOR OF POLITICAL SCIENCE, AND GILDRED PROFESSOR OF LATIN AMERICAN STUDIES, STANFORD UNIVERSITY 

Ms. KARL. Thank you, Mr. Chairman, and members of the committee, for giving me this opportunity to speak with you. Twentyfive years ago, the Venezuelan founder of OPEC remarked to me 

that oil was the excrement of the devil—el excremento del Diablo. 

Perhaps he envisioned the resource curse at that time. 

Today we know that states that are dependent on extractive industries eventually become among the most economically troubled, 

the most authoritarian, and the most conflict-ridden in the world. 

While this is not the case for all extractive states, it is especially 

true for oil exporters. This holds across all regions—Asia, Africa, 

Latin America, and the Middle East. 

I would like to make four brief points to you. First, the lack of 

transparency in the extractive industries is a central explanation 

for the resource curse. Oil, gas, and mining are the most profitable 

but among the least transparent economic activities in the world. 

Simply stated, most companies do not publish what they pay governments, and most governments do not disclose what they earn 

and what they spend. This means that huge amounts of money are 

virtually untraceable and are not subject to any oversight at all, a 

perfect recipe for corruption. As one OPEC minister of finance explained to me, ‘‘People rob in my country because there’s absolutely 

no reason not to.’’ 

For this reason, corruption in oil-exporting countries is significantly greater than the world average. Corruption raises the transaction costs of doing business. It negatively influences the foreign 

direct investment. It lowers the productivity of expenditures, and 

it perversely affects investment decisions. In this respect, it is absolutely devastating to poverty alleviation. 

Lack of transparency is also transmitted through the acceleration 

of price volatility, and especially oil price volatility. This has grown 

exponentially in the last decade. Today, the information available 

to companies, countries, and traders is so poor that responses to 

this information have little relationship to market fundamentals. 

Instead, as we saw this week, the mixture of rumors, inaccurate 

forecasts, currency changes, and geopolitical fears is what drives oil 

prices. A sound U.S. energy policy simply cannot be built on a 

shaky foundation like this, nor can sound economic policies to alleviate poverty be adopted in weak states experiencing these absolutely rapid fluctuations. 

Oil price volatility is twice as variable as all other commodities. 

This exerts a strong negative influence on countries that are dependent on petroleum. Few developed countries could successfully 

manage this kind of volatility in their central revenues, and developing states simply cannot. 

Second, building transparency to overcome the resource curse is 

difference, because both companies and governments have a shortterm interest in opacity. For the companies, confidentiality shapes 

how they account for their costs, what profits they report to host 

governments, how much profit taxes they must pay, and whether 

they can offer large signature bonuses or side payments to enhance 

their competitive advantage over other companies. 

5

For exporting governments, secrecy also affects the kinds of contracts they’re able to enter into and whether their revenues are ultimately traceable or not. Moreover, leaders in exporting countries 

gain all kinds of political advantage from an opaque, no-tax-andspend state. Because revenues are not extracted from their own 

populations, their people feel no sense of ownership of the state’s 

money. This leaves rulers especially free to turn the state into a 

honey pot, distributing riches to cronies, patronage networks, or 

the military. And this is much to the detriment of poverty alleviation. 

But this has a long-term cost. Because taxation encourages the 

flow of information as well as demands for representation and accountability, living from resource rents denies leaders the crucial 

knowledge they need for development, while building support only 

through the distribution of handouts. 

Fourth: While building transparency is not easy, it is the necessary starting place for overcoming the resource curse, because it 

is a prerequisite for other economic and technocratic solutions. Prescriptions for overcoming the resource curse, which includes sterilization of revenues through stabilization funds, diversification, privatization, and other polices rest on transparency. The examples of 

Norway and Alaska are especially popular. But such prescriptions 

are aimed solely at the policies of extractive states. Thus they fail 

to recognize that transparency is a two-way street. Furthermore, 

the success of all these policies rests on knowing what revenues are 

raised, how they are divided, and how they are to be spent. 

Finally, legislation aimed at escaping the resource curse must be 

conceived of as part of a larger social pact for change in the extractive industries. Pushed by a number of high-profile energy scandals 

and the morally reprehensible prospect of devastating outcomes in 

the new exporters of West Africa, countries and companies are 

under increasing pressure to change their practices. But companies 

that see advantages in transparency are afraid of moving first, and 

they’re afraid of being undercut by others. If disclosure requirements were mandatory for all companies registered in the United 

States, whether U.S. or foreign, this would level the playing field. 

Let me conclude by being clear. Transparency is not the solution 

to a looming fossil fuel crisis with its tremendous threats to world 

stability and peace. Nor can it alone resolve this paradox of plenty. 

This will require what I call a social fiscal pact, a coordinated big 

push by all stakeholders to design new laws, norms, and practices 

that put openness, order, and fairness into extractive industries. 

But if the brewing crisis over natural resources is not more justly 

and efficiently managed, the lives of millions of people, the stability 

of markets, and the health of our Earth will be further jeopardized. 

As the founder of OPEC would then say, he would unfortunately 

have been proved right. 

Thank you. 

[The prepared statement of Professor Karl can be found on page 

40 of the appendix.] 

The CHAIRMAN. Thank you, Professor. We’re going to break and 

vote and come back. I apologize for the interruption, but, you know, 

that’s the way we live. And we will come right back. There’s only 

the one vote, and then we will resume the testimony. Thank you. 

6

[Recess] 

The CHAIRMAN. We will reconvene. Our next witness is Mr. Ian 

Gary, a senior policy advisor for extractive industries at Oxfam 

America. 

STATEMENT OF IAN GARY, SENIOR POLICY ADVISOR FOR 

EXTRACTIVE INDUSTRIES, OXFAM AMERICA 

Mr. GARY. Thank you, Chairman Frank, and members of the 

committee. Thank you for the opportunity to address you today on 

the issue of transparency and the extractive industries. I speak 

today representing Oxfam America, an international development 

organization that supports poor communities facing the impacts of 

these projects around the world. 

We are also proud members of Publish What You Pay, a global 

campaign pushing for policy changes to end the secrecy that surrounds this sector. While some progress has been achieved, much 

more remains to be done, including the development of mandatory 

disclosure rules, as Professor Karl has mentioned. 

If you care about the poor, you should care about extractive industry transparency. Revenues from extractive industries are a significant source of government income for more than 50 developing 

countries. These countries are home to approximately 3.5 billion 

people, 1.5 billion of whom live on less than $2 a day. Too often, 

as has been noted, extractive industries’ revenues are squandered, 

fueling corruption and social conflict. Secrecy exists despite the fact 

that we are speaking of public resources, nonrenewable resources 

that are sold by the government on behalf of the population. For 

example, I was recently in Cambodia, where new oil discoveries 

have raised the hopes that oil wealth will lift the country out of 

poverty. However, there is no public information about contracts 

the government has signed with Chevron and other investors, nor 

is there any information about payments the government may have 

already received. 

Of course, transparency alone will not solve all the problems of 

resource-rich states. Respect for human rights, an open and 

participatory budget process, independent media, and a vibrant 

civil society are all vital aspects of systems of government oversight. But easily accessible information on revenues and contracts 

is a necessary and achievable first step towards proper management of this mass of wealth. 

I would like to turn now to examine briefly the role of the international financial institutions, something I know is of particular 

relevance to this committee. For too long, the IFIs have been willing enablers of the system of secrecy. The World Bank and other 

regional development banks and export credit agencies have been 

instrumental in facilitating investment and directly financing 

projects in the developing world, and they have indicated they plan 

to increase funding in the sector. While these investments have 

been profitable for the corporate sponsors and the World Bank, too 

often they have had predictably regrettable outcomes for the poor. 

A 2004 independent review of the World Bank and extractive industries concluded that the Bank should not finance projects where 

good governance conditions are lacking. And in many countries, 

these basic conditions are lacking. In response to the review, the 

7

Bank pledged to undertake a limited set of reforms, including a 

new International Finance Corporation policy supported by the 

United States which requires from January 1st of this year disclosure by private sector clients of revenue payments to host governments. 

While this is a significant step forward, implementation has been 

poor, and there is very little information on what is being required 

of clients or where it can be found. 

The IMF has an important role to play in its surveillance of the 

fiscal affairs of member states, and has undertaken important research and standard-setting exercises on this issue. Its 2005 publication, updated this year, ‘‘The Guide on Resource Revenue Transparency,’’ has the IMF taking a strong public stand in favor of 

transparency. The good practices described in the guide are viewed 

as voluntary by the IMF, and the institution has not consistently 

highlighted these issues in surveillance programs and country dialogues. At the same time, there are examples, such as the case of 

debt relief conditions for Congo-Brazzaville, where the World Bank 

and IMF work together to condition debt relief on implementation 

of transparency reforms. 

Both the World Bank and IMF have been active supporters of 

the international effort known as the Extractive Industries Transparency Initiative, EITI. Fifteen countries are officially candidates 

implementing this program, but no country has yet published externally validated reports. EITI may make progress in some countries where political will to tackle the problem is strong and lasting, and requires the active involvement of civil society. But the 

initiative is weakened by its voluntary nature and will not capture 

many countries where problems are most severe. EITI also allows 

contracts to stay secret and allows lump sum reporting rather than 

individual company reporting, which is more desirable. 

Oxfam America believes we need to move beyond a voluntary approach to extractive industries transparency. All companies and the 

investment community would benefit from a level playing field created by mandatory disclosure regulations. Furthermore, it would 

enable companies to address the risk to reputation arising from the 

lack of transparency. 

This committee and Congress as a whole has a real opportunity 

to address the secrecy that is at the heart of the resource curse 

Terry Karl described. I commend the committee for organizing this 

hearing and would be happy to answer any questions you may 

have. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Gary can be found on page 31 

of the appendix.] 

The CHAIRMAN. Thank you very much. Next, Father Patrick 

Lafon, who is the former secretary general of the Catholic Bishops 

Conference of Cameroon. 

STATEMENT OF FATHER PATRICK LAFON, FORMER SECRETARY GENERAL OF THE CATHOLIC BISHOPS CONFERENCE OF CAMEROON 

Father LAFON. Thank you, Chairman Frank, Ranking Member 

Bachus, and members of the committee. I’d like to begin by thankVerDate 0ct 09 2002 14:52 Jan 25, 2008 Jkt 039913 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\39913.TXT HFIN PsN: TERRIE
8

ing you for the opportunity to address you on a subject that is quite 

literally a life-and-death issue for hundreds of millions of Africans 

and others in the developing world. This issue is transparency in 

the extractive industries. 

The Catholic Church in Cameroon and in the West and Central 

African regions has been involved in issues of oil and poverty for 

more than a decade. We decided to adopt a hands-on approach in 

the 1990’s when the Chad Cameroon oil and pipeline project was 

being planned. Before this, oil was a taboo subject in Cameroon, 

but when we realized that after 25 years of the exploitation of oil 

there wasn’t much to show for it except the fat bank accounts of 

a few individuals, we as the Catholic Church decided to get involved not only in Cameroon but across the region. In 2002, all the 

Catholic bishops of the Central African region issued a statement 

calling on oil companies to ‘‘contribute to transparency and the 

fight against corruption by publishing oil revenues they pay to our 

national governments.’’ 

Beyond policy statements, we have taken practical measures to 

try to improve the outcomes of oil projects in favor of the poor. We 

decided to set up a monitoring program for the Chad Cameroon oil 

project to see whether the governments and the oil companies were 

doing what they said they would do. This particular oil project has 

not resulted in much improvement in the situation of the common 

man in Cameroon. Also, in the case of Cameroon, the World Bank 

did not use the leverage it had to require a revenue management 

law for the use of all oil revenues in Cameroon as it had done in 

Chad. 

The Church is answering the cries of the people of Central Africa 

for more justice in the use of oil revenues. Lack of transparency 

can breed corruption and has done so. Angola, Cameroon, Congo, 

Brazzaville, the Democratic Republic of the Congo, Equatorial 

Guinea, Gabon, Nigeria, Sao Tome Principe, and Chad are among 

some of the most promising oil, gas, and mining exploration areas. 

But they are also some of the world’s most corrupt countries. 

One has only to consult the Transparency International Corruption Perceptions Index to verify that this is so. Since the mid1990’s, several countries in sub-Saharan Africa have experienced 

strong revenue growth from the petroleum industry. In most cases, 

however, this new wealth has not contributed to the economic development but has been used, as we mentioned, for the enrichment 

of the leaders of these countries as well the associated elite. 

Cameroon is a case in point. Not all of the oil revenue gets into 

the state budget. And according to the IMF, the state oil company, 

the SNH, finance extra budgetary spending. EITI audit data and 

analysis by the IMF highlights a difference of about $286 million 

in reported oil revenues from 2001 to 2004. The IMF and the World 

Bank have confirmed that such discrepancies never pass through 

the treasury into the budget. Money is distributed directly from the 

SNH, the state oil company, without any legislative control, to 

serve unclear priorities. In Cameroon and throughout the region, 

transparency is being hindered on account of contract opacity. Confidentiality clauses are seriously hampering the ability of the 

Church and of civil society in their desire to hold governments to 

account. 

9

Rampant corruption and poverty is leading increasingly to conflicts in the region which threaten the oil supplies that everyone 

needs. This means that the proper management of public affairs is 

in everyone’s interest. 

Clearly, revenue disclosure and accountability in resource-rich 

West and Central Africa still has some road to travel. The Catholic 

Church and its allies in the region stand ready to use information 

that is disclosed to foster government accountability. We have already been able to make some progress as the Church in the region. In Congo-Brazzaville, members of the Catholic Church’s Justice and Peace Commission are leading the charge on revenue and 

contract transparency, and some information and contracts have 

been disclosed. At the same time, Brice Mackosso, a lay member 

of the Commission, and a human rights activist, Christian 

Mounzeo, were detained for months last year and falsely convicted 

of a crime for their activism on the issue. 

In order to complete the transparency agenda, we recommend 

that governments, oil and mining companies, and international financial institutions: 

One, opt for a mandatory rather than voluntary approach to 

transparency; 

Two, implement disaggregated—that is company-by-company reporting of revenues paid to governments; 

Three, ensure that all extractive industry revenues are part of 

national budges; 

Four, abolish confidentiality clauses in contracts; 

Five, publish information on the extractive industries on a regular basis; and 

Six, investigate questionable bank accounts belonging to third 

world dictators. 

Thank you for you kind attention, and I’ll be happy to answer 

any questions. 

[The prepared statement of Father Lafon can be found on page 

58 of the appendix.] 

The CHAIRMAN. Thank you, Father. Next, we are going to hear 

from Mr. Paul Mitchell, the president of the International Council 

on Mining and Metals. 

Mr. Mitchell, thank you. 

STATEMENT OF PAUL MITCHELL, PRESIDENT, 

INTERNATIONAL COUNCIL ON MINING AND METALS 

Mr. MITCHELL. Thank you, Mr. Chairman, and committee members for the opportunity to talk to you today on this very important 

topic. I should say two things in the opening: First, I represent the 

mining industry and not the oil and gas industry, so if you could 

make that distinction, please. But second, while being an international body, we also represent a number of important U.S.-based 

corporations: Alcoa, Freeport, McMoRan, and Newmont amongst 

them, as well as the National Mining Association. 

I want to cover in my remarks three topics if I could, please. 

First is to give you an overview of the socioeconomic performance 

of mining-dependent economies. Second, to cover what the key influencing factors are that influence the different outcomes. And 

10

third, to give you some points on actions that we believe would encourage more positive outcomes in a broader range of countries. 

In terms of the performance of mining economies, I am referring 

to some work that the International Council on Mining and Metals 

commenced: a research project that we commenced in 2004 with 

the World Bank and the U.N. Commission on Trade and Development, to better understand the socioeconomic performance of mining-dependent economies. 

The purpose was to identify the more successful economies, so 

that policy lessons could be defined and, as I say, adopted more 

broadly. We identified, globally, 33 mineral-dependent economies. 

The chief criterion was that 20 percent or more of merchandise exports over a period of 38 years, up to 2003, were composed of minerals and ores. 

We then assessed the performance of those 33 economies using 

six variables, and compared the respective countries to their global 

income group and their region. So, for instance, Chile was compared to all upper-middle economies, and the Latin American region. 

The six factors that we used covered economic growth, non-mineral gross domestic product growth—to assess the diversification of 

the economy, and four socioeconomic factors. Now, the most striking finding from that research was that the performance of these 

mineral-dependent economies was very, very mixed. Forty-five percent of them had done relatively well, but the remainder—a slight 

majority, right around 55 percent, had performed relatively weakly. 

The better performers included Chile, Botswana, and Malaysia, 

while the poorer performers included countries such as Bolivia, Liberia, and Papua New Guinea. 

I have outlined completely in my testimony, in table one, the respective performance in each of the 33 countries. It is important to 

recognize that at that time, unlike the present time—the period 

that we looked at, 1980 to 2003—was a period of generally very low 

mineral prices. It presents a different perspective. 

The key messages that come from this are that we believe, obviously, that there is plenty of room for improvement in the socioeconomic performance of resource-dependent economies, but the 

key variable is the quality of national governance. It is fundamentally important—it, not resource-dependency, is the greatest influence on socioeconomic outcomes of the countries concerned. 

So, then moving on to the second: what are the key success factors? The key single success factor is host countries’ commitment 

to economic and institutional reform. Successful countries have progressively built adequate institutional policy frameworks, generally 

over a period of some decades, which have coincided with an increase in mineral investment in the countries concerned. 

An appropriate governance framework has three components: 

policies to encourage resource investment, and here a sound macroeconomic and legal framework is of fundamental importance. Secondly, policies to encourage social cohesion and investment security, and here we agree with my colleagues that resource transparency and the extractive industry’s transparency initiative are 

both important and positive steps. 

11

And then, generally, other policies to encourage effective and equitable use of increased economic activity. The final aspect is policies to foster effective use of resource revenues, which can be summarized, as a clear understanding of the priority development 

needs in countries and effective, coordinated and accountable use 

of development funds. 

So, what is the way forward? The modern world has changed 

dramatically in recent years, and there are a number of changes 

that are particularly relevant to reform. Developing countries are 

now much more important than they have been historically. They 

make up more of both 50 percent of metal production and the 

sources of minerals production from mines. The sources of investment has diversified substantially; major mining companies are 

now domiciled in China, India, Russia, Chile, and Kazakhstan 

amongst other developing countries, as well as traditional sources 

of investment, such as the United States. 

Demand has grown very, very rapidly in a context of constrained 

supply, and thus now there is a scramble for resources and host 

countries are able to choose their investment partner, whereas historically, they fought to attract any investment interest at all. This 

is a very challenging environment in which to foster governance reforms. 

Most research shows that reform is likely, under conditions of 

economic need, as distinct from the buoyant economic conditions 

that we are currently experiencing. Nevertheless, there is leverage 

because the public good and the good of corporations are generally 

served by positive economic outcomes in resource-dependent economies. The challenge is how to bring about reform. Here, the key leverage point is national governments in host countries. They decide 

who gets access to resources, and under what conditions. 

Those governments, those host governments, need support from 

two important groups: international agencies to develop capacity, 

and civil society to ensure accountability. In regard to the former, 

the World Bank has a crucial role. It is the development agency 

with the greatest experience in developing countries’ mineral governance capacity. Therefore, we believe that it must be strongly encouraged to participate in the resources sector, because that sector 

is the only significant source of private investment in the world’s 

poorest countries. 

In other words, all other major economic sectors ignore poor 

countries. So, the Bank’s participation is essential, if it is to fulfill 

its poverty alleviation mandate. It is of great concern to us that 

many of the banks’ country offices are shying away from participation in the extractive industries at the moment, because of political 

and other challenges that face them. Our final problem is that companies also have an important role. 

Their role is to make the case for good practice by demonstrating 

superior outcomes on the ground, and I am pleased to say that an 

example is the International Council on Mining and Minerals, 

which commits member companies to public disclosure of their performance in accordance with the global reporting initiative, and 

independent verification of that reporting. This is a significant step 

in improving public accountability and public trust. 

Thank you very much, Mr. Chairman. 

12

[The prepared statement of Mr. Mitchell can be found on page 

62 of the appendix.] 

The CHAIRMAN. Thank you, Mr. Mitchell. Finally you volunteered, Mr. Baker, and then we will have to go vote again. After 

the vote, we will come back and begin the questioning. 

David Baker is the vice president for environment and social responsibility for the Newmont Mining Corporation. 

Mr. Baker, please go ahead. 

STATEMENT OF DAVID BAKER, VICE PRESIDENT FOR ENVIRONMENT AND SOCIAL RESPONSIBILITY, NEWMONT MINING 

CORPORATION 

Mr. BAKER. Thank you, Mr. Chairman, and members of the committee. The Newmont Mining Corporation is a U.S.-based corporation with its headquarters in Denver, Colorado. We are the second 

largest gold producer in the world. We operate on five continents. 

We have operations in Ghana, in Peru, in Indonesia, in Australia, 

in New Zealand, and of course, in the United States. I am going 

to talk briefly about our experience with the Extractive Industries’ 

Transparency Initiative. 

Established in 2003, the EITI, or the Extractive Industry Transparency Initiative supports improved governance in resource-rich 

countries through the verification and full publication of company 

payments and government revenues from oil, gas, and mining. The 

initiative works to build a multi-stakeholder partnership in developing countries, in order to increase the accountability of governments. The activities of the EITI are premised on good governance 

being a pre-condition for converting large revenues form the extractive industries into economic growth and poverty reduction. When 

transparency and accountability are weak, the extractive industries 

may instead contribute to poverty, corruption, and conflict. 

As a founding participant, and a proud founding participant of 

the ‘‘Publish What You Pay’’ campaign, Newmont became a founding member of the Extractive Industry Transparency Initiative, 

along with Ghana in 2003. Prior to 2003, in Indonesia, Newmont 

had been publishing its payments to government through press releases in the local media. This was driven by the perception in the 

local communities that the company was not paying its royalties 

and taxes. 

The company continues to put out regular media releases stating 

what it has paid to the government. Public notification of tax and 

royalty payments to the government, using media releases, community newsletters, or Web sites is also a regular practice by 

Newmont in Peru and Bolivia. The practice of issuing media releases stating taxes and royalty payments to the governments was 

adopted by Newmont in Ghana in 2006, when our Ahafo mine went 

into production. We put out media releases in Ghana right now, on 

a quarterly basis. In addition, the investment agreement between 

the government in Ghana and Newmont is a public document, and 

this is so that any taxation arrangements that have been made between the company and the government are made available to the 

public. 

So, why does Newmont choose to do this? Well, aside from giving 

the company an opportunity to explain what we do and why we do 

13

it, and the amount of money that we do provide to the government, 

it has also provided an opportunity to support and encourage citizens to exercise their democratic rights and question the government’s use of this money in these taxes and royalties. 

Aside from having published payments to Ghana, Newmont has 

been working with the government in Ghana and other mining 

companies to establish a local process of tracking and reporting the 

extractive sectors’ payments to government, and the disbursements 

of these funds from the government. This has included several joint 

meetings between the Ghanaian ministers and the Ghanaian 

chamber of mines. The challenges that the Ghanaian government 

and the industry face are reflected in many countries around the 

world, in particular, mining communities often complain that there 

is mining happening in their ‘‘backyards,’’ but don’t feel they gain 

any substantive benefits from the mining company’s presence. 

Newmont is also a member of the International Council on Mining 

and Metals, and Newmont has been involved in the development 

of the comprehensive understanding of this issue, that information 

and results of the work that Mr. Mitchell just provided. 

The question is how can the mining industry contribute to the 

reduction of poverty? This initiative found, and I think it is very, 

very important to make sure that we focus on this—that the poorest country’s mining can be an opportunity for an early stage, or 

to jump start or catalyze the development that other industries do 

not offer. Mining is often the only industry that will actually go 

into some of these countries, and it provides a unique opportunity 

because of that. 

And this is particularly true of gold mining, as it often requires 

relatively little in terms of physical infrastructure, and does not require a domestic market as the gold is mostly exported. But the 

most important finding of the study that Mr. Mitchell just talked 

about, from a mining perspective, is that the industry cannot 

achieve this by working alone. The key is to strengthen the focus 

on managing and utilizing the generated government revenues 

transparently and effectively at the national, regional and local levels, to achieve the full economic and social development potential 

of the resource development. 

Significant effort is required to strengthen economic management, governance and sound and participant institutions at the 

local and regional levels. Newmont is committed to continue to 

work with Ghanaian, and other governments, in instituting and 

implementing the Extractive Industry Transparency Initiative, and 

to encourage other governments to participate in the EITI. 

Thank you very much. 

The CHAIRMAN. We will reconvene—I think we will have at least 

an hour or so before a motion can again be made to adjourn. So, 

let’s wait for Professor Karl. Why, thank you all. There are a couple of levels here. There are policies that people would like to see 

implemented at the World Bank. Let me set those aside. 

Let me ask our first three witnesses; I have asked the other two 

to comment: What specific policy changes would you like to see the 

U.S. Government adopt? Professor Karl? 

14

Ms. KARL. Well, I think I ended my testimony by saying that I 

actually think that there needs to be mandatory policies based on 

disclosure, and that we really need to know— 

The CHAIRMAN. And who should disclose what? 

Ms. KARL. Companies need to disclose what they are paying governments. 

The CHAIRMAN. Okay, let me stick with that one. 

Ms. KARL. The reason for that— 

The CHAIRMAN. I don’t want to know the reasons. I want to know 

what the policies are. Some of us are persuaded by the reasons. 

What other specific policies would you recommend? Is that the only 

one? It is a big one, I don’t mean— 

Ms. KARL. No, that is not the only one. 

The CHAIRMAN. Well, what else? 

Ms. KARL. There are other policies that are really important. I 

think the United States should use its leverage in international financial— 

The CHAIRMAN. Separate from that, though. Let me make the 

distinction. There are things we would like other people to do. At 

this point, we are a legislating committee. I want to begin with 

what I can pass out of this committee, and make people do it. We 

will get to our using our influence. We can mandate—it is debatable whether we should or shouldn’t—greater disclosure. Are there 

other policy changes, wholly within the control of the U.S. Government, that you would recommend? Then I will get to the international influence issues. 

Ms. KARL. I think that we also should have a policy that the 

types of environmental and rights protections that we practice in 

the United States, should be practiced abroad. 

The CHAIRMAN. That we should require our— 

Ms. KARL. We should require that. I think that is particularly 

important right now in the case of Burma. 

The CHAIRMAN. Okay, let me move on. We have a limited amount 

of time. Mr. Gary, do you agree or disagree? Would you like to add 

that? 

Mr. GARY. Well, I would agree with those, and I would add that 

one important change that could be made is that the United States 

could require companies who want to be listed on the stock exchanges— 

The CHAIRMAN. That is very important. 

Mr. GARY. Or register in the United States, to disclose— 

The CHAIRMAN. Okay, that is very important, because we anticipate that one of the legitimate objections would be, ‘‘If you do this 

unilaterally, you put others at a disadvantage.’’ So that occurred to 

me, yes. We do have the ability to impose requirements on companies that are not American companies, but wish to do business in 

America. I would add that. Any others? 

Mr. GARY. Well, in addition to that, I think that there are ways 

that we could promote what we call ‘‘a cocktail,’’ or ‘‘a big push,’’ 

as Professor Karl described, requiring our own export credit agencies, such as the Overseas Private Investment Corporation and the 

Export-Import Bank, to have the same disclosure requirement that 

the International Finance Corporation has. 

15

The CHAIRMAN. Okay, fundamental policy changes. I understand 

there are difficulties as to how you do it, and how you don’t put 

our people at a disadvantage, and if we are the only ones who do 

it, then we may not accomplish much if our people just get pushed 

out of the way. So disclosure is the posting of what these companies are paying to the government, and also adopting appropriate 

environmental policies. Is there anything else in disclosure? 

Mr. GARY. Well, I think from our point of view, the main elements of disclosure are regarding the financial flows that go to the 

governments— 

The CHAIRMAN. Okay, money to the government— 

Mr. GARY. Also, environmental impact information, social impact 

information is also valuable. 

The CHAIRMAN. We have to be specific. What are we requiring? 

Social impact information? But clearly, you would like to see a 

binding requirement, as much as we could extend it on the disclosure of financial flows. 

Mr. GARY. I think that is the most important thing. 

The CHAIRMAN. Father, any further— 

Father LAFON. Yes, I don’t know if this is relevant here, but I 

ended my testimony by making an allusion to questionable bank 

accounts. Every time we have raised this question— 

The CHAIRMAN. In the United States, you mean? 

Father LAFON. Yes, in the United States. Every time we have 

raised this question in Europe, the answer has been, ‘‘We have all 

kinds of laws that— 

The CHAIRMAN. So, that would be some amendment— 

Father LAFON. I don’t think people should be allowed to take 

huge sums of money from their countries, and come and bank them 

here. The countries are suffering. If— 

The CHAIRMAN. Well, these are connected, because you have to 

run your sources. But that is a reasonable thing for us to look at 

too, it to try and better track the money. Let me now ask Mr. 

Mitchell and Mr. Baker. How would you respond in terms of those 

efforts? 

Mr. MITCHELL. Mr. Chairman, the U.S. Government is already 

actively involved in the Extractive Industry Transparency Initiative. We think that is a good thing. Personally, we think that it 

would not make a lot of difference for that level of support to have 

legislative force. 

The CHAIRMAN. Would it do any harm? 

Mr. MITCHELL. Well, it could. I will get to that if I could. The 

principle reason is because, as I tried to outline, to achieve positive 

outcomes requires concentration on a broader range of factors than 

just revenue transparency. Mr. Gary has mentioned a couple. 

Frankly, I am not sure that they are the ones that our research 

has found vehemently important by the characteristic aspects of 

economic and legal reform. They are difficult processes that most 

countries have required decades to achieve. 

The CHAIRMAN. I understand that, but there are also limits on 

what— 

Mr. MITCHELL. There are— 

The CHAIRMAN. Mr. Mitchell, I am sorry, but we only have 5 

minutes. 

16

Mr. MITCHELL. Okay, well— 

The CHAIRMAN. No, Mr. Mitchell, the rules are, I have to be able 

to direct you to the subject I want to talk about, and I don’t want— 

Mr. MITCHELL. The potential negative, if I could say this— 

The CHAIRMAN. Mr. Mitchell, repetition of your testimony won’t 

be helpful. I am trying to go beyond it. Now the question is, what 

can our government directly do, as internal improvements in other 

countries are harder for us to do? What harm would come from 

what they are proposing? 

Mr. MITCHELL. I would like to answer that. The range of sources 

of investment for the extractive industries has diversified greatly 

in recent years. Some of those sources of investment, some of those 

countries do not care about good economic outcomes in host countries, or revenue transparency, or human rights, or good environmental outcomes—or any of those things that the U.S. Government 

thinks is important. So, therefore, placing additional impediments 

on U.S.-based countries could disadvantage— 

The CHAIRMAN. Okay, that is what I thought. So— 

Mr. MITCHELL. That would not only harm U.S.-based countries— 

The CHAIRMAN. Right. 

Mr. MITCHELL. But it would harm the host— 

The CHAIRMAN. Okay, so here is the question. 

Mr. MITCHELL. Yes. 

The CHAIRMAN. What we would then think about doing—I don’t 

know if we would be successful, but that efforts to require complete 

disclosure should be part of an effort to have this down in a multinational basis, and that would include the American Government, 

as suggested by Mr. Gary—people want to list on the stock exchange, or others. If we were able to do a multi-national ‘‘push’’ to 

get more disclosure, would that be harmful? 

Mr. MITCHELL. That would certainly be beneficial. 

The CHAIRMAN. Thank you. Mr. Baker, anything to add to this? 

Mr. BAKER. I don’t have much in addition, but I just simply say 

that you have to be very cautious. I think the intent of the EITI 

is to actually get countries to publish, and to recognize those expenditures— 

The CHAIRMAN. The recipient countries— 

Mr. BAKER. The recipient countries, not just the companies. I 

think an unintended consequence could be that the initiation of 

some of this reformation, which is done right now on a voluntary 

basis through the EITI and ‘‘Publish What You Pay,’’ may not have 

an opportunity to actually initiate that in some country. 

The CHAIRMAN. I don’t understand, if they want to volunteer to 

do it, then— 

Mr. BAKER. Well, there could be countries that, because if it was 

mandated for a company to report, countries could simply say, ‘‘We 

are not going to have you do business in our country.’’ 

The CHAIRMAN. I understand that. That just gets back to the 

multi-national aspect, and I think that is fair. I do have to say that 

I see a conceptual difference between legally requiring the people 

who are paying the money to say that they are paying it, as opposed to having the recipients voluntarily announce that they are 

receiving it. 

17

The incentive voluntarily to announce you are receiving money 

from—that someone may think you shouldn’t have received isn’t 

overpowering. But I do agree, and I think that we will have to balance this, but clearly, there is going to be some effort, multi-nationally. Let me give myself another 30 seconds to pose a question and 

ask you in writing. If we are going to do it multi-nationally, who 

do we need? Is it Europe, is it Japan, is it China which would be 

more discouraging? I would be interested if you would follow up in 

writing, if we’re going to do this multi-national effort—Professor, 

you wanted to say something? 

Ms. KARL. Well, I think that there is a great deal of support in 

Europe, and particularly in the European parliament, and other 

places, for mandatory disclosures in Europe as well, and I think we 

should lead in that effort, but I know that they would support it— 

The CHAIRMAN. I understand that you do. Please, let us not say 

things that we don’t know. The question is not who is willing. If 

the U.S. and the E.U. would be together to do it, do we have to 

worry about China? Is there other major— 

Mr. KARL. That would be sufficient in— 

The CHAIRMAN. You think the United States— 

Ms. KARL. Yes, because China is registered in either the London 

Stock Exchange or— 

The CHAIRMAN. Oh, so the U.S. and the E.U.— 

Ms. KARL. Yes, so is Petrobrass, so are the larger foreign firms— 

The CHAIRMAN. If we were to require this of companies who were 

both U.S. or E.U. domiciled, but also companies that wanted substantially to be able to do business here, would that resolve it? 

The gentleman from Louisiana is recognized. 

Mr. BAKER OF LOUISIANA. Thank you, Mr. Chairman. Looking at 

the scope of the recommendations, where the government entity is 

natural resources dependent, where significant economic accomplishment is achieved by extraction or exportation of mineral resources and where infrastructure needs are deficient in light of current social environment; my first observation is that it must be 

talking about Louisiana, and it would be helpful to have some of 

these transparency provisions made applicable to us. On a more 

important note, in achieving the disclosure—which I understand is 

desirable in ferreting out inappropriate conduct—it is not going to 

be successful having a unilateral declaration on U.S. interests only. 

It is very clear to me that the recipients of this generosity are 

not likely to want to disclose—even from their own host state, or 

country, or political environment, for it to be made known that you 

are the recipient of millions of dollars of foreign assistance—to the 

detriment of your own constituents. It is not a helpful thing. So, 

I think all of the prejudices that exist toward reform can only be 

achieved if we do this through international exchange cooperation. 

The chairman indicated the New York/London marriage as an example. I think it must be broader in scope. NASDAQ is taking to 

Dubai, NYSE is with Euronext, the Hong Kong Exchange, at least 

in China. 

There needs to be, I think, a high-level exchange leadership led 

effort to bring about this level of discussion, which shortcuts—not 

to the purpose of this hearing or this report, but to national accounting convergence. I think there are grand opportunities for 

18

that to occur. Mr. Mitchell, would you care to respond to the suggestion started by the chair that I have amplified on? If the goal 

is to really make people sit up and fly right, isn’t universal disclosure requirements coming at the listed exchange level—for the 

principal major exchanges of the world, a beneficial way to approach this? 

Mr. MITCHELL. Thank you for the opportunity to respond. The 

answer is definitely, yes. There is no doubt that credit transparency and revenue flows, and a number of other aspects, would 

be beneficial in terms of public trust accountability and positive 

outcomes. If it were possible to get broad participation of the many 

sources of capital that you have mentioned, that would be a good 

thing as well. But the other thing that we need to all be mindful 

of is that many of these extractive industries, particularly in the 

oil and gas sector, or start-out enterprises, do not rely on the private capital markets for access to funds. That is also the case in 

the mining industry, in particular in relation to the Chinese interests, many of which are state-owned or state-financed. So, they 

would not be captured, and they need to be to make this thing 

workable. 

Mr. BAKER OF LOUISIANA. How would you remedy that? 

Mr. MITCHELL. It is with great difficulty. It needs to become an 

international norm, in terms of the way that business is done. The 

key leverage point is national governments, is the host governments— 

Mr. BAKER OF LOUISIANA. Let me interrupt if I may. Would not 

the effect of listed corporations on a multi-national exchange list 

have a direct and adverse consequence, even to those who are selffunded in a state-owned venture? At some point, they are going to 

have to ask the international capital markets for equipment purchases, for expansion, for pipelines—for whatever the resource 

might be. We may not get them up front, but at some point along 

this capital process, they will intersect us and have to disclose. It 

might not be as immediate as the effect on the exchange. 

Mr. MITCHELL. As I said, I think it would be beneficial, but it 

would not capture all sources, because— 

Mr. BAKER OF LOUISIANA. Let me jump to one more point before 

my time expires. My question is regarding a suggestion I have not 

seen, but understand is being discussed, concerning contract disclosure. I am very concerned that if we go beyond the trail of cash, 

into the proprietary information of a contractual performance obligation, it would be extraordinarily detrimental to all business interests concerned. I am concerned because that would likely lead 

to the exclusion of high technology from the communities most in 

need of that type of assistance, and you would wind up getting 

something less than the world’s best technology being deployed in 

your country, if you get it at all. 

Mr. MITCHELL. I agree with you that propriety contracts are in 

a different category and should be treated as such, and there are 

things that are business intellectual property matters, and that 

should be rightly protected. 

Mr. BAKER OF LOUISIANA. Mr. Chairman, I have a unanimous 

consent request for a statement by the International Council on 

19

Mining and Metals, and a World Bank support group analysis to 

be included as part of the record. 

The CHAIRMAN. Without objection. 

Mr. BAKER OF LOUISIANA. Thank you. 

The CHAIRMAN. The gentlewoman from California is recognized. 

Ms. WATERS. Thank you very much, Mr. Chairman. I’d like to 

thank you for holding this hearing. I’d like to thank all of the participants in initiating this effort. I see a whole list of organizations 

here who are involved in this transparency initiative. 

And I’m very grateful for it, because for years I have been terribly frustrated with the plight of Africa and the fact that the continent is so incredibly rich in resources and so incredibly poor. 

I have struggled through the civil wars of Angola where monies 

have been drained off in those wars—very rich country with diamonds, gold, and oil. I have served through the problems of Nigeria 

and, you’re right, with Mr. Abacha’s money being deposited here in 

American banks. And it goes on and on and on. At one time, I 

thought that what we needed was to develop expert teams that 

would make themselves available to the government to help negotiate the mining contracts and arrangements, and, also, have teams 

that would help to develop systems and support government in developing ways by which to manage the profits from the mining efforts. 

Well, you know, it sounds good. But it is just so very complicated 

and there are so many reasons why the inhabitants of these countries are not the beneficiaries of the vast resources of those countries, and, it does not simply lie with the fault of those who go 

there to mine. Yes, many of the mining operations do exploit, but 

it’s not simply them, It’s not simply the government that may be 

corrupt. It’s just a combination of very complicated reasons why we 

have such riches in so many countries and the people are so poor. 

And it’s very, very frustrating. 

So when my staff brought this to me, the transparency of extractive industries, high stakes for resource risk countries, citizens in 

international business, I was excited just to see something, anything, anything that would get us engaged in this discussion. So I 

will support any effort for disclosure. I will support any effort to 

get rid of the corruption. I will support any effort to try and find 

ways by which we can assist these governments in putting together 

the necessary systems to realize the benefits of those profits. 

So all I can say is thank you for being here and for initiating this 

possibility. Already I can see that my chairman is excited about the 

possibility of doing something with this. Since he has been the 

chairman, he has already developed good relationships with the 

European parliament. He has traveled there and he has an opportunity to talk with them about it. And, of course, if I can see anything done before I retire in this business, I will be eternally grateful to all of you. 

Thank you very much. 

The CHAIRMAN. I thank the gentlewoman. 

We will be back. I apologize, but I do think when we come back 

again, the way it works, we’ll be able to finish the questioning. So, 

you’ll have to give us another 15 minutes or so, and then we have 

our three members here. So you should be able to be done then and 

20

this is very important to us. It i’s having a real impact, so we 

thank you for your patience. 

[Recess] 

The CHAIRMAN. I apologize. Presumably we’ll wait for Mr. Mitchell, and we will be able to finish at this point. 

Thank you. The gentleman from Texas is recognized. 

Mr. GREEN. Thank you, Mr. Chairman. And I would like to extend my apologizes to the witnesses. I know you question how we 

can possibly get anything done in this environment, but believe it 

or not, we managed to do some things, and there are some folks 

who think that we do to much. So we have to balance it out, I suppose. 

I thank you again for being here. I am going to ask Mr. Baker 

and Mr. Mitchell to please address this concern because I appreciate the position you have of not wanting to see us go too far. The 

question becomes what would you recommend that we do, and I’d 

like you to start with the IMF/World Bank, IFC, if you have comments on those. 

What would we do to help to end some of this corruption? 

I made a note that opacity enables cupidity, and cupidity engenders corruption. So it’s the opacity that is the genesis of this. 

What would you do to help us achieve the transparency that 

would end some of the cupidity that breeds the corruption? 

What would you recommend we do? 

Mr. MITCHELL. Thank you for the question. 

The other important source of leverage or point of leverage in all 

of this apart from the stock exchanges around the world is national 

governments in host countries. The United States has a lot of influence there and can condition it to aid programs. It’s development 

assistance and things of that nature contingent upon host countries 

adopting appropriate behavior. So that’s an important point that 

the United States itself can do. 

But the second point is that the World Bank, in particular, in our 

view must be strongly encouraged to participate in government 

strengthening programs in resource-dependent economies. They are 

the major sources of investment in poor countries. It is absolutely 

viable in terms of the bank’s poverty-reduction mandate that the 

bank be actively engaged in government strengthening in those 

countries. 

Mr. GREEN. Would you recommend that the World Bank require 

the transparency process? 

Mr. MITCHELL. The World Bank does do that for the IFC’s own 

investments, currently. But I agree with Mr. Gary. 

Mr. GREEN. Well, my notes indicate that they do it occasionally, 

not consistently. 

Mr. MITCHELL. It’s a policy that is meant to be applied universally, but he is correct that the manner in which it is done is not 

transparent in itself. 

Mr. GREEN. Would you encourage us to encourage the World 

Bank to develop the consistency that you seem to connote would be 

important? 

Mr. MITCHELL. Yes. I would encourage the Bank to do that in 

terms of return investments, encourage the Bank to be strongly— 

21

Mr. GREEN. Let me do this, because we’re going to have another 

vote. I want my colleague to have an opportunity to ask his questions so that we don’t continue to hold you over. So let me go to 

Mr. Baker. 

Mr. Baker, your comments please in terms of the World Bank, 

IFC and the IMF. 

Mr. BAKER. Well, I appreciate the opportunity, but I think Mr. 

Mitchell has really articulated quite well some of the things that 

could be done. I don’t believe I can add anything material to that, 

but thank you. 

Mr. GREEN. Well, you are a business person and I assume you 

find it repugnant to know that there are business people who are 

engaging in processes that end up corrupting governments. 

Is that a fair statement? 

Mr. BAKER. That’s an absolutely fair statement, yes. 

Mr. GREEN. Okay, then tell me, as a business person, how would 

you have us address the businesses? The chairman mentioned in 

‘‘a universal fashion’’ and I think he covered it quite well. But how 

would you have us address businesses such that there is a consequence for engaging in these practices in these foreign countries, 

maybe in our own country as well. I can see some room for improvement here. But tell me how would you as a business person 

want us to do it, such that we don’t impede the flow of commerce, 

such that we don’t create economic upheaval, but we do accomplish 

our goal. 

Mr. BAKER. Well, that’s a good question. I appreciate that. I 

think that one of the things that’s important is the whole consequence you talked about of accountability and in making these 

companies accountable, because there are organizations that we see 

around the world that don’t operate to the same level. And I think 

that one of the things that may be of benefit is to have a reward, 

possibly, for behaviors that are appropriate as opposed to punishment for behaviors that are inappropriate. 

Mr. GREEN. So, some sort of tax incentive, if you are doing the 

right thing then we’ll give you a tax break. Is that an example, or 

would you want to give me a better example? 

Mr. BAKER. No, I suppose that could be an example. I don’t have 

any other really specific examples other than that I’m sure there 

are a number of ways that there could be some sort of reward or 

recognition of that. I suppose a tax could be one of those or some 

sort of tax modification. I know that would probably not be very 

popular, overall, but it’s just one of the options. 

Mr. GREEN. Thank you. My time has expired. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. Thank you. We have to go out for a time. The 

gentleman from Missouri. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

The fact that some of the richest nations on earth are the poorest 

has always troubled me, but even if we are able to get greater 

transparency of extractive industries, my concern is in Tanzania, 

for example, where my family is; they live in and around Arusha. 

The truth of the matter is, even if there is transparency, there 

are very few computers, very few televisions, very few telephones, 

and even though it’s not resource rich as is Kenya, for example, 

22

there are extractive industries there. And so, my concern is how 

can we, Mr. Gary, go into third world countries where technology 

is third world and get information out to the public, whereby they 

can make intelligent decisions on whether or not they support their 

government and whether or not they are being ripped off, which I 

believe they are in many, many ways. 

Mr. GARY. Thank you for the question. 

I think a key point to make is that just disclosing information 

in an incomprehensible and difficult to access manner is not going 

to achieve what we want. In some of these countries like Tanzania 

and other countries around the world, we are looking at ways to 

use radio and other popular communications. 

Father Lafon is here representing the Catholic Church. They had 

a statement on corruption read in every parish in Cameroon. Traditional ways of getting out the information and using those traditional structures, like the churches, is one of the key ways to do 

this. And that’s why I mentioned the importance of an independent 

media. In countries that are closed, like Equatorial Guinea, just 

disclosing information will have no discernable effect, because 

there are no independent journalists. The church is harassed, etc. 

But, in countries like Ghana, Nigeria, and Tanzania, where you 

have a vibrant press and you have local radio in local languages, 

that kind of information can get out and we would encourage institutions like the companies as well as the international financial institutions when they do disclose to disclose it in a way that’s comprehensible in local languages. 

Mr. CLEAVER. Father Lafon, do you believe that there is a way, 

including what Mr. Gary has said, to get information to people in 

a place. Cameroon is far more advanced, technologically. People in 

the United States, Tanzania people there, call it Tanzania, but they 

get information to people. I mean, it would be infinitely easier in 

Cameroon than it is in Arusha or even Dar es Salaam. 

Father LAFON. Yes, thanks a lot. I’ll just add one thing to what 

Mr. Gary has said. 

We as a church, as he said, we use our parishes to pass on information. We have in our church at the national level a national justice and peace commission dealing with these issues: oil; the democratization process; and so on. And these have offices also in dioceses all over the country. And through this means, we pass on information. And I believe these exist in other countries as well. 

As you mentioned, we have relatively free press in Cameroon. 

There is certainly a vibrant, independent press in terms of numerous newspapers which we use. In other countries where there is 

not possible, I guess they would have to start somewhere by using 

the churches, which is what we do in Cameroon in addition to the 

papers. But certainly it’s necessary to get the information one way 

or the other out to the people. 

Mr. CLEAVER. One final question: Do any of you consider flowers 

as an extractive industry? Or just minerals? 

Ms. KARL. Yes, extractive industries by their definition are nonrenewable. And the reason we’re focusing on extractive industries, 

I believe, is that once you spend the capital from oil, gas, or mining, it is gone. It can never come back and you’ve lost that opportunity to move into some poverty alleviation and development. 

23

With flowers, with coffee, with other things, you can replant. You 

have an ability to recreate that particular industry, so the argument is not that the only poor countries are extractive countries. 

That’s not the argument at all. We all know that Haiti is the poorest country in the Americas and that there are no extractive industries there. But the argument is that these resources are gone, once 

they’re used, and the development opportunity that they represent 

is gone, so that we need to focus much more on making sure that 

that development opportunity is used to alleviate poverty. 

Mr. CLEAVER. I don’t want to digress or take the hearing past 

where it’s supposed to be. 

One of the things I would ask you to consider, because you are 

the intelligentsia on this issue, Professor, I think I agree with you 

for the most part, except that in some places in Africa, in Africa 

in particular, but it’s also South and Central America, the flowers 

that we use in hotels every day that are grown in those countries 

use water, which is not renewable. 

As we are seeing in the United States, a crisis has developed. 

And I would suggest that a crisis is developing in Africa the same 

way. And so while you can plant flowers, it’s difficult to sweet talk 

them into growing without water. And so it is not as renewable as 

it might sound. That’s just a pet peeve of mine, because I’ve seen 

water in Africa shooting out of water hoses to water plants for people in the Western world, and the people there are walking miles, 

women are walking miles to get water to cook with, so that they 

can eat. 

Thank you, Mr. Chairman. 

Father LAFON. Sorry, just to add, one of the reasons that we 

focus also on the extractive industries is their capacity to generate 

quick money, and a lot of money, as well as because of that their 

capacity to generate conflict, civil wars in our countries. 

Mr. CLEAVER. Pardon my digression. 

The CHAIRMAN. The gentlewoman from Wisconsin. 

Ms. MOORE OF WISCONSIN. Thank you, Mr. Chairman. 

The CHAIRMAN. Let me note that the gentlewoman has been designated as our representative from this committee to a panel of 

members here who work with Paul Menteri for the World Bank, so 

she’s particularly well-suited to be in that liaison position. 

Go ahead. 

Ms. MOORE OF WISCONSIN. Thank you for that, Mr. Chairman. 

I am very interested and we’ve talked interested and we’ve 

talked a great deal about the role of transparency in terms of ameliorating the problems with these extractive industries. But I am 

wondering what role does transparency have, notwithstanding corruption and all the other problems, in ameliorating the so-called 

Dutch disease? 

These countries, even if there were transparency, even if there 

were proclamations about how much the governments are going to 

pay, even if there were not corruptions, even if they do or don’t rely 

on the capital markets, the volatility of these minerals is such that 

the countries could still be poor. And so just sort of following in the 

vein of the chairman’s questions, what specifically can we do? And 

I’m going to direct my questions first to Mr. Mitchell. 

24

What can we do specifically with the host countries to ensure 

that their oil industry doesn’t crowd out other development? 

Mr. MITCHELL. Thank you. The question I think in short the answer is—and my colleagues may disagree with me, I’ll say that—

but I don’t believe the transparency of revenue flows has a significant role in controlling the Dutch disease. The Dutch disease is primarily the appreciation of exchange rates, which makes other 

tradable activities in the economy uncompetitive. This is a good illustration, though, of the fact that the reform process is much 

broader than transparency. 

Ms. MOORE OF WISCONSIN. Okay, so what can we do? 

Mr. MITCHELL. You need to encourage sound macro-economic 

management in the countries concerned. 

Ms. MOORE OF WISCONSIN. Okay, now I’m going to give an example, Mr. Mitchell, of the Democratic Republic of Congo, the mining 

contract review process. Using that as an example, because I know 

that you know something about that, Freeport Marin is the parent 

company of Phelps Dodge, who has an ownership interest in the 

Timki mine. It is proceeding with operations, securing international financing, and the underlying contract is not providing a 

share of the profits to the Congolese people. I guess I’ll let you respond. I won’t make my judgment. 

Using that as an example, how could the Congolese government 

execute a contract with them to avoid the Dutch disease? 

Mr. MITCHELL. They couldn’t. At a contract specific level, you 

need a much broader approach to a macroeconomic management at 

a contract-specific level. But in response to that specific issue, the 

company should be paying a fair tax rate, that tax payment to the 

government should be disclosed. But most importantly the government should be using that money productively to address priority 

development needs within the country. 

And whether or not there is a ‘‘profit-sharing element’’ to the 

contract may be irrelevant, provided that the taxation is fair and 

internationally competitive. It is being paid, and as I said, importantly, it is being well used by the government agencies involved. 

Again, this is a good example. Many countries, taxes paid, taxes 

collected, but it is not well-used by the host governments. That’s 

a key element as well. 

Ms. MOORE OF WISCONSIN. Anybody else have any suggestion 

about what we can do with Wall Street and those folks that are 

registered on our stock exchange in terms of the volatility of these 

assets in stabilizing poor countries? 

Professor Karl. 

Ms. KARL. Yes, I think I see the Dutch disease and the volatility 

a bit differently than Mr. Mitchell. And that is that transparency 

is absolutely critical for good macro-economic management. If you 

don’t have transparency, if you don’t have budgetary transparency, 

you cannot manage a macro-economy. So that even though transparency won’t deal with the exchange rate problem that he mentioned; and I do think that’s correct, it will deal with a larger 

macro-economic issues. 

The second thing I would say is that volatility, which I believe 

you have rightly pointed to as an absolutely essential issue here, 

volatility is being fueled by the lack of transparency. 

25

Ms. MOORE OF WISCONSIN. Okay. 

Ms. KARL. And this is very important, because these minerals 

and oil have always been more volatile, but what is happening in 

the recent period is that the volatility has exponentially increased. 

Because of the secrecy that surrounds these kinds of industries, 

and what that secrecy does is it makes it very difficult for market 

fundamentals to work for supply and demand to work. And it 

means that you get further and further away from market fundamentals. 

The example I gave in my testimony was the rise in the price of oil last week to $90 a barrel. That is actually not a rise in price 

driven by market fundamentals. It is a rise in prices driven by 

speculation, forecasting that I believe is incorrect, a number of 

other things that are related to the quality of information. When 

information is poor, markets cannot function well. And when information is poor, you cannot manage a macro-economic environment, 

which is why I actually believe the transparency is the first step 

for a variety of these problems, even though it won’t specifically address the currency reevaluation. 

Ms. MOORE OF WISCONSIN. Thank you. 

The CHAIRMAN. Let me follow up on that. 

Professor, maybe I didn’t fully understand on the transparency. 

I was thinking of it perhaps too narrowly in terms of the payments, 

but when you talk about transparency, are you talking about the 

volume of work? Obviously, for it to be affecting volatility, are they 

hiding the amount that they’re digging? What are we talking about 

here? 

Ms. KARL. Transparency in the industries is a problem across the 

board. So, for example, we have no idea what the real reserves are 

of OPEC countries. We don’t know. We don’t know what the reserves are really in Saudi Arabia. We don’t know. My argument 

about transparency in terms of company payments is part of a larger concern I have with transparency in these industries in all kinds 

of ways. 

The CHAIRMAN. I understand our right to say, tell me how much 

you’re paying, because we’re worried about potential bribery. But, 

you know, what’s the basis on which we demand that proprietary 

entities tell us what their reserves are. 

Ms. KARL. I don’t think that is what I was suggesting. What I’m 

suggesting is that by starting with disclosure of payments, you are 

beginning to create a norm of transparency and rules and practices 

of transparency that I actually believe will spread. 

The CHAIRMAN. But what incentive? 

Ms. KARL. Where do they need to spread? 

The CHAIRMAN. No. I don’t see the lack of transparency that contributes to volatility. The volatility issue is the reserves? Or is it 

the level of activity? What is it that they’re not transparent about? 

Ms. KARL. The volatility and the price volatility means that any 

time you hear that there is a strike in Venezuela, or any time you 

hear that Turkey might invade north of Iraq which might interrupt 

a pipeline or supplies or something, then the price of oil flies up. 

The CHAIRMAN. I understand that, but I don’t see a connection, 

certainly no connection between getting people to tell how much 

they might be bribing somebody and that. So, to get deeper, you 

26

would have to be talking about them disclosing what their reserves 

were. Well, there would be two levels: one, the reserves; and two, 

the level of actual activity. I mean, are they digging out more than 

they tell us or less than they tell us? I’m serious. Is that part of 

the problem? 

Ms. KARL. Well, I think the payments would tell us those kinds 

of things. If we see what payments are going to companies and we 

know what the price of oil was and the transparency of the payments is disclosed in a particular way so that we know what we 

know what fields they come from, what time they came from, etc., 

then we will know more. 

The CHAIRMAN. It may be though, because what we’re assuming 

is at least to some extent now, the payments aren’t just based on 

the actual price of oil, but there’s some extra and some illegitimacy 

in those payments. But I still want to know, are you proposing that 

we require anything beyond the disclosure of the payments? 

Ms. KARL. No. 

The CHAIRMAN. Okay. I’m skeptical that we are going to get 

much in terms of volatility, but if it happens, it happens. 

Do any members have any further questions? If not, I will tell 

you that this has been very useful and you are going to see much 

of what you said reflected as we go forward. We will continue to 

be in touch. 

If anybody on the panel has any further thoughts they would like 

to contribute to us, please feel free to do so. And I think we will, 

after today, probably be constrained as we instruct these other 

countries as to how to do better. We will not instruct them on how 

to conduct their parliamentary procedures, based on today. 

This hearing is adjourned. 

[Whereupon, at 12:50 p.m., the hearing was adjourned.] 

(27)

A P P E N D I X

October 25, 2007

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