Payment transparency: and Switzerland?

Alongside production, the Swiss commodities sector focuses primarily on trading – and Switzerland is world leader in this regard.

In a transparency report (June 2014), the Federal Council acknowledged an “international trend” towards increasing payment transparency, stating that “as an internationally leading commodities trading hub, Switzerland had a particular responsibility to support international efforts towards greater transparency”. The report recommended the review of a draft consultation paper on payment transparency. In its commodities report of March 2013, the Federal Council announced such a paper within the framework of the revision of Switzerland’s corporate law.

Draft law insufficient

In November 2016, the consultation paper on the revision of Switzerland’s corporate law was submitted for discussion, but commodities trading was exempted from the obligation to disclose all payments made to governments. The provisions would only apply to companies involved in producing commodities – severely restricting their scope: according to Public Eye’s estimates, which are based on a database of 544 Swiss commodities companies, this would mean the Federal Council’s draft legislation would only apply to four Swiss commodities companies involved in production.

On 14 June 2018, the National Council followed the Federal Council and rejected proposed amendments in favour of including commodities trading. If this is not corrected by the Council of States, the law that Switzerland will receive will merely serve as an alibi. It would ultimately keep in step with international developments towards payment transparency in relation to commodities producing companies. Yet this legislation is of scant use to the populations of resource-rich countries if it does not cover commodities trading; it would apply to a grand total of four new commodities producing companies.

On the other hand, if the parliament chooses to include commodities trading, Switzerland would indeed make a decisive contribution: Swiss legislation would ensure that numerous companies and the many payments they make to the governments of resource-rich countries would be covered by global transparency standards.

Huge payments from Swiss commodities trading companies to governments

There are huge sums of money involved: in July 2014, Public Eye (then the Berne Declaration), SWISSAID and the Natural Resource Governance Institute (NRGI) published a ground-breaking study, for the first time quantifying payments between Swiss commodities trading companies and selected countries. From 2011 to 2013, some US$55 billion was paid to the ten biggest oil producing sub-Saharan African countries. That is double the total of global development aid received by these countries and 28 times what the Swiss government contributes to development aid to Africa as a whole. In countries such as Nigeria or Equatorial Guinea some 20-30% of all government revenue comes from Swiss commodities trading companies.

If commodities trading is not covered by transparency provisions, the income of a significant number of commodities producing companies remains unknown, namely the income earned not from money but from commodities. Above all in oil production, it is common practice to transfer part of what companies owe to producer countries to national oil companies in the form of crude oil, which the company then sells on.

In reports, e.g. on the UK’s implementation of EU legislation and transparency directives, the value of oil is calculated in monetary terms in line with market prices. However, this does not correspond to the true income made by national oil companies from selling on oil.

EU legislation only covers payment flows 1 and 2, while in EITI countries, 3 and 5 are also (partly) disclosed. However, the crucial payment flow 4 – payments from commodities traders – is not covered anywhere. It is crucial for these payments to be disclosed to make it possible to verify whether everything is order in relation to the transactions between commodities trading companies and state-owned oil companies, which are vulnerable to corruption. This gap must be closed by subjecting commodities trading to the same provisions as those involved in the extraction of natural resources.

Transparency provisions covering commodities trading overdue

Some Swiss commodities traders have acknowledged that times are changing: Trafigura was the first trading company to voluntarily published its payments to national oil companies, Glencore followed suit and Gunvor has announced that it intends to do the same. This initiative by some of Switzerland’s biggest companies proves that embracing payment transparency in commodities trading does not make a firm less competitive and neither does it impose insurmountable levels of bureaucracy.

The figures published by Trafigura show that in 2016, in EITI countries US$1.1 billion was paid to state-owned enterprises; their counterparts in non-EITI countries – i.e. countries with no transparency provisions – received US$20.1 billion. This is further proof of the need for corresponding provisions in the home states of commodities trading companies.

As long as Switzerland – the world’s main trading hub – fails to act, payment transparency in commodities trading will make no headway and Switzerland will in no way live up to the “particular responsibility” that the Federal Council has recognised. We have proposed a solution in the form of the (fictitious) commodities supervisory authority (ROHMA).