KleptoCast 12: Casey Michel talks to Erica Westenberg, Acting Manager of Governance Programs at the Natural Resource Governance Institute, about how the Extractive Industries Transparency Initiative reinforces oversight in the natural resources sector – and what Azerbaijan’s departure means for the global transparency regime.
By Casey Michel
For the past few years, Azerbaijan’s lobbying throughout the West has focused on two primary projects. Firstly, Baku employed its “caviar diplomacy” – its admixture of wining and dining European and American lawmakers and academics alike – to help whitewash its lurch into outright autocracy, with Azerbaijan having recently boasted double the number of political prisoners of Russia and Belarus combined. The efforts have been, to a certain degree, successful, ranging from the Parliamentary Assembly of the Council of Europe’s warmth toward the Aliyev regime to landing Lady Gaga for Azerbaijan’s 2015 European Olympic Games.
Secondly, Azerbaijan’s lobbying efforts aimed at ginning support for Baku’s position as a provider for the Southern Gas Corridor, a series of gas pipelines transiting Caspian gas to European markets. Comprising both the Trans-Anatolian Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP), the proposed lines would, to a certain degree, help lessen European dependence on Russian hydrocarbons. The pipelines’ funding came from a range of international financial organizations – including one, the European Bank for Reconstruction and Development, which explicitly pointed to Azerbaijan’s membership in the pro-transparency Extractive Industries Transparency Initiative (EITI) as reason for support. Indeed, in 2016, EBRD officials cited Azerbaijan’s involvement with EITI as “a key factor” in supplying pipeline funding.
This month, however, EITI suspended Azerbaijan’s membership, citing Azerbaijan’s domestic repression – a finding that promptly led Baku to announce it was quitting the organization wholesale, dealing a body-blow to those pushing oversight in the world of hydrocarbons and mining.
Combating the resource curse
Founded in 2003, the EITI rapidly rose to the fore of those bodies pushing transparency in global resource extraction. Combining the tripartite efforts of civil society, industry, and governmental officials, EITI offered a cohesive approach to oversight in the mining and hydrocarbon industries. As the group lays out, EITI aims to “strengthen government and company systems, inform public debate and promote understanding” via full disclosure and regular publication of EITI reports on domestic resource extraction. Such natural resources, the organization explains, “belong to its citizens.”
Moreover, EITI’s most recent push has centered on beneficial ownership. While not every member of the EITI-compliant roster maintains a beneficial owner register, EITI recently stepped up efforts to help identify those individuals and organizations on the receiving end of the trillions of dollars swirling the extraction industry, a topic that has recently seen renewed interest in the world of shell companies and global offshoring.
As of earlier this year, EITI had 51 implementing countries, ranging from Peru and Mauritania to Mongolia and Nigeria. EITI has also overseen the disclosure of some $2.3 trillion relating to international hydrocarbon and mining industries. While the extraction sector, per the OECD, remains the world’s most corrupt industry, the EITI regulations have gone a significant ways to providing long-needed oversight. Combined with recent legislation in the U.S., Canada, Norway, and European Union aimed at disclosing foreign payments made by domestic energy majors, the transparency regime in the resource sector has expanded remarkably over the past few years.
To be sure, not all progress in oversight has been permanent: EITI has previously suspended countries like Guatemala, Madagascar, and Yemen for compliance failures. Other countries, like Equatorial Guinea and Sao Tome and Principe, have also been dropped from EITI outright (although the latter later rejoined). But such suspensions remain rare, and are often rescinded following improvements in the countries in question.
Azerbaijan, however, opted for a different tack. Instead of easing pressure on domestic dissidents and civil society actors, as recommended by EITI, authorities in Baku decided to ignore EITI’s entreaties, and quit the group wholesale. Claiming that EITI’s mandate had “significantly shifted” and that the EITI’s recommendations stemmed from “irrelevant facts introduced by different advocacy groups,” Azerbaijan opted to remove itself from EITI outright.
As the Carnegie Endowment’s Thomas de Waal wrote, Azerbaijan’s decision will “harm Baku’s international brand and image as a reliable place to invest.” Granting that the move was a calculated risk – much of the funding for the TANAP pipeline is nearly completed, after all – de Waal noted that the Aliyev regime nonetheless “probably miscalculated” in assuming they could skirt EITI’s recommendations and still remain in the group. Added Human Rights Watch’s Giorgi Gogia, the move “underlines Baku’s lack of genuine commitment to the governance principles, especially regarding civil society, embodied in the EITI.”
On the whole, Azerbaijan’s move presents something of a test-case not only for transparency oversight in the extraction sector, but for global transparency regimes writ large, with others now witnessing a member-state feel comfortable enough to leave oversight recommendations behind. And as it pertains to transparency moving forward for hydrocarbon and mining operations, Baku appears to be taking cues from the new administration in the White House. One of the first bills President Donald Trump signed repealed the aforementioned legislation requiring American energy majors to disclose substantial payments to foreign governments. Proponents of the repeal pointed to the supposed obstacles the legislation placed in front of American companies – a claim belied by the fact that other Western governments had promptly passed similar legislation after U.S. transparency advocates like Global Witness have described the repeal as a “grave threat to U.S. national security.”
Likewise, earlier this week transparency advocates in the U.S. revealed that Washington, on track for full EITI compliance in the future, had instead decided to pull back from EITI commitments moving forward. While members of the Department of the Interior disputed this characterization, a joint statement from Sen. Ben Cardin and former Sen. Dick Lugar – who had paired to push the oversight legislation Trump recently repealed – said the move “abdicated American leadership in fighting corruption around the world.”
If, as Transparency advocates have said, the U.S. does formally pull back from EITI commitments, the signal sent to foreign, extraction-based autocracies will be resoundingly disappointing. Not only has Azerbaijan already assumed the fallout from quitting EITI will be worth the cost, but, if Baku espies a sympathetic ear in Washington, governments elsewhere will be only too eager to follow in Azerbaijan’s – and the U.S.’s – footsteps, hammering one of the greatest success stories in natural resource transparency as they go.
Casey Michel has worked as a researcher and journalist in the United States and former Soviet Union.