Extractive Industries and Corruption
Many countries with high levels of natural resource wealth also have higher rates of income inequality. This is known as the “resource curse,” or the “paradox of plenty.” This paradox exists due to weak policies and high levels of corruption.
Corruption can drive conflicts, disenfranchise communities from public services and infrastructure, encourage or prop up autocratic governments, indebt countries, and make communities dependent on imports when previously they were more self-sufficient. Women and children experience unique ramifications of corruption such as more difficult access to education, job loss, and trafficking. While we are focusing here on extractive industries, corruption is possible in relation to any development project.
Examples of Corruption
Conflict minerals: Both government forces and opposition movements may use natural resource wealth to fund armed conflict such as in the Democratic Republic of Congo and Afghanistan.
Natural resource revenue corruption: Profits from royalties, taxes, and other financial flows from corporations to governments may end up in the hands of corrupt officials, especially at the local level, rather than the government coffers. In countries where this is a problem, payments from corporations are very opaque. In some cases, shell companies are established where the company owners are not known. These companies make it easy for individuals to launder money for illegal activities such as human and drug trafficking through legitimate investments such as mining or oil operations. They also make it harder to hold a company or its owner responsible for negative environmental or social impacts.
Efforts to Address Corruption
As part of the 2010 Dodd-Frank financial reforms, Congress included an amendment to create more transparency in the supply chain related to minerals in Africa’s Great Lakes region. “Section 1502” addresses conflict minerals.
The reforms also included “section 1504” or the Cardin-Lugar amendment. This amendment requires oil, gas and mining companies listed in U.S. stock exchanges to disclose how much money they are paying to governments in the form of taxes and royalties. Both of these laws, while under threat, have spurred other countries to establish similar laws.
- Fact sheet on political and economic challenges of resource revenue from the Natural Resource Governance Institute
- Video on how natural resource revenue corruption can harm communities
- Background on conflict minerals from Global Witness
- Background on the Cardin-Lugar law on resource revenue transparency from the Publish What You Pay Coalition.
- Video and report on anonymous companies and ownership from Global Witness.
- Send a letter to Senators asking them to prevent repeal of Section 1504 (Cardin-Lugar amendment)
- Explore the true cost of products in your life that involve minerals or oil such as cell phones, personal care products, and jewelry. Organize an activity in your community using session 3 (An Unfortunate Creation Story) from the Story of Stuff’s faith-based program for Christian Teens.
Inter-religious Working Group on Extractive Industries
This article is made possible by the Inter-religious Working Group on Extractive Industries. The working group is a Washington, DC based coalition of faith, human rights, and environmental organizations concerned about the negative impact of extractive industries on creation, which includes both the human and the natural world. The Columban Center is a member.
For more information on this subject, please read the Missionary Society of St. Columban's statement on extractive industries.