Sovereign wealth funds from resource-rich countries controlling more than $500bn of assets operate with no disclosure, limiting their accountability and increasing the risk of corruption, a leading transparency watchdog has said

May 15, 2013 11:48 pm

Watchdog raises fears over wealth funds

By Ed Crooks in New York

Sovereign wealth funds from resource-rich countries controlling more than $500bn of assets operate with no disclosure, limiting their accountability and increasing the risk of corruption, a leading transparency watchdog has said. The Revenue Watch Institute, a New York-based group backed by charitable foundations and rich-country governments, published research on Wednesday showing that eight large funds, including the investment authorities of Qatar, Kuwait and Libya, disclosed no details at all about their assets, transactions or investments. Those eight funds are estimated to have assets worth $539bn. Other funds, including Saudi Arabia’s, which controls an estimated $530bn, and Nigeria’s, have little disclosure or political accountability.

Daniel Kaufmann, president of Revenue Watch, said sovereign funds built up using revenues from natural resource production were “one of the areas of greatest opacity” associated with the oil, gas and mining industries.

He added that while international efforts to improve disclosure of natural resources payments had made progress in recent years, “on this issue we are really in the Dark Ages”.

He was speaking as Revenue Watch released a study assessing 58 resource-rich countries on the governance of their oil, gas and mining industries, which rated only 11 as “satisfactory” overall.

Countries were scored on criteria including disclosure of financial information, laws that support transparency and fair competition, and frameworks to allow accountability and fight corruption.

The highest standards were found in Norway, which is widely seen as a model for effective management of natural resource wealth, closely followed by the US and then the UK.

Several emerging economies also scored “satisfactory” grades, including Brazil, Mexico, Chile and Colombia.

The worst rated were Iran, Qatar, Libya, Equatorial Guinea, Turkmenistan and Myanmar.

Revenue Watch argues that better oversight and use of oil, gas and mineral revenues would transform the lives of a billion people in resource-rich countries with poor governance.

The UK, which holds the rotating presidency of the G8 leading economies this year, is pushing for an agreement on increased transparency in resource industries.

Rules mandating greater disclosure by oil and mining companies have been adopted in the EU and proposed in the US, although those regulations have been challenged in court by the American Petroleum Institute, the industry group.

Transparency among sovereign wealth funds has made less progress. The leading funds agreed a voluntary code of conduct in 2008, but Mr Kaufmann said there were no real incentives for them to improve their transparency.

He added that poor governance at these funds could have a “contagion effect”, encouraging bad practices in the countries in which they invested.

Although Norway’s oil fund, the world’s largest, ranks highest for governance, Revenue Watch also gave high ratings to the sovereign funds of Trinidad and Tobago, Bahrain, Chile, East Timor and Mexico.