Executive summary

The effect of corruption in commodity trading can be significant for developing countries due to the scale of revenues derived from the sales of publicly-owned commodities. Recent research by the Natural Resource Governance Institute (NRGI) in respect of oil and gas sales from national oil companies (NOCs) to buying companies, showed that sales from 35 NOCs generated over USD 1.5 trillion in 2016, which equalled 22% of those countries’ total government revenues (Malden and Williams, 2019[3]). As a result, many developing countries are heavily dependent on revenues from the sale of publicly-owned commodities. For example, revenues from the sales of publicly-owned oil and gas account for more than two thirds of total government revenues in Azerbaijan, Iraq, Nigeria and the Republic of the Congo (UNCTAD, 2020[4]) and more than half of total government revenues in Libya (Sayne and Gillies, 2016[5]). Similarly, in the mining sector, sales of minerals can make important economic contributions to developing countries. Research from the International Institute for Sustainable Development (IISD) found that global exports of mineral and metal commodities had a total value of USD 732 billion in 2013 (Löf and Ericsson, 2019[6]).

Commodity trading presents specific and heightened risks of corruption as even a minor embezzlement may divert substantial amounts of resources (Longchamp and Perrot, 2017[7]). The sophisticated mechanisms often used to channel corrupt payments add to this risk. These include complex and opaque corporate structures, including off-shore entities, that render the identification of beneficial owners more difficult, kick-back schemes, use of intermediaries (including briefcase or shell companies) and joint ventures with politically exposed persons (PEPs), through which rents can be diverted through legitimate means (such as cashing dividends on behalf of PEPs).

Commodity sales often involve different jurisdictions through which transactions are routed, ranging from producing countries, through offshore financial centres to trading hubs and countries of destination. Home jurisdictions of buying companies, trading hubs, offshore financial centres, host governments and state-owned enterprises (SOEs), and buying companies all have a role to play in addressing corruption risks in transactions, including through enhanced disclosure of payments made for the purchase of publicly-owned commodities. These actors should ensure that the scope of commodity trading payment disclosures reflects the full spectrum of the corruption risks identified in this report, so that enhanced transparency translates into improved accountability.

In particular, as a significant share of global commodity trading transactions takes place in a number of major global trading hubs, those hubs should take active steps, including through corporate payment disclosure requirements, to avoid the reputational risk of harbouring transactions tainted by corruption or otherwise suspicious deals, by closing international opportunities that allow individuals to get away with corruption.

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