C

Summary

Capital flight

Large-scale outflows of capital and financial assets from a country deemed risky to a destination seen as safer, often triggered by a crisis such as a political or economic event.

Capital flight can be both illegal and legal. For example, a foreign investor redirecting investments to more stable jurisdictions when political risks arise is typically legal. It may be illegal for a company or a citizen to move assets abroad if the government has introduced capital controls.

Corruption may be a cause of capital flight, particularly when it goes hand in hand with an expectation that there may be arbitrary seizure of assets. Such movements may be particularly detrimental to less-developed economies as they both reduce the capital available for internal investment and damage the confidence of external investors.

RB

Cardin– Lugar amendment

An amendment to the Dodd– Frank Act which required companies to disclose payments, such as “signature bonuses”, given to foreign governments in exchange for developing and extracting their oil, gas or mineral resources.

Bipartisan sponsorship by Senators Ben Cardin and Richard Lugar led to the Cardin– Lugar amendment (also known as “Cardin– Lugar”) being enacted into law in the US as Section 1504 of the Dodd– Frank Act. This anti-corruption provision aimed to increase transparency in the private sector by directing the Securities and Exchange Commission (SEC) to issue a rule requiring all companies listed in the US, both foreign and domestic, to report the details in their annual report and accounts of all payments made by the companies to governments. It also hoped to reduce what is known as the “resource curse”. Section 1504 covers all energy companies including foreign oil giants such as BP, Shell, and Total as well as state-owned oil companies from China, Russia and Brazil, such as PetroChina, Gazprom and Petrobras, by dint of their relationship with the US markets.

Thirty countries have since adopted equivalent mandatory disclosure rules for companies listed on their stock exchanges, allowing companies to submit the same reports in multiple jurisdictions and creating a level playing field. Implementation of Cardin-Lugar was delayed after heavy lobbying of the SEC by the oil and gas industry, which sought to restrict the definitions of which payments should be disclosed.