Transparency in commodities: the Federal Council’s schizophrenic proposal

The Federal Council today announced its wish to close the Swiss gaps in transparency for the global commodity industry. But the entire commodities trading business may well be excluded from any future regulation. In other words, the current proposal for regulation may just be window dressing.

In its response to a postulate from the National Council’s Foreign Affairs Committee, the Federal Council acknowledged many of the important issues concerning transparency in the commodities sector. This latest transparency report (available in French and German) describes how Switzerland contributes, through its position as the world's leading commodity trading hub, to what is known as the "resource curse": "... through the extraction, respectively trading of commodities there is regularly a risk that the payments made to the respective governments (...) seep away or are misused in financing conflict. Consequently, the population benefits little from the commodity riches of their country and remain in poverty, which is referred to as the so-called "resource curse"”.

And the report also concedes that disclosure of payments to governments would be greatly beneficial in commodity trading too: because “a significant proportion of global commodity trade is made from Switzerland, transparency provisions in the field of commodity trading would also reduce the reputational risks in this area."

But today's proposal made by the Federal Council seems almost schizophrenic: On the one hand, it emphasizes the risks inherent in commodity trading, the "particular responsibility" as the leading commodity trading centre and the benefits of transparency rules for commodity trading, in order to finally decide “to abstain from an extension of the regulation to commodity trading with state entities for the time being."

The incomprehensible government recommendation is therefore not (yet) to close the global transparency loopholes in the Swiss market place but to limit themselves instead to the disclosure of payments for the production of commodities. Such new rules are completely unnecessary and inconsequential precisely because there are no gaps in the transparency of these financial flows. All major commodity companies in Switzerland have already to disclose payments with respect to the production of commodities. That is because, through their parent holding companies, depending on where they are listed, they are either caught by EU or (less often) EU/US transparency regimes, which anyway require such disclosure.

Switzerland, however – the commodity trading superpower – could remain a non-transparent black hole, by excluding this important part of the global commodities business from regulation. Currently 74 percent of global sales from commodity trading are generated by just eleven companies, all of which have important offices in Switzerland. And 45 percent of global turnover is generated by companies with a legal or operational headquarters in Switzerland. Only with full transparency can the populations of the relevant countries make their governments accountable for the use of this mineral wealth and public property. And only then can the resource curse be reduced and the Federal Council decrease the reputational risk to our country.

The Federal Council has at least left a small door open. It has announced that it will "closely examine" the question again before presenting the draft law for consultation and proposes a delegation norm in order to respond quickly in this regard.

Further information here (background paper on payment transparency in the commodities sector) or contact:
Oliver Classen, BD Media Spokesman, +41 44 277 70 06,
Lorenz Kummer, Swissaid Commodities Expert, +41 31 350 53 51,
Marc Guéniat, BD Senior Researcher, +41 21 620 03 02

PRESS RELEASE from the Berne Declaration (BD) and SWISSAID