Seeing Through Transparency International

The credibility of Transparency International,
a global "non-partisan" organisation which "promotes transparency in
elections, in public administration, in procurement and in business",
is on the line. Their latest report on Venezuela, which was produced
after months of research, is factually inaccurate in almost every
respect. TI say that they "stand by their report" and stand by the
person who compiled the data, an anti-Chávez activist who backed the
2002 military coup against democracy.

The full report, dated April 28 2008 and titled Promoting Revenue Transparency
examined the published accounts of oil companies in 42 different
countries, and ranked them according to whether they were of high,
medium or low transparency. Venezuela's state-owned oil firm PDVSA was
given the lowest possible ranking. Transparency International say that
"comprehensive corporate reporting diminishes the opportunities for
corrupt officials to extort funds".

PDVSA was directly accused of failing to disclose basic financial
information such as their revenues and how much royalties they paid,
and of not producing properly audited accounts. The international
corporate media considers TI to be a reliable source, despite the fact
that almost all their funding comes from western governments and big
business. The British government is one of the major donors,
contributing £1 million in 2007. Other donors include the US
government, Shell and Exxon Mobil. Unsurprisingly, TI's damning report
was seized upon by rightwing newspapers and websites and used as another stick with which to beat Venezuela's socialist president, Hugo Chávez.

When Dan Burnett, a New York-based blogger who runs the popular Oil Wars
website, read the TI report, he almost choked on his cornflakes.
Burnett had been analysing PDVSA's accounts for several years, and
regularly writes about the financial information that TI claims does
not exist.

I checked the PDVSA website.
Burnett was right to be astonished. On page 127 of their financial
statement it says that revenue for 2007 was $96.242bn, and that they
paid $21.9bn in royalties. On page 148, PDVSA's auditors state that the
accounts were prepared in accordance with international accounting
standards. Further research showed that PDVSA's financial statements
are also published in hard copy, and are widely reported in the
domestic media, both in newspapers and on television.

I was perplexed. How could Transparency International, which claims
that its report was subject to a rigorous "quality control regime" and
had been checked for accuracy by "industry experts", have got it so
wrong? I called them and asked.

A spokesperson explained that their report was published two weeks
before PDVSA submitted their 2007 accounts on May 12 2008. This
explanation implied that TI are unfamiliar with basic financial
reporting procedures. Before company accounts can be submitted, the
data has to be collated, analysed and audited. It is normal for this
process to take several weeks or months. For example, Transparency
International's own audited financial report for 2007 is not yet
publicly available on their website.

However, TI's explanation for their inaccurate report on PDVSA
contained a much more serious problem. It was wrong. The March 29
edition of El Universal,
a major opposition newspaper, featured a report on PDVSA's financial
statement, together with a photograph of PDVSA's president, Rafael
Ramirez, holding up a copy of the 2007 report and accounts. The
information that TI claimed was being withheld by PDVSA, was published
four weeks before they made their allegations. Armed with this
additional information, I attempted to contact TI's press spokesperson
again for a comment. My calls were not returned.

Despite Transparency International's less than transparent
behaviour, was it still possible that there was an innocent explanation
for the errors in their report? I began to wonder whether their
spokesperson had got the dates confused and was actually talking about
a previous set of accounts.

I checked the historical records which are freely available on the
PDVSA website. Their audited 2006 accounts were published on September
8 2007, a full seven months before TI published its report accusing
PDVSA of non-disclosure. The 2006 accounts also contained the
information that TI claimed was not disclosed. The 2005 accounts were
also available, as were all the annual accounts going back to 2000.

In the past, there have been problems with PDVSA's accounts, and in
particular with late submission. In late 2002, just months after the
failed coup attempt, PDVSA oil executives went on strike in an attempt
to bring down the Chávez government. It became clear that the strike
would not succeed, but PDVSA's operational equipment was sabotaged,
causing millions of dollars of damage. A massive amount of data was
destroyed, including the files containing PDVSA's financial information
and accounts. PDVSA was forced to rebuild its financial infrastructure
from scratch, and for several years this caused delays in producing
accounts. However, TI's accusation is that PDVSA does not disclose
information, not that previous accounts were submitted late. This
accusation, which forms the basis of TI's report, is demonstrably
wrong.

Transparency International denies that they pursue an anti-Chavez
agenda. "We are not a political organisation", their spokesperson told
me. Despite this denial, TI's Venezuela bureau is staffed by opponents
of the Venezuelan government (pdf).
The directors include Robert Bottome, the publisher of Veneconomia, a
strident opposition journal, and Aurelio Concheso of the Centre for the
Dissemination of Economic Knowledge, a conservative thinktank funded by
the US government. Concheso was previously a director of the employers'
organisation, Fedecamaras. The president of Fedecamaras, Pedro Carmo,
led the failed 2002 coup and was briefly installed as Venezuela's
dictator.

The data in TI's report was gathered by Mercedes de Freitas, the
head of their Caracas bureau and a longtime opponent of President
Chávez. De Freitas' previous job was running a US government funded
opposition "civil society" group. The Nation reported
on her response to the 2002 military coup: "… on the night of April
12 – after Carmona suspended the assembly – Mercedes de Freitas, a
director of the Fundacion Momento de la Gente, a legislative monitoring
project subsidized by NED [National Endowment for Democracy, a US
government agency], emailed the endowment defending the military and
Carmona, claiming the takeover was not a military coup."

In July 2006, Freitas issued a press release
on behalf of Transparency International, which argued against the
passing of a draft bill that proposed making it illegal for Venezuelan
"civil society" organisations to receive funding from foreign
governments, including from the US government. "If it becomes law,
civil society would be subject to considerable restrictions, with
government allowed to interfere in their objectives, activities and
funding sources" the press release asserted.

Documents released under the US freedom of information act show that
the Bush administration gives $5m a year to organisations opposed to
the Chávez government.

Transparency International has a choice. They can continue to defend
their indefensible report and refuse to answer legitimate questions
about their activities in Venezuela. Or they can come clean and provide
full disclosure. As TI's own report diplomatically puts it: "Disclosure
improves a company's image, making it less vulnerable to
unsubstantiated attacks on its reputation."