The Securities and Exchange Commission said Tuesday it will rewrite a rule forcing oil and gas companies to reveal what they pay foreign governments in exchange for mineral rights, instead of appealing a court ruling against the agency’s first attempt at the mandate.
Although Congress required the foreign payments disclosure rule as part of the 2010 Dodd-Frank financial law, regulators at the SEC were tasked with writing the specific mandate. In July, in response to a lawsuit brought by the American Petroleum Institute, a federal district judge said the agency’s resulting rule had “serious” problems, including failing to provide exemptions for cases where foreign governments bar the disclosures.
Struck down: Court rejects SEC rule on oil company payments
Commission spokesman John Nester said the commission would not appeal the district court decision.
“The court remanded the matter for further SEC proceedings, which the commission will undertake informed by the court’s decision,” Nester said.
The American Petroleum Institute said it was eager to work with regulators on the rewrite.
The initial rule that was struck down “would have jeopardized transparency efforts already underway by making American firms less competitive against state-owned oil companies,” said Carlton Carroll, a spokesman for the trade group. “U.S. companies are leading the way to increase transparency, and we look forward to working with the SEC to rewrite the rule in a way that recognizes these existing efforts and doesn’t harm competitiveness.”
However the agency’s decision does not mean the congressionally mandated requirement will go away — or even that a second version will steer clear of the oil and gas industry’s concerns. The Securities and Exchange Commission could add an exemption, in keeping with the court’s ruling, or choose to reenact a similar measure with additional justification.
Supporters of the original rule — and the underlying congressional mandate — are urging the Securities and Exchange Commission to go with the latter approach.
“The oil industry might want to keep their dealings in the shadows, but the global momentum for increased transparency in the oil, gas and mining industry is irreversible,” said Ian Gary, a senior policy manager for extractive industries at the human rights group Oxfam America, which argued for the rule in court. “It is now up to the SEC to swiftly reissue strong rules … with a stronger justification that satisfies the court’s requirements.”
Gulf of Mexico: Foreign payments fight could jeopardize Gulf of Mexico drilling
The SEC’s first crack at the transparency rule, adopted last August, required some 1,100 publicly traded oil, gas and mining companies to report payments exceeding $100,000 made to other countries “to further the commercial development” of the host nations’ resources.
Human rights groups, led by Oxfam America, say such disclosure is essential to discourage graft, expose bribes and deter corruption in resource-rich nations where oil and mineral wealth isn’t trickling down.
But the oil industry has argued the requirement to provide financial details for specific projects rather than whole countries at a time would give their rivals a competitive advantage, since similar disclosure isn’t required for foreign state-owned oil companies or privately held U.S. firms.
In an Aug. 2 letter to the commission made public on Tuesday, five senators insisted the agency can abide by the court’s decision and still rewrite the original rule without allowing host-country exemptions.
“A prompt revision of the rule that takes into account the decision handed down by the U.S. District Court will ensure that implementation of the law stays on track and that the United States will retain its leadership role in this important anti-corruption and anti-tax evasion effort,” said the senators.
“The new rule should continue to make all reports public and should not allow for host country exemptions,” the group said. “We believe the SEC has the discretion and authority to retain both of these key aspects of the initial rule as long as sufficient analysis and justification is provided in the rule-making process.”
Signers included Sen. Benjamin Cardin, D-Md., and former Sen. Dick Lugar, R-Ind., who led the charge to get the so-called Sec. 1504 requirement added to the 2010 Dodd-Frank law.