WASHINGTON — Much to the delight of the oil industry, the Securities and Exchange Commission appears in no rush to rewrite a rule that required companies to disclose what they pay foreign countries in return for the right to extract crude, natural gas and minerals.
A federal district court tossed out the SEC’s first attempt at a foreign payments disclosure rule in July and sent it back to the agency for changes.
But the rule rewrite didn’t make it into the latest government document that gives an update on regulatory activity across all federal agencies. The document, called the unified agenda and released last week, shows the status of regulatory activity under way or planned through the next year, and while roughly three dozen items are being processed by the SEC, the foreign payments disclosure rule isn’t among them.
That suggests a new version isn’t on track to be unveiled until late 2014 at the earliest.
“The list represents our best estimate as to what would be ready for commission consideration by fall of 2014,” said SEC spokesman John Nester.
Congress required the foreign payments disclosure as part of the 2010 Dodd-Frank financial law, but tasked the SEC with writing the specific mandate. When the agency adopted the resulting transparency rule in August 2012, it 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 American Petroleum Institute challenged the rule in federal court, arguing that the SEC’s mandate unfairly required companies to provide financial details for specific projects rather than whole countries at a time, potentially giving rivals a competitive advantage. In siding with the trade association in July, District Judge John Bates said the SEC’s reporting rule had “serious” problems, including mandating public disclosure of the reports and failing to provide exemptions in cases where foreign governments bar the revelations.
In response to the court ruling, the SEC said it would rewrite the rule, instead of appealing the decision. But SEC chair Mary Jo White signaled her discomfort with the entire approach during an October speech at Fordham Law School.
White asserted that Congress should respect the SEC’s independence, and she cautioned against efforts “to effectuate social policy or political change through the SEC’s powers of mandatory disclosure.” Specifically, White noted that some disclosure mandates in the Dodd-Frank Act “seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions.” The objectives may be compelling, White said, but she questioned whether the SEC’s mandatory disclosure powers should be used to accomplish them.
Although White stressed that the SEC can’t ignore a congressional mandate, the speech fed fears among some human rights activists that rewriting the foreign payments rule would at the very least be on a slower timetable.
Oxfam America senior policy adviser Isabel Munilla said it is “absolutely crucial that the SEC produces a strong rule as soon as possible” to align its reporting and timeline with similar moves in Europe. For instance, the United Kingdom recently committed to putting the legislation into effect for companies listed on the London Stock Exchange by the end of 2014, with disclosure required two years later.
“The SEC is bound by the law, and finishing the job quickly is a statutory obligation,” Munilla said.
Munilla said it’s reasonable to assume there is plenty of behind-the-scenes work ongoing at the SEC to figure out how to harmonize what is happening in Europe with the U.S. requirements. But the SEC still needs to “make clear to the public when these crucial rules will be completed,” Munilla said. “With billions of oil and mineral investment flowing into countries with weak rule of law and high political and operational risks, it is urgent that the SEC make a public commitment to finalize these rules for investors and the public.”
Oil industry leaders say they are eager to help with a rewrite and have met with SEC staff on the issue.
“We’re ready to engage with the SEC on rule-making in this area, whenever they want to schedule it,” said Stephen Comstock, the tax policy manager at the American Petroleum Institute.
In a 16-page letter to the SEC earlier this month, the API advised the SEC on how it could rewrite the rule “to protect investors and promote efficient capital markets,” by including “appropriate exemptions.” A new rule need not require that individual company filings be made public, the group stressed, and instead, the SEC can compile individual company data for public use.