SEC Requires Disclosure of Energy Company Payments to Foreign Governments

The Securities and Exchange Commission on Wednesday approved rules requiring oil and mining companies to disclose payments made to foreign governments. The rule, under Section 1504 of the Dodd-Frank financial reform law (see the full text here through our Dodd-Frank Tracker), requires SEC-listed oil, natural gas, and mining companies to reveal payments to governments related to projects in their countries, including the type and amount of each payment and their totals every year. Money for production licenses, taxes, royalties, among other payments, fall under the rules.

The SEC vote was 2-1 for the rule, but a two-year battle has been raging behind the scenes. Human-rights groups and the oil industry threw their efforts at influencing the final rule. Groups like Oxfam American and the Revenue Watch Institute joined with other anti-poverty and human rights groups to build public pressure on the SEC to approve the draft rules proposed in 2010. They argued that greater disclosure helps ensure that revenues from energy and mining provide public benefit. Secretary of State Hillary Clinton, noting that the EU is considering similar provisions because of Section 1504, lent her weight toward strong rules.

Oil companies, through the influential American Petroleum Institute, demanded that the SEC scale back the rules from their draft phase. They said the rules would make them less competitive, especially when competing with state-owned firms like Russia’s Gazprom and the China National Petroleum Company. They sought provisions such as allowing aggregate payment information by country, and exemption if host countries prohibited such disclosure.

Both sides agree that the goal of the rules is worthy: The “resource curse,” leaving many energy-rich countries in Africa impoverished by corruption and conflict, must be addressed. In favor of the rule, Luis Aguilar, Democratic SEC member, called on the late Supreme Court Justice Louis Brandeis’s saying that “sunlight is the best disinfectant.” But Republican member Daniel Gallagher argued that an SEC rule is a strange way to achieve social and foreign-policy goals.

The rules don’t leave much middle ground, and the SEC estimates that the rule will carry industry-wide compliance costs of up to $1 billion initially, with annual costs between $200 million and $400 million. The only bone thrown to energy companies is a small one: By leaving out any specific definition of the word “project” (emphasized in the section of the rule entitled ‘Definition of the word “project”’), companies have some discretion in applying the rule to their business.

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