Archive for the ‘Conflict Minerals’ Category

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.

GAO to SEC: Still No Final Rule on Conflict Minerals? Really?

By now, the SEC’s leisurely pace for adopting the mining & minerals provisions under Dodd-Frank has become almost comical. The final rule for Section 1503 (Mine Safety Disclosure) was published approximately one year after the rule was initially proposed. The rules under Section 1504 (Disclosure of Payments by Resource Extraction Issuers) and Section 1502 (Conflict Minerals) haven’t done any better – the final versions of the rules proposed back in December of 2010 have yet to surface. And folks are getting antsy.

Yesterday the GAO published a relatively neutral-sounding report, “Conflict Minerals Disclosure Rule: SEC’s Actions and Stakeholder-Developed Initiatives,” that talked about all the various factors leading to the SEC’s delay in finalizing the conflict mineral rule. Section 1502 of the Dodd-Frank Act requires the SEC to issue a disclosure rule for companies using conflict minerals (tin, tantalum, tungsten, and gold) in their products, and it’s a complicated and controversial subject.

The SEC claims that since July 2010, it has received “a large and steady volume of comment letters […] with over 400 distinct comment letters posted to its website.” (Knowledge Mosaic subscribers can see comments here.) The time to address these comment letters, along with the many meeting requests from external stakeholders have supposedly contributed to the SEC’s delays.

In addition, the GAO says that the SEC has faced a sharp learning curve in “develop[ing] contextual understanding” about “relevant in-region political and economic actors, economic arrangements between these actors, and other evolving issues in these [mineral-rich, war-torn] countries,” and that the Commission has taken on “complex and time-consuming” “rigorous economic analysis” as a result.

The problem is, these delays are more than just a slight professional embarrassment – according to the GAO, various stakeholders have already developed and implemented initiatives that may help affected companies comply with the anticipated rule. Now, “due to the uncertainty regarding potential due diligence and disclosure requirements stemming from SEC’s delay in issuing a final rule, some stakeholders’ efforts to improve their initiatives through expansion and harmonization have been hindered.”

GAO’s recommendations? “GAO recommends that the Chairman of SEC identify remaining steps and associated time frames to issue a final rule.”

For background on the conflict minerals provisions, check out some of our previous posts. And don’t forget to check out the GAO report for more details on the delays.

Dodd-Frank Versus The Congo

Photo by Grassroots Group. Some rights reserved.

When Bono spoke out in support of Sections 1502, 1503, and 1504 of the Dodd-Frank Act, chances are he had no idea that these well-meaning provisions would have such a detrimental effect.

Section 1502 in particular, which requires public companies to disclose their use of “conflict minerals” originating in the Democratic Republic of the Congo, has recently made headlines as devastating the very regions it intended to protect.

In short, because companies want to avoid any association with the violence in the Congo, they’re up and taking their business elsewhere, leaving miners and small-scale purchasers out of work, and bringing about a “de facto embargo” of the country.

The New York Times and Business Insider have both covered the story. The Times in particular makes special mention of the Enough Project, an advocacy group who rooted for the provisions as a step towards ending conflict minerals. Just yesterday, Enough Project Policy Consultant Sasha Lezhnev posted a response to the Times piece, arguing that it “misses the critical link in eastern Congo: the continuing role of the minerals trade as a fuel for violence and a major source of revenue for armed groups and military units responsible for atrocities.” He goes on to emphasize that “change will not come overnight, but the fact is the bill is setting into motion a series of modifications that will have lasting effects on the conflict.” You can read the whole response here.

SEC’s “Conflict Minerals” Rules Delayed

Photo by Swamibu. Some rights reserved.

A recent Client Alert from King & Spalding reminds us that regulations under Section 1502 of the Dodd-Frank Act – which were originally expected to be adopted no later than April 15, 2011 – will now likely be delayed until August 2011.

Section 1502, “Conflict Minerals,” requires public companies to disclose:

“whether any conflict minerals that are necessary to the functionality or production of a product of the person, as defined in the provision, originated in the Democratic Republic of the Congo or an adjoining country and, if so, to provide a report describing, among other matters, the measures taken to exercise due diligence on the source and chain of custody of those minerals, which must include an independent private sector audit of the report that is certified by the person filing the report.” – sec.gov

King & Spalding predicts that the requirements could apply to up to 6,000 out of 13,000 public companies. This is due to “the widespread use of conflict minerals, and the SEC’s application of the disclosure requirements to both companies that directly manufacture products and to companies that contract for the manufacture of their products.”

Want to be among the first to know when the final rules come out? Check out Knowledge Mosaic’s new & improved Dodd-Frank Tracker, where you can sign up to be alerted on Dodd-Frank related rulemaking.

%d bloggers like this: