On the eve of America’s Memorial Day weekend, the White House released the Spring 2014 version of its semi-annual “Unified Agenda of Federal Regulatory and Deregulatory Actions.” Couched among the many planned regulatory activities across 60 federal agencies is an upcoming Securities and Exchange Commission rule on oil and mining transparency that will shed light on the vast payments that extractive companies make to governments around the world. Visibility into these payments will inform investors and help citizens to combat corruption and improve accountability in some of the poorest, yet most resource-rich countries in the world.
Congressmen, investors, industry representatives and civil society have been calling on the SEC to add this crucial rule to its active agenda for months. The pressure has paid off and the SEC has now said it expects to publish a Notice of Proposed Rulemaking by March 2015.
This is longer than many of us had hoped and we will continue to push for speedier action, but it is progress. The rule has a long history: originally included as Section 1504 (or the Cardin-Lugar Amendment) of the Dodd Frank Act in July 2010, the SEC first issued the rule to implement the law in August 2012. However, the rule was challenged by the American Petroleum Institute (API) and other industry associations, and in July 2013 a federal court demanded that the SEC rewrite its rules before any disclosures on the part of extractive companies.
While clearly a setback for those seeking greater transparency, the legal challenge was successful on fairly narrow grounds: the underlying law still stands and the SEC was simply directed to better justify the choices it had made using its discretionary powers. The key elements of the SEC’s 2012 rule required annual public disclosure of payments by individual oil, gas and mining companies listed on U.S stock exchanges, broken down by project and including payments to all governments around the world without exception. Opposition to these key elements formed the basis of the API’s legal challenge.
As the SEC moves to reissue its rule, it now has the benefit of looking to many other jurisdictions around the world which have followed the U.S. lead and adopted laws which fully align with the original 2012 SEC rule. The European Union’s 28 member states and Norway agreed with this pioneering blueprint for transparency and came to the same conclusion—that public disclosure by individual companies, for all projects without exception, lies at the core of a new disclosure standard for the oil, gas and mining industries.
The Canadian government vowed at last year’s G8 summit to put in place its own rules by June 2015. A recent consultation led by the Canadian government suggests it still agrees with these core principles. The Revenue Watch Institute – Natural Resource Charter is part of a working group including Canada’s largest mining industry associations which has made joint recommendations on two occasions to the government of Canada; these recommendations suggest that all companies should be bound by the same standard, thereby contributing to the expansion of a level playing field worldwide.
Not everyone agrees with the new global standard that these various efforts embody. The API and some of its largest members (companies like ExxonMobil, Chevron, BP and Shell) would prefer that the SEC release an anonymized compilation of company payments, together with an exemption from disclosure in certain countries. (Some companies would also like to turn back the clock and undo the European legislation, even if there is no scope to do so.) It is hard to see how this model of reporting would be of any use: investors would gain nothing if they are unable to identify which company is making a payment; citizens in resource-rich countries would be unable to hold their governments accountable for specific company payments. It is also a stretch to think that Congress ever really contemplated that the disclosure reports it was requiring of companies would in fact never be made public.
We are also starting to see a shift within the normally tight-knit group of oil companies. SEC-registered Statoil has peeled off from the API challenge and is supportive of the law passed earlier this year in its native Norway. In the United Kingdom, FTSE 100-listed Tullow Oil has shown leadership by already disclosing detailed project-level payments before the European rules kick in. (The UK government has said it will have implemented the European rules by the end of 2014.)
While the content of the SEC rule is something that stakeholders will continue to debate, all parties are at least in agreement that the SEC needs to act. Countries with billions of dollars in natural resources shouldn’t be among the world’s poorest, and something needs to change.
Revenues generated from oil gas and mining could fund health care and education for the poor, and spur economic growth more generally. The question is whether or not the SEC will eventually adopt a rule which can adequately respond to this challenge by requiring meaningful transparency in line with other countries which have legislated in this area. If it does, investors, communities, governments and companies themselves stand to benefit.
May the rulemaking begin!
Joseph Williams is RWI-NRC’s senior advocacy officer.
The Brookings Institution and RWI-NRC will be co-hosting an event in Washington DC on June 9 to discuss the upcoming SEC rule and international developments. For details, please visit the event page.