Dodd-Frank: Adding Transparency to U.S. and EU Stock Exchange Requirements


Country: United States, International

A key part of RWI's campaign to "mainstream" revenue transparency in the extractive industries is the effort to secure stock exchange reporting requirements that require listed companies to disclose their payments made to governments in exchange for access to extractive resources.

In order to produce meaningful information, this reporting should include a high level of disclosure—with data broken down not only on a per country and/or per project basis—but also according to categories of payment (royalties, taxes, bonuses, etc.). Given the high-risk environment in which many extractive companies operate—risks exacerbated by public unrest related to corruption, or perceptions of corruption, between company and government officials—information on the economic relationships between companies and governments is vital to many users of financial data, including investors, creditors, shareholders and host country citizens. Recognizing the reputational risks that accompany a lack of transparency in extractive deal-making, some companies have chosen to disclose their payments to governments voluntarily. However mandatory listing requirements would ensure that this reporting becomes the norm rather than remaining an exception.

There are many benefits to listings requirements on major stock exchanges to promote industry transparency. The disaggregation of payment information complements the aims of the Extractive Industries Transparency Initiative (EITI), which works to level the playing field by requiring all companies operating within participating countries to disclose their payments to governments. The EITI's universal company reporting standard helps to mitigate company concerns that unilateral disclosures could somehow put them at a competitive disadvantage. Widespread mandatory listing requirements would further level the playing field, by subjecting most major extractive companies—including an increasing number of state-owned companies—to similar disclosure rules, making visible a large proportion of their activities worldwide.

Currently only a few examples of mandatory reporting exist. The London Stock Exchange’s Alternative Investments Market requires limited but significant disclosures from extractive industry companies, while the Hong Kong Stock Exchange began requiring country-by-country reporting from new issuers in early 2010. Perhaps the most rigorous and comprehensive standard, however, is the one recently passed in the United States.

In July 2010, Revenue Watch, working in collaboration with the Publish What You Pay-US coalition and other members of the transparency community, helped successfully advocate for a landmark provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires energy and mining companies to make public their payments to governments. Under the new law, all domestic and foreign companies registered with the U.S. Securities and Exchange Commission (SEC) must publicly report how much they pay governments for access to their oil, gas and minerals, beginning in FY2012. These payments must be reported on a country-by-country and a project-by-project basis, and will likely cover a wide range of the material benefits that accrue to governments from extractive deals.

The SEC will issue final rules establishing exactly how issuers will report information under this legislation in April, 2011. During the Commission's public comment phase, Revenue Watch and other stakeholders submitted formal recommendations on how the Dodd-Frank extractive revenue provisions should be interpreted. Though certain details of the reporting rules will not be certain until final regulations are issued, it is clear that company coverage will be broad. Of the 32 largest internationally active oil companies, 29 are registered with the SEC or have other SEC reporting requirements. Eight of the world’s 10 largest mining companies are also registered with the SEC, and will likely be covered by the final rules.

The embrace of country-by-country extractive company reporting in the U.S. comes amid an accelerating global movement for similar standards at the international level. The U.S. bill helped to inspire a 2010 motion in the UK Parliament urging the government to require fuller disclosure of government payments, while proposals for country-by-country reporting reforms have also been discussed at the EU level and are also currently undergoing consideration by the International Accounting Standard Board.