Five Years and Counting: The SEC Must Step Up and Make Natural Resource Payment Disclosure Rule

Issue: Dodd-Frank
Country: Angola
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Another year goes by and the elation we felt is like a distant memory. Five years ago today, on 21 July 2010, President Obama signed the Dodd-Frank Act into law, and all those who support a genuinely open natural resource sector hailed an important provision contained in the huge financial reform bill.

Dodd-Frank Section 1504 tasked the US financial regulator, the Securities and Exchange Commission, with writing rules to require oil, gas and mining companies to disclose the payments they make to governments around the world for the right to extract precious natural resources.

That was all well and good: disclosure of these payments is essential for investors seeking to manage risk and for citizens aiming to combat corruption and improve accountability in some of the poorest, yet most resource-rich countries in the world such as oil-rich Angola which has the world’s highest child mortality rate or the Democratic Republic of Congo which sits simultaneously on vast mineral resources and at the bottom of UNDP’s Human Development Index.

The problem is that five years after this landmark provision was passed, not one company has disclosed its payments to governments under the new law. The SEC took two years to write the initial rule implementing the law; it was released in August 2012, violating the Congressional deadline for a rule to be in place within 270 days. The American Petroleum Institute (API) and other industry lobbyists then challenged the rule, claiming that the SEC should have adopted a weaker rule which included exemptions and provided for the names of the specific companies making payments to be withheld from the public, and in July 2013 a federal court demanded that the SEC rewrite the regulations.

While clearly a setback for those seeking greater transparency, this cynical legal challenge supported by companies such as ExxonMobil, Chevron, BP and Royal Dutch Shell, 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.

It has now been another two years since the SEC was asked to rewrite its rule, which has left many people wondering if the SEC will ever finish the job, and has called into question the SEC’s commitment to doing what Congress asked it to do. Prompted by these delays, our partners at Oxfam America have filed two lawsuits since Dodd Frank was enacted in order to compel the SEC to finalize the rule.

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 extractive project and including payments to all governments around the world, without exception.

Given that some of the world’s largest energy companies are listed principally on the New York Stock Exchange, the delay to the rule means that comprehensive disclosure of their payments to governments around the world has not happened. This is important, because we are talking about non-renewable resources. When a country grants a company the right to extract its natural resources, it is a big deal. When the resource is depleted, it is gone forever; a government can only spend any money received once; and we know that all too often, that money does not end up benefiting the largely poor population through, say, better schools, or new hospitals. Investors and citizens need to know what payments governments are receiving from these companies so that they can follow the money and improve accountability in a sector which has historically been characterized by its opacity.

The good news is that since the SEC was first tasked with implementing this law back in 2010, its job has actually become much easier. 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. (Yes, the US, once the frontrunner in extractives transparency, is now sadly the laggard.) In 2013, 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 payment disclosure standard for the oil, gas and mining industries. In December 2014 Canada passed its own law also in line with the new global standard.

Not only have other laws been passed around the world, but numerous companies have actually begun to disclose their payments in line with the new global standard, showing that such disclosure is practicable and does not have an impact on a company’s bottom line. The arguments that companies like ExxonMobil have been making—that disclosure might cause them commercial and competitive harm—become even hollower in the face of the growing list of companies large and small, such as Statoil, Tullow and Kosmos, which take an opposing view: that disclosure is actually good for business.

So, after five years of delay and legal wrangling, it is well past time the SEC finished the job.

Joseph Williams is a senior advocacy officer at the Natural Resource Governance Institute.