By John Filar Atwood
Ten U.S. Senators, including co-author of Dodd-Frank Section 1504 Ben Cardin (D-Md), have written to the SEC to urge the Commission to issue a new anti-corruption rule requiring certain disclosures from resource extraction issuers. The original rule, which was required by Section 1504, was disapproved in a February joint congressional resolution that was signed by the president (see prior coverage).
In the letter, the senators point out that the enactment of the joint resolution does not change the SEC’s legal obligation under the Dodd-Frank Act to implement a rule that is fully compliant with Section 1504. The asked the Commission to fashion a rule that is consistent with congressional intent and the resource extraction industry transparency laws in effect in other countries.
Rule requirements. Section 1504 calls for a rule that requires resource extraction issuers to disclose information relating to any payment made by them or their affiliates to a foreign government for the purpose of the commercial development of oil, natural gas, or minerals. The disclosure should include the type and amount of the payments made to any government for projects relating to the commercial development of oil, natural gas, or minerals.
The senators noted that the original rule was issued in June 2016 after a long process that involved participation by covered issuers, investors, government agencies, and others. They advised the Commission to consider the record surrounding the original rule when drafting a new rule.
Republican letter. The senators cited a February 2, 2017 letter from Republicans in support of a new resource extraction issuers rule that is consistent with international standards adopted by European and other governments. The ten Democratic senators agreed that aligning the rule with the transparency laws of Canada and the EU is crucial to maintaining U.S. leadership on transparency, but took issue with other parts of the February 2 letter.
Specifically, they disagreed with the claim that some countries might prohibit the disclosures required by the rule. They indicated that they know of no country that bans the disclosures and argued that there is no evidence that Section 1504 or similar disclosures would conflict with foreign law.
Even if this were a potential problem, the senators noted that the original rule included safeguards that allowed companies to apply for relief from disclosure on a case-by-case basis if a legitimate problem arose. They believe that a case-by-case approach that provides narrowly tailored relief, if needed, is more appropriate than providing blanket exemptions that would conflict with the international reporting regimes.
Needed transparency. The senators advised the SEC that the anti-corruption transparency rule is necessary, particularly in times of market volatility. In their view, transparency provides investors with clarity on the companies’ exposure to material reputational risks and sanctions that may influence their decision-making. In addition, transparency allows citizens in resource-rich countries to monitor the economic performance of oil, gas, and mining projects and ensure that revenues are being used responsibly, they concluded.