Dec. 14, 2020
Chair Clayton: I understand that a final rule for Section 13(q) of the Securities Exchange Act of 1934, the implementing rule of the Dodd-Frank Section 1504 will be put to a vote on Wednesday, December 16. Having worked in both investment banking and development finance throughout the Western Hemisphere, I understand the importance of such a rule to both investors and citizens of countries where natural resource development take place. Both sets of stakeholders have long awaited a strong rule to meet the underlying law’s anticorruption goals and provide greater access to critical data. A strong rule for Section 13(q) is critical to addressing market efficiencies as well. Investment analysts thrive on data as it means a deeper understanding of investments, and the more detail the better. Arguments have been made that Section 1504 disclosures harm investors by inundating them with unhelpful information. To the contrary, I am confident that investors can identify which data are relevant to their investment analysis, particularly if their voice is acknowledged in the development of disclosure regulations. In the case of Section 13(q), the voice of investors has been clear since the beginning for the 2010 rulemaking process. Dozens of comment letters have emphasized the need for disclosures that are consistent with those required by companion laws in the EU, UK, Canada and Norway. The data set resulting from consistent disclosure would provide global insights into the impact that government has on the operating cash flow of individual oil companies in the short-term and permit analysis of the dynamics of natural resource fiscal regimes in the long-term. The result of the availability of these data would be elimination of inefficiencies and disclosure of management considerations now unknown to most investors. This tax and royalty payment data is already included in several lines in an issuer’s income statement, such as cost of sales, exploration cost and income tax expenses. Unfortunately, only those market participants with access to expensive databases and industry-specific platforms are able to access this data in the necessary detail to make it actionable. This creates a lack of access to critical information for Main Street Investors, who are excluded from being able to adequately assess project risks and investment opportunities in a sector where government payments are significant and impact the stability of a project. Recognizing this disparity, other jurisdictions have pushed for detailed, project-level disclosures of payments to governments. However, a strong US disclosure rule that aligns with those other jurisdictions would double the amount of data available and allow analysts and investors around the world greater data to understand project implications. The disclosures resulting from Section 13(q) represent information that would better reflect the valuation of natural resource-related securities. From a market efficiency perspective, an implementing rule in line with the existing laws is in the best interest of both registrants and investors. I hope you will take this opportunity to address an inefficiency that is the source of systemic risk and a disparity in the availability information. Thank you for your attention. Sincerely, Carl F. Muñana Former Managing Director and Chief Risk Officer for Latin America at J.P. Morgan & Co. Former CEO at Inter-American Investment Corporation (IDB Group) (ret.)