Statement on Proposed Disclosure of Issuer Payments Related To Extraction of Natural Resources
Dec. 18, 2019
Thank you as always to our dedicated Staff, especially Barry Summer and Elliott Staffin from the Division of Corporation Finance, for their extensive work on these rules. I’m also grateful to Division Director Bill Hinman, as well as the Staff in our Office of General Counsel and Division of Economic and Risk Analysis, for all their efforts on this rulemaking.
Today the Commission proposes rules requiring issuers to disclose payments to foreign governments related to extraction of certain natural resources. This crucial transparency initiative has had a too-long and too-trying history, context that we should keep in mind as this process moves forward. But today’s proposal shines too little light on how American companies use investor funds to finance payments to foreign governments. Accordingly, I respectfully dissent.
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For many reasons, today’s proposal does not give investors nearly enough information about how their money is used to pay for the right to extract certain natural resources. Among other things, the proposal sets a de minimis threshold that will keep many payments in the dark. But what concerns me even more about the proposal is its suggestion that the Commission will further weaken the rule by allowing issuers to file confidential disclosures rather than providing the public accountability that Congress intended when enacting Section 1504. For three reasons, that choice would risk real—and unnecessary—harm to investors.
First, corporate insiders respond to the incentives we give them, and public disclosure provides crucial accountability for those who pay foreign governments for resource rights. Executives can be expected to behave differently in the sunlight than in the dark, which is why Congress mandated that payments like these be subject to public disclosure. Aggregated, anonymized disclosure would make it harder to hold corporate insiders to account for the choices they make in this area. Whatever Congress intended us to do with this statute, surely they imagined that corporate insiders would be held to account for these payments.
Second, to the degree that shareholders sort among investments on the basis of this information, confidential submissions and an anonymized report would deprive investors of the chance to choose firms that take a different approach to foreign payments like these. We should arm American investors with the information they need to make those choices.
Some might take the view that investors either do not choose investments on this basis—or that they shouldn’t. But the first argument amounts to an untested empirical assertion about investor behavior based exclusively on one’s intuition. The second substitutes our view from Washington about what is important for the collective views of investors around the world. Neither offers adequate basis for the proposal’s suggestion that we should consider mandating only confidential disclosures and anonymized compilations under Section 1504.
Third, the Commission has long taken the view that confidential disclosures and an anonymized report would not satisfy Section 1504. It is true, of course, that Congress has chosen to exercise its authority under the Congressional Review Act to disapprove our prior rule in this area. But it is equally notable what Congress did not do: repeal Section 1504. We must take great care not to do by regulatory fiat that which Congress has not done.
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Despite a statutory mandate to shine light on whether public companies pay foreign governments for the right to extract natural resources, today’s proposal leaves many of those payments undisclosed. Worse, the release hints that we might move even further towards keeping those payments in the dark. I urge commentators to come forward to help us develop a final rule that would better serve investors. And I look forward to engaging with my colleagues, the Staff, and stakeholders around the world in that effort.
 Sec. & Exch. Comm., Proposed Rule: Disclosure of Payments by Resource Extraction Issuers, Rel. No. 34-87783 (Dec. 18, 2019), at 56 [Proposing Release] (requiring disclosure only where aggregate project payments exceed $750,000—and even then, only payments to each foreign government that exceed $150,000).
 See id. (“We are requesting comment on an alternative approach that would allow for confidential filings and that would release information through an anonymized, aggregated compilation.”).
 The literature has long established the obvious proposition that ex post disclosure has important ex ante effects. See, e.g., Paul G. Mahoney, Mandatory Disclosure as a Solution to Agency Problems, 62 U. Chi. L. Rev. 1047 (1995); Rafael LaPorta, Florencio Lopez-de-Silanes & Andrei Shleifer, What Works in Securities Laws?, 61 J. Fin. 1 (2006). For empirical evidence in the tax context, see Erlend E. Bo, Joel Slemrod & Thor O. Thoresen, Taxes on the Internet: Deterrence Effects of Public Disclosure, 7 Am. Econ. J. Econ. Pol’y 36 (2015) (noting an increase in tax compliance associated with disclosure); for evidence in the context of executive pay, see Robert J. Jackson, Jr., Stock Unloading and Banker Incentives, 112 Colum. L. Rev. 951 (2012).
 That’s why the Commission was correct, in 2012, to make clear that “the statutory intent [of Section 1504], when read together and with the statute’s transparency goal, mean that the statutory intent is for the disclosure made by resource extraction issuers to be publicly available.” Sec. & Exch. Comm’n, Disclosure of Payments by Resource Extraction Issuers, Rel. No. 34-67717 (Aug. 22, 2012), at 110-11.
 See, e.g., Chair Mary Jo White, The Importance of Independence (Oct. 3, 2013 remarks at Fordham Law School) (claiming, on the basis of intuition, that certain disclosure mandates “seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose . . . information that primarily informs investment decisions” and asserting as “unassailable” unproved hypotheses regarding investors’ ability to process information); compare Mohammadreza Bolandnazar et al., Trading Against the Random Expiration of Private Information: A Natural Experiment, __ J. Fin. __ (2019) (providing actual evidence about how investors process information).
 Although the United States District Court for the District of Columbia has previously held that “the [SEC] misread the statute to mandate public disclosure,” Am. Petroleum Inst. v. Securities & Exch. Comm’n, No. 12-1668 (JDB), 2013 WL 3307114 (D.D.C. July 2, 2013), the Commission correctly concluded in 2016 that the statutory requirement to further the interests of international transparency efforts—which have changed significantly since 2012—gives us ample discretion to require public disclosure now. See Sec. & Exch. Comm’n, Disclosure of Payments by Resource Extraction Issuers, Rel. No. 34-78167 (June 26, 2016), at 100-04 (“[W]e continue to believe that exercising our discretion to require public disclosure of the information required to be submitted under the statute is supported by the text, structure, and legislative history of [the statute].”).
 See Congressional Research Service, What is the Effect of Enacting a Congressional Review Act Resolution of Disapproval? (Oct. 30, 2018) (noting the CRA’s statutory prohibition on issuing rules that are “substantially the same” to the disapproved rule); see also Proposing Release, supra note 1, at 18-27 (noting our interpretation of the effect of this resolution on our discretion to issue today’s rule).
 Many Members of Congress who supported the joint resolution expressly noted that the Commission would be obligated to issue a new rule fulfilling the statutory mandate. See, e.g., 163 Cong. Rec. H.848, 849 (February 1, 2017) (Statement of Rep. Hensarling) (“Let’s also remember that this joint resolution does not repeal section 1504 of Dodd-Frank. I wish it did, but it doesn’t. . . . It simply tells the SEC to go back to the drawing board, comply with the Dodd-Frank Act, and come up with a better rule . . . .”).