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Facilitating Transparency of Resource Revenue Payments to Protect Investors

Commissioner Luis A. Aguilar

Aug. 22, 2012

Justice Brandeis famously wrote, “Sunshine is the best of disinfectants.”1 This philosophy of fair and full disclosure is one of the cornerstones of the federal securities framework. Today, I support the Commission’s adoption of a rule that is based on this same principle of facilitating transparency through disclosure.

Through Section 1504 of the Dodd-Frank Act (also known as the Cardin-Lugar Amendment), Congress intended to increase the transparency of payments made by oil, natural gas, and mining companies to a government for the purpose of the commercial development of a country’s natural resources.2

To accomplish this goal, Congress created a disclosure regime under the Exchange Act that would support the commitment of the United States Government to international transparency promotion efforts relating to the commercial development of oil, natural gas, or minerals.3

Specifically, Section 13(q) shines a light on the payments that resource extraction issuers pay to governments, so that stakeholders may seek to ensure that such payments are used for proper purposes. As Senator Richard G. Lugar has noted:

Transparency empowers citizens, investors, regulators, and other watchdogs and is a necessary ingredient of good governance for countries and companies alike.4

As an example of why investors require this information, Senator Ben Cardin has said:

Investors need to know the full extent of a company's exposure when it operates in countries where it is subject to expropriation, political and social turmoil, and reputational risks.5

Following the enactment of Dodd-Frank, the Commission began a rulemaking process characterized by extensive public outreach, thoughtful deliberation, and rigorous economic analysis. Over a period of 25 months, the Commission received a large number of comment letters from corporations, industry and professional associations, United States and foreign government officials, non-governmental organizations, academics, individual and institutional investors, and other interested persons. We reviewed and considered all the comments that we received, and the final rule reflects changes from the proposal made in response to consideration of these comments.

The Commission engaged in an extensive cost/benefit analysis to address concerns about compliance costs. We also considered the effects of the rule on efficiency, competition, and capital formation.

Today’s rulemaking is the culmination of a careful and comprehensive process to implement a Congressional directive. We have used our judgment and expertise, as the independent agency tasked by Congress to implement Section 13(q), to do so faithfully. Generally, the final rule tracks the language in Section 13(q) of the Exchange Act. In addition, the final rule is also consistent with the Extractive Industries Transparency Initiative (“EITI”), unless faithfulness to the statutory provision requires otherwise.6 The final rule we consider today is in the interest of investors and the public interest. There is no reason for any delay in the adoption of the rule.

I would like to take this opportunity to thank the staff for their work in connection with this rulemaking to facilitate transparency through disclosure to investors and the public. In particular, I would like to recognize the Division of Corporation Finance; the Division of Risk, Strategy and Financial Innovation; and the Office of General Counsel. I appreciate your hard work and sustained efforts.

Thank you.

1 Louis D. Brandeis, Other People's Money and How the Bankers Use It 92 (1914) ("Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.")

2 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) § 1504, Pub. L. 111-203, 124 Stat. 1376 (July 21, 2010). Section 1504 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. 78a et seq., to add new a section 13(q). It is Section 13(q) of the Exchange Act that requires the rulemaking described herein. The amendment that added Section 1504 of the Dodd-Frank Act was co-sponsored by Senator Ben Cardin and Senator Richard G. Lugar, among others, and built upon language originally introduced by Senators Cardin and Lugar in a bill entitled the Energy Security Through Transparency Act of 2009. S. 1700, 111th Cong. (2009) (the “ESTTA”). See, Senate Floor Statement of Senator Lugar, “Lugar Floor Speech on Transparency Amendment” (May 18, 2010), available at (“Lugar Floor Statement”). The ESTTA called for the following “findings” by Congress:

“(1) It is in the interest of the United States to promote good governance in the extractive industries sector because good governance strengthens the national security and foreign policy of the United States, contributes to a better investment climate for businesses in the United States, increases the reliability of commodity supplies upon which businesses and people in the United States rely, and promotes greater energy security.

(2) Developing countries that derive a significant portion of revenues from natural resource extraction tend to have higher poverty rates, weaker governance, higher rates of conflict, and poorer development records than countries that do not rely on resource revenues. The consequences of what is known as the ‘resource curse’ including the erosion of civil society, a rise in internal conflicts and regional violence, and the proliferation of terrorism are likely to pose a long-term threat to the national security, foreign policy, and economic interests of the United States.

(3) Transparency in revenue payments to governments enables citizens to hold their leaders more accountable.

(4) There is a growing consensus among oil, gas, and mining companies that transparency in revenue payments is good for business, since it improves the business climate in which they work and fosters good governance and accountability.

(5) Transparency in revenue payments benefits shareholders of corporations that make such payments because such shareholders have a desire to know the amount of such payments in order to assess financial risk, compare payments from country to country, and assess whether such payments help to create a more stable investment climate. Undisclosed payments may be perceived as corrupt and as decreasing the value of the corporation.”

ESTTA § 2 (as introduced, Sept. 23, 2009).

As these principles underscore, enhancing transparency with respect to payments made by resource extraction issuers to governments for the commercial development of oil, natural gas, and minerals, advances our national interest, promotes our core values, and protects the interests of investors.

3 See, 15 U.S.C. 78m(q)(2)(E). See also, note 6, infra.

4 Lugar Floor Statement.

5 Senate Floor Statement of Senator Cardin, “The Dodd-Frank Wall Street Reform and Consumer Protection Act” (July 15, 2010), available at

6 EITI is a voluntary coalition of resource companies, governments, investor groups, and other international organizations dedicated to fostering and improving transparency and accountability in resource-rich countries through publication and verification of company payments and government revenues from oil, natural gas, and mining. See Implementing the Extractive Industries Transparency Initiative (2008) available at On September 20, 2011, President Obama declared that the United States will join the global initiative and released a National Action Plan stating that the Administration is committing to implement the EITI.

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