Enhancing the Transparency of Resource Extraction Revenue Payments
Commissioner Luis A. Aguilar
Dec. 11, 2015
Today, as required by Section 1504 of the Dodd-Frank Act, the Commission re-proposes rules that would create a new disclosure regime for payments made to a government by oil, natural gas, and mining companies for the purpose of the commercial development of a country’s natural resources. This type of disclosure is consistent with an emerging global consensus to combat government corruption through greater transparency and accountability. Today’s re-proposed rules are consistent with those global efforts.
The Congressional mandate under Section 1504 has proven to be among the more controversial rules that the Commission has been required to undertake under the Dodd-Frank Act. When the Commission originally proposed rules under Section 1504 back in December 2010, it received over 149,000 comment letters from corporations, industry and professional associations, government officials (both foreign and domestic), non-governmental organizations, academics and other interested parties, with over 150 individual letters and the rest form letters. These comment letters represented a wide variety of viewpoints from both those supportive of the rulemaking and those opposed. Reflecting the difficult nature of this rulemaking, after the Commission adopted final resource extraction disclosure rules in August 2012, these rules were challenged in court and ultimately, in July 2013, vacated by the United States District Court for the District of Columbia.
As a result of the rules being vacated, the Congressional mandate under Section 1504 remained unresolved. Subsequently, on September 2, 2015, the United States District Court for the District of Massachusetts ordered the Commission to meet its obligation under Section 1504 and to file an expedited schedule for promulgating final resource extraction rules. In doing so, the Court noted that despite the Commission’s originally adopted rules having been vacated, the Commission’s “duty to promulgate a final extraction payments disclosure rule remains unfulfilled more than four years past Congress’s deadline.” In response to the Court’s direction, on October 2, 2015, the Commission filed a proposed schedule to complete the required rulemaking, including re-proposing the resource extraction rules before the end of the year. Today’s proposed rulemaking thus represents an important step forward in both responding to the Court’s direction and in faithfully completing the Congressional mandate.
It’s noteworthy that during the period following the Commission’s original adoption of the resource extraction rules, global efforts to increase the transparency for resource extraction payments have continued to advance. For example, since the Commission first adopted its resource extraction rules in 2012, other jurisdictions have move forward in their efforts to increase the transparency of resource extraction payments, including the following:
- In June and October of 2013, the European Union (EU) Parliament and Council adopted two directives—the EU Accounting Directive and the EU Transparency Directive, respectively (the “EU Directives”). These EU Directives require oil, gas, mining, and logging companies to disclose payments they make to governments on a per government and per project basis. In 2014, the United Kingdom became the first of the EU member states to implement the EU Accounting Directive, which has since been implemented by 11 other EU member states;
- In December 2013, Norway adopted rules requiring resource extraction companies to disclose payments to governments on a project level; and
- In December 2014, the Canadian government adopted a federal resource extraction disclosure regime similar to the Commission’s originally adopted resource extraction rules, known as the Extractive Sector Transparency Measures Act (“ESTMA”).
Furthermore, following the Commission’s original 2012 adoption of the resource extraction rules, global companies in the extractive industry began to provide, on a voluntary basis, more comprehensive disclosures of their resource extraction payments to governments. For example, at least two large resource extraction companies already provide payment disclosure on a project basis, and at least one other major resource extraction company voluntarily provides such disclosure on a per country and/or legal entity basis. Other global companies are also beginning to open their books to permit a window into their resource extraction payments to foreign governments.
Indeed, driven in part by the recent global developments in resource extraction disclosure legislation, industry representatives, human rights and environmental advocacy groups, and other government agencies have written the SEC to press for new resource extraction disclosure rules.
That brings us to today.
Today’s re-proposed rules strive to faithfully implement the Congressional intent to increase transparency and accountability in the resource extraction sector. In doing so, the Commission has endeavored to comprehensively consider all viewpoints; and it has carefully considered what is occurring internationally.
In the end, the rules being re-proposed today fulfill the Commission’s Congressional mandate, meet the conditions of the District Court’s order, and are consistent with the emerging global consensus to fight corruption through enhanced disclosure of resource extraction payments to governments.
In closing, I will support today’s re-proposing release on resource extraction disclosure. In my view, today’s rules reflect a deliberate, careful, and well-reasoned approach.
I would like to thank the staff from the Division of Corporation Finance, the Division of Economic Research and Analysis, and the Office of the General Counsel for their work on this rulemaking. I appreciate your dedication and the important work that you do to protect investors.
 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, H.R. 4173 (July 2010) (the “Dodd-Frank Act”).
 See Disclosure of Payments by Resource Extraction Issuers, Release No. 34-76620 (Dec. 11, 2015) (hereinafter “Proposing Release”) at I.E.1. (Introduction and Background/ Objectives of Section 13(q)’s Required Disclosures and the Proposed Rules/ The U.S. Government’s Foreign Policy Interest in Reducing Corruption in Resource-rich Countries), available at http://www.sec.gov/rules/proposed/2015/34-76620.pdf (noting that “a global consensus has begun to emerge that increasing revenue transparency through the public disclosure of revenue payments made by companies in the resource extraction sector to foreign governments can be an important tool to help combat the corruption that resource-rich developing countries too often experience.”).
 See Proposing Release, at I.E.1. (Introduction and Background/ Objectives of Section 13(q)’s Required Disclosures and the Proposed Rules/ The U.S. Government’s Foreign Policy Interest in Reducing Corruption in Resource-rich Countries) (noting that “a global consensus has begun to emerge that increasing revenue transparency through the public disclosure of revenue payments made by companies in the resource extraction sector to foreign governments can be an important tool to help combat the corruption that resource-rich developing countries too often experience.” In particular, these disclosure rules seek to address the concern regarding “corruption within the governments of developing countries that are rich in oil, gas, or minerals.”).
 See Senate Floor Statement of Senator Lugar, “Lugar Floor Speech on Transparency Amendment” (May 18, 2010), available at https://votesmart.org/public-statement/507898/restoring-american-finacial-stability-act-of-2010#.Vl3YjHZOm70 (stating that “[t]ransparency empowers citizens, investors, regulators, and other watchdogs and is a necessary ingredient of good governance for countries and companies alike. … More importantly, it would help empower citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas, and mineral resources and revenues.”).
 Compare Letter from Institute for 21st Century Energy, U.S. Chamber of Commerce (Mar. 2, 2010), available at http://www.sec.gov/comments/s7-42-10/s74210-60.pdf (expressing that the ultimate purpose of Section 1504 is “to influence the behavior of governments” and thus reflected a “deviation from [the Commission’s] long-standing mission.”) and Letter from California State Teachers’ Retirement System Investments (Mar. 1, 2011), available at http://www.sec.gov/comments/s7-42-10/s74210-59.pdf (“CalSTRS appreciates the thoroughness of the preparation and presentation of the Commissions proposed rules for the implementation of Section 1504 and we support the Commission in this effort to provide greater transparency to shareholders so that more informed investment decisions can be made.”). In particular, critics of the original rulemaking focused on, among other things, the potentially substantial costs of compliance with the rules and the possible competitive harm that could result from public disclosure of resource extraction payments. See, e.g., Letter from American Petroleum Institute (Aug. 11, 2011), available at http://www.sec.gov/comments/s7-42-10/s74210-107.pdf (referring to the “potential for hundreds of millions of dollars in direct reporting and compliance costs” and also “to the very real potential for tens of billions of dollars of existing, profitable capital investments to be placed at risk should the final rules require public disclosure of information that is prohibited from disclosure by the laws of other countries.”); Letter from ExxonMobil (Oct. 25, 2011), available at http://www.sec.gov/comments/s7-42-10/s74210-112.pdf (noting that “[w]hile ExxonMobil's longstanding support of the Extractive Industry Transparency Initiative (‘EITI’) affirms our belief in the benefits of transparency, we feel obliged to reaffirm the cost estimate (over $50 million) we provided in our earlier comment letter and to confirm our support of the industry-wide cost estimate (hundreds of millions of dollars) provided in the American Petroleum Institute's earlier comment letters.”).
 See Memorandum Opinion, American Petroleum Institute, et al., v. Securities and Exchange Commission and Oxfam America, Inc., Civil Action No. 12- 1668 (JDB) (July 2, 2013), available at https://www.sec.gov/rules/final/2013/34-67717-court-decision-vacating-rule.pdf.
 In particular, see Section 1504 of the Dodd-Frank Act, which added Section 13(q) to the Securities and Exchange Act of 1934. See Pub. L. No. 111-203 (July 21, 2010). Section 13(q) requires the Commission to “issue final rules that require each resource extraction issuer to include in an annual report . . . information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals, including—(i) the type and total amount of such payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals; and (ii) the type and total amount of such payments made to each government.” See 15 U.S.C. 78m(q)(2)(A).
 See Memorandum and Order, Oxfam America, Inc., v. United States Securities and Exchange Commission, Civil Action No. 14- 13648-DJC (Sept. 2, 2015), available at http://www.oxfamamerica.org/static/media/files/CASPER_DECISION.pdf.
 See id.
 See Notice of Proposed Expedited Rulemaking Schedule, Oxfam America, Inc., v. United States Securities and Exchange Commission, Civil Action No. 14-cv-13648 (Sept. 2, 2015), available at http://dodd-frank.com/wp-content/uploads/2015/10/SEC-Implementation-of-Resource-Extraction-Rule.pdf.
 See Proposing Release at I.C. (Introduction and Background/Developments Subsequent to the 2013 Court Decision).
 See Letter from United States Department of the Interior (Nov. 6, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-96.pdf (describing the United Kingdom’s The Reports on Payments to Government Regulations 2014 (Dec. 1, 2014)). The other EU member states to implement the EU Accounting Directive include Austria, Croatia, the Czech Republic, Denmark, Germany, Hungary, Italy, Lithuania, Portugal, Slovakia, and Spain. See Proposing Release at I.C. (Introduction and Background/Developments Subsequent to the 2013 Court Decision). As a general matter, the EU Accounting Directives require large public companies incorporated in the EU, such as Total and BP among others, to report their resource extraction payments. The EU Transparency Directives require companies listed on EU-regulated stock exchanges to report their resource extraction payments. See also, UK Passes Historic Transparency Law For Oil, Gas And Mining Companies, Oxfam (Dec. 1, 2014), available at http://www.oxfamamerica.org/press/uk-passes-historic-transparency-law-for-oil-gas-and-mining-companies/.
 See Letter from Publish What You Pay (Mar. 14, 2014), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-28.pdf; Transparency on the Move: Payment Disclosure by the World’s Largest Oil, Gas & Mining Companies, Publish What You Pay (updated Feb. 2015), available at http://www.publishwhatyoupay.org/wp-content/uploads/2015/10/Company_Coverage_Fact_Sheet_Final.pdf.
 See Proposing Release at I.C. (Introduction and Background/Developments Subsequent to the 2013 Court Decision).
 See Proposing Release at I.C. (Introduction and Background/Developments Subsequent to the 2013 Court Decision). In addition to public corporations voluntarily providing these disclosures, governments are also providing such disclosures. For example, in March 2014, the United States completed the process to become a candidate country for the Extractive Industries Transparency Initiative (“EITI”), of which 49 countries are a part. See Letter from United States Department of the Interior (Nov. 6, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-96.pdf.
To achieve candidacy status, the United States government formed a required multi-stakeholder group, which included representatives from the government, civil society, and industry, to oversee implementation of the U.S. EITI. As a result of its commitment to the EITI, the United States plans to file its first mandatory EITI report this month, which will include publicly-disclosed information on revenue payments that companies paid the federal government in connection with the extraction of oil, gas, and mining resources. See USEITI 2015 Workplan, available at http://www.doi.gov/eiti/FACA/upload/WORKPLAN-2015-12_19_14-final.pdf; U.S. Department of the Interior website, US Extractive Industries Transparency Initiative, available at https://www.doi.gov/eiti.
 See, e.g., Letter from Kosmos Energy (Oct. 19, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-95.pdf; BHP Billiton, Economic contribution and payments to governments Report 2015, available at http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-reports/2015/bhpbillitoneconomiccontributionandpaymentstogovernments2015.pdf?la=en.
 See, e.g., 2014 Payments to governments, Statoil (2015), available at http://www.statoil.com/no/InvestorCentre/AnnualReport/AnnualReport2014/Documents/DownloadCentreFiles/01_KeyDownloads/2014%20Payments%20to%20governments.pdf.
 See Paula Dupraz-Dobias, Moving towards greater transparency?, swissinfo.ch (Oct. 22, 2015), available at http://www.swissinfo.ch/eng/business/commodity-trading_moving-towards-greater-transparency-/41735418 (describing how in December 2015, the Swiss commodities trading company Trafigura will publish its first disclosures that are compatible with the global standard of the EITI).
 See, e.g., Letter from Publish What You Pay (Aug. 10, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-82.pdf (“Publish What You Pay urges the Securities and Exchange Commission to promptly re-issue a rule for Section 1504 that is in line with the 2012 rule and the global transparency standard.”); Letter from Chevron Corporation (May 7, 2014), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-40.pdf (stating that “Chevron urges the Commission to move ahead with new rulemaking under Section 13(q) as soon as possible in 2014.”); Letter from Royal Dutch Shell plc and Exxon Mobil Corporation (May 1, 2014), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-37.pdf (indicating that the implementation of transparency legislation in the United Kingdom “increases the urgency for the Commission to consider Dodd-Frank 1504 in calendar year 2014.”); Letter U.S. Department of State (Nov. 13, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-102.pdf (stating that “I encourage the Commission to produce a strong Section 1504 rule that improves transparency by ensuring a sufficiently detailed level of information concerning payments from the extractive industry to foreign governments for the development of oil, natural gas, and minerals [and that] will be made public and accessible to civil society and investors. In the absence of this level of transparency, citizens have fewer means to hold their governments accountable, and accountability is a key component of reducing the risk of corruption.”); See Letter from United States Department of the Interior (Nov. 6, 2015), available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-96.pdf (stating that the Interior Department “believe[s] that a significant opportunity now exists to leverage the U.S. government’s EITI and Section 1504 investments designed to bring more meaningful transparency to natural resource revenue disclosure.”).
 This approach can be illustrated through one example, among many, in today’s release: the proposed rules would allow issuers to meet the resource extraction disclosure requirements, in certain circumstances, by providing disclosures that would comply with a foreign jurisdiction’s own resource extraction rules, or that meet the U.S. EITI reporting requirements, if the Commission has made a determination that those reporting requirements are substantially similar to the Commission’s own adopted resource extraction reporting regime. See Proposing Release at II.G.4. (Proposed Rules Under Section 13(q)/Disclosure Required and Form of Disclosure /Alternative Reporting). This alternative reporting regime, a presumption of comity extended to other substantially similar disclosure regimes, will not only further the United States’ own foreign policy goals, but should facilitate compliance with these rules for resource extraction issuers.