Recently, a U.S. federal judge threw out a securities regulation requiring oil companies to disclose their payments to foreign governments for oil and gas rights.
The Securities and Exchange Commission’s extractive resources rule was added (Section 1504) to the 2010 Dodd-Frank Wall Street reform law. Human rights groups and other proponents of the law argue it would help combat corruption and wasteful spending in resource-rich nations.
The rule required some 1,100 publicly traded oil, gas and mining companies to report payments exceeding $100,000 made to other countries “to further the commercial development” of the host nations’ resources.
U.S. District Judge John Bates’ ruling against the regulation is a victory for oil industry and business groups that claim the requirements would have imposed unfair and costly burdens. Trade groups including the American Petroleum Institute and the U.S. Chamber of Commerce argued the regulation would hobble extraction companies’ competitiveness by forcing them to publicly disclose commercially sensitive information.
In vacating the disclosure rule and sending it back to the SEC, District Judge John Bates said the regulation had “serious” problems.
“The Commission misread the statute to mandate public disclosure of the reports, and its decision to deny any exemption was, given the limited explanation provided, arbitrary and capricious,” Bates wrote.
Additionally, Judge Bates said that the SEC was wrong in rejecting companies’ request for an exemption from disclosing payments to Angola, Cameroon, China, and Qatar—countries which prohibit disclosure of payment information.
Oxfam America, along with other human rights groups in support of the rule, are unhappy with Judge Bates’ decision. “Mandatory disclosures of oil, gas and mining payments to governments are now a global fact and industry giants such as Exxon, Chevron, BP and Shell need to drop their misguided support for this litigation,” said Ian Gary, senior policy manager of Oxfam America’s oil, gas and mining program. “Now that the European Union has agreed on similar payment disclosure rules, the industry should give up its fight and withdraw their support for the lawsuit.”
With the rule back at the SEC for review, regulators must now choose whether to add an exemption or to reenact a similar measure with additional justification.