In 2012, the Securities and Exchange Commission (“SEC”) adopted a rule that would require companies that extract oil, natural gas, and minerals to disclose payments made to the U.S. government along with foreign governments. Such companies would need to “disclose the information annually by filing a new form with the SEC called Form SD.” The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act mandated this rule and hoped that the rule would “encourage transparency and fight corruption in resource rich countries.”
Supporters of the rule hoped for greater transparency because “those payments [could] be used to hide bribes and other illicit deal-making.” However, the American Petroleum Institute and the U.S. Chamber of Commerce fought back against the rule and successfully challenged the law in the U.S. District Court for the District of Columbia. In a 30-page opinion, Judge John Bates vacated the resource extraction rule and wrote that it was “arbitrary and capricious.”
Since that legal setback, the SEC has received pressure from various parties including “Royal Dutch Shell, ExxonMobil, several US senators and aid organisation Oxfam America” to move forward with new rules for reporting payments to foreign governments. While foreign countries are moving quickly on disclosure rules, including the UK and the EU, the SEC has stated that it will “not address the issue until March 2015, meaning a final rule may not be adopted until the end of next year at the earliest.”
Oil companies that supported the lawsuit are now urging the SEC to act fast to avoid falling behind other countries that are moving toward implementing their own disclosure rules. The delay in announcing a new rule until March 2015 “puts companies at risk of having to comply with uneven reporting requirements, and jeopardizes the U.S. position as a global leader in transparency efforts.”
Furthermore, companies don’t want to go through the process of filing disclosure documents in several jurisdictions so they hope the SEC could make a decision surrounding a new disclosure rule. Zachary Cikanek, a spokesman for the American Petroleum Institute, stated, “the SEC should move quickly to craft a rule that doesn’t harm the competitiveness of U.S. companies or undermine U.S. job creation.”
The U.S. could lead the way in disclosure requirements and set an example for foreign countries as they move forward with adopting their own disclosure rules this year. However, until then, the world will have to sit back and wait until the SEC takes action.
Interesting decision. This shows how much power the oil and gas companies have when it comes to fighting claims or rules.