A regulatory battle heats up between transparency activists and big oil
Oxfam America and its allies in the Publish What You Pay coalition scored a big victory last year when a small provision was included in the massive Dodd-Frank Wall Street reform legislation signed into law last year. The provision will require any oil or mining company reporting to the Securities and Exchange Commission (SEC) to disclose how much they pay to host governments around the world. The law requires annual, company-by-company reporting, breaking out payments at the project level. For the first time, communities around the world will have credible and regular information on how much foreign companies are paying their governments to drill for oil or dig for gold.
As I blogged earlier this month, the SEC is now receiving public comments on the rule to implement this provision. The draft regulation, or “rule”, issued by the SEC in December hews closely to the statutory requirements. Oil and mining companies, and the battalions of lawyers working for them, have provided hundreds of pages of comments to the SEC in response to the more than 90 questions put forward by SEC staff. While the language of the law is clear, there are areas of SEC discretion and plenty of creative lawyering on the industry side.
Working with securities lawyers (who knew I’d work with securities lawyers at an anti-poverty NGO!), Oxfam America submitted its own comment to the SEC on Monday. Many advocates walk away after their legislative victory, but experience shows that the devil – and victory or defeat – lies in the sometimes arcane and detailed regulatory process. (To its credit, the SEC has been open to public comment and staff meetings, and has been transparent about the process as well as the comments received. Any comment submitted to the SEC appears on its website within days and all meetings on pending rules are disclosed.)
How effectively this landmark provision will be implemented by the SEC can hinge on a single word. For example, Oxfam argues in its submission that the payment reporting by companies should happen through company filings through Forms 10-K, 20-F, and 40-F. By requiring this information to be “filed”, the SEC “will significantly strengthen incentives for compliance”, according to our submission, as increased liability for misstatements only applies to statements made in documents “filed” with the SEC. The American Petroleum Institute, Chevron, Exxon and others would like the information to be “furnished” – a status that would reduce liabilities and make it almost impossible for investors to sue companies for misstatements.
Another significant point of contention is the definition of a “project”. Oxfam argues that a “project” definition should be based on payments made at the lease or license level. “The SEC should not – and, consistent with the statute, cannot – adopt a country-level definition of project”, our submission says. Companies are proposing that a “project” could be a “country” – going against both a common sense and legal reading of the law.
Investors, allies in the Publish What You Pay coalition, and Congressional allies have or will be making comments before March 2 and you can find them all here. Senator Carl Levin has already weighed in, with more congressional allies expected to reinforce the message.
The SEC has a chance to implement a global standard that is likely to be quickly followed in other jurisdictions. Last weekend, George Osborne, the UK’s finance minister, government announced that the UK, along with France, supports a Publish What You Pay rule for the European Union. We’ll see how successful our battle in the weeds has been in mid-April when the SEC is expected to issue its final rule.