Opposing groups want SEC to write new foreign payment rules

A quote in this article was clarified and corrected on June 13.

The US Securities and Exchange Commission should move quickly to write new disclosure requirements for publicly traded US oil, gas, and mining companies’ payments to foreign governments, participants in a June 9 Brookings Institution forum agreed. But they continued to disagree over the requirements’ structure.

The SEC indicated on May 28 that it would begin rewriting its plan to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires such disclosures (OGJ Online, May 28, 2014).

US District Court for the District of Columbia vacated and remanded SEC’s previous foreign payment disclosure implementation effort in July 2013. The SEC subsequently said it would not appeal the court’s decision, but try to rework its proposal to address shortcomings the ruling identified instead.

Proponents of full disclosure by individual companies said this would be the most effective way to fight corruption in foreign resource-rich countries. The American Petroleum Institute, which sued over the SEC’s original implementation plan, and other major US business organizations are calling for a project-specific approach that provides the necessary information without revealing proprietary information to non-US competitors that aren’t subject to the same requirements.

Both sides support more transparency. This was what Congress intended, said US Sen. Benjamin L. Cardin (D-Md.), who cosponsored the original foreign payment disclosure legislation with then-Sen. Richard G. Lugar (R-Ind.) that subsequently became Section 1504 of the Dodd-Frank bill when it became law in 2010. “Now, it’s back to the SEC, and Congress is going to watch what it does very closely,” Cardin said in opening remarks at the Brookings Forum that was cosponsored by the Natural Resource Governance Institute.

‘Rings a little hollow’

“I don’t understand the petroleum industry’s concern,” Cardin said. “We all want a level playing field. This is a fight where business should be on our side, and we’re puzzled as to why it isn’t…. To my friends in the petroleum industry: Please say what you want. To say you have proprietary concerns when everyone knows what’s going on rings a little hollow.”

Responding during a panel discussion following Cardin’s remarks, Stephen Comstock, API’s tax and accounting policy director, said, “Our member companies recognize the value of accountability and problems with corruption. Our concern with the provisions which the court vacated was the way in which the law was implemented.”

He said API’s original comments focused on standardization, mainly the definition of a project that sometimes varied even among its partners. After the court’s ruling, Comstock said API identified standardization parameters that would disclose information at the local level about projects without revealing the individual companies’ specifics.

Other panelists said fuller disclosure is essential. “People in Nigeria have had difficulty about how our resources are being spent,” said Dotun Oloko, a Nigerian anticorruption campaigner. “Everyone knows they’re not getting what they deserve. People want to know the value of the resources they have, and how they’re being used.”

Bennett Freeman, senior vice-president for sustainability research and policy at Calvert Investments Inc., said, “I’m not surprised Nigerians want disclosure. Look at what they’ve experienced in the last 3 decades. There’s an interesting convergence with investors who want hard information about how their money is being spent.”

‘Takes two to tango’

Simon Taylor, founding director of Global Witness, which launched its first oil and corruption campaign in 1999, said his organization wants transparency not only of dealings by governments in resource-rich countries but also corporations that do business with them. “It takes two to tango, after all,” he maintained.

“There are certain players in the oil industry which are inherently corrupt,” he said. “We need more information from companies because it’s in their long-term interest. But we’ve also found it difficult the last few years to get someone to implement an enforcement action when the participants assume that the information won’t come out.”

Comstock said the SEC already has specific rules governing practices that potentially create risks under the 2002 Sarbanes-Oxley Act, the 1977 Foreign Corrupt Practices Act, and other laws aimed at discouraging overseas corruption. “Will a $100,000 road to a drill site that local residents also use be treated as a corrupt practice? We can’t get an answer,” he said.

Freeman said investors with trillions of dollars outstanding are concerned about billions of dollars in corrupt payments. “A $100,000 payment for a road is not material, although the information may be of interest to local leaders,” he said. “We’re interested in big amounts which provide valuable information to investors.”

Comstock said, “Our proposal allows for project-level disclosures, with a lot of information about what governments receive. People can see national governments receive payments for activity in their areas, and can ask why the money isn’t reaching them.”

API members also support the Extractive Industries Transparency Initiative through which a lot of information also can flow, Comstock added.

EITI limitations

“My understanding of EITI is that it’s based on self-reporting and varies by jurisdiction,” Oloko said. “If the Nigerian government doesn’t require the information, it won’t be provided.”

Natural Resource Governance Institute Pres. Daniel Kaufman, who also is a nonresident fellow in the Brookings Global Economy and Development and served as the panel’s moderator, said, “One EITI problem is timeliness. It does increasingly get countries to commit to reporting information voluntarily. Once you join, you agree to certain requirements. It also looks beyond publicly traded companies to state-owned entities.”

The European Union adopted its own requirements after the Dodd-Frank law’s enactment in the US to disclose information about foreign projects that included some companies that don’t trade on public exchanges, according to Michelle Kosmidis, a senior European Commission financial reporting official. It will review whether its disclosure requirements have had competitive impacts after 4 years, she said.

"There was a lot of discussion on how to define a project,” Kosmidis said. “We reached a balance to give some information to local communities while allowing some flexibility for the industry. We did not receive any evidence that countries were prohibiting disclosures. Companies understood the transparency issue, but were sensitive to the definition of a project. The EU legislation defines project as a contract, license, concession, but if multiple such agreements are substantially interconnected, it shall be considered a project.”

Comstock said API still has concerns over foreign payment disclosure requirements potentially violating the US Constitution’s first amendment, but added that the trade association does not believe the SEC’s implementation plans need to be radically changed. “We believe that everyone has to be on the same playing field,” he said. “State-owned companies can play in their own ways, and they’re becoming more active, including China which has outbid competitors in many cases but would have spent less if it had known what other companies were paying.”

Contact Nick Snow at nicks@pennwell.com.

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