Author
Joseph WilliamsThe oil and mining transparency rule adopted today by the U.S. Securities and Exchange Commission (SEC) will fail to achieve the level of payment disclosure necessary to deter corruption in the natural resource sector.
The SEC adopted strong rules in 2012 and 2016 which led the way in creating a global standard for transparency in the extractive sector. Those rules were never fully implemented and the SEC has now adopted a new rule that falls well short of the standard that it previously established.
The rule implements Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Section 1504 instructs the SEC to require U.S.-listed oil, gas and mining companies to disclose their payments to governments around the world for the right to explore and extract resources. The 2012 rule was struck down following a legal challenge led by the American Petroleum Institute, and the 2016 rule was nullified by a Republican-led Congress early in the Trump administration.
The disclosure provision in the 2010 Dodd-Frank Act was a bipartisan effort championed by Senator Ben Cardin and the late Senator Richard Lugar. The law established an international standard of granular contract based project-level payment transparency which is now being implemented by law in the 27 European Union member states, Canada, Norway, Switzerland, United Kingdom and by the complementary Extractive Industries Transparency Initiative.
This form of reporting provides critical and relevant information to citizens who can use it to hold governments accountable for the use of public funds and to deter corruption in relation to specific extractive projects. Investors are also able to use information at this level to manage risk. Key to disclosure is the notion that the definition of an oil or mining “project” is based on the contract or other legal agreement between a government and company, an approach recently endorsed by the IMF as a global norm. Only this level of granularity produces information specific enough for use by oversight actors when seeking to hold companies and governments to account for monies paid.
Through European and Canadian laws, hundreds of companies have disclosed over the last six years more than USD 1 trillion of vital project-level payments with no reports of losses or commercial harm. The companies include oil majors BP, Shell and Total, mining giants BHP Billiton, Rio Tinto and Glencore, and state-owned national oil companies such as Russia’s Gazprom and China’s CNOOC.
Despite many submissions by NRGI and others in response to the SEC’s 2019 proposed rule arguing for a strong rule, the SEC has nevertheless dispensed with a contract-based project definition and has instead adopted an approach favored by a few transparency-averse U.S. oil companies and their lobby, the American Petroleum Institute, allowing them to aggregate payments for multiple projects. Corruption risks are present at the contract level and oversight actors need granular information to improve governance outcomes in resource-rich countries, many of which find themselves in persistent poverty.
NRGI’s initial review of the new SEC rule has identified several other deficiencies including reporting exemptions for cases where foreign law or a pre-existing contract allegedly prohibits disclosure; a long two-year transition period before reporting is required; and reduced penalties for companies that misreport. The SEC’s rule would mean critical payments would remain hidden from public view, to the detriment of the very international transparency and anticorruption efforts that Section 1504 inspired.
Today the SEC had an opportunity to realign its rule with the established global transparency standard. It also had an opportunity to bring corruption-prone commodity trading payments into its disclosure framework, something Switzerland has said it will do—but only if other trading hubs (like the U.S.) act accordingly. The SEC failed on both counts.
The incoming Biden administration (and the SEC officials the administration appoints) should prioritize revision of this rule to align with those in place internationally. Only then can the U.S. legitimately call itself a leader in fighting corruption in the global extractive industries.
Joseph Williams is the advocacy manager at the Natural Resource Governance Institute (NRGI).
The SEC adopted strong rules in 2012 and 2016 which led the way in creating a global standard for transparency in the extractive sector. Those rules were never fully implemented and the SEC has now adopted a new rule that falls well short of the standard that it previously established.
The rule implements Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Section 1504 instructs the SEC to require U.S.-listed oil, gas and mining companies to disclose their payments to governments around the world for the right to explore and extract resources. The 2012 rule was struck down following a legal challenge led by the American Petroleum Institute, and the 2016 rule was nullified by a Republican-led Congress early in the Trump administration.
The disclosure provision in the 2010 Dodd-Frank Act was a bipartisan effort championed by Senator Ben Cardin and the late Senator Richard Lugar. The law established an international standard of granular contract based project-level payment transparency which is now being implemented by law in the 27 European Union member states, Canada, Norway, Switzerland, United Kingdom and by the complementary Extractive Industries Transparency Initiative.
This form of reporting provides critical and relevant information to citizens who can use it to hold governments accountable for the use of public funds and to deter corruption in relation to specific extractive projects. Investors are also able to use information at this level to manage risk. Key to disclosure is the notion that the definition of an oil or mining “project” is based on the contract or other legal agreement between a government and company, an approach recently endorsed by the IMF as a global norm. Only this level of granularity produces information specific enough for use by oversight actors when seeking to hold companies and governments to account for monies paid.
Through European and Canadian laws, hundreds of companies have disclosed over the last six years more than USD 1 trillion of vital project-level payments with no reports of losses or commercial harm. The companies include oil majors BP, Shell and Total, mining giants BHP Billiton, Rio Tinto and Glencore, and state-owned national oil companies such as Russia’s Gazprom and China’s CNOOC.
Despite many submissions by NRGI and others in response to the SEC’s 2019 proposed rule arguing for a strong rule, the SEC has nevertheless dispensed with a contract-based project definition and has instead adopted an approach favored by a few transparency-averse U.S. oil companies and their lobby, the American Petroleum Institute, allowing them to aggregate payments for multiple projects. Corruption risks are present at the contract level and oversight actors need granular information to improve governance outcomes in resource-rich countries, many of which find themselves in persistent poverty.
NRGI’s initial review of the new SEC rule has identified several other deficiencies including reporting exemptions for cases where foreign law or a pre-existing contract allegedly prohibits disclosure; a long two-year transition period before reporting is required; and reduced penalties for companies that misreport. The SEC’s rule would mean critical payments would remain hidden from public view, to the detriment of the very international transparency and anticorruption efforts that Section 1504 inspired.
Today the SEC had an opportunity to realign its rule with the established global transparency standard. It also had an opportunity to bring corruption-prone commodity trading payments into its disclosure framework, something Switzerland has said it will do—but only if other trading hubs (like the U.S.) act accordingly. The SEC failed on both counts.
The incoming Biden administration (and the SEC officials the administration appoints) should prioritize revision of this rule to align with those in place internationally. Only then can the U.S. legitimately call itself a leader in fighting corruption in the global extractive industries.
Joseph Williams is the advocacy manager at the Natural Resource Governance Institute (NRGI).