Billionaire investor George Soros is urging the Securities and Exchange Commission to craft the “strongest” rules possible requiring oil companies to disclose payments to foreign governments and urging against an exemption that Exxon and other companies are seeking.
The SEC is crafting rules to implement a provision — Section 1504 — in last year’s Wall Street reform law that forces oil and mining companies to provide the regulators specific information about payments connected to projects in foreign countries.
“In recent months, I have had occasion to speak individually to many senior government officials and business executives from around the world, about Section 1504 and the need for other countries to follow the U.S. lead," Soros said in the letter. "I perceive a strong inclination in the EU and the UK to do so. Many of their large companies are already covered by the US law, so they see the value of leveling the playing field. They are, however, waiting to see the SEC regulations before moving ahead.
“I believe it is not an exaggeration to say that in promulgating the U.S. regulations for Section 1504 of Dodd-Frank, the Commission will be setting the rules for much of the world. I urge the Commission to fulfill its responsibility in the strongest and clearest manner possible to fulfill the clear intent of the U.S. Congress to make these important financial flows between companies and governments fully transparent to investors and the general public, country by country and project by project.”
The provision in the Wall Street law is aimed at ending the “resource curse” in which some energy- and mineral-rich nations in Africa and elsewhere are plagued by high levels of corruption, conflict and poverty.
A suite of energy companies, in comments to the regulators, say they favor disclosure but warn that prescriptive rules would be burdensome and place them at a competitive disadvantage compared to certain state-backed oil companies from countries such as Russia and China.
In addition, Exxon and other companies are pushing the SEC to allow exemptions in cases where host countries or contracts don’t allow project-specific payment disclosures.
“[I]t is essential for the Commission to provide an exemption for disclosure that is prohibited by foreign governments or existing contracts in order to avoid irreparable harm to investors, efficiency, competition and capital formation,” Exxon wrote in late January comments to the SEC.
But Soros is pushing back against the industry push for such exemptions. The SEC asked for input on the question when floating draft rules last year.
“[The Commission should not allow exemptions where the laws of the host country prohibit disclosure. It is precisely in these countries, which prevent transparency and disclosure of information, where the greatest investment risk lies. Such an exemption would create an incentive for countries to create such laws, thereby undermining the purpose and intent of the statute to provide information to investors and promote international transparency,” Soros writes.
But there is some common ground. Exxon, the American Petroleum Institute (powerful trade group) and Soros are generally against providing exemptions to smaller companies, which is another area the SEC is reviewing.
“Smaller companies are often the first comers in the most risky environments. Such exemptions would undermine the value of this reform to investors by excluding issuers that are exposed to significant political and project- and country-specific risks, thereby preventing consistency and comparability in the information disclosed,” Soros writes.