Dem senators to SEC: Don’t fold to oil industry on transparency rule

Five Senate Democrats are pressing the Securities and Exchange Commission to “resist pressure” to weaken upcoming rules that force oil-and-gas companies to disclose their payments to foreign governments.

Their Jan. 31 letter to the SEC pushes back against a behind-the-scenes oil-industry campaign to delay and soften the regulations, which are required under the sweeping Dodd-Frank financial reform law passed in 2010.

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“We urge the SEC to resist pressure to release a weak rule that does not follow the clear statutory language and legislative intent of Section 1504,” states the letter from Sens. Ben Cardin (D-Md.), Patrick Leahy (D-Vt.), Charles Schumer (D-N.Y.), John Kerry (D-Mass.) and Carl Levin (D-Mich.).

“To accurately reflect the letter and intent of the law, the final rule should apply to all countries and companies with no exemptions,” add the senators, who expressed “concern” that the rules, which were proposed in late 2010, have not yet been finalized.

The Dodd-Frank law requires SEC-listed oil and mining companies to disclose payments to the U.S. and foreign governments.

The provision 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.

The American Petroleum Institute and several of its member companies have been pushing back against the rule, and the powerful trade group argued in a recent letter to the SEC that it should be re-proposed with a revised economic analysis.

The industry believes the regulations will place many companies at a competitive disadvantage when competing for contracts against state-owned or state-controlled firms that would not be captured by the disclosure mandates, such as Russia’s Gazprom and the China National Petroleum Co.

API is seeking provisions in the rule that it says would reduce costs and prevent competitive harm, such as an exemption from the requirements if the disclosure would violate the laws of a host country.

But the senators warn against crafting the rule in a way that would gut its intent. Here’s more from the Democrats' letter:

The rule should also define the terms “project” and “payment” in ways that do not create reporting loopholes, particularly with regard to the threshold amount for reporting. The SEC should require the compilation of the payment data to be in addition to, and not in lieu of, the data produced by companies. Reporting data that is of high quality, and understandable and usable for investors and the general public is crucial to the efficacy of this section.  For this reason, requiring issuers to “file” the Section 1504 disclosures, which would provide investors with a private right of action, would not only complement the SEC’s own enforcement efforts, but would lead to more accurate and reliable data.
 
Further, any exemptions, including exceptions for conflicting host country laws, would not only encourage other countries to enact laws reducing transparency and start a “race to the bottom,” but would also create a dangerous precedent, by making the U.S. lawmaking process subservient to governments around the world, including dictators who do not share our commitment to transparency, good governance, and the rule of law. Such an exemption would not only distort the plain meaning of the law, but would also undermine the Congressional intent and the spirit of Section 1504.

The senators are asking SEC Chairwoman Mary Schapiro for an update in the next two weeks on the “timing sand expected parameters” of the final rule. The letter was also sent to the other SEC commissioners.