Soros trumps Exxon in battle over payments to foreign governments

A divided Securities and Exchange Commission (SEC) approved regulations Wednesday that will force oil and mining companies to disclose payments to foreign governments.

The 2-1 SEC vote for the rules caps a two-year, behind-the-scenes battle that pitted oil companies like Exxon against human-rights groups and their allies like George Soros and Bill Gates.

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The rules, which were required under the 2010 Dodd-Frank financial reform law, do not appear to contain several provisions that the oil industry sought, including exemptions from the SEC filing mandate if foreign governments prohibit the disclosure.

The law forces SEC-listed oil, natural gas and mining companies to reveal payments to governments related to projects in their countries, such as money for production licenses, taxes, royalties and other aspects of energy and mineral projects.

It’s aimed at increasing transparency to help undo the “resource curse,” in which some impoverished countries in Africa and elsewhere are plagued by high levels of corruption and conflict alongside their energy and mineral wealth.

The SEC estimates that the rule will carry initial industry-wide compliance costs of up to $1 billion, with annual costs in the $200 million to $400 million range thereafter.

Democratic SEC members Elisse Walter and Luis Aguilar voted for the rule, while GOP member Daniel Gallagher opposed it. SEC Chairwoman Mary Schapiro and member Troy Paredes were recused from the proceeding.

Aguilar, in backing the rule, quoted the late Supreme Court Justice Louis Brandeis's saying that “sunlight is the best disinfectant.” The rule’s backers said it would also help investors by giving them more information.

But Gallagher slammed the rule, arguing that it will impose competitive burdens.

He said he supports the goal of helping the public in poor energy-producing nations, but argued that an SEC rule is a suspect way to achieve social and foreign-policy goals.

“The SEC just isn’t the right tool for this type of social policy exercise,” he said, arguing the rule is a “very indirect route” to making foreign governments more accountable to their people.

The rule drew a cautious cheer from Oxfam America, which has pushed for the mandates alongside groups like the Revenue Watch Institute, Global Witness and the broader Publish What You Pay coalition.

“While we welcome the SEC’s rules that will finally bring section 1504 into effect, the devil is in the details,” said Ian Gary, a senior policy manager with Oxfam America, referring to the numerical provision in Dodd-Frank that mandates the rule.

“We’re in the process of thoroughly analyzing the rules to determine whether they adhere to the statutory requirements and congressional intent,” he said.

The final regulation drew a sharp rebuke from the oil industry.

“This unilateral approach to revenue disclosure will harm the U.S. economy. U.S. firms could lose business, U.S. jobs might not be created and potential revenue to our government could be lost,” said John Felmy, the chief economist with the American Petroleum Institute (API).

He said the disclosures will give foreign oil-and-gas companies access to confidential, proprietary information. Oil and mining companies and trade groups such as API, Exxon and Shell have strongly criticized the rules, which have been under development at the SEC for two years.

They allege the regulation will hand a competitive advantage to state-owned companies like Russia’s Gazprom and the China National Petroleum Co. that aren’t bound by the mandates.

The industry has pushed for leeway in the reporting requirements and a number of exemptions, but the SEC cast aside its push for several exemptions.

API, for instance, had pushed for provisions that keep the project-level disclosures by companies confidential, arguing the SEC should only make public a compilation of total industry payments by country.

The rule does provide companies some discretion by omitting a specific definition of the word “project” — an SEC fact sheet on the rule says this will give companies “flexibility in applying the term to different business contexts.”

However, an SEC staff member said the term “project” is meant to be more “granular” than simply a company’s overall operations in a given country.

The SEC estimates that the rule will apply to about 1,100 companies. It requires disclosure of payments equal to or above $100,000 during the most recent fiscal year.

It will cover years beginning in fiscal 2014, according to the SEC. Click here, here and here for more of E2-Wire's earlier coverage of the rule.

— This story was updated at 2:21 p.m. with the SEC's projected costs for complying with the rules.

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