By Ben Geman - 08/23/12 02:55 PM EDT
Bono, the anti-poverty activist and frontman for the rock band U2, is applauding new Securities and Exchange Commission (SEC) rules that will force petroleum and mining companies to disclose payments to foreign governments.
“This is where the rubber hits the road. Or rather, the oil and gas and copper and diamonds. For anyone who thinks corruption is as big a killer as AIDS, TB and malaria are, this is a really big deal. As Justice Brandeis said long ago, sunlight truly is a disinfectant, to which I'd add that transparency is the best vaccine against corruption,” said Bono, the co-founder of the anti-poverty and public health group ONE, which is focused on Africa.
The rock frontman said ONE and the allied Publish What You Pay coalition “call on leaders from Berlin to Beijing to pass laws similar to that now in effect in the U.S.”
ClearView Energy Partners, in a research note, sees plenty of question marks ahead before the rule — which was required under the 2010 Dodd-Frank financial reform law — takes effect.
“With the first reporting date about 18 months away, we see some room for uncertainty regarding the long-term risk to companies operating overseas,” their note states.
It cites the possibility of new SEC administrative views on how the rule should be carried out, “either to address petition(s) by issuer(s) or in response to a judicial action, potentially modifying compliance obligations and/or limiting the public disclosure of reported payments.”
Industry litigation is expected, which could lead to the rule being frozen or revoked, ClearView said.
The powerful American Petroleum Institute has already argued that the rule illegally shirks adequate economic analysis, and Daniel Gallagher, a GOP member of the SEC, lent support to API’s position in his dissenting vote on the rule Wednesday.
“I would note that in conducting such an analysis, we cannot accept, untested, the benefits Congress seeks as justifying whatever decisions we make or burdens we impose. We are obligated to evaluate the various ways we could try to achieve any intended benefit,” he said.
“The courts have made that plain and, it seems clear by now, we ignore their repeated messages at our peril,” Gallagher said.
ClearView also sees other, less likely possibilities, including a “reinterpretation” of the rule by new SEC leadership appointed by a new president, and legislative changes in the next Congress.
Mitt Romney, the presumptive GOP White House nominee, has attacked the Dodd-Frank law. But the campaign has not provided E2-Wire comment on the petroleum and mining industry payment disclosure mandate specifically.
The Dodd-Frank law requires 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 completion of the long-delayed rule drew cheers from Sens. Ben Cardin (D-Md.), Dick Lugar (R-Ind.) and Patrick Leahy (D-Vt.), the main backers of the Dodd-Frank provision that required the SEC action.
“Information is power. It is power for shareholders and power for citizens living under oppressive regimes. With the Cardin-Lugar Amendment, the U.S. is leading the world in the moral and economic necessity to choose transparency over shadow, rule of law over corruption. Now that U.S. law will be implemented, we call on our European colleagues to join us,” Lugar said in a statement Wednesday.
The oil-and-gas industry has strongly opposed the rules, and didn’t win a series of exemptions it was seeking from the SEC.
Industry officials argue the rules will hand a competitive advantage, when competing for contracts overseas, to companies that aren’t bound by the mandates, such as Russia’s state-owned Gazprom.
ClearView agrees with the industry view. From its note:
We have figuratively referred to the Section 1504 transparency rule as the “WikiLeaks moment” for U.S. oil companies operating overseas owing to the diplomatic challenges created by WikiLeaks’ November 2010 publication of confidential State Department cables. Section 1504 could impose very real competitive challenges for U.S. companies competing globally and negotiating with host governments, particularly in the event that compliance leads to disclosure of previously-secret terms of concessions, leases and production-sharing agreements.