SEC brief: Oil payment mandate doesn’t violate First Amendment

Securities and Exchange Commission (SEC) lawyers are bashing oil-industry claims that SEC mandates to disclose payments to foreign governments violate companies’ First Amendment rights.

“Such mandatory disclosures of purely factual information have never been understood to compel ‘speech’ in violation of the First Amendment,” states an SEC brief filed Wednesday with the U.S. Court of Appeals for the District of Columbia Circuit.

The SEC is defending the new rules against an array of legal claims by the American Petroleum Institute, the U.S. Chamber of Commerce and other groups.

The business groups’ lawsuit contends that the disclosure mandate runs afoul of the First Amendment by “compelling U.S. companies to engage in costly speech on controversial matters in order to influence political affairs in other nations.”

Not so, the SEC argues, calling the claim “an unprecedented attack on a disclosure requirement involving purely factual, non-ideological information that does not implicate any significant First Amendment interests.”

The SEC brief argues that the industry groups’ First Amendment claim, if successful, would have far-reaching effects that go way beyond the disclosure rule at hand in the case.

“Tellingly, petitioners ignore both that regulated entities are subject to innumerable comparable federal, state and local public reporting requirements and that their novel theory could have wide-ranging and potentially devastating implications for these important government programs,” the brief states.

The brief is the latest move in litigation over SEC rules finalized in August that were required under the 2010 Dodd-Frank financial overhaul law.

The disclosure rule forces SEC-listed oil, natural-gas and mining companies to reveal payments to governments (including the U.S.) 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 so-called “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.

Beyond the First Amendment argument, the business groups’ lawsuit raises a series of additional objections to the rule.

Critics of the rule and the underlying Dodd-Frank provision say it will impose costly burdens and put SEC-listed oil companies at a disadvantage against state-owned Russian and Chinese competitors.

Companies including Exxon, Shell and Chevron have fought against the public disclosure mandates.

The SEC brief attacks “a series of meritless challenges” in the lawsuit filed by API, the Chamber and two other groups: the Independent Petroleum Association of America and the National Foreign Trade Council.

The SEC states:

Contrary to petitioners’ argument that the Commission acted arbitrarily and capriciously by promulgating a rule without first determining whether Congress’s sought-after transparency and accountability benefits would in fact materialize, the Commission rightly declined to second-guess the wisdom of Congress’s policy determination. Moreover, in conducting its economic analysis, the Commission— which was generally dependent on industry commentators for empirical data— acted appropriately when it used the little data that they provided to quantitatively assess (and generally confirm) their claims about the potential costs of Rule 13q-1.

Industry groups allege that the SEC’s economic analysis underlying the rule is badly flawed and that regulators abused their discretion by failing to allow exemptions if foreign governments bar the disclosure, among other claims.