Judge strikes down federal disclosure rule for oil companies

A federal judge on Tuesday threw out a controversial Securities and Exchange Commission rule that would force oil and mining companies to disclose payments to foreign governments.

The decision is a victory for oil industry and business groups that claim the requirements would have imposed costly burdens and forced disclosure of commercially sensitive information.

U.S. District Court Judge John D. Bates vacated the rule and sent it back to the SEC. The American Petroleum Institute (API), which challenged the standards alongside the Chamber of Commerce and other business groups, praised the decision.

{mosads}“The court has vacated the SEC’s requirement that U.S. companies report competitive information that can be used against them by global competitors,” said Harry Ng, API’s general counsel, in a statement.

The SEC had no immediate comment. The rule was required under the 2010 Dodd-Frank financial overhaul law.

The decision is a defeat for human rights groups, who say the rule provides “transparency” that can help prevent corruption and ensure the public benefits from energy development in Africa and elsewhere.

Judge Bates said the SEC erred in mandating that companies’ full filings, rather than just summaries, must be made public.

The SEC “offers no persuasive arguments that the statute unambiguously requires public disclosure of the full reports,” Bates writes.

One backer of the rule criticized Bates’ finding about whether companies’ reports must be publicly available.

“Oxfam strongly disagrees with lower court finding in API v. SEC that
SEC could have kept oil payment reports secret from public/investors,”
said Ian Gary of Oxfam America, which participated in the case, over
Twitter Tuesday.

Bates also said the SEC had failed to justify its decision to reject industry pleas that the rule should include waivers for operations in countries that bar payment disclosure.

“The Commission’s exemption analysis … was arbitrary and capricious and independently invalidates the Rule,” the ruling states.

The court did not address several other industry claims in the case, including the allegation that the disclosure rule violates the First Amendment by “compelling” companies to engage in speech.

Gary said the decision that sends the rule back to the SEC is “definitely not the end of for the rule,” noting that a disclosure regulation is required under Dodd-Frank.

Gary, who is Oxfam America’s senior policy manager for extractive industries, also said the group is examining all its legal options, including an appeal.

The rule in question 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.

This post was updated at 1:12 p.m.

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