Monday, May 21, 2012

In Letter to SEC, API Cites Executive Order in Asking SEC to Avoid Conflicts of Law in Dodd-Frank Section 1504 Regulations

Citing a recent Executive Order promoting international regulatory cooperation, the American Petroleum Institute said that proposed SEC regulations implementing Section 1504 of the Dodd-Frank Act, which requires companies in the extractive industries to disclose information pertaining to certain categories of payments made to the governments of the countries in which they operate, would create inconsistencies with the existing international disclosure standard promoted by the Extractive Industries Transparency Initiative. In a letter to the SEC, the Institute noted that the proposed regulations would require some US companies operating abroad to make the ``Hobson's choice’’ between violating foreign laws or abandoning operations in foreign countries that prohibit disclosure.

In order to avoid such conflicts and their costly consequences, the API urged the SEC to authorize a reporting exemption where reporting would cause a company to violate foreign law. Tailoring the rule in this manner, reasoned the API, would further the Administration's goals of harmonizing regulatory approaches among nations and facilitating economic growth and job creation.

In the view of the API, Executive Order No. 13609, of May 1, 2012, recognizes that differences between the regulatory approaches of U.S. agencies and those of their foreign counterparts might impair the ability of US businesses to export and compete internationally. The Order imposes heightened responsibilities on federal agencies, including the requirement that they designate significant regulations that the agency identifies as having significant international impact, which is defined as a direct effect that a regulation is expected to have on international trade and investment, or that otherwise may be of significant interest to US trading partners. The Executive Order encourages independent regulatory agencies to comply with its provisions.
In addition to the Executive Order, noted the Institute, longstanding principles of international law require agencies to construe statutes to avoid conflicts with foreign laws. The Restatement (Third) of Foreign Relations Law, cited approvingly by federal courts, provides that a state may not require a person to do an act in another state that is prohibited by the law of that state. The Restatement extends this principle to executive agencies engaging in statutory construction. The same rule of construction flows from the doctrine of comity, continued the Institute, under which courts will interpret statutes so as to avoid conflicts with foreign laws, and regulatory agencies appropriately adhere to the same interpretive principle.

In light of these principles and the Executive Order, the Institute asked the SEC to construe Section 1504 to avoid imposing conflicting commands on regulated entities. In Section 1504, Congress sought to require resource extraction issuers to disclose to the Commission their payments to foreign governments, said the API, but Congress left to the Commission's discretion the requisite level of specificity of those disclosures, as well as how disclosures would be made available to the public. Importantly, Congress crafted Section 1504 to allow the Commission to exercise its definitional authority, and, if necessary, its exemptive authority to adopt regulations that avoid conflicts with foreign laws.