Monday, August 13, 2012

Leading European MP Urges SEC to Adopt Tough Regulations on Reporting by Resource Extraction Companies

In a letter to SEC Chair Mary Schapiro, Arlene McCarthy, a Member of the European Parliament, urged the Commission to adopt strong reporting rules for the resource extraction industries at the scheduled August 22 open meeting. She noted that there is  a strong majority  in the  European  Parliament for tough reporting  requirements, including  project  level  reporting.  The MP said it is  equally  clear  that  investors  are  demanding  more  information  and  transparency  on  companies' activities. In her view,  strong SEC regulations in this area would send a clear and unequivocal message that the EU and the US are united  in their drive for stronger transparency rules for the resource extractive industry.

The MP emphasized the importance of the consistent cross-border regulation of global extractive industries, which depends on the EU and US adopting strong common and equivalent oil and mining company transparency rules. Member McCarthy is Parliamentary draftsperson on the EU Transparency rules for the extractive sector. She is also the Vice Chair of the Economic and Monetary Affairs Committee.

Section 1504 of the Dodd-Frank Act directs the SEC to adopt regulations requiring resource extraction issuers to include in their annual reports information on any payments made to foreign governments or to the federal government for the purpose of the commercial development of oil, natural gas or minerals.

Specifically, the MP said that project level disclosure is essential if these regulations are to be effective and deliver the necessary transparency to enable local communities to hold their governments to account for the use of revenues from the extraction of natural resources  and to  be  able to  link  payments to  local resources.  The decision the SEC takes on August 22 will send an important signal to legislators and regulators globally of the SEC’s intention  to introduce tough rules in the spirit of the Dodd Frank legislation.

The MP further noted that there  is  no  evidence that  tough  reporting  requirements  for  project reporting  will either  be  harmful  to  companies  competiveness  or  be  overly  burdensome.  She cited Lord Browne, the former Chief Executive of BP, who pointed out in his Op-Ed in the Financial Times (April  25,  2012), that the rules would  not force  disclosure  of  information  during negotiations,  which  is  the  most sensitive  period  for  dealings.   Furthermore,  with  both the US and EU implementing disclosure of payments to government, around 90% of the world's  extractive  companies will  be  covered  by the rules.

Again referencing Lord Browne, the MP said that the alleged administrative cost to the  extractive  industries  is  greatly  exaggerated.  The  largest  companies  already spend  a  vast  sum  on  compliance  with both  national  and  international  reporting standards.   The  SEC  itself  estimated  that  increased  costs  arising  from  the new requirements would only be around 0.33%. If companies operating in the extractive
industries  are  already  complying  with  international  good  governance  codes, reasoned the MP,  then they  will  already  be maintaining  extensive  internal records tracking the  payments  that the company makes.