International relief and development organization Oxfam
America has filed a lawsuit in the US District Court for the District of
Massachusetts asking the court to order the SEC to issue regulations
implementing Section 1504 of the Dodd-Frank Act, which requires companies in
the extractive industries to periodically disclose information pertaining to
certain categories of payments made to the governments of the countries in
which they operate. The group claims that the SEC has unlawfully delayed the
issuance of the final regulations under Section 1504, known as the Cardin-Lugar
provision after its two senatorial sponsors, Senators Ben Cardin (D-MD) and
Richard Lugar (R-IN).
Congress set a deadline of April 17, 2011 for the SEC’s
promulgation of the final regulations needed to effect the Section 1504 mandate,
noted the group, adding that the SEC has now missed this statutory deadline by over
one year. In an April 16 letter to the SEC, Oxfam America said that it would file
suit if the Commission did not issue a final rule within 30 days. The federal
court complaint states that the extractive payment disclosures that Congress
mandated nearly two years ago will not take place unless and until the SEC
issues final regulations. Unfortunately, said the group, the SEC’s pattern of
delay gives no assurance that it will ever promulgate final regulations without
the involvement of a federal court.
In its April 16 letter, the group claimed that the Commission's
failure to issue final regulations implementing Section 1504 places the agency
in violation of the Administrative Procedure Act, which requires agencies to
conclude matters presented to them with due regard for the convenience and
necessity of the parties and in a reasonable time. The group further claims
that this lapse constitutes unreasonable delay and unlawful withholding of
agency action actionable under Section 706(1) of the APA.
In a January 31, 2012 letter to the SEC, Senator Cardin, along
Senators Charles Schumer (D-NY) Patrick Leahy (D-VT), Carl Levin (D-MI) and
John Kerry (D-MA), expressed concern that final regulations implementing Section
1504 had not yet been adopted. They cautioned that to repropose the regulations at this point would violate
the clear statutory deadline provided by Congress.
The Senators emphasized that Section 1504 is critical to providing information of great value to
investors as they assess the commercial, political and reputational risk faced
by companies in often volatile locations. In addition, the greater transparency
will discourage corruption, reduce conflict and enhance stability, secure
energy supplies, and ensure a more predictable operating environment for
extractive companies. They pointed out that investors with over $1 trillion in
assets under management wrote to the SEC in support of strong rules, including
the largest public pension fund in the United
States , and asset managers for the third largest pension
fund in Europe .
The Senators urged the
SEC to resist pressure to release weak regulations that do not follow the clear
statutory language and legislative intent of Section 1504. To accurately
reflect the letter and intent of the law, they emphasized, the final
regulations should apply to all countries and companies with no exemptions.
They should also define the terms project and payment in ways that do not
create reporting loopholes, particularly with regard to the threshold amount
for reporting.
Moreover, the SEC
should require the compilation of the payment data to be in addition to, and
not in lieu of, the data produced by companies. The Senate leaders said that
reporting data that is of high quality, and understandable and usable for
investors and the general public is crucial to the efficacy of Section 1504.
For this reason, requiring issuers to "file" the Section 1504
disclosures, which would provide investors with a private right of action,
would not only complement the SEC's own enforcement efforts, but would lead to
more accurate and reliable data.
Further, any
exemptions, including exceptions for conflicting host country laws, would not
only encourage other countries to enact laws reducing transparency and start a
race to the bottom, the Senators warned, but would also create a dangerous
precedent by making the U.S. lawmaking process subservient to governments
around the world, including dictators who do not share a commitment to
transparency, good governance, and the rule of law. Such an exemption would not
only distort the plain meaning of the law, but would also undermine the
Congressional intent and the spirit of Section 1504.
In a separate letter
to the SEC, Senators Lisa Murkowski (R-Alaska) and John Cornyn (R-TX) said they
were troubled that the SEC’s proposed definition of ``project’’ could result in
US companies disclosing information allowing foreign state-owned oil companies
an unfair competitive advantage for operations in the host country. The
Senators said that Section 1504 authorizes the SEC to define ``project’’ in a
way that promotes international transparency while protecting US companies from
competitive harm.
They posited that a
definition of ``project’’ allowing companies to aggregate data from multiple
agreements in a particular country, geologic basin, or province would mitigate
the potential for competitive harm. In addition, the Senators said it is
imperative that the final regulations require disclosure of payments only for
material projects and allow an exemption for operations in countries
prohibiting the disclosure of payment information. Without this exemption,
warned Senators Cornyn and Murkowski ,
US