Implementing Section
1504 of the Dodd-Frank Act, the SEC adopted regulations requiring resource
extraction issuers engaged in the development of oil,
natural gas, or minerals to disclose payments made to the federal government
or foreign governments. The vote to adopt was 2-1, with Commissioner
Gallagher in dissent. SEC Chair Schapiro and Commissioner Paredes were recused.
Section 1504 was
co-authored by Senators Ben Cardin (D-MD) and Richard Lugar (R-IND). In an
earlier letter to the SEC, Senator Cardin said that the purpose of Section 1504
is to bring greater transparency to extractive-related payments made to
governments by resource extraction issuers required to report to the SEC. He
said that this transparency will provide information important to investors as
well as provide information important to citizens seeking to hold their
government accountable for extractive revenues.
The SEC regulations
would require a resource extraction company to disclose payments made to
governments if it is required to file an annual report with the SEC and engages
in the commercial development of oil, natural gas, or minerals. The
company would be required to disclose payments made by a subsidiary or another
entity it controls. A resource extraction company would need to make a
factual determination as to whether it has control of an entity based on a
consideration of all relevant facts and
circumstances.
Resource extraction companies
would be required to disclose payments made to a foreign government or the U.S.
government that are made to further the commercial development of oil, natural
gas, or minerals, not de minimis, and within the types of payments specified in
the rules.
Commercial
development of oil, natural gas, or minerals is defined to include exploration,
extraction, processing, and export, or the acquisition of a license for any
such activity. The regulations would define “not de minimis” to mean any
payment (whether a single payment or a series of related payments) that equals
or exceeds $100,000 during the most recent fiscal year.
The types of payments
related to commercial development activities that would need to be disclosed
include taxes, royalties, license fees, production entitlements, bonuses, dividends,
and infrastructure improvements. The new requirements clarify the types of taxes,
fees, bonuses, and dividends that are required to be disclosed. These
types of payments generally are consistent with the types of payments that the
Extractive Industries Transparency Initiative suggests should be
disclosed. Congress specifically referenced the EITI in defining
“payment” in the law.
The rules would
require a resource extraction issuer to provide the information about payments
made to further the commercial development of oil, natural gas, or minerals,
including type and total amount of payments made for each project and made to
each government, total amounts of the payments, by category, the currency used
to make the payments and the financial period in which they were made, the business
segment of the resource extraction company that made the payments, the
government that received the payments, and the project of the resource
extraction issuer to which the payments relate.
The new rules leave
the term “project” undefined to provide resource extraction issuers flexibility
in applying the term to different business contexts.
The regulations
would require a resource extraction issuer to disclose the information annually
by filing a new Form SD.
Resource extraction
issuers would be required to file the form on the SEC public database EDGAR no
later than 150 days after the end of their fiscal year. A resource
extraction issuer would be required to comply with the new rules for fiscal
years ending after Sept. 30, 2013. For the first report, most resource
extraction issuers may provide a partial report disclosing only those payments
made after Sept. 30, 2013.