SEC Proposed Rule: Disclosure of Payments by Resource Extraction Issuers
|FINAL RULE: The final rule from September 2012 was vacated by court order July 2, 2013 and reproposed in December 2015.|
|Final Rule Issue||VACATED BY COURT ORDER||Rule Reproposed||Comment Deadline|
|September 12, 2012||July 2, 2013||December 11, 2015||March 8, 2016|
On December 11, 2015, the SEC proposed rules that would require resource extraction issuers to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas or minerals.
The rule was mandated by Title XV of the Dodd-Frank Act. Under the rule, any domestic issuer issuer of resource extraction must disclose payments made to governments if the issuer is an SEC filer and engages in the commercial development of oil, natural gas, or minerals.<ref>SEC Adopts Rules Requiring Payment Disclosures by Resource Extraction Issuers. SEC. Retrieved on September 12, 2012.</ref>
The disclosure would be made at the project level similar to the approach adopted in the European Union and proposed in Canada. The disclosure required by the proposed rules would be filed publicly with the Commission annually on Form SD.
Initial comments will be due on January 25, 2016. Reply comments, which may respond only to issues raised in the initial comment period, will be due on February 16, 2016.
On August 22, 2012, the SEC approved a final rule requiring resource extraction issuers to disclose certain payments made to the U.S. government or foreign governments.
However, on July 2, 2013, a U.S. District Court judge threw out the ruling in a suit filed by trade groups such as the American Petroleum Institute and U.S. Chamber of Commerce. The groups alleged the SEC misinterpreted the law by forcing the public disclosure of detailed data on payments, and failed to include common-sense exemptions by forcing disclosure of payments to countries like China and Angola, where such disclosures are illegal.<ref>U.S. judge tosses SEC's resource payment disclosure rule. Reuters. Retrieved on September 4, 2013.</ref>
On September 4, 2013, the SEC said that, rather than contest the ruling, it would re-propose the rule.<ref>U.S. SEC won't appeal ruling vs disclosing payments abroad. Reuters. Retrieved on September 4, 2013.</ref>
Summary of the Rule
The proposed rules would require a domestic or foreign issuer to disclose payments made to governments if:
- The issuer is required to file an annual report with the Commission under the Securities Exchange Act (Exchange Act);
- The issuer engages in the commercial development of oil, natural gas, or minerals; and
- Payments exceed a de minimis threshold of $100,000 in a fiscal year.
Payments made by subsidiaries will also require disclosure.
Resource extraction issuers would need to disclose payments that are made to further the commercial development of oil, natural gas, or minerals, including exploration, extraction, processing, and export, or the acquisition of a license for any such activity.
The types of payments related to commercial development activities that would need to be disclosed include:
- fees (including license fees);
- production entitlements;
- dividends; and
- payments for infrastructure improvements.
This list of payment types would be consistent with the requirements of the European Union, Canada, and the Extractive Industries Transparency Initiative.
The information required to be disclosed includes:
- Type and total amount of such payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals.
- Type and total amount of such payments for all projects made to each government.
- Total amounts of the payments by category.
- Currency used to make the payments.
- Financial period in which the payments were made.
- Business segment of the resource extraction issuer that made the payments.
- The government that received the payments, and the country in which the government is located.
- The project of the resource extraction issuer to which the payments relate.
- The particular resource that is the subject of commercial development.
- The subnational geographic location of the project.
The proposed rules would define “project” using an approach that is focused on the legal agreement that forms the basis for payment liabilities with a government. This definition could also include operational activities governed by multiple legal agreements.
The proposing release notes that the Commission could provide exemptive relief from the requirements of the proposed rules on a case-by-case basis using its existing authority under the Exchange Act. Also, in light of international developments, as well as the progress made by the U.S. Extractive Industries Transparency Initiative (USEITI), the proposed rules would allow issuers to use a report prepared for foreign regulatory purposes or for the USEITI to comply with the proposed rules if the Commission determines the requirements are substantially similar to the proposed rules.
The public disclosures would be filed annually using Form SD, no later than 150 days after the end of its fiscal year.
Related Document: Proposed Rule