GFI Disappointed by Court Decision to Vacate Key Extractives Transparency Rules
July 3rd, 2013
July 3rd, 2013
WASHINGTON DC – Global Financial Integrity (GFI) expressed disappointment today at the decision by Judge John D. Bates of the United States District Court for the District of Columbia to vacate key extractive industry transparency rules. The decision prevents the rules from taking effect until the Securities and Exchange Commission (SEC) revises the rules to address the court’s concerns.
The rules—which the SEC finalized last summer after two years of deliberation—implemented Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also known as the “Cardin-Lugar provision,” this statute requires all oil, gas, and mining companies that report to the SEC to publicly disclose all of the payments they make to governments worldwide. The rules took effect in September of this year despite the lawsuit, with companies due to file their first reports in 2014.
Global Financial Integrity, a research and advocacy organization based in Washington DC, noted, however, that the ruling is based on two narrow, relatively technical grounds and did not overturn Section 1504 or comment on its validity. GFI is optimistic that the SEC may still implement strong transparency rules under the decision, and encourages the SEC to do so as quickly as possible to ensure that the U.S. continues to keep its place at the forefront of global momentum on this issue.
Specifically, the court determined that the SEC did not adequately justify its decision not to allow an exception to reporting where foreign laws preclude publication of the detailed information.
GFI Legal Counsel and Director of Government Affairs Heather Lowe remarked, “The record of comments to the SEC shows clearly that no one has yet correctly identified a single country where section 1504 disclosures would come into conflict with local laws. There is therefore no need for such an exception with respect to existing foreign laws, and to create an exception for future conflicting laws would create a huge incentive for corrupt regimes all over the world to adopt new anti-transparency laws—in direct contravention of Congressional intent. The European Union recently passed similar extractive industries transparency laws that cover a broader range of companies and industries, and they also did not feel the need to create an exception on this basis.”
The court also determined that the SEC interpreted the statute too broadly with respect to the manner and degree to which the rules require public disclosure of the information companies must report under the law.
Ms. Lowe explained, “the court took issue with the extent to which information should be made public under the statute, arguing that the SEC’s justification for making all of the information provided by companies publicly available was insufficient. It is important to note, however, that the court did not say it was inappropriate for all the information reported to the SEC under the statute to be made public, but rather the court just requires better justification for it.”
“We hope the SEC will promptly address the court’s concerns with additional justifications,” concluded Ms. Lowe.
GFI estimates that developing countries lose roughly $1 trillion per year to illicit financial flows—the proceeds of crime, corruption and tax evasion—facilitated by opacity in the global financial system. The organization explained that the transparency measures included in Sec. 1504 could help significantly curtail these illicit outflows.
“These rules represent a significant advancement for the developing world and for investors. G8 leaders acknowledged this when they committed to disclosure at their summit in Northern Ireland a few weeks ago,” added Ms. Lowe.
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