SEC must take opportunity to re-issue a strong rule for the vital US transparency law under Dodd-Frank 1504
September 3rd, 2013
September 3rd, 2013
WASHINGTON DC – Global Witness joins Members of Congress and investors representing more than US$5.6 trillion in assets in calling on the US Securities and Exchange Commission (SEC) to re-issue a strong ruleunder Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act—a vital piece of bipartisan US transparency legislation.
Specifically, Section 1504 requires U.S.-listed oil, gas and mining companies to publish details of their revenue payments to governments, such as taxes, royalties and licence fees, on a country- and project-level basis so that citizens in resource-rich countries can ‘follow the money’ and ensure it is used for their benefit.
While the 1504 law remains in place, the SEC’s original implementing rulewas set aside by a U.S. district court in July after the American Petroleum Institute (API), an oil industry lobby group whose members include BP, Chevron, Exxon and Shell, filed a legal challenge against the law.
The API has based its attack on1504 on a claim that local laws in Angola, China, Cameroon and Qatar ban revenue disclosures and that they should therefore be ‘exempted’ from having to report payments in these countries. The US district judge, in vacating the rule, held that the SEC has not yet sufficiently justified its decision to reject industry demands for such exemptions—but specifically invited the SEC to re-issue a rule under 1504 with a stronger justification for denying country exemptions.
“The SEC spent almost two years consulting with oil companies and other stakeholders during the rule-making process, yet industry failed to come up with any credible evidence to prove that exemptions are needed,” said Corinna Gilfillan, Head of Global Witness’s U.S. office.
“The SEC should stand firm against companies that want to continue making payments in secret and reinstate the rule. It now has an opportunity to re-write the rule with its original elements intact, and provide a stronger justification for its decisions,” continued Gilfillan. “Forty four institutional investors representing more than $5.6 trillion and a group of Senators are all in favor, and this provision was passed with bipartisan support.”
The oil industry’s case suffered a major setback in June, when the European Union adopted legislation to match the U.S. rule and emphatically rejected exemptions. Canada has announced it will enact similar legislation, and mandatory payment disclosure standards are being considered by the Norwegian and Swiss governments. The EU law means that if the API lawsuit is successful in weakening the U.S rule, companies that are listed in both the U.S. and EU will be forced to comply with two different reporting regimes for their entire global operations. This includes Shell and BP, both API members who strongly support the lawsuit.
Allowing exemptions in Section 1504 would effectively create a “dictators’ charter”, as it would encourage corrupt regimes to introduce local laws that ban the disclosure of revenue payments and defeat the purpose and intent of the U.S. legislation.
“Transparency for payments to governments with no exceptions has become the new global standard. Instead of trying to turn the clock back on corporate secrecy, oil companies should stop their aggressive campaign to gut this important law,” said Gilfillan.
Notes to editors
(1) Senator Cardin (D-MD), Senator Lugar (Ret. R-IN), Senator Leahy (D-VT), Senator Levin (D-MI), and Senator Markey (D-MA) sent a letter to the SEC dated August 2, 2013, calling on the SEC to re-issue a rule for Section 1504. The letter states that “we encourage proceeding on writing an equally strong revised rule as soon as possible.” Investors representing more than $5.6 trillion in assets sent a letter to the SEC on August 14, 2013 commending the SEC for its leadership in implementation of Section 1504 and encouraging the SEC “to continue its rigorous defense of the Section 1504 rules as it responds to the U.S. District Court’s decision.” The letter also states that “It is in the interest of investors and companies subject to both the U.S. and EU requirements that the reporting obligations in these jurisdictions are as uniform as possible.”
(2) The American Petroleum Institute filed a legal challenge against the Dodd-Frank Section 1504 statute and implementing rule on 10th October 2012. Exxon, Shell, BP and Chevron are members of the API, and publicly support the lawsuit: http://publishwhatyoupay.org/
(3) The Norwegian Ministry of Finance has appointed a committee tasked with recommending new transparency measures for level Norwegian oil and mining companies, with reference to the EU Accounting and Transparency Directives: http://pwyp.no/en/will-norway-
(4) The Extractive Industries Transparency Initiative is a coalition of governments, companies, civil society groups and investors that promotes a global standard of revenue transparency for the extractive industries (www.eiti.org). The EITI decided as an outcome of its International Board meeting in Oslo on 26th-27th February to require detailed ‘project-by-project’ reporting of revenue payments in the new EITI Standard.