The Deadliest Form of Denial - Financial Transparency Coalition

Delaying Release of Final Rules on Extractive Industries Disclosure Law Will Hurt Developing Countries, Could Weaken Enforcement

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The Securities and Exchange Commission (SEC) announced in April that the final rules for Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection act could be delayed until sometime between August and December 2011, at the earliest. Once enacted, Section 1504 would require companies operating in the oil, gas and mining industries (the extractive industries) that have to report to the SEC, which includes—at a minimum—all such companies listed on U.S. stock exchanges, to report payments made to the U.S. and foreign governments to attain mining and drilling rights on a country-by-country and project- by-project basis. With the rest of the world watching – in some instances, poised for action, ready to follow the U.S. example – now is not the time to lose momentum on this issue.

Since it was passed in July 2010, Section 1504 has inspired other countries to take similar financial transparency, accountability, and anti-corruption measures. France, Germany and the United Kingdom all stated their willingness to support such a rule in the EU, and important steps have already been taken in Norway towards creating a similar law. In a letter to SEC Chairman Schapiro, Senators Cardin and Lugar expressed concerns that “a delay of this nature may undermine [the law’s] efficacy.” They noted that while these global partners “are eager to move forward with a similar disclosure law […] to be as collaborative as possible, they are waiting for the final rule issuance in the U.S., recognizing that many multinational companies are listed in several markets around the world, warranting similar rules for all markets.” This interest in collaboration is not just in Europe; South Korea is looking to implement similar laws, and the Hong Kong Stock Exchange has already implemented disclosure rules for extractive industry companies newly listing on that exchange.

While it has been said that there are many possible reasons for the delay, this begs the question of whether or not the SEC could be bending to industry pressures. Unfortunately, this increased time frame now leaves Section 1504 exposed to the risk of becoming watered down over time.

What about the oil and mineral rich countries that play host to the extractive companies?

For a country like Burma, “The SEC rules will cover some of the estimated 27 companies invested in Burma’s natural resource sector, such as Chevron […and] Total.” Delay by the SEC means that the Burmese people will continue to be prevented from knowing which companies are helping to finance the military junta in their country.

With the law delayed until later in 2011, nearer to the end of the fiscal year for many companies, any implementation period could be lost. This would mean that the first reports on payments to foreign governments might not be made until 2013, and the information not likely to be available before 2014.

The world has watched protests and revolts sweep across the MENA region this year. With rampant corruption and financial opacity in these areas, money paid to governments for drilling and mining privileges all too often ends up lining the pockets of the rich while the rest of the country remains in poverty. According to Senator Lugar, “This phenomenon, known as the ‘resource curse,’ affects the consuming as well as producing countries. It exacerbates poverty which can be a seedbed for terrorism.” If there is one thing Americans should have learned in the last decade it is that they are not immune to the instability that arises in these resource-rich countries. Section 1504 is an important step towards transparency which would help promote both corporate and government accountability. The legislation is clear; the final SEC rules need not be delayed.