Section 1504 of the Wall Street Reform Act (aka Dodd-Frank) mandated that natural resource companies disclose their payments to foreign governments. Before, they did not have to do so. Companies could receive special deals from governments or make unannounced side payments without telling anyone, although they did need to disclose their overall global payments. The SEC took its sweet time in designing a rule, but they finally imposed on August 22, 2012. (You can find the text of the rule here.)
Five days ago, a federal court in D.C. overturned the SEC rule. (You can read the decision in full here.) I am not a lawyer, but their decision does not grok. First, they ruled that the SEC could not require public disclosure because the statute did not use the word “public.” In their words (on page 11):
[The statute] says nothing about public filing of these reports. To state the obvious, the word “public” appears nowhere in this provision. The statute speaks of “disclosure” and “an annual report,” not “public disclosure” and not a “publicly filed annual report.” [Italics added.] Nor does the phrase “annual report” command public filing … More instructive still, the public availability requirement is narrower than the underlying disclosure. Section 13(q)(3) provides: “To the extent practicable, the Commission shall make available online, to the public, a compilation of the information required to be submitted under the rules issued under [the annual report provision,] paragraph (2)(A).” 15 U.S.C. § 78m(q)(3)(A). The public availability, then, is limited to “a compilation of the information,” and is required only “[t]o the extent practicable.”
Say what? Disclosure is different from public disclosure? A complilation can only include aggregate data?
It then want to say that the SEC could not require American companies to violate foreign law (on page 25):
[T]he Commission impermissibly rested on the blanket proposition that avoiding all exemptions best furthers section 13(q)’s purpose. It did not consider whether a certain country or certain issuer that represents a high portion of the burden on competition and on investors is sufficiently central to that purpose to make an exemption unwarranted… The Commission undertook no […] specific analysis, however, instead focusing heavily on the statute’s apparent purpose—a purpose it conceived more broadly than the statutory text, which emphasizes practicability. Averse to sacrificing any of the section 13(q) aims no matter the cost, the Commission abdicated its statutory responsibility to investors.
The SEC has a statutory responsibility to investors? I mean, sure, but American regulations cannot violate foreign laws?
I want this data disclosed because it would make my research so much easier. But there are also public policy reasons to think it should be revealed.
This court decision is a blow against transparency in oil production: leaders can cut special deals without anyone knowing that the public purse is being cheated. (Even Platts agrees with Oxfam.) I hope that the SEC wins on appeal.
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