With its vote last Wednesday finalizing new disclosure rules for companies in oil and mining, the Securities and Exchange Commission aligned itself strongly with the 10-year campaign known as Publish What You Pay.
For the first time, companies making payments to governments for oil, natural gas or minerals will be required by law to break down the types and amounts of those payments if they want to continue to trade on a United States stock exchange -- and the rules apply to any company, foreign or domestic, trading in the U.S.
The rules are a victory for the global movement for open, responsible management of natural resources. With better information on the payments that flow from companies to governments, citizens and journalists can hold their leaders more accountable and investors can better manage risk. Transparency is especially vital in the developing countries that hold huge reserves of petroleum and minerals, where too often corruption and mismanagement deny citizens the benefits of natural resources, stunt economic growth and worsen political instability.
Even though these requirements became law in 2010, under Section 1504 of the Dodd-Frank act, it took more than two years for the SEC to issue final regulations. The oil industry waged an all-out campaign to hobble the new standards before they saw the light of day, hammering away at them in the press and in submissions to the SEC.
But our campaign had its champions too, from the bill's original authors, Senators Ben Cardin (D-Md.) and Richard Lugar (R-Ind.), strongly supported by Senator Patrick Leahy (D-Vt.) and Congressman Barney Frank, to world leaders in business, international development and philanthropy, to the global alliance of advocates and policy experts in our Publish What You Pay coalition, including Revenue Watch, Oxfam, Global Witness, Calvert Investments, Earthrights, the ONE Campaign and literally hundreds of other groups.
- No "tyrant's veto." Opponents of Dodd-Frank insisted loudly and repeatedly that U.S. requirements for transparency would run afoul of secrecy laws in foreign countries where regulated companies operate, and argued that partnerships with such repressive regimes should be granted an exemption from the disclosure rule. The SEC was not persuaded and granted no such exemption. (In fact, the objection was spurious from the start. As SEC presenters noted themselves Wednesday, industry failed to cite any national laws that would have prohibited disclosures.)
- Small payments count. The oil industry had pushed for a minimum payment amount near $1 million to trigger the payment reporting requirement, which would have allowed payments of critical importance for developing country budgets to go unreported by companies. The SEC set the minimum at $100,000, which will ensure that companies are held accountable for a larger share of their payments.
- Going beyond EITI. A voluntary standard for self-reporting by companies and governments in the mining and oil sectors, the Extractive Industries Transparency Initiative (EITI), continues to be an important mechanism for openness and good governance. Companies pressuring the SEC claimed that EITI was an adequate standard and the Dodd-Frank rules should be waived for EITI countries. But the SEC saw it differently, choosing instead to build on EITI's example where it corresponded with Dodd-Frank's standards, and then to go further in areas such as the level detail required for company reports and to make Dodd-Frank reporting mandatory for payments in all countries.
- Reporting by "project." The rule provides guidance for how to define "project," in line with civil society recommendations. SEC staff noted that within industry the term is commonly understood, and that it is the contracts companies sign with governments that define the relationship and payments made between companies and governments. The SEC rejected outright the notion that "project" can be interpreted to allow merely for reporting by country, or by geologic basin covering more than one country, as some companies would have liked.
- Liability for false reporting. Knowingly filing false information under the rule will can be subject to legal action. Companies had wanted a more informal reporting standard, not subject to sanction.
The European Union is far along toward adopting similar disclosure rules, and the SEC formulation will provide strong backing for those Europeans wanting to see tough European legislation. The EU parliament is expected to vote next month. According to the SEC rules, companies are required to begin reporting under the standard in 2014. The precise format and data standards for company filings are yet to be determined.
With these rules, citizens have been given a potent tool to ensure that their country's natural resources provide them with economic and social benefits. And the era of secrecy for oil and mining companies is coming to a close. For the thousands of such companies that trade in the world's largest capital market, transparency has officially become the law of the land.