As many readers of this blog are likely aware, the U.S. Congress is poised to invoke a statute called the “Congressional Review Act” to override the rules that the Securities and Exchange Commission promulgated last year to implement a provision of the Dodd-Frank Act (Section 1504) that required companies in the extractive industries (oil, gas, and mining) to publicly disclose the amounts that they pay to foreign governments in connection with projects abroad. (A timeline of the legislation and its implementing regs is here.)
The vote is scheduled for this coming Monday. Like many in the anticorruption community, I think eliminating the Publish What You Pay (PWYP) regs would be a bad idea. Alas, I don’t have time to write up a substantive discussion of the issue before the Monday vote. Fortunately, there are already a fair number of discussions of the issue elsewhere; for example, Jodi Vitori of Global Witness, who previously served as an intelligence officer in the Air Force, has a succinct explanation of why eliminating these PWYP rules would be bad for U.S. national security here.
While I usually don’t use this blog to engage in direct activism/advocacy, in this case I wanted to reach out to those GAB readers who are based in the U.S., particularly those whose representatives are Republicans, and encourage you to call your House Representative and Senator to express your opposition to the invalidation of the rules implementing Section 1504. (If you’re not sure who your House Representative is, you can find that here, and you can find a list of contact information here. Senate contact information is here.)
It will be good to see these rules go away.
Respectfully, I don’t understand the your criticisms of the PWYP rules (other than the stock complaint that such rules will increase compliance costs). I think either I’m just not understanding your argument, or you’re misunderstanding what this rule is supposed to accomplish.
I read your post as advancing two main complaints (in addition to the worry about compliance costs):
First, you argue that Section 1504 is too vague/broad. I guess I just don’t see what’s so crazily broad about the definitions in the statute (to say nothing of the regulation itself — available here: https://www.sec.gov/rules/final/2016/34-78167.pdf). For example, you say in your post (sarcastically, I think) that “Section 1504 provides this crystal clear definition [of resource extraction issuer]: ‘the term “commercial development of oil, natural gas, or minerals” includes exploration, extraction, processing, export and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity, as determined by the [SEC].’“ With all due respect, I don’t think your sarcasm here is justified. I read a lot of statutes, and that seems pretty clear to me. (I had a similar reaction to your other claims of vagueness, and again, if you’re going to mount this critique, I think you need to address the rules themselves, not the statutory text–it’s fairly standard for Congress to enact imprecise language that is fleshed out and made more specific by the implementing agency.)
Ultimately, though, I don’t think the lack of clarity is your biggest beef with Sec. 1504. (After all, the regs themselves — which, again, your post doesn’t mention — seem to add quite a bit of additional clarity, and if they don’t do so to your satisfaction, then the solution is to fix the regs, not to scrap them.)
That brings me to your second point. You say, over and over, that Section 1504 would require extractive companies to disclose “perfectly legitimate and legal payments.” Indeed it would. So what? Lots and lots of statutes require disclosure of activities (including commercial transactions) that are perfectly lawful. (Indeed, that’s true of virtually all disclosure statutes, because if conduct is otherwise illegal, mandating its disclosure is kind of weird: It’s against the law to do X, but if you do do X, it’s against the law not to tell us!) You reference a rejected proposal floated during debates over the FCPA, that would have required disclosure of all payments to any foreign agent over $1,000. I agree that would probably be too broad, and was sensibly rejected. But why is that here nor there? The Sec. 1504 rules are not nearly so broad: they only cover resource extraction companies’ payments in connection with resources extraction projects, and only if the payments are over $100,000 within a single fiscal year. And I could point you to dozens of legislative debates where Congress _did_ end up adopting a law that requires disclosure of “perfectly legitimate and legal” activities. What does that prove?
More to the point, the PWYP rule for extractive industries has a substantially different purpose from the proposals in FCPA debates to require disclosure of all payments over $1,000 in foreign business deals. The latter seems as if it was intended as a prophylactic measure to police bribery by the firms–and in that context, may indeed be overkill. Extractive industry PWYP rules are not really about that. The concern is more the embezzlement, misappropriation, or squandering of the payments on the foreign government side. The idea is that the citizens of foreign nations should be able to monitor the amounts that their governments (including oil ministries, state-owned oil companies, and the like) are receiving, so they can better hold them accountable and monitor the use of those funds. That (in addition to the much narrower focus and higher monetary threshold) seems to me to make these rules substantially different from what was proposed and rejected in the early FCPA debates.
I recognize that reasonable people of good faith can disagree about whether the likely benefits of the PWYP rules (in terms of greater monitoring and accountability for how resource revenues are spent in developing countries) outweigh the costs (principally compliance costs for extractive sector companies). But I couldn’t find in your post a sustained argument that the latter outweigh the former, so I’m not sure why your attitude toward the rules is so hostile.
Thanks for this important post. Note: The Senate has 5 hours of floor time this evening (Thursday) to debate the measure. Senators Brown, Cardin, Leahy, Whitehouse, Markey, and Merkley will likely speak, and possibly others. A vote is expected early Friday morning. So please call senators today!
Matthew I echo your call to arms! As you know well, national security is but one serious concern. Other reasons to strongly oppose the CRA include the fact that it would only serve to perpetuate a culture of corruption, create more distrust of capitalism and free and open markets and make it virtually impossible for watchdog groups and agencies to provide an effective check on government officials and budgetary revenues or expenditures. I’m hoping all loyal GAB readers will rise to the occasion. Perhaps most important, I know from real world experience as a whistleblower that defeating the CRA will make a difference to many poor and disenfranchised people around the world. Please do what you can – pronto!
Thanks, Matthew. I wrote to my representatives.
Two questions and one comment.
1) Can someone point to me a piece where issue between the oil and gas industry and the anticorruption community is joined? The American Petroleum Industry writes on its web site that: “The SEC’s rule unreasonably rejected a model of payment transparency proposed by API which would have required the SEC to publish an annual compilation of company payment data in a clear and user-friendly format while disclosing payments received by a citizen’s federal and local government by resource type, the location of the extractive activity, and the method of extraction.” Sounds reasonable to me although I realize that industry advocates can make the most toothless proposals sound appealing. So I am not accepting the API’s claim at face value. What I am looking for is something that compares its proposal with the SEC’s final rule, showing where the two differ and why the industry proposal falls short.
2) It may be important to remind readers that Congressional repeal will not mean the SEC will never issue a rule on payments to governments by oil and gas companies. Section 1504 of the Dodd-Frank law requires the commission to do so. Congressional repeal does not change that. It means merely that the SEC will have to come up with another version of the rule, presumably, given the Congressional vote, one more congenial to the oil and gas industry.
3) Were Congress voting on repeal of section 1504 the end-of-the-world rhetoric now being heard would clearly be appropriate. But does the vote to repeal the current version of the SEC rule justify it? Will repeal of this version mean an absolute, total defeat for the anticorruption movement? If the revised rule reflects the API proposal will there be no benefit to it whatsoever?
PWYP has a bit of a side-by-side analysis in their submission to the SEC here: https://www.sec.gov/comments/s7-25-15/s72515-61.pdf
Also NRGI here: https://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resourceextractionissuers-84.pdf
The key issue with the API model is that it would withhold public access to the name of the company.
Thanks much. I have been reading up on the Shell-ENI case in Nigeria. It provides a fine example of the need for company-level disclosure and one that rebuts the contention that the required disclosures are of no value to investors.