After the Repeal of the U.S. Publish-What-You-Pay Rule, What Happens Next?

As most readers of this blog are likely aware, despite the valiant lobbying efforts of a broad and bipartisan swath of the anticorruption community (as well as a last-minute plug from GAB), the United States House and Senate recently passed a joint resolution, pursuant to a statute called the Congressional Review Act (CRA), to repeal the “Publish What You Pay” (PWYP) rules for the extractive sector (oil, gas, mining) that the Securities & Exchange Commission (SEC) had promulgated pursuant to a statutory mandate contained in Section 1504 of the 2010 Dodd-Frank Act. Once President Trump signs the CRA joint resolution disapproving the PWYP rule, it is wiped off the books. Professor Bonnie Palifka’s post last week explained some of the reasons why PWYP rules are so important to fighting corruption in the extractive sector, and why this repeal is the first sign that the new administration, and the Republican-controlled Congress, threaten to undermine U.S. anticorruption efforts and leadership. (For another very good analysis along similar lines, see here.) What I want to do in this post is to consider a somewhat more specific question: What are the implications of the CRA repeal of the SEC rule for the implementation of the Dodd-Frank Act’s PWYP mandate going forward?

This turns out to be a tricky legal question, involving some unexplored and untested issues concerning the relationship between the Dodd-Frank Act, the implementing regulations, and the CRA. Let me start with a quick summary of the key legal provisions, keeping this as non-technical as possible:

  • First, there’s the Dodd-Frank Act itself, which contains the original mandate to the SEC to make PWYP rules. In particular, Section 1504 requires the SEC to promulgate rules “that require each resource extraction issuer [that is, a company under SEC jurisdiction that engages in the commercial development of oil, natural gas, or minerals] to include in an annual report … information relating to any [non-de minimis] payment made by the resource extraction issuer [or its subsidiaries or entities under its control] … to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals,” and that this information must include “the type and total amount of such payments made for each project” as well as “the type and total amount of such payments made to each government.” Although the SEC has some wiggle room, it must, according to the statute, issue final rules that satisfy the above criteria.
  • Second, not only is the SEC required to issue a PWYP rule that meets the above criteria, but the Dodd-Frank Act contained a deadline requiring the SEC to promulgate these final rules by April 2011 (270 days after the enactment of the Dodd-Frank Act). However, a combination of ordinary bureaucratic delay and litigation slowed the process down, and the SEC didn’t issue its final rules until June 2016.
  • That delay is what made the PWYP rule vulnerable to repeal through the CRA, which establishes a special procedure for Congress to pass (and send to the President for signature) a “joint resolution of disapproval” for any rule issued sufficiently recently. (The calculation of the exact time period covered is a bit complicated and not worth delving into here.) Now, Congress could always overturn any agency rule simply by passing a statute. So, if both chambers of Congress and the President don’t like an agency rule, they can conceivably eliminate it even without the CRA. However, attempting to repeal a rule through the ordinary legislative process gives a determined congressional minority a number of opportunities to block the repeal, perhaps most notably through a filibuster in the Senate (which creates an effective super-majority requirement). The CRA matters because it mandates special “fast-track” procedures, in both the House and the Senate, for consideration of a joint resolution of disapproval, essentially forcing a quick up-or-down majority vote. This is exactly what happened to the SEC’s PWYP rule.

OK, that’s the story up to now. What happens next? Here’s where things get a bit (legally) complicated:

  • One might think, “Well, that’s all she wrote. The Obama Administration’s PWYP rule was repealed, and there’s no way the Trump Administration’s SEC is going to promulgate any PWYP rule at all.” That might be true for a fully discretionary rule—for example, an agency rule promulgated pursuant to a general statutory directive to further some broadly-defined objective (such as “investor protection”). But in this case, Section 1504 mandates that the SEC promulgate final rules that require, at a minimum, that resource companies under SEC jurisdiction disclose in an annual report “the type and total amount” of all payments for “each project … relating to the commercial development of oil, natural gas, or minerals” as well as “the type and total amount” of all resource-related payments “to each government.” Indeed the SEC is under a deadline—which has already passed—to issue such rules. If the SEC fails to issue new rules, an interested party could potentially sue to force the SEC to issue rules, as Oxfam America successfully did in this very case to force the SEC under Obama to complete its rulemaking. (In hindsight, if only the SEC hadn’t been so slow, we wouldn’t be in this mess at all, but that’s another story.)
  • The CRA explicitly recognizes the fact that some agencies may be required by statute to make rules by a specific deadline, and therefore provides that if any mandatory agency rule doesn’t take effect because of the passage of a CRA disapproval resolution, the statutory “deadline is extended until the date 1 year after the date of enactment of the joint resolution.” So, presumably, the SEC will have until February 2018–one year from the date on which President Trump signs the disapproval resolution–to issue a new PWYP rule that implements Section 1504 of the Dodd-Frank Act (unless that section, or the whole Act, is repealed in the meantime, which alas is a very real possibility). Admittedly, if the SEC misses the deadline (as seems highly likely), there’s not much that can be done to force it to act right away, though eventually private parties might be able to seek and receive a judicial injunction ordering the SEC to complete the rulemaking process.
  • But here’s where things get even more complicated: Although the CRA incorporates a provision extending statutory deadlines for mandatory rules, it also includes a provision that prohibits an agency from adopting “a new rule that is substantially the same” as a rule that has been disapproved under the CRA, “unless the … new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” So, not only has the SEC’s existing PWYP rule been repealed through the CRA, but that repeal also prohibits the SEC from adopting any rule that is “substantially the same” as the rejected rule.

So, here’s the dilemma in a nutshell: Section 1504 of the Dodd-Frank Act requires the SEC to adopt a rule that compels resource companies under SEC jurisdiction to disclose the type and amount of payments that they make for each resource development project, as well as the total of such payments to each government. At the same time, the CRA prohibits the SEC from adopting a rule that is “substantially the same” as the original PWYP rule. Is it possible for the SEC to comply with both mandates? If not, what happens? And looking beyond the Trump Administration, how much are future SEC’s hands tied by the CRA resolution disapproving of the original PWYP rule? This is all uncharted legal territory, but here are a few preliminary thoughts:

  • One possibility, at least in the short-to-medium term, is that the SEC can comply both with Section 1504 and the CRA by promulgating a new PWYP rule that is in some respects similar to the original rule, but that adopts a few key changes—most likely those advocated by the American Petroleum Institute (API) and other resource-sector interest groups during the SEC’s original rulemaking process. For instance, the API objected to the original rule’s definition of “project” as the activities governed by a “single contract, license, lease, concession, or similar legal agreement”; API advocated instead for a definition of “project” that would allow companies to aggregate into a single “project” all of the similar resource extraction activities within the largest sub-national political jurisdiction in each country. To take another example, the API and like-minded commentators objected to the fact that the SEC’s original rule required the payment disclosures to be public; API proposed instead that covered companies should be allowed to submit their annual reports confidentially to the SEC, with the SEC then issuing for public consumption a document that contained only aggregated, anonymized information. If the SEC were to issue a new PWYP rule that allowed for aggregation of contracts at the level of the largest sub-national jurisdiction, and also allowed the disclosures to the SEC to be confidential (and reported to the public only in terms of aggregate payments without naming specific companies), then it’s quite plausible that such a rule would not be “substantially the same” as the rule that Congress disapproved through the CRA, but would still fulfill the SEC’s mandate to issue rules to implement Section 1504.
  • The question gets a bit harder if some future SEC decides to modify the rule so that it’s somewhat closer to the original rule. Suppose, for example, that within the next two years the SEC finalizes a rule that resembles the original rule but, as per the API’s suggestions, allows projects to be defined at the level of the largest sub-national jurisdiction rather than at the level of the individual contract or concession, and that allows companies to report their payments anonymously. Suppose that a few years later, after the election of a new president, the SEC modifies the rule—say, by imposing a public disclosure requirement, and by defining “project” at a somewhat more granular level. Is this allowed? It’s not the same as the original rule, but it’s closer—at what point does the new rule become “substantially the same”? And could a litigant (such as the API) challenge the rule in court on that ground? I think the answer is probably no, because the CRA says that no “determination, finding, action, or omission” under the CRA “shall be subject to judicial review,” but it’s possible that this limitation only applies to legal challenges to the correct application of the CRA, not to the enforcement of the “no substantially the same rule” language. Again, these are uncharted waters. I suppose that if it’s really not judicially enforceable, a future SEC bent on restoring the original rule could adopt something very close, with only the most cosmetic of differences, and assert on the basis of those changes that the rule is not “substantially the same” within the meaning of the CRA. If that can’t be challenged in court, there’s not much the API or any other objector could do, especially since an assumption of this scenario is that the hypothetical new President is supportive of the SEC’s position.
  • Gaming the system could work the other way as well. Suppose the API and its allies don’t really want to modify the Section 1504 rules, but to eliminate 1504 entirely, but they can’t do it because the Democrats in the Senate could block an outright repeal by using the filibuster or other maneuvers. It seems there’s a pretty easy way for the Congress to circumvent those procedural protections: No matter what rule the SEC adopts, pass a joint resolution of disapproval under the CRA, which (a) further extends the deadline for enacting a PWYP rule, and (b) narrows the SEC’s zone of discretion for adopting such a rule. I’m not sure whether there’s a good way to counter this, which may mean proponents of a more aggressive PWYP rule might be better off if the SEC does nothing—or adopts a very weak rule that Congress wouldn’t bother invalidating—until there’s a new President. If the SEC goes ahead and adopts a moderately-strong rule, and it gets CRA-disapproved again, it will be that much harder for a future SEC to adopt a meaningful rule under the existing statute (unless, as noted above, the SEC is willing to charge ahead and adopt a rule that is very similar to a previously-rejected rule, notwithstanding the prohibition on rules that are “substantially the same”).
  • Of course, another way to interpret a CRA disapproval resolution is as an implied repeal of Section 1504’s original mandate. I don’t particularly like this outcome on policy grounds (I like PWYP rules), on procedural grounds (for all their frustrations, protections for determined legislative minorities can serve a valuable function, and circumventing them this way makes me nervous), or on legal grounds (because of the principle that in the U.S. legal system implied repeals are disfavored). But, I have to admit that in some circumstances this might be the most plausible resolution of the tension between Section 1504 and the CRA. If, after the passage of a CRA joint resolution of disapproval, there simply is no way to comply with Section 1504’s mandate because any compliant rule would be “substantially the same” as the rejected rule, then the CRA joint resolution—as the later-in-time legislative decision—would take precedence. (If a statute in Year 1 says the agency must do X, and another statute in Year 2 says the agency may not do X, then the agency may not do X.) But I do think that conclusion can and should be avoided until there’s really no other legally plausible option.

I realize that all of the above may seem, for readers who are not Administrative Law Nerds like me, kind of boring and technical. But the CRA disapproval is likely to shape the battle lines for preserving some version of PWYP rules in the US over the next few years, so it would probably be good if the anticorruption community starts working through these legal conundrums, and sooner rather than later.

9 thoughts on “After the Repeal of the U.S. Publish-What-You-Pay Rule, What Happens Next?

  1. Thanks for this very useful update. I think it’s also worth probing more deeply into why the SEC dragged its feet for so long. Their institutional resistance – and their apparent vulnerability to industry lobbying even during the Obama administration – may raise questions about the original disclosure strategy. For example, even if the rule had not been overturned, would implementation have taken many more years and then still produced either incomplete, unreliable or difficult-to-access payment data?

    • I don’t have any inside information, nor have I done any specific research on the reasons for the original delay, but my gut instinct is that it wasn’t due to deliberate foot-dragging or sympathy to the industry’s lobbying position. Indeed, the final rule rejected pretty much all of the API’s proposed changes and was overall something that I think the PWYP/anticorruption community was pretty happy with. I think (and again, this is just guesswork) the main reasons for the delay were twofold: (1) Dodd-Frank gave the SEC an enormous amount of stuff to do, much of it governed by unrealistic statutory deadlines, and they were just overwhelmed; (2) the industry lobbying was successful not so much in convincing the SEC to sympathize with the industry’s position, but in scaring the SEC into thinking that the rule would be vulnerable to judicial reversal if the SEC didn’t cross every “t” and dot every “i” and generally do a really thorough job of providing a persuasive justification for every decision it made. After all, the SEC has recently lost a bunch of cases brought by business lobbying groups. They were caught between a rock and a hard place: rush the rule out and it might be more vulnerable to judicial reversal; take too long, and risk what actually happened — a change in administration and consequently a repeal of the rule.

  2. Great analysis. One thought: if the SEC adopted the API position, it stil mkight be helpful to governments that have joined in EITI. In the event of allegations of corruption, they could insist, possibly by subpoena, that the data be turned over. .

    • Possibly, and I appreciate your optimism. I’m not sure how the law on this works, so I don’t know what in the mandatory disclosures would be discoverable. But, even if you’re right, there are a couple of very important limitations: (1) the API’s preferred version of the rule only requires the companies to turn over aggregated data (at the level of the largest subnational political jurisdiction), meaning even the SEC might not have sufficiently granular information; (2) this still doesn’t help if the main objective of the rule is to facilitate ongoing monitoring by media and civil society groups in the host country.

      • I looked more carefully at the EITI 2016 Standard and found a subpoint on disaggregation that apparently seeks to incorporate SEC rules (see below). That suggests that scrapping the PWYP rule has a direct effect on the stringency of the Standard.

        Other parts of the Standard state that releasing certain information on a state/region level should be done “when relevant”. I’m not sure what that means, but it certainly doesn’t sound like the EITI contemplates requiring such data from each of the “largest subnational political jurisdiction[s].
        ——
        4.7 Level of disaggregation.

        The multi-stakeholder group is required to agree [on] the level of disaggregation for the publication of data. It is required that EITI data is presented by individual company, government entity and revenue stream. Reporting at project level is required, provided that it is consistent with the United States Securities and Exchange Commission rules and the forthcoming European Union requirements.

        • Hi Michael, I am very involved with both the SEC rule and EITI, so I wanted to chime in and say that the temporary lack of the SEC rule does not necessarily eliminate the project-level payment reporting requirement from the international EITI standard. If you look at the EITI text that you cited, and bracket the reference to the SEC rule, you still have the requirement for reporting consistent with the EU law, which is still in place. So the project reporting still stands and has to be consistent with the EU law. In fact, a number of US-listed oil companies (including, Chevron, Exxon, BP as well as a couple of US-listed Chinese oil majors) are already complying with this requirement in some EITI member countries such as Indonesia.

  3. A quick note: The original version of this post at several points misquoted the CRA as prohibiting rules that are “substantially similar to” a rejected rule; the actual CRA language prohibits the adoption of new rules that are “substantially the same” as a rejected rule. While this error does not alter the analysis in any significant way, it’s important to get the legal language right, so I have corrected the post throughout. I apologize for the error, and thank the alert reader who pointed it out to me.

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