The Shareholder Advocacy Forum submitted comments to the Securities and Exchange Commission regarding proposed rules that require disclosure of payments made by resource extraction issuers such as crude oil and natural gas companies. This mandate was attached to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has nothing to do with the 2008 financial crisis, but was included in the bill as a politically-motivated priority and “sought to use the SEC disclosure system to promote public policy objectives that were not directly related to the usual purposes of corporate disclosures,” as noted by Nicholas Grabar and Sandra L. Flow.
Since Dodd-Frank’s enactment, the SEC has seen its role of policing financial markets and investor protection expand. As a result, the Commission has implemented 67 rules as required by Dodd-Frank. However, the SEC still has yet to implement an additional 14 rules that remain in the “proposed” phase, and four other rules in the “remaining” or untouched phase, all of which were mandated by Dodd-Frank.
Section 1504 of the Dodd-Frank Act required the SEC to adopt a rule on disclosure of resource extraction payments by April 2011, less than a year after the Act was signed into law. The unprecedented volume of rulemaking required by the Commission forced the SEC to miss the 2011 statutory deadline but adopted a rule in August 2012. The rule was thrown out in July 2013 by a District of Columbia Federal District Court after it was challenged by industry trade associations. After the 2013 ruling, the SEC shifted their focus to prioritize other rule-making mandates from Dodd-Frank but was sued in September 2015 by Oxfam for failing to adopt a rule as required by Section 1504. Oxfam was successful and the SEC was compelled by a Massachusetts court to begin writing a new rule in June 2016, which the Commission implemented in September 2016.
Their second attempt at the rule was disapproved by Congress in February 2017 using the Congressional Review Act, a resolution that allows Congress to overturn an agency’s “major rules” – those with an economic impact greater than $100 million – without the a signature from the President, and forbids the a agency or regulator from promulgating a “substantially similar” rule in the future. This means the SEC could not write a similar rule to that of their 2016 rule, but the Commission is bound by Section 1504 to still produce a resource extraction rule.
The Commission has found it difficult to write a rule that aligns with Section 1504 (which is still law) while complying with the CRA resolution. In the fall of 2019, the Commission announced it would seek to finalize a new rule and in January 2020 the SEC released their proposed rule for review and comments.
SAF appreciates the opportunity to provide comments to the Commission regarding the proposed rule. Additionally, we are supportive of the rule’s provisions that amend several definitions that better reflect resource industries, enhance alternative reporting standards and disclosure thresholds, and providing narrowly tailored exemptions:
- The proposed amendments incorporated in the current proposal decrease the compliance burden on extraction businesses that operate domestically and abroad, allowing businesses to prepare and provide a single report. By reducing the compliance burdens, shareholders are not inundated with multiple and duplicative reports to review.
- By amending the definitions of “control” and “subsidiary” to comply with those of Generally Accepted Accounting Principles, and by using a three-tiered approach to define “projects”, it will allow the Commission to successfully obtain an appropriate balance that promotes transparency from extraction payments and reduces the likelihood of duplicative disclosures, saving shareholder resources that can be better used on alternative projects.
- By increasing the thresholds for individual payments associated with an extraction project helps preserve shareholder resources, creates equal opportunity for success amongst smaller and larger extraction companies and enables long-term growth within the resource extraction industry.
- Under the proposed rule, the Commission will provide conditional exemptions from disclosure for extraction issuers whose payment disclosure would otherwise be in conflict with foreign laws.
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