News: Major multinationals, investors and citizen groups call for stronger oil anti-corruption rule, urge SEC to change course

For Immediate Release: March 26, 2020

CONTACT: Kathleen Brophy – kbrophy@pwypusa.org

443-285-1563

Major multinationals, investors and citizen groups call for stronger oil anti-corruption rule, urge SEC to change course

Washington, DC – In response to an invitation for public comment by the Securities and Exchange Commission (SEC), prominent stakeholders expressed overwhelming support for a stronger implementing rule for Section 1504 of the Dodd-Frank Act, the oil anti-corruption rule. Investors, multinationals, Members of Congress, former high-ranking government officials, anti-corruption and foreign policy experts, and civil society organizations from around the world all submitted comments to the SEC last week for what was the comment period deadline that has now been relaxed due to the current public health crisis. Additionally, groups have called for a delay in all federal rulemaking due to the coronavirus shutdowns that significantly compromise rulemaking processes. Analysis shows that eighty-five percent of the comment submissions were overwhelmingly in favor of strengthening the anti-corruption rule, including many from oil and gas companies.

Once finalized, the rule will require US-listed oil, gas and mining companies to publicly disclose the payments they make to all countries where they operate, including foreign governments and the U.S. federal government. The regulation has long been heralded as a key tool in deterring oil and mining corruption. Notably, the law inspired similar laws in the EU, UK, Canada, and Norway, and set the global standard for project-level payment transparency in the oil, gas and mining sectors.

“Once again, in this third rulemaking, the majority of commenters to date have expressed their unequivocal support for the SEC to produce a stronger final rule,” said Kathleen Brophy, Director of Publish What You Pay-US. “Most importantly, as the intended beneficiaries of the anti-corruption rule, investors and citizens in resource-rich countries expressed their dissatisfaction with the proposed rule and unanimously called for alignment with rules in other markets. The SEC has a statutory mandate to heed this critical feedback as it deliberates on a final rule,” said Brophy.

Commenters wrote to the SEC in response to a proposed implementing rule for Section 1504, adopted in December 2019, which includes many significant changes since its 2016 version. These changes include:

● Allowing aggregated payment reporting, a dramatic departure from the commonly-used contract-level project definition,

● Additional and expansive exemptions, including for entire categories of companies,

● New arbitrary payment thresholds or ‘not de minimis’ standards, and

● Other changes to help assuage industry concerns of potential compliance costs and alleged competitive harm.

However, according to commenters, these proposed changes are unworkable:

Investors with over $5.3 trillion assets under management detailed the importance of publicly-available, project-level disclosures in their valuation analysis and risk assessments.

According to Policy Alert , a local civil society organization in Nigeria, OPEC member and Africa’s largest oil producer, said the proposed rule would undermine their efforts to prevent corruption in the country’s oil sector: “Such [strong] transparency requirements are critical to us as Nigerians to combat corruption in our government and ensure that revenue from our natural resources is used to benefit our citizens and foster the growth and development of our country. We note that rather than help achieve these goals, the draft rule that the SEC has proposed would tend only to promote further opacity and thereby aid more corruption in Nigeria’s extractive industry.”

In a joint letter , Senators Cardin, Brown, Durbin, Markey, Merkley, Whitehouse, Leahy, Warren, Coons, and Shaheen reaffirmed the need for a stronger rule: “If adopted as currently proposed, the loss of the transparency and accountability benefits Congress intended in enacting Section 1504, combined with the dramatic divergence from the international transparency standard, would represent a breathtaking retreat from the leadership position the U.S. has sought to play in advancing extractive transparency and combating corruption.”

Several companies debunked the compliance cost and competitive harm concerns expressed by a few corporate laggards. Among others, BP urged the Commission to issue a strong final rule: “BP believes that the adoption of 13q-1 should go as far as possible to seek alignment with E. U. and Canadian rules, and consistency with the EITI Standard to the greatest extent possible by law…In particular, we would welcome a standard definition of a “project” for the purposes of disclosing contract level payments. Defining extractive projects consistently across all countries to the greatest extent possible would foster improved transparency and support accountability in practice. This would provide meaningful, material data across the different reporting jurisdictions, in a manner that avoids commercial harm to companies, and would improve the quality and comparability of the information provided for the user of these data.”

“The SEC’s proposal was a complete reversal of the 2016 rule, which it justified by quoting very old industry comments with now debunked claims of unmanageable costs and competitive harm,” said Isabel Munilla of Oxfam America. “As shown by many corporate commenters, especially those successfully disclosing in other markets for years, the Commission’s changes are unwarranted and legally untenable.”

“Overall, these submissions not only provide the evidence regarding the need for a strong rule, many submissions, including from industry, demonstrate an absolute lack of evidence in defense of a weak rule,” said Brophy. “With this body of evidence, it is clear that the SEC must adopt a final rule that is much stronger than what was initially proposed.”