Whistleblower Advocates Take Issue with New SEC Rule on Resource-Extraction Payment Disclosures

On December 16, the U.S. Securities and Exchange Commission (SEC) voted 3-2 to adopt a final rule mandating that resource extraction issuers disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals. While the rule is meant to increase transparency, whistleblower and anti-corruption advocates such as the National Whistleblower Center (NWC) claim that the rule is harmfully weak and “sets the disclosure bar in the U.S. lower than the international standard and deprives whistleblowers of a strong standard for reporting corruption.”

The Dodd-Frank Act (DFA), which was passed in 2010, included the bipartisan Cardin-Lugar amendment. The Cardin-Lugar amendment, Section 1504 of DFA, requires companies to disclose payments given to foreign governments in exchange for developing their oil, gas or minerals. According to anti-corruption advocates, these payments often function as bribes and can slip through the loopholes of anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA). Section 1504 requires the SEC to publish a final rule mandating these disclosures. The SEC published a rule implementing Section 1504 in 2016 but Congress rolled back the rule under the Congressional Review Act (CRA).

According to whistleblower advocates like the NWC, the main flaw in the SEC’s newly approved final rule is that it allows for companies to aggregate the payments made to governments instead of specifying individual payments for each project. In a letter to the SEC prior to the vote on the rule, Senator Benjamin Cardin (D-MD), one of the original sponsors of the amendment, claimed that “the proposed rule needs to be strengthened in several areas to meet Congressional intent, achieve the stated objectives of the law, and serve and protect investor interests.” He specified that the rule “must require payment disclosure that is disaggregated and publicly disclosed on a project-basis.” In a letter similarly opposing the rule, Senator Elizabeth Warren (D-MA) wrote that “the SEC’s proposal fails to combat corruption and hold bad actors accountable. Instead, the SEC’s proposal ‘would make such disclosures so general as to be of little value.’”

In the explanation of her dissenting vote, SEC Commissioner Allison Herren Lee raised similar concerns. She stated that “today’s final rule allows payment information to be aggregated to such a degree that the resulting disclosures will obscure information crucial to anti-corruption efforts and material to investment analysis. As a result, today’s rule, by the Commission’s own determination, will severely restrict the transparency and anti-corruption benefits that the disclosures might provide, and thus fails to advance the statute’s goals.” Commissioner Lee references the SEC’s economic analysis of its 2016 proposed rule which found that contract-level project disclosures were necessary to fulfill Section 1504’s transparency objectives.

The NWC claims that the SEC’s newly approved rule fails to mandate the intended level of disclosure of Section 1504 and thus sets the disclosure bar in the U.S. lower than the international standard. According to the NWC, “the intended level of disclosure of Section 1504 has already been embraced by some 30 countries, including the European Union, Canada, and Norway, creating a new international standard. The U.S. will need to reverse today’s decision to avoid being perceived as a laggard in the global campaign against corruption in the fossil fuel sector.”

Read:

SEC Adopts Final Rules for the Disclosure of Payments by Resource Extraction Issuers

SEC votes 3-2 to approve harmful resource extraction payment rule

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