The US Department of the Treasury called for the repeal of the provision in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that requires publicly traded US oil, gas, and other extraction industries to report payments to foreign governments. The recommendation came in an Oct. 10 report to US President Donald Trump, “Capital Markets: A Financial System That Creates Economic Opportunities,” in response to a Feb. 3 executive order.
“An important principle underlying federal securities laws is the materiality requirement for disclosures. Materiality is an objective standard based on the reasonable investor, as opposed to a subjective standard that is based on what a particular investor may view as important,” the report said.
“Unfortunately, amendments in Dodd-Frank to the federal securities laws have imposed requirements to disclose information that is not material to the reasonable investor for making investment decisions, including information related to conflict minerals (Section 1502), mine safety (Section 1503), resource extraction (Section 1504), and pay ratio (Section 953(b)),” it said.
The original support for such provisions was well-intentioned, Treasury’s report acknowledged. “However, federal securities laws are ill-equipped to achieve such policy goals, and the effort to use securities disclosure to advance policy goals distracts from their purpose of providing effective disclosure to investors,” it said.
“If the intent is to use the law to influence business conduct, then this effort will be undermined by imposing such requirements only on public companies and not on private companies. In addition, such requirements impose significant costs upon the public companies that are widely held by all investors,” the report said.
In addition to repealing the law’s four provisions and withdrawing any rules that were issued as a result, it said Congress should consider, to the extent it considers desirable to require such disclosures from both private and public companies, moving this oversight from the US Securities and Exchange Commission “to a more appropriate federal agency, such as the Departments of State, Commerce, Homeland Security, Labor, or Energy.”
Latest congressional effort
Treasury’s report cited H.R. 10, the Financial CHOICE Act of 2017, which also recommends repealing Dodd-Frank Section 1504 and the other provisions. Rep. Jeb Hensarling (R-Tex.) introduced the bill with 40 cosponsors on Apr. 26, and the House approved it by a 223-186 vote on June 8. It was referred to the Senate Banking, Housing, and Urban Affairs Committee in July.
The American Petroleum Institute has criticized the provision because it believes requiring publicly traded US oil, gas, and mining companies to disclose payments to foreign governments gives an unfair advantage to overseas competitors which are not subject to such rules. It supports voluntary reporting under the Extractive Industries Transparency Initiative instead.
When it initially proposed rules implementing Section 1504 in late 2011, the SEC received more than 149,000 comment letters from corporations, industry and professional associations, government officials (both foreign and domestic), nongovernmental organizations, academics, and other interested parties.
The Independent Petroleum Association of America, US Chamber of Commerce, and National Foreign Trade Council joined API in suing the SEC on Oct. 10, 2012, over its implementation of disclosure requirements under the provision (OGJ Online, Oct. 11, 2012). US District Court for the District of Columbia struck down the requirements the following summer (OGJ Online, July 2, 2013).
The commission began to rework the requirements to comply with the court’s decision the following May, and reproposed the rule in December 2015 (OGJ Online, Dec. 11, 2015). Its moving the foreign government payment disclosure to the project level still put publicly traded US oil and gas firms at a competitive disadvantage, API Tax and Accounting Policy Director Stephen Comstock said subsequently (OGJ Online, June 29, 2016).
The 115th Congress repealed Section 1504 early in 2017 when it approved H.J. Res 41, which had been introduced under the Congressional Review Act. Trump signed the measure into law weeks after his inauguration (OGJ Online, Feb. 15, 2017).
Contact Nick Snow at [email protected].
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.