SEC Adopts Rules for Energy Firms to Disclose Foreign Payments

The SEC has approved new requirements for oil, gas, and mining companies to report payments to foreign governments after earlier versions of the anti-corruption regulation died following judicial and congressional scrutiny.

The Securities and Exchange Commission voted 3-2 along ideological lines to adopt the third iteration of a resource extraction payment rule during a public meeting Wednesday.

The regulation will require companies to report payments made to governments for extracting oil, gas, and minerals, but lessens some burdens the agency tried to impose in two previous rulemakings. The new rule provides exemptions for smaller companies and reduces granularity in payment disclosures, among other changes.

The SEC has faced setbacks implementing the rule required by the 2010 Dodd-Frank Act because the agency isn’t well-positioned to handle it, no matter how laudable the regulation’s anti-corruption goals are, SEC Chairman Jay Clayton said.

“Due to the focus of the women and men of the SEC, we are the world’s most effective securities regulator, by a wide margin,” Clayton said before voting for the rule. “We should maintain that focus and be wary of using our effectiveness for purposes beyond our remit.”

Decade-Long Journey

The SEC first adopted the rule in 2012, but a federal court later threw it out after a challenge from the American Petroleum Institute. The oil and gas industry group argued that the SEC’s cost-benefit analysis of the regulation was deficient and the rule infringed on companies’ First Amendment rights.

The commission issued an updated rule in 2016 at the end of the Obama administration, but the Republican-led Congress in 2017 killed it using the Congressional Review Act. Lawmakers cited concerns about compliance costs and potential competitive harm.

Investors care about oil, gas, and mining companies’ payments to governments, giving the agency a role in requiring detailed disclosures in the space, Democratic SEC Commissioner Allison Lee said Wednesday. But she voted against the rule due to transparency concerns.

“Today’s final rule allows payment information to be aggregated to such a degree that the resulting disclosures will obscure information that’s crucial to anti-corruption efforts and material to investment analysis,” Lee said. “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.”

The resource extraction rule was the only matter the SEC considered at its meeting. It skipped planned votes on new rules for investment adviser marketing and direct listings on the New York Stock Exchange.

The agency hasn’t said when it plans to consider the investment adviser regulation. But the NYSE direct listing proposal now will get a vote Dec. 21, according to the commission.