Letter of the law must be followed in transparency rule


International humanitarian organization Oxfam America called on the U.S. Securities and Exchange Commission (SEC) to quickly implement recently passed U.S. legislation designed to curb financial secrecy in the oil, gas and mining industry.  The new law, a provision of last year’s Wall Street reform legislation package, requires companies filing reports with the SEC to disclose annually payments for each project involving the exploration and extraction of oil, gas and minerals in every country of operation.

"The United States is the first country to pass such a historic measure and now the SEC has to bring it to life,” said Raymond C. Offenheiser, president of Oxfam America. “By sticking to the letter of the law, the SEC can carry out Congress’s legal mandate to increase financial transparency in the oil, gas and mining industry, government accountability in resource-rich countries and information investors can use to determine their investment risks.”

In a 24-page public comment submitted to the SEC on Monday, Oxfam America welcomed most aspects of the SEC’s proposed rule issued last December for following the clear statutory language of the provision in the Dodd-Frank Financial Reform act, and also put forward specific recommendations for implementation of the law. If implemented as Congress intended, the rule would become a new global standard for mandatory disclosure of payment information. The move would complement but also surpass the Extractive Industries Transparency Initiative (EITI) –— a voluntary international disclosure scheme followed by some countries.

“More often than not, extractive industries contracts and revenues are kept secret, but this law will arm citizens with crucial information to hold their government accountable,” said Ian Gary, senior policy manager for Oxfam America's Extractive Industries program. “In addition, shareholders of these companies can use the information to assess the risks companies face.”

The American Petroleum Institute (API), Chevron, Exxon, Shell and other companies are fighting to gut the law through the SEC rule-making process. These companies have provided the SEC with comments and proposals that would have the combined effect of greatly weakening implementation. For example, API suggests the SEC keep payments reported confidential, arguing that disclosure of such information puts companies at a competitive disadvantage.

In fact, some companies such as Talisman Energy, Statoil, AngloGold Ashanti and Newmont Mining, already disclose payments in every country of operation and in some cases provide this information at a project level.

"The SEC must not give in to the wishes of companies that don’t want to follow the new law,” said Gary.  “There is a global movement now for transparency of these payments, as France and the United Kingdom are pushing for European Union regulation that would mirror the U.S. law.  Companies and investors recognizing the importance of transparency will win in the end, benefit from better community relations and more stability for their multi-billion dollar investments.”


Notes to the Editor:

As mandated by Congress, the SEC is expected to issue a final rule by April 15, 2011 following the deadline for public comments on March 2, 2011. Following are some highlights of the Oxfam America submission:

•    Oxfam America argues that the payment reporting should happen through filed Forms 10-K, 20-F, and 40-F already filed by U.S. and foreign companies. By requiring this information to be filed, the SEC “will significantly strengthen incentives for compliance”, according to the submission,  as increased liability for misstatements only applies to statements made in documents “filed” with the SEC.

•    Oxfam America argues that a “project” definition should be based on payments made at the lease or license level. “The SEC should not – and, consistent with the statute, cannot – adopt a country-level definition of project”, as proposed by industry, said the Oxfam America submission.

•    In response to SEC questions on whether exemptions for some types of companies should apply, Oxfam America argues that “no such exemptions should appear in the final rule” and that such exemptions are contrary to the statutory language of the law and “would directly undermine the purposes” of the provision.

•    Finally, Oxfam America argues that the proposed rule not be anti-competitive. Most leading internationally operating oil companies will be covered and concerns “that companies will be forced to disclose sensitive information are exaggerated”. No commercial terms, proprietary technology, business models or contracts are required to be disclosed. Oxfam America argues that the payment information “will not create any undue competitive disadvantage, but will rather produce information central to efficient capital formation, government accountability and stable investment climates for foreign investors.”


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