A few months ago, the oil lobby sent a letter to the Securities and Exchange Commission (SEC), demanding that transparency requirements be watered down in the wake of a court ruling that sent mandatory disclosure regulations back to the Commission for a re-write. Last week, the Publish What You Pay (PWYP) coalition struck back. In a new submission to the SEC, the coalition underlines the importance of information on extractive companies’ payments to governments for investors and citizens of resource-rich countries and rebuts the industry’s arguments.
In previous posts, I’ve talked about the ways in which the American Petroleum Institute (API) has twisted facts and invented doomsday scenarios to avoid disclosing their payments to the public. Unsurprisingly (and unapologetically), they regurgitated the same misleading arguments in their most recent submission to the SEC. API insists that the only way to address their concerns is for the SEC to keep payment disclosures confidential, to publish only an anonymized compilation of country-level data, and to grant reporting exemptions so big, you could sneak an oil tanker through them. PWYP’s comment puts these absurd arguments to rest.
First, PWYP shows that not only human rights groups that want these disclosures; investors are also keen to see what extractive companies pay for their natural resources. In fact, investors with over $5.6 trillion in assets under management have come out in support of detailed, public disclosure of natural resource payments to governments. In addition to socially responsible funds, these investors include UBS, one of the largest asset managers in the world, which clearly makes decisions based on expected returns rather than ethical considerations. As it turns out, the interests of investors and communities converge when it comes to mandatory transparency. Both groups have a strong desire to see the reduced corruption, better governance, and reduced friction between company and community that come with public payment disclosures.
Second, in the months since the court vacated the SEC’s previous rules, the rest of the world has moved full steam ahead on payment transparency. The result is an end-run around the U.S rules: lots of oil and mining companies will now have to report their payments because of their presence in places like the EU, which adopted mandatory disclosure rules just weeks before the court ruling. European countries are now busy transposing these requirements into their national laws, and key EU members like the UK and France have announced that they will complete this process quickly. Norway, which is home to petroleum giant Statoil, already has rules in force requiring fully public reporting, with no exemptions. Two industry associations representing the top Canadian mining companies have teamed up with civil society to recommend similar rules for Canada, and Ottawa is moving to adopt those recommendations. In other words, while the API dukes it out with the SEC, the rest of the world has already moved on.
Third, companies don’t have a leg to stand on when they claim that U.S. disclosure requirements conflict with secrecy laws in the countries where they operate. According to studies by PWYP members, there’s no evidence of laws that would prohibit disclosure in any resource-rich country. But even if there were laws that made it illegal for companies to publish their payments to governments, companies have an easy way out. Their contracts with host governments typically give them permission to disclose any information that is required by law back home in the countries where they are based or trade on stock exchanges. PWYP argues that they should not be rewarded for their carelessness if they have failed to include these standard provisions in their contracts. An SEC judge recently came to the same conclusion when deciding to sanction accounting firms for registering in the United States despite knowing that Chinese authorities might block them from turning over audit documents that are legally required under U.S. law. In other words, if a company neglects to make sure it can comply with all legal requirements in each of the countries where it is present, then it should not receive an exemption allowing it to avoid disclosing information in the public interest.
Finally, the coalition continues to publish research showing that the information companies will have to disclose will not expose them to competitive harm. Resource-rich governments like Nigeria and China do not penalize companies for being more transparent; instead, companies win oil and minerals contracts based on the financial packages they offer and their technological capacity. And retrospective disclosure of payments at the end of each fiscal year is not likely to give useful information to companies’ competitors, who in any case have access to much more timely and sensitive data through commercially available databases.
In all, a strong showing from the PWYP coalition. Now, let’s just hope the SEC takes up the coalition’s recommendations and issues a strong, timely rule that will withstand judicial scrutiny when the API inevitably sues again.
Read the press release:
PWYP USA Urges Securities and Exchange Commission to Match Global Transparency Standard
This post was written by Jonathan Kaufman, former staff.