I was thrilled last Thursday afternoon to hear that the SEC has blocked the oil industry’s first move in its attempt to undermine new transparency requirements. The American Petroleum Institute (API) and other industry representatives petitioned the SEC to stay new disclosure requirements until the court’s decide on their lawsuit to overturn the law, but the SEC denied the request in no uncertain terms.
We’ve written in previous posts about Section 1504 of the Dodd-Frank Act, which directs oil, gas, and mining companies to publish the payments they make to the governments of the countries where they operate. The SEC issued regulations for Section 1504 in late August, requiring companies to publicly disclose their payments for every project in each country where they operate, with no exceptions. API sued the SEC, complaining that the law would be costly to comply with and would harm covered oil companies’ ability to compete for business abroad. They claimed that at least four countries prohibit disclosure and predicted that they might have to withdraw from those countries, incurring tremendous financial losses, rather than violate their laws. (ERI and others had previously refuted each of these claims.) Oxfam America – represented by ERI and two law firms – is currently defending the rules against API’s challenge to ensure that they go into effect as planned.
API asked the SEC to stay the rules and postpone the compliance date until after the legal challenge is concluded – which could take anywhere from five months to two years. ERI and its co-counsel forcefully opposed a suspension, but convincing the SEC was an uphill battle. The Commission had granted industry a suspension in the Business Roundtable litigation – an earlier case in which industry successfully overturned business regulations – and seemed inclined to do the same for API.
In the end, the SEC’s decision turned largely on the question of “irreparable injury.” API had to show that it would suffer incompensable harms that would be certain, substantial, and imminent if a stay were not granted. Oxfam argued that the oil companies’ claimed costs of compliance were minuscule compared to their overall assets. The doomsday scenarios they constructed were completely speculative, since they hadn’t proved that any country actually prohibits disclosures or that they would be forced to withdraw from those countries even if there were a disclosure prohibition law. And none of the supposed harms were imminent, since companies won’t have to start reporting until March 2014 at the earliest.
The SEC agreed with Oxfam in a well-reasoned, muscular decision. Thursday’s order concludes that API failed to show that it was likely to succeed in its legal challenge, and that it was unable to demonstrate irreparable injury absent a stay. Importantly, it firmly rejected API’s claim on foreign disclosure prohibition laws, concluding that the evidence for these laws was “both unpersuasive and vigorously contested by other commentators.” SEC was also convinced by the fact that the courts have set a brisk schedule for resolving the lawsuit, suggesting that the case may be over long before companies are required to start disclosing any information at all.
The SEC’s decision is significant for a number of reasons. First, it suggests that the SEC is prepared to fight to defend the rule, which was the product of over two years of hard work by Commission staff and leadership. Second, it includes the Commission’s strongest yet conclusions on the misleading claims of the oil industry; essentially, the SEC has called API’s bluff and insisted on actual evidence, rather than innuendo. And finally, it embodies a message to the European Union, which is currently considering similar disclosure rules, that the U.S. is moving ahead and is committed to transparency. Most observers think that Europe will go at least as far as the U.S. in requiring disclosure, but a stay could have undermined that momentum.