American Petroleum Institute v. SEC: Revenue Transparency Litigation

On October 25, 2012, ERI moved to intervene in a lawsuit filed by the American Petroleum Institute (API) – the principal U.S. lobbying organization for the oil industry, against the U.S. Securities and Exchange Commission (SEC). API had sued the SEC two weeks earlier, seeking to strike down Section 1504 of the Dodd-Frank Wall Street Reform Act and overturn its regulations, which require oil, gas, and mining companies to disclose the payments that they make to governments for all extractive projects. (ERI had filed suit against the SEC in May 2012 to force the agency to issue these rules, which were more than one year overdue; the regulations were duly enacted in September.)

ERI’s co-counsel on the case are Howard Crystal of Meyer Gliztenstein & Crystal and Derek Domian and Rich Rosensweig of Goulston & Storrs.

Since 2009, ERI has been working with Oxfam and other members of the Publish What You Pay US (PWYP) coalition to promote revenue transparency in the extractive industry. In many countries that are rich in oil, gas, and other non-renewable natural resources, the communities from whose territory the resources are extracted bear the brunt of environmental and human rights impacts associated with extractive activity but see few tangible benefits. We, along with our partners in Burma and elsewhere, believe that knowing what governments receive from extractive companies is an important step for communities to hold governments responsible for the use of natural resource revenues and to advocate for a fair share of the benefits.

As a leading member of PWYP, Oxfam’s programs around the world promote revenue transparency and responsible, accountable management of natural resource revenues. Oxfam advocated for the passage of Section 1504 and provided input to the SEC on the content of the regulations. Under the regulations, which closely track the language of Section 1504, companies will disclose their payments to governments, without any exemptions, for each extractive project. They will be required to submit reports for payments made beginning in October 2013.

On October 10, 2012, the American Petroleum Institute (API), along with the U.S. Chamber of Commerce and two other trade associations, filed suit in federal court in the District of Columbia, seeking to strike down the rules and overturn the law. API argues that mandatory disclosures are unconstitutional violations of companies’ First Amendment rights, and that the SEC conducted inadequate economic analysis and failed to minimize competitive burdens.

After filing suit, API requested a stay of the rule to suspend the disclosure requirements pending the outcome of its lawsuit. On behalf of Oxfam, ERI and its co-counsel strongly opposed a stay, arguing that oil companies were not likely to win their lawsuit, that a stay was not necessary to prevent “irreparable injury” to oil companies, and that delaying compliance was not in the public interest. On November 8, 2012 the SEC denied the stay. In its decision, the SEC agreed with these arguments, and rejected API’s claim that the rule would require companies to violate host country laws that prohibit disclosure of payments, finding there was no persuasive evidence that any such laws even existed. The result of the SEC’s decision is that the implementation of the rule will proceed on track while the court decides the lawsuit filed by API.

On December 3, 2012, API filed its brief challenging both the Rule and Section 1504 itself. API argued that the SEC’s economic analysis was flawed and made an unprecedented claim that disclosure of factual information somehow violates the First Amendment rights.

On January 2, 2013, the SEC filed its own brief defending the rule and its careful rulemaking process. The SEC ably refuted API’s claims that its economic analysis was flawed, and persuasively defended its regulatory choices, reiterating many of the sound rationales it provided in the Final Rule Release for rejecting most of API’s preferred approaches.

On behalf of Oxfam, ERI and its co-counsel intervened in the lawsuit to further defend the Final Rule and the underlying legislation. ERI filed its briefon January 16, 2013, in which we defended the SEC’s careful economic analysis and refuted API’s baseless claim that certain countries prohibit payment disclosures, and companies would suffer billions of dollars in losses if forced to disclose payments. ERI also made clear that API’s First Amendment challenge is unfounded. Section 1504 and the Final Rule merely require issuers to inform the market of government payments. API’s First Amendment argument that it must be allowed to continue to conceal payments to governments, if accepted, would not only harm investors, but threaten the entire securities regime, and call into question thousands of routine federal and state statutes and regulations, all of which require disclosure of factual information. ERI also argued that that the D.C. Circuit does not have jurisdiction over this case, and that it should dismiss API’s Petition because it should have been filed in the district court instead.

Further support for the landmark transparency law and the SEC’s final rule came from Members of the Senate and the House, who filed amicus curiae briefs slamming API for their unprecedented attack on disclosures, as well as their unfounded challenges to the SEC’s rulemaking process.

API filed its reply brief on January 28, 2013. Oral argument was heard in front of Judges Tatel, Brown, and Sentelle at the D.C. Circuit on March 23, 2013, and on April 26, the panel dismissed the case on jurisdictional grounds. Although Oxfam’s legal team did not argue at the hearing, the judges completely adopted Oxfam’s argument that API filed its lawsuit in the wrong court – that the D.C. Circuit lacks jurisdiction over this case.

The case then went forward in the D.C. District Court. Oxfam filed its final brief on May 17, 2013 and argued before Judge John Bates on June 7, 2013. On July 2, 2013, Judge Bates issued an opinion vacating the rule and remanding it to the SEC, concluding that the SEC needs to reconsider two aspects of the rule: 1) the requirement that all company payment reports be made public, and 2) the decision not to grant any exemptions for foreign law prohibitions. The SEC is not required to change either of those decisions, but it must provide a fuller justification. Oxfam and the SEC will have two months to decide whether to appeal.

In the fall of 2014, ERI  on behalf of Oxfam America, sued the SEC for failure to issue new transparency rules required by Dodd-Frank 1504. We requested a court order under the Administrative Procedure Act (APA), which allows claims against a federal agency for unlawfully withholding or unreasonably delaying congressionally mandated actions such as the Section 1504 rule-making. The SEC’s long delay is both unlawful and unreasonable.

Meanwhile,much of the rest of the world has already caught up by passing similar transparency legislation. Section 1504 may have been controversial when the Dodd-Frank Act was originally passed, but progress since then around the world has transformed the SEC’s original final rule into a global standard.

In September 2015 the U.S. District Court ordered the SEC to expedite extractive industry revenue transparency regulations.