Congressional resolution aims to eliminate rule on extractive transparency

The rules committee of the U.S. House of Representatives heard brief testimony on Monday evening about a joint resolution that would eliminate a rule requiring publicly traded oil and mining companies in the U.S. to publish what they pay foreign governments. The rule is the Securities and Exchange Commission’s implementation of the Cardin-Lugar amendment, or Section 1504, which passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Proponents of the provision say it is critical for anti-corruption efforts around the world and enables local communities to hold their governments accountable and ensure payments are used to provide critical services, such as health care or education. But a joint resolution, which is likely to be considered on the House floor as early as Wednesday, seeks to strike down that rule using an expedited process through the Congressional Review Act, which gives Congress the power to review and overturn recent rules. The move to halt the rule came as a surprise to some advocacy groups, which cited the lengthy rulemaking process and bipartisan support of the underlying legislation. “Not only is the provision important to citizens in resource rich countries who lack information about money governments are receiving that they need to hold governments accountable,” said Ian Gary, the director of Oxfam’s accountable development finance program. “It is also vital information for investors in those companies to know.” Last week Republican Rep. Kevin McCarthy* laid out his argument against the rule in a Wall Street Journal op-ed, in which he criticized the number of rules introduced during the Obama administration and outlined how Congress would use the Congressional Review Act to strike some of them down. “The House will also take the ax to the Securities and Exchange Commission’s disclosure rule for resource extraction, which adds an unreasonable compliance burden on American energy companies that isn’t applied to their foreign competitors. This rule, which closely mimics a regulation already struck down by the courts, would put American businesses at a competitive disadvantage,” he wrote. Organizations that advocate for better governance and transparency — including Oxfam, Publish What You Pay and the Natural Resource Governance Institute — said he’s got the facts wrong. Section 1504 was a bipartisan measure and went through a rigorous multi-year process in Congress. Following its adoption, it went through two separate rulemaking processes at the Securities and Exchange Commission. After an initial rule was published, the American Petroleum Institute filed a lawsuit against the SEC, which resulted in that rule being struck down in 2013. The SEC had to rewrite its rationale and issued a new rule on Aug. 22, 2016. The rule requires extractive companies to include in their annual reports to the commission information about payments made by the company, or any subsidiary, to a foreign government or the U.S. government “for the purpose of the commercial development of oil, natural gas, or minerals.” They are required to comply by September 2018. Despite the long delay in the rule going into effect, the passage of the legislation spurred others to act, and about 30 countries now have “publish what you pay” rules on the books, including Norway, Canada, and all members of the European Union. “This kind of idea that this law and this SEC rule will only apply to American companies… that’s factually false,” said Joe Williams, the senior advocacy officer at the Natural Resource Governance Institute. Companies including Shell, BP, Statoil and Total — all competitors of U.S. companies such as Chevron and ExxonMobil — are already reporting what they pay. Those companies have not reported that it is an additional burden and, Williams said, the data companies are being asked to share this information they readily possess. Republican Rep. Jeb Hensarling testified at Monday’s rules committee hearing that the “controversial SEC rule” placed U.S. companies at a “competitive disadvantage” and creates an “unreasonable compliance burden.” U.S. companies would be especially disadvantaged in comparison to state-owned companies, he said. But some state-owned companies are in fact already subject to regulations in other countries; for example, Russian companies Gazprom and Rosneft are reporting under U.K. rules, and Chinese companies PetroChina and Sinopec, which trade on the New York Stock Exchange, would be required to comply under the U.S. rule as well, Williams said. Not all oil and mining companies have opposed the rule, Gary said. Although some oil companies — notably ExxonMobil, whose former CEO Rex Tillerson is President Donald Trump’s nominee for secretary of state — lobbied against the initial legislation, not all oil companies have been vocally opposed. “I think it’s useful to note that many companies are supportive of mandatory payment disclosures,” he said. “I think often the American Petroleum Institute or companies like to paint this as universally opposed by industry.” BP and Shell, for example, supported the mandatory disclosures in part because it helps build trust and improve local relationships, he said. Hensarling said at the hearing that overriding the rule would not hurt corruption efforts because there were other safeguards, specifically the Foreign Corrupt Practices Act, which makes it illegal for U.S. companies to pay bribes. Jana Morgan, the director of Publish What You Pay U.S., believes the move sends the opposite signal about transparency. “It sends a disturbing message about certain members’ commitment to countering corruption,” she said. “It is detrimental to U.S. leadership. The U.S. will lose its role as a leader in global transparency, and it will hurt effectiveness abroad in terms fighting illicit financial flows.” Advocates say these efforts also go beyond transparency; they are also about national security. If corruption persists, it often results in conflict with the potential to harm not only local communities but U.S. energy and national security, Gary said. If the resolution fails to pass, companies would begin reporting in 2018. Advocates expect to be able to use the information to improve accountability; they have already begun using data released under other countries’ reporting requirements. Transparency around payments allows civil society organizations to hold governments to account and enforce laws aimed at improving social services in some cases, Gary said. For example in Burkina Faso, Oxfam is supporting a coalition of groups working to ensure that a new mining law requiring 1 percent of revenue to go to local villages and communities is enforced, he said. Without public information on how much the mining companies are paying or earning, those groups don’t have the ability to ensure that the law is followed. If the resolution passes, it is expected to be considered in the Senate later this week following the House vote. Then the SEC can try for a third time to write a rule under Section 1504. “[The joint resolution] simply tells the SEC to go back, go back to the drawing board, comply with the statue and come up with a better rule that does not undercut America’s ability to compete and invest in its workforce,” Hensarling told the committee Monday. *Update, Jan. 31, 2017: This article has been updated to reflect that Rep. Kevin McCarthy wrote the oped in the Wall Street Journal. Stay tuned to Devex for more news and analysis of what the Trump administration will mean for global development. Read more coverage here and subscribe to The Development Newswire.