A watchdog group is calling on a U.S. agency to act quickly to ensure transparency in the oil, gas and mining sectors. If new rules are finally enacted, companies would have to disclose how much they pay governments for the commercial development of natural resources.
The Securities and Exchange Commission, SEC, has announced it plans to begin rule-making next year regarding legislation dating back to 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act was considered landmark legislation, demanding accountability from financial institutions and companies. However, it’s been plagued by a lack of funds and staff shortages. So, all of its elements have not been fully implemented.
But Section 1504 is of particular interest for those monitoring extraction industries, especially those in developing countries.
Jana Morgan, national coordinator for the group Publish What You Pay, said, “Section 1504 of the Dodd-Frank Act requires U.S. listed oil, gas and mining companies to publish their payments to the federal and foreign governments for access to natural resources.”
Morgan said it would have dual benefits.
“It will, one, benefit investors by giving them the information to better assess and mitigate risk. This is especially important as companies begin extracting in more and more politically unstable environments. And, two, it will provide citizens of resource rich countries with the information necessary to hold their governments accountable for the money coming in from natural resource extraction,” she said.
But despite being part of the 2010 legislation, the section has not taken effect. Before that can happen, formal rules and regulations must be in place. The SEC had actually published proposed rules for Section 1504 in 2012. That followed a long process of gathering information from industry, civil society and academics. By the time the SEC had acted, it was already one year overdue in making the announcement. And once finally available for comment and review, the rules were challenged.
Morgan said, “The oil industry in the United States – led by the American Petroleum Institute – filed a lawsuit against the Securities and Exchange Commission. And the rule was subsequently vacated and sent back to the SEC for revision. So, right now we’re in a waiting period for the Securities and Exchange Commission to take action to begin a rule-making for section 1504.”
The SEC recently announced that as part of its official agenda, a rule-making process could begin in March of 2015. Morgan said that while the SEC recognizes the issue as a priority, it’s moving much too slowly.
“Publish What You Pay feels like this timeline is simply not aggressive enough. One of the reasons for that is that transparency disclosure legislation has begun to move forward all over the world. We’ve seen the European Union develop mandatory disclosure requirements that actually even go further than Section 1504 in that they require logging companies, in addition to oil, gas and mining companies,” she said.
The group wants the SEC to act much sooner – since the process could take more than a year to complete. Once published, there’s a comment and review period. And there’s always the possibility of another lawsuit.
“We’ve asked that the SEC to come out with a proposed rule before the end of this year. And we believe that the SEC – based on the previous rule-making and the information that we’ve put forward more recently – has all of the information necessary to do that,” said Morgan.
What happens in Washington, she said, will have major implications for many developing countries.
“For too long oil, gas and mining companies have been allowed to deal with the governments of resource-rich countries in relative secrecy. And the consequences have been devastating as these countries continue to fall prey to – what is known – as the resource curse. And the resource curse is a paradoxical situation in which countries rich in natural resources struggle with some of the most entrenched poverty and corruption on the planet.”
One example, she said, is the Democratic Republic of Congo.
“The DRC is one of the most resource-rich countries in the world with potentially $24-trillion worth of untapped minerals beneath its soil – including 30-percent of the world’s diamonds and 70-percent of the world’s coltan. Yet the DRC ranks second to last on the U.N.’s Human Development Index. And over 70-percent of the population lives in absolute poverty,” she said.
Publish What You Pay says in April, 500 civil society organizations from 40 countries wrote to the Securities and Exchange Commission. They urged it to act on transparency in the extraction sector.