The legal battle over Securities and Exchange Commission rulemaking that requires oil, gas, and mining companies to disclose payments made to governments for extraction rights has escalated with legislators joining the fray and suggesting, as does the international relief organization Oxfam America, that overturning the rule could chip away at the very foundation of securities regulation in the U.S.
In October, the American Petroleum Institute (API), the Independent Petroleum Association of America, the U.S. Chamber of Commerce and the National Foreign Trade Council sued the SEC over the final transparency rule issued in August. It requires registered oil, gas and mining companies to disclose any payment, or series of related payments, totaling $100,000 or more that are made during the course of a fiscal year to the U.S. or foreign governments in exchange for extracting resources.
The complaint filed with the U.S. District Court for the District of Columbia, and a petition for review filed with the U.S. Court of Appeals for the D.C. Circuit, claims the rule violates the Administrative Procedure Act, on the grounds that it is “arbitrary and capricious,” that the SEC failed to conduct an adequate cost-benefit analysis, and that it violates the First Amendment by compelling unwanted speech. The SEC later rejected the plaintiff's call for a stay of effectiveness.
In recent days, Oxfam America and various members of Congress, past and present, have filed briefs defending the rulemaking, which was mandated of the SEC by the Dodd-Frank Act.
Senators Ben Cardin (D-Md.) and Carl Levin (D-Mich.) joined recently retired Senator Richard Lugar (R-Ind.) in filing a joint brief in favor of the rule. They challenged a claim that the disclosure requirement (known as the Cardin-Lugar Amendment due to their work on its creation and inclusion) would conflict with existing laws in some countries. No evidence supports that concern, the three men wrote, adding that creating an exemption would create “perverse incentives that reduce transparency” by encouraging foreign governments to subvert U.S. law by prohibiting disclosure.
“It is up to Congress to consider and decide whether to enact laws that may conflict with foreign laws, and Congress has regularly enacted laws which may do so,” they wrote. “Courts also routinely enforce American laws which conflict with foreign law, including U.S. laws mandating transparency over secrecy.”
Another brief in support of the rule was signed by several U.S. Representatives, including ranking member of the House Financial Services Committee Maxine Waters (D-Calif.) and ranking member of the Natural Resources Committee Ed Markey (D-Mass.). They argued the rule ensures that investors can access to material information about the “commercial, political, and legal risks” companies may face.
They also pushed back against the claim of an inadequate cost-benefit analysis. “By laying out precise and specific commands dictating the rule's scope and nature, Congress left the Commission no relevant discretion to utilize when promulgating the rule,” they wrote. “The Commission was therefore not required to make any additional findings regarding the benefits or costs of the rule, because Congress already did so when enacting Dodd-Frank.”
“Petitioners are therefore wrong to claim that the Commission was required to take certain additional steps that we in Congress never requested,” they added. “Rather, by declining to do so, the Commission acted in accord with Congress's detailed command to adopt and release the Resource Extraction Rule.”
Their brief adds that the “concept of requiring disclosures of foreign activities is well established,”codified over the years by various pieces of legislation, including the Foreign Corrupt Practices Act.
Oxfam's intervenor brief disputes the claim that disclosure rules violate the First Amendment. Oil companies have “no constitutional right to keep payments to foreign governments secret” it says, fretting that a successful challenge “would call into question thousands of reporting statutes and regulations.”
“[This] approach would threaten the entire securities regime because compelled disclosure is the sine qua non of securities regulation,” it wrote. “Pulling at this strand of the Exchange Act's disclosure regime threatens to unwind the whole garment – based on a proposition that the Supreme Court has never entertained and this Circuit has expressly rejected.”