The Securities and Exchange Commission on Wednesday voted to propose a new version of rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.
The proposed rules would implement Section 13(q) of the Exchange Act, mandated by Section 1504 of the Dodd-Frank Act. The SEC first adopted rules in this area in 2012, but they were vacated by the U.S. District Court for the District of Columbia. The Commission adopted new rules in 2016, which were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act.
Despite those developments, the statutory mandate has remained in effect, and, thus, the SEC is obligated to issue a rule that has differences from the disapproved version, in accordance with the Congressional Review Act.
The latest version of proposed rules would require a domestic or foreign issuer to annually file a Form SD disclosing payments made to a foreign government or the U.S. federal government. The issuer would also be required to disclose payments made by a subsidiary or affiliate controlled by the issuer.
The proposed rules would require “public disclosure of company-specific, project-level payment information,” and they vary from the 2016 version in several ways. The proposed rules, for example, revise the definition of the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level.
It also revises the definition of “not de minimis” to include both a project threshold and an individual payment threshold, so that disclosure with respect to payments to governments that equal or exceed $150,000 would be required when the total of the individual payments related to a project equal or exceed $750,000. It also revises the definition of “control” to exclude entities or operations in which an issuer has a proportionate interest.
The proposed rules add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure. Also exempted would be “smaller reporting companies” and “emerging growth companies.”
The proposed rules also:
- Allow issuers to “furnish” the payment information to the SEC, rather than including it in filings available to the public;
- Permit an issuer to aggregate payments by payment type made at a level below the major subnational government level;
- Add relief for issuers that have recently completed their U.S. initial public offerings; and
- Extend the deadline for furnishing the payment disclosures.
The proposal will now be subject to a 60-day public comment period following its publication in the Federal Register.