The Oil Industry Has Blocked Action Before

Section 1504 of the landmark Dodd-Frank Act that passed after the 2008 financial crisis was designed to combat endemic corruption in the fossil fuel industry.

“History shows that oil, gas reserves, and minerals frequently can be a bane, not a blessing, for poor countries, leading to corruption, wasteful spending, military adventurism, and instability,” said then Republican senator Richard Lugar, who coauthored the provision, in a floor speech introducing the legislation. “Too often, oil money intended for a nation’s poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments.”

After Congress passed the legislation, rulemaking under Section 1504 has been blocked by legal challenges from the fossil fuel industry — even as corruption scandals intensified. Indeed, as the industry was fighting the transparency requirements in court, ExxonMobil was involved in an elaborate scheme, led by CEO Rex Tillerson, to shield hundreds of thousands of dollars in payments to Nigerian government officials to gain access to an extraction site.

Originally, regulators were given until mid-2011 to create a rule — but they missed the deadline and finally passed a rule one year later. The American Petroleum Institute, the US Chamber of Commerce, and other industry trade groups filed a lawsuit challenging the rule and won in federal court.

A pro-transparency group, Oxfam, then filed a new lawsuit, demanding the SEC come up with a rule that did comply with the law, but the agency didn’t propose one until 2016. Since the rule had been tossed out before, lawmakers had the power to review it. The Republican-dominated Congress (with the blessing of then secretary of state Rex Tillerson) struck it down using the Congressional Review Act — only the second time in history that a rule had been rejected under that authority.

New Rule Contains Weak Reporting Requirements

The SEC is still required under Section 1504 to publish a rule requiring resource-extractive companies to comply with transparency requirements, despite the fact that its past two attempts were unsuccessful. But when the SEC finally put out a proposed rule in 2019, Trump-appointed SEC commissioners made clear they want to gut Dodd-Frank’s intent of transparency.

The latest proposal requires US companies engaged in the extraction of oil, gas, or minerals to disclose some payments it makes to the US or foreign governments “for the purpose of the commercial development of oil, natural gas, or minerals.”

But the proposed rule increases the minimum payment amount that needs to be reported from previous versions, only requiring disclosure of payments above $150,000 on projects where total payments to the government exceed $750,000.

Better Markets, an advocacy group focused on financial reform, said the threshold “seems arbitrary and is unjustifiably high.” The group noted that “other regulators that oversee the activities of similarly situated resource extraction companies have determined that any payment above $100,000 must be disclosed promptly.”

The rule also adopts a new definition of “project,” aggregating contracts as opposed to requiring reporting on each individual one, a definition change that the American Petroleum Institute had requested. The change would allow companies “to report payment disclosures in aggregate, at the country and subnational level, without noting the contract or license that gave rise to the payments,” according to a letter by the chairs of seven committees in the House of Representatives.

Moreover, the rule exempts some smaller companies from disclosure that weren’t exempt under previous versions of the rule, and the proposal requested comment on “an alternative approach that would allow for confidential filings and that would release information through an anonymized, aggregated compilation.” SEC commissioner Robert Jackson said that allowing anonymous disclosures “would make it harder to hold corporate insiders to account for the choices they make in this area.”

Three commissioners, including SEC chairman Jay Clayton, voted in favor of the proposed rule going forward to a public comment period, while commissioners Lee and Jackson issued separate dissenting opinions.

“Congress enacted Section 1504 of the Dodd-Frank Act to ‘help combat global corruption and empower citizens of resource-rich countries to hold their governments accountable for the wealth generated by those resources,’” Lee wrote. “Unfortunately, the rule we propose today would not further that goal. Instead, we would deviate widely from existing international disclosure regimes and severely limit the utility of the required disclosure.”

Lawmakers Say Rule Strays From Congressional Intent, International Standards

During a two-month public comment period on the rule this spring, seventy-four out of eighty-eight submissions recommended the SEC adopt a stronger rule to implement Section 1504, according to the Publish What You Pay coalition, which has been advocating for stronger transparency laws for extractive industries and fighting the SEC’s current version of the rule.

A number of Democratic lawmakers wrote comments in opposition to the new version of the rule, saying it strayed from Congress’s intent in the Dodd-Frank Act and did not have adequate transparency requirements to align with the existing international standards on reporting requirements.

The international body which develops those standards, the Extractive Industries Transparency Initiative, (which the United States exited in 2017), encouraged the SEC to align its reporting requirements with the EITI’s, writing, “In resource-rich countries, transparency of natural resource revenues is critical to ensuring that citizens can hold their governments and the industry to account.”

Meanwhile, the groups that have been working to undermine Section 1504 were pleased with the new rule. The US Chamber of Commerce applauded the SEC’s proposed rule, while the API, the oil industry trade group, expressed support for most aspects of the rule and asked for even looser reporting requirements.

“Though we appreciate that the [SEC] included several provisions in these proposed rules that would make this type of public reporting significantly less problematic, we continue to have concerns that final rules requiring individual companies to disclose publicly their payments to governments would be inconsistent with the commission’s statutory obligations and unnecessary in light of the commission’s alternative (a public compilation),” wrote API vice president for corporate policy Stephen Comstock.

A spokesperson for the Publish What You Pay coalition said in an email that the group expects the rule that the SEC votes on to look substantially similar to the draft proposal.

The coalition’s US director Kathleen Brophy said in a statement: “If SEC Chair Jay Clayton passes a weak rule for Section 1504 that fails to mandate strong public disclosure from the fossil fuel industry, it will be one final giveaway from a corrupt administration to a dying industry.”