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US SEC approves Dodd-Frank transparency rules

Financial regulators in the US have adopted new transparency rules

US financial regulators have adopted new rules requiring US-listed oil and gas companies to disclose a broad range of payments made to the US and other governments in countries around the world where they do business. The move had been opposed by the industry but has drawn praise from transparency campaigners as a positive step towards greater openness in the industry.

The new rules were passed in a close vote – by three to two - on 22 August by the Securities and Exchange Commission (SEC) as part of the 2010 Dodd-Frank Wall Street Reform Act. Under the regulations, companies will have to report payments to governments of more than $100,000 for taxes, fees, royalties, dividends infrastructure improvements and signing bonuses. And those payments will be broken down by country, business unit, currency and project, though the rules give companies some flexibility in defining what constitutes a project.

The SEC decided that companies would have to report such payments even to governments where such disclosures are barred under domestic law. Companies and industry groups had opposed such reporting, arguing that it would put them at a competitive advantage. Campaigners, though, had argued that any such exemption would amount to a “tyrant’s veto”.

The SEC also declined to provide exemptions for commercially sensitive information or where confidentiality agreements are in place.

Transparency campaigners cautioned that implementation of the rules would be the next test, but were broadly supportive of the SEC’s decision. “On first appearances, the SEC rule will shed some light on payments made by extractive companies to governments enabling citizens in some of the world’s poorest countries to hold their government to account for how resource revenues are being used,” Global Witness, a transparency watchdog, said in a statement.

The group, though, criticised the SEC’s decision to leave open the definition of a project, arguing that it “could provide ‘wriggle room’, allowing companies to continue to hide illicit payments.”

Revenue Watch Institute, another non-governmental organisation that has campaigned for greater transparency in the natural resources sector and supported the Dodd-Frank provisions, also welcomed the new rules. “While we still need to analyse the many details of the new rules, the SEC’s vote marks the end of secrecy of company payments to governments. The rules will be good news for every citizen wanting more open government, from the Middle East to West Africa to Asia,” said Karin Lissakers, the head of Revenue Watch.

While campaigners welcomed the new disclosure requirements, the industry was harshly critical. “This unilateral approach to revenue disclosure will harm the US economy. US firms could lose business, US jobs might not be created, and potential revenue to our government could be lost,” the American Petroleum Institute (API), an industry lobbying group said in a statement.

The API argued that existing voluntary requirements such as the Extractive Industries Transparency Initiative (EITI), which operates on a country-by-country basis with the cooperation of the host government, was a preferable way to improve transparency. The EITI, though, welcomed the SEC’s decision and said the new reporting requirements would complement the work it has done.

“Unfortunately, disclosure would not be a two-way street. State-owned foreign companies would have to reveal nothing and might even be favoured for projects in host countries reluctant to have financial information disclosed,” the API said.

But US oil companies such as ExxonMobil and Chevron will not be the only companies to fall under the new regulations. In recent years many foreign majority state-owned companies have listed a minority number of their shares on US markets in order raise cash and boost their international credibility – and they will also have to report their payments to governments.

Those state-run companies that will be required to make the disclosures include the three biggest Chinese state-run companies – PetroChina, Sinopec and China National Offshore Oil Corporation – potentially shining a light on how those companies do business. Other foreign state-run companies that will have to comply with the rules include Brazil’s Petrobras, Norway’s Statoil, Colombia’s Ecopetrol and Argentina’s YPF.

Campaigners have pledged to turn their focus to Europe, where the EU is considering similar reporting requirements.

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