On February 14, President Trump signed legislation repealing a rule stemming from the landmark 2010 Dodd-Frank financial overhaul that sought to impose transparency on payments from oil companies to foreign governments. The resolution repeals a rule implemented by the Securities and Exchange Commission (SEC) last year that required companies listed on U.S. stock exchanges to disclose any royalties or other payments made to foreign governments related to oil, gas, coal or other resource extraction activities.
The rule was intended to prevent the worst effects of the “resource curse” in oil-producing countries and help ensure the proceeds of resource extraction are used for proper economic development. The oil industry argues that the rules are onerous and costly while putting American companies at a disadvantage in the international market.
Measure sought transparency in oil-rich countries
Former Senator Richard Lugar (R-Indiana) and Senator Ben Cardin (D-Maryland) sponsored the amendment that became Section 1504 of the Dodd-Frank bill in 2010. Section 1504 requires oil and gas companies to disclose their payments to foreign governments for resource extraction. The Cardin-Lugar amendment, as it became known, inspired disclosure rules around the world, with Canada and the European Union adopting similar requirements.
The purpose of the rules was to bring about more transparency in resource-rich countries that have a long history of pervasive corruption, with elites siphoning off oil and gas revenues from public coffers.
The purpose of the rules was to bring about more transparency in resource-rich countries that have a long history of pervasive corruption, with elites siphoning off oil and gas revenues from public coffers. Flush with cash not necessarily related to the broader health of the economy, those in power often let their economies decay and become increasingly one-dimensional. This theory of the “resource curse” helps explain why countries rich in natural resources can paradoxically suffer from poverty, corruption, instability and violence. The world is rife with unfortunate examples, including the oil-rich countries of Nigeria, Venezuela, Iraq, Angola, Equatorial Guinea, and Libya.
If oil and gas companies drilling in such countries are forced to disclose the money paid to a specific government, it may show the public that something is amiss if that money does not show up in the treasury. In essence, shining a light on the transactions, the argument goes, can help reduce corruption by making governments answer for their actions. “Disclosure of these funds shifts power from the elites to the citizens so they can ‘follow the money’ and hold governments accountable,” Senators Cardin and Lugar wrote in an op-ed in January.
The oil industry aggressively opposed Section 1504 from the start, but the Cardin-Lugar amendment survived and became law. When the SEC rolled out the regulation, it was met with industry lawsuits, delaying implementation. The SEC didn’t manage to finalize the rule until last year. As a result, the delay opened up the rule to repeal via the Congressional Review Act.
Industry applauds repeal
Since the passage of the Cardin-Lugar amendment, many other countries have followed suit, requiring public disclosure of payments for access to natural resources. The EU and Canada have similar requirements that apply to any company listed on the stock exchanges in these countries—they do not have to be American or European oil companies to be subjected to disclosure requirements. That means that not only are publicly-listed Western companies required to make disclosures, but even state-owned firms in Brazil, China, and Russia are beginning to comply with these regulations as well. Some 84 out of the top 100 largest oil and gas companies were forced to comply with disclosure rules, according to Publish What You Pay, a global civil society organization.
In other words, American companies are not necessarily at a disadvantage because their competitors, as BP, Total, Royal Dutch Shell, and even Gazprom and Rosneft are forced to file similar disclosures. The playing field was already level. With companies already having to track payments under the Foreign Corrupt Practices Act, reporting them would not be costly or burdensome as the industry claims.
“The president’s signature on the Congressional Review Act is a welcome step forward for American competitiveness and jobs,” API President and CEO Jack Gerard said in a statement.
President Trump and his allies in Congress repealed the SEC rule on February 14 using the Congressional Review Act (CRA), which allows Congress to repeal recently issued rules from executive agencies. The American Petroleum Institute, an industry trade group, praised the repeal. “The president’s signature on the Congressional Review Act is a welcome step forward for American competitiveness and jobs,” API President and CEO Jack Gerard said in a statement.
But even though Congress killed the SEC rule, it didn’t repeal the Dodd-Frank law, meaning that Section 1504 is still on the books. That suggests that the SEC may still have to write a new rule. The catch is that the SEC cannot write a rule that is “substantially the same” as the one that was just scrapped. As CNBC recently noted, that could actually backfire on U.S. companies if they are forced to comply with both European discourse rules as well as some future SEC rule. However, it is unclear when and if the SEC will move forward with a new rule.