Today was a very big day for advocates of financial transparency. The Securities and Exchange Commission (SEC) voted to approve the final rules for Dodd-Frank Section 1504, which was passed over two years ago. The rules will immediately go into effect. 1504 requires oil, gas, and mining companies to publish all payments they make to governments. From Reuters, via Trust Law:
The resource extraction rule will apply to any payment to further exploration, extraction, processing, and export of oil, natural gas or minerals or the acquisition of a license for related activity, the SEC said.
It would apply to any payment, including a series of related payments, over $100,000, the SEC said.
The payments that need to be disclosed include taxes and royalties, but also dividends and infrastructure improvements, and other types of fees.
The rule requires companies to provide information on a project-by-project basis, but gives companies the ability to define exactly what constitutes a “project.”
The intent of the law is to produce useful information for people on the ground in natural resource-exporting developing countries. Right now, deals made between government officials and multinational oil, gas, and mining companies often disappear into a black box, and huge amounts of money is siphoned off to offshore bank accounts. The citizens of those countries will be much better able to hold their governments accountable if they know exactly how much money is being spent on what projects in their country.
It will be a little bit of time before we know exactly what is in the rules. Transparency advocates are combing over the details now, to identify any problems. Task Force member Global Witness’s intial reaction:
With respect to Section 1504, some aspects of the rule appear to represent a step forward. However, the devil will be in the detail as spelt out in the text which is yet to released. 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. However, despite suggesting that “project” is a term understood and commonly used through the industry, we cannot understand why the SEC then failed to define it. That they will only define ‘project’ in their guidance is an enormous missed opportunity, which could provide ‘wriggle room,’ allowing companies to continue to hide illicit payments.
We’ll be sure to keep you informed as we know more.
Disclaimer: Unless specifically stated to be the views of the Task Force, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Task Force on Financial Integrity & Economic Development.