Last week, the SEC voted to propose rules that would require resource extraction issuers to disclose payments made to foreign governments or the US federal government for the commercial development of oil, natural gas, or mineral resources. These proposed rules come after a series of SEC actions, court proceedings, and Congressional actions. As mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC first adopted rules pertaining to resource extraction issuers in 2012, which were subsequently vacated by the US District Court for the District of Columbia. The SEC then adopted new rules in 2016, but these rules were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act. After the 2016 rules were vacated, the statutory mandate remains in effect, requiring the SEC to issue a rule in these regards. Furthermore, that rule must not be “substantially the same”, according to the Congressional Review Act. These new proposed rules attempt to meet that mandate.
Specifically, the new rules would implement Section 13(q) of the Exchange Act as required by the Dodd-Frank Act. These rules would mandate that resource extraction issuers file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas, or minerals made to a foreign government or to the US federal government. A domestic or foreign issuer would be required to disclose such payments if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the SEC under the Securities Exchange Act. In addition, the issuer would be required to disclose payments made by a subsidiary or entity controlled by the issuer. The proposed rules pertain to company-specific, project-level payment information.
The new rules make several changes as compared to the 2016 rules. Included in these are:
- a revision to the definition of “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level
- a revision to the definition of “not de minimis” to include both a project threshold and an individual 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
- the addition of two new conditional exemptions for situations in which a foreign law of a pre-existing contract prohibits the required disclosure
- the addition of an exemption for smaller reporting companies and emerging growth companies
- a revision to the definition of “control” to exclude entities or operations in which an issuer has a proportionate interest
- a limitation on the liability for the required disclosure by deeming the payment information to be furnished to, but not filed with, the SEC
- the ability to permit an issuer to aggregate payments by payment type made at a level below the major subnational government level
- the addition of relief for issuers that have recently completed their US initial public offerings
- an extension to the deadline for furnishing the payment disclosures
The SEC seeks public comment on these new rules. The public comment period will be open for 60 days after publication in the Federal Register. The proposed rule changes can be read here. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with the reference number (S7-24-19) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-24-19.
Sources:
SEC Proposes Rules to Implement the Statutory Mandate to Adopt Resource Extraction Disclosure Rules (www.sec.gov)
Disclosure of Payments by Resource Extraction Issuers (www.sec.gov)
