Oil groups, Chamber sue SEC over resource payment transparency rule

News
October 11, 2012
Dorothy Kosich
 
The U.S. oil industry and the U.S. Chamber of Commerce have sued the Securities Exchange Commission to overturn a rule requiring mining, oil or natural gas companies listed on U.S. exchanges to disclose payments made to governments.
 
The American Petroleum Institute, the Independent Petroleum Association of America and the National Foreign Trade Council joined the Chamber of Commerce saying the SEC failed to properly weigh the rule's costs and benefits.
 
Compliance with the new rule, which is mandated by the Dodd-Frank Act, will begin in fiscal year 2014. The SEC estimated the rule will apply to 1,100 companies, which make payments equal to or over $100,000 per project to governments during the most recent fiscal year. The rule mandates that money for production licenses, taxes, royalties, and other aspects related to mining and energy projects.
 
In a statement, American Petroleum Institute President Jack Gerard, a former CEO of the National Mining Association, said, "The rule, as written, would impose costs on U.S. firms and put them at a competitive disadvantage against government-owned oil giants not subject to the rule."
 
He told the Wall Street Journal, "It was a well-intentioned provision in the Dodd-Frank law, but the SEC just overstepped and went while beyond what was necessary to support transparency."
 
All major U.S.-listed oil companies voluntarily participate in the Extractive Industry Transparency Initiative. However, the industry said, the SEC's rule goes too far and will force them to disclose sensitive commercial information and give their foreign competitors an advantage when bidding for oil rights. Sixteen of the world's biggest oil companies including China National Petroleum would not have to comply with the law because they aren't listed on U.S. exchanges.
 
The lawsuit noted the SEC's estimate that the rule will necessitate roughly $1 billion in initial industry compliance costs, and ongoing compliance costs in the $200 million to $400 million range. "The rulemaking record shows that the costs will actually be far greater, as U.S. oil and mining companies are forced to allow competitors access to sensitive commercial information, and to abandon projects to foreign state-owned companies in countries that forbid the disclosures or that simply refuse to do business with U.S. companies because they do not wish the disclosures to be made," the lawsuit said.
 
The transparency rules were advocated by billionaires Bill Gates and George Soros, musician and humanitarian Bono, as well as human rights and anti-poverty groups.
 
Eugene Scalia, the son of Supreme Court Justice Antonin Scalia, is representing the plaintiffs in the lawsuit. It is younger Scalia's third legal challenge to a Dodd-Frank rule.
 
"While we are still reviewing the suit, we believe our legal interpretation and economic analysis are sound and we look forward to defending the rule that Congress directed us to write," SEC spokesman John Nester told the news media.
 
The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S, District Court, District of Columbia.