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The SEC has proposed Rule 13q-1 and an amendment to Form SD to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to disclosure of payments by resource extraction issuers.  Rule 13q-1 was initially adopted by the SEC on August 22, 2012, but it was subsequently vacated by the U.S. District Court for the District of Columbia.

Section 1504 of the Dodd-Frank Act added Section 13(q) to the Securities Exchange Act of 1934, which directs the SEC to issue rules requiring resource extraction issuers to include in an annual report information relating to any payment made by the issuer, a subsidiary of the issuer, or an entity under the control of the issuer, to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals. Section 13(q) requires a resource extraction issuer to provide information about the type and total amount of such payments made for each project related to the commercial development of oil, natural gas, or minerals, and the type and total amount of payments made to each government.

In general, the proposed rules would require resource extraction issuers to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas, or minerals that are made to governments. The following are the key provisions of the proposed rules:

  • The term “resource extraction issuer” would apply to all U.S. companies and foreign companies that are required to file annual reports pursuant to Section 13 or 15(d) of the Exchange Act and are engaged in the commercial development of oil, natural gas, or minerals.
  • The term “commercial development of oil, natural gas, or minerals” would mean exploration, extraction, processing, and export, or the acquisition of a license for any such activity, consistent with Section 13(q).
  • The term “payment” would mean payments that are made to further the commercial development of oil, natural gas, or minerals, are “not de minimis,” and includes taxes, royalties, fees (including license fees), production entitlements, and bonuses, consistent with Section 13(q). The SEC also proposes to include dividends and payments for infrastructure improvements in the definition. In addition, the SEC proposes defining “not de minimis” to mean any payment, whether a single payment or a series of related payments, that equals or exceeds $100,000 during the most recent fiscal year.
  • In addition to the payments it makes directly, a resource extraction issuer would be required to disclose payments made by its subsidiaries and other entities under its control. An issuer would disclose those payments that are included in its consolidated financial statements made by entities that are consolidated or proportionately consolidated, as determined by applicable accounting principles.
  • The term “project” would be defined. The SEC proposes to define it in a manner similar to the EU Directives, using an approach focused on the legal agreement that forms the basis for payment liabilities with a government. In certain circumstances this definition would also include operational activities governed by multiple legal agreements.
  • The term “Federal Government” would mean the United States Federal Government.
  • The proposed rules would require a resource extraction issuer to file its payment disclosure on Form SD, on the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”), no later than 150 days after the end of its fiscal year. Form SD would require issuers to include a brief statement directing users to detailed payment information provided in an exhibit.
  • Recognizing the discretion granted to the SEC under Section 13(q), the proposed rules would require issuers to disclose the payment information publicly, including the identity of the issuer.
  • The proposed rules would not include any express exemptions. Instead, resource extraction issuers could apply for, and the Commission would consider, exemptive relief on a case-by-case basis.
  • In light of recent developments in the European Union and Canada, as well as the developments with the U.S. Extractive Industries Transparency Initiative (“USEITI”), Form SD would include a provision by which resource extraction issuers could use a report prepared for foreign regulatory purposes or for USEITI to comply with the proposed rules if the Commission deems the foreign jurisdiction’s applicable requirements or the USEITI reporting regime to be substantially similar to the SEC’s rules.
  • Resource extraction issuers would be required to present the payment disclosure using the eXtensible Business Reporting Language (“XBRL”) electronic format and the electronic tags identified in Item 2.01 of Form SD. These tags would include those listed in Section 13(q), as well as tags for the type and total amount of payments made for each project, the type and total amount of payments made to each government, the particular resource that is the subject of commercial development, and the subnational geographic location of the project.
  • Resource extraction issuers generally would be required to comply with the rules starting with their fiscal year ending no earlier than one year after the effective date of the adopted rules.


Departing from usual practice, the proposed rule has a two-step comment process.  Initial comments are due on January 25, 2016. Reply comments, which may respond only to issues raised in the initial comment period, are due on February 16, 2016. In developing the final rules, the Commission may rely on both new comments and comments that have been received to date, including those that were provided in connection with the prior rules that the Commission issued under Section 13(q).

The U.S. District Court for the District of Columbia vacated the original rule for two reasons. First, the SEC misread Section 13(q) to compel the public disclosure of the issuers’ reports. Second, the Commission’s explanation for not granting an exemption for when disclosure is prohibited by foreign governments was arbitrary and capricious.

As to the first point, The SEC states several factors support this approach. First, the statute requires the SEC to adopt rules that further the interests of international transparency promotion efforts, to the extent practicable. The SEC notes that several existing transparency regimes require public disclosure, including the identity of the issuer, without exception. A public disclosure requirement under Section 13(q) would further the U.S. foreign policy interest in supporting international transparency promotion efforts by enhancing comparability among companies, as it would increase the total number of companies that provide project-level public disclosure.

The SEC also believes it would also be consistent with the objective of ensuring that the United States is a global “leader in creating a new standard for revenue transparency in the extractive industries.” In addition, the United States is currently a candidate country under the EITI, which requires candidate countries to provide a framework for public, company-by-company disclosure in the EITI report. Permitting issuers to provide the required payment disclosure on a confidential basis could undermine the efforts of the USEITI to establish a voluntary payment disclosure regime for domestic operations. Moreover, the fact that issuers would be required by these other transparency promotion efforts to disclose publicly substantially the same payment information reduces the likelihood that the payment information would be confidential or that its disclosure would cause competitive harm.

The SEC also believes that neither the statute’s text nor legislative history includes any suggestion that the required payment disclosure should be confidential. In fact, the SEC believes the legislative history supports its view that the information submitted under the statute should be publicly disclosed.

With respect to the second point, the SEC states it will consider using its existing authority under the Exchange Act to provide exemptive relief at the request of a resource extraction issuer, if and when warranted.  The SEC believes that a case-by-case approach to exemptive relief using its existing authority is preferable to either adopting a blanket exemption for a foreign law prohibition (or for any other reason) or providing no exemptions and no avenue for exemptive relief under this or other circumstances.  Among other things, such an approach would permit the SEC to tailor the exemptive relief to the particular facts and circumstances presented such as by permitting alternative disclosure or by phasing out the exemption over an appropriate period of time.


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