The SEC adopted final rules that will require resource extraction issuers that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals. The rules implement Section 13(q) of the Exchange Act, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).
The SEC adopted rules to implement Section 13(q) in 2016, but the 2016 Rules were disapproved pursuant to the Congressional Review Act, or CRA, by a joint resolution of Congress. Although the 2016 Rules were disapproved under the CRA, the statutory mandate in Section 13(q) of the Exchange Act has remained in effect. As a result, the Commission was statutorily obligated to issue a new rule, however, pursuant to the CRA the Commission may not reissue the disapproved rule in “substantially the same form” or issue a new rule that is “substantially the same” as the disapproved rule.
The final rules will, among other things:
- require public disclosure of company-specific, project-level payment information;
- define the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract, level, recognizing that more granular contract-level disclosure could be used to satisfy the rule;
- add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure;
- add a conditional exemption for smaller reporting companies and emerging growth companies;
- define “control” to exclude entities or operations in which an issuer has a proportionate interest;
- limit the liability for the required disclosure by deeming the payment information to be furnished to, but not filed with, the Commission;
- add relief for issuers that have recently completed their U.S. initial public offerings; and
- extend the deadline for furnishing the payment disclosures.
The SEC also issued an order finding that certain resource extraction payment disclosure regimes by the European Union and certain countries are alternative reporting regimes that satisfy the transparency objectives of Section 13(q) under the Exchange Act for purposes of alternative reporting under Rule 13q-1(c) and paragraph (c) of Item 2.01 of Form SD.
Rule 13(q)(1) will become effective 60 days after publication in the Federal Register. Following a two-year transition period, an issuer will be required annually to submit Form SD no later than 270 days following the end of its most recently completed fiscal year. For example, if the rules were to become effective on March 1, 2021, the compliance date for an issuer with a December 31 fiscal year-end would be Monday, September 30, 2024 (i.e., 270 days after its fiscal year end of December 31, 2023).