The Dodd-Frank Wall Street Reform and Consumer Protection Act (.pdf), signed into law by President Obama on July 21, contains broad-reaching transparency provisions requiring oil, gas, mining, and other extractive industry companies to report their payments to governments to the Securities Exchange Commission (“SEC”).
The premise of the bill is that transparency, in the long run, supports human rights, and helps limit corruption in countries where few benefits from mineral wealth typically reach the general population.
Key elements of the legislation include:
- Companies that are securities issuers under U.S. law must report annually to the SEC on their payments, as well as those of their subsidiaries and entities under their control, to the U.S. and foreign governments. The law does not exempt foreign issuers, and it is likely that the legislation will cover many issuers of ADRs, as well. The legislation does not specify whether the annual report must be the company’s 10K or another form of reporting, leaving this decision to the SEC rule-making process. It is likely that the penalties related to fraudulent or deceptive reporting to the SEC will apply.
- Companies must report on the type and total amount of payments made on a project basis to both the U.S. and foreign governments. It is unclear whether companies must report on projects for which they do not serve as the operator, nor hold a majority interest in the project.
- The payments that companies must report include taxes, royalties, fees, production entitlements, bonuses, and other material benefits, to the extent that the SEC determines that these are part of the commonly recognized revenue stream for extractive projects. Payments do not include de minimis payments. The SEC rulemaking process should help clarify the extent to which this information must be disaggregated.
The legislation covers most, but not all, major multinational companies, but likely does not encompass a number of state-owned companies that are primarily active in their own jurisdictions and have no presence in the United States. The SEC rule-making process will help determine whether contractors and service providers must comply with the legislation.
The legislation is intended to reinforce the Extractive Industries Transparency Initiative, which is a multi-stakeholder initiative consisting of oil, gas, and mining companies; civil society; and governments. Under the Extractive Industries Transparency Initiative, many U.S. companies already report their payments to some, although not all, governments around the world. The bill may require the reporting of more detailed payment information than the Extractive Industries Transparency Initiative demands, depending on the SEC’s interpretation of the legislation.
The SEC’s rulemaking process will help define more clearly how companies will need to change their accounting practices. For instance, the SEC will presumably define a de minimis payment. Companies are advised to monitor the SEC’s rulemaking process closely.