30In another release we are issuing today, we are adopting rules to implement the requirements of Section 1502 of the Dodd-Frank Act and requiring issuers subject to those requirements to file the disclosure on Form SD.SeeConflict Minerals, Release 34-67716 (August 22, 2012) (“Conflict Minerals Adopting Release”). Because of the order of our actions, we are adopting Form SD in that release and we are amending the form in this release, but we intend for the form to be used equally for these two separate disclosure requirements and potentially others that would benefit from placement in a specialized disclosure form.
31As proposed, an issuer would have been required to submit two exhibits—one in HTML or ASCII and the other in XBRL. As discussed below, we have decided to require only one exhibit for technical reasons and to reduce the compliance burden of the final rules.
• The total amounts of the payments, by category;
• The currency used to make the payments;
• The financial period in which the payments were made;
• The business segment of the resource extraction issuer that made the payments;
• The government that received the payments, and the country in which the government is located; and
• The project of the resource extraction issuer to which the payments relate.32
SeeItem 2.01(a) of Form SD (17 CFR 249.448).
In addition, a resource extraction issuer must provide the type and total amount of payments made for each project and the type and total amount of payments made to each government in interactive data format. Unlike the proposal, in response to comments we received, the final rules require resource extraction issuers to file rather than furnish the payment information.
Under the final rules, a resource extraction issuer will be required to comply with the new rules and form for fiscal years ending after September 30, 2013. For the first report filed for fiscal years ending after September 30, 2013, a resource extraction issuer may providea partial year report if the issuer's fiscal year began before September 30, 2013. The issuer will be required to provide a report for the period beginning October 1, 2013 through the end of its fiscal year. For any fiscal year beginning on or after September 30, 2013, a resource extraction issuer will be required to file a report disclosing payments for the full fiscal year.
B. Definition of “Resource Extraction Issuer” and Application of the Disclosure Requirements
1. Proposed Rules
In accord with Section 13(q), the proposed rules would have applied to issuers meeting the definition of “resource extraction issuer” and would have defined the term to mean an issuer that is required to file an annual report with the Commission and that engages in the commercial development of oil, natural gas, or minerals. Consistent with Section 13(q), the proposed rules would not have provided any exemptions from the disclosure requirements for resource extraction issuers. The Proposing Release further clarified that the proposed rules would apply to companies that fall within the definition of resource extraction issuer whether or not they are owned or controlled by governments.
2. Comments on the Proposed Rules
We received a variety of comments regarding the proposed rules and the application of the disclosure requirements. Numerous commentators supported the Commission's proposed definition and application of the disclosure requirements, including that the rules should not provide any exemptions from the disclosure requirements.33
Noting an absence of statutory language regarding exemptions, several commentators stated that the legislative intent underlying Section 1504 was to provide the broadest possible coverage of extractive companies so as to create a level playing field.34
Seeletters from Association of Forest Communities in Guatemala (March 8, 2012) (“Guatemalan Forest Communities”), Batirente (February 28, 2011), BC Investment Management Corporation (March 2, 2011) (“bcIMC”), Bon Secours Health System (March 1, 2011) (“Bon Secours”), California State Teachers' Retirement System (March 1, 2011) (“CalSTRS”), Calvert Investments (March 1, 2011) (“Calvert”), Catholic Relief Services and Committee on International Justice and Peace (February 9, 2011) (“CRS”), Derecho Ambiente y Recursos Naturales DAR (March 23, 2012) (“Derecho”), EarthRights International (December 2, 2010) (pre-proposing letter) (“ERI pre-proposal”), EarthRights International (January 26, 2011), (September 20, 2011), (February 3, 2012), (February 7, 2012) (respectively, “ERI 1,” “ERI 2,” “ERI 3,” and “ERI 4”), Earthworks (March 2, 2011), Extractive Industries Working Group (March 2, 2011) (“EIWG”), Global Financial Integrity (March 1, 2011) (“Global Financial 2”), Global Witness (February 25, 2011) (“Global Witness 1”), Global Witness (February 24, 2012) (with attachments) (“Global Witness 2”), Global Witness (February 24, 2012) (“Global Witness 3”), Greenpeace (March 8, 2012), Grupo FARO (February 13, 2012), Philippe Le Billon (March 2, 2012) (“Le Billon”), Libyan Transparency Association (February 22, 2012) (“Libyan Transparency”), National Civil Society Coalition on Mineral Resource Governance of Senegal (February 14, 2012) (“National Coalition of Senegal”), Newground Social Investment (March 1, 2011) (“Newground”), Nigeria Union of Petroleum and Natural Gas Workers (July 8, 2011) (“NUPENG”), ONE (March 2, 2011), ONE Petition (February 23, 2012), Oxfam America (February 21, 2011) (“Oxfam 1”), Petroleum and Natural Gas Senior Staff Association of Nigeria (June 27, 2011) (“PENGASSAN”), PGGM Investments (March 1, 2011) (“PGGM”), PricewaterhouseCoopers LLP (March 2, 2011) (“PWC”), Publish What You Pay U.S. (November 22, 2010) (pre-proposing letter) (“PWYP pre-proposal”), Publish What You Pay U.S. (February 25, 2011) (“PWYP 1”), Railpen Investments (February 25, 2011), Representative Barney Frank, Representative Jose Serrano, Representative Norman Dicks, Representative Henry Waxman, Representative Maxine Waters, Representative Donald Payne, Representative Nita Lowey, Representative Betty McCollum, Representative Barbara Lee, Representative Jesse Jackson, Jr., Representative Alcee Hastings, Representative Gregory Meeks, Representative Rosa DeLauro, and Representative Marcy Kaptur (February 15, 2012) (“Rep. Franket al.”), Revenue Watch Institute (February 17, 2011) (“RWI 1”), Peter Sanborn (March 12, 2011) (“Sanborn”), Senator Benjamin Cardin, Senator John Kerry, Senator Patrick Leahy, Senator Charles Schumer, and Representative Barney Frank (March 1, 2011) (“Sen. Cardinet al.1”), Senator Benjamin Cardin, Senator John Kerry, Senator Patrick Leahy, Senator Carl Levin, and Senator Charles Schumer (January 31, 2012) (“Sen. Cardinet al.2”), Senator Carl Levin (February 1, 2011) (“Sen. Levin 1”), Social Investment Forum (March 2, 2011) (“SIF”), George Soros (February 23, 2011) and (February 21, 2012) (“Soros 1” and “Soros 2”, respectively), Syena Capital Management LLC (February 17, 2011) (“Syena”), Ta'ang Students and Youth Organization (“TSYO”), TIAA-CREF (March 2, 2011) (“TIAA”), U.S. Agency for International Development (July 15, 2011) (“USAID”), United Steelworkers (March 29, 2011) (“USW”), WACAM (February 2, 2012), and World Resources Institute (March 1, 2011) (“WRI”), and letters designated as Type A and Type B. Other commentators generally voiced their support for strong rules under Section 1504.Seeletters from Cambodians for Resource Revenue Transparency (February 7, 2012) (“Cambodians”), Conflict Risk Network (February 7, 2012), Bill and Melinda Gates Foundation (February 9, 2012) (“Gates Foundation”), Global Witness 2, Barbara and Richard Hause (February 24, 2012), Network for the Fight Against Hunger in Cameroon (February 20, 2012) (“RELUFA 3”), Oxfam America (March 7, 2012) (“Oxfam 3”), Gradye Parsons (February 15, 2012), Representative Raul M. Grijalva (November 15, 2011), Reverend Jed Koball (February 10, 2012), and letters designated as Type C.
See, e.g.,letters from Calvert, Global Witness 1, Oxfam 1, PWYP 1, Sen. Cardinet al.1, Sen. Levin 1, and WRI.
Most commentators that addressed the issue supported including issuers that are owned or controlled by governments within the definition of resource extraction issuer, as proposed.35
Commentators favored such inclusion because it would be consistent with the intent of the statute to hold all resource extraction issuers accountable for payments to governments,36
would adhere to EITI's universality principle that payment disclosure in a given country should involve all extractive industry companies operating in that country,37
and would avoid anti-competitive effects because many government-owned companies are the largest in the industry.38
Another commentator stated that, while it did not believe government-owned entities should be exempt from the payment disclosure rules, it opposed requiring a government-owned entity to disclose payments made to the government that controls it. According to that commentator, such payments are not “made to further commercial development,” but rather are “distributions to the entity's controlling shareholder (or to itself), and requiring them to be disclosed is inappropriate as a matter of comity.”39
Another commentator sought an exemption for payments made by a foreign government-owned company to a subsidiary or entity controlled by it.40
Seeletters from American Petroleum Institute (January 28, 2011) (“API 1”), Chevron Corporation (January 28, 2011) (“Chevron”), Exxon Mobil (January 31, 2011) (“ExxonMobil 1”), Le Billon, PWYP 1, and Royal Dutch Shell plc (January 28, 2011) (“RDS 1”).
Seeletter from PWYP 1.
Seeletters from API 1 and ExxonMobil 1.
Seeletters from Chevron and RDS 1.
Seeletter from Cleary Gottlieb Steen & Hamilton (March 2, 2011) (“Cleary”).
Seeletter from Statoil ASA (February 22, 2011) (“Statoil”).
Several other commentators supported exemptions for certain categories of issuers or for certain circumstances.41
For example, while opposing a general exemption for smaller reporting companies, some commentators supported an exemption for a small entity having $5 million or less in assets on the last day of its most recently completed fiscal year.42
Other commentators opposed an exemption for smaller companies because of their belief that those companies generally face greater equity risk from theiroperations in host countries than larger issuers.43
See, e.g.,letters from API 1, API (August 11, 2011) (“API 2”) and API (May 18, 2012) (“API 5”), ExxonMobil 1, Cleary, New York State Bar Association, Securities Regulation Committee (March 1, 2011) (“NYSBA Committee”), PetroChina Company Limited (February 28, 2011) (“PetroChina”), Petroleo Brasileiro S.A. (February 21, 2011) (“Petrobras”), Rio Tinto plc (March 2, 2011) (“Rio Tinto”), RDS 1, and Statoil.
Seeletters from API 1 and ExxonMobil 1. Those commentators otherwise supported the application of the payment disclosure requirements to all classes of issuers.
Seeletters from Global Witness 1, PWYP 1, Sen. Cardinet al.1, and Soros 1.
In addition, some commentators supported an exemption for circumstances in which issuers were subject to other resource extraction payment disclosure requirements, such as host country law, stock exchange listing requirements, or an EITI program.44
Commentators believed that issuers should be able to satisfy their obligations under Section 13(q) and the related rules by providing the disclosure reported under applicable home country laws, listing rules, or the EITI.45
Commentators asserted that this would minimize an issuer's burden of having to comply with multiple transparency standards and avoid potentially confusing duplicative disclosure.46
Other commentators, however, opposed providing an exemption for issuers based on other reporting requirements because such an exemption would result in an unlevel playing field and loss of comparability.47
Some commentators asserted that because there are not currently any other national extractive disclosure regulatory regimes equivalent to Section 13(q), providing such an exemption would be premature.48
In addition, several commentators maintained that Section 13(q) was intended to go beyond the disclosure provided under the EITI.49
See, e.g.,letters from API 1, British Petroleum p.l.c. (February 11, 2011 and July 8, 2011) (respectively “BP 1” and “BP 2”), Cleary, ExxonMobil 1, NYSBA Committee, Petrobras, Rio Tinto, RDS 1, Royal Dutch Shell (July 11, 2011) (“RDS 3”), Statoil, and Vale S.A. (March 2, 2011) (“Vale”). In addition, two commentators requested that the Commission align the rules with the reporting requirements to be adopted by the DOI for the U.S. EITI.Seeletters from NMA (June 15, 2012) (“NMA 3”) and Northwest Mining Association (June 29, 2012) (“NWMA”).
See, e.g.,letters from API 1, ExxonMobil 1, and RDS 1 (suggesting such an approach if home country requirements are at least as rigorous as Section 13(q)); AngloGold Ashanti (January 31, 2011) (“AngloGold”), BHP Billiton Limited (July 28, 2011) (“BHP Billiton”), and Vale (suggesting such an approach if disclosure is made based on EITI principles); BP 2 and RDS 3 (supporting a global common standard for transparency disclosure and, alternatively, suggesting such an approach if disclosure is made in a broadly similar manner based on EITI principles); Cleary, NYSBA Committee, Petrobras, Rio Tinto, and Statoil (suggesting such an approach if disclosure is made pursuant to home country requirements regardless of whether those requirements follow EITI principles); and Cleary, NYSBA Committee, and Statoil (suggesting alternatively such an approach if disclosure is made based on EITI principles if the company is a participant in an EITI program).
See, e.g.,letters from Cleary, Rio Tinto, and Statoil.
See, e.g.,letters from ERI 1, Global Witness 1, PWYP 1, Rep. Franket al.,Sen. Cardinet al.1, and Sen. Levin 1.
See, e.g.,letter from PWYP 1. In this regard, after noting that the European Commission (“EC”) is developing legislative proposals for extractive industry reporting rules in the European Union (“EU”), one commentator stated that “it is critical that country-by-country and project-by-project disclosure regulations are adopted across other major markets to ensure a level playing field and consistent reporting across countries.” Letter from Publish What You Pay U.K. (April 28, 2011) (“PWYP U.K.”). The EC subsequently published proposals for extractive industry payment disclosure requirements.Seediscussion in note 82. After the EC published the proposals, PWYP urged the Commission to take the initiative and promptly adopt final rules so that the EC can harmonize its extractive disclosure requirements with the Section 13(q) rules.Seeletter from Publish What You Pay (December 19, 2011) (“PWYP 2”). The EC proposals are currently pending.
Seeletters from Global Witness 1, PWYP 1, and Sen. Benjamin Cardin (December 1, 2010) (pre-proposal letter) (“Cardin pre-proposal”).
Many commentators supported an exemption from the disclosure requirements when the required payment disclosure is prohibited under the host country's laws.50
Some commentators stated that the laws of China, Cameroon, Qatar, and Angola would prohibit disclosure required under Section 13(q) and expressed concern that other countries would enact similar laws.51
Commentators stated that without an appropriate exemption, Section 13(q) would become a “business prohibition” statute that would force issuers to choose between leaving their operations in certain countries or breaching local law and incurring penalties in order to comply with the statute's requirements.52
Either outcome, according to commentators, would adversely affect investors, efficiency, competition, and capital formation.53
Some commentators further suggested that failure to adopt such an exemption could encourage foreign issuers to deregister from the U.S. market.54
Other commentators maintained that comity concerns must be considered when the Section 13(q) disclosure requirements conflict with foreign law.55
One commentator suggested that an exemption would be consistent with Executive Order 13609, which directs federal agencies to take certain steps to “reduce, eliminate, or prevent unnecessary differences in [international] regulatory requirements.”56
Seeletters from API 1, API 2, API 5, AngloGold Ashanti (January 31, 2011) (“AngloGold”), Spencer Bachus, Chairman of the U.S. House of Representatives Committee on Financial Services, and Gary Miller, Chairman of the U.S. House of Representatives Subcommittee on International Monetary Policy, Committee on Financial Services (March 4, 2011) (“Chairman Bachus and Chairman Miller”), Barrick Gold Corporation (February 28, 2011) (“Barrick Gold”), BP 1, Chamber of Commerce Institute for 21st Century Energy (March 2, 2011) (“Chamber Energy Institute”), Chevron, Cleary, ExxonMobil 1, ExxonMobil (March 15, 2011) (“ExxonMobil 2”), International Association of Oil and Gas Producers (January 27, 2011) (“IAOGP”), NMA 2, NYSBA Committee, Nexen Inc. (March 2, 2011) (“Nexen”), PetroChina, Petrobras, PWC, Rio Tinto, RDS 1, Royal Dutch Shell (May 17, 2011) (“RDS 2”), Royal Dutch Shell (August 1, 2011) (“RDS 4”), Senator Lisa Murkowski and Senator John Cornyn (February 28, 2012) (“Sen. Murkowski and Sen. Cornyn”), Split Rock International, Inc. (March 1, 2011) (“Split Rock”), Statoil, Talisman Energy Inc. (“Talisman”) (June 23, 2011), and Vale.See alsoletter from Cravath, Swaine & Moore LLP, Cleary Gottlieb Steen & Hamilton LLP, Davis Polk & Wardwell LLP, Shearman & Sterling LLP, Simpson Thacher & Bartlett LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Sullivan & Cromwell LLP, and Wilmer Cutler Pickering Hale and Dorr LLP (November 5, 2010) (pre-proposal letter) (“Cravathet al.pre-proposal”).
Seeletters from API 1 and ExxonMobil 1.See alsoletter from RDS 1 (mentioning China, Cameroon, and Qatar).
Seeletters from Barrick Gold, Cleary, NYSBA Committee, Rio Tinto, and Statoil;see alsoletter from API 5.
See, e.g.,letters from API 1, ExxonMobil 1, and RDS 1;see alsoletter from API 5. Several commentators noted that the Commission has a statutory duty to consider efficiency, competition, and capital formation when adopting rules.Seeletter from American Petroleum Institute (January 19, 2012) (“API 3”), Cravathet al.pre-proposal, Senator Mary L. Landrieu (March 6, 2012), and Sen. Murkowski and Sen. Cornyn.
Seeletters from Cleary, Royal Dutch Shell (October 25, 2010) (pre-proposal letter) (“RDS pre-proposal”), Split Rock, and Statoil.See alsoletter from Branden Carl Berns (December 7, 2011) (“Berns”) (maintaining that some foreign issuers subject to Section 13(q) with modest capitalizations on U.S. exchanges might choose to delist in response to competitive advantages enjoyed by issuers not subject to Section 13(q)).
Seeletters from API 5 and NMA 2.
Seeletter from API 5. We note that the responsibilities of federal agencies under Executive Order 13609 are to be carried out “[t]o the extent permitted by law” and that foreign regulatory approaches are to be considered “to the extent feasible, appropriate, and consistent with law.”SeeProclamation No. 13609, 77 FR 26413 (May 4, 2012).
Other commentators opposed an exemption for host country laws prohibiting disclosure of payment information because they believed it would undermine the purpose of Section 13(q) and create an incentive for foreign countries that want to prevent transparency to pass such laws, thereby creating a loophole for companies to avoid disclosure.57
Commentators also disputed the assertion that there are foreign laws that specifically prohibit disclosure of payment information.58
Those commentators noted that most confidentiality laws in the extractive industry sector relate to theconfidentiality of geological and other technical data, and in any event, contain specific provisions that allow for disclosures to stock exchanges.59
See, e.g.,letters from Cambodians, EG Justice (February 7, 2012) (“EG Justice 2”), Global Witness 1, Grupo Faro, Human Rights Foundation of Monland (March 8, 2011 and July 15, 2011) (respectively, “HURFOM 1” and “HURFOM 2”), National Coalition of Senegal, PWYP 1, Rep. Franket al.,Sen. Cardinet al.1, Sen. Cardinet al.2, Sen. Levin 1, Soros 2, U.S. Agency for International Development (July 15, 2011) (“USAID”), and WACAM.
See, e.g.,letters from ERI 3, Global Witness 1, PWYP 1, Publish What You Pay (December 20, 2011) (“PWYP 3”), and Rep. Franket al.
Seeletters from Global Witness 1, Susan Maples, J.D., Post-Doctoral Research Fellow, Columbia University School of Law (March 2, 2011) (“Maples”), Network for the Fight Against Hunger in Cameroon (March 14, 2011 and July 11, 2011) (respectively, “RELUFA 1” and “RELUFA 2”), and PWYP 1.
Many commentators also sought an exemption from the disclosure requirements for payments made under existing contracts that contain confidentiality clauses prohibiting such disclosure.60
According to commentators, while some contracts may permit the disclosure of information to comply with an issuer's home country laws, regulations, or stock exchange rules, those contractual provisions only allow the contracting party, not its parent or affiliate companies, to make the disclosure.61
Some commentators also sought an exemption from the requirements for payments made under future contracts containing confidentiality clauses.62
Seeletters from API 1, AngloGold, Barrick Gold, Chairman Bachus and Chairman Miller, BP 1, Chamber Energy Institute, Chevron, Cleary, ExxonMobil 1, IAOGP, NMA 2, NYSBA Committee, Nexen, PetroChina, Petrobras, PWC, Rio Tinto, RDS 1, Split Rock, Statoil, and Vale.
Seeletters from API 1 and ExxonMobil 1.
Seeletters from AngloGold and NMA 2. AngloGold suggested conditioning the exemption on an issuer having made a good faith determination that it would not have been able to enter into the contract but for agreeing to a confidentiality provision.
Other commentators opposed an exemption based on confidentiality clauses in contracts on the grounds that such an exemption was not necessary.63
Commentators maintained that most contracts include an explicit exception for information that must be disclosed by law, and, in cases where such language is not explicit, it generally would be read into any such contract under judicial or arbitral review.64
Commentators further stated that an exemption based on contract confidentiality would undermine Section 13(q) by creating incentives for issuers to craft such contractual provisions.65
Seeletters from Global Witness 1, Maples, Oxfam (March 20, 2012) (“Oxfam 3”), and PWYP 1.
See, e.g.,letters from Oxfam 3 and PWYP 1.See alsoletter from SIF citing the “official Production Sharing Contract of the government of Equatorial Guinea” and noting that it explicitly states that companies are permitted to share all information relating to the Contract or Petroleum Operations in the following instances: “To the extent that such data and information is required to be furnished in compliance with any applicable laws or regulation” (Article 20.1.1c) and “[i]n conformity with the requirements of any stock exchange having jurisdiction over a Party[.]” (Article 20.1.1d)).
See, e.g.,letters from Global Witness 1 and Oxfam 1.
Several commentators supported an exemption for situations when, regardless of the existence of a contractual confidentiality clause, such disclosure would jeopardize commercially or competitively sensitive information.66
Other commentators expressed doubt that disclosure of payment information would create competitive disadvantages because much of the information is already available from third-party service providers or through the large number of joint ventures between competitors in the extractive industries.67
Commentators also expressed concern that providing an exemption for commercially or competitively sensitive information would frustrate Congress' intent to achieve payment transparency and accountability.68
Seeletters from American Exploration and Production Council (January 31, 2011) (“AXPC”), API 1, Chamber Energy Institute, Chevron, ExxonMobil 1, IAOGP, Local Authority Pension Fund Forum (January 31, 2011) (“LAPFF”), NMA 2, Rio Tinto, RDS 1, and United States Council for International Business (February 4, 2011) (“USCIB”).
Seeletters from PWYP 1 and RWI 1;see alsoletter from Global Witness 1 (noting a study finding that the majority of disclosures that would be required pursuant to Section 13(q) would already be known to actors within the industry).
See, e.g.,letter from Global Witness 1. Another commentator stated that “to the extent that Section 13(q)'s reporting obligations result in some competitive disadvantage to regulated issuers, Congress already accepted this risk when it determined that pursuing the goals of promoting transparency and good governance was of paramount importance—even at the cost of an incidental burden on issuers * * * As with the Foreign Corrupt Practices Act, Congress made the affirmative choice to set a higher standard for global corporate practice. Other countries have already started to follow Congress' lead in this area * * * Strong U.S. leadership with respect to transparency in the extractive industries will make it easier for foreign governments to adopt similar reporting requirements, which in turn will serve to level the playing field. Letter from Oxfam 1.
Some commentators believed that the disclosure of detailed payment information would jeopardize the safety and security of a resource extraction issuer's operations or employees and requested an exemption in such circumstances.69