Everyone is in favor of transparency and anti-corruption – at least, everyone except the occasional despot or dictator. Yet substantial controversy now swirls around the disclosure of the vast sums that governments receive from mining and oil projects.
The question is not whether the streams of payments paid to governments by oil, gas, and mining companies should be disclosed, but how. This issue is now front and center in countries from Belgium to Canada.
Many companies currently report on revenue payments through a voluntary organization called the Extractive Industries Transparency Initiative (“EITI”). Although EITI remains active, U.S. lawmakers moved towards mandatory reporting when they passed Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required Securities and Exchange Commission (“SEC”) issuers involved in the extraction of oil, gas, and minerals to report on their payments to foreign governments and the U.S. federal government.
Most — although not all — extractive sector companies that participate in the EITI protested this mandatory approach. The American Petroleum Institute sued the SEC in federal court as soon as it promulgated its long-postponed final rule to implement Section 1504. On July 2, a federal district court dismissed the case on summary judgment and vacated the implementing rule for Section 1504, sending the SEC back to the drawing board. Mandatory reporting in the United States has not been abandoned, but has certainly been postponed.
Oddly enough, the judgment in the United States arrived just after the European Union finalized its mandatory approach. On June 12, the European Union issued its long-awaited Transparency and Accounting Directives, which together comprise the European equivalent of Section 1504. Although the European Union’s approach generally parallels Section 1504, it deviates in several important ways. Companies should be aware that:
The forestry sector must report, in addition to oil, gas, and mining;
The reporting requirements cover large, non-listed companies, as well as those listed;
The Directives will be subject to a review in three years, at which point other sectors might be added; and
Under an “equivalence clause,” companies reporting data to other regulators that the European Union considers to be equivalent can simply provide that same information to satisfy the E.U. requirements.
More governments are considering passing such legislation, spurred by civil society, as well as the U.K. Prime Minister’s decision to place revenue transparency on the agenda, front and center, at the most recent G8 meeting. For example, on June 12, Canada’s Prime Minister announced his intent to develop new mandatory reporting requirements for Canadian extractive sector companies.
And thus, the battles will continue between proponents of mandatory and voluntary reporting. These debates are fueled by unanswered questions regarding how best to hold governments genuinely accountable for the use of national riches. There will undoubtedly be more litigation, and new regulations, as different jurisdictions wrestle with the fundamental concerns that underlie the revenue transparency agenda. Proponents of revenue transparency will certainly not be deterred by setbacks like last week’s decision vacating the SEC’s rule on reporting: in the unforgettable words of Monty Python, the transparency agenda is “not dead yet!” Not even close.