Commission rule ‘arbitrary and capricious,’ judge says
A US federal judge has struck down an SEC ruling meant to oblige oil companies and miners to disclose payments made to foreign governments two months before it was to take effect, stating that the rule in its current form is ‘arbitrary and capricious’ and should not require full public disclosure.
US district court judge John Bates ruled in favor of the American Petroleum Institute (API), which, together with the National Foreign Trade Council and the Independent Petroleum Association of America, criticized the SEC rule, passed in August last year, as ‘anti-competitive’.
Bates ruled that the SEC failed to prove full public disclosure of companies’ filing ‒ rather than just summaries ‒ was necessary. He also said the SEC’s refusal to grant waivers for companies operating in countries where disclosure of payments to governments is prohibited was a ‘serious error’.
‘The denial of any exemption for countries that prohibit payment disclosure was arbitrary and capricious,’ Bates writes in his 30-page decision. ‘Commentators expressed concern about potential losses of many billions of dollars in four countries ‒ Angola, Cameroon, China and Qatar ‒ that prohibit disclosure of payment information… The commission offers no persuasive arguments that the statute unambiguously requires public disclosure of the full reports.’
The SEC ruling, passed as part of the Dodd-Frank Act, would have obliged oil, natural gas and mining companies to disclose payments, or series of payments, totaling more than $100,000 to the US or foreign governments, starting in September this year. It would require companies to report taxes, fees, royalties, bonuses, dividends, infrastructure improvement costs and other payments to governments, detailing the amounts per project and per government and outlining the purpose of the payments.
Oil and mining industry representatives said implementation of the ruling would have cost around $1 bn to start and as much as $400 mn a year thereafter, and would have forced US companies operating abroad to disclose trade secrets and financial information that would give competitors an advantage when bidding for new contracts.
‘Today’s decision is a win for American jobs, for our economy and for international transparency,’ says Harry Ng, API vice president and general counsel, in a press release following Bates’ ruling. ‘US companies are leading the way to increase transparency, but the rule would have jeopardized transparency efforts already under way by making American firms less competitive than state-owned oil companies.’
