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Federal court vacates SEC rule requiring oil, gas companies to disclose government payments

By Jessica M. Karmasek | Jul 3, 2013

WASHINGTON (Legal Newsline) -- A federal court has vacated a rule by the Securities and Exchange Commission requiring oil and gas companies to disclose certain government payments.

Judge John D. Bates of the U.S. District Court for the District of Columbia sided with a business coalition challenging the rule -- including the American Petroleum Institute, Independent Petroleum Association of America, the National Foreign Trade Council and the U.S. Chamber of Commerce -- in a memorandum opinion filed Tuesday.

The Chamber's Institute for Legal Reform owns Legal Newsline.

In August, the SEC adopted rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring resource extraction issuers to disclose certain payments made to the U.S. government or foreign governments.

In particular, the commission's "Disclosure of Payments by Resource Extraction Issuers" rule required public companies to disclose payments of more than $100,000 made to foreign governments for "projects" relating to the commercial development of oil, natural gas or minerals.

The regulatory reform law directed the SEC to issue these rules requiring companies engaged in the development of oil, natural gas or minerals to disclose the information annually by filing a new form with the commission called Form SD.

The form had to be filed with the SEC no later than 150 days after the end of its fiscal year.

Companies were required to comply with the new rules for fiscal years ending after Sept. 30.

But the business coalition challenged the rule, in particular its disclosure requirements, on First Amendment grounds.

It also challenged both the regulation and the cost-benefit analysis on statutory grounds.

Karen Harbert, president and CEO of the Chamber's Institute for 21st Century Energy, called the ruling a "victory for consumers and for America's energy security."

"The SEC's 'extraction rule' would have placed American oil and natural gas companies at a huge disadvantage around the world by forcing them to turn over their playbooks for how they bid and compete against foreign, state owned companies," she said in a statement Tuesday. "In addition, compliance with the SEC rule would violate the law in several countries in which U.S. firms do business."

She continued, "The court ruled today that the SEC misread the statute to mandate public disclosure of reports regarding how companies operate. Instead of publicly releasing information, for instance, the SEC could have simply required companies to file confidential reports."

The federal court agreed with the coalition that the commission made an "arbitrary and capricious" decision to deny any exemption for countries that prohibit disclosure of payments.

"More fundamentally, given the proportion of the burdens on competition and investors associated with this single decision, a fuller analysis was warranted," Bates wrote in the 30-page opinion.

"A general statement about incentive problems with a broad version of the exemption does not satisfy the requirement of reasoned decision making when, by the commission's own estimates, billions of dollars are on the line."

The judge remanded the rule to the commission "for further proceedings."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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