Big Oil Wins Demand to Chuck Reporting Rule

     WASHINGTON (CN) – Oil and gas companies should not have to inform securities regulators about payments they make to foreign governments, a federal judge ruled.
     The Securities and Exchange Commission had promulgated the final rule in September 2012 pursuant to Section 13(q) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress enacted the provision to satisfy their concerns that the corrupt leaders of oil-rich countries were squandering the money that should otherwise improve quality of life for their citizens.
     Oil and gas companies pointed, however, to a voluntary national program they started called the Extractive Industries Transparency Initiative to address those very concerns. They said the confidentiality measures of EITI “balanced the presumption of disclosure … with the concern of companies regarding commercial confidentiality.”
     The Dodd-Frank provision meanwhile requires so-called resource-extraction issuers to report the type and total amount of payments made for each project and to each government. It then requires the SEC to compile the information and make it publicly available “to the extent practicable,”
     In a cost-benefit analysis that the SEC conducted before adopting its final rule, it estimated that compliance would cost issuers $1 billion initially and then an ongoing cost of $200 million to $400 million.
     The SEC took little heed of complaints from the industry that four countries – Angola, Cameroon, China and Qatar – prohibit disclosure of payment information.
     Companies said that, without an exemption, they would be forced to withdraw from those countries, at a cost of tens of billions of dollars.
     Commissioners countered, however, that exemptions would encourage other countries to adopt similar laws so that they could skirt disclosure.
     The American Petroleum Institute and others filed suit in October, claiming that the SEC’s rule violated the First Amendment by forcing corporate free speech that would injure their financial health, employees and shareholders.
     U.S. District Judge John Bates granted summary judgment to the oil moguls, which also included the Chamber of Commerce of the U.S.A., the Independent Petroleum Association of America and the National Foreign Trade Council, which represents thousands of American businesses.
     He noted that although Section 13 of the Securities Exchange Act the public reporting regime for listed companies, the law “never defines a ‘report’ as something publicly filed, and leaves room for confidential treatment of reports filed under the act.”
     “Moreover, the placement of the payment disclosure provision, in the face of statutory silence and contrary evidence in the text itself (e.g., subsection (3)(A)), can hardly create clarity,” Bates wrote.
     Though Oxfam America, which intervened as defendant, argued that the SEC’s decision was reasonable if not mandated, Bates said it is black letter law that ‘an agency regulation must be declared invalid, even though the agency might be able to adopt the regulation in the exercise of its discretion, if it was not based on the agency’s own judgment but rather on the unjustified assumption that it was Congress’ judgment that such a regulation is desirable or required.'”
     “The rule is invalid here for precisely that reason,” he added.
     Bates also complained that the SEC’s denial of any exemption for countries that prohibit payment disclosure was “arbitrary and capricious.”
     Oil companies have been sued repeatedly, and have paid millions of dollars in settlements, after being accused of paying bribes overseas to secure contracts.
     According to the complaint, Royal Dutch Shell estimated that the SEC’s public transparency rule would cost it $20 billion or more in business with foreign governments.
     The groups argued that the rule would have given foreign competitors a leg up over U.S. companies by exposing how much money U.S. business shell out to foreign countries.
     The oil companies were represented by Eugene Scalia, son of U.S. Supreme Court Justice Antonin Scalia.

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