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Oil Industry Sues SEC Over Disclosures

WASHINGTON (CN) - The oil and gas industry and the Chamber of Commerce sued the SEC to try to stop a final rule forcing the industry to disclose payments of more than $100,000 to foreign governments for "projects."

The American Petroleum Institute and others accuse the SEC of infringing on corporate free speech, and say the rule would cost U.S. companies billions of dollars in compliance costs and lost business.

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 industry's federal complaint, the SEC rule requires "public companies to disclose certain payments of more than $100,000 when made to foreign governments for 'projects' relating to the commercial development of oil, natural gas, or minerals."

The plaintiffs object to Disclosure of Payments by Resource Extraction Issuers, 77 Fed. Reg. 56,365 (Sept. 12, 2012).

The industries claim that the rule will force U.S. oil, gas, and mining companies to engage in speech that will injure their financial health, employees and shareholders.

The American Petroleum Institute, the Chamber of Commerce of the U.S.A., the Independent Petroleum Association of America and the National Foreign Trade Council filed the complaint, representing thousands of American businesses.

"The Commission took no account whatsoever of the added burden on First Amendment rights associated with requiring companies to disclose their payments publicly, rather than to the Commission alone, so it could then make the data available to the public in an aggregated - anonymous - form," the complaint states.

The industry claims the SEC rule misinterprets the Securities and Exchange Act provision requiring that every U.S. company publicly file a report detailing each payment made to a foreign government. They say the SEC is misusing the Dodd-Frank Wall Street Reform and Consumer Protection Act and its transparency provisions.

But the trade groups say the costs of the rule will cripple U.S. businesses.

"By the Commission's own reckoning, the Rule will cost U.S. public companies at least $1 billion in initial compliance costs and $200 to $400 million in ongoing compliance costs and 'could add billions of dollars of [additional] costs' through the loss of trade secrets and business opportunities," the groups say. (Brackets in complaint.)

According to the complaint, Royal Dutch Shell estimated that it could lose $20 billion or more in business with foreign governments. Shell told the SEC so during the public comment period, but the industry says the SEC failed to account for such comments.

The groups also claim that the disclosure requirement would give foreign competitors an advantage over U.S. companies, by exposing how much money U.S. businesses pay to foreign countries.

They want the rule nullified as a violation of the First Amendment, and say the SEC violated the Administrative Procedure Act by adopting it without taking into account public comment. They also want a declaration that the SEC misinterpreted its authority under federal law.

They are represented by Eugene Scalia with Gibson Dunn.

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