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Spotlight on the SEC: summary judgment motion filed yesterday and rule vote next week
EarthRights International (ERI), along with lawyers from Goulston & Storrs, filed a motion for summary judgment yesterday on behalf of Oxfam America in its case against the U.S. Securities & Exchange Commission (SEC). When Congress enacted Section 1504 of the Dodd-Frank Wall Street Reform Act in July 2010, it gave the SEC 270 days to issue final rules governing the disclosure of payments made by extractive companies. Section 1504, and the implementing rules, are critical to combating the corruption and waste that too often results when such payments remain secret.
Although the SEC published proposed rules to implement Section 1504 on December 15, 2010, it has missed the statutory deadline to adopt final binding rules. When Oxfam America filed its lawsuit alleging undue delay in issuing the rules in May 2012, the SEC was more than a year past that deadline. The motion filed yesterday asks the court to recognize that the SEC illegally withheld promulgation of the rules as a matter of law.
The SEC is scheduled to vote on final rules next Wednesday, August 22. If they do not adopt rules at that time, ERI is confident that, as a result of our suit, the Court will order them to do so.
If they do adopt rules, our focus will shift to whether those rules implement Congress’ intent. After Section 1504 was passed and the SEC solicited public comments, a debate of sorts emerged among the commenters from NGOs, business, academics, and other experts. Industry has sought to eviscerate the law by advocating for rules with a variety of loopholes. ERI, along with Oxfam America, fellow members of the Publish What You Pay (PWYP) coalition, and other NGOs, has advocated for the adoption of rules that:
- Do not provide any exemptions. Some extractive companies have argued for exemptions to accommodate host country laws, confidentiality agreements that prohibit disclosure, or concerns about commercially or competitively sensitive information. There have also been proposals to exempt small reporting companies. Such broad exemptions would be unnecessary and inconsistent with statutory language and Congressional intent.
- Require companies to file rather than furnish disclosure records. Normally, there is a cause of action available to investors to seek redress for misstatements in filed annual reports. This private right of action would not be available if disclosure records were merely furnished. Providing investors with a right of action to hold companies accountable would incentivize greater rates of compliance and greater accuracy in reporting.
- Define “project” in relation to the lease, license and/or other concession-level arrangement. Contrary to the language of the statute, some commenters have argued that “project” should be defined as the aggregate of projects in a country or only “material” projects. Neither of these definitions is supported by a plain reading of Section 1504 or the intent of Congress.
- Provide a reasonable definition of a “de minimus” payment. Section 1504 only requires disclosure of payments that are “not de minimis,” so the definition of this term is important. PWYP has proposed a threshold of $15,000, which follows the disclosure requirement set by the London Stock Exchange’s Alternative Investment Market.
You can browse all of the comments submitted about Section 1504 – including those made by ERI, Oxfam America, and PWYP – on the SEC’s website. Keep a look out for the final rules next week; the European Union has also called for the adoption of strong disclosure rules in the United States, so all eyes will be on the SEC!