ERI, Oxfam America, Congressmen Defend Transparency Rules Against Industry Attack

This week, on behalf of Oxfam America, ERI filed a brief in the U.S. Court of Appeals for the D.C. Circuit defending the U.S. Securities and Exchange Commission’s final rule implementing Section 1504 of the Dodd-Frank Act.

Section 1504, also known as the Cardin-Lugar provision, seeks to combat the resource curse (i.e. the destructive economic and political consequences of extractive industries), protect investors, and secure political stability and energy security. The Final Rule adopted by the SEC requires oil, gas, and mining companies to disclose the payments they make to governments, which have traditionally been kept secret from regulators, investors, and the people living in the resource-rich countries where these companies operate. This secrecy has fostered corruption, deprived investors of vital information, and kept citizens from obtaining the information necessary to demand accountability from their government.

The resource curse negatively impacts poor communities in resource-rich countries, but according to a Senate Foreign Relations Committee Staff report, also “damages U.S. foreign policy and humanitarian interests abroad” and “negatively impacts Americans at home.”

Yet the American Petroleum Institute (API) and other trade associations filed suit against the SEC in an effort to strike down the landmark transparency law and the Final Rules implementing it. API challenges both the Rule and Section 1504 itself, making a number of disingenuous claims, including the unprecedented claim that disclosure of factual information violates the First Amendment rights. The Supreme Court, however, has frequently noted that securities-related speech and disclosure can be regulated “without offending the First Amendment.” See e.g. Ohralik v. Ohio State Bar, 436 U.D. 447, 456 (1978). Section 1504 and the Final Rule merely require issuers to inform the market of government payments. Congress, the SEC, and investors themselves lauded this disclosure as enhancing investor protection, yet API asserts a novel First Amendment right to conceal this information.  Its desire to continue to make secret payments to governments would not only harm investors, but threaten the entire securities regime, and call into question thousands of routine federal and state statutes and regulations.

ERI made clear this week that API’s First Amendment challenge is unfounded; the disclosure requirement does not force anyone to communicate or endorse any message nor does it restrain anyone from communicating any message to any audience. As ERI stated in its brief, extractive companies “may say anything they like about their government payments. But they do not have a constitutional right to conceal these payments.”

ERI also refuted API’s baseless claim that certain countries prohibit payment disclosures, and companies would suffer billions of dollars in losses if forced to disclose payments. . As we showed, API failed to provide any evidence that any disclosure prohibitions actually exist. In denying API’s request for a stay of the rule pending litigation, the SEC’s decision found API’s assertions on the issue “both unpersuasive and vigorously contested by other commentators.”

Earlier this month the SEC filed its own brief defending its Final Rule and its careful rulemaking process. On behalf of Oxfam America, ERI intervened in the suit to further defend the Final Rule and the underlying legislation.

Members of the Senate and the House filed amicus curiae briefs slamming API for their unprecedented attack on disclosures, as well as their unfounded challenges to the SEC’s rulemaking process.

The European Union is in the process of finalizing rules much like the US law and SEC’s final rule. The rules are expected early this year.