Oxfam America v. SEC: Revenue Transparency Litigation

In May 2012, ERI filed suit on behalf of Oxfam America against the U.S. Securities & Exchange Commission (SEC).  The intention of the lawsuit was to compel the Securities and Exchange Commission (SEC) to obey Congress’s mandate and issue regulations that will require oil, gas, and mining companies to disclose the payments that they make to governments for all extractive projects.  At the time, the SEC had already missed, by more than a year, the deadline that Congress set in Section 1504 of the Dodd-Frank Wall Street Reform Act.  ERI's co-counsel on the case are Howard Crystal of Meyer Gliztenstein & Crystal and Derek Domian and Rich Rosensweig of Goulston & Storrs.

Since 2009, ERI has been working with Oxfam and other members of the Publish What You Pay US (PWYP) coalition to promote revenue transparency in the extractive industry.  In many countries that are rich in oil, gas, and other non-renewable natural resources, the communities from whose territory the resources are extracted bear the brunt of environmental and human rights impacts associated with extractive activity but see few tangible benefits.  We, along with our partners in Burma and elsewhere, believe that knowing what governments receive from extractive companies is an important step for communities to hold governments responsible for the use of natural resource revenues and to advocate for a fair share of the benefits.

As a leading member of PWYP, Oxfam’s programs around the world promote revenue transparency and responsible, accountable management of natural resource revenues.  Oxfam advocated for the passage of Section 1504 and has been providing input to the SEC on the content of the regulations since the law was enacted in July 2010.

On July 2, 2012, after ERI and Oxfam filed the lawsuit, and following almost two years of heated debate through the notice and comment process between the oil industry and transparency advocates, the SEC finally scheduled a vote to adopt final rules. The Commission officially voted to adopt the rules on August 22. These rules by and large track the language of Section 1504 and require listed companies to disclose their payments to governments, without any exemptions, for each extractive project. Companies will be required to submit reports for payments made beginning in October 2013.

On October 10, 2012, the American Petroleum Institute (API), along with the U.S. Chamber of Commerce and two other trade associations, filed suit in federal court in the District of Columbia, seeking to strike down the rules and overturn the law.  API argues that mandatory disclosures are unconstitutional violations of companies' First Amendment rights, and that the SEC conducted inadequate economic analysis and failed to minimize competitive burdens.  ERI and Oxfam will now consider their legal options to support the rule and ensure that extractive companies' payment information becomes public as Congress has required.

After filing suit, API requested a stay of the rule to suspend the disclosure requirements pending the outcome of its lawsuit. On behalf of Oxfam, ERI and its co-counsel strongly opposed a stay, arguing that oil companies were not likely to win their lawsuit, that a stay was not necessary to prevent “irreparable injury” to oil companies, and that delaying compliance was not in the public interest. On November 8, 2012 the SEC denied the stay. In its decision, the SEC agreed with these arguments, and rejected API’s claim that the rule would require companies to violate host country laws that prohibit disclosure of payments, finding there was no persuasive evidence that any such laws even existed. The result of the SEC’s decision is that the implementation of the rule will proceed on track while the court decides the lawsuit filed by API.

On December 3, 2012, API filed its brief challenging both the Rule and Section 1504 itself. API argued that the SEC’s economic analysis was flawed and made an unprecedented claim that disclosure of factual information somehow violates the First Amendment rights.

On January 2, 2013, the SEC filed its own brief defending the rule and its careful rulemaking process. The SEC ably refuted API’s claims that its economic analysis was flawed, and persuasively defended its regulatory choices, reiterating many of the sound rationales it provided in the Final Rule Release for rejecting most of API’s preferred approaches.

On behalf of Oxfam, ERI and its co-counsel intervened in the lawsuit to further defend the Final Rule and the underlying legislation. ERI filed its brief on January 16, 2013, in which we defended the SEC’s careful economic analysis and 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. ERI also made clear that API’s First Amendment challenge is unfounded. 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. Furthermore, the Supreme Court 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.S. 447, 456 (1978). 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.” API’s First Amendment argument that it must be allowed to continue to conceal payments to governments, if accepted, would not only harm investors, but threaten the entire securities regime, and call into question thousands of routine federal and state statutes and regulations, all of which require disclosure of factual information.

Further support for the landmark transparency law and the SEC’s final rule came from Members of the Senate and the House, who filed amicus curiae briefs slamming API for their unprecedented attack on disclosures, as well as their unfounded challenges to the SEC’s rulemaking process.

API now has the chance to reply.

Meanwhile, progress on transparency continues around the world. The European Union is in the process of finalizing rules much like the US law and SEC’s final rule. The rules are expected in early 2013.