The Most-Worried-Over Dodd-Frank Rule Isn’t What You Think

One obscure provision pits the world’s most powerful oil and mining companies against human-rights groups and high-profile advocates.

(FILES) This photo taken on May 15, 2008 shows firefighters trying to extinguish a blaze in a northern suburb of Lagos following an explosion on an oil pipeline. Chevron in Nigeria reported on May 25, 2009 a 100,000 barrel-per-day oil output cut after a militant attack the day before on one of its pipelines in the country's southern Delta region. Nigeria's main rebel group said it destroyed several major oil pipelines in southern Nigeria overnight in response to a military offensive. 
AFP/Getty Images
Ben Geman
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Ben Geman
Dec. 19, 2013, 12:07 p.m.

On a mild af­ter­noon in early Decem­ber, aides work­ing for Demo­crat­ic Sens. Ben Cardin, Patrick Leahy, Ed­ward Mar­key, and Carl Lev­in made the short walk from their of­fices to the Se­cur­it­ies and Ex­change Com­mis­sion. They wanted to dis­cuss how and when of­fi­cials there would im­ple­ment an ob­scure but con­tro­ver­sial Dodd-Frank pro­vi­sion (sup­por­ted by their bosses) that pits the world’s most power­ful oil com­pan­ies against hu­man-rights groups and ad­voc­ates such as George Sor­os and Bono. The tim­ing was for­tu­it­ous: Just days earli­er, the SEC had re­leased a 2014 agenda that made no men­tion of the reg­u­la­tion, and the aides wanted to know why.

The rule would force oil, gas, and min­ing com­pan­ies to dis­close their pay­ments (for ex­trac­tion rights and everything else) to for­eign gov­ern­ments, as a way to weak­en the “re­source curse” — the cor­rup­tion, poverty, and con­flict en­dem­ic to re­sources-rich na­tions like Ni­ger­ia and An­gola. The sen­at­ors ar­gue that ac­count­ab­il­ity can help, and their aides pressed to have the rule fi­nal­ized quickly and with teeth, say sources fa­mil­i­ar with the meet­ing. Oil in­dustry’s rep­res­ent­at­ives, backed by the U.S. Cham­ber of Com­merce, say an ag­gress­ive or­der could be a re­cipe for dis­aster. What petro state would give an Amer­ic­an com­pany the right to drill when it could award the con­ces­sion to some oth­er na­tion (read: China and Rus­sia) and ac­count for the rev­en­ue, or not, in whatever way it wants?

The rule, the brainchild of Cardin and former GOP Sen. Richard Lugar, re­quires busi­nesses lis­ted on U.S. stock ex­changes to file SEC dis­clos­ures that tally pay­ments — roy­al­ties, taxes, pro­duc­tion li­censes — to gov­ern­ments for oil-and-gas or min­ing pro­jects in their coun­tries. Its pro­ponents say it equips res­id­ents of those na­tions to push their lead­ers to turn rev­en­ue in­to pub­lic be­ne­fits. It also aids in­vestors. Its in­clu­sion in Dodd-Frank over oil-in­dustry ob­jec­tions was a huge vic­tory for “trans­par­ency” ad­voc­ates such as Ox­fam Amer­ica, Glob­al Wit­ness, and the Pub­lish What You Pay co­ali­tion. They scored again when the SEC, after a long delay, said in Au­gust 2012 that it would not keep the fil­ings un­der lock and key or provide ex­emp­tions from the man­date, as in­dustry lob­by­ists had wanted.

Then the Amer­ic­an Pet­ro­leum In­sti­tute, the U.S. cham­ber, and oth­er busi­ness groups filed suit, and the tide began to turn. In Ju­ly, a fed­er­al Dis­trict Court judge ap­poin­ted by Pres­id­ent George W. Bush tossed out the reg­u­la­tion, writ­ing that the SEC didn’t need to make com­pany fil­ings pub­lic, and failed to jus­ti­fy why it wouldn’t ex­empt pro­jects in coun­tries that bar pay­ment dis­clos­ures.

The SEC de­clined to ap­peal. Now it is re­writ­ing the rule, and the Sen­ate aides wer­en’t the only ones who wanted to know how. In re­cent let­ters and meet­ings, rep­res­ent­at­ives of oil com­pan­ies, hu­man-rights groups, and oth­er parties have be­sieged SEC staff, try­ing to shape the re­vi­sion. The corner of the SEC’s web­site that lists the meet­ings and let­ters has be­come a must-read for those track­ing the meas­ure. Jana Mor­gan, the na­tion­al co­ordin­at­or for Pub­lish What You Pay’s U.S. branch, says it’s her home page.

A tough-minded rule may re­quire a shove from else­where in the Obama ad­min­is­tra­tion — the White House, or even the State or Treas­ury de­part­ments, all of which sup­port re­source ac­count­ab­il­ity — says Neil Brown, a former Lugar aide who helped write this part of the law. In a speech be­fore the United Na­tions in 2011, Pres­id­ent Obama praised re­source “trans­par­ency,” and the U.S. is form­ally join­ing a mul­ti­lat­er­al pro­gram called the Ex­tract­ive In­dus­tries Trans­par­ency Ini­ti­at­ive, which brings to­geth­er gov­ern­ments, in­dustry, and civil-so­ci­ety groups. “The ad­min­is­tra­tion needs to step up its own en­gage­ment in terms of sup­port for the rule, in terms of want­ing it quickly and want­ing it to be strong,” says Brown, now a fel­low at the Ger­man Mar­shall Fund of the United States. “The pres­id­ent says it is a pri­or­ity. Why doesn’t he just say it’s a pri­or­ity to the people writ­ing the rules?”

In­dustry of­fi­cials, to be sure, say they, too, are pro-trans­par­ency and point to their sup­port of EITI. But the ori­gin­al SEC rule went too far, they com­plain, ar­guing it would cre­ate a com­pet­it­ive dis­ad­vant­age by for­cing com­pan­ies to dis­close com­mer­cially sens­it­ive in­form­a­tion. They also say the rule would jeop­ard­ize tens of bil­lions of dol­lars of in­vest­ments in na­tions that bar the dis­clos­ure. And they may have a friend in SEC Chair­wo­man Mary Jo White, who used an Oc­to­ber speech to ques­tion ef­forts to “ef­fec­tu­ate so­cial policy or polit­ic­al change” through dis­clos­ure man­dates.

Now the Amer­ic­an Pet­ro­leum In­sti­tute, the oil in­dustry’s biggest trade and lob­by­ing group, wants the SEC to keep in­di­vidu­al com­pan­ies’ fil­ings to the agency out of the pub­lic’s hands, ar­guing in­stead for a “com­pil­a­tion” that doesn’t name spe­cif­ic com­pan­ies but re­veals the types, amounts, and gov­ern­ment re­cip­i­ents of the money. That would still be­ne­fit oil-state cit­izens. “The real value is, what is the flow and to whom?” says Steph­en Com­stock, API’s dir­ect­or of tax and ac­count­ing policy. His cli­ents also want a waiver from the rule if a for­eign gov­ern­ment bars the dis­clos­ure, as do Qatar and An­gola, ac­cord­ing to the group.

Law­makers back­ing the rule say the oil lob­by­ists over­state the risks. Keep­ing fil­ings un­der wraps de­feats the law’s pur­pose, and al­low­ing ex­emp­tions would in­centiv­ize more gov­ern­ments to out­law dis­clos­ure — what some call a “tyr­ant’s veto.” They want the ori­gin­al, ag­gress­ive ver­sion of the rule, just with bet­ter lan­guage to leg­ally jus­ti­fy the dis­puted pro­vi­sions. The SEC “did not prom­ise that this gets done quickly,” says the source fa­mil­i­ar with the meet­ing. Cardin, who says he’ll take his case dir­ectly to SEC com­mis­sion­ers, isn’t wor­ried. Yes, “there is cer­tainly a power­ful in­terest against what we are try­ing to do,” he says. “What we have on our side,” he adds, “is the law.”

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