Transparency Supporters Counter Big Oil's Legal Challenge to SEC Rules

Issue: Dodd-Frank
Country: United States
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In Washington, D.C., yesterday, members of the U.S. House of Representatives, Oxfam America and Sens. Ben Cardin (D-Md.), Carl Levin (D-Mich.) and former senator Richard Lugar declared that Big Oil isn’t above the law.

Keeping up their fight for global transparency, these advocates formally responded in U.S. Circuit Court to the American Petroleum Institute’s (API) lawsuit against the Securities and Exchange Commission’s (SEC) rules carrying out 1504 of the Dodd-Frank Act. In December, API went to court to challenge the 2010 law, which requires oil, gas and mining companies to annually publish their payments to governments. In August, the SEC issued the final rules for greater company disclosure.

API’s lawsuit seeks to overturn Section 1504 and makes unsupported arguments—the most absurd being that Dodd-Frank violates the First Amendment. As the legal brief from  Cardin, Levin and Lugar makes clear, “there is nothing” in the law that requires “anything other than garden variety disclosure of factual, financial information by SEC issuers to the public."

Revenue Watch strongly endorses the arguments by the senators, House members and Oxfam America and the broader public it represents. Not only does API lack a strong case, but its suit makes clear the oil industry’s cynicism when it comes to transparency. API wants to turn back the clock by defending corporate secrecy.

API has called Section 1504’s requirements “the most expensive rules in the history of the Securities and Exchange Commission,” claiming they will cost oil companies and hurt competition. These claims have been repeatedly debunked, and the SEC fired back with its own brief filed on January 2. During its rulemaking, the SEC noted industry representatives “generally did not provide data or other quantitative analysis to support their claims” and has since stated that complying with its rules will cost a company between $90,000 to $1 million, a modest sum for the oil giants challenging the law.

As the House brief simply states, Section 1504’s “myriad benefits outweighed its possible costs,” and reporting under the law will

help improve government accountability and reduce instability in key energy-producing countries, thereby reducing energy security risks; it will increase investor information about the commercial, political, and legal risks companies may face; and it will generally increase investor knowledge about those companies.

The SEC noted that neither API nor “any other commentator disputed during the rulemaking the potential benefits that enhanced transparency can have on government accountability in resource-rich countries.”

These benefits are discussed extensively in the briefs from the Senate and Oxfam America, which stress the urgent need for greater transparency and good governance in the global economy and cite Section 1504’s role in helping to achieve this goal. “The Commission appropriately recognized [Section 1504 final rules] potential to increase government accountability, and ‘improve economic development and… economic growth,” Oxfam noted, speaking of the advantages for resource-rich countries. The House, on the other hand, addresses the benefits for investors envisioned by the law. Though API claims Section 1504 disclosures are bad for business, House representatives note the rule is, in fact, “necessary to protect investors by helping them evaluate the business risks issuers are exposed to in resource-rich and often volatile countries.”

By filing its lawsuit, API has positioned itself against an international effort to bring economic stability, accountability and improved governance to the citizens of resource-rich countries around the world. The European Union is close to adopting a similar disclosure rule, mining industry associations are working to introduce mandatory reporting in Canada, and, as the House brief notes, “We anticipate that numerous other countries will follow in our footsteps.”

As for API’s claim that Section 1504 violates the companies’ right to free speech, Oxfam America states that companies can “say anything they like about their government payments” but they shouldn’t kid themselves—“they do not have a constitutional right to conceal these payments.”

API has an enormous oil-fueled war chest funding its lawsuit but, given the strength of the collective response to the oil industry’s unwarranted attack on transparency, API has a real fight ahead of it. Advocates of the law, Revenue Watch included, have worked for over a decade to achieve the much-needed reform ushered in with Section 1504 and are not about to step down. As the House brief indicates: “Section 1504 is merely the latest brick in a road toward greater disclosure of payments, both legitimate and illegitimate, and related activities—a road that Congress and the Commission have been building for decades.”

Carolyn Bielfeldt is RWI Communications Coordinator. Rebecca Morse is RWI Advocacy Officer.

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