SEC Adopts Final Rules for the Disclosure of Payments by Resource Extraction Issuers

The SEC has adopted final rules that will require resource extraction issuers that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals. According to the SEC, the rules implement Section 13(q) of the Exchange Act, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  The rules are intended both to:

  • Achieve the statutory objective of increasing the transparency of payments to governments for the purpose of the commercial development of their oil, natural gas, and minerals; and
  • Comply with the Congressional Review Act (CRA).

The adopted rules will require a domestic or foreign reporting issuer to disclose payments made by the issuer or a subsidiary or entity controlled by the issuer to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals. Among other things, the final rules:

  • Require public disclosure of company-specific, project-level payment information;
  • Define the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract, level, recognizing that more granular contract-level disclosure could be used to satisfy the rule;
  • Add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure;
  • Add a conditional exemption for smaller reporting companies and emerging growth companies;
  • Define “control” to exclude entities or operations in which an issuer has a proportionate interest;
  • Limit the liability for the required disclosure by deeming the payment information to be furnished to, but not filed with, the SEC;
  • Add relief for issuers that have recently completed their U.S. initial public offerings; and
  • Extend the deadline for furnishing the payment disclosures.  

The SEC adopted rules to implement Section 13(q) in 2016, but the 2016 Rules were disapproved pursuant to the CRA by a joint resolution of Congress. Although the 2016 Rules were disapproved under the CRA, the statutory mandate in Section 13(q) of the Exchange Act has remained in effect. As a result, the SEC remains statutorily obligated to issue a new rule, however, pursuant to the CRA the SEC may not reissue the disapproved rule in “substantially the same form” or issue a new rule that is “substantially the same” as the disapproved rule. The SEC’s action completes a rulemaking process commenced in 2019 that was designed to address both requirements.

The final rules will be effective 60 days following publication in the Federal Register.

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