|Oil, gas and mining companies operating in Ghana and listed on the US Securities and Exchange Commission (SEC) are required to disclose the payments they make to the Government following the implementation of a landmark 2010 transparency law.
Known as Section 1504 or the “Cardin-Lugar” provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the law requires oil, gas and mining companies to disclose payments they make at the country and project level to the United States and foreign governments.
Oxfam America , an international relief and development organization, has applauded the SEC for finally implementing the law, saying that it would provide important information to investors and help to stem corruption in resource-rich countries.
A statement on the website of Oxfam America said the final regulation, which was issued on August 22, 2012, required oil; gas and mining companies listed on US stock exchanges to disclose the payments they make to host governments.
Passed nearly two years ago, the law covers more than 1,100 companies, according to the SEC, including around 90 percent of internationally operating oil companies and many of the top international mining companies. This includes American companies such as ExxonMobil and Chevron, foreign companies, such as BP and Shell, and some companies from emerging markets such as China , India , Brazil and Russia .
Raymond C. Offenheriser, President of Oxfam America, said by approving the final regulations, “the SEC lifts the veil of secrecy on billions of dollars that flow every year from oil and mining companies to governments around the world and will arm citizens of resource-rich countries with information they need to track the amount of money their governments receive from oil and mining companies”.
He said: “We commend the United States for taking a leadership position on increasing transparency in the oil, gas and mining industry and the SEC for implementing Congress’ intent and not caving under intense industry pressure.”
Implementation of the Law will put the United States in a position to influence a draft European Union law designed to complement Section 1504. The EU proposal requires both publicly and privately-held companies to disclose their payments to governments in countries where they do business.
“The SEC provision covers the vast majority of internationally operating oil companies and the world’s largest mining companies, and with expected European rules covering even more companies, the transparency net will be cast far and wide,” said Offenheiser.
Oxfam has urged the SEC to release final rules that conform to the statutory requirement as well as Congressional intent. While Oxfam is still reviewing the 231 pages of final rule text, the SEC largely appears to have done so.
For example, the SEC rejected appeals from industry by not allowing any exemptions to the disclosure requirements for covered companies. Industry commentators had argued that a few countries prohibit disclosure but they did not provide convincing evidence. Oxfam America has made it clear to the SEC that such prohibitions are not known to exist and that creating such an exemption would invite foreign regimes to create new secrecy prohibitions.
While the new rules list all of the payments, such as taxes, royalties, dividends and bonuses companies need to disclose, they do not define the term “project”. There is already a common understanding within the industry of what a project means and it’s usually at the lease, license and concession levels. A company that doesn’t use the definitions widely used by industry is most-likely poorly-managed and investors should be cautious. The SEC provided detailed guidance in the rule release to minimize company abuse of the flexibility provided. For example, the SEC said that a project can’t be defined as a country, geologic basin or reporting unit.
Tight reporting requirements by the SEC will help to reverse the “resource curse” and the misuse of billions in oil and mining revenues. More than 1.5 billion people live on less than $2 a day in resource-rich countries.
Quoting Mrs Hannah Owusu Koranteng, a Global Board Member of Extractive Industries Transparency Initiative (EITI) and Associate Executive Director of WACAM, a human rights and mining advocacy nongovernmental organization and an Oxfam partner, Offenheiser said: “The communities in resource-rich countries like Ghana rarely share the wealth from oil and mineral extraction and the new requirements will certainly help close the gaps in the current system.
“The SEC has finally implemented the law and the project-level disclosure required must provide communities and local officials in Ghana with detailed information on the revenue flowing to Government from gold extracted from their lands. We encourage developing countries to enshrine similar requirements,” Offenheiser quoted Owusu Koranteng.
He said: “Congress spoke two years ago through this bi-partisan measure and now the SEC has done its job by issuing these final rules,” adding that the vote would not have been possible without the tireless efforts of Senators Cardin, Lugar, Leahy and Levin, Rep. Frank and many other Congressional Leaders who have pushed the SEC since 2010 to finish the job“.
The information will not only benefit communities in Africa and in mining towns across Latin America and Asia, it will also benefit investors on Wall Street who will now have better information to assess high-risk investments. Companies will also benefit from better relations with local communities next door to their multi-billion dollar investments, creating better operating environments and more secure jobs for Americans. Companies will be required to comply with the new rules for fiscal years ending after September 30, 2013.
“The SEC has examined the facts and given its final word. It’s time for companies to embrace this global wave of transparency which is, in the end, in their own interest,” Offenheiser added. “American companies are not competitive because they make secret payments, but because they bring better technology, competitive fiscal terms, access to capital and efficient business practices. US companies will continue to win deals. No proprietary information will be revealed through payment disclosure and there is much to be gained for companies through transparent practices.”