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Today is the one-year anniversary of the deadline for the U.S Securities and Exchange Commission (SEC) to issue the final rules for Section 1504 of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Section 1504 requires all oil, gas, and mining companies listed on U.S. stock exchanges to disclose all payments to governments throughout the world, including taxes, fees, contracts, bonuses, and other material benefits on a project-by-project basis. This transparency provision is an important tool for concerned citizens around the world to hold their governments accountable when dealing with the extractive industries.
A year after the deadline, established by Congress when Dodd-Frank passed, the SEC has still not yet issued the final rule on Section 1504. The delay comes as the regulator faces intense pressure from oil industry lobbyists, including from the American Petroleum Institute (API). The API wrote a letter to the SEC laying out the basis for a legal challenge to potential rules, which some have characterized as an implicit threat of expensive litigation. These demands include shifting the reporting requirement from a project-by-project basis, which is explicitly required in the statute, to a geographic basis, such as by a geological basin or province. This move would maintain opacity in the extractive industries, and allow an environment that fosters corruption and bribery to continue.
The SEC needs to stop delaying and issue the strong transparency rules that Congress passed nearly two years ago. Further delay only serves as an invitation to industry lobbyists to continue to push for loopholes that allow them to execute unaccountable deals with governments. These rules are already long overdue.
Resource-rich developing countries often face a Faustian relationship with their extractive industries wealth. While exports of oil, gas, and minerals can create significant wealth for a society, it can also invite staggering levels of corruption. Many lack the governing institutions necessary to maintain an effective rule of law.
For example, Kenya recently made a potentially transformative oil strike off its coast. This is the country's first large oil discovery. Oil and gas extraction is regulated by the 26 year-old, 13-page, Kenya Petroleum Act. If large-scale oil extraction begins in earnest without a significant updating of Kenyan political and social institutions, massive corruption could follow. Kenyans are understandably rushing to begin exporting their newfound oil, but will have to confront a trade-off of major corruption risk at the same time.
These problems are made worse by the poor quality of information available to people in developing countries about the money flowing to their governments. Civil society groups in places like Kenya have difficulty holding their governments accountable to reduce or eliminate corruption in its extractive industries sector. Without this information, anti-corruption forces are swimming upstream. Section 1504 goes a long way toward evening the playing field for good government types. It will end secret deals in the sector, putting them online for all to see. Instead of creating a rush of public officials looking to siphon-off petrodollars to their offshore bank accounts, transparent deals to export newfound resources can bring greater prosperity to millions of the world's poorest people.
That is, unless the SEC decides to cave in to the API's demands, depart from the intent of a clearly written statute, and issue watered-downed rules. The agency needs to stand tall and issue the final rules that Congress commissioned them to publish. A year is already too late.