Rejection of oil industry delay tactics signals new SEC commitment to
transparency rules
Posted Sun, 2012-11-11
15:33 by Jonathan Kaufman
I was thrilled last
Thursday afternoon to hear that the SEC has blocked the oil industry’s first
move in its attempt to undermine new transparency requirements. The
American Petroleum Institute (API) and other industry representatives
petitioned the SEC to stay new disclosure requirements until the court’s decide
on their lawsuit to overturn the law, but the SEC denied the request in no
uncertain terms.
We've written in previous posts about
Section 1504 of the Dodd-Frank Act, which directs oil, gas, and mining
companies to publish the payments they make to the governments of the countries
where they operate. The SEC issued regulations for Section 1504 in late
August, requiring companies to publicly disclose their payments for every project
in each country where they operate, with no exceptions.
API sued
the SEC, complaining that the law would be costly to comply with and would
harm covered oil companies’ ability to compete for business abroad. They
claimed that at least four countries prohibit disclosure and predicted that
they might have to withdraw from those countries, incurring tremendous
financial losses, rather than violate their laws. (ERI and others had previously
refuted each of these claims.) Oxfam America – represented
by ERI and two law firms – is currently defending the rules against API’s challenge
to ensure that they go into effect as planned.
API asked the SEC to
stay the rules and postpone the compliance date until after the legal challenge
is concluded – which could take anywhere from five months to two years.
ERI and its co-counsel forcefully opposed a suspension, but convincing the SEC
was an uphill battle. The Commission had granted industry a suspension in
the Business Roundtable litigation – an earlier case in which
industry successfully overturned business regulations – and seemed inclined to
do the same for API.
In the end, the
SEC’s decision turned largely on the question of “irreparable injury.”
API had to show that it would suffer incompensable harms that would be certain,
substantial, and imminent if a stay were not granted.
Oxfam argued that the oil companies’ claimed costs of compliance were minuscule
compared to their overall assets. The doomsday scenarios they constructed
were completely speculative, since they hadn’t proved that any country actually
prohibits disclosures or that they would be forced to withdraw from those
countries even if there were a disclosure prohibition law. And none of
the supposed harms were imminent, since companies won’t have to start reporting
until March 2014 at the earliest.
The SEC agreed with
Oxfam in a well-reasoned, muscular decision.
Thursday’s order concludes that API failed to show that it was likely to
succeed in its legal challenge, and that it was unable to demonstrate
irreparable injury absent a stay. Importantly, it firmly rejected API’s
claim on foreign disclosure prohibition laws, concluding that the evidence for
these laws was “both unpersuasive and vigorously contested by other commentators.”
SEC was also convinced by the fact that the courts have set a brisk schedule
for resolving the lawsuit, suggesting that the case may be over long before
companies are required to start disclosing any information at all.
The SEC’s decision is
significant for a number of reasons. First, it suggests that the SEC is
prepared to fight to defend the rule, which was the product of over two years
of hard work by Commission staff and leadership. Second, it includes the
Commission’s strongest yet conclusions on the misleading claims of the oil
industry; essentially, the SEC has called API’s bluff and insisted on actual
evidence, rather than innuendo. And finally, it embodies a message to the
European Union, which is currently considering similar disclosure rules, that
the U.S. is moving ahead and is committed to transparency. Most observers
think that Europe will go at least as far as the U.S. in requiring disclosure,
but a stay could have undermined that momentum.
