Anti-corruption advocates pushing the Securities and Exchange Commission to issue a tough final rule on extractive industries transparency gained a high-profile ally last week.
Microsoft Corp. founder Bill Gates wrote a Feb. 9 letter to SEC Chairman Mary L. Schapiro and commissioners urging vigilance on Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Section 1504 would require oil, gas and mining companies reporting to the SEC to disclose payments made to host governments for extraction of natural resources. Companies and industry groups have complained that the provision is unduly burdensome and, in some cases, potentially in violation of local laws.
Bill Gates (Gates Foundation)
The SEC unveiled a proposed rule in December 2010 and has been seeking comments ever since. Lobbying from industry has delayed a final rule, which under the Dodd-Frank law was supposed to have been approved by April 2011.
The SEC has missed three-quarters of its Dodd-Frank rule-making deadlines to date, according to a report by Davis Polk & Wardwell LLP released last month.
“I feel it is critical to ensure the final rules for this provision are strong and robust and in keeping with the intentions of Congress,” Gates wrote on the letterhead of the Bill and Melinda Gates Foundation, which focuses on anti-poverty and health programs in developing countries.
“Congress was very clear in its intent regarding Section 1504 – to make publicly available and easily accessible the detailed information on payments” that oil, gas and mining companies make to governments, he wrote.
In November 2011 in a presentation at the G-20 summit in Cannes, Gates called for other G-20 countries to follow the U.S.’s lead and implement legally binding transparency requirements for extractive industry companies. “The United States recently passed such legislation, and the European Union is considering it, but all G20 countries should require the mining and oil companies listed on their stock exchanges to disclose payments to governments,” Gates wrote in a report that accompanied his presentation.
Gates addressed arguments made by the American Petroleum Institute, an oil-industry lobbying organization, which had pushed for exemptions where reporting such payments would conflict with host country laws.
Exemptions would run counter to the purpose of the law, Gates said in the letter. “It is in the most secretive jurisdictions that corruption, poverty, and instability flourish and the risk to investors is greatest,” he wrote.
Anti-corruption organizations argue that such local laws preventing companies from reporting payments do not exist or are not enforced.
“It’s up to the companies to identify and cite the laws in foreign countries that prohibit them providing this kind of disclosure, so that is their burden and they have not met it,” Heather A. Lowe, legal counsel and director of government affairs for Global Financial Integrity, told Just-Anti Corruption.
The organization has reached out to partners around to world to identify any such laws, Lowe added. “We have not had one response that would indicate that there is any law that would prohbit that kind of disclosure,” she said.
Gates also addressed the proposed definition of “project level” disclosures, a subject of controversy in the public comments on the rule.
Industry lobbyists, citing cost and competition concerns, seek to define projects broadly, according to their geographic location, allowing for aggregated reporting. Transparency groups advocate disclosure by license and lease, allowing better tracking of payments for possible corruption.
“Defining ‘project’ in the rules as ‘activities in a particular geologic basin or province’… has no relation to how companies actually make payments to governments,” Gates wrote. “Defining projects in an artificial manner would increase compliance costs while greatly reducing the benefits to users, and it would require companies to create new databases unrelated to how they currently pay most taxes.”
The letter coincides with a media campaign by transparency advocacy groups Oxfam, Global Witness, Global Financial Integrity, Publish What You Pay and others, blasting API and oil industry at large for attempts to block the new rule. Late last month the API suggested the SEC re-propose rule, or essentially start from scratch. The transparency organizations fired back, taking out a full-page ad in The Wall Street Journal and mounting an on-line media campaign.
“By trying to water down these transparency laws, oil companies are in effect trying to gag millions of people who have a right to know how their countries’ wealth is being managed and who is getting the money,” Simon Taylor, director of Global Witness, said in a statement.
On Jan. 31, Democratic Sens. Ben Cardin, Charles Schumer, John Kerry, Patrick Leahy and Carl Levin also sent a letter to Schapiro, urging the SEC to publish a strong final rule. Cardin and Sen. Richard Lugar (R-Ind.) were the original co-sponsors of the Dodd-Frank provision.
