Shining A Light On Payments To Governments: SEC Proposes New 'Publish What You Pay' Rule

On December 11, 2015, the US Securities and Exchange Commission ("SEC") issued a proposed rule1 to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Section 1504 of the Dodd-Frank Act calls on the SEC to make rules requiring resource extraction issuers to disclose payments they make to governments for the commercial development of oil, natural gas or minerals.

The SEC originally adopted "publish what you pay" rules implementing Section 1504 of the Dodd-Frank Act in August 2012, but in July 2013 the SEC rule was vacated by US federal courts. In September 2015, a US federal court ordered the SEC to expedite its rulemaking process for adopting a final government payments disclosure rule. In the newly proposed rule, the SEC addresses the findings of the court that vacated its prior rule. In addition, the SEC indicates that it is endeavoring to more closely align its reporting regime with developments in extractive industry transparency in the European Union and Canada since its original rulemaking2, with a view to enhancing the consistency and comparability of the SEC rules with the disclosure requirements of these key jurisdictions.

Summary of Proposed Rule

The SEC's proposed rulemaking would add Rule 13q-1 under the Securities Exchange Act of 1934 (the "Exchange Act").

Which Companies Are Subject to the Rules?

This rule would apply to SEC reporting issuers that are required to file annual reports on Form 10-K, 20-F or 40-F and that engage in the commercial development of oil, natural gas or minerals. "Commercial development" includes:

exploration; extraction; processing; export; and the acquisition of a license for any such activity. Such issuers would be required to file annually a specialized disclosure report on Form SD (the same form currently used to report conflict minerals disclosures) within 150 days after their fiscal year-end.

The proposed rule would clarify that "processing" activities include, among other things, midstream activities such as the processing of gas to remove liquid hydrocarbons, the removal of impurities from natural gas prior to its transport through a pipeline and the upgrading of bitumen and heavy oil, through the earlier of the point at which oil, gas or gas liquids (natural or synthetic) are either sold to an unrelated third party or delivered to a main pipeline, a common carrier or a marine terminal. It would also include the crushing and processing of raw ore prior to the smelting phase. "Processing" would not include the downstream activities of refining or smelting.

"Export" would be defined as the transportation of a resource from its country of origin to another country by an issuer with an ownership interest in the resource. It would not include transportation on a fee-for-service basis by a service provider with no ownership interest.

The rule would not apply to ancillary or preparatory activities for the commercial development of oil, natural gas or minerals (e.g., the...

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