By Thea Reilkoff. Full text here.
The United States has led a growing international effort to increase corporate transparency in the commercial development of natural resources. In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1504 of this Act requires resource extraction companies to publically disclose, through the Securities and Exchange Commission (SEC), all payments made to foreign governments—including taxes, fees, and royalties—among other payments commonly recognized as part of the revenue stream for commercial development of oil, gas, or minerals. The Act’s sponsors, Senators Cardin and Lugar, stated that the purpose of the legislation was to promote better governance in corrupt resource-rich countries. The mandated disclosure rules are intended to unveil the disparity between the extraction revenues received by a government and that government’s expenditures on societal needs. In August 2012, the SEC promulgated its final rule, which has since been mirrored in the European Union. In October 2012, industry groups challenged the rule in the U.S. District Court for the District of Columbia, claiming the SEC had “grossly misinterpreted its statutory mandate,” forcing companies to publicly disclose more than Congress required and failing to properly assess the costs of compliance, including the burden on competition and benefits to shareholders and citizens of resource-rich countries. The court vacated the rule and remanded for further proceedings after determining that the SEC had erroneously followed the plain language of the statute when it had authority to exercise discretion.
Corporate transparency is critical to protect and promote human rights, and section 1504 is just one of several new efforts to mandate disclosure. This Note takes a closer look at section 1504—including its origin and place among international transparency initiatives—and the SEC’s rulemaking authority, to provide a model for future legislation and rulemaking aimed at expanding social disclosure.