Time to say goodbye to the Dodd-Frank Resource Extraction Disclosure Rules? (updated)

by Cydney Posner

In an opinion piece in the WSJ, House Majority Leader, Kevin  McCarthy, said that the House will soon be taking “the ax” to the SEC’s rules on Disclosure of Payments by Resource Extraction Issuers, mandated under Dodd-Frank, which, he argued,  added “an unreasonable compliance burden on American energy companies that isn’t applied to their foreign competitors.”  Those rules required disclosure on Form SD of certain payments made to the federal and foreign governments by resource extraction issuers in connection with commercial development of oil, gas and mineral rights. Now we know how he plans to accomplish this feat so quickly. Both Reuters and the WSJ are reporting that Congressional Republicans will rely on the rarely used Congressional Review Act. Under the CRA, any rules that became final after May 31, 2016, could be jettisoned by a simple majority vote in Congress and a Presidential signature. The final Resource Extraction Disclosure Rules were adopted on June 27, 2016.

SideBar:  According to the Congressional Research Service, “[o]f the approximately 72,000 final rules that have been submitted to Congress since the [CRA] was enacted in 1996, the CRA has been used to disapprove one rule: the Occupational Safety and Health Administration’s November 2000 final rule on ergonomics, which was overturned using the CRA in March 2001.” That’s because the stars are rarely in proper alignment: generally, the Service indicates, for successful use, there will have been a turnover in party control of the White House and both houses of Congress will be majority–controlled by the same party as the President.

As you may recall, the resource extraction rules have had a long and troubled history. Originally adopted in 2012 at the same time as the conflict minerals rules, the resource extraction rules faced an immediate challenge in litigation brought by the American Petroleum Institute and the Chamber of Commerce. They had contended that the rule compelled U.S. resource extraction companies to engage in speech in violation of their First Amendment rights.  (Sound familiar? See this PubCo post and this PubCo post .)  They also maintained that the SEC had misinterpreted the mandate of the statute which, they argued, required only a compilation of aggregate information, not a separate report for every foreign project. As a result of this misinterpretation, they contended, the rule required U.S.-based companies to disclose sensitive commercial information that competitors could use to their benefit. (See this news brief.)  The U.S. District Court, in a fairly scathing opinion, vacated the SEC’s rule, contending, among other things, that the SEC fundamentally “misread” the requirements of the statute by mandating public disclosure of each report (rather than a compilation of reports) and that, in rejecting companies’ request for an exemption from disclosing payments to countries that prohibited disclosure of payment information, the SEC was “arbitrary and capricious.” (See this news brief. ) The SEC declined to appeal the ruling, accepting the conclusion that it would need to rewrite the rule. (See this news brief.) However, the timetable for a new rule proposal was delayed several times, and, finally, Oxfam America sued the SEC to compel it to complete the rulemaking. Oxfam succeeded.  (See this PubCo post.)  Final rules were adopted in June 2016, and resource extraction issuers would have been required to  comply with the final rule and form for fiscal years ending on or after September 30, 2018. (See this PubCo post.)

Update: According to the Washington Post,  on February 14,  the President signed his first piece of legislation, the bill tossing out the resource extraction payment disclosure rules.  However,  this article in the WSJ indicates that, in the absence of repeal of the Dodd-Frank mandate, the SEC has a year to issue a new rule on the same topic because the regulation was mandated by Congressional statute. (See this PubCo post.)

SideBar:  What about the conflict minerals rules?  They were also mandated by Dodd-Frank. Are they on the chopping block too? They may well be candidates, but, since they were adopted back in 2012, it does not appear that the CRA could be used to do the deed.

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