What ‘no exemptions and no loopholes’ means

This piece is part of our blog series on extractive transparency counting down to the SEC vote on the Cardin-Lugar Amendment. See past coverage here.

The Cardin-Lugar Amendment, also known as Section 1504, of the Dodd-Frank Act requires ALL companies to report the payments they make to governments for extracting oil, metals and other minerals. When the SEC releases its rule interpreting Section 1504, ONE will be watching closely to see if it upholds congressional intent in three major areas: exemptions from disclosures; project definition and de minimis payments. This blog post addresses exemptions and coverage under the rule.

If the SEC wants to set the gold standard on extractive transparency, it must ensure no across-the-board exemptions for entire categories of companies are provided. The SEC has the flexibility, on a case-by-case basis, to address exemption requests made by individual companies asking the SEC to address extenuating circumstances.

However, the SEC has received comments from companies requesting categorical exemptions, which could excuse entire swaths of the industry from reporting critical information — which could then help investors better assess risk factors and civil society to hold their governments accountable for responsible revenue management.

These include requests for exemptions for companies:

  • Operating in countries whose laws prohibit disclosures (though no evidence of any such law has been provided to the SEC)
  • Companies who have disclosures forbidden in their contracts (standard extractives contracts include an opt-out clause allowing a company to report according to such requirements).
  • Foreign companies that trade on US stock exchanges, as well as other stock exchanges.

ONE and our Publish What You Pay Coalition (PWYP) partners do not want to see broad categories of exemptions applied to Cardin-Lugar. Since the goal is to make Cardin-Lugar a global standard, we will work to make sure these requirements are adopted by all stock exchanges. Regardless of the national origin of the company, if a company wishes to raise capital for its projects from US investors, then it must comply with US disclosure laws.

We’ve also found no evidence of laws in any countries which prohibit disclosures. Ministerial decrees and substandard contract negotiations do not merit the establishment of categorical exemptions. The former is an agency decision and does not have the force of law. In the case of the latter, the SEC should not excuse companies from reporting because of poor contract negotiations that do not include the standard opt-out clause that allows disclosure for stock exchange regulator requirements.

If the US going for gold on extractive transparency, the SEC must produce a rule with no exemptions and no loopholes.