The US Dodd-Frank Act and Mandatory Disclosure Requirements for Extractive Industries

The US Dodd-Frank Act and Mandatory Disclosure Requirements for Extractive Industries

April, 2011 | Quito, Ecuador

Todd ArenaLegal Fellow, [email protected]

About Revenue Watch Institute

Latin America

Ecuador Mexico Peru

Bolivia Brazil Trinidad y Tobago

Where We Work

Who do we work with?Over 300 organizations, working in over 45 resource rich countries

About Revenue Watch Institute

Linking Resources to Development

© M. Genasci©Jacob Silberberg/Panos Pictures

The EITI and PWYP Movements

EITI advantages

• MSG approach

• Provides critical baseline, audited data

• Reporting required from companies and governments

© 2010 - Transparency International Indonesia

International Disclosure Standards

Voluntary:• EITI—Extractive Industries Transparency Initiative• Company disclosure policies

Mandatory: • National laws• Accounting standards• Bank lending policies• Stock market listing requirements

– London Stock Exchange’s AIM– Hong Kong Stock Exchange– US Securities and Exchange Commission/Dodd-Frank rules

Passage of the US Dodd-Frank Act

• Section 1504: “Disclosure of Payments by Resource Extraction Issuers”

• Passed by Congress and signed into law by President Obama in July of 2011

“We are leading a global effort to combat corruption, which in many places is the single greatest barrier to prosperity, and which is a profound violation of human rights. That’s why we now require oil, gas and mining companies that raise capital in the United States to disclose all payments they make to foreign governments.” –US President Barack Obama, 22.09.2011

Cooperation between CSOs and Government

The Role of Congressional “Champions”

– Key allies within Government– Typically members of Congressional staff– Constructive relationship

• First, CSOs (and lobby groups) work with Champions in the drafting of a piece of a legislation draft

• Second, Congressional Champions monitor the progress of the draft legislation to ensure it becomes law

• Third, CSOs and Champions meet to discuss the progress, and CSOs may continue pushing for the draft legislation to be come low “outside” of government (public campaigns)

What the Law Does

Law requires all companies registered with the US stockmarket regulator – the Securities and ExchangeCommission – to disclose their payments togovernments:

• In standard annual reports, which will be published online • Including payments to the US and foreign governments• At the national and sub-national level• Country-by-country, in all countries of operation• For each project• Disaggregated by payment type including: royalties,

signature bonuses, taxes, fees and other benefits

Implementation

• Law will be interpreted by new US stock exchange rules that will apply to “resource extraction issuers”

• The US Securities and Exchange Commission (SEC) has opened up a fully transparent public comment period as it drafts rules– Companies, investors and civil society groups are meeting

with SEC officials and offering written comment– The SEC has released proposed (draft) rules, and will issue

final rules by December, 2011

• Payment data resulting from the US law may not be published by companies until 2013

Who Will the Law Apply To?

• Applies to US and foreign companies making payments related to “the commercial development of oil, natural gas or minerals”

• Companies under the control of and/or owned by foreign governments will report payments

• The law covers over 90% of the major internationally operating oil and gas companies, and eight out of 10 of the world’s most profitable mining companies

Company Coverage

Chevron (fmr. Texaco)

Exxon BP Shell

Total Petrobras Petrochina Talisman

ConocoPhillips Statoil ENI - AGIP Newmont

Occidental Repsol BHP Sinopec

Hess Anadarko Marathon Freeport

Rio Tinto Vale Ecopetrol(Colombia)

YPF (Argentina)

International majors covered

Companies operating in Indonesia that are NOT covered

PDVSA, Petroecuador, YPFB, Pemex, Codelco, Perupetro, Petroperu

What is Gained through Mandatory Disclosure?

• A new tool to empower citizens and civil society groups in natural resource dependent countries

• A permanent mechanism; Dodd-Frank disclosures will not wax/wane based on host government political will, or on the voluntary decisions of companies

• Mandatory disclosure frameworks complement the EITI, and increase the amount of information coming from implementing and non-implementing countries– Dodd-Frank disclosures are meant to build productively on the

EITI’s gains– Reporting under Dodd-Frank will provide more detailed

information than EITI’s minimum requirements produce– Mandatory reporting will also produce standardized and regular

data, which can encourage improved EITI reporting standards

Replicating Dodd-Frank in Other Markets

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Lessons Learned

• Support by many investors, mining companies and some oil

companies (Petrobras), but not all supporters of Voluntary

rules could be counted upon to support Mandatory rules

LESSON: Contested spaces can be a powerful entry point for CSO and activists.

• Mandatory rules v. voluntary rules—which to pursue first?

• The U.S. branch of the Oil lobby, the American Petroleum Institute (API), along with executives from Exxon, Shell and others have said begun a campaign against Dodd-Frank, and increased hiring of lobby and PR firms.

LESSON: Difficulty in achieving even politically moderate reforms in the Extractive Industry sector.

Thank you!

• Questions?

• For more information:

www.revenuewatch.org

Todd Arena

Legal Fellow

Revenue Watch Institute

[email protected]