Abolition of the additional disclosure rules for extractive industries companies in the US
30 March 2017
A little-noticed Act (the Congressional Review Act) was used by the new US Administration earlier this month to repeal an SEC rule that would have required extractive companies to disclose their payments to foreign governments for exploration and production rights, permits, taxes, signature bonuses and infrastructure improvements.
The originating disclosure rule came about as a result of pressure from the Publish What You Pay movement and the Extractive Industries Transparency Initiative. These bodies have pushed for many extractive resource-rich countries to require extractive companies to publicly disclose the amounts they pay to government bodies. It has been an attractive project motivated by civil society seeking to try to reduce the perceived corruption in the natural resources sector simply by increasing the levels of transparency over payments received / paid. If citizens are able to see how much money their governments have received from the extractive sector, idealistically they can then hold their governments to account for how the money has been spent and any leakage can be challenged.
The SEC bowed to civil pressure and introduced the new accounting disclosure requirement for US companies under the previous administration. Using the powers of the Congressional Review Act the SEC rule will now be repealed.
Pressure to maintain a level playing field meant the European Commission introduced a similar disclosure directive under which EU extractive companies are required to report similar payments to governments. The UK was an early adopter of the disclosure requirements with the first filings having been made by companies for the year ended 31 December 2015. Given that the EU followed the US in this disclosure requirement and the initial tensions between the EU and the Trump Administration, it seems fair to note that it is unlikely that the EU will backtrack on the disclosure requirements as it seems to err on the side of greater disclosure and rules to prevent corruption rather than commercial sensitivity.
For a number of years, at least, we may therefore end up with a regime for an international sector that requires considerably greater disclosure of payments to government from EU-based companies than from US-based companies. Thus, there may be a benefit for US-based companies or those with only a US listing and no EU listing. Potentially, companies which have the opportunity to do so may wish to reorganise their activities and listings to benefit from the ‘freer’ US rules and avoid the additional EU disclosure requirements. As a sole motivation for changing a listing status this would beg a natural question about what a company may be hiding if it chose to follow this route.
And what of UK companies, post Brexit? Well, they are bound by EU rules for at least the next two years, so will be required to continue to disclose payments to government under the UK disclosure regime. After that, pressure from civil society is likely to mean that the UK retains rules designed to counter potential corruption and international bribery at least in the short term – unless UK companies really are placed at a competitive disadvantage compared to their US counterparts.
Back to the industry issues homepage