HSE University Anti-Corruption Portal
SEC Proposes New Resource Extraction Payments Disclosure Rules
Natalia Gorbacheva

The US Securities and Exchange Commission (the “SEC”) proposed another version of rules that would require resource extraction issuers to disclose their payments made to governments: the document was open to a public comment period on December 18.


At the international level, the intent of adoption of this document is to combat global corruption through enhancing transparency: the disclosure of such information should empower citizens of resource-rich countries to see the money that is being paid to their governments by the extractive industries. 

At the federal level, the SEC is mandated to adopt these rules under Section 13(q) of the Securities Exchange Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act: according to these regulations, the resource extraction issuers would disclose any payments to any foreign governments, as well as those made to the U.S. Federal government. The term “resource extraction issuers” would include all issuers that:

  • file annual reports on Form 10-K, Form 20-F or Form 40-F to the SEC; and
  • are engaged in the commercial development of oil, natural gas or minerals, which includes the exploration, extraction, processing, export and other activities related to oil, natural gas or minerals, or the acquisition of a license for any of the foregoing activities.

These companies would also disclose any payments made by their subsidiaries or controlled affiliates. At the same time, the new version of the rules exempts emerging growth companies, smaller reporting companies and the issuers that are prohibited by the law from providing the required payment information from the disclosure requirements. However, the latter would be permitted to exclude that disclosure under the following conditions: the issuer took all reasonable steps to seek and use any exemptions under the applicable law and was unable to obtain or use such an exemption; the issuer discloses in its report the particular law that prevents it from providing the disclosure of payments in a certain jurisdiction.

The issuers would separately report to the regulator the payments (that equal or exceed 150,000 USD as a single payment) for an individual project (if the aggregate payments equal or exceed 750,000 USD) related to the commercial development of oil, natural gas, or minerals and made to each foreign government or the U.S. Federal government.

The proposed rules define “foreign government” as:

  • a department, agency or instrumentality of a foreign government, 
  • a company at least majority-owned by a foreign government,
  • a foreign subnational government, such as the government of a state, province, county, district, municipality or territory of a foreign national government. 

The rules cover payments made to the U.S. Federal government only and do not require disclosure of payments made to a local or other subnational government in the United States.

The proposed rules also introduce the criteria for the definition of “project”. The previous version defined “project” as the operational activities governed by a single contract, license, lease, concession or similar legal agreement, which form the basis for payment liabilities with a government. In the new one the definition of “project” is based on three criteria: type of resource, method of extraction and major subnational jurisdiction where the commercial development of the resource is taking place.

The rules list the following types of payments for a project that are required to be disclosed:

  • taxes: taxes levied on corporate profits, corporate income and production, excluding taxes levied on consumption, such as value-added taxes, personal income taxes and sales taxes;
  • royalties, including unit-based, value-based and profit-based royalties;
  • fees, including license fees, rental fees, entry fees and other consideration for licenses or concessions;
  • production entitlements;
  • bonuses, including signature, discovery and production bonuses;
  • dividends;
  • payments for infrastructure improvements, including payments for building a road or railway to further the development of oil, natural gas or minerals;

ž  community and social responsibility payments required by law or contract, such as funds to build or operate a training facility for oil and gas workers, funds to build housing, payments for tuition, etc.

If these payments are made by a service provider, the issuer would disclose it in its reporting as well. For all payments the company is required to disclose:

  • the type and total amount of the payments, by payment type, for all projects made to each government;
  • the currency;
  • the fiscal year in which the payments were made;
  • the business segment of the issuer;
  • the governments that received the payments,
  • the project to which the payments relate;
  • the particular resource that is the subject of commercial development;
  • the method of extraction;
  • the major subnational political jurisdiction of the project.

Disclosures would be required to be submitted on Form SD through the SEC’s public database EDGAR.

Resource extraction payments transparency rules were first adopted by the SEC in August 2012, but were subsequently challenged in court and then vacated by the U.S. District Court for the District of Columbia in July 2013. A second, revised version of the rules was adopted in June 2016, but was disapproved very shortly after that pursuant to the Congressional Review Act which mandated the Congress to disapprove a broad range of federal regulatory rules by adopting a joint resolution of disapproval. Within these new powers the legislature prevented the rule from continuing in effect. The SEC was barred from reissuing a new rule in substantially the same form, therefore the proposed version differs from the 2016 rules in several significant respects.

However, assessing the revised version of the rules, SEC commissioners say they are unconvinced of their validity and usefulness. In particular, the regulator points out that there is neither due analysis of the previous version nor understanding of what caused the disapproval of the Congress (besides the concerns about the compliance costs and potential competitive harm). Moreover, the SEC believes that the introduction of additional reporting obligations for extracting companies which requires them, in particular, to calculate different payments under a different project definition and a different de minimis threshold will significantly complicate their activities. The SEC cites the following example to illustrate its considerations: a multinational company conducts oil and gas activities in Canada through an affiliate. The Canadian affiliate would have existing reporting obligations under Canada’s Extractive Sector Transparency Measures Act, which defines the term “project” in a way that implies the disclosure of information about every contract. At the same time, the multinational company, as many others similar to it, is “issuer” under U.S. legislation, which means that it would have new reporting obligations under the proposed rule, with a definition of project that entails a much more aggregated disclosure of payments. Thus, different entities of that multinational company in different jurisdictions would have disparate reporting obligations. In addition to adding complexity to the global reporting regime, this would also reduce comparability of disclosure for investors.


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