On July 2, 2013, in a blow to SEC rulemaking, the U.S. District Court for the District of Columbia vacated the rules requiring disclosure of government payments by resource extraction issuers and noted that the deficiencies in the rules are “grave indeed.” The rules were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and would have required public disclosure for fiscal years ending after September 30, 2013.
Issuers would have been required to publicly file annual reports disclosing government payments made to further the commercial development of oil, natural gas or minerals in amounts equal to or exceeding $100,000 during the fiscal year. The rules contained no exemptions from disclosure as a result of confidentiality provisions in contracts, prohibitions on disclosure contained in foreign law or commercially or competitively sensitive information.
The court found the rules to be invalid for two reasons. First, it found that the SEC had misread the statute to require public disclosure of the mandated annual reports. Second, the court found that the SEC’s denial of an exemption for countries that prohibit payment disclosure was arbitrary and capricious.
The disclosure rules are now void, and issuers need not comply with them. Absent an appeal of the court’s decision, the rules have been remanded to the SEC for revision based on the court’s findings.
The court’s opinion is available here.