On December 11, the SEC re-proposed rules requiring disclosure of government payments by resource extraction issuers.  The proposed rules will require resource extraction issuers to disclose payments made to the U.S. federal government or foreign governments, including foreign subnational governments, for the commercial development of oil, natural gas or minerals.  These rules, like the Conflict Mineral rules, attempt to further social policy through public company disclosure requirements.  The aim here is to promote and support “global efforts to improve transparency in the extractive industries. . . to help combat global corruption and empower citizens of resource-rich countries to hold their governments accountable for the wealth generated by those resources.”

It was a long road getting to this new set of proposed rules.  Mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the first set of rules were originally adopted in 2012.  Those rules were vacated by the U.S. District Court for the District of Columbia in 2013, and Oxfam America, Inc. later brought suit in an effort to expedite the long-delayed rules. In September 2015, a federal judge held that the SEC had “unlawfully withheld” agency action by failing to promulgate final rules on this topic and the SEC submitted a schedule to the court indicating that it would call for a vote on the proposed rules by year-end and on the final rules by June 27, 2016.  The first part of that schedule has now been met.

The proposed rules can be found here.  The SEC press release and fact sheet can be found here.

The re-proposed rules are very similar to the original rules, with one major difference – the ability to satisfy the reporting obligations with reports prepared for foreign regulatory regimes.  The similarity between the original rules and the newly proposed rules may come as a surprise for those who remember the 2013 federal court opinion vacating the original rules. In that ruling, the U.S. District Court for the District of Columbia noted that the deficiencies in the rules were “grave indeed” and 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.

Since the 2013 opinion, however, a number of international transparency initiatives have been adopted requiring disclosure similar to that required in the SEC’s original rules.  These include the EU Accounting Directive and the EU Transparency Directive (EU Directives) and Canada’s Extractive Sector Transparency Measures Act (ESTMA).  Both the EU Directives and ESTMA are discussed extensively in the SEC release and parts of the re-proposed rules have been modified from the original rules based on the language in the EU Directives and ESTMA.  In addition, in 2014, the United States became a candidate country under the Extractive Industries Transparency Initiative (EITI) which requires candidate countries to provide a framework for public, company-by-company disclosure in the EITI report.  In re-proposing the rules, the SEC stated that it considered the guidance published by the EITI on what should be included in a country’s EITI plan.

Changes from the Original Rules

The most significant development in the new proposal is that issuers would be permitted to use a report prepared for foreign regulatory purposes or for the U.S. Extractive Industries Transparency Initiative (USEITI) to comply with the proposed rules, if the SEC determines the requirements are substantially similar to the proposed rules.  For issuers required to comply with transparency initiatives in more than one country, this change may substantially reduce compliance burdens.

Another significant change is that the term “project”, which was not defined in the original rules, is now defined “as operational activities that are governed by a single contract, license, lease, concession, or similar legal agreement, which form the basis for payment liabilities with a government.”  This definition is similar to the project definition in the EU Directives, but is designed by the SEC to give issuers more flexibility on how to treat operations involving multiple, related contracts.  In the EU Directives, if multiple agreements are “substantially interconnected” they are considered one project.  “Substantially interconnected” is defined in the EU Directives as “a set of operationally and geographically integrated contracts . . . with substantially similar terms.”  The SEC definition omits the requirement that the multiple contracts have substantially similar terms.

While there continue to be no exemptions in the proposed rules for contracts with confidentiality provisions, containing commercially sensitive information or when disclosure is prohibited by host country law, the proposing release notes that the SEC could provide exemptive relief on a case-by-case basis under its existing authority.

Overview of the Proposed Rules

Who is required to report?

A resource extraction issuer is one engaged in the commercial development of oil, natural gas or minerals and which is required to file annual reports with the SEC.   All categories of SEC reporting companies are covered by the proposed rules, including foreign private issuers and smaller reporting companies.

What is required to be reported?

Disclosure would be required by these issuers for 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. Commercial development includes exploration, extraction, processing and export, or the acquisition of a license for any of the foregoing. The term “payments” includes taxes, royalties, fees, production entitlements, bonuses, dividends and infrastructure improvements.

Resource extraction issuers would be required to disclose certain payments made by it, its subsidiaries or entities controlled by it, to the U.S. government and foreign governments, including sub-national governments.

As proposed, required government payment disclosure includes:

  • Type and total amount of payments made for each project;
  • Type and total amount of payments made to each government;  
  • Total amounts of the payments, by category;
  • Currency used to make the payments;
  • Financial period in which the payments were made;
  • Business segment of the resource extraction issuer that made the payments;
  • The government that received the payments, and the country in which the government is located;
  • The project of the resource extraction issuer to which the payments relate;
  • The particular resource that is the subject of commercial development; and
  • The subnational geographic location of the project.

The information must be filed as an exhibit in XBRL format.

How is it filed and when is the report due?

The information is filed on Form SD and will be due no later than 150 days after the end of an issuer’s fiscal year.  Under the proposed rules, resource extraction issuers would be required to comply with the disclosure requirements for fiscal years ending no earlier than one year after the effective date of the adopted rules.  For example, if the rules were effective June 26, 2016, then an issuer with a December 31 fiscal year end would be required to file a report no later than 150 days after December 31, 2017.

Will issuers be subject to liability for the contents of the report?

Yes. The Form SD is considered filed, not furnished, with the SEC, which will subject the issuer to liability under Section 18 of the Securities Exchange Act of 1934. The Form SD is not certified by the issuer’s CEO and CFO.


While the re-proposed rules contain much of the same disclosure requirements as the original, vacated rules, the SEC has tried to reduce the compliance burden on issuers by aligning many of the disclosure requirements with the requirements of the EU Directives and ESTMA.  The proposed rules are open for initial comments until January 25, 2016.