Making Corruption Great Again? U.S. Repeals SEC Transparency Rule


Authors: Derek Hoffman and Jocelyn Sirois

President Trump recently repealed a U.S. Securities and Exchange Commission (the “SEC”) rule that promoted transparency and improved anti-corruption efforts in the oil, gas and mining sectors. The repealed rule would have required U.S. extractive sector entities to disclose payments made to foreign governments. The joint resolution to repeal this rule was passed on February 14, 2017 with the support of the House and Senate Republicans.

The repealed SEC rule was mandated by the Dodd-Frank Act established in response to the global financial crisis, and part of the Act called for greater disclosure and transparency. The SEC rule sought to require oil, gas and mining companies to disclose payments made to foreign governments. It was adopted on June 27, 2016 and was set to come into force in September of 2018.

The Importance of Transparency

The extractive sector poses unique and rampant opportunities for corruption, which the SEC rule attempted to address by imposing greater transparency in payments to foreign governments. Requiring U.S. entities to disclose payments made to foreign governments makes bribery and fraud easier to detect, and further holds those foreign governments publicly accountable to their own citizens for the funds received from U.S. entities. This transparency helps to prevent embezzlement or misappropriation of funds, which are major issues in many states with abundant oil, gas and mineral resources.

Transparency Initiatives

Addressing corruption in the extractive sector was first addressed by the Extractive Industries Transparency Initiative (“EITI”) in 2002. The EITI Association is composed of a coalition of natural resource extractive companies, governments and non-governmental organizations that have published a set of reporting standards for both extractive entities and governments.

Canada has enacted legislation which promotes transparency in the natural resource sector, as the SEC rule aimed to do. In 2015, the Extractive Sector Transparency Measures Act, SC 2014, c 39 was passed, which similarly requires disclosure of payments made to governments by entities engaged in the exploration or production of oil, gas or other minerals.

Similar legislation exists in the states of the European Union as well. In 2013, a rule was approved by the European Commission, Council and Parliament that requires certain entities engaged in natural resource extraction or logging to disclose payments made to governments.

What Happens Next?

Despite President Trump’s repeal of the SEC payment disclosure rule, the Dodd-Frank Act mandates the SEC to implement rules requiring, at minimum, disclosure of the type and total amount of all payments made to governments by resource-related companies. The SEC rule was repealed by virtue of the Congressional Review Act (the “CRA”), which allows a majority in Congress to repeal regulations adopted within the last 120 legislative business days. The CRA provides that in situations such as this, where a mandated rule has been repealed via the CRA, the deadline to implement such rules in accordance with a mandate will be extended by one year from the date of the repeal. Should the SEC fail to meet this deadline without passing adequate payment disclosure rules in accordance with the Dodd-Frank Act, private companies or citizens would be able to seek a judicial injunction forcing the SEC to create the necessary rules.

Effects of the Repeal

Trump’s administration has been adamant about its dedication to remove environmental and financial regulations that “impede” job growth and economic competition. Accordingly, this recent decision is likely just the first of many aimed at achieving that objective. As the U.S. begins to pull away from international commitments on sustainable resources, trade and transparency, other states may be influenced to follow suit.

As a world leader, the message sent by the U.S. in repealing the SEC rule could have a significant impact on anti-corruption efforts in other states. The SEC rule was the first of its kind, and spurred similar legislation in Canada, the EU and Norway. Similar financial disclosure requirements have been implemented in more than 30 states due to the previous initiative of the U.S. toward greater transparency. With the extractive sector accounting for a significant portion of corruption offences worldwide, regulations like the repealed SEC rule are crucial to combatting anti-corruption on a global scale.

The repeal of the SEC rule significantly detracts from and undermines international anti-corruption efforts, and may spark a movement away from anti-corruption measures in other states. Given the new divergence between U.S. policy and the transparency measures of other developed countries, non-U.S. entities may find themselves at a disadvantage versus their U.S. counterparts, and global transparency compliance for entities with operations in the U.S. and elsewhere will become more challenging. Therefore a potential consequence of the repeal is that non-U.S. mining and energy entities may pressure their respective governments to follow the U.S. lead in removing or watering-down transparency requirements in order for those entities to remain competitive with their U.S.-based counterparts.

It remains to be seen whether other governments will accede to these pressures or uphold the anti-corruption and transparency measures currently in place. However, until the U.S. enacts a new transparency measure to replace the repealed version, it appears that recent global initiatives to curb corruption have suffered a major set-back.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.