But the law stands. Companies must prepare to report on the new US transparency law.
The Norwegian hearing process of the proposed law on country-by-country reporting ended the 2nd of August. In their proposal to the ministry, the Norwegian oil company Statoil claims that the Dodd-Frank Act is “ruled invalid” in the U.S. District Court, in the ruling of the American Petrolium Insititute (API) lawsuit against SEC. Furthermore, Statoil use this claim as an argument for postponing the development and implementation of Norwegian law on Country-by-country reporting. This is problematic of several reasons, most of all because Statoil is wrong when they say that the Dodd-Frank Act is ruled invalid in the U.S.
The law stands
The decision by the U.S. District Court on the implementing regulations for Section 1504 of the Dodd-Frank Act, did not affect the law itself. The legislation still stands, and it includes a statutory mandate for the Securities and Exchange Commission (SEC) to produce regulations to implement those legislative requirements. If the agency decides to appeal the court’s decision, it must do so by September 2, 2013, or choose to re-issue the rules. If rules are re-issued, the SEC would be able to re-issue the rules in the same form, with additional justification that satisfies the court’s requirements in the limited areas where the court required more information to support the agency’s discretionary choices. It is important to note, however, that significantly large and important cross-listed European companies such as BP, Shell, Rio Tinto and BHP Billiton, which will report under the EU Transparency and Accounting Directives, are also covered by the U.S. disclosure requirements. This suggests that any revised U.S. rules are very likely to be heavily influenced by those in Europe, to ensure harmonization of reporting between EU and U.S. listed companies.
The Securities and Exchange Commission (SEC) still has a mandate to produce regulations
Companies covered by the U.S. requirements would be wise to continue preparations for disclosure. Indeed, this was the finding of several law firms. For example, Foley Hoag LLP stated that “Section 1504 is not going away; the court simply required that the SEC re-write it. Norton Rose Fulbright LLP provided the following recommendation for its clients: “[M]any companies have assembled a readiness team and are well into the process of determining what payments fall under the Rule and how to most efficiently and effectively meet the Rule’s disclosure requirements. While resource extraction issuers may have, at a minimum, a brief hiatus before any disclosure is required, it is probable that some substantial amount of identity and collection of relevant payment information will ultimately be required by a Section 1504 implementing rule and that some form of accurate and regular payment disclosure will be required. With this in mind, companies would be well-served by not ceasing readiness activity altogether at this time. Instead, affected issuers should continue to take measured steps toward readiness for resource extraction payment disclosures on an annual basis, whenever a final rule does go into effect.
Companies must prepare to report on the new US transparency law
Finally, the U.S. Government remains strongly committed to the implementation of this legislation. For example, it continues to publicly state its commitment in outreach to strategically important governments. At an international conference on payment disclosure in Ghana in July, the U.S. State Department’s top economic official in the country, included the following remarks in his address:
“As you know, Section 1504 of the United States’ Dodd Frank Act sets a new, higher standard for transparency in the extractive industries by requiring certain companies that already file annual reports with the SEC to disclose certain payments at the project-level. The U.S. District Court decision on July 2 did not invalidate Dodd-Frank Section 1504. Section 1504 remains U.S. law. Only the SEC’s rule implementing Section 1504 was vacated and it was sent back to the SEC for further rulemaking. As we await the outcome of the SEC’s determinations, we remain committed to using Dodd Frank as a valuable tool in promoting increased transparency around the world.”
See our Norwegian press release for more information.
Photo: Ken Lund/Flickr CC