HOUSTON — Despite stiff industry lobbying against it, the Securities and Exchange Commission voted 2-1 on Wednesday to require U.S. oil and mining companies to disclose taxes and other fees they pay to foreign governments. The disclosures are aimed at curbing corruption, which is common in some major oil-producing nations.
Human rights and business transparency groups supported the rule, which fulfills a section of the Dodd-Frank financial reform law. It will apply to about 1,100 companies and cover any payment they make that is over $100,000, including dividends and construction improvements, beginning in fiscal year 2014.
“Sunlight is the best disinfectant,” said Luis A. Aguilar, a member of the commission, quoting the Supreme Court Justice Louis Brandeis.
Industry groups have complained that the rule would grant advantages to foreign companies that do not have to make such disclosures, and could potentially force U.S. companies to curb operations in countries like China, Angola, Qatar and Cameroon that prohibit public disclosure of certain payments. The groups lobbied unsuccessfully for an exemption to the mandate in cases where foreign governments restricted disclosures.
In a separate 3-2 vote, the agency decided to require companies to disclose to shareholders and the agency when their manufactured goods contain minerals like tin, gold and tungsten mined in the Democratic Republic of Congo. Belligerent armies in that country have committed significant human rights violations and often finance themselves by selling “conflict minerals,” which frequently find their way into electronics parts and equipment.
Oil experts said it was difficult to know how onerous the payment disclosure rule would be since it was not yet known how the SEC would define some of the requirements. Kevin Book, an analyst at ClearView Energy Partners, said in a research note that the ruling could “impose very real competitive challenges for U.S. companies,” particularly if “compliance leads to disclosure of previously secret terms of concessions, leases and production-sharing agreements.”
The energy rule comes at a time when U.S. companies are looking to take advanced drilling technologies, initially used to develop domestic shale oil and gas fields, to untapped fields in places like China and Argentina.
Business practices in those countries often diverge from those that are standard in the United States.
The American Petroleum Institute’s chief economist, John Felmy, told reporters that the SEC rule would force oil and gas companies to reveal secret, proprietary information about their expenditures and bidding strategies.