On July 2, 2013, the District Court for the District of Columbia
struck down Rule 13q-1 under the Securities Exchange Act of 1934.
Adopted by the United States Securities and Exchange Commission
(SEC) in August 2012, Rule 13q-1 required "resource extraction
issuers" to file publicly available annual reports with
information relating to any payments made to the U.S. federal or a
foreign government for the purpose of the commercial development of
oil, natural gas or minerals, beginning with fiscal years ending
after September 30, 2013.
The District Court identified two substantial errors leading to
its invalidation of the rule:
contrary to the SEC's interpretation, the SEC was not
mandated to require the public disclosure of the issuers'
annual reports containing details of resource extraction payments.
Instead, the relevant statute could be read to provide the SEC with
discretion to require issuers to disclose that information to the
SEC confidentially. The SEC could then publicly disclose only a
compilation of the information; and
the SEC's decision to not include an exemption to the rule
where disclosure of payment information is prohibited by the law of
the host country was arbitrary and capricious because the lack of
an exemption could potentially result in billions of dollars of
additional costs to issuers who are subject to such
While the District Court's decision effectively voids the
current rule, a new rule relating to the disclosure of resource
extraction payments must be promulgated by the SEC at some point.
Therefore, the District Court's decision simply delays the
implementation of mandatory disclosure requirements relating to
resource extraction payments.
This ruling comes at an interesting time for the Canadian
resource industry. As discussed in our Goodmans Update on June 13,
2013, the Canadian federal government recently announced its
intention to adopt new mandatory reporting standards for payments
made to foreign and domestic governments by Canadian extractive
companies. It remains to be seen whether the District Court's
ruling will have any impact on whether such new mandatory reporting
standards will be adopted in Canada or affect the content of any
mandatory reporting standards ultimately adopted.
The SEC's rule requiring public companies to disclose their
use of conflict minerals is also being challenged in the U.S.
Courts. It is uncertain how the District's Court's decision
relating to the disclosure of resource extraction payments will
affect this challenge. However, for the time being, the SEC's
disclosure rules relating to conflict minerals are still in
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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