Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was signed into law in 2010, directed the SEC to issue rules requiring resource extraction issuers to report annually on payments made to governments. In August 2012, the SEC adopted a final rule implementing Section 1504 of the Dodd-Frank Act, but in July 2013 the SEC rule was vacated by US federal courts.
On 11 December 2015, the SEC issued a new proposed rule to implement Section 1504 of the Dodd-Frank Act. In the newly proposed rule, the SEC addresses the findings of the court that vacated its prior rule. In addition, the SEC indicates that it is endeavoring to more closely align its reporting regime with developments in extractive industry transparency in the European Union and Canada since its original rulemaking, with a view to enhancing the consistency and comparability of the SEC rules with the disclosure requirements of these key jurisdictions.
Under the new proposed rule, SEC reporting issuers that are engaged in the commercial development (including exploration, extraction, processing, export and the acquisition of a license for any such activity) of oil, natural gas or minerals would be required to file annually on Form SD certain information regarding payments made to governments, including subnational governments and state-owned companies. Information regarding such payments would need to be reported at the level of each project and only payments above $100,000 would be required to be included. The SEC is proposing to recognize the equivalency of other jurisdictions' "publish what you pay" reporting regimes that the SEC determines are substantially similar to its rules—this could ultimately include the European Union and Canada.
The SEC will adopt a final rule implementing Section 1504 of the Dodd-Frank Act after considering comments received on the proposed rule. The SEC expects to adopt a final rule by June 2016. If it meets this timetable, the first government payments report would be for the first fiscal year ended on or after 30 June 2017. Until a new final SEC rule becomes effective, 20-F filers are not subject to "publish what you pay" reporting under Section 1504 of the Dodd-Frank Act and need only comply with any applicable home country reporting requirements.
Initial comments on the proposed rule were due on 25 January 2016. A second round of comments, responding to issues raised in the initial comment period, will be due on 16 February 2016.
Our related client publication is available at: http://www.shearman.com/en/newsinsights/publications/2015/12/shining-a-light-on-payments-to-governments
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