U.S. Chamber Joins Business Coalition Legal Challenge to SEC “Extraction Issuers Rule”

Wednesday, October 10, 2012 - 8:00pm

New Rule Imposes Threat to U.S. Energy Security and Gives State-Owned Foreign Companies a Significant Competitive Advantage

WASHINGTON, D.C.—The U.S. Chamber of Commerce joined a business coalition including the American Petroleum Institute, the Independent Petroleum Association of America, and the National Foreign Trade Council to challenge the U.S. Securities and Exchange Commission’s (SEC) final “extractive industries rule” requiring energy companies registered on American exchanges to publicly release commercially sensitive and detailed payment information about foreign energy investments.

“This rule is harmful to our energy security and to American consumers, and should not stand,” said Karen Harbert, president and CEO of the U.S. Chamber’s Institute for 21st Century Energy.  “American oil and natural gas companies must compete against foreign, state owned oil companies for access to resources around the world.  The SEC’s ‘extraction rule’ will require them to turn over their playbooks for how they bid and compete.  Their competitors are under no such obligation to do so, and compliance with this rule violates the law in several countries in which U.S. firms do business.  Yet the SEC refused to craft an exception for that circumstance and has dramatically underestimated the impact to businesses and consumers.”

On August 22, 2012, by a 2-1 vote (with two recusals), the SEC approved the “Disclosure of Payments by Resource Extraction Issuers” rule, requiring public companies to disclose payments of more than $100,000 made to foreign governments for “projects” relating to the commercial development of oil, natural gas, or minerals. On October 10, 2012, the Chamber and its association partners filed a complaint with the U.S. District Court for the District of Columbia and a petition for review with the U.S. Court of Appeals for the D.C. Circuit, charging that the rule violates the First Amendment, the Administrative Procedure Act (APA), and the Exchange Act of 1934.  The lawsuits allege that the SEC failed to conduct an adequate cost-benefit analysis as required by law, that the SEC grossly misinterpreted its statutory mandate to make a “compilation” of information available to the public, and that the regulation is incompatible with the First Amendment.

Excerpts from the complaint filed with the D.C. District Court:

On the inadequate estimate of the rule’s total costs to the American economy: “By the Commission’s own reckoning, the Rule will cost U.S. public companies at least $1 billion in initial compliance costs and $200 to $400 million in ongoing compliance costs, and “could add billions of dollars of [additional] costs” through the loss of trade secrets and business opportunities.” Page 2.

On the likelihood that the rule will force American companies out of some countries: “Indeed, while the Commission did not quantify how many ‘billions of dollars’ more its Rule might cost U.S. businesses, it acknowledged that American companies may be forced to ‘sell their assets in the . . . host countries at fire sale prices,’ or else keep existing assets idle and ‘not use them in other projects.’” Pages 2-3.

On the SEC’s refusal to include an exemption when foreign law prohibits disclosure: “In calculating the competitive costs associated with the potential for lost business in countries that prohibit the required disclosures, the Commission did not even bother to determine how many countries had laws on the books prohibiting disclosure.  Rather, it merely stated that commenters’ concerns regarding lost business ‘appear warranted,’ and that host country laws “could add billions of dollars of costs to affected issuers.” Pages 25-26.

On the SEC’s decision to selectively ignore its statutory duty to conduct a meaningful cost-benefit analysis: “Commissioner Gallagher dissented from adoption of the Rule, criticizing the Commission for failing to adequately tailor the Rule to avoid significant adverse effects on competition and capital formation.  ‘[W]e are not at liberty,’ he explained, ‘to ignore selectively the longstanding congressional mandate to consider the impact our rulemaking is likely to have on competition.’” Pages 26-27.

For more information, please visit the National Chamber Litigation Center’s webpage for the case: http://www.chamberlitigation.com/api-and-chamber-commerce-et-al-v-us-sec...

The mission of the U.S. Chamber of Commerce's Institute for 21st Century Energy is to unify policymakers, regulators, business leaders, and the American public behind a common sense energy strategy to help keep America secure, prosperous, and clean. Through policy development, education, and advocacy, the Institute is building support for meaningful action at the local, state, national, and international levels.

NCLC is the public policy law firm of the U.S. Chamber of Commerce that advocates fair treatment of business in the courts and before regulatory agencies.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.