July 08, 2013
Can The SEC Even Make Rules Any More?
Posted by David Zaring

That mineral payments rule reversal is something worth thinking about, as it is the early days of the Dodd-Frank rulemaking, and no agency wants to be constantly reversed in its efforts to implement a healthy grant of authority.  Nonetheless, outsourcing yields its own dividends.  From Corp Counsel:

The SEC's loooong losing streak in major cases continues. Yesterday, Judge John Bates of the US District Court for DC vacated the SEC's resource extraction rules and remanded the case back to the SEC (just before he leaves for another job). This case was brought jointly by the Chamber and the American Petroleum Institute. Oxfam America had joined the SEC as a defendant to defend the rule.

Either the SEC will appeal or it will conduct new rulemaking which takes into account the Judge's twin concerns of public disclosure of individual payments to foreign governments and lack of an exemption for countries that have laws that bar disclosure of payment information. If the agency goes the rulemaking route, it may simply revise its existing rules or go through an entirely new rulemaking process (bear in mind the SEC has a new Chair and two new Commissioners coming in). Either way, the deadline of reporting payments starting October 1st is bound to be substantially delayed. The SEC can't simply drop the rulemaking since adopting a rule is mandated by Dodd-Frank.

This does not bode well for the future of the conflict minerals rules, since a similar case is pending before the same court with a decision expected soon (oral argument took place two days ago in that case, as noted in this article). Nor does it bode well for federal agencies in general trying to promulgate rules, even though the Chamber lost one of these "cost-benefit analysis" cases against the CFTC last week...

It's not, in my view, a very persuasive opinion, though it might make a smidgen of sense in a world where firms operating in countries that prohibit the public disclosure of payments made to governments have to choose between meeting their reporting requirements and continuing to operate their overseas plants.

The problem is that Dodd-Frank requires mineral extraction companies to file annual reports of payments made to these governments.  The SEC, in its rule, concluded that requirement obviously meant that the reports would have to be disclosed to the world, not just to the agency.  And if that isn't clear from the plain language of the statute, it is at the very least a reasonable reading of it.  Is it crazy to conclude that the following language means that companies must disclose to investors their payments to governments?  For that is what the opinion holds: 

Under the heading “Disclosure,” and the subheading “Information required,” section 13(q) provides that “the Commission shall issue final rules that require each resource extraction issuer to include in an annual report of the resource extraction issuer information relating to any payment made” to a government for “the commercial development of oil, natural gas, or minerals.”

Administrative Law, Securities | Bookmark

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