SEC Re-Proposes Resource Payments Disclosure Rules: Re-Proposed Rules are Substantially Similar to the Original Resource Extraction Disclosure Rules, with Certain Distinctions

Sullivan & Cromwell LLP - December 22, 2015

On December 11, 2015, the Securities and Exchange Commission (“SEC”), responding to both a 2013 court ruling vacating its previously finalized resource extraction payment disclosure rules and a separate 2015 court order compelling it to take steps to replace the vacated rules, re-proposed rules that would require resource extraction issuers (any issuer that files annual reports pursuant to the Securities Exchange Act (“Exchange Act”) and engages in the commercial development of oil, natural gas or minerals) to disclose, on Form SD, payments to either the U.S. Federal Government or a foreign government related to the commercial development of oil, natural gas or minerals, subject to a limited de minimis exception. The re-proposed rules, which were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), would replace and, subject to a few distinguishing elements, are substantially similar to the vacated Rule 13q-1 that was originally adopted by the SEC in 2012 (the “2012 Rules”).  As noted by the SEC in its proposing release, the goal of the disclosure is to help combat global corruption and empower citizens of resource-rich countries to hold their government accountable for the wealth generated by those resources.
Many of the modifications as compared to the 2012 Rules are designed to harmonize the SEC’s approach with approaches taken by the European Union and Canada with regard to similar disclosure, including: (i) permitting “substituted compliance” (or satisfaction of SEC reporting requirements by satisfying the requirements of other regimes) in certain instances; (ii) a new definition of the term “project” that is similar to that set forth in the EU Directives (as defined below); (iii) defining “control” and “subsidiary” by reference to accounting principles (instead of by reference to the definitions in Exchange Act Rule 12b-2), which also complements the EU and Canadian requirements; and (iv) the ability of issuers to seek, on a case-by-case basis, exemptions from the reporting requirements based on, for example, confidentiality concerns or restrictions under host country law.

The SEC has provided two comment periods for the proposal. Initial comments are due on January 25, 2016.  Reply comments, which may respond only to issues raised in the initial comment period, are due on February 16, 2016.  The SEC has stated that in developing final rules, it may rely on both new comments as well as comments that have been previously received, including those provided in connection with 2012 Rules.