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Dodd-Frank strikes oil

By Sheyna Steiner · Bankrate.com
Friday, March 4, 2011
Posted: 9 am ET

It's not news that first-world companies exploit developing nations for resources and labor, but thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act, investors may have a little more insight into how companies operate in those countries, specifically in regard to oil, natural gas and minerals.

The Securities and Exchange Commission is considering rules that would require publically held oil, gas and mining companies to disclose payments made to governments for access to natural resources.

Increased transparency would help first-world investors make informed and responsible decisions; but it would also empower citizens of poorer countries exploited by corrupt governments and natural resource companies to demand accountability from their governments.

Human rights groups and socially responsible investment advocates are in favor of strict disclosure requirements; the oil industry, not so much.

Calvert Asset Management Co., sustainable and responsible investment company, put out a press release on Tuesday urging the SEC to set a high bar for transparency in disclosure of payments made to governments by oil, gas and mining companies.

From the press release:

'We believe that the course for the SEC to follow is clear,' said Bennett Freeman, senior vice president of sustainability research and policy of Calvert Asset Management Company, Inc.  'The depletion of conventional oil reserves and the declining grades of mineral resources such as gold are forcing oil, gas and mining companies to intensify their efforts to develop resources in countries with poor governance, weak rule of law, and high levels of corruption. The resource payment disclosures required by the Dodd-Frank Act are necessary to evaluate the reputational, regulatory and taxation risks involved in operating in an era in which all the easy to access resources are gone.'

The SEC is not alone in considering so-called publish-what-you-pay rules. The government in the U.K. will be pushing for transparency laws in the European Union, according to a story at OneWorld.net, "New EU transparency laws 'could help millions.'"

From the story published March 3, 2011:

The Publish What You Pay coalition strongly welcomes the announcement by the UK Government that it will push for the implementation of oil, gas and mining transparency laws in the EU. If introduced, such laws would require that companies listed in the EU publish what they pay to governments for the extraction of minerals around the world. This will improve revenue transparency, helping to eradicate the corruption that has blighted some mineral rich states and improve the lives of millions of people in the developing world.

According to the story, Hong Kong has already moved to improve disclosure of payments from companies listed on its stock exchange as well.

The SEC took comments on resource extraction disclosure through March 2.

The American Petroleum Institute, the industry trade association and lobbying group, registered its objections with the SEC, the Canadian website, CTV.ca, reported in a story titled "Resource curse puts miners, oil companies in crosshairs."

The API and oil companies claim that governments may not want their receipt of such payments published, which would put SEC-listed corporations at a disadvantage.

From the story:

'If the rules … require public disclosure of unnecessarily detailed information, such disclosure will provide competitors not covered … with sensitive commercial information and place U.S. filers at a competitive disadvantage,' the API said in its submission.

'Unless implemented properly, [the new regulations] could also undermine many years of progress on international transparency. No state will support disclosure of information that could harm the state's vital national interest, especially if the harmful disclosure can be avoided by choosing to do business with a firm not subject to the requirements.'

In addition to the API, Exxon, Chevron, Royal Dutch Shell PLC, and BP PLC have registered their concerns over the proposed regulations. They are urging the SEC to set disclosure requirements on overall payments to governments – rather than a project-by-project basis – and to grant exemptions where host governments prohibit the publication of such information.

Do you think that kind of information should be made available to the public?

More generally, should corporate profits be built on the backs of the citizens of developing countries at great cost to the local environments? That's a problem that spans industries far beyond oil and mining. What do you think?

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