Did Congress and the President Really Axe SEC Disclosure Requirements for Oil Companies? How Should Companies React to Such News?

March 24, 2017

Congress and the President may have in practice axed SEC disclosure requirements impacting transnational oil and gas firms. However, in theory and statutorily the requirements still stand. While a joint Congressional resolution signed by the President on February 14, 2017 invalidated the SEC administrative rule used to implement the requirements, it left unscathed the statutory mandate and root source of the requirements. International petroleum corporations may find that the uncertainty created by these dissonant directives may be reason to celebrate only in the short-run. In the not so distant future, the resolution of incongruity may merely delay inconvenient outcomes and may result in inconsistent treatment domestically and abroad. Furthermore, proactive corporations looking to establish sustainable competitive strategies and advantages could view the status quo as an opportunity to shape their own future and influence policy through responsible action.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) tasks the SEC with adopting rules that require resource extraction issuers to disclose information relating to any payments made by the extraction issuer, or any subsidiary to said issuer, to a foreign government or the Federal Government for the purpose of commercial development of oil, gas, or minerals.[1] The rules would subject extraction issuers to annual disclosures concerning the type and total amount of payments made for development projects and the type and total amount of payments made to each government.[2] These requirements were intended to yield transparency and to curve corruption.[3] Still, legislators such as Kevin McCarthy, the House Majority leader, view the rule as “an unreasonable compliance burden on American energy companies that isn’t applied to foreign competitors [and which puts] American businesses at competitive disadvantage.”[4] Moreover, it was also argued that the rule duplicates existing regulations.[5] These kinds of criticisms grounded the multitude of political and legal challenges which forced the SEC to delay the adoption of its final rules until June of 2016.

These delays enabled Congress and the President to utilize the Congressional Review Act of 1996 (Review Act), a seldom used rule, to void the SEC’s administrative rule.[6] In February 2017, the U.S. House of Representatives and the U.S. Senate passed H.J.Res.41. The joint resolution explicitly disapproves of the SEC’s resource extraction rule and asserts that it has “no force or effect.”[7] The President signed the resolution into law on February 13, 2017. [8] Specifically, the new law does not repeal the underlying Dodd Frank provision. Doing so would have required more than a simple majority.[9] Instead, the law merely voids the final rule adopted by the SEC in June of last year. It also prevents the SEC from drafting and adopting a new rule that is “substantially” similar to the invalidated rule.[10] It is unclear how, or if, the SEC will be able to live up to its mandate under Dodd Frank without undermining this “substantially” similar limitation imposed by the Review Act.

While many of the oil and gas companies that litigated against the SEC to block and delay the implementation of the rule may feel that they have won, going forward there could exist negative consequences for some of them. For one, backers of the SEC rule believe that disclosures are necessary to curve corruption in countries like Nigeria, Zimbabwe and Russia.[11] U.S. corporations could be negatively impacted by such corruption. The favoring of borderline bribes in addition to limits on transparency benefits host governments that already possess significant leverage in negotiating the most important terms in modern forms of concessions. It could be argued that the final SEC rules could have placed all corporations required to make annual disclosures in the United States on an even playing field. In fact, had the SEC rule stuck, 84 out of the top 100 largest oil companies would have been subject to some degree of significant public disclosure mandates.[12] It will also be interesting to see if other regulatory bodies in foreign nations face a backlash against disclosure requirements now that the SEC rules are void.

In any case, blocking the SEC rules could result in a short-term advantage for US firms over Canadian and European firms that will continue to be bound by transparency rules.[13] Given that advantage U.S. firms could be proactive and demonstrate that they can behave even in the absence of regulations.

It is not clear whether the SEC will be able to move past its current conundrum— to draft a rule as required by Dodd Frank while consistent with the Review Act and Congress’s new joint resolution. So long as it is unable to, the SEC disclosure requirements for oil companies will continue to have no force. Practically speaking it could be said the disclosure requirements have been axed.

[1] 15 U.S.C.A. § 78m (West) (as required under Section 13(q) of the Securities and Exchange Act of 1934).

[2] Id.

[3] A big signing: Donald Trump signs a law repealing a disclosure rule for oil companies, The Economist, February 17, 2017, http://www.economist.com/blogs/democracyinamerica/2017/02/big-signing (hereafter “Big signing”); See also Lisa Lambert & Timothy Gardner, U.S. Republicans ax disclosure, emissions rules on energy, Reuters, February 5, 2017, http://www.reuters.com/article/us-usa-congress-regulations-idUSKBN15I1JF ( arguing that the rule “could help expose questionable financial ties U.S. companies may have with foreign governments.”).

[4] Big signing, supra note 3 (internal quotations omitted).

[5] Lambert & Gardner, supra note 3.

[6] Id. See also 5 U.S.C.A. § 801 (West) (giving the ability to disapprove of a rule that was passed in the last 60 days of the previous Congress); Catherine Traywick, Trump Repeal of SEC Regulation Signals More to Come, February 14, 2017, https://www.bloomberg.com/politics/articles/2017-02-14/trump-repeal-of-energy-anti-corruption-rule-signals-coming-wave (noting that Congress has only successfully used the Review Act one time before).

[7] H.J.Res.41 — 115th Congress (2017-2018)

[8] Big signing, supra note 3.

[9] Lambert & Gardner, supra note 3 (noting that the Review Act allows for the overturning of “recently enacted rules with simple majorities in both chambers, denying senators the opportunity to filibuster and stall a vote.”).

[10] 5 U.S.C.A. § 801.

[11] Lambert & Gardner, supra note 3; Traywick, supra note 6.

[12] Big signing, supra note 3.

[13] Lambert & Gardner, supra note 3.


Tony Flor is a second year JD/MBA candidate at the University of Texas School of Law and the McCombs School of Business. He graduated from the University of Texas at Austin in 2012, and will be heading to Houston this summer to clerk with Andrews Kurth Kenyon.