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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

[Release No. 34-90679; File No. S7-24-19]

RIN 3235-AM06

Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: We are adopting a rule under the Securities Exchange Act of 1934 (“Exchange

Act”) and an amendment to Form SD to implement Section 13(q) of the Exchange Act. Section

13(q) directs the Commission to issue rules requiring resource extraction issuers to include in an

annual report information relating to payments made to a foreign government or the Federal

Government for the purpose of the commercial development of oil, natural gas, or minerals.

Section 13(q) requires these issuers to provide information about the type and total amount of

payments made for each of their projects related to the commercial development of oil, natural

gas, or minerals, and the type and total amount of payments made to each government. In

addition, Section 13(q) requires a resource extraction issuer to provide information about those

payments in an interactive data format.

DATES: Effective date: The final rule and form amendment are effective March 16, 2021.

Compliance date: See Section II.O. for further information on transitioning to the final rules.

FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, Office of

Rulemaking, Division of Corporation Finance, at (202) 551-3430, U.S. Securities and Exchange

Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission initially adopted 17 CFR 240.13q-1

and an amendment to Form SD on August 22, 2012. Those rules were vacated by the U.S.

District Court for the District of Columbia on July 2, 2013. On June 27, 2016, the Commission

adopted a revised version of 17 CFR 240.13q-1 and an amendment to Form SD. On February

14, 2017, the revised rules were disapproved by a joint resolution of Congress pursuant to the

Congressional Review Act. Although the joint resolution vacated the 2016 Rules, the statutory

mandate under Section 13(q) of the Exchange Act remains in effect. As a result, we proposed 17

CFR 240.13q-1 and an amendment to Form SD under the Exchange Act 1 on December 18, 2019.

We are now adopting 17 CFR 240.13q-1 (“Rule 13q-1”) and an amendment to Form SD 2 under

the Exchange Act largely as proposed.

Table of Contents

BACKGROUND

Section 13(q) of the Exchange Act

Prior Section 13(q) Rulemakings and Congress’s Actions under the Congressional

Review Act

Summary of the Final Rules

II.

FINAL RULES UNDER SECTION 13(q)

Definition of “Project”

Comments and Considerations Regarding the Modified Project Definition

Discussion of the Modified Project Definition

15 U.S.C. 78a et seq.

17 CFR 249b.400.

Public Reporting

Public Disclosure of the Issuer’s Payment Information, Including the Issuer’s Name

Public Compilation

Definition of a “Not De Minimis” Payment

Exemptions from Compliance

Exemption for Conflicts of Law

Exemption for Conflicts with Pre-Existing Contracts

Exemption for Smaller Reporting Companies and Emerging Growth Companies

Delayed Reporting for Payments Related to Exploratory Activities

Transitional Relief for Recently Acquired Companies

Transitional Relief for Initial Public Offerings

Case-by-Case Exemption

Definition of “Subsidiary” and “Control”

Treatment for Purposes of the Exchange Act and Securities Act

Definitions of “Foreign Government” and “Federal Government”

Definition of “Resource Extraction Issuer”

Definition of “Commercial Development of Oil, Natural Gas, or Minerals”

“Extraction” and “Processing”

“Export”

“Minerals”

Definition of “Payment”

Taxes

Royalties, Fees, and Bonuses

Dividend Payments

Infrastructure Payments

Community and Social Responsibility Payments

In-Kind Payments

Accounting Considerations

Anti-Evasion

Annual Report Requirement

Form SD

Annual Deadline for Form SD

Exhibits and Interactive Data Format Requirements

Alternative Reporting

Alternative Reporting Requirements

Recognition of EU Directives, U.K.’s Reports on Payments to Governments Regulations,

Norway’s Regulations on Country-by-Country Reporting, and Canada’s ESTMA as

Alternative Reporting Regimes

Compliance Date

Other Matters

III.

ECONOMIC ANALYSIS

Introduction and Baseline

Potential Benefits Resulting from the Payment Reporting Requirement

Potential Costs Resulting from the Payment Reporting Requirement

Discussion of Discretionary Choices

Definition of “Project”

Exemptions from Disclosure

Annual Report Requirement

Public Availability of Data

Alternative Reporting

Definition of Control

Definition of “Commercial Development of Oil, Natural Gas, or Minerals”

Types of Payments

Definition of “Not De Minimis”

10.

Exhibit and Interactive Data Requirement

11.

Quantitative estimates of costs resulting from the rulemaking

IV.

PAPERWORK REDUCTION ACT

Background

Estimate of Issuers

Estimate of Issuer Burdens

REGULATORY FLEXIBILITY ACT CERTIFICATION

VI.

STATUTORY AUTHORITY

I. BACKGROUND

A. Section 13(q) of the Exchange Act

Section 13(q) was added to the Exchange Act in 2010 by Section 1504 of the Dodd-Frank

Act. 3 Congress enacted Section 1504 to increase the transparency of payments made by oil,

Pub. L. No. 111-203 (July 21, 2010).

natural gas, and mining companies 4 to governments for the purpose of the commercial

development of oil, natural gas, and minerals. 5

Section 13(q) directs the Commission to issue final rules that require each resource

extraction issuer to include in an annual report information relating to payments made by the

resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the

control of the resource extraction issuer, to a foreign government or the Federal Government for

the purpose of the commercial development of oil, natural gas, or minerals. The information

must include: (i) the type and total amount of such payments made for each project of the

resource extraction issuer relating to the commercial development of oil, natural gas, or minerals,

and (ii) the type and total amount of such payments made to each government. 6

Section 13(q) defines several key terms:

•

“Resource extraction issuer” means an issuer that is required to file an annual report with

the Commission and engages in the commercial development of oil, natural gas, or

minerals; 7

The disclosure requirements mandated by Section 13(q) only apply to oil, natural gas and mining companies

that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934. See 15

U.S.C. 78m(q)(1)(D)(i).

According to Senator Richard Lugar, who co-sponsored the amendment that was the basis for this statutory

provision, a goal was to provide more information to the global commodity markets and “help empower citizens

to hold their governments to account for the decisions made by their governments in the management of

valuable oil, gas, and mineral resources and revenues.” See 156 CONG. REC. S3816 (daily ed. May 17, 2010).

15 U.S.C. 78m(q)(2)(A).

15 U.S.C. 78m(q)(1)(D). Given this definition of “resource extraction issuer,” the use of the Commission’s

disclosure rules to achieve the transparency goals of Section 13(q) is inherently limited because the statute only

applies to Exchange Act reporting companies. In contrast, the resource extraction reporting regimes of the

European Union and Canada include registered companies as well as private companies of a certain specified

size that are domiciled in their jurisdictions. See infra at Section III.C.

•

“Commercial development of oil, natural gas, or minerals” includes exploration,

extraction, processing, export, and other significant actions relating to oil, natural gas, or

minerals, or the acquisition of a license for any such activity, as determined by the

Commission; 8

•

“Foreign government” means a foreign government, a department, agency or

instrumentality of a foreign government, or a company owned by a foreign government,

as determined by the Commission; 9 and

•

“Payment” means a payment that:

o Is made to further the commercial development of oil, natural gas, or minerals;

o Is not de minimis; and

o Includes taxes, royalties, fees (including license fees), production entitlements,

bonuses, and other material benefits, that the Commission, consistent with the

guidelines of the Extractive Industries Transparency Initiative (the “EITI”) 10 (to the

15 U.S.C. 78m(q)(1)(A).

15 U.S.C. 78m(q)(1)(B).

The EITI is a voluntary coalition of oil, natural gas, and mining companies, foreign governments, investor

groups, and other international organizations committed to establishing a global standard (the “EITI Standard”)

for the good governance of oil, gas, and mineral resources. The coalition was formed with industry

participation and describes itself as being dedicated to fostering and improving transparency and accountability

in resource-rich countries through the publication and verification of company payments and government

revenues from oil, natural gas, and mining. See Implementing EITI for Impact—A Handbook for Policymakers

and Stakeholders (2012) (“EITI Handbook”), at xii. After volunteering to become an EITI candidate, a country

must implement a series of requirements set forth in the EITI Standard and complete an EITI validation process

to become a compliant member.

extent practicable), determines are part of the commonly recognized revenue stream

for the commercial development of oil, natural gas, or minerals. 11

Pursuant to Section 13(q), the rules must require a resource extraction issuer to submit

the payment information included in an annual report in an interactive data format 12 using an

interactive data standard established by the Commission. 13 Section 13(q) defines “interactive

data format” to mean an electronic data format in which pieces of information are identified

using an interactive data standard. 14 It also defines “interactive data standard” as a standardized

list of electronic tags that mark information included in the annual report of a resource extraction

issuer. 15 Section 13(q) also requires that the rules include electronic tags that identify, for any

payments made by a resource extraction issuer to a foreign government or the Federal

Government:

•

The total amounts of the payments, by category;

•

The currency used to make the payments;

•

The financial period in which the payments were made;

•

The business segment of the resource extraction issuer that made the payments;

15 U.S.C. 78m(q)(1)(C).

15 U.S.C. 78m(q)(2)(C).

15 U.S.C. 78m(q)(2)(D).

15 U.S.C. 78m(q)(1)(E).

15 U.S.C. 78m(q)(1)(F).

•

The government that received the payments and the country in which the government is

located; and

•

The project of the resource extraction issuer to which the payments relate. 16

Section 13(q) further authorizes the Commission to require additional electronic tags that

it determines are necessary or appropriate in the public interest or for the protection of

investors. 17 In addition, Section 13(q) requires, to the extent practicable, that the Commission

make publicly available online a compilation of the information required to be submitted by

resource extraction issuers under the rules. 18 The statute does not define the term compilation.

Section 13(q) further specifies that “[t]o the extent practicable, the rules . . . shall support

the commitment of the Federal Government to international transparency promotion efforts

relating to the commercial development of oil, natural gas, or minerals.” 19 Although the

statutory definition of “payment” explicitly refers to the EITI, the provision in Section 13(q)

15 U.S.C. 78m(q)(2)(D)(ii).

Id.

15 U.S.C. 78m(q)(3).

15 U.S.C. 78m(q)(2)(E). The rules we are adopting in this release are consistent with this requirement, as

explained throughout this adopting release. Although the new rules differ from those of the European Union

and Canada in certain respects (including the definition of “project”), neither Section 13(q)(2)(E) nor any other

provision of law requires the Commission to adopt identical or significantly similar rules to those adopted by

other foreign governments. When the Commission did adopt rules that were significantly similar to those of the

European Union and Canada, Congress disapproved those rules.

about supporting the Federal Government’s commitment to international transparency promotion

efforts 20 does not mention the EITI. 21

Prior Section 13(q) Rulemakings and Congress’s Actions under the

Congressional Review Act

On August 22, 2012, the Commission adopted Rule 13q-1 and amendments to Form SD

(the “2012 Rules”). 22 The 2012 Rules were vacated by the U.S. District Court for the District of

Columbia on July 2, 2013. 23 On June 27, 2016, the Commission adopted a revised version of

In 2013, the European Parliament and Council of the European Union (“EU”) adopted two directives that

include payment disclosure rules. The EU Accounting Directive and the EU Transparency Directive (the “EU

Directives”) established the baseline in each EU member state and European Economic Area (“EEA”) country

for annual disclosure requirements for oil, gas, mining, and logging companies concerning the payments made

to governments on a per country and per project basis. All EU member states have implemented both of the EU

Directives. The UK adopted its “Reports on Payments to Governments Regulations 2014” to implement the EU

Directives, which remains effective following the UK’s withdrawal from the EU. Norway adopted regulations

similar to the EU Directives in 2013. Canada adopted a federal resource extraction disclosure law, the

Extractive Sector Transparency Measures Act (“ESTMA”), in 2015. For further information about these

international transparency promotion efforts, see Section I.B. of Release No. 34-87783 (Dec. 18, 2019) [85 FR

2522 (Jan. 15, 2020)] (“2019 Rules Proposing Release”).

See 15 U.S.C. 78m(q)(2)(E). Although the United States became an EITI candidate country in 2014, it

withdrew as an EITI implementing country in 2017. See letter from Gregory Gould, Director of the Office of

Natural Resources Revenue, U.S. Department of the Interior, to Fredrik Reinfeldt, Chair of the EITI (Nov. 2,

2017) ) (noting “the fact that the U.S. laws prevent us from meeting specific provisions of the EITI Standard”),

which is available at https://www.doi.gov/sites/doi.gov/files/uploads/eiti_withdraw.pdf. The United States has,

however, maintained its status as a supporting country of the EITI.

See Release No. 34-67717 (Aug. 22, 2012) [77 FR 56365 (Sept. 12, 2012)] (the “2012 Rules Adopting

Release”) available at http://www.sec.gov/rules/final/2012/34-67717.pdf. See also Release No. 34-63549 (Dec.

15, 2010) [75 FR 80978 (Dec. 23, 2010)] (the “2012 Rules Proposing Release”) available at

http://www.sec.gov/rules/proposed/2010/34-63549.pdf.

See API v. SEC, 953 F. Supp. 2d 5 (D.D.C. July 2, 2013). The District Court based its decision on two

findings: first, that the Commission misread Section 13(q) to compel the public disclosure of the issuers’

reports; and second, the Commission’s explanation for not granting an exemption for when disclosure is

prohibited by foreign governments was arbitrary and capricious. See 953 F. Supp. 2d at 17-19 and 21-23.

Rule 13q-1 and amendments to Form SD (the “2016 Rules”) that addressed the concerns raised

in the prior litigation. 24

On February 14, 2017, the 2016 Rules were disapproved by a joint resolution 25 of

Congress pursuant to the Congressional Review Act (the “CRA”). 26 Members of the House and

the Senate who supported the joint resolution expressed a number of concerns with the 2016

Rules. The principal concerns focused on the potential adverse economic effects of the rules.

Specifically, members expressed the view that the 2016 Rules would impose undue compliance

costs on companies, 27 undermine job growth and burden the economy, 28 and impose competitive

harm 29 to U.S. companies relative to foreign competition.

See Release No. 34-78167 (June 27, 2016) [81 FR 49359 (July 27, 2016)] available at

https://www.sec.gov/rules/final/2016/34-78167.pdf (the “2016 Rules Adopting Release”). See also Release No.

34-76620 (Dec. 11, 2015) [80 FR 80057 (Dec. 23, 2015)] available at

https://www.sec.gov/rules/proposed/2015/34-76620.pdf (the “2016 Rules Proposing Release”).

See H.R.J. Res. 41, 115th Cong. (2017) (enacted).

5 U.S.C. 801 et seq.

See, e.g., 163 CONG. REC. H.848 (February 1, 2017) (Statement of Rep. Hensarling) (“The SEC has estimated

that ongoing compliance costs for his rule could reach as high as $591 million annually... Furthermore, this rule

still goes far beyond the statute passed by Congress and mandates public specialized disclosures that cost more

and more, and is more burdensome than the law requires.”).

See id. (Statement of Rep. Hensarling) (“That is $591 million every year that could better be used to hire

thousands more Americans in an industry where the average pay is 50 percent higher than the U.S. average.

Literally we could be talking about 10,000 jobs on the line for this ill-advised rule.”).

See id. (Statement of Rep. Hensarling) (“The economic opportunities of. . .millions of Americans. . . are not

helped by top-down, politically driven regulations that give many foreign companies an advantage over

American public companies. That is exactly what this Securities and Exchange Commission regulation that we

are talking about today does. It forces American public companies to disclose [expensive] proprietary

information that can actually be obtained by their foreign competitors, including state-owned companies in

China and Russia. This is just one regulation out of thousands and thousands that are burdening our companies,

our job creators, and are costing our households by one estimate, over $14,000 a year…”); see also 163 CONG.

REC. H.851 (February 1, 2017) (Statement of Rep. Wagner) (“This particular SEC regulation . . . regarding

resource extraction disclosures will make it more expensive for our public companies that are involved with

energy production to be competitive overseas with foreign state-owned companies.”).

Some members who voted in favor of the disapproval nonetheless reiterated support for

the rule’s transparency and anti-corruption objectives. For instance, a group of senators who

voted for the joint resolution expressed their “strong support” for anticorruption policies and

stated that they were “committed to efforts to encourage corporate transparency on these matters

consistent with the international standards already adopted by European and other

governments.” 30 They also indicated, however, that they voted in favor of disapproving the 2016

Rules in part due to their concern that those rules would place “American and other SECregistered companies” at a significant competitive disadvantage. 31

Although the joint resolution vacated the 2016 Rules, the statutory mandate under

Section 13(q) of the Exchange Act remains in effect. As a result, the Commission is statutorily

obligated to issue a new rule. 32 Under the CRA, however, the Commission may not reissue the

disapproved rule in “substantially the same form” or issue a new rule that is “substantially the

same” as the disapproved rule. 33 The CRA does not define “substantially the same form” or

See letter from Senator Bob Corker, Senator Susan Collins, Senator Marco Rubio, Senator Johnny Isakson,

Senator Lindsey Graham, Senator Todd Young (Feb. 2, 2017) (“Sen. Corker et al.”), available at

https://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.

See id.

A number of members who supported the joint resolution noted that the Commission would be obligated to

issue a new rule fulfilling the statutory mandate. See, e.g., 163 CONG. REC. H.848, 849 (February 1, 2017)

(Statement of Rep. Hensarling) (“Let’s also remember that this joint resolution does not repeal section 1504 of

Dodd-Frank. I wish it did, but it doesn’t… It simply tells the SEC to go back to the drawing board, comply

with the Dodd-Frank Act, and come up with a better rule . . .”); 163 CONG. REC. S.635 (Feb. 2, 2017)

(Statement of Sen. Crapo) (“What this resolution does is to cause the current SEC rule to not take effect. As it

was characterized yesterday on the House floor and will be characterized further today on the Senate floor, what

the SEC will need to do is to go back to the drawing board and come up with a better rule that complies with the

law of the land.”).

See 5 U.S.C. 801(b)(2). (“A rule that does not take effect (or does not continue) … may not be reissued in

substantially the same form, and a new rule that is substantially the same as such a rule may not be issued,

unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution

disapproving the original rule.”).

“substantially the same” and courts have not provided guidance on this issue. We therefore look

to the plain meaning of the term “substantially,” which is “to a large degree” 34 or “to a great

extent.” 35 While providing general guidance for comparing a new final rule to the rule that

Congress disapproved pursuant to the CRA, this construct does not provide guidance regarding

the specific textual revisions or policy adjustments that the Commission should make to the

disapproved rule. We also recognize that, in the context of a mandatory rulemaking such as

Section 13(q) requires, there generally is not one “correct” approach. As a result of the

combination of these factors, we believe that determining the path forward falls to the agency

assigned to undertake the mandatory rulemaking and that the agency should exercise its reasoned

judgment in shaping new rules, evaluating a reasonable range of potential responses, including

by considering the statutory provision that compels the rulemaking, the administrative record,

and the CRA’s requirements, among other things.

We received a number of comments on our approach to satisfying the statutory mandate

in Section 13(q) in a manner that also adheres to the CRA’s requirements. 36 Some commenters

generally supported the Commission’s approach regarding the CRA. 37 Several commenters,

however, argued that the Commission interpreted the impact of the CRA resolution too broadly

See Cambridge Dictionary (Cambridge University Press) (2020).

See Oxford English Dictionary (Oxford University Press) (2020).

See, e.g., letters from Center for Progressive Reform (Mar. 16, 2020); Cary Coglianese (Mar. 16, 2020); Oxfam

America and Earthrights International (Mar. 23, 2020); and PWYP-US (Mar. 16, 2020).

See, e.g., letter from National Association of Manufacturers (Mar. 16, 2020) (NAM) (stating that the proposed

rule represents a tailored implementation of the statute and includes numerous important reforms from the 2016

proposal that faced disapproval from Congress).

and gave too much emphasis to statements from members of Congress who supported the

resolution. 38 Several commenters added that the economic concerns expressed during the CRA

floor debates (particularly related to costs and competiveness) have been ameliorated by

international developments, eliminating or at least reducing the need to change the substance of

the final rules to address those consequences. 39 According to these commenters, the

Commission (1) incorrectly concluded that the CRA resolution restricted its discretion when

issuing new rules under Section 13(q) and (2) improperly relied on the CRA resolution to justify

proposing rules that do not provide the level of disclosure needed to achieve the objectives of

Section 13(q). 40

The CRA resolution does not modify the Section 13(q) mandate that the Commission

issue rules regarding the disclosure of resource extraction payments. It does, however, as set

forth above, restrict somewhat our discretion regarding the form that those rules may take. 41

Thus, we believe our task is to exercise our discretion to craft and issue a new rule that

reasonably achieves the objectives of Section 13(q) within the narrower range of available

approaches imposed by the CRA.

See, e.g., letters from Oxfam America and Earthrights International; PWYP-US (Mar. 16, 2020); and Sierra

Club (March 14, 2020).

See id.

See, e.g., letters from Center for Progressive Reform; Cary Coglianese; Oxfam America and Earthrights

International; and PWYP-US (Mar. 16, 2020).

For example, by the plain terms of the CRA, it seems apparent that the Commission, at a minimum, could not

simply readopt the disapproved rule.

Some commenters expressed the view that we could readopt the 2016 Rules with only

minor modifications and still satisfy the CRA. 42 According to these commenters, it would be

sufficient for the Commission to readopt most of the 2016 Rules while primarily modifying the

rationales for or the economic analysis set forth in the prior rulemaking. 43 This approach, in our

view, is inconsistent with the plain language of the CRA, which instructs that the “new rule”

itself may not be substantially the same. Based on the plain language of the CRA, the

Commission in our view is required to do more than substantially revise the rationales (including

the economic analysis) in the adopting release accompanying the disapproved rule. 44 Rather, we

believe that a better understanding of the CRA is that it requires us to make sufficient changes to

the substantive operation of (including the requirements imposed by) the rule itself to meet the

The CRA disapproval process is not a routine or perfunctory process. To disapprove a rule under the CRA, the

support of a majority of both houses of Congress and the assent of the President is required, which taken

together reflects a significant undertaking on the part of two elected branches of the Federal government. Based

on the foregoing alone, it seems doubtful that the appropriate response to a CRA disapproval should be mere

minor modifications.

See, e.g., letters from Oxfam America and Earthrights International; and PWYP-US (Mar. 16, 2020).

Revising the economic analysis from the 2016 adopting release would not in our view satisfy the CRA. The

economic analysis was not part of the substantive rule because it neither imposed any legally enforceable

obligations, nor provided any rights or benefits. Further, the economic analysis did not otherwise purport to offer

the Commission’s interpretation of any statutory provision or agency rule, nor did it set forth any general

statements of agency policy, or establish any rules of agency organization, procedure, or practice. Rather, the

economic analysis in the adopting release served to memorialize the Commission’s understanding and

consideration of the economic implications of the 2016 Rules. Moreover, even if in theory changing the

economic analysis to include revised cost estimates might be sufficient in some cases to satisfy the CRA, we

nonetheless disagree that a change in the economic analysis would be sufficient in this particular case. The

argument put forward by some commenters is that the projected costs and competitive burdens included in the

2016 Rules Adopting Release were too high. See id. The costs and competitive burdens were, however, only

one component of the considerations on which the Commission based the 2016 Rules. As the 2016 Rules

Adopting Release explained, the economic impact of the 2016 Rules was relevant, but not determinative. See

2016 Rules Adopting Release at Sections II.B and C. Thus, merely revising the economic analysis and retaining

the myriad other reasons that led the Commission to adopt the granular public disclosure model, and largely

reissuing the same rule, would not, in our view, satisfy the CRA requirement. Any such rule, including the

underlying analysis, would continue to be in substantially the same form as the disapproved rule.

CRA mandate. Based on that general understanding, we believe that an appropriate and

reasonable way to assess the CRA’s not “substantially the same” requirement in the context of a

disclosure-oriented provision such as Section 13(q) is primarily by comparing the extent to

which the disclosures under the disapproved rule would differ from the disclosures under the

new rule. 45

Commenters also argued that readopting a new rule that included essentially the same (or

similar) core discretionary components of the 2016 rulemaking would satisfy the CRA provided

that the Commission made adjustments to a significant number of the ancillary or secondary

components of the rule. 46 In the context of the Section 13(q) disclosure provision, however, we

are not persuaded that ancillary or secondary adjustments would satisfy the CRA requirement

that the new rule cannot be substantially the same as the disapproved rule. Various changes to

the ancillary or secondary components of the 2016 Rules, alone and in combination, generally

would yield a very similar disclosure model and thus result in payment disclosures substantially

the same as those required by the 2016 Rules.

Rather, we believe that, in the context of Section 13(q), producing a rule that is not

“substantially the same” as the disapproved rule is reasonably achieved by changing at least one

We recognize, as discussed in Section III.A below, that economic and other considerations relevant to Section

13(q) have continued to evolve since the 2016 Rules were adopted. Specifically, data and other information

concerning the subsequent experiences of resource extraction issuers operating under foreign disclosure regimes

that are similar to the disapproved 2016 Rules indicate that the potential compliance costs and competitive harm

associated with the disclosures may be less than the Commission had projected at the time that it issued the 2016

Rules. Even if these external facts could be considered to have significantly mitigated such concerns, they do not

eliminate the CRA mandate that the new rule cannot be substantially the same as the disapproved rule. In

formulating the final rules, however, we have considered the developments in international payment reporting

regimes, including the extent to which they might provide additional insights regarding the potential costs and

competitive effects of project-level disclosures.

See, e.g., letters from Oxfam America and Earthrights International; and PWYP-US (Mar. 16, 2020).

of the two central discretionary determinations at the heart of the Section 13(q) disclosure system

that the Commission made when it issued the 2016 Rules. Based on the administrative record

and our understanding of Section 13(q), we believe that the two central determinations over

which the Commission has discretionary authority are (1) publication of issuers’ payment

disclosures versus anonymization and (2) the relative granularity of the definition of “project.”

Modifying the other discretionary determinations available in this particular rulemaking, in our

view, likely would fail to produce a rule that is not substantially the same as the disapproved rule

given the level of similarity that would remain between the disclosures under the new rule and

those that would have resulted under the disapproved rule. Moreover, given our obligations

under the CRA and based on our review of the administrative record, we believe that the final

rules reasonably satisfy the statutory requirements of Section 13(q).

As discussed below, we believe that, of these two core discretionary determinations, the

change that more effectively achieves Section 13(q)’s goal of increasing transparency with

respect to extractive payments by resource extraction issuers while adhering to the requirements

of the CRA, is to modify the project definition so that it requires less granularity in the payment

disclosures than in the disapproved rule. In choosing to make this change, we are mindful of

Section 13(q)’s goal, which could be significantly limited by anonymization. For reasons

discussed in more detail below, we believe the final rules we are adopting appropriately comply

with the CRA’s not “substantially the same” rule requirement, and do so in a manner that

reasonably achieves the objectives of Section 13(q) within the CRA’s constraints.

Finally, we believe that the form and manner of the revision to the project definition is

not just a reasonable change within our discretion to implement Section 13(q), but also one that

alone is sufficient to comply with the CRA’s requirements that the disapproved rule not be

reissued in “substantially the same form” and a new rule may not be “substantially the same” as

the disapproved rule. Accordingly, while we are making various other changes to more ancillary

or secondary matters that could further support our efforts to comply with the CRA’s

requirements, these changes are motivated by policy considerations and the administrative

record. 47

Summary of the Final Rules

We are adopting rules to implement Section 13(q) largely as proposed, with some

modifications in response to comments received. As we previously explained, given the

requirements of Section 13(q), certain elements of the final rules remain unchanged from the

2016 Rules. 48 In light of the changes that we have made, as discussed below, the fact that certain

elements remain the same does not change our belief that the final rules are not substantially the

same as the 2016 Rules and therefore are in compliance with the CRA’s restriction on

subsequent rulemaking.

In this regard, the final rules include several changes from the 2016 Rules. Most notably,

the final rules will revise the definition of the term “project,” a term that was not statutorily

Nevertheless, even if a modified definition of project alone were insufficient to comply with the CRA, given

these other changes, we believe that the final rules, when considered as a whole, comply with the CRA’s

restriction on subsequent rulemaking. To be clear, however, we did not make these other changes in response

to the CRA, but rather on independent policy grounds.

See 2019 Rules Proposing Release at Section I.C.3. For example, we proposed, and are adopting, the same

delayed reporting provision for exploratory activities, the same transitional relief for recently acquired

companies, and a similar alternative reporting mechanism, all of which were adopted in 2016. See infra

Sections II.D. and N. We also are adopting, as proposed, the same definitions as adopted in 2016 for “resource

extraction issuer,” “commercial development of oil, natural gas, or minerals,” “payment,” and “foreign

government.” See infra Sections II.G-J. As further discussed below, most commenters who addressed those

definitions in the 2016 rulemaking generally supported them, and most submitting comments on the 2019 Rules

Proposing Release either supported the definitions or chose not to address them.

defined, to require disclosure at the national and major subnational political jurisdiction, as

opposed to the contract-level disclosure as required by the disapproved rule. Because the

definition of “project” plays a central role in Section 13(q)’s disclosure regime, we believe that

changing this definition is sufficient for meeting the CRA’s mandate that the new rule not be

substantially the same as the disapproved rule. 49 Some commenters have suggested that

changing other aspects of the 2016 Rules, such as the definition of “control,” would equally

fulfill the CRA mandate. 50 As discussed above, however, we believe that these suggested

changes, some of which we are adopting, constitute relatively minor modifications that, by

themselves, would not effect a substantial difference from the disapproved rule.

In addition to changing the project definition, the final rules will:

•

add two new conditional exemptions for situations in which a foreign law or a preexisting contract prohibits the required disclosure; 51

•

add an exemption for smaller reporting companies and emerging growth companies; 52

•

revise the definition of “control” to exclude entities or operations in which an issuer has a

proportionate interest; 53

See infra Section II.A.

See, e.g., letters from Oxfam America and Earthrights International; and PWYP-US (Mar. 16, 2020).

See infra Section II.D.1.-2.

See infra Section II.D.3.

See infra Section II.E.

•

limit the liability for the required disclosure by deeming the payment information to be

furnished to, but not filed with, the Commission; 54

•

add relief for issuers that have recently completed their U.S. initial public offerings; 55 and

•

extend the deadline for furnishing the payment disclosures. 56

We believe the final rules are reasonably designed to achieve the transparency goals of

Section 13(q). For example, the final rules will require the public disclosure of the payment

information, including the identity of the issuer. 57 We considered the alternative approach

suggested by some commenters that would enable issuers to submit the payment information

non-publicly, which would then be published in an anonymized compilation by the

Commission. 58 Although this approach would constitute a significant difference from the 2016

Rules and would be within our discretionary authority, we determined not to adopt this approach

because we believe doing so could limit the transparency and related objectives of Section

13(q). 59

In contrast, although the changed project definition would diminish the granularity of

disclosure compared to a contract-based definition, we believe that the final rules, taken as a

See infra Section II.F.

See infra Section II.D.6.

See infra Section II.L.2.

See infra Section II.B. Other aspects of the final rules that are reasonably likely to achieve the transparency

goals of Section 13(q) include adding infrastructure payments, social or community payments, and certain

dividend payments to the statutorily required payment types. See infra Section II.J.

See, e.g., letter from API (Mar. 16, 2020).

See infra Section II.B.

whole, will achieve the transparency and related goals of Section 13(q) by providing significant

and useful payment information regarding resource extraction payment flows from reporting

companies to foreign governments. Transparency-enhancing changes from the proposed rules

include our adoption of the $100,000 threshold in the definition of a “not de minimis” payment 60

and the requirement to disclose the amount of payments by payment type for, and identify, each

subnational government payee. 61

The following chart summarizes the primary changes in the proposed and final rules

compared to the 2016 Rules:

Issue

Definition of

“project”

Aggregation

of payments

See infra Section II.C.

See infra Section II.G.

2016 Rules

(Disapproved)

Proposed Rules

• Defined as operational • Defined using three

activities governed by a

factors:

single contract, license,

(1) type of resource;

lease, concession, or

(2) type of operation;

similar legal agreement,

and

(3) major subnational

which forms the basis

jurisdiction.

for payment liabilities

with a government.

• No aggregation of

• Aggregation of the

payments beyond

same type of

contract level, except

payments permitted at

that payments related to

major subnational

operational activities

jurisdiction level,

governed by multiple

which must be

legal agreements could

identified;

be aggregated together • Aggregation of the

as long as the multiple

same type of

agreements were

payments permitted at

operationally and

levels below major

geographically related.

subnational level,

which may be

described generically

(e.g., as county or

municipality).

Final Rules

• Same as proposed.

• Aggregation at

major subnational

jurisdiction level

(same as proposed).

• Issuer may

aggregate payments

by payment type, but

must disclose

aggregated amount

for each subnational

government payee

and identify each

subnational

government payee.

Exemptions from

compliance based on

conflicts with foreign

laws or contract

terms

Exemption for

smaller reporting

companies or

emerging growth

companies

Definition of

“control”

Filed vs. furnished -application of

Exchange Act

Section 18 liability

Relief for Initial

Public Offerings

(IPOs)

Deadline for

furnishing payment

disclosures

• No exemptions for

• Conditional

conflicts with foreign

exemptions for foreign

laws or contract terms.

law conflicts and preexisting (pre• Case-by-case

effectiveness) contract

exemptive process

terms that prohibit

established.

disclosure.

• No exemption for

• Exemption for smaller

smaller reporting

reporting companies

companies or

and emerging growth

emerging growth

companies.

• Based on established

financial reporting

principles: Issuer has

control over an entity

when it is required

under GAAP or IFRS

to consolidate or

proportionately

consolidate the

financial results of

that entity.

• Reports required to be

filed;

• Potential Section 18

liability.

• No relief for IPOs.

• Similar to approach

under 2016 Rules,

except that an issuer is

not required to disclose

payments made by

entities that it only

proportionately

consolidates.

• Same as proposed.

• Same as proposed,

but limit exemption

to companies not

subject to an

alternative reporting

regime, which has

been deemed by the

Commission to

require disclosure

that satisfies the

transparency

objectives of Section

13(q).

• Same as proposed.

• Reports are furnished;

• No Section 18 liability.

• Same as proposed.

• Transitional relief for

IPOs;

• Issuer would not have

to comply with the

Section 13(q) rules

until the first fiscal

year following the

fiscal year in which it

completed its initial

public offering.

• For all issuers, no later • For issuers with fiscal

than 150 days after the

years ending on or

end of the issuer’s

before June 30, no later

most recent fiscal

than March 31 in the

year.

• Same as proposed.

• 2 year transition

period during which

no Form SD due.

following calendar

year;

• For issuers with fiscal

years ending after June

30, no later than March

31 in the second

calendar year

following their most

recent fiscal year.

II.

• Following transition

period, Form SD due

no later than 270

days after the end of

the issuer’s fiscal

year.

FINAL RULES UNDER SECTION 13(q)

We received over 70 letters on the 2019 Proposed Rules from a range of commenters that

included companies; trade associations; not-for-profit, non-governmental organizations

(“NGOs”); members of Congress; and investors. 62 When developing these final rules, we have

considered these comments while keeping in mind the transparency and related objectives of

Section 13(q), the disapproval of the 2016 Rules under the CRA, and the CRA requirement not

to adopt a new rule that is “substantially the same” as the disapproved rule.

In this section, we first discuss the final rule provisions that, based on the large number of

comments that addressed them, involve issues that we believe are the most critical in this

rulemaking. Those issues include the definition of “project” and the related issue concerning the

aggregation of payments, the definition of a “not de minimis” payment, whether to include

exemptions (and the nature of any exemptions), whether the Section 13(q) disclosures must be

public and include the identity of the issuer, the definitions of “subsidiary” and “control,” and the

treatment of the Section 13(q) disclosures for purposes of liability under the Exchange Act and

Securities Act. 63 While, as discussed below, we believe that the revised definition of project is

These comment letters are available at https://www.sec.gov/comments/s7-24-19/s72419.htm.

See infra Sections II.A. through II.F.

both necessary and sufficient to satisfy the CRA, we note that several of the other provisions also

represent changes from the 2016 rules. Thus, even if the revised project definition were not

sufficient, this change when considered with the other changes we are making should satisfy the

CRA’s mandate.

We then discuss final rule provisions that received fewer comments but are nonetheless

important to the statutory scheme. These include the definition of “resource extraction issuer,” 64

the definition of “payment,” 65 and the interactive data format requirement for the Section 13(q)

disclosure. 66

Before we discuss the specific components of the new rules, we acknowledge that some

commenters suggested that in the Proposing Release the Commission unduly relied on various

floor statements made by members of Congress during the CRA votes to disapprove the 2016

Rules. The floor statements in question dealt with the potential high cost and competitive harm

that could flow from the 2016 Rules. Commenters have identified a number of reasons why they

believe these congressional floor statements are not relevant to the current rulemaking,

including: (1) these floor statements are not necessarily consistent with the views of most

members of Congress and are not legally binding in any case; (2) the floor statements themselves

give no clear indication of how the Commission should modify the rules; and (3) the concerns

expressed in these floor statements about costs and competitive effects may be based on

See infra Section II.H.

See infra Section II.J.

See infra Section II.M.

estimates and economic analyses in the 2016 Rules Adopting Release that have been called into

question by actual cost data and information regarding the potential anti-competitive effects

derived from resource extraction issuers’ experiences with the disclosure regimes in Europe and

Canada. 67

When the Commission adopted the 2016 Rules, it reasonably relied on the data available

to it in the administrative record and that data may have informed the views subsequently

expressed by members of Congress regarding the projected potentially high costs and significant

risk of competitive harm as a result of the implementation of Section 13(q). Since that time,

however, additional data and other information that has become available regarding resource

extraction companies’ experiences with the European and Canadian disclosure regimes indicate

that the cost and anti-competitive effects of payment disclosure, while still relevant

considerations, 68 may well be lower than the Commission projected in 2016. 69

Thus, in formulating the final rules (and in contrast to our approach in the proposing

release), we have not based our discretionary determinations for the final rules on previously

expressed concerns, including from various members of Congress, about the economic effects of

the 2016 Rules (although we do acknowledge various points where those concerns may align

with our discretionary determinations). Instead, we have been informed by the comments

received on the Proposing Release and our own evaluation of the potential economic and other

See letter from Oxfam America and Earthrights International (stating that other regulators have conducted

reviews of implementation of alternative reporting regimes and found that no material competitive or

compliance impacts have thus far been documented); see also European Commission, Review of country-bycountry reporting requirements for extractive and logging industries (Final report) (2018).

See generally Exchange Act Sections 3(f) and 23(a)(2).

See Section III.D.11 below.

effects of the final rules. Having considered the totality of the record before us, and for the

reasons set forth below, we believe the final rules represent an appropriate and faithful

implementation of the Section 13(q) disclosure provision while, at the same time, complying

with the CRA and reflecting a reasoned exercise of our discretionary authority to make sound

policy choices based on the administrative record.

Definition of “Project”

Consistent with Section 13(q), the final rules will require a resource extraction issuer to

disclose payments made to governments relating to the commercial development of oil, natural

gas, or minerals by type and total amount per project. We are adopting, as proposed, the

definition of “project” using the following three criteria: (1) the type of resource being

commercially developed; (2) the method of extraction; and (3) the major subnational political

jurisdiction where the commercial development of the resource is taking place. 70 This definition

(“Modified Project Definition”) differs from the definition included in the 2016 Rules, which

defined “project” as the operational activities governed by a single contract, license, lease,

concession, or similar agreement, which form the basis for payment liabilities with a government

(“Contract-Level Project Definition”). 71

Comments and Considerations Regarding the Modified Project

Definition

This definition is similar to the definition of “project” previously suggested by one industry commenter. See

letters from the API (Nov. 7, 2013) and (Feb. 16, 2016). The term “project” as used in this release will only

apply to disclosure provided pursuant to Rule 13q-1 and not, for example, the disclosure required by Article 410 of Regulation S-X (17 CFR 210.4-10) or subpart 1200 or 1300 of Regulation S-K (17 CFR 229.1200 or

229.1300).

See 2016 Rules Adopting Release at Section II.E.3.

Several commenters supported adoption of the proposed Modified Project Definition. 72

For example, one commenter stated that it represented the best method for reducing regulatory

costs and unnecessary exposure of issuers’ competitively sensitive data while promoting

transparency. 73 Another commenter indicated that the proposed project definition would address

the concerns some market participants have raised about overly descriptive disclosures revealing

competitively sensitive information, 74 and, by allowing for increased aggregation of payments,

would also reduce the cost burden of the Section 13(q) disclosure requirement. 75 A third

commenter stated that the proposed project definition would achieve an appropriate balance that

promotes transparency from extraction payments while reducing the regulatory burden

anticipated to result from the 2016 Rules. 76

Other commenters opposed the Modified Project Definition for several reasons, 77

including the following:

See letters from API (Mar. 16, 2020); Chamber of Commerce (Mar. 16, 2020) (Chamber); NAM; Petrobras

(Mar. 16, 2020); and Shareholder Advocacy Forum (Mar. 16, 2020) (SAF).

See letter from API (Mar. 16, 2020). When recommending that the Commission adopt the non-public

submission and anonymized compilation approach, however, this commenter stated that reverse engineering

was possible even under the Modified Project Definition. See id. We address this comment in Section II.B.1.

infra.

See letter from NAM.

See id.

See letter from SAF.

See, e.g., letter from Sens. Benjamin L. Cardin, Sherrod Brown, Richard J. Durbin, Edward J. Markey, Jeffrey

A. Merkley, Sheldon Whitehouse, Patrick Leahy, Elizabeth Warren, Christopher A. Coons, and Jeanne Shaheen

(Mar. 11, 2020) (Sens. Cardin et al.); letter from Oxfam in Kenya (Mar. 16, 2020); letter from PolicyAlert!

(Feb. 27, 2020); letter from PWYP-US (Mar. 16, 2020); and letter from Sens. Benjamin L. Cardin and Richard

J. Durbin (Dec. 11, 2020) (Sens. Cardin and Durbin).

•

Some indicated that the Modified Project Definition would fail to produce the

transparency necessary to enable citizens to detect corruption and demand accountability

from their host governments as Congress intended. 78

•

Some pointed to a study that showed that a large amount of payment data would be lost

under the Modified Project Definition if the proposed “not de minimis” thresholds were

adopted. 79

•

Some believed that because the Modified Project Definition would allow issuers to report

payments in the aggregate, at the country and major subnational level, without requiring

disclosure of the contract or license that gave rise to the payments, it would limit the

utility of the reported payment data for citizens in resource-rich countries with revenuesharing laws. 80

See, e.g., letter from PWYP-US (Mar. 16, 2020); see also letters from Sens. Cardin et al; and Sens. Cardin and

Durbin. Several other commenters emphasized the need for disaggregated payment disclosure as an anticorruption tool in various countries. See, e.g., letter from EG Justice (Mar. 11, 2020) (describing the corruption

in Equatorial Guinea); letter from the Carter Center (Mar. 16, 2020) (discussing the need for a contract-based

definition of project to combat corruption in the Democratic Republic of the Congo); and letters from Daniel

Kaufmann (May 1, 2020), One.org (Mar. 24, 2020), and Eric Postel (Mar. 19, 2020) (each generally discussing

the importance of disaggregated, granular reporting as an anti-corruption tool).

See, e.g., letter from PWYP-US (Mar. 16, 2020); and Oxfam America and Earthrights International. We

discuss these comments and the referenced study in greater detail in Section II.C.

According to these commenters, the Modified Project Definition would particularly impact citizens residing in

countries with revenue-sharing laws that require the national government to distribute a portion of the revenues

received from extractive activities to subnational governments or local communities. See letter from PWYP-US

(Mar. 16, 2020); see also letters from Sens. Cardin et al.; and Congr. Waters et al. See also letters from Friends

of the Nation; Iraqi Transparency Alliance for Extractive Industries (Mar. 10, 2020) (“Iraqi Transparency

Alliance”); Kenya Civil Society Platform Oil and Gas and PWYP-Kenya (Mar. 16, 2020) (“KCSPOG”); Oxfam

in Kenya; PWYP-Burkina Faso (Apr. 22, 2020); PWYP-Indonesia (Mar. 16, 2020); and PWYP-US (Mar. 16,

2020).

•

Some opposed the Modified Project Definition because in their opinion it is an arbitrary

construction that does not reflect standard industry practice. 81

•

Some stated that the Modified Project Definition deviates from what has become the

international norm for a project definition in payments-to-governments reporting,

namely, a project definition based on a single contract, license, lease, or concession. 82

•

Some argued that the Modified Project Definition does not satisfy the plain language of

Section 13(q). 83

•

Finally, some indicated that investors need contract-based data to assess a resource

extraction issuer’s future cash flows and other indices of risk. 84

As discussed below, we believe that the Modified Project Definition that we are adopting

will achieve Section 13(q)’s statutory mandate by increasing transparency regarding resource

extraction payments while also ensuring that the final rules comply with the requirements of the

CRA. 85 A key threshold issue, however, is the application of the CRA in the context of Section

See, e.g., letter from PWYP-US (Mar. 16, 2020); see also letters from Elise J. Bean (Apr. 29, 2020); and Alan

Detheridge (Mar. 15, 2020).

See, e.g., letter from PWYP-US (Mar. 16, 2020); see also letters from Oxfam America and Earthrights

International; and ONE Campaign (Mar. 16, 2016).

See, e.g., letter from Oxfam America and Earthrights International.

See, e.g., letter from PWYP-US (Mar. 16, 2020); see also letter from Frederic Samama, Steve Waygood, Vicki

Bakhshi, Helena Viñes Fiestas, John Wilson, Meryam Omi, Christopher P. Conkey, and Katarina Hammar

(Mar. 16, 2020) (F. Samama et al.).

The Modified Project Definition that we are adopting is an alternative that was available to the Commission in

the reasonable exercise of its discretion when it sought to implement the Section 13(q) rules in 2012 and 2016.

Although the Commission chose not to use this definition in its prior rulemakings, we view the Modified

Project Definition as fully consistent with the structure and purpose of Section 13(q). To the extent that the

Commission may have suggested otherwise in 2016, we believe that was incorrect for the reasons explained

below.

13(q). As discussed above, we believe that there are only two discretionary aspects of the

Section 13(q) rules where we can make a change that will likely achieve compliance with the

CRA mandate against issuing a rule that is substantially the same as the disapproved rule: the

definition of project or changing from a public filing to an anonymized compilation. 86 Without a

change to one of these two aspects, we believe it is unlikely that the final rules would satisfy the

CRA mandate. Although changing from a public filing to an anonymized compilation would

likely satisfy the CRA mandate, for the reasons we discuss in Section II.B.1. below, we believe it

is a less effective option for achieving Section 13(q)’s mandated transparency goals. 87 Thus, in

light of our decision to require public disclosure of payment information, and not change to an

anonymized compilation, we believe that making a significant change to the definition of project

is warranted in order for the disclosure regime under the final rules not to be substantially the

same as that under the disapproved 2016 Rules. 88

See supra Section I.B.

We do not read Section 13(q) to preclude an anonymized compilation as a legal matter and as such believe that

an anonymized compilation would be within our statutory discretion to adopt. Although an anonymized

compilation would likely not allow users of the data to know the specific issuer to which any project-payment

disclosures might relate, we do not read Section 13(q) to require such disclosure. Thus, for example, the

definition of project that we are adopting could be coupled with an anonymized disclosure, with project

payments disclosed in the compilation, but not in a manner that would clearly identify the issuer making the

payments for the specific project. As discussed below, however, we do not believe that this would advance the

transparency goals of Section 13(q) to the same extent as we believe our Modified Project Definition will.

By adopting the Modified Project Definition, we are establishing the minimum level of disclosure that a

resource extraction issuer must provide concerning its projects. We recognize that some resource extraction

issuers have expressed a commitment to following the more granular model of reporting adopted by the EU

countries, Norway, and Canada. See, e.g., letters from BHP (Mar. 16, 2020); BP America, Inc. (Mar. 13, 2020);

Eni (Mar. 25, 2020); Equinor ASA (Mar. 13, 2020); Kosmos Energy (Feb. 19, 2020); Ovintiv (Mar. 16, 2020);

Rio Tinto (Mar. 16, 2020); and Total (Feb. 10, 2020). As discussed below, issuers may elect to furnish reports

prepared under these foreign transparency regimes to satisfy their Section 13(q) reporting obligations pursuant

to the alternative reporting provision we are adopting. In addition, there is nothing in the approach that we are

taking that would preclude such issuers from providing additional disclosure concerning their projects, e.g., by

disclosing payments at a level below the major subnational government level, outside of the Form SD. For

Although we believe that a significant change to the definition of project is warranted, we

acknowledge that the CRA does not compel us to adopt any particular definition of project

within the range of definitions that would lead to rules that are not “substantially the same” as

the disapproved 2016 Rules. Thus, we have based our determination to adopt the Modified

Project Definition on various policy considerations that are tied to Section 13(q) and its goals. 89

As a starting point, we believe that the motivating purpose of the Section 13(q) mandated

disclosure of resource extraction payments is to provide transparency around the source and

recipients of these payments; specifically, to identify a country’s share of the resource extraction

revenue generated by each project of an issuer 90 and the governmental level and governmental

entity within the country receiving the money from each project of an issuer (hereinafter

“Project-to-Government Payment Disclosure”). 91 Further, we believe that the principal goal of

this Project-to-Government Payment Disclosure is to provide an informational tool that may help

users of the information to hold various governments accountable for how those governments

example, such issuers could provide the disclosure on their website, in annual or periodic reports, or in a Form

8-K or Form 6-K.

We are not aware of, and commenters have not identified, any uniform or generally accepted definition of

“project.” We have sought to provide a definition that both complies with the requirements imposed by the

CRA and reasonably achieves the goals of Section 13(q), taking into account the views of resource extraction

issuers who are making the disclosures and third parties who are seeking to use the information. We

acknowledge that there may be alternatives to the Modified Project Definition that could potentially achieve the

same objectives. The administrative record that has developed through the various rounds of rulemaking,

however, reflects that the vast majority of commenters supported one of two competing definitions—i.e., the

contract-level definition that the Commission adopted in the disapproved 2016 Rules, and the Modified Project

Definition we are adopting. Thus, given the administrative record before us, we considered the Modified

Project Definition to be the principal alternative to the Contract Level Definition included in the 2016 Rules.

See 15 U.S.C. 78m(q)(2)(A)(i).

See 15 U.S.C. 78m(q)(2)(A)(ii).

spend money received. This understanding is consistent with the text of Section 13(q) and the

congressional concerns leading to its adoption. 92

We believe that the Modified Project definition is reasonably tailored to achieve this goal,

providing transparency to users of the information and doing so with a consistent and

understandable frame of reference. Moreover, as we explain in Section II.B.1. below, we believe

it is a better choice than the anonymized compilation for achieving this goal because it permits

the users of the information to see, by identified issuers, the payments from specified activities in

a defined area of the country to the various governmental authorities within the country.

Further, we anticipate the Modified Project Definition should provide resource extraction

issuers with a practical and relatively straightforward definition of “project” that they can utilize

in tracking and reporting payments wherever they may have ongoing operations around the

globe. We also note that it appears that the Modified Project Definition may reduce the

compliance burden of the Section 13(q) rules compared to the 2016 Rules. Specifically, the

Modified Project Definition will allow an issuer to make the payment disclosure at a greater

level of aggregation than under the Contract-Level Project Definition. As such, there should be

fewer individual data points that have to be tracked, electronically tagged and reported, which

See 15 U.S.C. 78m(q)(2)(A). As discussed below, we do not find persuasive support for any conclusion that

Congress intended Section 13(q) to provide material information to investors. Although some commenters have

asserted that granular disclosure through a contract-level project definition might provide certain investors with

useful information, we believe that other disclosures already required by the Commission operate to provide the

relevant information that is material to an investment decision. Accordingly, we decline in the exercise of our

discretion to provide granular information that is not required by Section 13(q) and, in our view, generally is not

material to or necessary for investors. In reaching this conclusion, we recognize that Section 13(q)(2)(D)(VII)

affords us discretionary authority to require resource extraction issuers to submit additional payment-related

data in an interactive data format including electronic tags beyond that data identified in the statute if the

Commission determines that such data could benefit investors. We have determined not to use this authority,

however, because as discussed above, we do not believe the data collected under Section 13(q) is material to

investors, nor have we determined that electronically tagging additional data is necessary or appropriate in the

public interest or for the benefit of investors.

may make it less burdensome to disclose the payment information on an ongoing basis. For

similar reasons, the revised definition may also help limit any adverse competitive effects

associated with project-based disclosures.

We acknowledged in the 2019 Rules Proposing Release that the Modified Project

Definition, in contrast to the more granular Contract-Level Project Definition, might narrow the

scope of the transparency benefits under Section 13(q). We stated that by providing

transparency about the revenues generated from each contract, license, and concession, the

Contract-Level Project Definition could serve to reduce further the potential for corruption in

connection with the negotiation and implementation of a resource extraction contract as

compared to the Modified Project Definition. As such, it could reduce instances of corruption

that may occur before resource-extraction revenue is paid to the government. 93 As discussed

below, however, we view this potential for incremental deterrence as a discretionary goal rather

than the primary objective of Section 13(q).

Some commenters asserted that only a granular (e.g., contract-level) definition of project

will fully achieve the transparency and anti-corruption purposes that Congress sought to achieve

with Section 13(q). 94 In advancing this argument, these commenters point to five considerations

that the Commission identified in the 2016 Adopting Release to support the conclusion that a

granular “definition of project … is necessary and appropriate to achieve a level of transparency

that will help advance the important anti-corruption and accountability objectives of Section

13(q).” Specifically, these commenters noted, the 2016 Adopting Release stated that a granular

See 2019 Rules Proposing Release at Section II.F.1.

See, e.g., letters from PWYP-US (Mar. 16, 2020); and Oxfam America and Earthrights International.

definition would: (1) help reduce instances where government officials are depriving

subnational and local communities of revenue allocations to which they are entitled; (2)

potentially permit “comparisons of revenue flows among different projects” to identify “payment

discrepancies that [may] reflect potential corruption and other financial discounts”; (3) help

citizens and others ensure that firms are meeting their payment obligations; (4) help local

communities and civil society groups possibly weigh the costs and benefits of a project; and (5)

possibly deter companies from underpaying royalties or other monies owed. 95

As a threshold matter, we observe that any effort to achieve the foregoing objectives

would appear to depend on other factors beyond the scope of Section 13(q) and the

Commission’s rulemaking authority. 96 For example, item (1) assumes that there are statutory

obligations for the national government to provide revenue allocations to other governmental

levels within a country. In any event, as explained below, to the extent that a country has

enacted a revenue-sharing law, we believe that the Modified Project Definition will provide

significant information about payments to the national government that would help determine

whether that government has met its statutory revenue-sharing obligations. Additionally, items

(2) and (3) would appear to require at a minimum the disclosure of the underlying contracts,

licenses, or leases to determine whether the payment obligations are similar among them;

without that information, there would be no obvious way to make cross-project comparisons or

ensure that resource extraction issuers are meeting their payment obligations. And with respect

See 2016 Rules Adopting Release at Section II.E.3.

This stands in contrast to what we believe is the primary congressional concern underlying Section 13(q), which

(as we discuss below) can be fully addressed within available authority, and it is a factor in leading us to believe

that these five potential collateral uses for the payment disclosures are neither statutorily compelled nor

necessary to the transparency goals that Congress intended to advance.

to items (4) and (5), without public awareness of the payment obligations (as well as the gross

revenues earned annually by the project), it would appear doubtful that there could be any

reasonably complete (or accurate) cost-benefit determination of the project or any form of

oversight resulting in meaningful deterrence.

Based on the foregoing, as well as our consideration of the text of Section 13(q) and the

history leading to its adoption in 2010, we do not find any persuasive support for the 2016

Adopting Release’s conclusion that Section 13(q) requires payment disclosures that could

advance the five purposes enumerated in that release. Thus, even assuming that the granular

disclosure required by the 2016 Rules might facilitate in some fashion one or more of those

goals, this result is not compelled, either directly or indirectly, by Section 13(q); and to the extent

that the 2016 Adopting Release suggests otherwise, we disavow that determination. 97 Instead,

those goals are better understood as (at most) secondary or ancillary objectives that the agency in

its discretion sought to further by requiring granular payment disclosure through the project

definition. Consistent with that interpretation, we decline to exercise our discretion to follow the

2016 approach by utilizing a project definition that is focused on furthering these secondary

objectives of the payment information.

We now turn to explain various aspects of the final rules. First, the final rules include

changes from the proposal that we believe will help limit the potential loss of payment

In this regard, we find it telling that Congress did not provide a definition of project or even direct us to define

the term. Nor, when Section 13(q) was enacted, was there a definition of project under EITI or any foreign

transparency regimes (as none then existed). The Commission chose to define the term project in the exercise

of its discretionary authority. This indicates that the Commission could have declined to adopt a uniform

definition of project, let alone a granular definition, and instead allowed resource extraction issuers the ability to

define the contours of their projects on a case-by-case basis. Accordingly, we do not read Section 13(q) as

necessarily requiring the Commission to adopt granular disclosure through a definition of the term project.

information compared to a contract-based definition. Specifically, the rules that we adopt in this

release will include the reinstatement of the $100,000 threshold in the definition of a “not de

minimis” payment 98 as well as a requirement to disclose the amounts paid to, and to identify,

each subnational government payee. 99

Second, issuers will be required to disclose payments at the major subnational

government level. As such, users of this information would be able to see the payments made

directly to a province or state, and could use this data to assess a province’s or state’s use of the

funds received, such as whether the province is employing the funds to benefit its citizens. 100

We also note that there is no single generally accepted definition of project in the mining

industry and the definitions that exist are typically very broad and do not define project based on

an individual contract level. 101 The definitions of project in the oil and gas industry (and related

See infra Section II.C.

See infra Section II.G.

100

Although not a goal of Section 13(q) (see the discussion above concerning the ultimate goal of the Project-toGovernment Payment Disclosure of Section 13(q)), the final rules may provide information that would be useful

for determining whether national governments in countries that have revenue-sharing laws have allocated funds

to provinces or other subnational governments if and as required by law. For example, users of the information

would be able to see all the reported payments made by resource extraction issuers from their projects that are

paid to a particular national government in a particular year. They could then apply the relevant percentage

under the country’s revenue-sharing law to the aggregated amount of payments from all issuers to determine the

portion of funds that should be allocated to a given province or other subnational government. Such persons

could then use that data to hold the national government accountable for what they believe to be the lawful

allocation of revenues required to be paid to a given subnational government from the extractive operations in

that country. Similarly, the final rules will identify the specific government payees, which will help users of the

information assess whether the payees allocated any funds to the specific communities where project activities

are being conducted. The usefulness, however, of the Section 13(q) payment data for purposes of determining

the lawful allocation from the national government to a subnational government will depend on the complexity

of the particular revenue-sharing law. For allocations under complex revenue-sharing laws, which rely on

factors other than a percentage-based formula, see, e.g., letter from Iraqi Transparency Alliance, it is likely that

neither a contract-based project definition nor the Modified Project Definition would be useful for this purpose.

101

For example, the Canadian disclosure regime for companies with mining operations defines a mineral project as

“any exploration, development or production activity” regarding “base and precious metals, coal, and industrial

minerals.” See National Instrument (NI) 43-101, Part 1.1 (2016).

definitions in the Commission’s oil and gas disclosure requirements) similarly do not focus on

contractual arrangements that generate payment obligations but rather on whether operations will

result in the development and production of reserves. 102 In light of this, we believe the Modified

Project Definition, based on the resource (and how and where it is extracted, as well as the

company’s identity) is a reasonable approach.

Some commenters opposed the Modified Project Definition because it deviates from the

contract-based definition of project adopted under the EU Directives, Canada’s ESTMA, and,

most recently, the EITI, which they describe as the international norm for a project definition in

payments-to-governments reporting. 103 They maintain that the Modified Project Definition

would (1) produce differences in the granularity of the payment disclosure reported under the

Section 13(q) rules and that reported under the EU Directives, Canada’s ESTMA, UK’s and

Norway’s transparency regimes, and the voluntary reporting program of the EITI, and (2) result

in issuers with multi-jurisdictional operations collecting and reporting two different sets of

payment data to accommodate the different project definitions, thereby unnecessarily increasing

compliance costs and potentially confusing users of the payment data. 104 Commenters therefore

102

See, e.g., Society of Petroleum Engineers, Petroleum Resources Management System, Section 1.2 (June 2018)

(stating that a project may, for example, “constitute the development of a well, a single reservoir, or a small

field; an incremental development in a producing field; or the integrated development of a field or several

fields together with the associated processing facilities (e.g., compression.”); see also 17 CFR 210.4-10(a)(8)

(Rule 4-10(a)(8) of Regulation S-X), which defines a “development project” as “the means by which petroleum

resources are brought to the status of economically producible” and provides as examples “the development of a

single reservoir or field, an incremental development in a producing field, or the integrated development of a

group of several fields and associated facilities with a common ownership.”

103

See, e.g., letters from BHP; BP; Oxfam and Earthrights International; and PWYP-US (Mar. 16, 2020).

104

See letters from BHP and PWYP-U.S. (Mar. 16, 2020).

recommended adoption of a contract-based definition to maintain a level playing field among

industry competitors 105 and to increase the comparability of the payment data.

One commenter stated that, instead of permitting the aggregation of contracts under the

Modified Project Definition, the Commission should adopt the approach for aggregating

contracts used in the foreign reporting regimes, which permits agreements with substantially

similar terms that are both operationally and geographically integrated to be treated by the issuer

as a single project. According to this commenter, the recommended approach would constitute a

change from the 2016 Rules that better aligns with international practice. 106

We acknowledge that adoption of the Modified Project Definition may in many instances

produce differences in the granularity of the payment disclosure reported under the Section 13(q)

rules and that reported under the EU Directives, Canada’s ESTMA, UK’s and Norway’s

transparency regimes, and the voluntary reporting program of the EITI. We are not statutorily

required, however, to harmonize our disclosure obligations with other reporting regimes. We

also believe that other aspects and considerations regarding the final rules should significantly

diminish these concerns about differences with other payment reporting regimes.

For example, as proposed, we are adopting an alternative reporting provision that will

allow issuers to meet the requirements of the Section 13(q) rules by providing disclosures that

comply with a foreign jurisdiction’s reporting regime if the Commission has determined that the

foreign reporting regime requires disclosure that satisfies the transparency objectives of Section

105

See letters from BP and Total (Feb. 10, 2020).

106

See letter from Oxfam America and Earthrights International.

13(q). 107 Concurrent with adoption of these final rules, we are issuing an order recognizing that

the resource extraction payment disclosure requirements of the European Union, United

Kingdom, Norway, 108 and Canada satisfy the transparency objectives of the Section 13(q) rules.

Consequently, a resource extraction issuer will be able to submit a report complying with the

reporting requirements of either the EU Accounting Directive or the EU Transparency Directive,

in each case as implemented in an EU or European Economic Area (EEA) member country, the

UK Reports on Payments to Governments Regulations, Norway’s Regulations on Country-byCountry Reporting, and Canada’s ESTMA, to satisfy its disclosure obligations under the Section

13(q) rules.

A resource extraction issuer that avails itself of the alternative reporting provision will

only have one set of data to collect and report—that pertaining to the alternative reporting

regime—and will largely not incur costs related to the need to collect and report two different

sets of payment data in order to comply with our Section 13(q) rules. 109

In addition, to the extent that some issuers only file under the Section 13(q) rules, we

understand that the Modified Project Definition could produce differences in the granularity of

the payment disclosure reported under the Section 13(q) rules and other regimes. While the

extent of such differences will vary depending upon the particular issuer and the location of its

107

See infra Section II.N. Issuers will have to meet certain conditions in order to avail themselves of the

alternative reporting provision.

108

Norway is a member of the EEA, not the EU. While the EU Directives apply to EEA members, Norway

adopted its Regulations on Country-by-Country Reporting in 2013 prior to the adoption of the EU Directives.

See FOR-2013-12-20-1682, which is available at https://lovdata.no/dokument/SF/forskrift/2013-12-20-1682 .

109

See infra Section III.D.5.

resource extraction operations, given that the other reporting regimes permit some aggregation of

payments for multiple agreements that are substantially interconnected operationally and

geographically, 110 in some instances the differences in granularity could be small. In this regard,

although one commenter recommended that we adopt the foreign reporting regimes’ approach to

the aggregation of payments for related contracts as a change to the 2016 Rules, 111 such an

approach would not constitute a change from the 2016 Rules. The 2016 Rules included a largely

similar provision that allowed agreements that are both operationally and geographically

interconnected to be treated by the resource extraction issuer as a single project. 112

Similarly, the deviation from the standards adopted in other regimes could result in a

lower compliance burden for resource extraction issuers subject solely to the Section 13(q) rules.

Unlike resource extraction issuers who are also subject to the EU Directives (or one of the other

foreign reporting regimes), issuers subject solely to the Section 13(q) rules will only have to

track and disclose payments at the more aggregated level required by the Modified Project

Definition. 113 This differential in burden, however, is not due to our rules’ selectively imposing

substantively different requirements. Rather, it is due to the fact that some issuers are also

obligated to comply with the EU Directives (or another foreign reporting regime).

110

See, e.g., EU Accounting Directive, Art. 41(4). We discussed the non-U.S. payments-to-governments reporting

regimes in some detail in the 2016 Rules Adopting Release at Section I.C.

111

See letter from Oxfam America and Earthrights International.

112

See 2016 Rules Adopting Release at Section II.E.

113

See letter from Total (Feb. 10, 2020).

Some commenters maintained that a contract-based definition of project is superior to the

Modified Project Definition because the latter is an artificial construct that deviates from

industry practice. 114 As a threshold matter, we reiterate that there is no single generally accepted

definition of project in the mining industry. In addition, as we discuss below in Section III.D.,

there is no indication that issuers that are not already subject to a foreign reporting regime have

systems in place to track payments at the contract level. 115 Thus, it is likely that these issuers

will incur compliance costs to implement systems to track, verify, and record payments under

either a contract-based project definition or the Modified Project Definition. 116

Other commenters have argued that the Modified Project definition fails to satisfy the

plain language of Section 13(q). 117 These commenters argued that the language in the statute

calling for “payments made for each project” and the language calling for “the type and total

amount of such payments made to each government.” when read together, indicate that Congress

intended to require disaggregated reporting by project. 118 Congress, however, did not define the

term “project” in Section 13(q), leaving the Commission discretion to adopt a definition that

encompasses all payments as that term is defined by the Commission. Commenters did not

explain how this plain language argument compels a particular definition of “project,” such as

the contract-based definition.

114

See, e.g., letter from PWYP-US (Mar. 16, 2020).

115

See infra Section III.D.1.

116

One industry commenter expressly noted that using the Modified Project Definition would “lower issuer

compliance costs in collecting and furnishing the information.” Letter from API (Mar. 16, 2020) at 6-7.

117

See, e.g., letter from Oxfam America and Earthrights International.

118

Id.

Commenters also argued that the requirement in Section 13(q) to disclose “royalties,

license fees, production entitlements and bonuses” suggests that Congress intended that the

Commission adopt a contract-based definition because such items are typically levied according

to the terms of specific contracts and licenses.” Again, however, we do not view this language as

compelling a particular “project” definition, as companies could aggregate or disaggregate these

items according to the “project” definition adopted by the Commission.

Finally, some commenters opposed the Modified Project Definition because of their

belief that a Contract-Level Project Definition is necessary to enable investors to assess the

financial, political, and market risks regarding a particular issuer’s projects. 119 As we explained

in the 2019 Rules Proposing Release, 120 we do not believe that the purpose of the required

disclosures is to provide material information to investors. 121 First, we believe that the

Commission’s existing rules should elicit all material risk-related disclosure. For example,

issuers are required to disclose the most significant risks affecting an issuer or the securities

being offered 122 as well as any known trends or uncertainties that have had or are reasonably

likely to have a material impact on the registrant’s liquidity, capital resources, or results of

operations. 123 Moreover, we continue to believe that the direct incremental benefit to investors

119

See, e.g., letter from PWYP-US (Mar. 16, 2020); and F. Samama et al.

120

See 2019 Rules Proposing Release at Section II.F.1.

121

See, e.g., 163 CONG. REC. H.850 (February 1, 2017) (Statement of Rep. Huizenga) (observing that the

Congressional goals underlying Section 13(q) are outside of the SEC’s “core mission” of “protect[ing]

investors,” “maintain[ing] fair, orderly and efficient markets,” and “facilitat[ing] capital formation”).

122

See 17 CFR 229.503(c).

123

See 17 CFR 229.303.

from the payment information may be limited because investors would typically require

additional information to calculate cash flows and other indices of risk, which may be lacking. 124

Further, it is likely that the vast majority of the individual contract-level project payment

amounts 125 would not be material to the financial condition of the issuers that are subject to the

Section 13(q) reporting requirements. 126 As such, we do not believe that such information is

likely to be material to an investment decision. 127

After consideration of all of these issues, we continue to believe that adopting the

Modified Project Definition is the appropriate choice to produce a rule that is not substantially

the same, 128 yet one that continues to provide a level of transparency sufficient to meet Section

13(q)’s goals.

124

See infra Section III.D.1.

125

Based on publicly available data, the average payment for projects under the contract level definition was $29

million and 95% of the payments were at or below $61 million.

126

In this regard, we note that most smaller reporting companies and emerging growth companies will be exempt

from the Section 13(q) reporting requirements.

127

This was acknowledged by the then Chairman of the Senate Banking Committee, Senator Christopher Dodd, one

of the bill’s co-sponsors. (The required payment information “appears not to rise to the level of materiality for

investors that currently governs the disclosure requirements of public companies under Federal securities laws.”)

156 Cong. Rec. 3801, 3818 (May 17, 2010). In further support of our view that Section 13(q) disclosures were

not intended for investor use, we observe that Section 13(q) itself makes no reference to investor interests or

protection (unlike many other provisions of the securities laws) and instead states that, to the extent practicable,

any rules under Section 13(q) should support the “commitment of the Federal Government to international

transparency promotion efforts.” Those efforts, which involve the EITI as well as European and Canadian law,

are also generally not considered to be investor disclosure measures. While we acknowledge that the placement

of Section 13(q) in the Exchange Act could be understood to support a contrary congressional intention here, we

think that it is more likely that the placement of the resource extraction payment disclosures in the Exchange Act

is primarily because the Commission has a deep history involving issuer disclosures and Congress sought to

leverage that experience. In that regard, we note that Section 1504 of the Dodd-Frank Act, which amended the

Exchange Act to add Section 13(q), was not incorporated into any of the Dodd-Frank’s titles that principally deal

with financial regulatory matters, but rather near the end of the Act in a title labeled “Miscellaneous Provisions.”

128

See infra Section II.B., for a discussion of why we do not believe that a non-public submission followed by an

anonymized compilation is the appropriate choice for complying with the CRA and meeting the overarching

disclosure objectives of Section 13(q).

Discussion of the Modified Project Definition

In the following three subsections, we discuss the disclosure required by each of the three

prongs of the Modified Project Definition in greater detail. Except for comments that either

generally supported or opposed the Modified Project Definition, we received no comments

directly addressing the specific prongs of the project definition. Accordingly, except as

indicated, we are adopting the Modified Project Definition largely as proposed. 129

Type of Resource

Under the Modified Project Definition, the first prong for determining the parameters of a

project is the type of resource that is being commercially developed. A resource extraction

issuer will be required to disclose whether the project relates to the commercial development of

oil, natural gas, or a specified type of mineral. As we explained in the 2019 Rules Proposing

Release, this prong will not require an issuer to describe the specific type or quality of oil or

natural gas or distinguish between subcategories of the same mineral type. 130 For example, an

129

In Section II.P, the Commission explains its preference for how the final rule under Section 13(q) should be

applied if the definition of “project” should be held invalid by a Federal court or otherwise deemed ineffective

for any reason. If this should occur, it is the Commission’s preference that the final rule should be enforced and

resource extraction issuers should disclose resource extraction payments to the fullest extent practicable,

including the per-project payment disclosures as required by Section 13(q)(2)(A(i). Further, issuers should

determine based on their own business structure and other relevant considerations how to identify and describe

their various projects until such time as the Commission completes any further rulemaking that seeks to define

the term. In reaching this recommendation, we note that Section 13(q) does not define project nor does it

compel the Commission to do so. Accordingly, we believe that it is appropriate to allow issuers to identify their

projects in a reasonable manner just as they would be permitted to do by the statute in the absence of the

Commission’s exercise of discretion to adopt a definition. In specifying the preference above, the Commission

is mindful that Congress enacted Section 13(q) over a decade ago and that to date no disclosures have been

made under that provision. Finally, issuers are reminded that the anti-evasion provision in the final rule would

continue to apply to their payment disclosures in these circumstances.

130

See 2019 Rules Proposing Release at Section II.F.2.

issuer disclosing payments relating to an oil project will not be required to describe whether it is

extracting light or heavy crude oil. Similarly, an issuer disclosing payments relating to a mining

project will be required to disclose whether the mineral is gold, copper, coal, sand, gravel, or

some other generic mineral class, but not whether it is, for example, bituminous coal or

anthracite coal. 131

We continue to believe that a requirement to provide greater detail regarding the type of

resource that is the subject of extractive activities is not necessary for persons to determine

whether those activities have given rise to government payments in which they may have an

interest. The presence of the activities combined with the disclosure of the method of extraction

(well, open pit, etc.) and the identification of the resource as oil, gas or, e.g., gold, copper, or

coal, will provide transparency to the users of the information to assess whether and to what

extent there are payments being made for extraction activities in a particular area. We believe

that requiring greater detail about the type of resource could reveal proprietary information that

could cause competitive harm, a concern that members of Congress expressed when

disapproving the 2016 Rules. Such an approach could make the final rules less likely to satisfy

the CRA’s restriction on reissuing the disapproved rule in substantially the same form or

adopting a new rule that is substantially the same.

Method of Extraction

The second prong for determining the parameters of a project is the method of extraction.

This prong will require a resource extraction issuer to identify whether the resource is being

131

For clarity and consistency, we are adopting an instruction to Form SD, as proposed, that will require synthetic

oil or gas obtained through the processing of coal to be classified as “coal.” See Instruction 5 to Item 2.01 of

Form SD.

extracted through the use of a well, an open pit, or underground mining. Additional detail about

the method of extraction will not be required. For example, a resource extraction issuer would

not be required to disclose whether it is using horizontal or vertical drilling, hydraulic fracturing,

or strip, sublevel stope, or block cave mining. Similar to the type of resource prong, we believe

that such a level of specificity regarding the particular method of extraction would not provide

any additional meaningful information to end users, and that the required disclosure about

method of extraction will provide transparency to users of the information to assess whether and

to what extent there are payments being made for extraction activities in a particular area. On

the other hand, such disclosure could result in the disclosure of proprietary information, which

could potentially result in competitive harm and thus make it less likely that the final rules satisfy

the CRA requirements.

Major Subnational Political Jurisdiction

The third prong for determining the parameters of a project is the major subnational

political jurisdiction where the commercial development of the resource is taking place. This

prong will require an issuer to disclose only to the level of major subnational jurisdiction (e.g.,

state, province, district, region, territory) in which the resource extraction activities are

occurring. As discussed below, we are also adopting the proposed requirement that an issuer

must provide an electronic tag for both the country and the major subnational political

jurisdiction in which the extractive activities are occurring that is consistent with the

International Organization for Standardization (“ISO”) code pertaining to countries and their

major subdivisions. 132 We believe that the required use of ISO codes to identify major

subnational jurisdictions will provide a standardized data format that may be more easily

analyzed than the data produced under the Contract-Level Project Definition.

For example, a project for extractive activities in the city of Timika in the province of

Papua, Indonesia would be identified as occurring in Papua, without identifying Timika, as

Papua would be the major subnational political jurisdiction. Similarly, an issuer would identify

the project for activities in the counties of Elko, Nevada and White Pine, Nevada, as occurring in

Nevada because Nevada would be the major subnational political jurisdiction.

If the extractive activity is offshore, we proposed requiring an issuer to include in its

project identification that its operations are offshore as well as the nearest major subnational

political jurisdiction. One commenter stated that labeling projects in national waters according

to the nearest major subnational political jurisdiction could create an incorrect impression that

the identified subnational jurisdiction has a greater practical or legal relationship to the project

than other subnational jurisdictions in the area, which may well not be the case. This could in

turn create “undesirable or wasteful political dynamics between states or provinces in the host

country.” 133 For offshore resource extraction, that commenter recommended identifying the

132

See infra Section II.M. In a change from the proposed rules, in response to commenters’ concerns that the

proposed treatment of payments to subnational governments (below the level of major subnational political

jurisdiction) was not sufficiently transparent, issuers will also be required to provide an electronic tag

identifying each subnational government payee rather than referring to such payees generically (i.e., as

“county” or “municipality”). See infra Section II.G.

133

Letter from API (Mar. 16, 2020).

project by the body of water in which the project is located (e.g., Gulf of Mexico) instead of the

nearest major subnational jurisdiction. 134

We agree with this commenter that in certain circumstances labeling an offshore project

by the nearest major subnational jurisdiction could be confusing, for example, a particular

offshore project may be equidistant from multiple coastal states or provinces. Accordingly, we

have revised the proposed third prong of the Modified Project Definition to provide that, for

offshore projects, the identification of the major subnational political jurisdiction where the

commercial development of the resource is taking place should include the body of water in

which the project is located, using the smallest body of water applicable (e.g., gulf, bay, sea), as

well as the nearest major subnational jurisdiction. In addition, if the project is equidistant from

two major subnational jurisdictions, the issuer may disclose both such jurisdictions. 135

Special Situation

Under the final rules, commercial development activities using multiple resource types or

extraction methods can be treated as a single project if such activities are located in the same

major subnational political jurisdiction. 136 The issuer will be required to describe each type of

resource that is being commercially developed and each method of extraction used for that

project. For example, an open pit and underground zinc mining project in Erongo, Namibia

would be described as “ER/Zinc/Open Pit/Underground” and a drilling project off the shore of

134

See id.

135

See Instruction (5)(iii) to Item 2.01 of Form SD.

136

See Instruction (5)(iv) to Item 2.01 of Form SD.

Veracruz, Mexico that produced both oil and natural gas would be described as “Offshore-Gulf

of Mexico/Veracruz/Oil/Natural Gas/Well.”

We recognize that such an approach could result in broad aggregation of projects within a

major subnational political jurisdiction, which could make it more difficult for end-users of the

disclosure to identify the specific commercial development activities associated with the

disclosed payments. Nevertheless, as we explained in the Proposing Release, we believe that

this approach is appropriate because issuers often develop more than one type of resource at a

particular location and use more than one method of extraction. Limiting the definition of

project to only commercial development activities comprising the same type of resource, method

of extraction, and major subnational political jurisdiction may result in artificial distinctions. For

example, an issuer would be required to treat oil and natural gas extraction from the same well as

separate projects, and similarly, open pit and underground mining in the same location as

separate projects. Requiring that these types of related activities be treated as separate projects

could also lead to confusion about how reportable payments should be allocated between such

projects. Although we solicited comment on the proposed approach to development activities

using multiple resource types or extraction methods, no commenters specifically objected or

suggested alternative approaches.

In some situations, the site where a resource is being commercially developed could cross

the borders between, and generate payment obligations in, multiple major subnational political

jurisdictions. In such a case, the final rules will require the issuer to treat the activities in each

major subnational political jurisdiction as separate projects, as proposed. 137 This approach

137

See Instruction (5)(iv) to Item 2.01 of Form SD.

reflects the fact that, although the cross-border extractive activities are related, the disaggregated

payment information would be of interest to different users of the information.

Public Reporting

Public Disclosure of the Issuer’s Payment Information, Including the

Issuer’s Name

Section 13(q) provides the Commission with the discretion to require public disclosure of

payments by resource extraction issuers, including their names, or to permit nonpublic filings. 138

When proposing the 2019 Rules, the Commission expressed its belief that exercising its

discretion to require public disclosure, including the issuer’s name, might better accomplish the

objectives of Section 13(q). 139 The Commission stated, however, in the 2019 Rules Proposing

Release that it would also consider an alternative approach supported by some commenters on

the 2016 Rules that would permit issuers to submit their Section 13(q) reports to the Commission

non-publicly and have the Commission use those nonpublic submissions to produce an

aggregated, anonymized compilation that would be made available to the public. 140 After

reviewing the numerous comments received on the public reporting issue, we are adopting the

138

See API v. SEC, 953 F. Supp. 2d at 11 (finding that the Commission “misread the statute to mandate public

disclosure of the reports” when adopting the 2012 Rules).

139

See 2019 Rules Proposing Release at Section II.I.1; see also 2016 Rules Adopting Release at II.H.3.

140

See 2019 Rules Proposing Release at Section II.I.1 (citing letters from API (Feb. 16, 2016) and (Jan. 28, 2011);

BP (Feb. 16, 2016); Chevron (Feb. 16, 2016); and Royal Dutch Shell (Feb. 5, 2016)); see also 2016 Rules

Proposing Release, Section II.G.2 and 2016 Adopting Release, n.345.

proposed requirement that resource extraction issuers provide the Section 13(q) disclosure

publicly, including their names, through the searchable, online EDGAR system. 141

Many commenters supported the proposed public submission of the Section 13(q) reports

and expressly opposed the alternative, non-public submission and anonymized compilation

approach. 142 Commenters indicated that public reporting of issuer-specific payment information

is essential to carry out Section 13(q)’s transparency, accountability, and anti-corruption

objectives. 143 Commenters stated that, to achieve these objectives, public reporting is necessary

to hold both government actors and commercial actors accountable in resource-rich countries so

as to achieve meaningful oversight of government revenue collection and management and deter

corruption. 144 Commenters maintained that, in contrast, the non-public submission and

anonymized compilation approach would not be conducive to building trust between issuers,

governments, and local citizens, would not prevent mismanagement of funds obtained from

resource payments, and would negate the transparency and anti-corruption benefits for citizens

that Section 13(q) was intended to achieve. 145 Some commenters also noted that the non-public

submission and anonymized compilation approach would nullify Section 13(q)’s benefits to

141

As we did in the 2012 and 2016 rulemakings, we are requiring that a resource extraction issuer provide the

required Section 13(q) disclosures on Form SD (17 CFR 249b.400).

142

See, e.g., letters from Congr. Waters et al; Equinor; Oxfam and Earthrights International; Project On

Government Oversight (Mar. 13, 2020) (POGO); PWYP-US; Sens. Cardin et al.; and Transparencia por

Colombia (Mar. 19, 2020).

143

See, e.g., letters from Oxfam America and Earthrights International; PWYP-US (Mar. 16, 2020); and Sens.

Cardin et al.

144

See, e.g., letters from Oxfam American and Earthrights International; and PWYP-US (Mar. 16, 2020); see also

letter from POGO.

145

See letters from Equinor; Oxfam American and Earthrights International; and Congr. Waters et al.

investors by preventing them from obtaining issuer-specific payment data to help them assess

risk in investing in resource extraction issuers. 146 Finally, commenters stated that adoption of the

non-public submission and anonymized compilation approach would result in a decrease in

comparability with the non-U.S. payments-to-governments reporting regimes, each of which

requires public, issuer-specific reporting of payments. 147

A few commenters supported the non-public submission and anonymized compilation

approach. 148 One commenter stated that Congress’s goal of enabling people to hold their

governments accountable for the revenues generated from resource development would be

achieved as long as citizens know the amount of money the government receives, and not the

companies that make each individual payment. 149 This commenter further expressed its concern

that public disclosure of issuer-specific extractive payments may result in harm by allowing

competitors to reverse-engineer the value a particular issuer places on a specific resource area.

Moreover, the commenter stated that the threat of reverse-engineering could occur even under

the proposed Modified Project Definition by allowing a competitor to compare changes in

reported payments for the same area year after year, which could provide competitive insights

especially where a particular country effectively possesses a single major area of resource

development. 150 For those reasons, this commenter believed that the non-public submission and

146

See letters from Congr. Waters et al; Oxfam American and Earthrights International; and PWYP-US (Mar. 16,

2020).

147

See, e.g., letters from Oxfam American and Earthrights International; and PWYP-US (Mar. 16, 2020).

148

See letters from API (Mar. 16, 2020); Chamber; and NAM.

149

See letter from API (Mar. 16, 2020).

150

See id.

anonymized compilation approach would best balance the goals of achieving the objectives of

Section 13(q) and preventing unnecessary harm to resource extraction issuers.

We acknowledge the concerns raised about potential competitive harm, but do not

believe that adoption of the non-public submission and anonymized compilation is necessary to

avoid any such potential competitive harm. Rather, as discussed above, we believe that adopting

the Modified Project Definition, under which issuers will not be required to disclose overly

descriptive disclosures potentially revealing competitively sensitive information, is sufficient to

address any such risks.

Moreover, we do not believe that adoption of the non-public submission and anonymized

compilation would achieve the same level of transparency as our approach in the final rules. We

acknowledge that the anonymized compilation would reveal the payments to foreign

governments at all levels, including the specific agency and department within the government.

As such, it would provide some level of transparency in foreign nations that currently do not

disclose such information, or do not do so accurately. Importantly, however, the reduced

transparency provided by an anonymized compilation would significantly limit the usefulness of

the disclosure because all similar activities in the same subnational jurisdiction, regardless of

issuer, would be indistinguishable. Thus, we believe that this would be much less effective in

achieving Section 13(q)’s transparency goals as compared to our approach.

In this regard, we note that if Congress had simply been focused on the disclosure of

revenues into foreign governments, it would have been sufficient to require only the disclosure

of payments to foreign governments required by Section 13(q)(2)(A)(ii), which requires

information about the payments to each government. Yet Congress also included Section

13(q)(2)(A)(i), which mandates that the Commission’s rules must require the disclosure of the

type and total amount of such payments made “for each project of the resource extraction

issuer.” Thus, we believe that the Modified Project Definition, which provides for public

disclosure of the issuer, is the more effective choice for satisfying the CRA mandate and

achieving the transparency goals of Section 13(q).

We also do not believe that it is necessary to adopt the non-public submission and

anonymized compilation approach to fulfill the CRA’s mandate that the new rule not be

substantially the same as the disapproved rule. Rather, as discussed above, we believe that

adoption of the Modified Project Definition will largely accomplish this objective. We also

believe that the other changes to the 2016 Rules that we are adopting will further distinguish the

final rules from the disapproved rules and, in addition, help address concerns about the rules’

burdens. In addition to the Modified Project Definition, 151 these changes include the rule-based

exemptions for conflicts with foreign law and pre-existing contracts; 152 the exemptions for

smaller reporting companies and emerging growth companies; 153 transitional relief for a resource

extraction issuer that has completed its initial public offering in its last full fiscal year; 154 and an

extended submission deadline. 155 Adoption of the proposed delayed reporting for exploratory

151

See supra Section II.A.

152

See infra Sections II.D.1. and 2.

153

See infra Section II.D.3.

154

See infra Section II.D.6

155

See infra Section II.L.2.

activities, which we first adopted in 2016, should also help to mitigate the potential for

competitive harm. 156

Moreover, like the 2016 Rules, the final rules will include contractually required social

and community payments among the required disclosures, 157 and issuers will be required to

disclose those payments made to subnational governments while identifying each subnational

government payee. 158 As such, the users of the information may be able to assess whether the

local communities are in fact receiving the promised payments and whether those payments are

being used by the governments for their intended purpose. 159

Finally, although not a primary goal of Section 13(q), we note that adoption of the

requirement for issuer-specific, public disclosure may nevertheless help to further Section

13(q)’s directive to support the commitment of the Federal Government to international

transparency promotion efforts relating to the commercial development of oil, natural gas, or

minerals. 160 As commenters noted, all other existing reporting regimes require public disclosure

of the payment information, including the identity of the issuer. 161 Adoption of a similar

156

See infra Section II.D.4.

157

See infra Section II.J.5.

158

See infra Section II.G.

159

Social or community payments are frequently made as accommodations by resource extraction issuers to local

communities impacted by extractive activities. For example, when filing its Exchange Act annual report, a

mining registrant is required to attach a technical report summary prepared by its mining expert (its “qualified

person”), which must include a description of “accommodations the registrant commits or plans to provide to

local individuals or groups in connection with its mine plans.” See 17 CFR 229.601(b)(96)(iii)(B)(17)[Item

601(b)(96)(iii)(B)(17) of Regulation S-K.

160

15 U.S.C. 78m(q)(2)(E).

161

See supra note 147. See also ESTMA Specifications, Section 2.4 (“Reporting Entities are required to publish

their reports on the Internet so they are available to the public”); and EU Accounting Directive Arts. 42(1) and

requirement under Section 13(q) would be consistent with the statutory directive to support the

commitment of the Federal Government to international transparency efforts by increasing the

total number of companies that provide public, issuer-specific disclosure.

Public Compilation

Consistent with Section 13(q), 162 and as proposed, the final rules provide that, to the

extent practicable, the staff will periodically make a compilation of the information that issuers

are required to submit under Section 13(q) publicly available online. 163 The staff may determine

the form, manner, and timing of the compilation, 164 except that no information included in the

compilation may be anonymized, whether by redacting the names of the resource extraction

issuers or otherwise. Since we are requiring the public disclosure of the payment information on

Form SD, we do not believe it would be appropriate or useful to anonymize any of the

information in the compilation. 165

Definition of a “Not De Minimis” Payment

Section 13(q) defines “payment” in part to mean a payment that is made to further the

commercial development of oil, natural gas, or minerals and that is not de minimis. 166 Section

45(1) (requiring disclosure of payments to governments in a report made public on an annual basis and

published pursuant to the laws of each member state). We are not aware of any existing transparency regimes

that do not require public disclosure.

162

See 15 U.S.C. 78m(q)(3).

163

See 17 CFR 240.13q-1(e).

164

See id. We do not anticipate that the staff would produce such a compilation more frequently than once a year.

165

Except for comments that addressed the anonymized compilation approach, see supra Section II.B.1., we did

not receive any comments that addressed the proposed compilation provision.

166

See 15 U.S.C. 78m(q)(1)(C).

13(q), however, does not define “not de minimis.” 167 We proposed to define “not de minimis” to

mean any payment made to each foreign government in a host country or the Federal

Government that equals or exceeds $150,000, or its equivalent in the issuer’s reporting currency,

whether made as a single payment or series of related payments, subject to the condition that

single payment (or a series of related payments) disclosure for a project is only required if the

total payments for a project equal or exceed $750,000. 168 This proposed definition differed from

the definition of “not de minimis” in the 2016 Rules, which defined a “not de minimis” payment

in relevant part as one that equals or exceeds $100,000, whether made as a single payment or

series of related payments. 169 We proposed this change in light of previously expressed concerns

from commenters that the threshold was unreasonably low and costly to calculate 170 and the

likely impact of the proposed revised definition of project, which would allow aggregation of

payments at a higher level and likely increase the value of the individual types of payments. 171

Several commenters supported the proposed definition of “not de minimis” as any

payment that equals or exceeds $150,000 made in connection with a project that equals or

167

Consistent with the 2012 and 2016 Rules, we continue to believe that it is appropriate to adopt a definition of

“not de minimis” to provide clear guidance regarding when a resource extraction issuer must disclose a

payment.

168

See 2019 Rules Proposing Release at Section II.C.9.

169

See 2016 Adopting Release, Section II.C.3.c. The 2012 Rules also defined a “not de minimis” payment using

the $100,000 threshold. See 2012 Adopting Release, Section II.D.2.c.

170

See 2019 Rules Proposing Release at Section II.C.9 (citing letter from Nouveau Inc. (Feb. 16, 2016) (stating

that the $100,000 reporting threshold would be unreasonably low for companies working on massive scale

projects and would require parties to engage in the costly collection, compilation, and standardization of

potentially thousands of different data points).

171

See id.

exceeds $750,000 in total payments. For example, one commenter stated that the proposed

definition would reduce compliance costs by allowing companies to forgo reporting on payments

that are insignificant to the project and to their investors. 172 Another commenter stated that the

proposed not de minimis thresholds would help preserve shareholder resources and enable longterm growth within the resource extraction industry. 173

Numerous commenters opposed the proposed definition of a “not de minimis”

payment. 174 Several commenters stated that the proposed definition would undermine

Congressional intent underlying Section 13(q) by eliminating a significant amount of project and

payment disclosures. 175 In support of this statement, some commenters referred to a study of

4,018 projects conducted by 731 companies that have published reports pursuant to the

payments-to-governments laws of the EU, United Kingdom, Canada, and Norway. 176 Utilizing

the most recent payments-to-governments reports submitted by these companies, the study

indicated that 49% of the reported projects, when using the Modified Project Definition, would

172

See letter from NAM.

173

See letter from SAF.

174

See letters from Africa Center for Energy Policy (Mar. 16, 2020); Elise J. Bean; Better Markets (Mar. 16,

2020); Sens. Cardin et al.; the Carter Center; Derecho Ambiente y Recursos Naturales (Mar. 15, 2020) (DAR);

Financial Accountability and Corporate Transparency Coalition (Mar. 18, 2020) (FACT Coalition); Shannon

Gough (Mar. 16, 2020); KCSPOG; S. Kaimal, CEO of Natural Resource Governance Institute (Mar. 16, 2020)

(S. Kaimal, CEO of NRGI); Daniel Kaufmann; ONE.org; Oxfam America and Earthrights International; Eric

Postel; Public Citizen (Mar. 16, 2020); PWYP-US (Mar. 16, 2020); F. Samama et al., Sierra Club (Mar. 14,

2020); Forum for Sustainable and Responsible Investment (Jun. 17, 2020) (SIF), Total (Feb. 10, 2020); and

Congr. Waters et al.

175

See, e.g., letters from Elise J. Bean; Shannon Gough; ONE.org; Oxfam America and Earthrights International;

and PWYP-US (Mar. 16, 2020).

176

See, e.g., letters from Elise J. Bean; Oxfam America and Earthrights International; and PWYP-US (Mar. 16,

2020). The study was conducted by the Natural Resource Governance Institute and is described in the letter

from S. Kaimal, CEO of NRGI (Mar. 16, 2020).

fall below the $750,000 threshold and, therefore, go unreported. This study led commenters to

assert that the proposed definition would severely undermine the utility of the rule in carrying

out Section 13(q)’s pro-transparency mandate. 177

One commenter opposing the proposed “not de minimis” payment definition stated that

the proposed $750,000 threshold would operate as a de facto “materiality” requirement for the

definition of project, which the commenter argued has no support in the statutory language. 178

Several commenters contended that both the $750,000 and $150,000 thresholds appear to be

arbitrary and unsupported by anything in the record. 179 Some commenters also stated that the

proposed definition is inconsistent with the payment threshold adopted in over 30 countries

under the laws of the other payments-to-governments reporting regimes, each of which

approximates $100,000. 180 Other commenters maintained that the proposed “not de minimis”

payment definition would lessen the comparability of the payment data for users interested in

analyzing the data on a global basis 181 and could result in a competitive disadvantage to

companies operating and reporting in the other non-U.S. jurisdictions. 182 Finally, some

commenters believed that the proposed “not de minimis” payment definition could encourage

177

See letters from letters from Elise J. Bean; Oxfam America and Earthrights International; and PWYP-US (Mar.

16, 2020); see also letter from Kaufmann.

178

See letter from PWYP-US (Mar. 16, 2020).

179

See id.; see also letters from Elise J. Bean; Oxfam America and Earthrights International; Eric Postel; Sierra

Club; and Congr. Waters et al.

180

See letters from Elise J. Bean; Oxfam America and Earthrights International; and PWYP-US (Mar. 16, 2020).

181

See, e.g., letters from Sens. Cardin et al.; FACT Coalition; and F. Samama et al.

182

See letter from Total (stating that, together with the proposed project definition, the different “not de minimis”

threshold may result in a competitive disadvantage detrimental to EU issuers).

corruption, or at least be inconsistent with the anti-corruption objective of Section 13(q), by

facilitating the manipulation of payments to below one or both thresholds and thereby keeping

them non-reportable. 183 For the above reasons, many commenters requested that, consistent with

the 2016 Rules, we define “not de minimis” as a payment that equals or exceeds $100,000,

whether made as a single payment or series of related payments. 184

We believe that these commenters have raised a number of valid concerns, the most

significant of which is that the proposed definition could result in a high percentage of projects

going unreported, thereby unduly reducing transparency. We also believe that adopting the

$100,000 threshold will mitigate against the potential loss of information that may arise as a

result of our adoption of the Modified Project Definition, which, as we have discussed, we

believe is the most appropriate way to comply with the CRA.

Under the adopted definition, a “not de minimis” payment means any payment, whether

made as a single payment or a series of related payments, that equals or exceeds $100,000, or its

equivalent in the resource extraction issuer’s reporting currency. 185 We are adopting the

remainder of the proposed definition, which provides that, in the case of any arrangement

providing for periodic payments or installments, a resource extraction issuer must use the

aggregate amount of the related periodic payments or installments of the related payments in

determining whether the payment threshold has been met for that series of payments, and

183

See, e.g., letters from Better Markets; Oxfam America and Earthrights International; and Public Citizen.

184

See supra note 174.

185

See Item 2.01(d)(8) of Form SD.

accordingly, whether disclosure is required. We did not receive any comments on this part of the

definition, which is similar to the definition adopted under the 2016 Rules.

We are also adopting the proposed instruction that allows an issuer to choose several

methods to calculate currency conversions for payments not made in U.S. dollars or the issuer’s

reporting currency. That instruction also provides that the same methods are available to issuers

when calculating whether a payment not made in U.S. dollars meets or exceeds the “not de

minimis” threshold. 186 We did not receive any comments on this instruction. We continue to

believe that providing alternative methods for calculating currency conversions would help limit

compliance costs under Section 13(q). As under the 2016 Rules, an issuer would be required to

use a consistent method for its payment currency conversions, including when determining if a

payment is not de minimis, and would be required to disclose which method it used. 187

Exemptions from Compliance

The 2013 District Court opinion found that the Commission has the authority to grant

exemptions with respect to Section 13(q). 188 We proposed three new exemptions from reporting

under Section 13(q), 189 as follows:

•

If the Section 13(q) disclosure is prohibited by foreign law;

•

If the required disclosure would violate one or more pre-existing contract terms; and

186

See Instruction 2 to Item 2.01 of Form SD.

187

See id. (stating that “[i]n all cases, a resource extraction issuer must disclose the method used to calculate the

currency conversion and must choose a consistent method for all such currency conversions within a particular

Form SD submission”).

188

See API v. SEC, 953 F. Supp. 2d at 21-23.

189

See 2019 Rules Proposing Release at Section II.J.

•

If the resource extraction issuer is a smaller reporting company 190 or an emerging growth

company. 191

We also proposed delayed reporting for exploratory activities and transitional relief for

recently acquired companies, both of which were included in the 2016 Rules. 192 In addition, we

proposed similar transitional relief for a resource extraction issuer that has recently conducted its

initial public offering. 193 Finally, we proposed to retain the 2016 Rules’ provision allowing an

issuer to file an application for exemptive relief on a case-by-case basis. 194

When proposing the exemptions for situations involving conflicts with foreign laws or

pre-existing contract terms, we noted that several industry commenters had specifically

recommended these two exemptions in connection with prior rulemakings to reduce the risk of

competitive harm that could result from the required Section 13(q) payment disclosure.

According to these commenters, without these exemptions, a resource extraction issuer that faced

a legal or contractual conflict would have to choose between complying with Section 13(q) or

190

The Commission recently amended the definition of “smaller reporting company” to expand the number of

registrants that qualify as smaller reporting companies, and to reduce compliance costs for these registrants and

promote capital formation, while maintaining appropriate investor protections. The amended definition of

“smaller reporting company” includes registrants with a public float of less than $250 million (compared to $75

million in the earlier rule), as well as registrants with annual revenues of less than $100 million for the previous

year and either no public float or a public float of less than $700 million. See Release No. 33-10513 (Jun. 28,

2018) [83 FR 31992 (Jul. 10, 2018)].

191

The term “emerging growth company” means an issuer that had total annual gross revenues of less than

$1,070,000,000 during its most recently completed fiscal year. See the definition of emerging growth company

in Securities Act Rule 405 and Exchange Act Rule 12b-2.

192

See 2016 Adopting Release, Section II.G.3.

193

See 2019 Rules Proposing Release at Section II.J.6.

194

See 2019 Rules Proposing Release at Section II.J.7.

the host country law or contract. 195 We believe that these exemptions and the proposed

transitional relief would address the previously expressed concerns about the burdens and

potential risks of Section 13(q) disclosure.

We also believe that the proposed exemptions are consistent with the CRA’s prohibition

on adopting rules that are in substantially the same form as the disapproved rules. Accordingly,

we are adopting these provisions largely as proposed, except that we have added a condition to

the exemption for emerging growth companies and smaller reporting companies to address

specific concerns raised by commenters. We discuss each of these provisions in more detail

below.

Exemption for Conflicts of Law

We are adopting, as proposed, a conditional exemption for when an issuer is unable to

provide the required disclosure without violating the laws of the jurisdiction where the project is

located. 196 We proposed this exemption after reconsidering comments in the 2016 rulemaking

concerning the potential harm that could occur from a situation involving a conflict with foreign

law. 197 Congressional members who voted to disapprove the 2016 Rules also expressed concern

about the lack of exemptions under the 2016 Rules. 198

195

See 2019 Rules Proposing Release at Section II.J. (citing letters from API (Feb. 16, 2016) and (Nov. 7, 2013);

Chevron (Feb. 16, 2016); ExxonMobil (Feb. 16, 2016); and Nouveau (Feb. 16, 2016)).

196

See 17 CFR 240.13q-1(d)(1).

197

See, e.g., 2019 Rules Proposing Release at Section II.J.; see also letters from API (Feb. 16, 2016); and

ExxonMobil (Feb. 16, 2016). (Indicating that if an issuer chose to provide the payment disclosure in violation of

the host country law, the issuer could face the shut down and, in the extreme case, expropriation of its facilities

in the host country, the imposition of fines, or the withholding of permits.)

198

See, e.g., 163 Cong. Rec. H. 848, 853 (February 1, 2017) (Statement of Rep. Rothfus) (“I am also concerned

that this rule could force companies to withdraw from certain countries. Among other things, some foreign

countries have laws to prohibit the sort of disclosures called for in this rule. Since the rule provides no

Several commenters in the current rulemaking continued to express concerns about a

conflict of law situation in the host country and supported an exemption to address the potential

competitive harm and administrative difficulties resulting from such a situation. 199 Some

industry commenters also stated their belief that a case-by-case exemptive approach for handling

situations involving conflicts of law (or contract prohibitions) is problematic. These commenters

stated that the substantial practical and administrative difficulties associated with obtaining

timely exemptive relief, particularly for an issuer threatened with the potential total loss of its

operations in the host country, render this option unworkable. 200

Other commenters objected to any exemption to the Section 13(q) rules, including one for

conflicts of law situations. 201 These objections were largely based on (1) the absence of

exemptions under the EU and Canadian transparency regimes and the comparative gap in

coverage that would occur; 202 (2) a concern that the Section 13(q) exemptions, particularly the

conflicts of law exemption, could create an incentive for countries to enact similar provisions

exemptions, American firms may be forced to abandon business ventures that provide jobs and opportunities for

Americans.”); see also letter from Sen. Corker et al.

199

See letters from API (Mar. 16, 2020); Chamber; Davis Polk & Wardwell (Mar. 6, 2020) (Davis Polk); NAM;

Petrobras (Mar. 16, 2020); and SAF.

200

See letters from API (Mar. 16, 2020); NAM; and SAF. Some commenters articulated this concern about a caseby-case exemptive approach for handling conflict of laws situations in the 2016 rulemaking. See letters from

API (Feb. 16, 2016); and ExxonMobil (Feb. 16, 2016).

201

See, e.g., letters from Africa Center for Energy Policy; Elise J. Bean; Sens. Cardin et al.; DAR; EG Justice

(Mar. 11, 2020); FACT Coalition; Friends of the Nation (Mar. 16, 2020); Shannon Gough; KCSPOG; Eric

Postel; Robert Rutkowski (Mar. 16, 2020); Transparency International (US) (Mar. 13, 2020); and Congr.

Waters et al.

202

See, e.g., letters from Elise J. Bean; and Congr. Waters et al. In this regard, we acknowledge that the conflicts

of law exemption may lessen comparability with the EU and Canadian transparency regimes to a certain extent.

For the reasons discussed, however, we believe it is appropriate to include the exemption.

that would undermine international transparency promotion efforts; 203 and (3) the lack of

demonstrated need for the exemptions, which some commenters viewed as overly broad. 204

After considering the comments, and with a view to limiting delay and burdens, the final

rules will permit issuers, as proposed, to avail themselves of the exemptions for situations

involving conflicts with foreign laws (or pre-existing contract terms) without seeking individual

relief on a case-by-case basis. This approach will help facilitate an issuer’s timely submission of

Form SD and alleviate some of the uncertainties of handling conflicts of law situations. Further,

to the extent that the requirement to obtain a case-by-case exemption (and the attendant

uncertainties surrounding whether such relief might be granted) could inhibit companies from

bidding on or initiating resource extraction projects in particular countries or otherwise impair

the ability of companies to compete effectively for such projects, we anticipate that our revised

approach will substantially eliminate these potential barriers.

Although commenters differed regarding whether there is a demonstrated need for a

conflicts of law exemption, in order to address concerns about the potentially significant

consequences of such a conflict, on balance we think it is appropriate to provide such an

exemption. One commenter has identified at least two countries—China and Qatar—that have

laws that may prohibit the Section 13(q) disclosure. 205 Although publicly available information

reveals that some resource extraction issuers have disclosed payments to governments in those

203

See, e.g., letters from Elise J. Bean; FACT Coalition; and Robert Rutkowski.

204

See, e.g., letters from Elise J. Bean; Eric Postel; and Congr. Waters et al.

205

See, e.g., letter from API (Mar. 16, 2020). In addition, commenters on the 2016 Rules discussed how such

conflicts could ultimately force a resource extraction issuer to abandon or sell its assets in the host country. See,

e.g., letter from API (Feb. 16, 2016).

countries, 206 the possibility remains that those countries, or others, could elect in the future to

enforce or enact laws that conflict with the Section 13(q) requirements. We agree with those

commenters who indicated that, to the extent that such a conflict exists, resource extraction

issuers should not have to choose between complying with the Section 13(q) rules and violating

host country laws. 207

We also do not believe that the conflicts of law exemption is overly broad. The mere

existence of a foreign law that may prohibit the Section 13(q) disclosure will not be sufficient to

justify use of the exemption. We proposed, and are now adopting, several conditions that limit

the availability of the exemption. These conditions are expressly designed to help ensure that

issuers forgo disclosure only when there is a legitimate conflict of law, so that the exemption

does not unreasonably frustrate the statutory goal of increasing transparency regarding resource

extraction payments. Specifically, an issuer seeking to rely on the exemption will be required to

take certain steps to qualify for the exemption, including providing specified disclosures about its

eligibility for relief. Although issuers can avail themselves of the exemption without further

Commission action, they can only do so in the prescribed manner and under the prescribed

circumstances. Moreover, as is the case with all filings, the issuer’s disclosure and reliance on

this exemption will be subject to Commission staff review, which should discourage potentially

inappropriate uses of the exemption.

206

See, e.g., the data cited in letter from PWYP-US (Mar. 16, 2020).

207

See, e.g., letters from NAM; and API (Feb. 16, 2016).

To be eligible to claim the conflicts of law exemption, an issuer will first have to take

reasonable steps to seek and use exemptions or other relief under the applicable law of the

foreign jurisdiction. 208 After taking such steps and failing to obtain an exemption or other relief,

the issuer will have to disclose the foreign jurisdiction for which it has excluded disclosure, the

law preventing disclosure, its efforts to seek and use exemptions or other relief under such law,

and the results of those efforts. 209 This disclosure will be required in the body of Form SD. The

issuer will also be required to furnish as an exhibit to Form SD a legal opinion from counsel that

opines on the inability of the issuer to provide the required disclosure without violating the

foreign jurisdiction’s law. 210

These conditions are similar to some of the suggested conditions recommended by some

commenters. Those commenters indicated that, although they did not believe a conflicts of law

exemption was necessary, they acknowledged that such an exemption would address specific

concerns of some members of Congress who disapproved the 2016 Rules, would significantly

contribute to the final rules’ being not substantially the same as the disapproved rules, as

required by the CRA, and would be a permissible change as long as accompanied by sufficient

safeguards. 211

Several commenters recommended that we include an additional condition that limits the

exemption to foreign laws in existence before the enactment of Section 13(q) in July 2010, or at

208

See 17 CFR 240.13q-1(d)(1)(i).

209

See 17 CFR 240.13q-1(d)(1)(ii).

210

See 17 CFR 240.13q-1(d)(1)(iii).

211

See letters from PWYP-US (Mar. 16, 2020); and Oxfam America and Earthrights International.

least before adoption of the final rules. 212 After considering all of the comments, we have

determined not to limit the conflicts of law exemption to pre-existing foreign laws. Unlike the

situation involving a conflict with pre-existing contract terms, where an issuer has control over

the contract terms and would be in a position to negotiate or modify terms so that they do not

conflict with the Section 13(q) requirements following adoption of the final rules, a resource

extraction issuer has no control over a foreign government’s enactment of laws, including those

that may prohibit the Section 13(q) disclosure.

We acknowledge that adoption of the conflicts of law exemption could incentivize a

foreign government to adopt a law that prohibits the Section 13(q) disclosure. We further note

that commenters on both sides of this issue indicated in support of their respective positions that

no government has adopted a law or rule prohibiting the payment disclosures since the adoption

of Section 13(q). 213 While this may be correct, it is not determinative of what countries may do

in the future. In light of the potential harm that could result to a resource extraction issuer from a

future conflicts of law situation, we are not limiting this exemption to pre-existing foreign laws.

Exemption for Conflicts with Pre-Existing Contracts

We are adopting a conditional exemption, as proposed, from Section 13(q)’s disclosure

requirements when the terms of an existing contract prohibit the disclosure. 214 The exemption

will only apply to contracts in which such terms are expressly included in writing prior to the

212

See letters from PWYP-US (Mar. 16, 2020); and Oxfam America and Earthrights International.

213

Compare letter from PWYP-US (Mar. 16, 2020) with letter from API (Mar. 16, 2020).

214

See 17 CFR 240.13q-1(d)(2).

effective date of the final rules. As previously noted, we believe this limitation is justified

because issuers have control over the terms of their contracts and have the ability to modify

future contract terms. Similar to the exemption for conflicts of law, and for the same reasons,

issuers will not need to seek the exemption on an individual, case-by-case basis. The issuer will,

however, be required to meet certain conditions to qualify for relief, 215 and its disclosure and

reliance on the exemption will be subject to staff review, which should help to discourage

potentially inappropriate uses of the exemption. In addition, since multiple contracts may

constitute a project under the Modified Project Definition, the exemption would only be

available to exempt the specific payment information in the applicable contract that the issuer is

expressly prohibited from disclosing by the relevant contract provision.

Several commenters supported the proposed exemption for conflicts with pre-existing

contract terms for reasons similar to those expressed in support of the exemption for conflicts of

law. 216 For example, one commenter stated that the proposed exemption would allow companies

to avoid being forced into a choice between complying with the new disclosure requirements and

complying with agreements entered into with foreign governmental partners. 217 Other

commenters indicated that the proposed exemption would minimize the harm and ease the

administrative difficulties caused by conflicts with pre-existing contract terms. 218

215

Id.

216

See letters from API (Mar. 16, 2020); Chamber; Davis Polk; NAM; and Petrobras.

217

See letter from NAM.

218

See letters from API (Mar. 16, 2020); and Chamber.

Other commenters opposed the proposed exemption for conflicts with pre-existing

contract terms for reasons similar to those expressed in opposition to the exemption for conflicts

with foreign law. These commenters stated that the proposed exemption was overly broad, was

not needed, would reduce comparability with the non-U.S. payments-to-governments reporting

regimes, which lack such an exemption, and would not further international transparency

promotion efforts. 219 Other commenters that did not believe the proposed exemption for

conflicts with pre-existing contracts was warranted nevertheless stated that such an exemption

would be a permissible change to help make the new rule not substantially the same as the

disapproved 2016 Rules as long as there are sufficient safeguards to protect against abuse. 220

After reviewing all of the comments, we are adopting the proposed exemption for

conflicts with pre-existing contract terms. As one commenter noted, without such an exemption,

an issuer whose contract prohibits the disclosure of payment information without the host

government’s permission, and who fails to obtain such permission, could face adverse financial

consequences. 221 The adopted exemption for conflicts with pre-existing contract terms will help

to mitigate the potential burdens of the Section 13(q) rules in this regard. We also believe that

the exemption is not overly broad or susceptible to misuse because of the several conditions

proposed for use of the exemption, which we are now adopting.

219

See, e.g., letters from Elise J. Bean; Eric Postel; and Congr. Waters et al.

220

See letters from PWYP-US (Mar. 16, 2020); and Oxfam America and Earthrights International.

221

See letter from API (Feb. 16, 2016) (stating that “many companies’ contracts with host governments contain

clauses requiring the government’s permission before a company publicly reveals payment information” and

noting that “[a]lthough some of these contracts allow an issuer to disclose payment information to comply with

securities laws, many do not, particularly older contracts.”).

An issuer will first be required to take reasonable steps to seek and use any contractual

exceptions or other contractual relief (e.g., attempting to obtain the consent of the relevant

contractual parties) to disclose the payment information. 222 This obligation to take reasonable

steps would not include an obligation to renegotiate an existing contract or to compensate the

other contractual parties in exchange for their consent to disclose the payments. If the issuer

fails to obtain consent, the issuer will have to disclose the jurisdiction where it has excluded such

disclosure, the particular contract terms preventing the issuer from providing disclosure, its

efforts to seek consent or other contractual relief, and the results of those efforts. 223 This

disclosure will be required in the body of Form SD. The issuer will also be required to furnish as

an exhibit to Form SD a legal opinion from counsel that opines on the inability of the issuer to

provide the required disclosure without violating the applicable contractual terms. 224 The

opinion should confirm that counsel has reviewed all of the contracts underlying or related to a

project under the Modified Project Definition, that the applicable contractual provision prohibits

the disclosure of the payment information that the issuer would otherwise be required to provide

under Section 13(q), and that the exemption is only being applied to exempt that specific

disclosure.

Some commenters recommended adding other conditions in order to prevent abuse of

the exemption. For example, commenters recommended limiting the exemption to contracts that

222

See 17 CFR 240.13q-1(d)(2)(i).

223

See 17 CFR 240.13q-1(d)(2)(ii).

224

See 17 CFR 240.13q-1(d)(2)(iii).

existed prior to the enactment of Section 13(q) in July 2010 in order to exclude issuers that have

engaged in “10 years of gamesmanship and sub-standard contracting practice meant to avoid

transparency.” 225 We do not believe such a limitation is appropriate as we are not aware of any

evidence demonstrating that issuers have drafted contract terms during the last decade to

preclude reporting of payments to governments in this context.

Some commenters also indicated that it is common practice to include a nonconfidentiality provision in oil, gas, and mining contracts that allows for the disclosure of

information when required by an issuer’s home government or its securities exchange. 226 These

commenters stated that we should prohibit an issuer from using the exemption if such a standard

confidentiality exclusion provision exists. We do not believe that adding such a provision is

necessary because an issuer will be required to submit a legal opinion that explains why it is

contractually precluded from providing the Section 13(q) disclosure. In such situations, the

opinion would necessarily have to address why the issuer is contractually precluded from

providing the Section 13(q) disclosure in light of the presence of a contractual provision that

expressly permits such disclosure when required by home government laws or securities

exchange regulations.

One commenter requested that we modify the exemption for conflicts with pre-existing

contracts by providing that the exemption applies to contracts signed prior to an issuer’s initial

public offering, but after the effective date of the final rules. 227 We decline to make this

225

See letters from PWYP-US (Mar. 16, 2020); and Oxfam American and Earthrights International.

226

See letters from PWYP-US (Mar. 16, 2020); and Oxfam American and Earthrights International.

227

See letter from Davis Polk.

modification because we believe that such an issuer will have received ample notice of the

Section 13(q) rules and will have the opportunity to negotiate or modify the contract terms to

remedy any conflict. Moreover, as discussed below, we are providing transitional relief for

issuers that have recently completed their initial public offering, which should mitigate any

resulting hardship. 228

Exemption for Smaller Reporting Companies and Emerging Growth

Companies

When proposing to exempt smaller reporting companies 229 and emerging growth

companies 230 from the scope of Rule 13q-1, 231 we explained that the proposed exemption would

be consistent with our statutory duty in a public rulemaking to consider, in addition to investor

protection concerns, whether an action will promote efficiency, competition, and capital

formation. 232 The proposed exemption also would be consistent with our treatment of smaller

228

See infra Section II.D.6.

229

See supra note 190 for the definition of “smaller reporting company,” as amended.

230

See supra note 191 for the definition of “emerging growth company.”

231

See 2019 Rules Proposing Release at Section II.J.3. In particular, we expressed concern about the impact of the

fixed cost component of the proposed rules on smaller reporting companies and emerging growth companies.

232

See Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)].

reporting companies and emerging growth companies in other rulemakings 233 undertaken since

the enactment of the Jumpstart Our Business Startups Act (“JOBS Act”). 234

Some commenters supported the proposed exemption for smaller reporting companies

and emerging growth companies. 235 For example, one commenter stated that the proposed

exemption would provide important cost savings for growing companies. 236 Another commenter

indicated that the proposed exemption aligned with the streamlined disclosure requirements

typically afforded to smaller and newer reporting issuers. 237

Several other commenters opposed the proposed exemption for smaller reporting

companies and emerging growth companies. 238 Most of those commenters opposed the

proposed exemption primarily because it would exclude a significant percentage of the issuers

that currently report under the EU Directives and Canada’s ESTMA and that would have been

included under the 2016 Rules. 239 Some commenters also asserted that smaller reporting

233

See, e.g., Pay Ratio Disclosure, Release No. 33-9877 (Aug. 5, 2015) [80 FR 50103 (Aug. 18, 2015)]

(exempting smaller reporting companies and emerging growth companies, among others, from the scope of the

required pay ratio disclosure). Prior to the JOBS Act, the Commission provided a number of accommodations

to smaller reporting companies, such as not requiring risk factor disclosure from smaller reporting companies in

their Exchange Act registration statements and annual and periodic reports, which continue today. See, e.g.,

Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)], note 197.

234

Pub. L. No. 112-106, 126 Stat. 306 (2012).

235

See letters from Chambers and NAM.

236

See letter from NAM.

237

See letter from Chamber.

238

See, e.g., letters from Africa Center for Energy Policy; Sens. Cardin et al.; the Carter Center; DAR; Shannon

Gough; KCSPOG; Oxfam America and Earthrights International; Eric Postel; Public Citizen; PWYP-US (Mar.

16, 2020), F. Samama et al.; and Congr. Waters et al.

239

See, e.g., letters from Sens. Cardin et al.; Oxfam America and Earthrights International; PWYP-US (Mar. 16,

2020); F. Samama et al.; and Eric Postel.

companies and emerging growth companies are equally susceptible to corruption as larger

issuers while posing a greater risk. 240

We continue to be concerned that the fixed cost component of the Section 13(q) rules

would have a greater relative impact on smaller reporting companies and emerging growth

companies and thus could impede their growth and access to capital markets. 241 We also

understand commenters’ concerns about the potentially large number of resource extraction

issuers that would be excluded under the proposed exemption and the gap in coverage that would

result. Therefore, while we are adopting an exemption for smaller reporting companies and

emerging growth companies, we are removing from the scope of the exemption any company

that is subject to the resource extraction payment disclosure requirements of an alternative

reporting regime that has been deemed by the Commission to require disclosure that satisfies the

transparency objectives of Section 13(q). 242 There will be only limited additional costs as such

issuers will be able to submit a report complying with the reporting requirements of the

alternative jurisdiction to satisfy its Section 13(q) disclosure obligations. 243

Those companies eligible for alternative reporting will have a significantly reduced

compliance burden under Section 13(q) and therefore will not need the exemption from Section

240

See, e.g., letters from Public Citizen (stating that smaller reporting companies and emerging growth companies

have been involved in the same industry practices that have enabled corruption and misappropriation in the past,

and indicating that smaller issuers are generally more susceptible to equity risks than larger issuers because they

take more operational risks); see also letter from PWYP-US (Mar. 16, 2020).

241

See infra Section III.D.2.

242

See 17 CFR 240.13q-1(c).

243

See 17 CFR 240.13q-1(d)(3). We discuss the alternative reporting provision in Section II.N and its associated

costs in Section III.D.1.

13(q) reporting as much as those smaller reporting companies and emerging growth companies

that are not subject to an alternative reporting regime. We believe that this added limitation will

reduce the scope of the exemption while retaining the exemption for companies that otherwise

would bear the full burden of the Section 13(q) rules. For these latter companies, neither a

smaller reporting company nor an emerging growth company will be required to provide any of

the payment disclosure mandated by Section 13(q) and Rule 13q-1.

By tailoring the exemption in this way, we believe that the exemption for smaller

reporting companies and emerging growth companies is consistent with the Commission’s

authority under Section 36(a) of the Exchange Act to adopt an exemption that is necessary or

appropriate in the public interest, and consistent with the protection of investors. 244 The added

limitation is in the public interest because it promotes the transparency objective of Section 13(q)

while permitting smaller reporting companies and emerging growth companies not subject to

foreign reporting regimes to reduce their regulatory burdens to the ultimate benefit of their

investors. 245

Delayed Reporting for Payments Related to Exploratory Activities

We are adopting a provision permitting delayed reporting of payments related to

exploratory activities, as proposed. 246 Pursuant to this provision, issuers will not be required to

report payments related to exploratory activities in the Form SD for the fiscal year in which

244

See 15 U.S.C. 78mm(a).

245

See supra note 241.

246

See Item 2.01(b)(1) of Form SD.

payments are made. Instead, an issuer may delay reporting such payments until it submits a

Form SD for the fiscal year following the fiscal year in which the payments were made. 247 We

are proposing a limited, delayed approach because we believe that the likelihood of competitive

harm from the disclosure of payment information related to exploratory activities diminishes

over time. For example, once exploratory activities end and development activities begin, the

likelihood of competitive harm from payments terms related to the exploratory activities (e.g.,

payment information that might reveal the scope or significance of the project) is greatly

diminished.

We adopted a similar delayed reporting provision in the 2016 Rules after considering the

concerns raised by industry commenters that the disclosure of payment information regarding

exploratory activities could result in competitive harm to a resource extraction issuer. 248

Industry commenters have continued to support a delayed reporting provision for payments

related to exploratory activities. For example, one commenter stated that exploration activity

represents some of the most commercially sensitive investments by issuers and that reporting

needs should be balanced to protect such information. 249 Another commenter described the

247

In the Form SD for the fiscal year following the fiscal year in which the exploratory payments were made, the

issuer would be required to report those exploratory payments as well as all applicable non-exploratory

payments, if any, made during the fiscal year following the fiscal year in which the issuer made the exploratory

payments.

248

See 2016 Adopting Release, Section II.I.3. (citing letter from API (Feb. 16, 2016), which explained the

competitive harm that could result from the disclosure of bonus and other payments to the host government

regarding high-potential exploratory territory and stating that a case-by-case exemptive approach would be

insufficient to protect against competitive harm in those situations). See also letter from ExxonMobil (Feb. 16,

2016) (discussing the competitive harm from the forced disclosure of payments that may allow competitors to

identify new areas of potential resource development an issuer has identified, and to determine the value the

issuer places on such resources).

249

See letter from API (Mar. 16, 2020).

proposed delayed reporting provision as critical to protecting commercially sensitive information

about resource extraction issuers’ exploratory activities. 250

Other commenters, however, opposed the proposed delayed reporting of payments related

to exploratory activities. One commenter stated that exploratory activities can pose a high risk of

corruption. 251 Another commenter indicated that, in the EU and Canadian transparency regimes,

no issuer appears to have raised concerns about disclosures during the exploratory phase. 252

We continue to believe that a provision permitting delayed reporting for payments related

to exploratory activities is appropriate because of the commercially sensitive nature of

exploratory activities. In reaching this conclusion, we have considered whether such a provision

continues to be appropriate in light of the Modified Project Definition, which will provide the

geographic location of a project at the national and major subnational political jurisdiction and

therefore should mitigate the potential competitive harm that could result from disclosing a

project at the contract level.

Although the Modified Project Definition should help alleviate competitive harm, and

despite the absence of a similar exemption under the foreign reporting regimes, 253 we remain

concerned that such harm could still occur. For example, harm could occur to the extent that the

disclosure of a particular type or amount of a payment associated with the issuer’s exploratory

250

See letter from NAM.

251

See letter from PWYP-US (Mar. 16, 2020).

252

See letter from Oxfam America and Earthrights International.

253

We reject the commenter’s suggestion that the absence of a similar exemption under the foreign reporting

regimes means that the concern for potential competitive harm resulting from the premature disclosure of

payments related to exploratory activities does not exist or does not need to be addressed.

activities could reveal competitively sensitive information about the nature, significance, or

specific details of such activities. 254 Thus, we continue to believe that a delayed reporting

provision for disclosure of payments related to exploratory activities would mitigate the potential

competitive harm that issuers might experience in these circumstances. Importantly, we do not

believe it would substantially reduce the overall benefits of the disclosure to its users. Although

one commenter indicated that exploratory activities can pose a high risk of corruption, we

believe that any such risk is mitigated because the exemption is of limited duration. Specifically,

the payments related to the exploratory activities must be reported in the fiscal year following the

fiscal year in which the issuer made the payments.

We also have considered whether this delayed reporting provision is appropriate in light

of the extended deadline for furnishing the payment information compared to the deadline under

the 2016 Rules. Again, we b

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