[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Proposed Rules]
[Pages 80058-80111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31702]



[[Page 80057]]

Vol. 80

Wednesday,

No. 246

December 23, 2015

Part III





Securities and Exchange Commission





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17 CFR Parts 240 and 249b





Disclosure of Payments by Resource Extraction Issuers; Proposed Rule

  Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / 
Proposed Rules  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

[Release No. 34-76620; File No. S7-25-15]
RIN 3235-AL53


Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing Rule 13q-1 and an amendment to Form SD to 
implement Section 1504 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act relating to disclosure of payments by resource 
extraction issuers. Rule 13q-1 was initially adopted by the Commission 
on August 22, 2012, but it was subsequently vacated by the U.S. 
District Court for the District of Columbia. Section 1504 of the Dodd-
Frank Act added Section 13(q) to the Securities Exchange Act of 1934, 
which directs the Commission to issue rules requiring resource 
extraction issuers to include in an annual report information relating 
to any payment made by the issuer, a subsidiary of the issuer, or an 
entity under the control of the issuer, 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 a resource 
extraction issuer to provide information about the type and total 
amount of such payments made for each project 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: We are providing two comment periods for this proposal. Initial 
comments are due on January 25, 2016. Reply comments, which may respond 
only to issues raised in the initial comment period, are due on 
February 16, 2016. In developing the final rules, the Commission may 
rely on both new comments and comments that have been received to date, 
including those that were provided in connection with the prior rules 
that the Commission issued under Section 13(q).

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment forms (http://www.sec.gov/rules/proposed.shtml);
     Send an email to [email protected]. Please include 
File Number S7-25-15 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-25-15. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street NE., Room 1580, 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. All comments received will be posted without 
change; we do not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.
    Studies, memoranda or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the SEC's Web site. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Shehzad K. Niazi, Special Counsel; 
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430; or Elliot Staffin, Special Counsel; Office of International 
Corporate Finance, Division of Corporation Finance, at (202) 551-3450, 
U.S. Securities and Exchange Commission, 100 F Street NE., Washington, 
DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing Rule 13q-1 \1\ and an 
amendment to Form SD \2\ under the Securities Exchange Act of 1934 
(``Exchange Act'').\3\
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    \1\ 17 CFR 240.13q-1.
    \2\ 17 CFR 249.448.
    \3\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction and Background
    A. Section 13(q) of the Exchange Act
    B. The 2012 Rules and Litigation
    C. Developments Subsequent to the 2013 Court Decision
    D. Summary of Proposed Rules
    E. Objectives of Section 13(q)'s Required Disclosures and the 
Proposed Rules
    1. The U.S. Government's Foreign Policy Interest in Reducing 
Corruption in Resource-Rich Countries
    2. Reasons for Proposing Issuer-Specific, Project-Level, Public 
Disclosures of Resource Extraction Payments
II. Proposed Rules Under Section 13(q)
    A. Definition of ``Resource Extraction Issuer''
    B. Definition of ``Commercial Development of Oil, Natural Gas, 
or Minerals''
    C. Definition of ``Payment''
    1. Types of Payments
    2. The ``Not De Minimis'' Requirement
    D. Payments by ``a Subsidiary . . . or an Entity Under the 
Control of . . .''
    E. Definition of ``Project''
    1. General
    2. The API Proposal
    F. Definition of ``Foreign Government'' and ``Federal 
Government''
    G. Disclosure Required and Form of Disclosure
    1. Annual Report Requirement
    2. Public Filing
    3. Exemption From Compliance
    4. Alternative Reporting
    5. Exhibits and Interactive Data Format Requirements
    6. Treatment for Purposes of Securities Act and Exchange Act
    H. Effective Date
    I. General Request for Comment
III. Economic Analysis
    A. Introduction and Baseline
    B. Potential Effects Resulting From the Payment Reporting 
Requirement
    1. Benefits
    2. Costs
    C. Potential Effects Resulting From Specific Implementation 
Choices
    1. Exemption From Compliance
    2. Alternative Reporting
    3. Definition of Control
    4. Definition of ``Commercial Development of Oil, Natural Gas, 
or Minerals''
    5. Types of Payments
    6. Definition of ``Not De Minimis''
    7. Definition of ``Project''
    8. Annual Report Requirement
    9. Exhibit and Interactive Data Requirement
    D. Request for Comments
IV. Paperwork Reduction Act
    A. Background
    B. Estimate of Issuers
    C. Estimate of Issuer Burdens
    D. Solicitation of Comments
V. Small Business Regulatory Enforcement Fairness Act
VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules

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    D. Reporting, Recordkeeping, and Other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. Request for Comment

I. Introduction and Background

    On August 22, 2012, the Commission adopted a rule and form 
amendments \4\ (the ``2012 Rules'') to implement Section 13(q) of the 
Exchange Act. The 2012 Rules were vacated by the U.S. District Court 
for the District of Columbia by order dated July 2, 2013. In light of 
the court's order, we are re-proposing Rule 13q-1 and proposing an 
amendment to Form SD to implement Section 13(q).
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    \4\ See Exchange Act Release No. 67717 (Aug. 22, 2012), 77 FR 
56365 (Sept. 12, 2012) available at http://www.sec.gov/rules/final/2012/34-67717.pdf (the ``2012 Adopting Release''). See also Exchange 
Act Release No. 63549 (Dec. 15, 2010), 75 FR 80978 (Dec. 23, 2010) 
available at http://www.sec.gov/rules/proposed/2010/34-63549.pdf 
(the ``2010 Proposing Release'').
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A. Section 13(q) of the Exchange Act

    Section 13(q) was added in 2010 by Section 1504 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (``the Act'').\5\ It 
directs the Commission to ``issue final rules that require each 
resource extraction issuer to include in an annual report . . . 
information relating to any payment 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, including--(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\
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    \5\ Public Law 111-203 (July 21, 2010).
    \6\ 15 U.S.C. 78m(q)(2)(A). As discussed further below, Section 
13(q) also specifies that the Commission's rules must require 
certain information to be provided in interactive data format.
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    Based on the statutory text and the legislative history, we 
understand that Congress enacted Section 1504 to increase the 
transparency of payments made by oil, natural gas, and mining companies 
to governments for the purpose of the commercial development of their 
oil, natural gas, and minerals. As discussed in more detail below, the 
legislation reflects U.S. foreign policy interests in supporting global 
efforts to improve transparency in the extractive industries. The goal 
of such transparency is to help combat global corruption and empower 
citizens of resource-rich countries to hold their governments 
accountable for the wealth generated by those resources.\7\
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    \7\ See, e.g., 156 Cong. Rec. S3816 (daily ed. May 17, 2010) 
(Statement of Senator Lugar, one of the sponsors of Section 1504) 
(``Adoption of the Cardin-Lugar amendment would bring a major step 
in favor of increased transparency at home and abroad. . . . More 
importantly, it would 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. . . . The essential issue at stake is a citizen's right to 
hold its government to account. Americans would not tolerate the 
Congress denying them access to revenues our Treasury collects. We 
cannot force foreign governments to treat their citizens as we would 
hope, but this amendment would make it much more difficult to hide 
the truth.''); id. at S3817-18 (May 17, 2010) (Statement of Senator 
Dodd) (``[C]ountries with huge revenue flows from energy development 
also frequently have some of the highest rates of poverty, 
corruption and violence. Where is all that money going? [Section 
13(q)] is a first step toward addressing that issue by setting a new 
international standard for disclosure.'').
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    Section 13(q) provides the following definitions of 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; \8\
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    \8\ 15 U.S.C. 78m(q)(1)(D).
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     ``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; \9\
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    \9\ 15 U.S.C. 78m(q)(1)(A).
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     ``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; 
\10\ and
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    \10\ 15 U.S.C. 78m(q)(1)(B).
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     ``payment'' means a payment that:
     is made to further the commercial development of oil, 
natural gas, or minerals;
     is not de minimis; and
     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 (``EITI'') (to the extent practicable), 
determines are part of the commonly recognized revenue stream for the 
commercial development of oil, natural gas, or minerals.\11\
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    \11\ 15 U.S.C. 78m(q)(1)(C).
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    Section 13(q) 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.'' \12\ As noted above in 
the definition of ``payment,'' the statute explicitly refers to an 
international initiative, the EITI.\13\ Although the separate provision 
in Section 13(q) about supporting the Federal Government's commitment 
to international transparency efforts does not explicitly mention the 
EITI,\14\ the legislative history indicates that the EITI was 
considered in connection with the new statutory provision.\15\ On March 
19, 2014, the United States completed the process of becoming an EITI 
candidate country,\16\ with its first mandatory report due within two 
years of the approval of its application.\17\ In re-

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proposing rules, we have considered the guidance in the EITI Standard 
and EITI Handbook on what should be included in a country's EITI 
plan,\18\ as well as reports made by EITI member countries.
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    \12\ 15 U.S.C. 78m(q)(2)(E).
    \13\ The EITI is a voluntary coalition of oil, natural gas, and 
mining companies, foreign governments, investor groups, and other 
international organizations. 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 (2011) (``EITI Handbook''), at xii. A country 
volunteers to become an EITI candidate and must complete an EITI 
validation process to become a compliant member. Currently 49 
countries are EITI implementing countries. See https://eiti.org/countries/ (last visited Dec. 8, 2015). Of those, 31 have achieved 
``EITI compliant'' status, four have their EITI status temporarily 
suspended, and the rest are implementing the EITI requirements but 
are not yet compliant. Id. Several countries not currently a part of 
the EITI have indicated their intention to implement the EITI. See 
https://eiti.org/countries/other (last visited Dec. 8, 2015).
    \14\ 15 U.S.C. 78m(q)(2)(E).
    \15\ See, e.g., 156 Cong. Rec. S3816 (daily ed. May 17, 2010) 
(Statement of Senator Lugar) (``This domestic action will complement 
multilateral transparency efforts such as the Extractive Industries 
Transparency Initiative--the EITI--under which some countries are 
beginning to require all extractive companies operating in their 
territories to publicly report their payments.'').
    \16\ When becoming an EITI candidate, a country must establish a 
multi-stakeholder group, including representatives of civil society, 
industry, and government, to oversee implementation of the EITI. The 
stakeholder group for a particular country agrees to the terms of 
that country's EITI plan, including the requirements for what 
information will be provided by the governments and by the companies 
operating in that country. Generally, under the EITI, companies and 
the host country's government submit payment information 
confidentially to an independent administrator selected by the 
country's multi-stakeholder group, which is frequently an 
independent auditor. The auditor reconciles the information provided 
to it by the government and by the companies and produces a report. 
While the information provided in the reports varies among 
countries, the reports must adhere to the EITI requirements provided 
in the EITI Standard (2013). See the EITI's Web site at http://eiti.org (last visited Dec. 8, 2015).
    \17\ In December 2012, the U.S. government established a multi-
stakeholder group, the USEITI Advisory Committee, headed by the 
Department of the Interior (``DOI'') and including the Departments 
of Energy and Treasury, as well as members of industry and civil 
society. See Multi-Stakeholder Group List of Members, at http://www.doi.gov/eiti/FACA/upload/List-of-Members_03-16-15.pdf. USEITI's 
current plans include producing its first report in December 2015, 
and producing its second report and submitting it to the EITI board 
in December 2016. See 2015 Workplan--USEITI, available at http://www.doi.gov/eiti/FACA/upload/WORKPLAN-2015-12_19_14-final.pdf. See 
also letter from Department of Interior Office of Natural Resources 
Revenue (Nov. 6, 2015) (``DOI 1'').
    \18\ The EITI Standard encompasses several documents fundamental 
to the EITI: (1) The ``EITI Principles,'' which set forth the 
general aims and commitments of EITI participants; (2) the ``EITI 
Requirements,'' which must be followed by countries implementing the 
EITI; (3) the ``Validation Guide,'' which provides guidance on the 
EITI validation process; (4) the ``Protocol: Participation of Civil 
Society,'' which provides guidance regarding the role of civil 
society in the EITI; and (5) documents relevant to the governance 
and management of the EITI (e.g., the EITI Articles of Association, 
the EITI Openness Policy, and the draft EITI Code of Conduct). The 
EITI Handbook provides guidance on implementing the EITI, including 
overcoming common challenges to EITI implementation.
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    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 \19\ using an interactive 
data standard established by us.\20\ 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.\21\ 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.\22\ 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:
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    \19\ 15 U.S.C. 78m(q)(2)(C).
    \20\ 15 U.S.C. 78m(q)(2)(D).
    \21\ 15 U.S.C. 78m(q)(1)(E).
    \22\ 15 U.S.C. 78m(q)(1)(F).
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     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;
     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.\23\
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    \23\ 15 U.S.C. 78m(q)(2)(D)(ii).
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    Section 13(q) further authorizes the Commission to require 
electronic tags for other information that we determine are necessary 
or appropriate in the public interest or for the protection of 
investors.\24\
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    \24\ Id.
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    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 new rules.\25\ The statute does not define the term 
compilation.
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    \25\ 15 U.S.C. 78m(q)(3).
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    Finally, Section 13(q) provides that the final rules ``shall take 
effect on the date on which the resource extraction issuer is required 
to submit an annual report relating to the fiscal year . . . that ends 
not earlier than one year after the date on which the Commission issues 
final rules . . . .'' \26\
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    \26\ 15 U.S.C. 78m(q)(2)(F).
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B. The 2012 Rules and Litigation

    We adopted final rules implementing Section 13(q) on August 22, 
2012.\27\ In October 2012, the American Petroleum Institute (``API''), 
the U.S. Chamber of Commerce, and two other industry groups challenged 
the 2012 Rules.\28\ On July 2, 2013, the U.S. District Court for the 
District of Columbia vacated the rules.\29\ The 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. On September 18, 2014, Oxfam filed suit in the U.S. 
District Court for the District of Massachusetts to compel the 
Commission to promulgate a final rule implementing Section 1504. Oxfam 
asked the court to compel the Commission to:
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    \27\ We received over 150 unique comment letters on the 2010 
Proposing Release, as well as over 149,000 form letters (including a 
petition with 143,000 signatures). The letters, including the form 
letters designated as Type A, Type B, and Type C, are available at 
http://www.sec.gov/comments/s7-42-10/s74210.shtml. In addition, to 
facilitate public input on the Act before the official comment 
periods opened, the Commission provided a series of email links, 
organized by topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml. The public comments we received on Section 
1504 of the Act, which were submitted prior to the 2010 Proposing 
Release, are available on our Web site at http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specialized-disclosures.shtml. Many commenters provided comments prior to, in 
response to, and after the 2010 Proposing Release. Comments received 
after the 2012 Adopting Release are available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.
    \28\ See API et al. v. SEC, No. 12-1668 (D.D.C. Oct. 10, 2012). 
Petitioners also filed suit in the U.S. Court of Appeals for the 
D.C. Circuit, which subsequently dismissed the suit for lack of 
jurisdiction. See API v. SEC, 714 F. 3d 1329 (D.C. Cir. 2013).
    \29\ See API v. SEC, 953 F. Supp. 2d 5 (D.D.C., 2013) (``API 
Lawsuit'').
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     Issue a proposed rule within 30 days of the granting of 
summary judgment in its favor or on August 1, 2015, whichever comes 
first;
     open a 45-day period for public notice and comment; and
     promulgate a final rule within 45 days after the end of 
said period, with the final rule promulgated no later than November 1, 
2015.
    On September 2, 2015, the court issued an order holding that the 
Commission unlawfully withheld agency action by not promulgating a 
final rule.\30\ The court concluded that despite the earlier adoption 
of final rules and vacatur by the U.S. District Court for the District 
of Columbia, ``the duty to promulgate a final extraction payments 
disclosure rule remains unfulfilled more than four years past 
Congress's deadline.'' The Commission filed an expedited schedule for 
promulgating the final rule with the court on October 2, 2015. Pursuant 
to that proposed expedited schedule, the Commission would vote on the 
adoption of a final rule in June 2016.\31\
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    \30\ See Oxfam America, Inc. v. United States Securities and 
Exchange Commission, Civil Action, No. 14-13648 (DJC), 2015 WL 
5156554 (D. Mass. Sept. 2, 2015).
    \31\ In the Notice of Proposed Expedited Rulemaking Schedule, 
the Commission also advised the court of several factors that may 
result in variation from the proposed expedited schedule. These 
factors include the overall volume of the Commission's work, the 
Commission's inability to guarantee a favorable vote from a majority 
of its Commissioners, and the possibility that exigencies may arise 
that may make it impracticable for the Commission to meet the 
proposed deadline (e.g., a government shut-down, relevant 
international developments, unexpected relevant legal developments).
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C. Developments Subsequent to the 2013 Court Decision

    Since the U.S. District Court for the District of Columbia's 
decision in 2013, the European Parliament and Council of the European 
Union have adopted two directives that include payment disclosure rules 
similar to the 2012 Rules.\32\ The EU Accounting Directive

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and the EU Transparency Directive (the ``EU Directives'') determine the 
baseline requirements for oil, gas, mining, and logging companies to 
disclose annually the payments they make to governments on a by country 
and by project basis.\33\ The EU Accounting Directive regulates the 
provision of financial information by all ``large'' companies \34\ 
incorporated under the laws of a European Economic Area (``EEA'') 
member state.\35\ It requires covered oil, gas, mining, and logging 
companies to disclose specified payments to governments. The EU 
Transparency Directive applies these disclosure requirements to all 
companies listed on EU-regulated markets \36\ even if they are not 
registered in the EEA or are incorporated in other countries.\37\ The 
EU Directives determine the applicability and scope of the requirements 
and set the baseline for what has to be reported in each member 
country. Member states are, however, granted some leeway for when the 
report is due and what penalties will result from violations of the 
regulations.\38\ Companies' required public disclosure of payments in 
an annual report is anticipated to begin in 2016 in all European Union 
and EEA member states once the essential provisions have been 
effectively incorporated into domestic law in each country.\39\
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    \32\ Directive 2013/34/EU of the European Parliament and of the 
Council of 26 June 2013 on the annual financial statements, 
consolidated financial statements and related reports of certain 
types of undertakings (``EU Accounting Directive''); and Directive 
2013/50/EU of the European Parliament and of the Council of 22 
October 2013 amending Directive 2004/109/EC on transparency 
requirements in relation to information about issuers whose 
securities are admitted to trading on a regulated market, Directive 
2003/71/EC of the European Parliament and of the Council on the 
prospectus to be published when securities are offered to the public 
or admitted to trading and Commission Directive 2007/14/EC on the 
implementation of certain provisions of Directive 2004/109/EC (the 
``EU Transparency Directive'').
    \33\ Unlike the 2012 Rules and the proposed rules, the EU 
Directives also apply to companies active in the logging of primary 
forests.
    \34\ See Article 3(4) of the EU Accounting Directive, which 
defines large companies (``large undertakings'') to mean those which 
on their balance sheet dates exceed at least two of the three 
following criteria: (a) Balance sheet totaling [euro]20 million 
(approximately $21.4 million (USD) as of Nov. 10, 2015); (b) net 
turnover of [euro]40 million (approximately $42.8 million (USD) as 
of Nov. 10, 2015); and (c) average number of employees of 250. 
Neither the 2012 rules nor the proposed rules have a size 
limitation.
    \35\ The EEA is composed of the EU Member states plus Iceland, 
Liechtenstein and Norway.
    \36\ The term ``regulated market'' is defined in the EU's 
Markets in Financial Instruments Directive 2004/39/EC (``MiFID''), 
as amended by 2010/78/EU. The list of regulated markets can be found 
on the European Securities and Markets Authority's Web site at 
http://mifiddatabase.esma.europa.eu/Index.aspx?sectionlinks_id=23&language=0&pageName=REGULATED_MARKETS_Display&subsection_id=0&action=Go&ds=8&ms=9&ys=2015&mic_code=MIC%20Code&full_name=Full%20Name&cpage=0 (last visited Dec. 8, 2015).
    \37\ See EU Transparency Directive, Art. 2(1)(d) and Art. 6.
    \38\ See, e.g., Article 45 of the EU Accounting Directive (``The 
report . . . on payments to governments shall be published as laid 
down by the laws of each Member State . . . .''); Id. at Article 51 
(``Member States shall provide for penalties applicable to 
infringements of the national provisions adopted in accordance with 
this Directive . . . .'').
    \39\ The requirements of the EU Directives are implemented 
through the enacting legislation of each EU Member State. The 
deadlines for implementing the EU Accounting Directive and the EU 
Transparency Directive are July 20, 2015 and November 26, 2015 
respectively. In general, non-EU EEA countries enact implementing 
legislation after an EU Directive is adopted into the EEA by Joint 
Committee decision. The EEA Joint Committee adopted the Accounting 
Directive on October 30, 2015 and the Transparency Directive is 
awaiting decision (as of November [6], 2015). As of November [6], 
2015, Austria, Croatia, the Czech Republic, Denmark, Germany, 
Hungary, Italy, Lithuania, Portugal, Slovakia, Spain, and the United 
Kingdom have filed notifications of full transposition of the 
Accounting Directive with the European Commission. Norway, a non-EU 
member of the EEA, has adopted legislation that complies with both 
the Accounting and Transparency Directives, effective for fiscal 
years beginning on or after January 1, 2014. Other EU and EEA member 
countries are working towards implementation.
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    The EU Directives are similar to the 2012 Rules in that they 
require disclosure of the same payment types on a per project and per 
government basis and do not provide any exemption from the disclosure 
requirements. Further, each of these regulations also requires public 
disclosure of payment information, including the issuer's identity. 
There are, however, significant differences from the 2012 Rules. One 
difference is that the EU Directives define the term ``project,'' \40\ 
whereas the 2012 Rules left this term undefined.\41\ Another difference 
is that the EU Directives allow issuers to use reports prepared for 
foreign regulatory purposes to satisfy their disclosure obligations 
under EU law if those reports are deemed equivalent pursuant to 
specified criteria while the 2012 Rules do not contain such a 
provision.\42\
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    \40\ See, e.g., Article 41(4) of the EU Accounting Directive.
    \41\ The Commission did not define the term ``project'' in the 
2012 Rules, but it did provide guidance on its meaning in the 2012 
Adopting Release, stating that ``resource extraction issuers 
routinely enter into contractual arrangements with governments for 
the purpose of commercial development of oil, natural gas, or 
minerals. The contract defines the relationship and payment flows 
between the resource extraction issuer and the government, and 
therefore, we believe it generally provides a basis for determining 
the payments, and required payment disclosure, that would be 
associated with a particular `project'.'' 2012 Adopting Release at 
85-86 [77 FR 56385].
    \42\ See, e.g., Article 46-7 of the EU Accounting Directive. 
Another significant difference is that the EU Directives cover 
logging activities in addition to the extractive industry. See, 
e.g., Article 42(1) of the EU Accounting Directive (``Member States 
shall require . . . entities active in the extractive industry or 
the logging of primary forests to prepare and make public a report 
on payments made to governments on an annual basis.'').
---------------------------------------------------------------------------

    Canada also has adopted a federal resource extraction disclosure 
law, the Extractive Sector Transparency Measures Act (``ESTMA''), which 
is similar to the 2012 Rules.\43\ ESTMA, like the EU Directives, allows 
for the Minister of Natural Resources Canada to determine that the 
requirements of another jurisdiction are an acceptable substitute for 
the domestic requirements.\44\ For example, on July 31, 2015 the 
Minister determined that the reporting requirements in the EU 
Directives were an acceptable substitute for Canada's requirements 
under ESTMA.\45\ The draft guidance and technical reporting 
specifications under ESTMA also include project-level reporting using 
the same definition as the EU Directives.\46\ Unlike the EU Directives 
and the 2012 Rules, which did not provide for any exemptions unique to 
resource extraction payment disclosure, ESTMA authorizes the adoption 
of regulations respecting, among other matters, ``the circumstances in 
which any provisions of this Act do not apply to entities, payments or 
payees.'' \47\ As of the date of this release, the Minister of Natural 
Resources Canada has not authorized any regulations pursuant to that 
provision that provide for exemptions under ESTMA.
---------------------------------------------------------------------------

    \43\ See Extractive Sector Transparency Measures Act, 2014 S.C., 
ch. 39, s. 376 (Can.), which came into force on June 1, 2015.
    \44\ See ESTMA, Section 10(1) (``If, in the Minister's opinion, 
and taking into account any additional conditions that he or she may 
impose, the payment reporting requirements of another jurisdiction 
achieve the purposes of the reporting requirements under this Act, 
the Minister may determine that the requirements of the other 
jurisdiction are an acceptable substitute . . . .'').
    \45\ Extractive Sector Transparency Measures Act--Substitution 
Determination, available at http://www..gc.ca/acts-regulations/17754 
(last visited Dec. 8, 2015).
    \46\ See draft Extractive Sector Transparency Measures Act--
Guidance (``ESTMA Guidance''). The Minister of Natural Resources of 
Canada has recommended the adoption of a definition of project that 
is identical to the EU Directives' definition of project. See 
Natural Resources Canada, Extractive Sector Transparency Measures 
Act-Technical Reporting Specifications, Sec.  2.2.2 (Aug. 1, 2015), 
available at http://www.nrcan.gc.ca/sites/.nrcan.gc.ca/files/pdf/estma/Technical_Reporting_Specifications_EN.pdf. Although the ESTMA 
Guidance is currently in draft form, we assume for purposes of this 
proposal that it and the related draft ESTMA--Technical Reporting 
Specifications (``ESTMA Specifications'') will be finalized in 
substantially similar form prior to the effective date of our final 
rules under Section 13(q). We will continue to evaluate any 
developments in the ESTMA Guidance, ESTMA Specifications, and their 
impact on our approach prior to the adoption of our final rules.
    \47\ See ESTMA, Section 23(1).
---------------------------------------------------------------------------

    In addition to the developments in the European Union and Canada, 
which govern a large percentage of the companies that would be impacted 
by

[[Page 80062]]

our proposed rules,\48\ there have been significant developments in the 
EITI's approach since the 2012 Rules. In the 2012 Adopting Release, we 
noted that the EITI's approach at the time was fundamentally different 
from Section 13(q) in that companies would generally submit payment 
information confidentially to an independent administrator selected by 
the country's multi-stakeholder group who then used that information to 
produce a report.\49\ That report could have presented aggregated data 
if the multi-stakeholder group approved of such presentation. Since 
then, in order to elicit more intelligible, comprehensive, reliable, 
and accurate information,\50\ the EITI has revised its standard to 
require the report to include payment disclosure by each company, 
rather than aggregated data, and project level disclosure if consistent 
with the EU and Commission rules.\51\
---------------------------------------------------------------------------

    \48\ See Section III.B.2.b below for our estimate of the number 
of companies that would be fully affected by the proposed rules.
    \49\ See 2012 Adopting Release, n.27 and accompanying text.
    \50\ See History of EITI (``The Board undertook an extensive 
strategy review to address . . . [h]ow to ensure that the EITI 
provided more intelligible, comprehensive and reliable information . 
. . . The resulting EITI Standard . . . therefore sought . . . 
[b]etter and more accurate disclosure . . . .'') available at 
https://eiti.org/eiti/history (last visited Dec. 8, 2015).
    \51\ See EITI Standard, at 6, 31.
---------------------------------------------------------------------------

    Since the 2012 Rules were vacated, numerous parties have also 
submitted comment letters to the Commission and have met with members 
of the Commission or the staff.\52\ These commenters provided 
recommendations on how the Commission could structure the rules 
required by Section 13(q) in light of the U.S. District Court for the 
District of Columbia's decision and the international developments 
described above. Through this process, the Commission also has become 
aware that a number of extractive industry companies around the world 
have voluntarily undertaken to make detailed disclosures of their 
resource extraction payments to foreign governments.\53\ We have 
reviewed and considered the comments received and the rules we are 
proposing reflect such consideration.
---------------------------------------------------------------------------

    \52\ Copies of the letters and meeting memoranda relating to 
these matters are available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.
    \53\ See, e.g., letters from Kosmos Energy (Oct. 19, 2015) 
(``Kosmos''); Statoil ASA (Feb. 22, 2011) (``Statoil''); and 
Columbia Center on Sustainable Investment (Oct. 30, 2015). See also 
BHP Billiton, Economic Contribution and Payments to Governments 
Report 2015 available at http://www.bhpbilliton.com/~/media/bhp/
documents/investors/annual-reports/2015/
bhpbillitoneconomics2015.pdf?la=en.
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D. Summary of Proposed Rules

    In general, the proposed rules, which are described in more detail 
in Part II below, would require resource extraction issuers to file a 
Form SD on an annual basis that includes information about payments 
related to the commercial development of oil, natural gas, or minerals 
that are made to governments. The following are the key provisions of 
the proposed rules:
     The term ``resource extraction issuer'' would apply to all 
U.S. companies and foreign companies that are required to file annual 
reports pursuant to Section 13 or 15(d) of the Exchange Act and are 
engaged in the commercial development of oil, natural gas, or minerals.
     The term ``commercial development of oil, natural gas, or 
minerals'' would mean exploration, extraction, processing, and export, 
or the acquisition of a license for any such activity, consistent with 
Section 13(q).
     The term ``payment'' would mean payments that are made to 
further the commercial development of oil, natural gas, or minerals, 
are ``not de minimis,'' and includes taxes, royalties, fees (including 
license fees), production entitlements, and bonuses, consistent with 
Section 13(q). We also propose including dividends and payments for 
infrastructure improvements in the definition. In addition, we propose 
defining ``not de minimis'' to mean any payment, whether a single 
payment or a series of related payments, that equals or exceeds 
$100,000 during the most recent fiscal year.
     In addition to the payments it makes directly, a resource 
extraction issuer would be required to disclose payments made by its 
subsidiaries and other entities under its control. An issuer would 
disclose those payments that are included in its consolidated financial 
statements made by entities that are consolidated or proportionately 
consolidated, as determined by applicable accounting principles.
     The term ``project'' would be defined. We propose to 
define it in a manner similar to the EU Directives, using an approach 
focused on the legal agreement that forms the basis for payment 
liabilities with a government. In certain circumstances this definition 
would also include operational activities governed by multiple legal 
agreements.
     The term ``foreign government'' would mean a foreign 
national government as well as a foreign subnational government, such 
as the government of a state, province, county, district, municipality, 
or territory under a foreign national government, consistent with 
Section 13(q).
     The term ``Federal Government'' would mean the United 
States Federal Government.
     The proposed rules would require a resource extraction 
issuer to file its payment disclosure on Form SD, on the Commission's 
Electronic Data Gathering, Analysis, and Retrieval System (``EDGAR''), 
no later than 150 days after the end of its fiscal year. Form SD would 
require issuers to include a brief statement directing users to 
detailed payment information provided in an exhibit.
     Recognizing the discretion granted to us under Section 
13(q), the proposed rules would require issuers to disclose the payment 
information publicly, including the identity of the issuer.
     The proposed rules would not include any express 
exemptions. Instead, resource extraction issuers could apply for, and 
the Commission would consider, exemptive relief on a case-by-case 
basis.\54\
---------------------------------------------------------------------------

    \54\ See Sections 12(h) and 36(a) of the Exchange Act (15 U.S.C. 
78l(h) and 78mm(a)).
---------------------------------------------------------------------------

     In light of recent developments in the European Union and 
Canada, as well as the developments with the U.S. Extractive Industries 
Transparency Initiative (``USEITI''), Form SD would include a provision 
by which resource extraction issuers could use a report prepared for 
foreign regulatory purposes or for USEITI to comply with the proposed 
rules if the Commission deems the foreign jurisdiction's applicable 
requirements or the USEITI reporting regime to be substantially similar 
to our own.
     Resource extraction issuers would be required to present 
the payment disclosure using the eXtensible Business Reporting Language 
(``XBRL'') electronic format and the electronic tags identified in Item 
2.01 of Form SD. These tags would include those listed in Section 
13(q), as well as tags for the type and total amount of payments made 
for each project, the type and total amount of payments made to each 
government, the particular resource that is the subject of commercial 
development, and the subnational geographic location of the project.
     Resource extraction issuers generally would be required to 
comply with the rules starting with their fiscal year ending no earlier 
than one year after the effective date of the adopted rules.

[[Page 80063]]

E. Objectives of Section 13(q)'s Required Disclosures and the Proposed 
Rules

    Section 13(q) reflects U.S. foreign policy interests in supporting 
global efforts to improve the transparency of payments made in the 
extractive industries. The use of securities law disclosure 
requirements to advance foreign policy objectives is uncommon, and 
therefore foreign policy is not a topic we routinely address in our 
rulemaking.\55\ Nonetheless, because Congress has directed the 
Commission to issue rules effectuating Section 13(q), we have sought to 
understand the governmental interests that the statute and rules are 
designed to serve, and to determine the best way to structure our rules 
so as to further those governmental interests.
---------------------------------------------------------------------------

    \55\ In this regard, we note that there are only two other 
Federal securities law disclosure requirements that appear designed 
primarily to advance U.S. foreign policy objectives. The first is 
Section 13(p) of the Exchange Act [15 U.S.CM 78m(p)], which was 
added in 2010 by the Act. Section 13(p) directs the Commission to 
adopt rules requiring certain disclosures regarding the use of 
conflict minerals originating in the Democratic Republic of the 
Congo. The other disclosure provision is Section 13(r) of the 
Exchange Act [15 U.S.C. 78m(r)], which was added by the Iran Threat 
Reduction and Syria Human Rights Act of 2012. Section 13(r) is a 
self-executing provision that requires a reporting company to 
include in its annual and quarterly reports disclosure about 
specified Iran-related activities, and transactions or dealings with 
persons whose property and interests are blocked pursuant to two 
Executive Orders relating to terrorism and the proliferation of 
weapons of mass destruction. Public Law 112-158 (Aug. 10, 2012).
---------------------------------------------------------------------------

    Accordingly, we have carefully examined the legislative history, 
relevant materials from the Executive Branch, and the many comments we 
have received, in order to develop our understanding of the objectives 
of Section 13(q). To assist us further in understanding the 
governmental interests, Commission staff consulted with relevant staff 
from the Department of State, the Department of the Interior, and the 
U.S. Agency for International Development.\56\ Commission staff also 
conferred with representatives from the Canadian and British 
governments, as well as a representative of the European Union. As 
outlined below, these sources and consultations have helped form our 
view that Section 13(q) and the rules required thereunder are intended 
to advance the important U.S. foreign policy objective of combatting 
global corruption and, in so doing, to potentially improve 
accountability and governance in resource-rich countries around the 
world.\57\ In light of our understanding, the disclosure that we are 
proposing to require of resource extraction issuers (i.e., company 
specific, project-level, public disclosure of information relating to 
payments made to a foreign government for the purpose of the commercial 
development of oil, natural gas, or minerals) is designed to further 
these critical U.S. interests.
---------------------------------------------------------------------------

    \56\ See Section 13(q)(2)(B) (expressly authorizing the 
Commission in developing the rules under Section 13(q) to ``consult 
with any agency or entity that the Commission determines is 
relevant'').
    \57\ See, e.g., letters from United States Department of State 
(Nov. 13, 2015) (``State Department'') (``[Section 13(q)] directly 
advances the United States' foreign policy interests in increasing 
transparency and reducing corruption in the oil, gas, and mineral 
sectors.''); DOI 1.
---------------------------------------------------------------------------

1. The U.S. Government's Foreign Policy Interest in Reducing Corruption 
in Resource-Rich Countries
    An important component of the U.S. foreign policy agenda is ``to 
stem corruption around the world and hold to account those who exploit 
the public's trust for private gain.'' \58\ Indeed, ``[t]he United 
States has been a global leader on anti-corruption efforts since 
enacting the first foreign bribery law, the Foreign Corrupt Practices 
Act (FCPA), in 1977.'' \59\ For example, ``[t]he United States was a 
leader in developing fundamental international legal frameworks [to 
combat corruption] such as the UN Convention against Corruption and the 
Organization for Economic Cooperation and Development (OECD) Anti-
Bribery Convention[.]'' \60\ And ``[t]he United States has also been a 
leader in providing funding for capacity building to fight corruption 
and promote good governance.'' \61\
---------------------------------------------------------------------------

    \58\ The White House, Fact Sheet: The U.S. Global Anticorruption 
Agenda (Sept. 24, 2014) (``White House Fact Sheet'') available at 
https://www.whitehouse.gov/the-press-office/2014/09/24/fact-sheet-us-global-anticorruption-agenda (``Preventing corruption preserves 
funds for public revenue and thereby helps drive development and 
economic growth. By contrast, pervasive corruption siphons revenue 
away from the public budget and undermines the rule of law and the 
confidence of citizens in their governments, facilitates human 
rights abuses and organized crime, empowers authoritarian rulers, 
and can threaten the stability of entire regions.''). See also 
letter from State Department (``Efforts to promote transparency and 
good governance, and combat corruption are at the forefront of the 
[State] Department's diplomatic and development efforts.'').
    \59\ White House Fact Sheet. See also Press Statement, Secretary 
of State John Kerry, U.S. Welcomes International Anticorruption Day 
(Dec. 9, 2014) (``Kerry Statement'') available at http://www.state.gov/secretary/remarks/2014/12/234873.htm (``[T]he United 
States is using a variety of tools, including bilateral diplomacy, 
multilateral engagement, enforcement, and capacity building 
assistance, to advance our anticorruption agenda.''); Secretary of 
State Hillary Rodham Clinton, Speech at the Transparency 
International-USA's Annual Integrity Award Dinner (Mar. 22, 2012) 
(``Clinton Transparency Speech'') (describing how the United States 
has ``made it a priority to fight corruption and promote 
transparency'').
    \60\ White House Fact Sheet. See generally OECD Convention on 
Combating Bribery of Foreign Public Officials in International 
Business Transactions (Dec. 17, 1997) available at http://www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.pdf.
    \61\ White House Fact Sheet. See also Kerry Statement (``[W]e 
renew our notice to kleptocrats around the world: Continued theft 
from your communities will not be tolerated . . . .''); Clinton 
Transparency Speech (stating that ``[c]orruption is a key focus of 
our strategic dialogue with civil society''); Staff of Senate 
Committee on Foreign Relations, 110th Cong., The Petroleum and 
Poverty Paradox, at 17 (Oct. 2008) (``Senate Report'') (``One of the 
five `key objectives' of U.S. foreign assistance is to ensure that 
recipient countries are `governing justly and democratically,' which 
for developing countries means that foreign aid is directed to 
`support policies and programs that accelerate and strengthen public 
institutions and the creation of a more vibrant local government, 
civil society, and media.''). See generally The White House, Fact 
Sheet: Leading the Fight Against Corruption and Bribery (Nov. 11, 
2014) available at https://www.whitehouse.gov/the-press-office/2014/11/11/fact-sheet-leading-fight-against-corruption-and-bribery) 
(``The United States continues to lead in providing funding for 
capacity building to fight corruption and promote good 
governance.'').
---------------------------------------------------------------------------

    One area of particular concern for the U.S. Government is 
corruption within the governments of developing countries that are rich 
in oil, gas, or minerals.\62\ Indeed, it has been explained that 
``[h]igher levels of corruption present the most obvious political risk 
that can arise from large holdings of natural resources. The short run 
availability of large financial assets [i.e., revenues from natural 
resources] increases the opportunity for the theft of such assets by 
political leaders.'' \63\
---------------------------------------------------------------------------

    \62\ See, e.g., White House Fact Sheet (explaining that ``the 
United States is taking several actions to ensure that extractives 
companies and governments remain accountable''); letter from State 
Department (``Efforts to increase transparency have been a high 
priority for this Administration as part of the United States' good 
governance promotion, anti-corruption, and energy security 
strategies.''). See also Testimony of Secretary Hillary Rodham 
Clinton, Senate Foreign Relations Committee Hearing on National 
Security and Foreign Policy Priorities in the FY 2013 International 
Affairs Budget (Feb. 28, 2012) (explaining that ``everybody is 
benefited by the disinfectant of sunshine and the spotlight to hold 
institutions accountable'' and the Section 13(q) disclosures 
``complement[] other efforts at transparency that [the U.S. 
Government is] committed to''); Senate Report, at 17 (``[I]n the 
summer of 2008, the State Department, under a provision of the 
FY2008 State appropriations bill, issued new guidance to embassies 
to revoke or deny visas to high-level foreign officials involved in 
extractive industries corruption.'').
    \63\ Maccartan Humphreys, Jeffrey D. Sachs & Joseph E. Stiglitz, 
Escaping the Resource Curse (2007), at 11 (``Escaping the Resource 
Curse''). See also, Simon Dietz, Eric Neumayer, & Indra de Soysa, 
Corruption, the Resource Curse, and Genuine Saving, Environment 
Development Economics (2007) (noting that ``[t]he availability of 
resource rents may give rise to corruption''). See generally Senate 
Report, at 12 (explaining that ``transparency in extractive 
industries abroad is in [U.S.] interests because mineral wealth 
breeds corruption, which dulls the effects of U.S. foreign 
assistance''); Escaping the Resource Curse, at 11 (noting that 
``statistical studies that seek to account for variation in levels 
of corruption across different countries find that natural resource 
dependence is a strong predictor''); Global Witness, Oil Revenue 
Transparency (Mar. 2007) (``In all, 26 of the world's 36 oil-rich 
countries rank among the bottom half of the world's most corrupt 
countries.''); letter from Civil Society Coalition on Oil and Gas in 
Uganda (May 18, 2015) (``CSCU'') (explaining that revenues from 
extractive activities are a ``major vector for corruption and 
malfeasance in the extractive sectors'').

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[[Page 80064]]

    The costs of such corruption to the national economies of these 
resource-rich developing countries can be ``enormous.'' \64\ Many 
experts and policymakers in this area contend that such corruption ``is 
central to explaining why resource-rich countries perform badly in 
terms of socio-economic development, a phenomenon that has been termed 
the resource curse.'' \65\ The State Department has similarly explained 
that ``[c]orruption and mismanagement of these resources can impede 
economic growth, reduce opportunities for U.S. trade and investment, 
divert critically needed funding from social services and other 
government activities, and contribute to instability and conflict.'' 
\66\ Whatever form the relationship between corruption and the resource 
curse may take in a given resource-rich developing country, many 
believe that the two are closely connected.\67\
---------------------------------------------------------------------------

    \64\ Escaping the Resource Curse, at 11.
    \65\ Ivar Kolstad and Arne Wiig, Is Transparency the Key to 
Reducing Corruption in Resource Rich Countries? World Development 
(Feb. 2009). See also, Simon Dietz, Eric Neumayer, & Indra de Soysa, 
Corruption, the Resource Curse, and Genuine Saving, Environment 
Development Economics (2007) (discussing the ``persuasive 
theoretical and empirical arguments in the literature that suggest 
corruption may be a major explanatory factor in the resource 
curse''); Carles Leite & Jens Weidmann, Does Mother Nature Corrupt? 
Natural Resources, Corruption, and Economic Growth, IMF (July 1999) 
(discussing a regression analysis demonstrating that ``long-term 
growth is negatively affected by the level of corruption''); Senate 
Report, at 10 (``The resource curse is the product of multiple 
factors including . . . [i]ncreases in incentives for corruption and 
political rent-seeking when large commodity revenue streams are 
available[.]''). See generally Escaping the Resource Curse, at 1 
(``Countries with large endowments of natural resources, such as oil 
and gas, often perform worse in terms of economic development and 
good governance than do countries with fewer resources. 
Paradoxically, despite the prospects of wealth and opportunity that 
accompany the discovery and extraction of oil and other natural 
resources, such endowments all too often impede rather than further 
balanced and sustainable development.'') (emphasis in original); 
Bank Information Center & Global Witness, Assessment of IMF and 
World Bank Group Extractive Industries Transparency Implementation 
(Oct. 2008) (``[M]any resource-rich countries are among the most 
corrupt and the poorest countries in the world.'').
    \66\ Letter from State Department.
    \67\ At least one potential explanation for the relationship 
between resource-revenue corruption and poor socio-economic 
performance is that resource revenues tend to ``produce weak state 
structures that make corrupt practices considerably easier for 
government officials.'' Escaping the Resource Curse, at 11. The weak 
state structures, in turn, may result from the fact that ``resource-
rich governments receive so much revenue from rents that they have 
little need for taxation'' and, therefore, can operate in a manner 
that is less accountable to the general public. Caitlin C. Corrigan, 
Breaking the Resource Curse: Transparency in the Natural Resource 
Sector and the Extractive Industries Transparency Initiative, 
Resource Policy (2014). It has been argued that ``[s]uch governments 
have lower motivation to push through development enhancing 
proposals or remain democratic.'' Id. See generally Escaping the 
Resource Curse, at 257 (``Simply stated, petroleum dependence turns 
oil states into `honey pots'--ones to be raided by all actors, 
foreign and domestic, regardless of the long-term consequences 
produced by this collective rent-seeking.'').
---------------------------------------------------------------------------

    In recent years, a global consensus has begun to emerge that 
increasing revenue transparency through the public disclosure of 
revenue payments made by companies in the resource extraction sector to 
foreign governments can be an important tool to help combat the 
corruption that resource-rich developing countries too often 
experience.\68\ For example, as discussed above, since 2002 an 
international coalition that includes various foreign governments, 
international organizations, and resource extraction issuers has 
maintained the EITI, which seeks to improve public transparency and 
accountability in countries rich in oil, natural gas, or minerals.\69\ 
As also discussed above, the European Union and Canada have both 
enacted resource extraction payment disclosure requirements.\70\ 
Moreover, the World Bank requires ``revenue transparency as a condition 
on new investments in [extractive industries].'' \71\ The International 
Monetary Fund similarly seeks to promote such transparency in 
developing countries.\72\
---------------------------------------------------------------------------

    \68\ See, e.g., letter from State Department (explaining that 
transparency has been ``widely identified as a key component of the 
fight against corruption in this sector''); Liz David-Barrett & Ken 
Okamura, The Transparency Paradox: Why Do Corrupt Countries Join 
EITI? Working Paper No. 38, European Research Centre for Anti-
Corruption and State-Building (Nov. 2013) (explaining that 
transparency initiatives ``have become a key part of the anti-
corruption toolkit on the assumption that sunlight is the best 
disinfectant''); Alexandra Gillies & Antoine Heuty, Does 
Transparency Work? The Challenges of Measurement and Effectiveness 
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011) 
(``Transparency has emerged as the most broadly recommended policy 
response to poor governance records in resource-rich states and 
their damaging developmental effects.''). See also Escaping the 
Resource Curse, at 26 (``The central problem facing resource-rich 
countries may be easily stated: Various individuals wish to divert 
as much of that endowment as possible for their own private benefit. 
Modern economic theory has analyzed the generic problem of inducing 
agents (here government officials) to act in the interests of those 
they are supposed to serve (the principals, here the citizens more 
generally). Agency problems arise whenever information is imperfect, 
and hence there is a need to emphasize transparency, or improving 
the openness and availability of information in an attempt to 
control corruption.'') (emphasis in original).
    \69\ See Senate Report, at 14 (describing as ``[k]ey EITI 
goals'' the ``prevent[ion] [of] revenue-related corruption'' and the 
``promotion [of] public fiscal transparency and political 
accountability'').
    \70\ Another example of an international transparency effort is 
the amendments to the Hong Kong Stock Exchange listing rules for 
mineral companies. See Amendments to the GEM Listing Rules of the 
Hong Kong Stock Exchange, Chapter 18A.05(6)(c) (effective June 3, 
2010), available at http://www.hkex.com.hk/eng/rulesreg/listrules/gemrulesup/Documents/gem34_miner.pdf (requiring a mineral company to 
include in its listing document, if relevant and material to the 
company's business operations, information regarding its compliance 
with host country laws, regulations and permits, and payments made 
to host country governments in respect of tax, royalties, and other 
significant payments on a country by country basis).
    \71\ World Bank, Striking a Better Balance--the World Bank Group 
and Extractive Industries: The Final Report of the Extractive 
Industries Review (Sept. 17, 2004).
    \72\ See IMF, Guide on Resource Revenue Transparency (2007) (``A 
high immediate priority should be given to improving the quality and 
public disclosure of data on resource revenue transactions . . . 
.The public availability of information on all resource-related 
transactions is central to fiscal transparency.''). See generally 
Senate Report, at 3 (``The World Bank and the International Monetary 
Fund have both launched efforts to improve accounting and 
transparency of extractive industry revenues, and to make it harder 
for government officials to hide corruption--and easier for citizens 
to demand that the money be spent wisely.'').
---------------------------------------------------------------------------

    In accordance both with the U.S. Government's long-standing foreign 
policy objective to reduce global corruption and with the increased 
appreciation that resource extraction payment transparency may help 
combat corruption, Congress in 2010 enacted the Section 13(q) public 
disclosure requirement.\73\ Section 13(q) directly

[[Page 80065]]

embodies this governmental purpose, providing expressly that ``[t]o the 
extent practicable, the rules issued [under the provision] shall 
support the commitment of the Federal Government to international 
transparency promotion efforts relating to the commercial development 
of oil, natural gas, or minerals.'' \74\ The legislative history 
underlying the enactment of Section 13(q) further confirms that the 
provision was intended to help combat corruption by increasing public 
transparency of resource extraction payments and, in so doing, to 
potentially enhance accountability and governance in resource-rich 
developing countries.\75\ And since the enactment of Section 13(q), the 
President and the State Department have emphasized the important role 
that disclosure pursuant to Section 13(q) is intended to have in 
helping to combat corruption in resource-rich countries.\76\
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    \73\ The legislative history demonstrates that, by at least 
2008, Congress became aware that a mandatory disclosure regime was 
needed to complement the voluntary EITI regime to achieve 
significant international gains in payment transparency. See, e.g., 
Transparency of Extractive Industries: High Stakes for Resource-Rich 
Countries, Citizens, and International Business, Hearing before the 
Committee on Financial Services, U.S. House of Representatives (No. 
110-75) (Oct. 25, 2007) at 7 (testimony of Ian Gary) (``EITI may 
make progress in some countries where political will to tackle the 
problem is strong and lasting, and requires the active involvement 
of civil society. But the initiative is weakened by its voluntary 
nature and will not capture many countries where problems are most 
severe.''). As explained in a 2008 Senate Foreign Relations 
Committee report:
    United States and multilateral efforts to promote extractive 
industries transparency are intended to work within the bounds of 
the political will and technical capacity of the resource-rich 
countries. With their revenue windfall, some of these nations are 
increasingly intransigent in resisting outside pressure. This has 
led some to urge that the U.S. should take steps domestically to 
promote transparency overseas, much as the Foreign Corrupt Practices 
Act was U.S. domestic legislation to thwart corruption abroad. One 
such proposal is to mandate revenue reporting for companies listed 
with the Securities and Exchange Commission and working in 
extractives abroad.
    Senate Report, at 20. This report's findings served as the basis 
for Section 13(q). See 156 Cong. Rec. S3816 (May 17, 2010) 
(Statement of Senator Lugar) (explaining that Section 13(q) ``builds 
on the findings'' of this report); id. at S3817 (May 17, 2010) 
(Statement of Senator Dodd). See also id. S3818 (May 17, 2010) 
(Statement of Senator Dodd) (stating that ``broad new requirements 
for greater disclosure by resource extractive companies operating 
around the world[ ] would be an important step'' to complement the 
EITI's ``voluntary program'').
    \74\ Section 13(q)(2)(E).
    \75\ See, e.g., 156 Cong. Rec. S3816 (May 17, 2010) (Statement 
of Senator Lugar) (explaining that the provision will help combat 
the problem where ``[t]oo often, oil money intended for a nation's 
poor ends up lining the pockets of the rich or is squandered on 
showcase projects instead of productive investments''); id. at S3976 
(May 19, 2010) (Statement of Senator Feingold) (explaining that the 
provision will ``require companies listed on U.S. stock exchanges to 
disclose in their SEC filing extractive payments made to foreign 
governments for oil, gas, and mining . . . . This information would 
then be made public, empowering citizens in resource-rich countries 
in their efforts to combat corruption and hold their governments 
accountable.''); id. at S5913 (July 15, 2010) (Statement of Senator 
Leahy) (``[Section 13(q)] will enable citizens of these resource-
rich countries to know what their governments and governmental 
officials are receiving from foreign companies in exchange for 
mining rights. This will begin to hold governments accountable for 
how those funds are used and help ensure that the sale of their 
countries' natural resources are used for the public good.''). We 
note that the legislative history also indicates that Congress 
intended for the Section 13(q) disclosures to serve as a potential 
informational tool for investors. See, e.g., id. at 3316 (Statement 
of Senator Cardin) (May 6, 2010) (``The investor has a right to know 
about the payments. Secrecy of payments carries real bottom-line 
risks for investors.'').
    \76\ See, e.g., President Barack Obama, Speech Before the United 
Nations General Assembly (Sept. 22, 2010) (``So we are leading a 
global effort to combat corruption, which in many places is the 
single greatest barrier to prosperity, and which is a profound 
violation of human rights. That's why we now require oil, gas and 
mining companies that raise capital in the United States to disclose 
all payments they make to foreign governments.''); letter from State 
Department (recommending that the Commission ``produce a strong 
[Section 13(q)] rule that improves transparency by ensuring a 
sufficiently detailed level of information concerning payments from 
the extractive industry to foreign governments for the development 
of oil, natural gas, and mineral'' that would be ``made public and 
accessible to civil society''); id. (``A strong [Section 13(q) rule 
would complement [the U.S. Government's anti-corruption] efforts, 
bolster our credibility with foreign partners on these issues, and 
promote U.S. foreign policy interests. It is important the United 
States lead by example by modeling strong transparency legislation 
and rulemaking.''); Clinton Transparency Speech (stating that 
Section 13(q) should ``have a very profound effect on [the U.S. 
Government's] ability to try to manage some of the worst practices 
that we see in the extractive industry and in the relationships with 
governments at local and national levels around the world'').
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2. Reasons for Proposing Issuer-Specific, Project-Level, Public 
Disclosures of Resource Extraction Payments
    Given the important governmental interests underlying Section 13(q) 
and this rulemaking, we have considered the manner in which the public 
disclosure of resource extraction payments might best promote those 
governmental interests. As detailed in Section II of this release, we 
are proposing a requirement for company-specific, project-level, public 
disclosure. By ``project-level'' reporting, we refer to ``project'' as 
defined by our proposed rules--a definition that is generally based on 
the operational activities that are governed by a single contract, 
license, lease, concession or similar legal agreement and that forms 
the basis for payment liabilities.\77\ We believe that such company-
specific, project-level payment transparency is potentially beneficial 
and that our proposal to require such disclosure is properly designed 
to further the goal of combatting corruption.
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    \77\ See Section II.E below. Our definition is generally 
comparable to the ``project'' definition that the European Union has 
adopted and that Canada is considering adopting. We note that the 
State Department has advised that a Commission rule ``compatible 
with'' the EU and Canadian ``transparency measures would further 
advance the United States' foreign policy interests.'' Letter from 
State Department. Some commenters have argued for a much broader 
definition of project that would encompass vast expanses of 
territory in many instances, but as we explain immediately below and 
in Section II.E, the more granular definition contained in the 
proposed rules would provide greater payment transparency and better 
serve the statutory objectives. See generally letter from Iraqi 
Transparency Alliance for Extractive Industries (Sept. 28, 2015) 
(``Iraqi Transparency Alliance'') (explaining that ``EITI data in 
Iraq is reported by field, but some fields are enormous,'' such as 
the ``Rumaila field--a super-giant oil field, covering around 700 
[square miles], with around 270 production wells in operation, 
producing around 1.3 m barrels per day,'' and stating that 
``[w]ithout project-level information, [Iraqi citizens] cannot see 
the detailed roles that individual companies are playing in the 
region and whether Iraqi citizens are seeing the appropriate 
benefits from the extraction'').
---------------------------------------------------------------------------

    Scholars and other experts have noted that ``[t]he extractive 
sector presents particularly strong asymmetries of information across 
the principal stakeholders: Citizens, governments, and companies.'' 
\78\ While resource extraction companies are aware of the payments that 
they make and government actors may be aware of the revenues that they 
receive, too often ``[t]he citizens of resource-rich countries have 
very little information about the extractive industry-related 
activities in which their government engages.'' \79\ This has been 
described as ``a formula for corruption.'' \80\
---------------------------------------------------------------------------

    \78\ Alexandra Gillies & Antoine Heuty, Does Transparency Work? 
The Challenges of Measurement and Effectiveness in Resource-Rich 
Countries, 6 Yale J. Int'l Aff. 25 (2011). See also 156 CONG. REC. 
S3817 (May 17, 2010) (Statement of Senator Dodd) (explaining that in 
many resource-rich countries ``governance and accountability systems 
are rudimentary, at best,'' and ``corruption, secrecy, and a lack of 
transparency regarding public finance are pervasive''). See 
generally Gillies & Heuty (``This uneven allocation [of information] 
reflects the centralization of power and control of the petroleum 
and mineral sectors that commonly occurs in developing 
countries.'').
    \79\ Escaping the Resource Curse, at xiv. See also Gillies & 
Heuty (``Media, parliaments, civil society, the population, 
opposition parties, and other outsiders often have very limited 
access to information, which constrains their ability to exercise 
their oversight and accountability functions.''). See also letters 
from Iraqi Transparency Alliance (``While EITI data is certainly an 
improvement upon what we had before . . . there are some serious 
shortcomings [in that disclosure] that prevent civil society 
organizations . . . from properly monitoring the flow of money in 
our oil sector.''); Publish What You Pay--Zimbabwe (Feb. 20, 2015) 
(``PWYP-ZIM'') (``Currently there is very little useful data 
published by government or industry in Zimbabwe's extractives 
sector.''); Global Witness (Dec. 18, 2013) (``Global Witness 2'') 
(referring to insufficient disclosure by governments and industry 
participants resulting in corruption among other things).
    \80\ Escaping the Resource Curse, at 266. See generally Dilan 
Olcer, OECD Working Paper No. 276, Extracting the Maximum from EITI 
(Mar. 11, 2009) (describing the problem in terms of principal-agent 
theory where the country's citizens are the principal and the 
government officials are the agents: ``The agent does not faithfully 
serve the interests of the principal because they have conflicting 
interests and the actions of the agent are not observable by the 
principal'') (emphasis added).
---------------------------------------------------------------------------

    The public disclosure of resource extraction payments that are made 
to foreign governments can become an important step towards combatting 
the information asymmetries that can foster corruption and a lack of 
governmental accountability.\81\ This is in part because

[[Page 80066]]

``[i]mproved transparency in the transactions between governments and 
extractive corporations means that there should be less room for hidden 
---------------------------------------------------------------------------
or opaque behavior[.]'' \82\ As one academic article describes it:

    \81\ See, e.g., letter from State Department (explaining that a 
``sufficiently detailed level of information concerning payments 
from the extractive industry to foreign governments for the 
development of oil, natural gas, and minerals'' that is made 
publicly available is necessary to achieve the anti-corruption and 
transparency objectives and further explaining that ``[i]n the 
absence of this level of transparency, citizens have fewer means to 
hold their governments accountable, and accountability is a key 
component of reducing the risk of corruption''); World Bank, 
Striking a Better Balance--the World Bank Group and Extractive 
Industries: The Final Report of the Extractive Industries Review 
(Sept. 17, 2004) (describing revenue transparency as ``an important 
step''). We note that the potential for communities and civil 
society to reduce corruption and achieve greater governmental 
accountability exists even where the governments at issue have 
authoritarian tendencies. See also letter from ONE Campaign (Nov. 6, 
2015) (``ONE Campaign'') (detailing various case studies involving 
successful citizen actions taken in countries such as Angola, 
Azerbaijan and Zimbabwe to ``demonstrate[e] that even in countries 
with closed political systems and restricted civil liberties 
citizens are still able to use information to drive change'').

    \82\ Dilan Olcer, OECD Working Paper No. 276, Extracting the 
Maximum from EITI (Mar. 11, 2009). See also 156 CONG. REC. S5872 
(July 15, 2010) (Statement of Senator Cardin) (``By giving the 
citizens the information about how payments are made to their 
country, they have a much better chance to hold their government 
officials accountable.''); Escaping the Resource Curse, at xiv 
(``The obvious remedy is greater transparency and 
accountability.''). See generally Global Witness, Oil Revenue 
Transparency: A Strategic Component of U.S. Energy Security and 
Anti-Corruption Policy (Mar. 2007) (``[E]nergy revenue transparency 
limits the scope of oil-related corruption through fiscal 
accountability.''); Caitlin C. Corrigan, Breaking the Resource 
Curse: Transparency in the Natural Resources Sector and the 
Extractive Industries Transparency Initiative, Resources Policy 
(2014) (``Transparency and accountability within government is 
expected to mitigate some of the negative economic and quality of 
governance effects seen in countries with poor institutions and 
abundant resources by making it harder for government to divert 
revenues to corruption and patronage.'').
---------------------------------------------------------------------------

    Information asymmetries facilitate rent-seeking behavior and 
permit those in charge to utilize the country's resource wealth to 
advance their personal and political aims. In such a context, where 
informational asymmetries are key characteristics of power 
differentials, transparency is both difficult and a potential agent 
of change . . . Demystifying the extractive sector and financial 
flows dilutes some of the center's power by enabling other actors to 
participate more fully. It eliminates informational enclaves where 
incentives favor self-interested behavior.\83\
---------------------------------------------------------------------------

    \83\ Alexandra Gillies & Antoine Heuty, Does Transparency Work? 
The Challenges of Measurement and Effectiveness in Resource-Rich 
Countries, 6 Yale J. Int'l Aff. 25 (2011). See also id. 
(``Transparency should alter incentives as perceived by the 
individual in charge by increasing the costs associated with `bad' 
policies or behavior, such as signing an unfavorable contract in 
exchange for a bribe or failing to property assess royalties. It 
should also alter incentives by increasing external pressure for 
decision makers to advance the broader national interest as 
information empowers broader constituencies.''); Ivar Kolstad & Arne 
Wiig, Is Transparency the Key to Reducing Corruption in Resource 
Rich Countries? World Development (Feb. 2009) (``Transparency, or 
access to information, can have an effect on corruption. 
Transparency can reduce bureaucratic corruption by making corrupt 
acts more risky . . . . Transparency can reduce political corruption 
by helping make politicians more accountable to the public.''); Liz 
David-Barrett & Ken Okamura, The Transparency Paradox: Why Do 
Corrupt Countries Join EITI?, Working Paper No. 38, European 
Research Centre for Anti-Corruption and State-Building (Nov. 2013) 
(``A lack of transparency makes corruption less risky and more 
attractive.''). See generally Escaping the Resource Curse, at 26 
(``With the cost-benefit calculus for corruption changed, there 
might be less corruption.'').

    While public disclosure of information about resource extraction 
payments to foreign governments should help reduce the information 
asymmetries that allow corruption to occur, the question remains of 
what form that disclosure should take to best reduce corruption 
consistent with the statutory objectives. Having considered the public 
comments received, information the staff learned from inter-agency 
consultations, relevant academic literature, and other expert analyses 
(as well as the mandatory disclosure regimes that have recently been 
adopted by the European Union and Canada), we are proposing to require 
company-specific, project-level, public disclosure of payment 
information as the means best designed to advance the U.S. Government's 
interests in reducing corruption and promoting accountability and good 
governance.
    An important consideration in support of detailed project-level 
disclosure of the type proposed is that such disaggregated information 
may help local communities and subnational governments combat 
corruption by enabling them to verify that they are receiving the 
resource extraction revenue allocations from their national government 
that they may be entitled to under law.\84\ Several commenters made 
this point. For example, a civil society group in Cameroon explained:
---------------------------------------------------------------------------

    \84\ See, e.g., letter from National Advocacy Coalition on 
Extractives (Feb. 10, 2015) (``NACE'') (``In order to calculate the 
amount of money they are entitled to and hold [national] government 
agencies to account for allocating the correct amount, communities 
need access to project-level revenue data.'').

    The Cameroonian Mining Code states that municipality and local 
communities are entitled to 25 percent of the Ad Valorem tax and 
Extraction tax paid by companies for the projects located in their 
jurisdiction . . . . [W]ithout project-level fiscal data, local 
populations will not be able to cross-check whether or not they are 
receiving the share of revenues they are legally entitled to.\85\
---------------------------------------------------------------------------

    \85\ Letter from Publish What You Pay Cameroon (June 8, 2015) 
(``PWYP-CAM''). See also id. (``Unfortunately, insufficient 
granularity is a serious flaw in Cameroon's EITI reports, as 
companies report the total amount of money they are pay[ing] for all 
projects in our country, combined.'') (emphasis in original).

A civil society group in Angola similarly represented that project-
level data would help ``ensur[e] [that] local communities receive their 
entitlements from revenue sharing agreements[.]'' \86\ Project-level 
disclosure could help reduce instances where government officials are 
corruptly depriving subnational governments and local communities of 
revenue allocations to which they are entitled.\87\
---------------------------------------------------------------------------

    \86\ Letter from Open Society Institute for Southern Africa-
Angola (Jan. 29, 2015) (``OSISA-A''). See also id. (``[T]he Angolan 
government is required by law to transfer 10 per cent of the taxes 
generated by extraction projects in Cabinda directly to the 
provincial government. The revenue is earmarked for spending on 
local development initiatives in order to help offset some of the 
social and environmental costs of oil production for local 
communities. Similar oil revenue-sharing agreements exist in the 
Angolan provinces of Zaire and Bengo.''); letter from ONE Campaign 
(stating that in Burkina Faso mining companies are required to pay 
1.0% of their revenues to local communities in which they operate in 
order to help communities finance improvements in healthcare, 
education, sanitation, and clean water and explaining that 
``[a]ccess to project-level payment information will be crucial for 
helping citizens to monitor that mining companies are paying 1% of 
revenues to local communities and to hold the government accountable 
for those funds'').
    \87\ For example, a civil society group in Indonesia reports 
that it is already using Indonesia's EITI reports--which apparently 
now include project-level reporting--to ``[e]nsur[e] that local 
governments and communities are properly compensated for the oil, 
gas, and mining activity in their'' geographical areas. See Letter 
from Publish What You Pay--Indonesia (Mar. 11, 2015) (``PWYP-IND'') 
(``By law, local governments [in Indonesia] are to receive 15 
percent of oil revenue generated by local projects, 30 percent of 
gas revenue, and 80 percent of mineral royalties . . . . [D]istrict 
governments and citizens inhabiting resource-rich areas can now 
calculate the share of extractives revenue they are owed, and 
confirm that it is delivered.''). We note that in an analogous area 
such public disclosure has reduced corruption. See R. Reinikka & J. 
Svensoon, Fighting Corruption to Improve Schooling: Evidence from a 
Newspaper Campaign in Uganda, Journal of European Economic 
Association (2005) (reporting that, following surveys in Uganda 
showing that only 13% of education grants actually reached schools 
in the 1990s (the rest being captured by local governments), the 
Ugandan government started to publish monthly grants to districts in 
newspapers; the study found that publication of the grants had a 
substantial effect on preventing the corrupt diversion of the funds 
such that, by 2001, more than 80% of grants on average reached 
schools).
---------------------------------------------------------------------------

    Company-specific, project-level, public data also may permit 
citizens, civil society groups, and others to actively engage in the 
monitoring of revenue flows in various other ways that may reduce 
corruption and increase accountability.\88\ For example, project-

[[Page 80067]]

level reporting would potentially allow for comparisons of revenue 
flows among different projects.\89\ The potential to engage in cross-
project revenue comparisons may allow citizens, civil society groups, 
and others to identify potential payment discrepancies that reflect 
corruption or other inappropriate financial discounts.\90\
---------------------------------------------------------------------------

    \88\ See generally Liz David-Barrett & Ken Okamura, The 
Transparency Paradox: Why Do Corrupt Countries Join EITI?, Working 
Paper No. 38, European Research Centre for Anti-Corruption and 
State-Building (Nov. 2013) (``[P]roviding highly aggregated 
macroeconomic figures on oil revenues or expenditures is likely to 
result in collective action problems, where individual incentives to 
act on the information are weak.''); Bank Information Center & 
Global Witness, Assessment of IMF and World Bank Group Extractive 
Industries Transparency Implementation (Oct. 2008) (``Local groups 
working on [extractive industry] transparency issues insist that 
project-level disclosure is necessary to carrying out meaningful 
tracking of revenue flows from extractive industries, especially 
important to local communities.''); letters from Iraqi Transparency 
Alliance (``[C]itizens most impacted by extraction--such as 
communities located near extraction sites--will require project-
level data in order to determine whether they are receiving a fair 
share of services from their provincial governments. For example, a 
villager located near an extraction site might draw on project level 
data to discover that her provincial government is generating huge 
sums of money from a nearby project, yet providing relatively paltry 
services to the affected village. In such a case, project level 
payment information could be used to effectively lobby the 
provincial government for additional expenditures.''); and 
Transparency International-USA (Dec. 8, 2015) (stating that project-
level disclosure ``will allow anti-corruption groups to identify 
corruption and hold governments and companies to account'').
    \89\ See, e.g., letters from PWYP-ZIM (``Project-level reporting 
would also allow for some comparison along projects at similar 
levels of maturation.''); CSCU (``[I]f revenue data is not 
disaggregated by company, it will not aid our understanding of the 
deals negotiated, and variations in payments made, by different 
companies.'').
    \90\ See generally letter from CSCU (``Only payment data that is 
company-specific would enable us to call on both companies and the 
Government to explain any substantial variations among different 
companies, and ensure that individual firms are not improperly 
obtaining fiscal benefits.'').
---------------------------------------------------------------------------

    Furthermore, to the extent that a company's specific contractual or 
legal obligations to make resource extraction payments to a foreign 
government are known (or are discoverable), company-specific, project-
level disclosure may help assist citizens, civil society groups, and 
others ``to monitor individual company's contributions to the public 
finances and ensure firms are meeting their payment obligations.'' \91\ 
Such data may also help various actors ensure that the government ``is 
properly collecting and accounting for payments.'' \92\ Relatedly, an 
important additional benefit of company-specific and project-level 
transparency ``is that it would also act as a strong deterrent to 
companies underpaying royalties'' or other monies owed.\93\
---------------------------------------------------------------------------

    \91\ Letter from CSCU. See also letter from ONE Campaign 
(describing how EITI disclosures in Liberia enabled civil society 
groups to discover that a mining company had fraudulently failed to 
pay over $100,000 to the government and to compel the company to 
make the required payment).
    \92\ Id. See also id. (``[CSCU] is planning to use project- and 
company-level data . . . in conjunction with a new contract modeling 
tool developed by the U.K. NGO Global Witness, which allows citizens 
to use publicly available contracts to predict how much revenue a 
government will receive from that contract. We will check project-
level payment data disclosed by companies against the model's 
predictions to analyze and raise questions about any discrepancies 
between reported payments from modeled predictions.''). See 
generally Dilan Olcer, OECD Working Paper No. 276, Extracting the 
Maximum from EITI (Mar. 11, 2009) (discussing the earlier version of 
the EITI which did not require project-level disclosure and 
explaining that ``disaggregated data'' is needed to ``ensure the 
level of transparency that is necessary to enable scrutiny by 
outsiders'').
    \93\ Letter from CSCU.
---------------------------------------------------------------------------

    Additionally, we note that various commenters have asserted that 
``[p]roject-level reporting in particular will help communities and 
civil society [groups] to weigh the costs and benefits of an individual 
project.'' \94\ Where the net benefits of a project are small or non-
existent, this may be an indication that the foreign government's 
decision to authorize the project is based on corruption or other 
inappropriate motivations.\95\
---------------------------------------------------------------------------

    \94\ Letter from PWYP-ZIM (``If, however, payments cannot be 
linked to a company or project, it will be impossible to carry out a 
full assessment of their impact.''). See also letters from Robert F. 
Conrad, Ph.D. (July 17, 2015) (``[P]roject level reporting is 
necessary for resource owners, whom I define as the citizens of most 
natural resource projecting countries, in order to evaluate the net 
benefits of resource development, both in total and at the 
margin.''); NACE (``Project level payment data is also necessary to 
enable communities to conduct an informed cost-benefit analysis of 
the projects in their backyard . . . . For local communities 
affected by extractive projects, knowledge of the total, combined 
amount a company has paid the government for all extractive projects 
is of little value; what matters most to a community is the revenue 
generated from the specific projects in its backyard.''). See 
generally letter from CSCU (explaining that the civil society group 
is planning to ``translate the oil revenues into the potential 
tangible infrastructure and development projects that the revenues 
could fund to improve lives of citizens throughout the country and 
especially in areas where [the projects] are located . . . . By 
pairing the exact number of schools, health centers, roads, and 
power plants made possible by oil revenues from specific companies 
and projects with actual local need, [CSCU] aim[s] to educate 
citizens about the potential benefits of oil revenues, encourage 
them to become more engaged . . . and demand realization of these 
benefits on the ground.'').
    \95\ Letter from PWYP-ZIM (explaining that without company-
specific, project-level, public disclosure, ``we would not know the 
monetary amounts received by the government when it sells individual 
licenses, which is fundamental to determining corruption and 
incentivizing public officials to secure a fair return on the sale 
of natural resources''). Cf. generally Escaping the Resource Curse, 
at 14 (``Corporations in the extractive industries also have an 
incentive to limit transparency, to make it more difficult for 
citizens to see how much their government is getting in exchange for 
sale of the country's resources.'').
---------------------------------------------------------------------------

    Finally, in proposing company-specific, project-level, public 
disclosure of resource extraction payments to foreign governments, we 
are mindful that this new transparency alone would likely not eliminate 
corruption in connection with resource extraction payments to foreign 
governments.\96\ The ``ultimate impact [of the disclosures] will 
largely depend on the ability of all stakeholders--particularly civil 
society, media, parliamentarians, and governments--to use [the] 
available information to improve the management of their resource 
extractive sector.'' \97\ Nevertheless, the payment transparency that 
our proposed rules would promote could constitute an important and 
necessary step to help combat corruption in the resource extraction 
area.\98\
---------------------------------------------------------------------------

    \96\ See, e.g., Escaping the Resource Curse, at 333 
(``[T]ransparency may well be a necessary condition for better 
management of oil and gas wealth, but it is unlikely to be a 
sufficient condition.''); Alexandra Gillies & Antoine Heuty, Does 
Transparency Work? The Challenges of Measurement and Effectiveness 
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011) (``The 
availability and access to information can only address asymmetries 
if the stakeholders have the capacity and access needed to use the 
information and respond when decision makers fail to represent their 
interests.'').
    \97\ Alexandra Gillies & Antoine Heuty, Does Transparency Work? 
The Challenges of Measurement and Effectiveness in Resource-Rich 
Countries, 6 Yale J. Int'l Aff. 25 (2011). See generally Dilan 
Olcer, OECD Working Paper No. 276, Extracting the Maximum from EITI 
(Mar. 11, 2009) (stating that ``transparency is only part of 
accountability, and may be of limited value if the other dimensions 
are neglected'').
    \98\ See generally Escaping the Resource Curse, at 278 
(explaining that ``[g]reater access to information sets the 
framework for producing better monitoring'').
---------------------------------------------------------------------------

    Lastly, it appears to us that the U.S. Government may have few 
other means beyond the disclosure mechanism required by Section 13(q) 
to directly target governmental corruption associated with the 
extractive sector in foreign countries.\99\ This reality informs our 
view that the public disclosure mechanism that we are proposing is a 
sensible, carefully tailored policy prescription.\100\
---------------------------------------------------------------------------

    \99\ See generally Senate Report, 17-21 (discussing potential 
policy tools available to the U.S. Government).
    \100\ We note that much of the commentary on improved 
transparency in connection with resource extraction payments to 
governments in resource-rich developing countries focuses on the 
potential to produce improved socio-economic conditions in those 
countries. In the context of the disclosures required by Section 
13(q), however, we believe that the primary governmental interest is 
the more modest objective of reducing corruption and potentially 
enhancing governmental accountability; the potential to improve 
socio-economic conditions is, in our view, a secondary objective. 
Compare generally Alexandra Gillies & Antoine Heuty, Does 
Transparency Work? The Challenges of Measurement and Effectiveness 
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011) (noting 
``[m]ethodological challenges'' in demonstrating a ``causal chain 
between the disclosure of information and improved development 
outcomes''); with Andres Mejia Acosta, The Impact and Effectiveness 
of Accountability and Transparency Initiatives: The Governance of 
Natural Resources, Development Policy Review (2013) (``Existing 
evidence of effective impact is also likely to increase as countries 
are exposed for longer periods to [transparency and accountability 
initiatives].'').

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[[Page 80068]]

II. Proposed Rules Under Section 13(q)

A. Definition of ``Resource Extraction Issuer''

    Section 13(q) defines a resource extraction issuer in part as an 
issuer that is ``required to file an annual report with the 
Commission.'' We believe this language could reasonably be read either 
to cover or to exclude issuers that file annual reports on forms other 
than Forms 10-K, 20-F, or 40-F. We are proposing, however, to cover 
only issuers filing annual reports on forms 10-K, 20-F, or 40-F. 
Specifically, the proposed rules would define the term ``resource 
extraction issuer'' to mean an issuer that is required to file an 
annual report with the Commission pursuant to Section 13 or 15(d) of 
the Exchange Act and that engages in the commercial development of oil, 
natural gas, or minerals.\101\ The proposed definition would therefore 
exclude, for example, issuers subject to Tier 2 reporting obligations 
under Regulation A. In addition, consistent with the 2012 Rules, 
investment companies registered under the Investment Company Act of 
1940 (``Investment Company Act'') would not be subject to the proposed 
rules.\102\
---------------------------------------------------------------------------

    \101\ See proposed Rule 13q-1(c) and proposed Item 2.01(c)(11) 
of Form SD. We interpret ``engages'' as used in Section 13(q) and 
proposed Rule 13q-1 to include indirectly engaging in the specified 
commercial development activities through an entity under a 
company's control. See Section II.E below for our discussion of 
``control.''
    \102\ See 2012 Adopting Release, n.390 (clarifying the 
Commission's intent to exclude companies required to file annual 
reports on forms other than Forms 10-K, 20-F or 40-F). The intended 
exclusion was not explicit in the definition of ``resource 
extraction issuer'' in the 2012 Rules. See also General Instruction 
C to Form SD (providing that the disclosures required in Form SD 
shall not apply to investment companies required to file reports 
pursuant to Investment Company Act Rule 30d-1).
---------------------------------------------------------------------------

    We believe that covering other issuers would do little to further 
the transparency objectives of Section 13(q) but would add costs and 
burdens to the existing disclosure regimes governing those categories 
of issuers. In this regard, we note that none of the Regulation A 
issuers with qualified offering statements between 2009 and 2014 appear 
to have been resource extraction issuers at the time of those 
filings.\103\ It also seems unlikely that an entity that fits within 
the definition of an ``investment company'' \104\ would be one that is 
``engag[ing] in the commercial development of oil, natural gas, or 
minerals.''
---------------------------------------------------------------------------

    \103\ Based on a review of their assigned Standard Industrial 
Classification (SIC) codes. Nevertheless, we recognize that Tier 2 
of Regulation A, with a maximum offering amount of $50 million, is a 
new disclosure regime and that the types of companies previously or 
currently using Regulation A may not be representative of its future 
use. In addition, since Regulation A issuers were not required to 
file annual reports when Section 13(q) was enacted, it seems 
unlikely that Congress contemplated Regulation A issuers having to 
comply with Section 13(q). Given the added costs and burdens 
discussed above, we do believe it is prudent to extend the rule in 
this manner.
    \104\ See Section 3(a)(1) of the Investment Company Act (15 
U.S.C. 80a-3(a)(1)).
---------------------------------------------------------------------------

    As noted above, the proposed definition of the term ``resource 
extraction issuer'' would apply only to issuers that are required to 
file an annual report with the Commission pursuant to Section 13 or 
15(d) of the Exchange Act. As with the 2012 Rules, we are not proposing 
exemptions to the definition of resource extraction issuer based on 
size, ownership, foreign private issuer status,\105\ or the extent of 
business operations constituting commercial development of oil, natural 
gas, or minerals. Some commenters on the 2012 Rules urged us to provide 
exemptions for certain categories of issuers that file annual reports 
pursuant to Section 13 or 15(d) of the Exchange.\106\ Other commenters 
supported the approach we are proposing.\107\ These commenters noted 
that the legislative intent underlying Section 1504 was to provide the 
broadest possible coverage of extractive companies so as to create a 
level playing field.\108\ We agree that broader coverage would appear 
to serve better the transparency objectives of Section 13(q) by 
requiring disclosure from all the resource extraction issuers that are 
subject to our existing Exchange Act reporting framework. Moreover, as 
some commenters noted, additional categorical exemptions could 
contribute to an unlevel playing field and raise competitiveness 
concerns for companies that would be subject to the rules.\109\
---------------------------------------------------------------------------

    \105\ We believe that not including government-owned companies 
within the scope of the disclosure rules could raise competitiveness 
concerns. See also 2012 Adopting Release at Section II.B.
    \106\ See 2012 Adopting Release at Section II.B.2 for a 
discussion of these comment letters and related analysis.
    \107\ See id.
    \108\ See, e.g., letters from Calvert Investments (Mar. 1, 2011) 
(``Calvert 1''); Global Witness (Feb. 25, 2011) (``Global Witness 
1''); Oxfam America (Feb. 21, 2011) (``Oxfam 1''); Publish What You 
Pay U.S. (Feb. 25, 2011) (``PWYP 1''); Senator Benjamin Cardin, 
Senator John Kerry, Senator Patrick Leahy, Senator Charles Schumer, 
and Representative Barney Frank (March 1, 2011) (``Sen. Cardin et 
al. 1''); Senator Carl Levin (Feb. 1, 2011) (``Sen. Levin 1''); and 
World Resources Institute (Mar. 1, 2011) (``WRI'').
    \109\ See 2012 Adopting Release, nn. 33-34 and accompanying 
text.
---------------------------------------------------------------------------

    In contrast to the call to provide exemptions, some commenters on 
the 2010 Proposing Release requested that the Commission extend the 
disclosure requirements to foreign private issuers that are exempt from 
Exchange Act registration and reporting obligations pursuant to 
Exchange Act Rule 12g3-2(b).\110\ Those commenters asserted that 
requiring such issuers to comply with the disclosure requirements would 
help ameliorate anti-competitive concerns. As noted by commenters who 
opposed this suggestion, extending the disclosure required under 
Section 13(q) to companies that are exempt from Exchange Act 
registration and reporting would discourage reliance on Rule 12g3-2(b) 
\111\ and would be inconsistent with the effect, and we believe the 
purpose, of that rule.\112\ In this regard, we note that Rule 12g3-2(b) 
provides relief to foreign private issuers that are not currently 
Exchange Act reporting companies (i.e., they are neither listed nor 
have made a registered offering in the United States) and whose primary 
trading market is located outside the United States. In these 
circumstances, we do not believe it would be appropriate to require 
foreign private issuers whose connections with the U.S. markets do not 
otherwise require them to make reports with the Commission to undertake 
such an obligation solely for the purpose of providing the required 
payment information. Moreover, imposing a reporting obligation on such 
issuers would seem to go beyond what is contemplated by Section 13(q), 
which defines a ``resource extraction issuer'' as an issuer that is 
``required to file an annual report with the Commission.'' \113\ While 
we acknowledge that not requiring these issuers to disclose the 
required payment information could potentially limit the transparency 
objectives of the statute, and potentially give rise to anti-
competitive concerns as some commenters suggested, we believe these 
effects are mitigated by the fact that some foreign private issuers 
that are exempt from registration and reporting under Rule 12g3-2(b) 
may be listed in foreign jurisdictions, such as the European Union or 
Canada, that have recently implemented their own revenue transparency 
measures, in which case these issuers will be

[[Page 80069]]

required to disclose similar payment information in their home 
jurisdictions.
---------------------------------------------------------------------------

    \110\ See letters from American Petroleum Institute (Jan. 28, 
2011) (``API 1''); Calvert 1; Exxon Mobil (Jan. 31, 2011) 
(``ExxonMobil 1''); Global Witness 1; Revenue Watch Institute (Feb. 
17, 2011) (``RWI 1''); and Royal Dutch Shell plc (Jan. 28, 2011) 
(``RDS 2'').
    \111\ See letter from New York State Bar Association, Securities 
Regulation Committee (Mar. 1, 2011) (``NYSBA Committee'').
    \112\ See letter from National Mining Association (Mar. 2, 2011) 
(``NMA 2'') and NYSBA Committee.
    \113\ See 15 U.S.C. 78m(q)(1)(D).
---------------------------------------------------------------------------

Request for Comment
1. Should we exempt certain categories of issuers from the proposed 
rules, such as smaller reporting companies, emerging growth 
companies, or foreign private issuers? \114\ If so, which ones and 
why? If not, why not? Should we exempt companies that are unlikely 
to make payments above the proposed de minimis threshold of 
$100,000? \115\ For example, should we provide that a resource 
extraction issuer with annual revenues and net cash flows from 
investing activities below the de minimis threshold in a fiscal year 
would not be subject to the proposed disclosure rules for the 
subsequent fiscal year? Should we use a threshold that is different 
from the de minimis threshold or some other measure of an issuer's 
ability to make such payments to make this determination? 
Alternatively, should our rules provide for different disclosure and 
reporting obligations for these or other types of issuers? If so, 
what should the requirements be?
---------------------------------------------------------------------------

    \114\ See the definition of ``smaller reporting company'' in 
Exchange Act Rule 12b-2 [17 CFR 240.12b-2], the definition of 
``emerging growth company'' in Exchange Act Section 3(a)(80) [15 
U.S.C. 78c(a)(80)], and the definition of ``foreign private issuer'' 
in Exchange Act Rule 3b-4 [17 CFR 240.3b-4].
    \115\ See Sections II.C.2 and III.B.2.b below.
---------------------------------------------------------------------------

2. Should we provide for a delayed implementation date for certain 
categories or types of issuers in order to provide them additional 
time to prepare for the disclosure requirements and the benefit of 
observing how other companies comply?
3. Should we, as proposed, limit the definition of ``resource 
extraction issuer'' to those issuers that are required to file an 
annual report with us under Exchange Act Section 13 or 15(d), thus 
excluding issuers who file annual reports pursuant to other 
provisions? Why or why not? For example, should we, as proposed, 
exclude issuers subject to Tier 2 reporting obligations under 
Regulation A?
4. Would our proposed rules present unique challenges for particular 
categories of issuers? If so, what is the nature of these challenges 
and could they be mitigated?
5. Should we define ``resource extraction issuer'' to include 
investment companies registered under the Investment Company Act? 
Why or why not?

B. Definition of ``Commercial Development of Oil, Natural Gas, or 
Minerals''

    As noted above, Section 13(q) defines ``commercial development of 
oil, natural gas, or minerals.'' \116\ Consistent with the statute and 
the 2012 Rules we propose to define ``commercial development of oil, 
natural gas, or minerals'' to include exploration, extraction, 
processing, export and the acquisition of a license for any such 
activity. This approach should enhance international transparency by 
covering activities similar to those covered by the EU Directives and 
Canada's ESTMA.\117\ Prior to the 2012 Rules, we received significant 
comment on this aspect of the proposal. Some commenters sought a more 
narrow definition than proposed, while other commenters sought a 
broader definition.\118\ Although we have discretionary authority under 
Section 13(q) to include other significant activities relating to oil, 
natural gas, or minerals, we are not proposing to do so. As a general 
matter, in light of the potentially significant costs associated with 
the proposed rules, we have not sought to impose disclosure obligations 
that extend beyond Congress' required disclosures and the disclosure 
standards developed in connection with international transparency 
efforts. In this regard, we note that the definition of ``commercial 
development'' in Section 13(q) is broader than the activities typically 
covered by the EITI \119\ and in some respects, other comparable 
disclosure regimes.\120\
---------------------------------------------------------------------------

    \116\ See Section I above.
    \117\ The EU Directives cover ``exploration, prospection, 
discovery, development, and extraction of minerals, oil, natural gas 
deposits or other materials.'' See, e.g., Article 41(1) of the EU 
Accounting Directive. ESTMA defines ``commercial development of oil, 
gas or minerals'' as ``(a) the exploration or extraction of oil, gas 
or minerals; (b) the acquisition or holding of a permit, licence, 
lease or any other authorization to carry out any of the activities 
referred to in paragraph (a); or (c) any other prescribed activities 
in relation to oil, gas or minerals.''
    \118\ See 2012 Adopting Release at Section II.C.2. Although we 
have received several comments since the U.S. District Court for the 
District of Columbia vacated the rules adopted in 2012, none has 
addressed the scope of ``commercial development.''
    \119\ An EITI plan typically covers the ``upstream activities'' 
of exploration and production but not ``downstream activities,'' 
such as processing or export. The relevant multi-stakeholder group 
does, however, have the option of expanding the scope of its EITI 
program by including some downstream activities. See the EITI 
Handbook, at 35.
    \120\ For example, processing, export, and the acquisition of 
licenses are not specifically mentioned by the EU Directives.
---------------------------------------------------------------------------

    As noted in the 2010 Proposing Release, the proposed definition of 
``commercial development'' is intended to capture only activities that 
are directly related to the commercial development of oil, natural gas, 
or minerals.\121\ It is not intended to capture activities that are 
ancillary or preparatory to such commercial development. Accordingly, 
we would not consider an issuer providing only services that support 
the exploration, extraction, processing, or export of such resources to 
be a ``resource extraction issuer,'' such as an issuer that 
manufactures drill bits or provides hardware to help companies explore 
and extract.\122\ Similarly, an issuer engaged by an operator to 
provide hydraulic fracturing or drilling services, thus enabling the 
operator to extract resources, would not be considered a resource 
extraction issuer. We note, however, that where a service provider 
makes a payment to a government on behalf of a resource extraction 
issuer that meets the definition of ``payment,'' under the proposed 
rules, the resource extraction issuer would be required to disclose 
such payments. We believe this approach is consistent with Section 
13(q) and the approach of the EU Directives and the EITI that only 
companies directly engaged in the extraction or production of oil, 
natural gas, or minerals must disclose payments made to 
governments.\123\
---------------------------------------------------------------------------

    \121\ See 2010 Proposing Release at Section II.C.
    \122\ Marketing activities would also not be included. Section 
13(q) does not include marketing in the list of activities covered 
by the definition of ``commercial development.'' In addition, 
including marketing activities within the final rules under Section 
13(q) would go beyond what is covered by the EITI and other 
international regimes. See, e.g., the EITI Handbook, at 35. For 
similar reasons, the definition of ``commercial development'' does 
not include activities relating to security support. See 2012 
Adopting Release at Section II.D for a related discussion of 
payments for security support.
    \123\ It does not appear that such activities are covered by the 
EU Directives' provisions on resource extraction payment disclosure. 
For example, Article 41 of the EU Accounting Directive only refers 
to the economic activities listed in ``Section B, Divisions 05 to 08 
of Annex I to Regulation (EC) No 1893/2006'' when defining the types 
of companies subject to the disclosure rules. Activities such as 
``mining support service activities'' and ``support activities for 
petroleum and natural gas extraction,'' however, are not included in 
those Divisions but are explicitly included in Division 09.
---------------------------------------------------------------------------

    In response to commenters' prior requests for clarification of the 
activities covered by the proposed definition of ``commercial 
development,'' we are identifying the activities that would be covered 
by the terms ``extraction'' and ``export'' and providing examples of 
the activities that would be covered by the term ``processing.'' We 
note, however, that whether an issuer is a resource extraction issuer 
would depend on the specific facts and circumstances. ``Extraction'' 
would mean the production of oil and natural gas as well as the 
extraction of minerals.\124\ ``Processing'' would include, but is not 
limited to, midstream activities such as the processing of gas to 
remove liquid hydrocarbons, the removal of impurities from natural gas 
prior to its transport through a pipeline, and the upgrading of bitumen 
and heavy oil, through the earlier of the point at which oil, gas, or 
gas liquids (natural or synthetic) are

[[Page 80070]]

either sold to an unrelated third party or delivered to a main 
pipeline, a common carrier, or a marine terminal. It would also include 
the crushing and processing of raw ore prior to the smelting 
phase.\125\
---------------------------------------------------------------------------

    \124\ Proposed Item 2.01(c)(5) of Form SD.
    \125\ See proposed Instruction 7 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We do not believe that ``processing'' should include the downstream 
activities of refining or smelting. The objective of the disclosure 
required by Section 13(q) is to make more transparent the payments that 
resource extraction issuers make to governments, which are primarily 
generated by ``upstream'' activities like exploration and extraction. 
Issuers do not typically make payments to the host government in 
connection with refining or smelting. We also note that in other 
contexts Congress has treated midstream activities like ``processing'' 
and downstream activities like ``refining'' as separate activities, 
which further supports our view that Congress did not intend to include 
``refining'' and ``smelting'' as ``processing'' activities.\126\ 
Finally, we note that including refining or smelting within the rules 
under Section 13(q) would go beyond what is currently contemplated by 
the EITI, which does not typically include the downstream activities of 
refining and smelting.\127\ The EU Directives also do not cover 
refining or smelting in its list of covered activities.\128\
---------------------------------------------------------------------------

    \126\ The Sudan Accountability and Divestment Act of 2007 
(``SADA''), which also relates to resource extraction activities, 
specifically includes ``processing'' and ``refining'' as two 
distinct activities in its list of ``mineral extraction activities'' 
and ``oil-related activities . . .'' See 110 P.L. No. 174 (2007). 
Similarly, the Commission's oil and gas disclosure rules exclude 
refining and processing from the definition of ``oil and gas 
producing activities'' (other than field processing of gas to 
extract liquid hydrocarbons by the company and the upgrading of 
natural resources extracted by the company other than oil or gas 
into synthetic oil or gas). See Rule 4-10(a)(16)(ii) of Regulation 
S-X [17 CFR 210.4-10(a)(16)(ii)] and 2012 Adopting Release, n.108.
    \127\ See, e.g., the EITI Handbook, at 35.
    \128\ See, e.g., Article 41(1) of the EU Accounting Directive 
(including ``exploration, prospection, discovery, development, and 
extraction'' in the definition of an ``undertaking active in the 
extractive industry,'' but not including refining or smelting).
---------------------------------------------------------------------------

    ``Export'' would mean the transportation of a resource from its 
country of origin to another country by an issuer with an ownership 
interest in the resource.\129\ This definition of the term ``export'' 
reflects the significance of the relationship between upstream 
activities such as exploration and extraction and the categories of 
payments to governments identified in the statute. In contrast, we do 
not believe that Section 13(q) was intended to capture payments related 
to transportation on a fee-for-service basis across an international 
border by a service provider with no ownership interest in the 
resource.\130\
---------------------------------------------------------------------------

    \129\ See proposed Item 2.01(c)(4) of Form SD. Several 
commenters have argued that ``export'' means the removal of the 
resource from the place of extraction to the refinery, smelter, or 
first marketable location. See 2012 Adopting Release, nn.111, 112, 
134 and accompanying text. We believe that our interpretation of 
``export'' better captures the intended meaning of that term. In 
this regard, we are not aware of anything in Section 13(q) or the 
legislative history that suggests Congress meant ``export'' to have 
a meaning that does not require the resource to be transported 
across an international boundary.
    \130\ It is noteworthy that Section 13(q) includes export, but 
not transportation, in the list of covered activities. In contrast, 
SADA specifically includes ``transporting'' in the definition of 
``oil and gas activities'' and ``mineral extraction activities.'' 
The inclusion of ``transporting'' in SADA, in contrast to the 
language of Section 13(q), suggests that the term export means 
something different than transportation.
---------------------------------------------------------------------------

    In an effort to emphasize substance over form or characterization 
and to reduce the risk of evasion, we are also proposing an anti-
evasion provision.\131\ The proposed rules would require disclosure 
with respect to an activity (or payment) that, although not within the 
categories included in the proposed rules, is part of a plan or scheme 
to evade the disclosure required under Section 13(q).\132\ For example, 
under this provision a resource extraction issuer could not avoid 
disclosure by re-characterizing an activity as transportation that 
would otherwise be covered under the rules.\133\
---------------------------------------------------------------------------

    \131\ See Section II.C.1 below for more detail on the anti-
evasion provision.
    \132\ See proposed Rule 13q-1(b).
    \133\ Similarly, if a resource extraction issuer were to make a 
payment to a third party in order to avoid disclosure under the 
proposed rules, whether at the direction of a foreign government or 
otherwise, the proposed rules would require the disclosure of such 
payment.
---------------------------------------------------------------------------

Request for Comment
6. Should we, as proposed, define ``commercial development of oil, 
natural gas, or minerals'' as the term is described in the statute? 
Should it be defined more broadly or more narrowly? If more broadly, 
should the definition of ``commercial development of oil, natural 
gas, or minerals'' include any additional activities not expressly 
identified in the statute? If so, what activities should be covered? 
Would including additional activities impose any significant 
additional costs on issuers? Does our proposed definition further 
the U.S. Government's foreign policy objective of battling 
corruption and, in so doing, potentially improve governance and 
accountability in resource-rich countries? If not, what would?
7. Should any of the activities listed in the statute be excluded 
from the definition of ``commercial development of oil, natural gas, 
or minerals?'' If any activities should be excluded, which 
activities and why?
8. Should activities that are ancillary or preparatory, such as 
services associated with or in support of activities included in 
Section 13(q), be expressly included in activities covered by the 
rules, resulting in the companies performing such services being 
considered ``resource extraction issuers?'' Why or why not? Should 
we provide any additional guidance regarding the types of activities 
that may be ``directly related'' to the ``commercial development of 
oil, natural gas, or minerals,'' as opposed to activities that are 
ancillary or preparatory? For example, are other types of services 
so critical to the commercial development of oil, natural gas, or 
minerals that they should be covered expressly by the rules? Why or 
why not?
9. Should we provide additional guidance on which activities would 
be covered by the terms ``extraction,'' ``processing,'' and 
``export?'' If so, what guidance would be helpful?
10. As noted above, ``extraction'' would mean the production of oil 
and natural gas as well as the extraction of minerals. Are the 
activities covered too narrow or too broad?
11. As noted above, ``processing'' would include midstream 
activities such as (a) the processing of gas to remove liquid 
hydrocarbons, (b) the removal of impurities from natural gas prior 
to its transport through a pipeline, (c) the upgrading of bitumen 
and heavy oil, through the earlier of the point at which oil, gas, 
or gas liquids (natural or synthetic) are either sold to an 
unrelated third party or delivered to a main pipeline, a common 
carrier, or a marine terminal, and (d) the crushing and processing 
of raw ore prior to the smelting phase. Are these examples of 
``processing'' too narrow or too broad? Why or why not?
12. As discussed above, the definition of ``commercial development 
of oil, natural gas, or minerals'' would not cover transportation 
made for a purpose other than export and ``export'' would mean 
transportation from the resource's country of origin to another by a 
person with an ownership interest in the resource. Are the 
activities covered too narrow or too broad? Why or why not? For 
example, should the definition be broadened to include 
``transportation'' more generally? Should ``export'' include all 
transportation from one country to another, regardless of ownership 
interest or whether the resource originated in the country from 
which it is being transported?

C. Definition of ``Payment''

    Section 13(q) defines ``payment'' to mean a payment that:
     Is made to further the commercial development of oil, 
natural gas, or minerals;
     is not de minimis; and

[[Page 80071]]

     includes taxes, royalties, fees (including license fees), 
production entitlements, bonuses, and other material benefits, that the 
Commission, consistent with the EITI's guidelines (to the extent 
practicable), determines are part of the commonly recognized revenue 
stream for the commercial development of oil, natural gas, or minerals.
1. Types of Payments
    Consistent with the 2012 Rules, the proposed rules define payments 
to include the specific types of payments identified in the statute. In 
addition to the statutory mandate to include these types of payments, 
we note that these payments are identified in the EITI's 
guidelines,\134\ as well as the EU Directives and other regulations. 
Thus, including them is also consistent with the Congressional mandate 
for our rules to support international transparency promotion efforts. 
In addition to the types of payments expressly included in the 
definition of payment in the statute, Section 13(q) provides that the 
Commission include within the definition ``other material benefits,'' 
subject to the requirement that it determines they are ``part of the 
commonly recognized revenue stream for the commercial development of 
oil, natural gas, or minerals.'' According to Section 13(q), these 
``other material benefits'' must be consistent with the EITI's 
guidelines ``to the extent practicable.'' \135\
---------------------------------------------------------------------------

    \134\ See EITI Standard, at 26.
    \135\ 15 U.S.C. 78m(q)(1)(C)(ii).
---------------------------------------------------------------------------

    Some commenters suggested that we include a broad, non-exhaustive 
list of payment types or category of ``other material benefits.'' \136\ 
That approach, however, would be inconsistent with our view that 
Section 13(q) directs us to make an affirmative determination that the 
other ``material benefits'' are part of the commonly recognized revenue 
stream. Thus, under the proposed rules, resource extraction issuers 
would be required to disclose only those payments that fall within the 
specified list of payment types in the statute, as well as payments of 
certain dividends and for infrastructure payments (discussed below). We 
have determined that these payment types represent material benefits 
that are part of the commonly recognized revenue stream and that 
otherwise meet the definition of ``payment.'' In support of this 
determination, we note that the EU Directives and other recent 
international transparency promotion efforts also require only these 
payment types to be disclosed.\137\
---------------------------------------------------------------------------

    \136\ See 2012 Adopting Release, n.175 and accompanying text.
    \137\ See, e.g., Article 41(5) of the EU Accounting Directive 
and Section 2 of ESTMA.
---------------------------------------------------------------------------

    We agree with certain commenters who stated that it would be 
appropriate to add some of the types of payments included under the 
EITI that are not explicitly mentioned under Section 13(q).\138\ 
Accordingly, we propose adding dividends to the list of payment types 
required to be disclosed. The proposed rules clarify in an instruction 
that a resource extraction issuer generally would not need to disclose 
dividends paid to a government as a common or ordinary shareholder of 
the issuer as long as the dividend is paid to the government under the 
same terms as other shareholders.\139\ The issuer would, however, be 
required to disclose any dividends paid to a government in lieu of 
production entitlements or royalties. Under this approach, ordinary 
dividend payments would not be part of the commonly recognized revenue 
stream, because they are not made to further the commercial development 
of oil, natural gas, or minerals.\140\
---------------------------------------------------------------------------

    \138\ See, e.g., letter from AngloGold Ashanti (Jan. 31, 2011) 
(``AngloGold'').
    \139\ See proposed Instruction 10 to Item 2.01 of Form SD.
    \140\ See letters from Cleary Gottlieb Steen & Hamilton (Mar. 2, 
2011) (``Cleary'') and Statoil.
---------------------------------------------------------------------------

    The proposed list of payment types subject to disclosure would also 
include payments for infrastructure improvements, such as building a 
road or railway to further the development of oil, natural gas, or 
minerals. Several commenters stated that, because resource extraction 
issuers often make payments for infrastructure improvements either as 
required by contract or voluntarily, those payments constitute ``other 
material benefits'' that are part of the commonly recognized revenue 
stream for the commercial development of oil, natural gas, or 
minerals.\141\ For example, if an issuer is obligated to build a road 
rather than paying the host country government to build the road, the 
issuer would be required to disclose the cost of building the road as a 
payment to the government.\142\ We further note that payments for 
infrastructure improvements have been required under the EITI since 
2011.\143\
---------------------------------------------------------------------------

    \141\ See letters from AngloGold; Barrick Gold Corporation (Feb. 
28, 2011) (``Barrick Gold''); EarthRights International (Jan. 26, 
2011) (``ERI 1''); Earthworks (Mar. 2, 2011) (``Earthworks''); EG 
Justice (Mar. 29, 2011) (``EG Justice 1''); Global Witness 1; ONE 
(Mar. 2, 2011) (``ONE''); and PWYP 1.
    \142\ For additional discussion of our proposed approach to in-
kind payments, see note 156 below and the accompanying text. See 
also 2012 Adopting Release, n.212 and accompanying text. Some 
commenters suggested infrastructure payments are usually not 
material compared to the other types of payments required to be 
disclosed under Section 13(q) and that infrastructure payments are 
of a de minimis nature compared to the overall costs of commercial 
development. See API 1; ExxonMobil 1; RDS 2; and Statoil. To the 
extent that such payments are de minimis, however, they would be 
excluded under the proposed definition.
    \143\ In February 2011, the EITI Board issued revised EITI rules 
that require participants to develop a process to disclose 
infrastructure payments under an EITI program. See EITI Rules 2011, 
available at http://eiti.org/document/rules. See also EITI 
Requirement 9(f) in EITI Rules 2011, at 24 (``Where agreements based 
on in-kind payments, infrastructure provision or other barter-type 
arrangements play a significant role in the oil, gas or mining 
sectors, the multi-stakeholder group is required to agree [to] a 
mechanism for incorporating benefit streams under these agreements 
in to its EITI reporting process . . . .'') and EITI Standard, at 27 
(``The multi-stakeholder group and the independent administrator are 
required to consider whether there are any agreements, or sets of 
agreements, involving the provision of goods and services, including 
loans, grants and infrastructure works, in full or partial exchange 
for oil, gas or mining exploration or production concessions or 
physical delivery of such commodities. . . Where the 
multistakeholder group concludes that these agreements are material, 
the multistakeholder group and the Independent Administrator are 
required to ensure that the EITI Report addresses these agreements, 
providing a level of detail and transparency commensurate with the 
disclosure and reconciliation of other payments and revenues 
streams.'').
---------------------------------------------------------------------------

    In sum, the comments described above and the EITI's inclusion of 
dividend and infrastructure payments provide substantial support for 
our determination that that they are part of the commonly recognized 
revenue stream for the commercial development of oil, natural gas, or 
minerals. Moreover, including payment types in the proposed rules that 
are required to be disclosed under the EITI would be consistent with 
the statute's directive.\144\
---------------------------------------------------------------------------

    \144\ 15 U.S.C. 78m(q)(1)(C)(ii).
---------------------------------------------------------------------------

    The proposed rules do not require a resource extraction issuer to 
disclose social or community payments, such as payments to build a 
hospital or school, because it remains unclear whether these types of 
payments are part of the commonly recognized revenue stream. In this 
regard, we note that other recently enacted international transparency 
promotion efforts, such as the EU Directives and ESTMA, do not include 
social or community payments.\145\ Although we acknowledge that the 
EITI's current requirement includes the disclosure of material ``social 
expenditures'' in an EITI report when those expenditures are required 
by law or contract,\146\ we note that the

[[Page 80072]]

disclosure of social payments is outside of the scope of the more 
recent international efforts in the European Union and Canada.\147\ In 
addition, there was no clear consensus among the commenters on whether 
the proposed rules should include social or community payments as part 
of identified payments that are required to be disclosed.\148\ In light 
of that, and taking into account our statutory mandate to support 
international transparency promotion efforts and our desire to minimize 
the additional compliance costs to issuers that would result from 
having to track and disaggregate such payments, we are proposing to 
follow the approach of the European Union and Canada in not proposing 
to require the disclosure of social or community payments.
---------------------------------------------------------------------------

    \145\ See, e.g., the EU Directives, the U.K. regulations 
implementing the EU Directives, and Canada's ESTMA.
    \146\ See EITI Standard, at 27 (``Where material social 
expenditures by companies are mandated by law or the contract with 
the government that governs the extractive investment, the EITI 
Report must disclose and, where possible, reconcile these 
transactions.'').
    \147\ See EU Accounting Directive, Article 41(5) and ESTMA, 
Section 2, both of which list types of payments covered by the 
disclosure regulations without including social payments. But see 
ESTMA Guidance, Section 3.4 (outlining that ``payments made for 
corporate social responsibility purposes'' may be required to be 
disclosed if ``made in lieu of one of the payment categories that 
would need to be reported under [ESTMA]'').
    \148\ See, e.g., letters from AngloGold; API 1; Barrick Gold; 
Earthworks; EG Justice 1; ERI 1; ExxonMobil 1; Global Witness 1; NMA 
2; ONE; PetroChina Company Limited (Feb. 28, 2011) (``PetroChina''); 
PWYP 1, RDS 2, Sen. Levin 1; Statoil; and U.S. Agency for 
International Development (July 15, 2011) (``USAID'').
---------------------------------------------------------------------------

    Consistent with Section 13(q), the proposed rules would require a 
resource extraction issuer to disclose fees, including license fees, 
and bonuses paid to further the commercial development of oil, natural 
gas, or minerals. In response to requests by some commenters,\149\ the 
proposed rules clarify that fees include rental fees, entry fees, and 
concession fees, and that bonuses include signature, discovery, and 
production bonuses.\150\ As commenters noted,\151\ the EITI also 
specifically mentions these types of fees and bonuses as payments that 
should be disclosed by EITI participants.\152\ This supports our view 
that these types of fees and bonuses are part of the commonly 
recognized revenue stream. The fees and bonuses identified are not an 
exclusive list, and there may be other fees and bonuses a resource 
extraction issuer would be required to disclose. A resource extraction 
issuer would need to consider whether payments it makes fall within the 
payment types that would be covered by the proposed rules.
---------------------------------------------------------------------------

    \149\ See 2012 Adopting Release, n.160 and accompanying text.
    \150\ See proposed Instruction 9 to Item 2.01 of Form SD.
    \151\ See, e.g., letters from API 1 and ExxonMobil 1.
    \152\ See EITI Standard, at 26.
---------------------------------------------------------------------------

    Consistent with Section 13(q), the proposed rules would require a 
resource extraction issuer to disclose taxes. In addition, the proposed 
rules include an instruction to clarify that a resource extraction 
issuer would be required to disclose payments for taxes levied on 
corporate profits, corporate income, and production, but would not be 
required to disclose payments for taxes levied on consumption, such as 
value added taxes, personal income taxes, or sales taxes.\153\ In 
response to earlier concerns expressed about the difficulty of 
allocating certain payments that are made for obligations levied at the 
entity level, such as corporate taxes, to the project level,\154\ the 
proposed rules would provide that issuers may disclose those payments 
at the entity level rather than the project level.\155\
---------------------------------------------------------------------------

    \153\ See proposed Instruction 8 to Item 2.01 of Form SD.
    \154\ See 2012 Adopting Release, n.155 and accompanying text.
    \155\ See proposed Instruction 4 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    Many commenters supported the inclusion of in-kind payments, 
particularly in connection with production entitlements.\156\ We also 
note that the EU Directives and ESTMA require disclosure of in-kind 
payments.\157\ Under the proposed rules, resource extraction issuers 
must disclose payments of the types identified in the rules that are 
made in-kind.\158\ Since Section 13(q) specifies that the rules require 
the disclosure of the type and total amount of payments made for each 
project and to each government, issuers would need to determine the 
monetary value of in-kind payments.\159\ Consistent with suggestions we 
received on disclosing these types of payments,\160\ the proposed rules 
specify that issuers may report in-kind payments at cost, or if cost is 
not determinable, fair market value, and provide a brief description of 
how the monetary value was calculated.\161\
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    \156\ See 2012 Adopting Release, nn.170, 211 and accompanying 
text. In-kind payments include, for example, making a payment to a 
government in oil rather than a monetary payment.
    \157\ Article 41 of the EU Accounting Directive and Section 2 of 
ESTMA specifically include ``in kind'' payments in their definitions 
of ``payment.''
    \158\ This would be consistent with the reporting of production 
entitlements under the EITI. See EITI Standard, at 27.
    \159\ In addition, in light of the requirement in Section 13(q) 
to tag the information to identify the currency in which the 
payments were made, the proposed rules would instruct issuers 
providing a monetary value for in-kind payments to tag the 
information as ``in-kind'' for purposes of the currency tag.
    \160\ See 2012 Adopting Release, n.173 and accompanying text.
    \161\ See proposed Instruction 11 to Item 2.01 of Form SD. See 
also Section 3(e) of ESTMA (``[T]he value of a payment in kind is 
the cost to the entity--or, if the cost cannot be determined, the 
fair market value--of the goods and services that it provided.''). 
The EU Directives do not specify how in-kind payments should be 
calculated, but require ``supporting notes . . . to explain how 
their value has been determined.'' See, e.g., Section 43(3) of the 
EU Accounting Directive.
---------------------------------------------------------------------------

    Finally, as mentioned above,\162\ the proposed rules would also 
require disclosure of activities or payments that, although not within 
the categories included in the proposed rules, are part of a plan or 
scheme to evade the disclosure requirements under Section 13(q).\163\ 
In other words, and as suggested by one commenter,\164\ a resource 
extraction issuer may not conceal the true nature of payments or 
activities that otherwise would fall within the scope of the final 
rules, or create a false impression of the manner in which it makes 
payments, in order to circumvent the disclosure requirements. For 
example, a resource extraction issuer that typically makes payments 
related to an activity covered under the definition of commercial 
development of oil, natural gas, or minerals would not be able to evade 
the disclosure requirements by changing the way it makes payments or by 
re-categorizing the same activity.
---------------------------------------------------------------------------

    \162\ See Section II.B above.
    \163\ See proposed Rule 13q-1(b).
    \164\ See letter from Sen. Levin (Feb. 17, 2012) (``Sen. Levin 
2'').
---------------------------------------------------------------------------

    Request for Comment

13. Should we add other payment types, such as social or community 
payments, or remove certain payment types from the proposed list of 
covered payment types? If so, please explain which payment types 
should or should not be considered part of the commonly recognized 
revenue stream for resource extraction issuers and why. If we 
exclude social or community payments from the list of covered 
payment types, as proposed, should we provide additional guidance 
concerning how an issuer would distinguish social or community 
payments from infrastructure payments? Why or why not?
14. Should we provide different or additional guidance on how to 
interpret the proposed list of covered payment types? For example, 
should we specify additional types of fees or bonuses in Instruction 
8 to Form SD or should we clarify what other types of payment mean, 
such as royalties?
15. Should we prescribe a specific method for determining the fair 
market value of in-kind payments? If so, please explain how fair 
market value should be determined for such payments. Should we 
provide guidance concerning

[[Page 80073]]

appropriate methods for determining fair market value for in-kind 
payments?
16. Will the proposed anti-evasion provision promote compliance with 
the disclosure requirements? Should additional guidance be provided 
about when the anti-evasion provision would apply?
2. The ``Not De Minimis'' Requirement
    The proposed rules would define a ``not de minimis'' payment in the 
same way as the 2012 Rules. A ``not de minimis'' payment would be one 
that equals or exceeds $100,000, or its equivalent in the issuer's 
reporting currency, whether made as a single payment or series of 
related payments.\165\ This definition would provide a clear standard 
for determining which payments a resource extraction issuer must 
disclose. Furthermore, we note that after the 2012 Rules were adopted, 
several countries established payment thresholds that approximate the 
proposed $100,000 standard.\166\ We believe that the establishment of a 
similar payment threshold by these countries diminishes any potential 
additional compliance burden and potential competitive harm that 
otherwise could be caused by disclosure rules that include a payment 
threshold that varies significantly from the standard used in other 
jurisdictions.
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    \165\ See proposed Item 2.01(c)(8)(ii) of Form SD. For example, 
a resource extraction issuer that paid a $150,000 signature bonus 
would be required to disclose that payment. The proposed definition 
also clarifies that disclosure would be required for related 
periodic payments (e.g., rental fees) when the aggregate amount of 
such payments exceeds the payment threshold. This is similar to 
other instructions in our rules requiring disclosure of a series of 
payments. See, e.g., Instructions 2 and 3 to Item 404(a) of 
Regulation S-K (17 CFR 229.404(a)). Therefore, a resource extraction 
issuer obligated to pay royalties to a government annually and that 
paid $10,000 in royalties on a monthly basis to satisfy its 
obligation would be required to disclose $120,000 in royalties.
    \166\ See EU Accounting Directive, Article 43(1) and Recital 46 
(using [euro]100,000, or approximately $107,000 (USD) as of Nov. 10, 
2015); UK Reports on Payments to Governments Regulations 2014 (2014 
Statutory Instrument No. 3209), Part 1, 5.-(3) (using [pound]86,000, 
or approximately $129,860 (USD) as of Nov. 10, 2015); Norwegian 
Regulations, Section 3 (using 800,000 kr, or approximately $92,480 
(USD) as of Nov. 10, 2015); and ESTMA, Section 9(2) (using $100,000 
(CAD), or approximately $75,400 (USD) as of Nov. 10, 2015).
---------------------------------------------------------------------------

    We considered whether to define the term using a standard based on 
the materiality of the payment to the issuer, as some commenters 
recommended.\167\ As we previously noted, however, the use of the 
phrase ``not de minimis'' in Section 13(q), rather than the use of a 
materiality standard, which is used elsewhere in the federal securities 
laws and in the EITI,\168\ suggests that ``not de minimis'' should not 
be interpreted to equate to a materiality standard. More fundamentally, 
for purposes of Section 13(q), we do not believe that the relevant 
point of reference for assessing whether a payment is ``not de 
minimis'' is its financial significance for the particular issuer. 
Rather, because the disclosure is designed to further international 
transparency initiatives regarding payments to governments for the 
commercial development of oil, natural gas, or minerals, the more 
appropriate focal point for determining whether a payment is ``not de 
minimis'' is in relation to host countries. We recognize, however, that 
issuers may have difficulty assessing the significance of particular 
payments for particular countries or recipient governments. Thus, as 
discussed above, we are proposing a $100,000 threshold that is 
consistent with the developing international consensus for payment 
reporting thresholds.
---------------------------------------------------------------------------

    \167\ See 2012 Adopting Release, n.224 and accompanying text.
    \168\ See 2012 Adopting Release, n.218 and accompanying text.
---------------------------------------------------------------------------

    Among the suggested approaches for defining ``not de minimis,'' 
\169\ we believe that a standard based on an absolute dollar amount is 
the most appropriate because it would be easier to apply than a 
qualitative standard or a relative quantitative standard based on some 
fluctuating measure, such as a percentage of expenses or revenues of 
the issuer \170\ or a percentage of the host government's or issuer's 
estimated total production value in the host country for the reporting 
period. Using an absolute dollar amount threshold for disclosure 
purposes should help reduce compliance costs and may also promote 
consistency and comparability.\171\ In the 2012 Adopting Release, the 
Commission considered other specific dollar thresholds,\172\ but we 
believe that those thresholds are not appropriate, particularly in 
light of international developments.\173\
---------------------------------------------------------------------------

    \169\ See 2012 Adopting Release at Section II.D.2.
    \170\ See 2012 Adopting Release, nn.231-233 and accompanying 
text.
    \171\ See 2012 Adopting Release, n.233 and accompanying text.
    \172\ See 2012 Adopting Release at Section II.D.2.b for a 
discussion of commenters' recommendations of a $15,000 or $1,000,000 
threshold.
    \173\ See note 166 above and accompanying text.
---------------------------------------------------------------------------

    Although some commenters thought a $100,000 threshold was too 
high,\174\ we believe this threshold would strike an appropriate 
balance between concerns about the potential compliance burdens of a 
lower threshold and the need to fulfill the statutory directive that 
payments greater than a ``de minimis'' amount be covered. A ``not de 
minimis'' definition based on a materiality standard, or a much higher 
amount, such as $1,000,000, could lessen commenters' concerns about the 
compliance burden and the potential for competitive harm. Nevertheless, 
as discussed above, these concerns are mitigated by the use of a 
threshold consistent with international standards, and the term ``not 
de minimis'' indicates that a threshold significantly less than 
$1,000,000, is necessary to further the transparency goals of the 
statute.
---------------------------------------------------------------------------

    \174\ See, e.g., letters from Catholic Relief Services and 
Committee on International Justice and Peace (Feb. 9, 2011) 
(``CRS'') (supporting a threshold that is significantly less than 
$100,000); EarthRights International (Feb. 3, 2012) (``ERI 3'') 
(pointing to the $15,000 threshold used by the London Stock 
Exchange's Alternative Investment Market).
---------------------------------------------------------------------------

Request for Comment
17. Should we define ``not de minimis'' differently than as 
proposed? For example, are there any data or have there been any 
recent developments suggesting that a $100,000 threshold is too low 
or too high? What would be the effect if we adopted a threshold 
significantly different from those established by other countries 
for their payment disclosure regimes? Should we include a mechanism 
to adjust periodically the de minimis threshold to reflect the 
effects of inflation? If so, what is an appropriate interval for 
such adjustments and what should the basis be for making any such 
adjustments in light of our understanding that the appropriate focal 
point for determining whether a payment is ``not de minimis'' is in 
relation to host countries?
18. Should we provide additional guidance on when or how a resource 
extraction issuer would have to aggregate a series of related 
payments for purposes of determining whether the $100,000 threshold 
has been met? If so, what specific guidance should we provide?
19. Should we include any provisions to lessen the potential 
reporting costs for smaller reporting companies or emerging growth 
companies? For example, should we provide a higher ``de minimis'' 
threshold for certain categories of issuers generally or for a 
certain length of time? Would doing so be consistent with Section 
13(q)?

D. Payments by ``a Subsidiary . . . or an Entity Under the Control of . 
. .''

    In addition to requiring an issuer to disclose its own payments, 
Section 13(q) also requires a resource extraction issuer to disclose 
payments by a subsidiary or an entity under the control of the issuer 
made to a foreign government or the Federal Government relating to the 
commercial development of oil, natural gas, or minerals. In a change 
from the 2012 Rules, however, the proposed rules would define the terms 
``subsidiary'' and ``control'' based on accounting principles rather 
than using the definitions of those terms

[[Page 80074]]

provided in Rule 12b-2.\175\ We believe that this change is appropriate 
in light of the significant international developments since the 2012 
Rules were vacated. Specifically, the proposed approach would 
complement two major international transparency regimes, the EU 
Directives and ESTMA, neither of which were in place when the 2012 
Rules were adopted.\176\ The proposed approach should therefore support 
international transparency promotion efforts by fostering greater 
consistency and comparability of payments disclosed by resource 
extraction issuers. As such, we believe it is consistent with our 
statutory mandate to support the commitment of the Federal Government 
to international transparency promotion efforts, to the extent 
practicable.\177\
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    \175\ Under Exchange Act Rule 12b-2 [17 CFR 240.12b-2], 
``control'' (including the terms ``controlling,'' ``controlled by'' 
and ``under common control with'') is defined to mean ``the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether 
through the ownership of voting shares, by contract, or otherwise.'' 
Rule 12b-2 also defines ``subsidiary'' (``A `subsidiary' of a 
specified person is an affiliate controlled by such person directly, 
or indirectly through one or more intermediaries). See also the 
definitions of ``majority-owned subsidiary,'' ``significant 
subsidiary,'' and ``totally-held subsidiary'' in Rule 12b-2.
    \176\ See, e.g., EU Accounting Directive, Article 44 (providing 
for the preparation of consolidated reports, subject to limited 
exceptions). ESTMA provides that ``control'' includes both direct 
and indirect control, but Section 2.1 of the ESTMA Guidance states 
that ``[w]here one business controls another enterprise under the 
accounting standards applicable to it . . . that will generally be 
sufficient evidence of control for purposes of the Act.''
    \177\ In light of the changes in the international landscape, we 
have also given further consideration to commenters' concerns with 
the potential compliance impact of the 2012 Rules as proposed. See 
letters from API 1, API (Nov. 7, 2013) (``API 6''); Barrick Gold, 
British Petroleum p.l.c. (Feb. 11, 2011) (``BP 1''); Cleary; 
ExxonMobil 1; General Electric (Mar. 4, 2011) (``GE''); NMA 2; NYSBA 
Committee; Petroleo Brasileiro S.A. (Feb. 21, 2011) (``Petrobras''); 
RDS 2; Rio Tinto plc (Mar. 2, 2011) (``Rio Tinto''); and Statoil. 
See also 2012 Adopting Release at Section II.D.4.b (discussing 
comments related to the definition of ``control'' proposed in the 
2010 Proposing Release).
---------------------------------------------------------------------------

    Under the proposed approach, a resource extraction issuer would 
have ``control'' of another entity when the issuer consolidates that 
entity or proportionately consolidates an interest in an entity or 
operation under the accounting principles applicable to its financial 
statements included in the periodic reports filed pursuant to Section 
13(a) or 15(d) of the Exchange Act. Thus, for purposes of determining 
control, the resource extraction issuer would follow the consolidation 
requirements under generally accepted accounting principles in the 
United States (``U.S. GAAP'') or under the International Financial 
Reporting Standards as issued by the International Accounting Standards 
Board (``IFRS''), as applicable.\178\ The extent to which the 
controlled entity is consolidated would determine the extent to which 
payments made by that entity would need to be disclosed. For example, a 
resource extraction issuer that proportionately consolidates an entity 
would have to report that entity's eligible payments on a proportionate 
basis, listing the proportionate interest.
---------------------------------------------------------------------------

    \178\ See Accounting Standards Codification (``ASC'') 810, 
Consolidation, IFRS 10, Consolidated Financial Statements and IFRS 
11, Joint Arrangements for guidance. A foreign private issuer that 
prepares financial statements according to a comprehensive set of 
accounting principles, other than U.S. GAAP or IFRS, and files with 
the Commission a reconciliation to U.S. GAAP would be required to 
determine whether or not an entity is under its control using U.S. 
GAAP.
---------------------------------------------------------------------------

    In addition, as commenters have noted, using this definition would 
be more transparent for investors and less costly for issuers, because 
issuers already apply the definition for financial reporting 
purposes.\179\ As such, it would facilitate compliance with the 
proposed rules. It also would have the benefit of limiting the 
potential overlap of the disclosed payments because under applicable 
financial reporting principles, generally only one party can control an 
entity, and therefore consolidate, that entity. Further, the proposed 
approach may enhance the quality of the reported data since each 
resource extraction issuer is required to provide audited financial 
statement disclosure of its significant consolidation accounting 
policies in the notes to the audited financial statements included in 
its existing Exchange Act annual reports.\180\ The disclosure of these 
accounting policies would provide greater transparency about how the 
issuer determined which entities and payments should be included within 
the scope of the required disclosures. Finally, a resource extraction 
issuer's determination of control under the proposed rules would be 
subject to the audit process as well as to the internal accounting 
controls that issuers are required to have in place with respect to 
reporting audited financial statements filed with the Commission.\181\
---------------------------------------------------------------------------

    \179\ See letter from API 6 (supporting this approach). But see 
letters from BHP Billiton Limited (Oct. 15, 2015) (``BHP''); Global 
Witness 2; Publish What You Pay (Mar. 14, 2014) (``PWYP 4''); 
Resource Revenue Transparency Working Group (Jan. 16, 2014) 
(``RRTWG'') supporting alternative definitions.
    \180\ See ASC 235-10-50; IFRS 8. See also Rules 1-01, 3-01, and 
4-01 of Regulation S-X [17 CFR 210.1-01, 2-01 and 4-01].
    \181\ See Exchange Act Section 13(b)(2)(B) [15 U.S.C. 
78m(b)(2)(B)]. See also Rules 13a-15 [17 CFR 240.13a-15] and 15d-15 
[17 CFR 240.15d-15]. We note, however, that the proposed rules would 
not create a new auditing requirement.
---------------------------------------------------------------------------

    In the 2012 Rules, we stated that ``determinations made pursuant to 
the relevant accounting standards applicable for financial reporting 
may be indicative of whether control exists, [but] we do not believe it 
is determinative in all cases.'' \182\ While the determination of 
control under applicable accounting principles is not identical to the 
determination under Rule 12b-2, we believe that there is significant 
overlap between the entities that an issuer would consolidate under the 
applicable accounting standards and the entities that an issuer would 
have control over under Rule 12b-2. Taking into account the various 
considerations discussed above, we believe that defining the term 
``control'' using accounting principles strikes the appropriate balance 
between providing reliable and accurate disclosure to support 
international transparency promotion efforts and reducing potential 
compliance costs for resource extraction issuers.
---------------------------------------------------------------------------

    \182\ 2012 Adopting Release at 95 [77 FR 56387].
---------------------------------------------------------------------------

Request for Comment

20. Should we define the term ``control'' based on applicable 
accounting principles, rather than using Rule 12b-2 of the Exchange 
Act? Why or why not? If so, should we allow resource extraction 
issuers to report eligible payments made by proportionately 
consolidated entities on a proportionate basis, as proposed, or 
modify this requirement? Please provide your supporting rationale. 
Is there some other definition we should use? If so, why?
21. Are there significant differences between the scope of the 
entities that would be covered by our proposed rules and by Rule 
12b-2? If so, please identify the potential differences and the 
types of entities and payments that would be affected. Are there 
certain industries, jurisdictions, or project types that may be more 
impacted by using the proposed rules' definition of ``control'' 
rather than the Rule 12b-2 definition?
22. Is there an alternative approach to what we have proposed, other 
than using Rule 12b-2, that would better achieve the transparency 
objectives of Section 13(q) while minimizing the cost of compliance? 
For example, are there any aspects of the EU Directives, ESTMA or 
other international transparency initiatives that should be 
considered so as to enhance the comparability and consistency of the 
disclosed payments? If so, which aspects and why.
23. Are there significant differences between the consolidation 
principles in U.S. GAAP and IFRS that could affect the comparability 
of the disclosure that would be required by the proposed rules? If 
so, is there a way to modify the

[[Page 80075]]

definition of ``control'' to enhance the comparability of the 
disclosure?

E. Definition of ``Project''

1. General
    Consistent with Section 13(q), the proposed rules would 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.\183\ In the 2012 Adopting 
Release, the Commission declined to define ``project'' and stated its 
belief that not adopting a definition had the benefit of giving issuers 
flexibility in applying the term to different business contexts 
depending on factors such as the particular industry or business in 
which the issuer operates, or the issuer's size.\184\ After further 
consideration of the objectives of the statute and in light of 
international transparency developments since adoption of the 2012 
Rules, we are proposing to define the term ``project.'' Specifically, 
we are proposing a definition modeled on the definition found in the EU 
Directives and the ESTMA Specifications; the difference being that the 
proposed definition would afford resource extraction issuers additional 
flexibility on how to treat operations involving multiple, related 
contracts.\185\
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    \183\ For commenters supporting project level disclosure, see, 
e.g., letters from NACE; PWYP-ZIM; PWYP-IND. These letters provide 
examples of situations in which either project-level reporting has 
achieved beneficial effects or are necessary to achieving such 
effects.
    \184\ See the 2012 Adopting Release at 85 [77 FR 56385].
    \185\ A number of commenters expressed support for international 
consistency and the use of the EU Directives' definition of 
``project.'' See letters from Allianz Global Investors (Apr. 28, 
2014) (``Allianz 1''); Allianz Global Investors (Aug. 8, 2014) 
(``Allianz 2''); Arachnys Information Services (May 28, 2014 
(``Arachnys''); Global Witness 2; PWYP 4; and Third Swedish National 
Pension Fund (Apr. 28, 2014) (``TSNPF'').
---------------------------------------------------------------------------

    The EU Directives and ESTMA Specifications both state that a 
``project'' means ``the operational activities that are governed by a 
single contract, license, lease, concession or similar legal agreements 
and form the basis for payment liabilities with a government. 
Nonetheless, if multiple such agreements are substantially 
interconnected, this shall be considered a project.'' \186\ The EU 
Directives and ESTMA Specifications go on to define ``substantially 
interconnected'' as ``a set of operationally and geographically 
integrated contracts, licenses, leases or concessions or related 
agreements with substantially similar terms that are signed with the 
government and give rise to payment liabilities.'' \187\
---------------------------------------------------------------------------

    \186\ Article 41(4) of the EU Accounting Directive; ESTMA 
Specifications, Section 2.2.2. ESTMA Specifications defining 
``project'' would be promulgated pursuant to Section 9(5) of ESTMA, 
which authorizes the Minister to specify the ``way in which payments 
are to be organized or broken down in the report--including on a 
project basis--and the form and manner in which a report is to be 
provided.''
    \187\ Recital 45 of the EU Accounting Directive.
---------------------------------------------------------------------------

    Similar to the EU Directives and the draft Canadian definitions, we 
are proposing to define ``project'' as operational activities that are 
governed by a single contract, license, lease, concession, or similar 
legal agreement, which form the basis for payment liabilities with a 
government.\188\ Our proposed definition, also similar to the EU 
Directives and the draft Canadian definitions, would allow issuers to 
treat multiple agreements that are both operationally and 
geographically interconnected as a single project.\189\ Unlike the EU 
Directives and draft Canadian definitions, our proposed definition of 
``project'' would not include the requirement that the agreements have 
``substantially similar terms.'' In that regard, we understand that 
operations under one agreement may lead to the parties entering into a 
second agreement for operations in a geographically contiguous area. If 
a change in market conditions or other circumstances compels a 
government to insist on different terms for the second agreement, then 
under our proposed definition the use of those different terms by 
themselves would not preclude treating the second agreement as the same 
project when, operationally and geographically, work under the second 
agreement is a continuation of work under the first.
---------------------------------------------------------------------------

    \188\ See proposed Item 2.01(c)(10) of Form SD.
    \189\ Id.
---------------------------------------------------------------------------

    In order to assist resource extraction issuers in determining 
whether two or more agreements may be treated as a single project, we 
are proposing an instruction that provides a non-exclusive list of 
factors to consider when determining whether agreements are 
``operationally and geographically interconnected'' for purposes of the 
definition of project, no single one of which would necessarily be 
determinative. Those factors include whether the agreements relate to 
the same resource and the same or contiguous part of a field, mineral 
district, or other geographic area, whether they will be performed by 
shared key personnel or with shared equipment, and whether they are 
part of the same operating budget.\190\ Furthermore, we are preserving 
the approach taken in the 2012 Rules by proposing an instruction 
clarifying that issuers would not be required to disaggregate payments 
that are made for obligations levied on the issuer at the entity level 
rather than the project level.\191\
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    \190\ See proposed Instruction 12 to Item 2.01 of Form SD.
    \191\ See proposed Instruction 4 to Item 2.01 of Form SD. Thus, 
if an issuer has more than one project in a host country, and that 
country's government levies corporate income taxes on the issuer 
with respect to the issuer's income in the country as a whole, and 
not with respect to a particular project or operation within the 
country, the issuer would be permitted to disclose the resulting 
income tax payment or payments without specifying a particular 
project associated with the payment. See also Section II.C.1 above.
---------------------------------------------------------------------------

    In proposing this approach, we have considered the wide variety of 
recommendations provided by commenters, both before and after the 2012 
Adopting Release, including defining ``project'' as a reporting unit or 
by reference to a materiality standard.\192\ Nevertheless, we see 
several advantages to our proposed approach over the alternatives. Our 
proposed definition of the term project has the advantage of providing 
clarity by stipulating that a project is contract-based.\193\ Also, 
taking an approach that shares certain core elements with the 
definition used in the EU Directives and the ESTMA Specifications would 
further international transparency promotion efforts.\194\ Such an 
approach should also reduce costs for companies listed in both the 
United States and those jurisdictions by not requiring different 
disaggregation of project-related costs due to different definitions of 
the term ``project.'' In addition, a definition having substantial 
similarities might enable companies to take advantage of equivalency 
provisions available in

[[Page 80076]]

other jurisdictions.\195\ We also note that DOI supports a definition 
of project at the contract level.\196\
---------------------------------------------------------------------------

    \192\ For a more extensive discussion of comments received on 
the definition of ``project'' prior to the 2012 Adopting Release, 
please see Section II.D.3 of the 2012 Adopting Release.
    \193\ See 2012 Adopting Release at 85-86 [77 FR 56385].
    \194\ See letter from Transparency International-USA (June 9, 
2014) (``TI-USA 1''). See also letter from State Department 
(``applaud[ing] the EU's enactment of its Accounting and 
Transparency Directives and Canada's enactment of its Extractive 
Sector Transparency Measure Act'' and explaining that a Commission 
rule requiring disclosure ``compatible with these transparency 
measures would further advance the United States' foreign policy 
interests''). We also note that the EITI's project reporting 
disclosure requirements are tied to the European Union and U.S. 
definition of project. See EITI Standard, at 31 (``Reporting at 
project level is required, provided that it is consistent with the 
United States Securities and Exchange Commission rules and the 
forthcoming European Union requirements.''). Thus, adopting a 
definition of ``project'' similar to that in the EU Directives would 
also promote international transparency by aligning EITI compliance 
with our proposed rules, the EU Directives, and, if adopted in their 
current form, Canada's ESTMA Specifications.
    \195\ See, e.g., Article 46 of the EU Accounting Directive; 
Section 10(1) of ESTMA.
    \196\ See letter from DOI 1. In this regard, DOI noted that it 
``interpret[s] this definition to mean that for oil, gas, and 
renewables a project is at either the lease or the agreement level 
and for coal and other hardrock mining, it would mean that a project 
was at the permit, claim, or plan of operation level.''
---------------------------------------------------------------------------

    While substantially consistent with other international disclosure 
regimes in its overall approach, our proposed definition would differ 
in one aspect. Specifically, it would provide additional flexibility 
compared to those regimes by allowing for aggregation of payments made 
for activities that relate to multiple agreements that are both 
operationally and geographically interconnected without requiring the 
terms of the agreements to be substantially similar. In that respect, 
it should reduce the burdens associated with disaggregating payments. 
It may also reduce the risk of sensitive information being released, 
which should help alleviate concerns about competitive harm and the 
security of personnel and assets, while also providing payment 
information that is useful to citizens in resource-rich countries.
    We also found it significant that several of the alternative 
definitions of ``project'' suggested previously by commenters would 
likely result in disclosure of payment information that is more greatly 
aggregated and less granular than what would be provided by the 
definition we are proposing. For example, commenters suggested defining 
``project'' at the country level; \197\ defining ``project'' as a 
reporting unit; \198\ defining ``project'' in relation to a particular 
geologic resource, such as a ``geologic basin'' or ``mineral 
district;'' \199\ or defining ``project'' by reference to a materiality 
standard.\200\ Each of these approaches, however, would likely result 
in disclosure that is more aggregated (and therefore less detailed) on 
a geographical basis, and potentially less useful for purposes of 
serving the statute's objective of promoting payment transparency to 
combat global corruption. As described above, disaggregated information 
provides greater transparency to local communities that may seek to 
verify that they are receiving payments to which they are 
entitled.\201\
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    \197\ See letters from API 1; ExxonMobil 1; Petrobras; and Royal 
Dutch Shell (Oct. 25, 2010) (``RDS 1'').
    \198\ See 2012 Adopting Release, n.283 and accompanying text.
    \199\ See 2012 Adopting Release, n.286 and accompanying text.
    \200\ See 2012 Adopting Release, n.291 and accompanying text.
    \201\ See Section I.E.2.
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2. The API Proposal
    In a comment submitted after the 2012 Rules were vacated, and in 
subsequent presentations to the staff, API has advanced a proposal that 
would ``defin[e] projects according to subnational political 
jurisdictions.'' \202\ Under API's proposal, all of an issuer's 
resource extraction activities within a subnational political 
jurisdiction would be treated as a single ``project'' to the extent 
that these activities involve the same resource (e.g., oil, natural 
gas, coal) and to the extent that they are extracted in a generally 
similar fashion (e.g., onshore or offshore extraction, or surface or 
underground mining). To illustrate how its proposed definition would 
work, API indicates that all of an issuer's extraction activities 
``producing natural gas in Aceh, Indonesia would be identified as 
`Natural Gas/Onshore/Indonesia/Aceh.' '' Similarly, API indicates that 
``[o]nshore development in the Niger River delta area would be `Oil/
Onshore/Nigeria/Delta.' '' API contends that this approach would be 
preferable to a contract-based definition of project, such as the 
definition used in the EU Directives or in the proposed rules, because 
its proposed definition would provide sufficiently localized 
information to help citizens hold their leaders accountable for the 
resource wealth generated in their region while also minimizing 
competitive harm to resource extraction issuers.
---------------------------------------------------------------------------

    \202\ See letters from API 6 and American Petroleum Institute 
(Apr. 15, 2014) (``API 7'').
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    For several reasons, we are not proposing such a definition of 
``project.'' First, we do not agree that engaging in similar extraction 
activities across a single subnational political jurisdiction provides 
the type of defining feature to justify aggregating those various 
activities together as a solitary project. To put this in perspective 
using API's own illustrations, API's proposed definition would treat 
every natural gas extraction well that an issuer may have drilled 
across the 22,500 square miles of Aceh, Indonesia--a territory that is 
slightly larger than the total land area of the States of Massachusetts 
and Maryland--as a solitary project, primarily because those wells have 
been drilled in the same subnational political jurisdiction. Similarly, 
under API's proposed definition, every oil well that an issuer drills 
across the approximately 27,000 square miles of the Niger Delta--a 
territory that is slightly larger than the total land area of the 
States of West Virginia and Delaware--would be a single project.\203\
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    \203\ For a visual representation of how the disclosure under 
the API Proposal would contrast with the more localized, granular 
disclosure under our proposed rules, compare, for example, this map 
of the entire Niger Delta (https://www.stratfor.com/image/niger-delta-oil-fields (last visited Dec. 8, 2015)) with this map of Niger 
Delta oil concessions (http://www.nigeria-oil-gas.com/nigeria_oil_&_gas_concessions_map_&_licenses-34-1-2-c.html (last 
visited Dec. 8, 2015)).
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    Although a resource extraction issuer could enter into a contract 
that covers an entire country or subnational political jurisdiction, it 
is our understanding that this is not common industry practice.\204\ 
Rather, the typical contract area for oil and gas exploration is 
between approximately 400 to 2000 square miles.\205\ Indeed, a typical 
U.S. oil and gas offshore federal lease covers approximately three 
square miles.\206\ Also, a variety of oil and gas concessions maps show 
that such concessions are generally significantly smaller than major 
subnational political jurisdictions.\207\ Similarly, mining concessions 
are generally significantly smaller than major subnational 
jurisdictions. In fact, we understand that development and production 
contracts, which are generally entered into only after successful 
exploration and which generate the majority of revenue payments,\208\ 
will typically cover only a single mine.\209\ Accordingly, we believe

[[Page 80077]]

that for oil, gas and minerals, a contract-based definition of 
``project'' would provide more granular disclosure than API's proposed 
definition and similar definitions focusing on national or subnational 
political jurisdictions.\210\
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    \204\ See Center for Economic and Management, Oil and Gas 
Exploration and Production, Reserves, Costs, and Contracts, Institut 
Francais Du Petrole Publications (2004), Ch. 5 (``Oil and Gas 
Exploration''). The oil and gas and mining engineers on the 
Commission's staff, based on their collective industry experience, 
also confirm their understanding of industry practice.
    \205\ Oil and Gas Exploration, 183-84.
    \206\ See, e.g., U.S. Outer Continental Shelf Lease Blocks 
available at http://www.arcgis.com/home/.html?id=0d6b1a589b814fa58ba66aadcc0b1c65 (last visited Dec. 8, 
2015).
    \207\ See, e.g., letter from Oxfam America (Dec. 3, 2015) 
(``Oxfam 3'') (including a Sonangol map of Angola Concession and a 
2014 West Africa Offshore Oil and Gas Concession Map); Brazil 2011 
Oil and Gas Concession Map, Offshore Magazine available at http://www.offshore-mag.com/content/dam/etc/medialib/platform-7/offshore/maps-and_posters/BrazilMap2011-062111Ads.pdf (last visited Dec. 8, 
2015).
    \208\ While mineral exploration rights are subject to government 
leases, they do not yield significant payments to governments. See 
generally Diana Dalton, A Global Perspective on Mining Legislation, 
in 1 SME Mining Engineering Handbook 331-337 (P. Darling ed.) (2011) 
and A. Nunan, Understanding Overlaps--Mining Tenure Versus the Rest 
of the World, The AusIMM New Leaders' Conference Brisbane, QLD (May 
2007).
    \209\ Although the size of a mining project can vary, and a 
single mining project can cover several contiguous exploration 
blocks, even large mining projects are still significantly smaller 
than a major subnational jurisdiction or a mining district. For 
example, Vulcan Materials Company's McCook Quarry in Chicago, 
Illinois, a large limestone quarry, covers approximately one square 
mile. See NPDES Permit No. ILG840200 available at http://www.epa.state.il.us/water/permits/non-coal-mines/show-file.php?recordID=137. Freeport-McMoRan Inc.'s Morenci copper mine 
in Morenci, Arizona, a large copper mine, covers approximately 102 
square miles. Freeport-McMoRan Inc., Form 10-K (FYE Dec. 31, 2014) 
at 8. AngloGold Ashanti's Iduapriem Mine, a small to medium gold 
mine, covers approximately 13 square miles. AngloGold Ashanti 
Limited, Form 20-F (FYE Dec. 31, 2014) at 59.
    \210\ Although contract areas are often larger during the 
exploration phase when the presence of economically viable resources 
is less certain, such areas are significantly reduced when the 
exploration contract is extended or when the contract holder enters 
the exploitation phase of a project. Oil & Gas Exploration, 183-86.
---------------------------------------------------------------------------

    Moreover, by so heavily focusing on subnational political 
jurisdictions as a defining consideration, API's definition appears to 
disregard the economic and operational considerations that we believe 
would more typically--and more appropriately--be relevant to 
determining whether an issuer's various extraction operations should be 
treated together as one project. This stands in contrast to the 
definition of ``project'' under the EU Directives and the ESTMA 
Specifications. Second, API's proposal would not generate the level of 
transparency that, as discussed above in Section I.E, we believe would 
be necessary and appropriate to achieve the U.S. Government's 
anticorruption and transparency objectives.\211\ By permitting 
companies to aggregate their oil, natural gas, and other extraction 
activities over large territories, API's definition would not provide 
local communities with payment information at the level of granularity 
necessary to enable them to know what funds are being generated from 
the extraction activities in their particular areas.\212\ Again, to put 
this in context using API's illustrations, in Aceh there are eight 
separate regions and five autonomous cities; the approximately 4 
million residents of these areas within Aceh would not be able to 
distinguish which revenues came from their local projects versus 
projects in other areas of Aceh. Much the same would be true for the 
nearly 30 million people that occupy the nine separate states within 
the Niger River Delta. As a result, the local residents in Aceh and the 
Niger Delta would be unable to ensure that they are receiving the funds 
from the national and subnational government that they might be 
entitled to, either under law or other governing arrangements.\213\
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    \211\ See Letter from Global Witness 2. See also, e.g., Natural 
Resource Governance Institute (Sept. 23, 2015) (``NRGI'') (stating 
that API's approach ``would prevent investors or citizens from using 
disclosed project-level data in conjunction with annual reports or 
other publicly available information'' and ``make it difficult for 
citizens to identify the payments related to an actual project, . . 
. preventing stakeholders from using such disclosures to inform risk 
analyses or carry our monitoring and oversight activities.'') 
(emphasis in original); Iraqi Transparency Alliance (``We recommend 
that the definition of project align with the August 2012 SEC rule 
or the EU Accounting and Transparency Directives, and that the SEC 
rejects the American Petroleum Institute's reporting proposal, 
which, in particular by failing to identify which companies made 
which payments, would render such obscure information useless.''); 
PWYP-IND (``The American Petroleum Institute proposes to report at 
the first tier below the central government. In my country, that 
would mean that companies would report how much they paid for access 
to resources in each province. Clearly, such a reporting scheme 
would prove completely unsatisfactory in Indonesia, as it would 
leave citizens in producing and adjacent districts with no way to 
know whether their district governments received the money they were 
owed.'').
    \212\ See letter from NACE (``Project level payment data is also 
necessary to enable communities to conduct an informed cost-benefit 
analysis of the projects in their backyards. . . . For local 
communities affected by extractives projects, knowledge of the 
total, combined amount a company has paid the government for all 
extractives projects is of little value; what matters most to a 
community is the revenue generated from the specific projects in its 
backyard. When a single company operates multiple projects, as 
commonly occurs in Sierra Leone, community oversight becomes nearly 
impossible without data on each specific project.'').
    \213\ See also letter from PWYP-CAM (``The Cameroonian Mining 
Code states that the municipality and local communities are entitled 
to 25 percent of the Ad Valorem tax and Extraction tax paid by 
companies for the projects located in their jurisdiction. These 
payments are collected by the central tax authorities and then 
transferred to the municipal councils. Of the 25 percent of these 
payments allocated to the municipal councils, 15 percent is for the 
municipal council and 10 percent is for the local populations 
directly affected by the extractive operations. However, without 
project-level fiscal data, local populations will not be able to 
cross-check whether or not they are receiving the share of revenues 
they are legally entitled to.'').
---------------------------------------------------------------------------

    Similarly, local communities (and others assisting them) would be 
unable to assess certain costs and benefits of particular licenses and 
leases to help ensure that the national government or the subnational 
government had not struck a corrupt or otherwise inappropriate 
arrangement, and these local residents would be unable to meaningfully 
compare the revenues from the individual extraction efforts within the 
subnational jurisdiction to potentially verify that companies were 
paying a fair price for the concessions. Further, aggregating the 
extraction activities into a single project could undercut the 
deterrent effect that governmental officials and companies would 
experience; as discussed above, the more detailed and disaggregated the 
project-level disclosures, the greater likelihood that unlawful misuse 
of those funds may be deterred or detected.\214\
---------------------------------------------------------------------------

    \214\ We note that API's proposal suffers from an additional 
substantial defect in our view. Under API's proposal, the project-
level disclosures that companies would make in their filings to the 
Commission would not be publicly released. Instead, these 
disclosures would be electronically aggregated and anonymized, and 
only then made publicly available. This would further undermine the 
effectiveness of the public disclosures in promoting the U.S. 
Government's foreign policy goals. See generally letter from NRGI 
(noting that in the East Kalimantan Province of Indonesia there are 
five U.S. listed companies with as many as 11 different production 
sharing contracts that could all be identified as ``Indonesia/
Offshore/Oil/East Kalimantan.'').
---------------------------------------------------------------------------

    We acknowledge that API's definition of ``project'' could lower the 
potential for competitive harm when compared to our proposed approach, 
which requires public disclosure of contract-level data. Nevertheless, 
as we discuss below,\215\ we believe that the potential for competitive 
harm resulting from our proposed disclosure requirements is 
significantly reduced due to the recent adoption of a similar 
definition of ``project'' in the European Union and the recent proposal 
of a similar definition in Canada. As discussed above, we also believe 
that a disclosure requirement that is in accordance with the emerging 
international transparency regime is consistent with Section 13(q) and 
its legislative history. Thus, we believe that the definition of 
project that we are proposing is, on balance, necessary and appropriate 
notwithstanding the potential competitive concerns that may result in 
some instances.\216\
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    \215\ See Section III.B.2.c below.
    \216\ In this regard, and as we discuss in Section II.G.3 below, 
we will consider using our existing authority under the Exchange Act 
to provide exemptive relief at the request of a resource extraction 
issuer, if and when warranted. We believe that this case-by-case 
approach to exemptive relief would permit us to tailor any relief to 
the particular facts and circumstances presented, which could 
include facts related to potential competitive harm.
---------------------------------------------------------------------------

Request for Comment

    24. Should we, as proposed, define ``project'' as operational 
activities that are governed by a single contract, license, lease, 
concession, or similar legal agreement, which form the basis for 
payment liabilities with a government? Why or why not? Given the 
U.S. foreign policy interests reflected in Section 13(q), does our 
proposed definition advance the governmental interests in promoting 
transparency and combatting global corruption? Should we define 
``project'' in a different manner? If yes, how should we define the 
term? For example, should we adopt a definition of ``project'' that 
is identical to that found in the EU Directives and the ESTMA 
Specifications?
    25. Is there an alternative to using a contract based definition 
of ``project'' that

[[Page 80078]]

would promote international transparency while mitigating compliance 
costs to resource extraction issuers?
    26. Would our proposed contract-based definition of ``project'' 
lead to more granular disclosure than API's suggested definition? 
What is the typical geopolitical and geographic scope of contracts 
in the resource extraction industry? Are the examples discussed 
above representative of current industry practice?
    27. Should we permit two or more agreements that are both 
operationally and geographically interconnected to be treated by the 
issuer as a single project, as proposed? What are the advantages or 
disadvantages of such a treatment? Should we instead require that 
these agreements have substantially similar terms as in the EU 
Directives and the ESTMA Specifications?
    28. Should we use another jurisdiction's definition of 
``project'' or one suggested by commenters, such as API? If so, 
which definition and why?
    29. Would defining ``project'' in the manner we are proposing, 
or a similar manner, allow for comparability of data among issuers? 
How could the proposed rules be changed to improve such 
comparability?
    30. Should we adopt the approach we took in the 2012 Rules and 
not define ``project?'' If so, please explain why.

F. Definition of ``Foreign Government'' and ``Federal Government''

    In Section 13(q), Congress defined ``foreign government'' to mean a 
foreign government, a department, agency, or instrumentality of a 
foreign government, or a company owned by a foreign government, while 
granting the Commission the authority to determine the scope of the 
definition.\217\ Consistent with the 2012 Rules, we are proposing a 
definition of ``foreign government'' that would include a foreign 
national government as well as a foreign subnational government, such 
as the government of a state, province, county, district, municipality, 
or territory under a foreign national government.\218\ Although we 
acknowledge the concerns of commenters who suggested limiting the 
definition of foreign government to foreign national governments,\219\ 
we believe that the definition also should include foreign subnational 
governments. The proposed definition is consistent with Section 13(q), 
which requires an issuer to identify, for each disclosed payment, the 
government that received the payment and the country in which the 
government is located.\220\ It is also consistent with the EU 
Directives, ESTMA Guidance, and the EITI.\221\
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    \217\ 15 U.S.C. 78m(q)(1)(B).
    \218\ See proposed Item 2.01(c)(7) of Form SD.
    \219\ See, e.g., letter from Statoil (stating that requiring 
disclosure of payments to national governments only would be more 
fair and consistent with other international transparency 
initiatives).
    \220\ See 15 U.S.C. 78m(q)(2)(D)(ii)(V).
    \221\ See EU Accounting Directive, Article 41(3) (``Government 
means any national, regional or local authority . . .''); ESTMA 
Guidance, Section 3.2 (``[A] Payee is . . . any government . . . at 
a national, regional, state/provincial or local/municipal level . . 
.''); EITI Standard, at 29 (requiring the disclosure and 
reconciliation of material payments to subnational government 
entities in an EITI Report).
---------------------------------------------------------------------------

    For purposes of identifying the foreign governments (as defined in 
proposed Item 2.01(c) of Form SD) that received the payments, as 
required by proposed Item 2.01(a)(7) of Form SD, we believe that an 
issuer should identify the administrative or political level of 
subnational government that is entitled to a payment under the relevant 
contract or foreign law. As noted in the 2012 Adopting Release, if a 
resource extraction issuer makes a payment that meets the definition of 
payment to a third party to be paid to the government on its behalf, 
disclosure of that payment would be covered under the proposed rules.
    Additionally, the proposed rules clarify that a company owned by a 
foreign government means a company that is at least majority-owned by a 
foreign government.\222\ This clarification should address the concerns 
that some commenters had about when an issuer would be required to 
disclose payments made to a foreign government-owned company.
---------------------------------------------------------------------------

    \222\ See proposed Item 2.01(c)(7) of Form SD.
---------------------------------------------------------------------------

    The proposed rules also clarify that ``Federal Government'' means 
the United States Federal Government.\223\ Although we acknowledge that 
the European Union and Canada have taken different approaches by 
requiring or proposing to require the disclosure of payments to 
domestic subnational governments, we believe that Section 13(q) is 
clear in only requiring disclosure of payments made to the Federal 
Government in the United States and not to state and local governments. 
As we noted in our previous releases, typically the term ``Federal 
Government'' refers only to the U.S. national government and not the 
states or other subnational governments in the United States.\224\
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    \223\ See proposed Item 2.01(a) of Form SD.
    \224\ 2012 Adopting Release at 101 [77 FR 56389]; 2010 Proposing 
Release at 44 [75 FR 80988].
---------------------------------------------------------------------------

Request for Comment

    31. Should the definition of ``foreign government'' include a 
foreign government, a department, agency, or instrumentality of a 
foreign government, or a company owned by a foreign government, as 
proposed? If not, why not? Should it include anything else?
    32. Under Section 13(q) and the proposal, the definition of 
``foreign government'' includes ``a company owned by a foreign 
government.'' We are proposing to include an instruction in the 
rules clarifying that a company owned by a foreign government is a 
company that is at least majority-owned by a foreign government. 
Should we provide this clarification in the rules? Should a company 
be considered to be owned by a foreign government if government 
ownership is less than majority-ownership? Should the rules provide 
that a company is owned by a foreign government if government 
ownership is greater than majority-ownership? If so, what level of 
ownership would be appropriate and why? Are there some levels of 
ownership of companies by a foreign government that should be 
included in or excluded from the proposed definition of ``foreign 
government?''
    33. Are there some levels of subnational government that should 
be excluded from the proposed definition of foreign government? If 
so, please explain why and provide specific examples of those levels 
of subnational government that should be excluded.
    34. Should we provide any additional guidance on the statutory 
terms ``foreign government'' and ``Federal Government?'' If so, what 
guidance would be helpful?

G. Disclosure Required and Form of Disclosure

1. Annual Report Requirement
    Section 13(q) mandates that a resource extraction issuer provide 
the payment disclosure required by that section in an annual report but 
otherwise does not specify the location of the disclosure, either in 
terms of a specific form or in terms of location within a form. 
Consistent with the approach in the 2012 Rules, we believe that 
resource extraction issuers should provide the required disclosure 
about payments on Form SD.
    Form SD is already used for specialized disclosure not included 
within an issuer's periodic or current reports, such as the disclosure 
required by the rule implementing Section 1502 of the Act.\225\ We also 
believe that using Form SD would facilitate interested parties' ability 
to locate the disclosure and address issuers' concerns about providing 
the disclosure in their Exchange Act annual reports on Forms 10-K, 20-
F, or 40-F.\226\ For example,

[[Page 80079]]

requiring the disclosure in a separate form, rather than in issuers' 
Exchange Act annual reports, should alleviate concerns about the 
disclosure being subject to the officer certifications required by 
Exchange Act Rules 13a-14 and 15d-14 \227\ and would allow the 
Commission, as discussed below, to adjust the timing of the submission 
without directly affecting the broader Exchange Act disclosure 
framework.\228\ As proposed, Form SD would require issuers to include a 
brief statement in the body of the form in an item entitled, 
``Disclosure of Payments By Resource Extraction Issuers,'' directing 
readers to the detailed payment information provided in the exhibits to 
the form.
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    \225\ Rule 13p-1 [17 CFR 240.13p-1]. See also Exchange Act 
Release No. 34-67716 (Aug. 22, 2012), 77 FR 56273 (Sept. 12, 2012) 
(``Conflict Minerals Release'').
    \226\ See also 2012 Adopting Release, nn.366-370 and 
accompanying text. Under the rules proposed in the 2010 Proposing 
Release, a resource extraction issuer would have been required to 
furnish the payment information in its annual report on Form 10-K, 
Form 20-F, or Form 40-F. Certain commenters continue to support this 
approach. See letter from Susan Rose-Ackerman (Mar. 28, 2014) 
(``Ackerman'') (``[t]here is no need for the cost of a separate 
report.'').
    \227\ See 2012 Adopting Release, n.369.
    \228\ In this regard, we considered permitting the resource 
extraction payment disclosure to be filed in an amendment to Form 
10-K, 20-F, or 40-F, as applicable, but we are concerned that this 
might give the false impression that a correction had been made to a 
previous filing. See also 2012 Adopting Release, n.379 and 
accompanying text.
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    In addition to considering allowing issuers to use Forms 10-K, 20-
F, or 40-F, we also considered commenters' suggestions that we require 
the disclosure on Form 8-K or Form 6-K.\229\ We are not proposing that 
approach, however, because we agree with those commenters who observed 
that the resource extraction payment disclosure differs from the 
disclosure required by Form 8-K or 6-K.\230\ In this regard, we note 
that Section 13(q) requires that the disclosure be provided in an 
annual report rather than on a more rapid basis, unlike the disclosure 
of material corporate events, which must be filed on a ``current'' 
basis using Form 8-K or 6-K.\231\
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    \229\ See 2012 Adopting Release, n.371 and accompanying text.
    \230\ See, e.g., letter from Calvert 1.
    \231\ A Form 8-K report is required to be filed or furnished 
within four business days after the occurrence of one or more of the 
events required to be disclosed on the form, unless the form 
specifies a different deadline (e.g., for disclosures submitted to 
satisfy obligations under Regulation FD [17 CFR 243.100 et seq]). 
See General Instruction B.1 of Form 8-K [17 CFR 249.308].
---------------------------------------------------------------------------

    While Section 13(q) mandates that a resource extraction issuer 
include the relevant payment disclosure in an ``annual report,'' it 
does not specifically mandate the time period in which a resource 
extraction issuer must provide the disclosure. Although two commenters 
on the 2010 Proposing Release believed that the reporting period for 
the resource extraction disclosure should be the calendar year,\232\ 
two other commenters suggested that the reporting period for Form SD 
should be the fiscal year.\233\ We also considered the possibility that 
certain resource extraction issuers may be required to file two reports 
on Form SD every year if we use a reporting period based on the fiscal 
year and they are also subject to the May 31st conflict minerals 
disclosure deadline.\234\ Despite the suggestions of certain commenters 
and our consideration of the conflict minerals disclosure requirements, 
we believe that the fiscal year is the more appropriate reporting 
period for the payment disclosure. We believe it would reduce resource 
extraction issuers' compliance costs when compared to a fixed, annual 
reporting requirement by allowing them to use their existing tracking 
and reporting systems for their public reports to also track and report 
payments under Section 13(q). Also, although minimizing the number of 
Form SD filings an issuer would need to make if it was also subject to 
the conflict minerals disclosure rules could have benefits, we do not 
believe that those benefits outweigh those arising from a reporting 
regime tailored to a resource extraction issuer's fiscal year.\235\ 
Finally, we note that ESTMA and the EU Directives also require 
reporting based on the fiscal year, with ESTMA using the same deadline 
contained in the proposed rules.\236\
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    \232\ See letters from API 1 and ExxonMobil 1.
    \233\ See letters from AngloGold and RDS 2.
    \234\ General Instruction B.1 of Form SD. See also Exchange Act 
Rule 13p-1.
    \235\ Of the 877 companies that we estimate would be subject to 
the proposed rules, only 56 filed a Form SD pursuant to Rule 13p-1 
in 2014. Out of those, all but two have a fiscal year end of 
December 31, which would mean that the filing deadline under the 
proposed rules would be very similar to the deadline under Rule 13p-
1, increasing the likelihood that one report could be filed each 
year. Finally, we note that the conflict minerals reporting regime 
adopted a uniform reporting period, in part, because such a period 
allows component suppliers that are part of a manufacturer's supply 
chain to provide reports to their upstream purchasers only once a 
year. See Conflict Minerals Release, n.351 and accompanying text. 
The same reasoning would not apply to the issuer-driven disclosure 
under the proposed rules.
    \236\ See ESTMA, Section 9(1) (``Every entity must, not later 
than 150 days after the end of each of its financial years, provide 
the Minister with a report that discloses, in accordance with this 
section, the payments that it has made during that year.''); EU 
Accounting Directive, Article 43(2) (``The report shall disclose the 
following information . . . in respect of the relevant financial 
year.''); EU Transparency Directive, Article 6 (``The report shall 
be made public at the latest six months after the end of each 
financial year. . . .'').
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    After considering the comments expressing concern over the 
difficulty of providing the payment disclosure within the current 
annual reporting cycle,\237\ we believe it is reasonable to provide a 
filing deadline for Form SD that is later than the filing deadline for 
an issuer's annual report under the Exchange Act. Therefore, consistent 
with the approach under ESTMA and some commenters' suggestions,\238\ 
the proposed rules would require resource extraction issuers to file 
Form SD on EDGAR no later than 150 days after the end of the issuer's 
most recent fiscal year.\239\
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    \237\ See 2012 Adopting Release, n.367 and accompanying text.
    \238\ See 2012 Adopting Release, nn.375-377 and accompanying 
text.
    \239\ See proposed General Instruction B.2 to Form SD.
---------------------------------------------------------------------------

Request for Comment

    35. Section 13(q) requires disclosure of the payment information 
in an annual report but does not specify the type of annual report. 
Should we require resource extraction issuers to provide the payment 
disclosure mandated under Section 13(q) on Form SD, as proposed? 
Should we require, or permit, resource extraction issuers to provide 
the payment information in an annual report on Forms 10-K, 20-F, or 
40-F or on a different form? What would be the costs and benefits of 
each approach for users of the information or resource extraction 
issuers?
    36. Should the proposed disclosure be subject to the officer 
certifications required by Exchange Act Rules 13a-14 and 15d-14 or a 
similar requirement? Why or why not?
    37. As noted above, Section 13(q) mandates that a resource 
extraction issuer provide the required payment disclosure in an 
annual report, but it does not specifically mandate the time period 
for which a resource extraction issuer must provide the disclosure. 
Is it reasonable to require resource extraction issuers to provide 
the mandated payment information for the fiscal year covered by the 
applicable annual report, as proposed? Why or why not? Should the 
rules instead require disclosure of payments made by resource 
extraction issuers during the most recent calendar year?
    38. Should the filing deadline for Form SD be 150 days after the 
end of the most recent fiscal year as proposed? Should it be longer 
or shorter? Should issuers be able to apply for an extension on a 
case-by-case basis? Or should there be a provision for an automatic 
extension with or without a showing of cause? Should we amend 
Exchange Act Rule 12b-25 \240\ to allow it to be used for an 
extension for Form SD filings?
---------------------------------------------------------------------------

    \240\ 17 CFR 240.12b-25.
---------------------------------------------------------------------------

    39. Should the proposed rules provide an accommodation to filers 
that are subject to both Rules 13p-1 and 13q-1, such as an 
alternative filing deadline, to minimize the possibility that a 
resource extraction issuer would be required to file two Form SD 
filings in the same year? If so, how should that deadline be 
structured?

2. Public Filing
    As noted in the U.S. District Court for the District of Columbia's 
opinion discussed above, Section 13(q) provides us with the discretion 
to determine whether or not we should require public

[[Page 80080]]

disclosure of payments by resource extraction issuers or permit 
confidential filings and provide a public aggregation of this 
disclosure. Consistent with the 2012 Rules, we believe that requiring 
public disclosure would best accomplish the purpose of the statute. 
Therefore, as supported by numerous commenters, the proposed rules 
would require issuers to disclose the full payment information 
publicly, including the identity of the issuer.\241\
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    \241\ See letters from Allianz 1; Allianz 2; Africa Faith and 
Justice Network (Aug. 8. 2014) (``AFJN''); Calvert Investment 
Management (Nov. 25, 2013) (``Calvert 2''); CSCU; EarthRights 
International (Dec. 12, 2012) (``ERI 4''); First Swedish National 
Pension Fund (May 9, 2015) (``FSNPF''); Francine Cronshaw (Mar. 27, 
2015) (``Cronshaw''); Global Witness 2; Global Witness (June 27, 
2014) (``Global Witness 4''); Kathlein Reimer (June 10, 2014) 
(``Reimer''); Michael Ross (May 21, 2014) (``Ross''); OSISA-A; Oxfam 
America (Sep. 26, 2013) (``Oxfam 2''); PWYP 4; Publish What You Pay 
Coalition (``PWYP 5'') (Apr. 14, 2014); PWYP-CAM; Publish What You 
Pay Canada (Jan. 8, 2014) (``PWYP-CAN''); PWYP-IND; Publish What You 
Pay United States (Feb 13, 2015) (``PWYP-US''); PWYP-ZIM; Rep. Water 
and 58 other members of congress (June 11, 2014) (``Rep. Waters et 
al.''); Senators Cardin, Leaky, Lugar, Levin, Markey (Aug. 2, 2013) 
(``Sen. Cardin et al. 2''); Senators Cardin, Levin, Leahy, Markey, 
Sanders, Durbin, Johnson, Whitehouse, Merkley, Boxer, Blumenthal, 
Shumer (May 1, 2015) (``Sen. Cardin et al. 3''); SNS Asset 
Management (July 31, 2013) (``SNS''); TI-USA 1; TSNPF.
---------------------------------------------------------------------------

    In response to the 2010 Proposing Release and the court's order to 
vacate the 2012 Rules, several commenters suggested permitting issuers 
to submit the payment disclosure confidentially.\242\ According to 
these commenters, the statute does not expressly require the submitted 
information itself to be publicly available. Instead, they asserted 
that Section 13(q)(3), which is entitled ``Public Availability of 
Information,'' requires us, to the extent practicable, to make public a 
compilation of the information that is required to be submitted. These 
commenters stated that the Commission could permit the required 
information to be submitted confidentially and then prepare a public 
compilation aggregating that information on a per-country or similarly 
high-level basis, which they contend would both satisfy the specific 
text of the statute and fulfill the underlying goal of promoting the 
international transparency regime of the EITI.\243\ Other commenters 
disagreed with that interpretation of Section 13(q). One stated that 
any aggregated compilation ``would be in addition to the public 
availability of the original company data and in no way is expected to 
replace the availability of that data.'' \244\ Other commenters felt 
that a compilation with aggregated data would provide little value to 
those seeking to use the information.\245\
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    \242\ See letters from API 1; API 6; API 7; Chevron Corporation 
(Jan. 28, 2011) (``Chevron 1''); ExxonMobil 1; Nexen Inc. (Mar. 2, 
2011) (``Nexen''); and RDS 2.
    \243\ See id.
    \244\ Letter from Sen. Cardin et al. 1.
    \245\ See, e.g., letters from Oxfam 2 (``A compilation that 
presents data a high level of aggregation . . . would be largely 
worthless to . . . citizens seeking to use the information. . . .'') 
and Global Witness 2 (``The Commission should justify detailed 
public disclosure by looking to the needs of the users of this data, 
including . . . transparency advocates.'').
---------------------------------------------------------------------------

    Recognizing the purposes of Section 13(q) and the discretion 
provided in the statute, and taking into account the views expressed by 
various commenters, we are proposing to require resource extraction 
issuers to provide the required disclosure publicly. Several factors 
support this approach. First, the statute requires us to adopt rules 
that further the interests of international transparency promotion 
efforts, to the extent practicable.\246\ We note, in this regard, that 
several existing transparency regimes require public disclosure, 
including the identity of the issuer, without exception.\247\ A public 
disclosure requirement under Section 13(q) would further the U.S. 
foreign policy interest in supporting international transparency 
promotion efforts by enhancing comparability among companies, as it 
would increase the total number of companies that provide project-level 
public disclosure. It would also be consistent with the objective of 
ensuring that the United States is a global ``leader in creating a new 
standard for revenue transparency in the extractive industries.'' \248\ 
In addition, the United States is currently a candidate country under 
the EITI, which requires candidate countries to provide a framework for 
public, company-by-company disclosure in the EITI report. Permitting 
issuers to provide the required payment disclosure on a confidential 
basis could undermine the efforts of the USEITI to establish a 
voluntary payment disclosure regime for domestic operations. Moreover, 
the fact that issuers would be required by these other transparency 
promotion efforts to disclose publicly substantially the same payment 
information reduces the likelihood that the payment information would 
be confidential or that its disclosure would cause competitive harm.
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    \246\ Section 13(q)(2)(E).
    \247\ See, e.g., the EU Directives.
    \248\ 156 CONG. REC. S5873 (July 15, 2010) (Statement of Senator 
Cardin); id. at S3815 (May 17, 2010) (Statement of Senator Cardin) 
(describing Congress's intention to create ``a historic transparency 
standard that will pierce the veil of secrecy that fosters so much 
corruption and instability in resource-rich countries'').
---------------------------------------------------------------------------

    Furthermore, we believe that requiring public disclosure of the 
information required to be submitted under the statute is supported by 
the text, structure, and legislative history of Section 13(q). In our 
view, our exercise of discretion in this manner is consistent with the 
statute's use of the term ``annual report,'' which is typically a 
publicly filed document, and Congress's inclusion of the statute in the 
Exchange Act, which generally operates through a mechanism of public 
disclosure.\249\ We also observe that Section 13(q) requires issuers to 
disclose detailed information in a number of categories, marked by 
electronic data tags, without specifying any particular role for the 
Commission in using that information or those data tags. We believe 
that this is a further indication that Congress intended for the 
information to be made publicly available. In addition, we believe that 
providing an issuer's Form SD filings to the public through the 
searchable, online EDGAR system, which would enable users of the 
information to produce their own up-to-date compilations in real time, 
is both consistent with the goals of the statute and the Commission's 
obligation, to the extent practicable, to ``make available online, to 
the public, a compilation of the information required to be submitted'' 
by issuers. Finally, neither the statute's text nor legislative history 
includes any suggestion that the required payment disclosure should be 
confidential. In fact, the legislative history supports our view that 
the information submitted under the statute should be publicly 
disclosed.\250\
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    \249\ The Exchange Act is fundamentally a public disclosure 
statute. See generally Schreiber v. Burlington Northern, Inc., 472 
U.S. 1, 12 (1985) (``the core mechanism'' is ``sweeping disclosure 
requirements'' that allow ``shareholder choice''); Longman v. Food 
Lion, Inc., 197 F.3d 675, 682 (4th Cir. 1999) (embodies a 
``philosophy of public disclosure''); Franklin v. Kaypro Corp., 884 
F.2d 1222, 1227 (9th Cir. 1987) (``forc[es] public disclosure of 
facts''). Accordingly, the reports that public companies are 
required to submit under the Act--such as the annual report on Form 
10-K giving a comprehensive description of a public company's 
performance--have always been made public. Adding a new disclosure 
requirement to the Exchange Act, and doing so for the clear purpose 
of fostering increased transparency and public awareness, is a 
strong indication that Congress intended for the disclosed 
information to be made public.
    \250\ See, e.g., 156 CONG. REC. S3976 (May 19, 2010) (Statement 
of Senator Feingold) (``This amendment would require companies 
listed on U.S. stock exchanges to disclose in their SEC filings 
extractive payments made to foreign governments for oil, gas, and 
mining. This information would then be made public, empowering 
citizens in resource-rich countries in their efforts to combat 
corruption and hold their governments accountable.''); id. at S5872 
(July 15, 2010) (Sen. Cardin) (``This [amendment] will require 
public disclosure of those payments.''); see also id. at S3649 (May 
12, 2010) (proposed ``sense of Congress'' accompanying amendment 
that became Section 13(q)) (encouraging the President to ``work with 
foreign governments'' to establish their own ``domestic requirements 
that companies under [their jurisdiction] publicly disclose any 
payments made to a government'' for resource extraction) (emphasis 
added); id. at H5199 (June 29, 2010) (Joint Explanatory Statement of 
the Committee of Conference) (the amendment ``requires public 
disclosure to the SEC of any payment relating to the commercial 
development of oil, natural gas, and minerals'') (emphasis added).

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[[Page 80081]]

    We note that some commenters sought an exemption from public 
disclosure for circumstances in which an issuer believes that 
disclosure might jeopardize the safety and security of its employees 
and operations.\251\ Other commenters opposed such an exemption and 
noted their belief that increased transparency would instead increase 
safety for employees.\252\ Several commenters also supported an 
exemption from public disclosure for situations where a resource 
extraction issuer is subject to a contractual confidentiality clause, 
or when such disclosure would jeopardize competitively sensitive 
information.\253\
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    \251\ See 2012 Adopting Release, n.69 and accompanying text.
    \252\ See 2012 Adopting Release, n.70 and accompanying text.
    \253\ See letters from American Exploration and Production 
Council (Jan. 31, 2011) (``AXPC''); API 1; Chamber of Commerce 
Institute for 21st Century Energy (Mar. 2, 2011) (``Chamber Energy 
Institute''); Chevron 1; ExxonMobil 1; International Association of 
Oil and Gas Producers (Jan. 27, 2011) (``IAOGP''); Local Authority 
Pension Fund Forum (Jan. 31, 2011) (``LAPFF''); NMA 2; Rio Tinto; 
RDS 2; and United States Council for International Business (Feb. 4, 
2011) (``USCIB'').
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    As more fully discussed in the 2012 Adopting Release, we are 
unpersuaded that these concerns warrant a blanket or per se 
exemption.\254\ We emphasize, however, that existing exemptive 
authority under Section 12(h) or 36(a) of the Exchange Act provide us 
with the ability to address, on a case by case basis, any situations 
where confidential treatment may be warranted based upon the specific 
facts and circumstances, as discussed below.
---------------------------------------------------------------------------

    \254\ See, e.g., 2012 Adopting Release at Section II.B. See also 
letter from OpenOil UG (Oct. 26, 2015) (``OpenOil'').
---------------------------------------------------------------------------

    In sum, we believe that the purpose of Section 13(q) is best served 
when public disclosure is provided that enables citizens in resource-
rich countries to hold their governments accountable for the wealth 
generated by those resources.\255\ Permitting issuers to submit payment 
information confidentially would not support, and in fact could 
undercut, that statutory purpose.
---------------------------------------------------------------------------

    \255\ See 156 CONG. REC. at S3816 (Statement of Senator Lugar).
---------------------------------------------------------------------------

Request for Comment

    40. Should the rules permit an issuer to submit the required 
payment disclosure on a confidential basis? Why or why not?
    41. Should the rules provide an exemption from public disclosure 
for existing or future agreements that contain confidentiality 
provisions? Would such an exemption be consistent with the purpose 
of Section 13(q) or would it frustrate it? Would it be necessary or 
appropriate in the public interest and consistent with the 
protection of investors?
    42. Are there circumstances in which the disclosure of the 
required payment information would jeopardize the safety and 
security of a resource extraction issuer's operations or employees? 
If so, should the rules provide an exemption for those 
circumstances?
    43. Are there any other circumstances in which we should provide 
an exemption from the public disclosure requirement? For instance, 
should we provide an exemption for competitively sensitive 
information, or when disclosure would cause a resource extraction 
issuer to breach a contractual obligation?
    44. If issuers are permitted to provide certain information on a 
confidential basis, should such issuers also be required to publicly 
file certain aggregate information? Should the Commission consider 
such an approach? What would be the costs and benefits of this 
approach?

3. Exemption From Compliance
    Many commenters supported an exemption from the disclosure 
requirements when the required payment disclosure is prohibited under 
the host country's laws.\256\ Some commenters stated that the laws of 
China, Cameroon, Qatar, and Angola would prohibit disclosure required 
under Section 13(q) and expressed concern that other countries would 
enact similar laws,\257\ although other commenters challenged those 
statements.\258\ Two commenters maintained that the comity principles 
of international law require the Commission to construe the disclosure 
requirements of Section 13(q) in a manner that avoids conflicts with 
foreign law.\259\ One commenter suggested that an exemption would be 
consistent with Executive Order 13609, which directs federal agencies 
to take certain steps to ``reduce, eliminate, or prevent unnecessary 
differences in [international] regulatory requirements.'' \260\ Some 
commenters further suggested that failure to adopt such an exemption 
could encourage foreign issuers to deregister from the U.S. market 
\261\ and would adversely affect investors, efficiency, competition, 
and capital formation.\262\
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    \256\ See letters from API 1; API (Aug. 11, 2011) (``API 2''); 
API (May 18, 2012) (``API 5''); AngloGold; Spencer Bachus, Chairman 
of the U.S. House of Representatives Committee on Financial 
Services, and Gary Miller, Chairman of the U.S. House of 
Representatives Subcommittee on International Monetary Policy, 
Committee on Financial Services (Mar. 4, 2011) (``Chairman Bachus 
and Chairman Miller''); Barrick Gold; BP 1; Chamber Energy 
Institute; Chevron 1; Cleary; ExxonMobil 1; ExxonMobil (Mar. 15, 
2011) (``ExxonMobil 2''); IAOGP; NMA 2; NYSBA Committee; Nexen; 
PetroChina; Petrobras; PricewaterhouseCoopers LLP (Mar. 2, 2011) 
(``PWC''); Rio Tinto; RDS 2; Royal Dutch Shell (May 17, 2011) (``RDS 
3''); Royal Dutch Shell (Aug. 1, 2011) (``RDS 4''); Senator Lisa 
Murkowski and Senator John Cornyn (Feb. 28, 2012) (``Sen. Murkowski 
and Sen. Cornyn''); Split Rock International, Inc. (Mar. 1, 2011) 
(``Split Rock''); Statoil; Talisman Energy Inc. (June 23, 2011) 
(``Talisman''); and Vale S.A. (Mar. 2, 2011) (``Vale''). See also 
letter from Cravath, Swaine & Moore LLP, Cleary Gottlieb Steen & 
Hamilton LLP, Davis Polk & Wardwell LLP, Shearman & Sterling LLP, 
Simpson Thacher & Bartlett LLP, Skadden, Arps, Slate, Meagher & Flom 
LLP, Sullivan & Cromwell LLP, and Wilmer Cutler Pickering Hale and 
Dorr LLP (Nov. 5, 2010) (``Cravath et al.'').
    \257\ See letters from API 1 and ExxonMobil 1. See also letter 
from RDS 2 (mentioning China, Cameroon, and Qatar).
    \258\ See note 263 below.
    \259\ See letters from API 5 and NMA 2.
    \260\ See letter from API 5. We note that the responsibilities 
of federal agencies under Executive Order 13609 are to be carried 
out ``[t]o the extent permitted by law'' and that foreign regulatory 
approaches are to be considered ``to the extent feasible, 
appropriate, and consistent with law.'' See Proclamation No. 13609, 
77 FR 26413 (May 4, 2012).
    \261\ See letters from Cleary; RDS 1; Split Rock; and Statoil. 
See also letter from Branden Carl Berns (Dec. 7, 2011) (``Berns'') 
(maintaining that some foreign issuers subject to Section 13(q) with 
modest capitalizations on U.S. exchanges might choose to delist in 
response to competitive advantages enjoyed by issuers not subject to 
Section 13(q)).
    \262\ See, e.g., letters from API 1; ExxonMobil 1; and RDS 2. 
See also letter from API 5. Several commenters noted that we have a 
statutory duty to consider efficiency, competition, and capital 
formation when adopting rules. See letter from API (Jan. 19, 2012) 
(``API 3''); Cravath et al.; Senator Mary L. Landrieu (Mar. 6, 2012) 
(``Sen. Landrieu''); and Sen. Murkowski and Sen. Cornyn.
---------------------------------------------------------------------------

    Other commenters opposed an exemption for foreign laws that 
prohibits disclosure of payment information.\263\ Some commenters 
believed it would undermine the purpose of Section 13(q) and create an 
incentive for foreign countries that want to prevent transparency to 
pass such laws, thereby creating a loophole for companies to avoid 
disclosure.\264\

[[Page 80082]]

Commenters also disputed the assertion that there are foreign laws that 
specifically prohibit disclosure of payment information.\265\ Those 
commenters noted that most confidentiality laws in the extractive 
industry sector relate to the confidentiality of geological and other 
technical data, and in any event, most resource extraction agreements 
contain specific provisions that allow for disclosure when required by 
law or stock exchange rules.
---------------------------------------------------------------------------

    \263\ See letters from OpenOil; OxFam 2; PWYP 5; PWYP-CAM; 
Senator Cardin et al. 2; SNS; Reimer; Rep. Waters et al.; The Carter 
Center (Apr. 21, 2014) (``Carter'').
    \264\ See, e.g., letters from Allianz 2; Cambodians for Resource 
Revenue Transparency (Feb. 7, 2012) (``Cambodians''); EG Justice 
(Feb. 7, 2012) (``EG Justice 2''); FSNPF; Global Witness 1; Global 
Witness 2; Grupo FARO (Feb. 13, 2012) (``Grupo Faro''); Human Rights 
Foundation of Monland (Mar. 8, 2011 and July 15, 2011) 
(respectively, ``HURFOM 1'' and ``HURFOM 2''); National Civil 
Society Coalition on Mineral Resource Governance of Senegal (Feb. 
14, 2012) (``National Coalition of Senegal''); OSISA-A; PWYP 1; 
Representatives Barney Frank, Jose Serrano, Norman Dicks, Henry 
Waxman, Maxine Waters, Donald Payne, Nita Lowey, Betty McCollum, 
Barbara Lee, Jesse Jackson, Jr., Alcee Hastings, Gregory Meeks, Rosa 
DeLauro, and Marcy Kaptur (Feb. 15, 2012) (``Rep. Frank et al.''); 
Sen. Cardin et al. 1; Sen. Cardin et al. 2; Sen. Levin 1; George 
Soros (Feb. 21, 2012) (``Soros''); USAID; and letter from WACAM 
(Feb. 2, 2012) (``WACAM''). But see letter from API 6 (stating that 
the Commission's experience with Rule 1202 of Regulation S-K 
indicates that similar exemptions do not incentivize foreign 
governments to pass prohibitions on disclosure).
    \265\ See, e.g., letters from Calvert 2; ERI 3; Global Witness 
1; Global Witness 2; OpenOil; PWYP 1; Publish What You Pay (Dec. 20, 
2011) (``PWYP 3''); PWYP 4; and Rep. Frank et al. For a lengthier 
discussion of previous comments, see Section II.B.2.b of the 2012 
Adopting Release.
---------------------------------------------------------------------------

    Given these conflicting positions and representations, and 
consistent with the EU Directives and ESTMA, we are not proposing an 
exemption when the required disclosure is prohibited by host country 
law. Instead, we will consider using our existing authority under the 
Exchange Act to provide exemptive relief at the request of a resource 
extraction issuer, if and when warranted.\266\ We believe that a case-
by-case approach to exemptive relief using our existing authority is 
preferable to either adopting a blanket exemption for a foreign law 
prohibition (or for any other reason) or providing no exemptions and no 
avenue for exemptive relief under this or other circumstances. Among 
other things, such an approach would permit us to tailor the exemptive 
relief to the particular facts and circumstances presented, such as by 
permitting alternative disclosure or by phasing out the exemption over 
an appropriate period of time.\267\
---------------------------------------------------------------------------

    \266\ See Sections 12(h) and 36(a) of the Exchange Act (15 
U.S.C. 78l(h) and 78mm(a)).
    \267\ For example, if a resource extraction issuer were 
operating in a country that enacted a law that prohibited the 
detailed public disclosures required under our proposal, the 
Commission could potentially issue a limited exemptive order (in 
substance and/or duration). The order could be tailored to either 
require some form of disclosure that would not conflict with the 
host country's law and/or provide the issuer with time to address 
the factors resulting in non-compliance.
---------------------------------------------------------------------------

    This approach would allow us to determine if and when exemptive 
relief may be warranted based on the issuer's specific facts and 
circumstances.\268\ For example, an issuer claiming that a foreign law 
prohibits the required payment disclosure under Section 13(q) would be 
able to make its case, based on its own particular circumstances, that 
it would suffer substantial commercial or financial harm if relief is 
not granted. Issuers seeking an exemption would be required to submit a 
written request for exemptive relief to the Commission, describing the 
particular payment disclosures it seeks to omit (e.g., signature 
bonuses in Country X or production entitlement payments in Country Y) 
and the specific facts and circumstances that warrant an exemption, 
including the particular costs and burdens it faces if it discloses the 
information. The Commission would be able to consider all appropriate 
factors in making a determination whether to grant requests, including, 
for example, any legal analysis necessary to support the issuer's 
request,\269\ whether the disclosure is already publicly available, and 
whether (and how frequently) similar information has been disclosed by 
other companies, under the same or similar circumstances.\270\ If an 
issuer is already making the disclosures under another regulatory 
disclosure regime, we anticipate that the applicant would have a heavy 
burden to demonstrate that an exemption is necessary from the reporting 
required by our proposed rules.\271\
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    \268\ See letters from Oxfam 2 and PWYP 4 (each supporting a 
case by case exemption).
    \269\ For example, we would expect an opinion of counsel in 
support of any claim that a foreign law prohibits the disclosure of 
the information in question.
    \270\ See PWYP 4 (recommending criteria to consider in granting 
exemptions).
    \271\ The Commission would generally expect to provide public 
notice of the exemptive request and an opportunity for public 
comment.
---------------------------------------------------------------------------

Request for Comment

    45. As noted above, we will consider using our existing 
exemptive authority, where appropriate, to exempt issuers from the 
resource payment disclosure requirements. This could include, for 
example, situations where host country laws prohibit the disclosure 
called for by the rules. Is a case-by-case exemptive process a 
better alternative than providing a rule-based blanket exemption for 
specific countries or other circumstances, or providing no 
exemptions?
    46. What are the advantages and disadvantages, if any, of 
relying on our existing exemptive authority under the Exchange Act?
    47. Do any foreign laws prohibit the disclosure that would be 
required by the proposed rules? Is there any information that has 
not been previously provided by commenters to support an assertion 
that such prohibitions exist and are not limited in application? If 
so, please provide such information and identify the specific law 
and the corresponding country.
    48. We note that the EU Directives and ESTMA do not provide an 
exemption for situations when disclosure is prohibited under host 
country law. Has this presented any problems for resource extraction 
issuers subject to these reporting regimes? If so, please identify 
specific problems that have arisen and explain how companies are 
managing those situations.

4. Alternative Reporting
    As noted above, several countries have implemented resource 
extraction payment disclosure laws since the 2012 Rules.\272\ We also 
note that in 2014, the United States became an EITI candidate country. 
In light of these developments and with a view towards reducing 
compliance costs, we are proposing a provision that would allow issuers 
to meet the requirements of the proposed rules, in certain 
circumstances, by providing disclosures that comply with a foreign 
jurisdiction's rules or that meet the USEITI reporting requirements, if 
the Commission has determined that those rules or requirements are 
substantially similar to the rules adopted under Section 13(q).\273\
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    \272\ See Section I above.
    \273\ Proposed Item 2.01(b) of Form SD. See also letters from 
Chevron (May 7, 2014) (``Chevron 2'') and Exxon & Royal Dutch Shell 
(May 1, 2014) (``Exxon'') (supporting substituted compliance 
provisions).
---------------------------------------------------------------------------

    More specifically, the proposed provision would allow, in certain 
circumstances, issuers subject to resource extraction payment 
disclosure requirements in a foreign jurisdiction to file the report it 
prepared under those foreign requirements in lieu of the report that 
would otherwise be required by our disclosure rules. The proposed rules 
would permit compliance under this framework only after the Commission 
has determined that the foreign disclosure requirements are 
substantially similar to the requirements in its rules.\274\ We note 
that the Commission has, in other circumstances, recognized that steps 
taken to satisfy foreign regulatory

[[Page 80083]]

requirements could, in certain circumstances, also satisfy U.S. 
regulatory obligations.\275\
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    \274\ In this regard, we could rely on Rule 0-13 [17 CFR 240.0-
13] which permits an application to be filed with the Commission to 
request a ``substituted compliance order'' under the Exchange Act. 
Pursuant to Rule 0-13, the application must include supporting 
documents and will be referred to the Commission's staff for review. 
The Commission must publish a notice in the Federal Register that a 
complete application has been submitted and allow for public 
comment. The Commission may also, in its sole discretion, schedule a 
hearing on the matter addressed by the application.
    \275\ See, e.g., the Commission's recently adopted rules on 
cross-border security-based swaps, which allow for substituted 
compliance when market participants are subject to comparable 
regulations in other jurisdictions. Release No. 34-75611 (Aug. 5, 
2015), 80 FR 48963 (Aug. 14, 2015) (Registration Process for 
Security-Based Swap Dealers and Major Security-Based Swap 
Participants); Release No. 34-74244 (Feb. 11, 2015), 80 FR 14563 
(Mar. 19, 2015) (Regulation SBSR-Reporting and Dissemination of 
Security-Based Swap Information); and Release No. 34-72472 (June 25, 
2014), 79 FR 47277 (Aug. 12, 2014) (Application of ``Security-Based 
Swap Dealer'' and ``Major Security-Based Swap Participant'' 
Definitions to Cross-Border Security-Based Swap Activities).
---------------------------------------------------------------------------

    The alternative reporting provision would also be extended, to the 
extent appropriate,\276\ to reports submitted in full compliance with 
the USEITI reporting standards, provided that the Commission has 
determined that the disclosures required thereunder are substantially 
similar to the final rules under Section 13(q).
---------------------------------------------------------------------------

    \276\ The USEITI only requires disclosure of payments made to 
the U.S. federal government. As such, any future determination that 
the USEITI reporting standards are ``substantially similar'' to the 
requirements of the proposed rules could only apply to the 
disclosures required by the proposed rules concerning payments made 
by resource extraction issuers to the Federal Government. In these 
circumstances, an extraction issuer that made payments to a foreign 
government would still need to report those payments in accordance 
with Form SD and could not rely on its USEITI reports to satisfy 
this component of its Rule 13q-1 reporting obligation.
---------------------------------------------------------------------------

    This framework for alternative reporting would allow a resource 
extraction issuer to avoid the costs of having to prepare a separate 
report meeting the requirements of our proposed disclosure rules when 
it already files a substantially similar report in another jurisdiction 
or under USEITI. Adoption of such a provision would also be consistent 
with the approach taken in the EU Directives and ESTMA.\277\ In 
addition, we believe that adoption of such a provision would promote 
international transparency efforts by providing an incentive to a 
foreign country that is considering adoption of resource extraction 
payment disclosure laws to provide a level of disclosure that is 
consistent with our rules.
---------------------------------------------------------------------------

    \277\ As we noted in Section I above, Canada's Minister of 
Natural Resources has already determined that the EU Directives are 
equivalent to Canada's requirements. Extractive Sector Transparency 
Measures Act--Substitution Determination, available at http://www.nrcan.gc.ca/acts-regulations/17754 (last visited Dec. 8, 2015).
---------------------------------------------------------------------------

    We are proposing to require resource extraction issuers to file the 
substantially similar report as an exhibit to Form SD. A resource 
extraction issuer would also be required to state in the body of its 
Form SD filing that it is relying on our accommodation and identify the 
alternative reporting regime for which the report was prepared (e.g., a 
foreign jurisdiction or the USEITI).
    We anticipate that we would make determinations about the 
similarity of a foreign jurisdiction's disclosure requirements either 
unilaterally or pursuant to an application submitted by an issuer or a 
jurisdiction. We anticipate following the same process in determining 
whether USEITI disclosures are substantially similar. We would then 
publish the determinations in the form of a Commission order. We would 
consider, among others, the following criteria in making a 
determination whether USEITI or a foreign jurisdiction's reporting 
requirements are substantially similar to ours: (1) The types of 
activities that trigger disclosure; (2) the types of payments that are 
required to be disclosed; (3) whether project-level disclosure is 
required and, if so, the definition of ``project;'' (4) whether the 
disclosure must be publicly filed and whether it includes the identity 
of the issuer; and (5) whether the disclosure must be provided using an 
interactive data format that includes electronic tags. When considering 
whether to allow substituted reporting based on a foreign 
jurisdiction's reporting requirements, we would also consider whether 
disclosure of payments to subnational governments is required and 
whether there are any exemptions allowed and, if so, whether there are 
any conditions that would limit the grant or scope of the exemptions.
Request for Comment

    49. Should we include a provision in the rules that would allow 
for issuers subject to reporting requirements in certain foreign 
jurisdictions or under the USEITI to submit those reports in 
satisfaction of our requirements? Why or why not? If so, what 
criteria should we apply when making a determination that the 
alternative disclosure requirements are substantially similar to the 
disclosure requirements under Rule 13q-1? Are there additional 
criteria, other than those identified above, that we should apply in 
making such a determination? Are there criteria identified above 
that we should not apply? Should we align our criteria with criteria 
used in foreign jurisdictions, such as the EU Directives?
    50. We propose to base our determination on a finding that the 
foreign jurisdiction's or the USEITI's requirements are 
substantially similar to our own. Is this the standard we should 
use? Should we consider other standards, for example, a 
determination that a foreign jurisdiction's or the USEITI's 
requirements are ``equivalent'' or ``comparable?''
    51. Given the specificity of the disclosures required, should we 
consider a stricter or more flexible standard? Are there other 
standards for determining when reliance on foreign or USEITI 
requirements is appropriate that we should consider? If so, please 
describe the standard and why it should be used.
    52. In making the determination that a foreign jurisdiction's or 
the EITI's disclosure requirements are substantially similar to our 
own, should we make the determination unilaterally on our own 
initiative, require an issuer to submit an application prior to 
making the determinations, allow jurisdictions to submit an 
application, or allow all of these methods? If we should require an 
application, what supporting evidence should we require? For 
example, should we require a legal opinion that the disclosure 
requirements are substantially similar?
    53. Under Exchange Act Rule 0-13, we could consider requests for 
substituted compliance upon application by an applicant or the 
jurisdiction itself and after notice and an opportunity for public 
comment.\278\ Does Rule 0-13 provide an appropriate structure for 
the Commission to make decisions regarding the similarity of 
resource extraction payment disclosure requirements in foreign 
jurisdictions or under the USEITI's reporting regime for purposes of 
Rule 13q-1?
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    \278\ See note 274 above.
---------------------------------------------------------------------------

    54. Is there another process for the Commission to use to 
consider substituted compliance requests other than the Rule 0-13 
process? For example, should the Commission use the process set 
forth in Rule 0-12? Should the Commission permit someone other than 
a resource extraction issuer or a foreign or domestic authority to 
submit an application for substituted compliance?
    55. As noted above, in making a determination about the 
similarity of a foreign jurisdiction's disclosure requirement, the 
Commission would consider, among other things, whether the 
disclosure must be provided using an interactive data format that 
includes electronic tags. If a foreign jurisdiction requires an 
interactive data format other than XBRL, but otherwise calls for 
disclosure substantially similar to our own, should we nonetheless 
require resource extraction issuers to file these disclosures in 
XBRL? Would having the payment data tagged using different 
interactive formats adversely affect the ability of users to compile 
and analyze the data? In these circumstances, are there other 
alternatives we should consider?
    56. Given the progress in the development of resource extraction 
payment disclosure rules in certain jurisdictions, should we 
consider making a determination regarding the similarity of certain 
foreign reporting requirements when the final rule is adopted? 
Currently, payment disclosure rules are in place in the United 
Kingdom, Norway, and Canada. Should we determine whether rules in 
all of these jurisdictions are substantially similar for purposes of 
the final rule? Are there other jurisdictions that also have payment 
disclosure rules in place that we should consider for purposes of 
compliance with Rule 13q-1?

[[Page 80084]]

    57. The USEITI reporting framework only requires disclosure of 
payments made to the U.S. federal government while the proposed 
rules would require disclosure of payments to foreign governments 
and the Federal Government. Thus, as proposed, if the Commission 
were to find that the USEITI reporting standards are ``substantially 
similar'' to the requirements of the proposed rules, the Commission 
would permit issuers to file reports submitted in full compliance 
with the USEITI in lieu of the disclosure required by the proposed 
rules concerning payments made by resource extraction issuers to the 
Federal Government. In these circumstances, any payments made to 
foreign governments would still need to be reported in accordance 
with Form SD. In light of the reporting differences between the 
USEITI and our proposed rules, however, should the Commission 
preclude the use of USEITI reports under the alternative reporting 
provision when a resource extraction issuer would also have to 
disclose payments made to foreign governments pursuant to the 
proposed rules?
5. Exhibits and Interactive Data Format Requirements
    We are proposing requirements for the presentation of the mandated 
payment information similar to those set forth in the 2012 Rules. The 
proposed rules would require a resource extraction issuer to file the 
required disclosure on EDGAR in an XBRL exhibit to Form SD. Providing 
the required disclosure elements in a machine readable (electronically-
tagged) format would enable users easily to extract, aggregate, and 
analyze the information in a manner that is most useful to them. For 
example, it would allow the information received from the issuers to be 
converted by EDGAR and other commonly used software and services into 
an easily-readable tabular format.\279\
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    \279\ Another possible alternative for providing the information 
in interactive data format would be Inline XBRL. Commission rules 
and the EDGAR system do not currently allow for the use of Inline 
XBRL. To the extent that a determination is made in the future to 
accept Inline XBRL submissions, we expect to revisit the format in 
which this disclosure requirement is provided.
---------------------------------------------------------------------------

    Section 13(q) requires the submission of certain information in 
interactive data format.\280\ Under the proposed rules, consistent with 
the 2012 Rules and the statutory language, a resource extraction issuer 
would be required to submit the payment information in XBRL using 
electronic tags--a taxonomy of defined reporting elements--that 
identify, for any payment required to be disclosed:
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    \280\ 15 U.S.C. 78m(q)(2)(C) and 15 U.S.C. 78m(q)(2)(D)(ii). The 
Commission has defined an ``interactive data file'' to be the 
interactive data submitted in a machine-readable format. See 17 CFR 
232.11; Release No. 33-9002 (Jan. 14, 2009), 74 FR 6776, 6778 n.50 
(Feb. 10, 2009).
---------------------------------------------------------------------------

     The total amounts of the payments, by category; \281\
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    \281\ For example, categories of payments could be bonuses, 
taxes, or fees.
---------------------------------------------------------------------------

     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;
     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.\282\
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    \282\ See proposed Item 2.01(a) of Form SD.
---------------------------------------------------------------------------

    In addition to the electronic tags specifically required by the 
statute, a resource extraction issuer would also be required to provide 
and tag the type and total amount of payments made for each project and 
the type and total amount of payments for all projects made to each 
government. These additional tags relate to information that is 
specifically required to be included in the resource extraction 
issuer's annual report by Section 13(q).\283\ Unlike the 2012 Rules, 
however, which included those additional tags, the proposed rules would 
also require resource extraction issuers to tag the particular resource 
that is the subject of commercial development, and the subnational 
geographic location of the project.\284\ We believe that these 
additional tags would further enhance the usefulness of the data with 
an insignificant corresponding increase in compliance costs.\285\
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    \283\ See Section 13(q)(2)(A)(i)-(ii).
    \284\ API has similarly suggested requiring electronic tags for 
the type of resource and governmental payee. See letter from API 6.
    \285\ See proposed Item 2.01(a)(9)-(10) of Form SD.
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    For purposes of identifying the subnational geographic location of 
the project, an instruction to the disclosure item would specify that 
issuers must provide information regarding the location of the project 
that is sufficiently detailed to permit a reasonable user of the 
information to identify the project's specific, subnational 
location.\286\ Depending on the facts and circumstances, this could 
include the name of the subnational governmental jurisdiction(s) (e.g., 
state, province, county, district, municipality, territory, etc.) or 
the commonly recognized subnational geographic or geologic location 
(e.g., oil field, basin, canyon, delta, desert, mountain, etc.) where 
the project is located, or both. We anticipate that more than one 
descriptive term would likely be necessary when there are multiple 
projects in close proximity to each other or when a project does not 
reasonably fit within a commonly recognized, subnational geographic 
location. In considering the appropriate level of detail, issuers may 
need to consider how the relevant contract identifies the location of 
the project.\287\
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    \286\ See proposed Instruction 3 to Item 2.01 of Form SD.
    \287\ See id.
---------------------------------------------------------------------------

    In proposing to require the use of XBRL as the interactive data 
format, we note that a number of the commenters who addressed the issue 
prior to the 2012 Rules supported the use of XBRL.\288\ While some 
commenters suggested allowing the flexibility to use an interactive 
data format of their preference,\289\ that approach could reduce the 
comparability of the information and make it more difficult for 
interested parties to track payments made to a particular government or 
project.
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    \288\ See letters from API 1; Anadarko Petroleum Corporation 
(Mar. 2, 2011) (``Anadarko''); AngloGold; BP 1; California Public 
Employees Retirement System (Feb. 28, 2011) (``CalPERS''); 
ExxonMobil 1; PWYP 1; and RDS 2. See also 2012 Adopting Release, 
n.410 and accompanying text.
    \289\ See letters from Barrick Gold and NMA 2. See also 2012 
Adopting Release, n.413 and accompanying text.
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    Consistent with the statute, the proposed rules would require a 
resource extraction issuer to include an electronic tag that identifies 
the currency used to make the payments. The statute also requires a 
resource extraction issuer to present the type and total amount of 
payments made for each project and to each government, but does not 
specify how the issuer should report the total amounts. Although some 
commenters suggested requiring the reporting of payments only in the 
currency in which they were made,\290\ we believe that the statutory 
requirement to provide a tag identifying the currency used to make the 
payment coupled with the requirement to disclose the total amount of 
payments by payment type for each project and to each government 
requires issuers to perform currency conversion when payments are made 
in multiple currencies.
---------------------------------------------------------------------------

    \290\ See letters from NMA 2 and PWYP 1. See also 2012 Adopting 
Release, n.421 and accompanying text.
---------------------------------------------------------------------------

    We are proposing an instruction to Form SD clarifying that issuers 
would have to report the amount of payments made for each payment type, 
and the total amount of payments made for each project and to each 
government in U.S. dollars or in the issuer's reporting currency if not 
U.S. dollars.\291\ We

[[Page 80085]]

understand issuers' concerns regarding the compliance costs relating to 
making payments in multiple currencies and being required to report the 
information in another currency.\292\ A resource extraction issuer 
would be able to choose to calculate the currency conversion between 
the currency in which the payment was made and U.S. dollars or the 
issuer's reporting currency, as applicable, in one of three ways: (1) 
By translating the expenses at the exchange rate existing at the time 
the payment is made; (2) by using a weighted average of the exchange 
rates during the period; or (3) based on the exchange rate as of the 
issuer's fiscal year end.\293\ A resource extraction issuer would have 
to disclose the method used to calculate the currency conversion.\294\
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    \291\ See proposed Instruction 2 to Item 2.01 of Form SD. 
Currently, foreign private issuers may present their financial 
statements in a currency other than U.S. dollars for purposes of 
Securities Act registration and Exchange Act registration and 
reporting. See Rule 3-20 of Regulation S-X [17 CFR 210.3-20].
    \292\ See, e.g., letters from API 1; BP 1; ExxonMobil 1; NMA 2; 
and RDS 2. We note that the EITI recommends that oil and natural gas 
participants report in U.S. dollars, as the quoted market price of 
these resources is in U.S. dollars. It also recommends that mining 
companies be permitted to use the local currency because most 
benefit streams for those companies are paid in the local currency. 
The EITI also suggests that companies may decide to report in both 
U.S. dollars and the local currency. See the EITI Handbook, at 30.
    \293\ See proposed Instruction 2 to Item 2.01 of Form SD.
    \294\ See id.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the 2012 Rules, the proposed 
rules would not require the resource extraction payment information to 
be audited or provided on an accrual basis. We note that, in this 
regard, the EITI approach is different from Section 13(q). Under the 
EITI, companies and the host country's government generally each submit 
payment information confidentially to an independent administrator 
selected by the country's multi-stakeholder group, frequently an 
independent auditor, who reconciles the information provided by the 
companies and the government, and then the administrator produces a 
report.\295\ In contrast, Section 13(q) requires us to issue rules for 
disclosure of payments by resource extraction issuers; it does not 
contemplate that an administrator would audit and reconcile the 
information, or produce a report as a result of the audit and 
reconciliation. Moreover, while Section 13(q) refers to ``payments,'' 
it does not require the information to be included in the financial 
statements.\296\ In addition, we recognize the concerns raised by some 
commenters that an auditing requirement for the payment information 
would significantly increase implementation and ongoing reporting 
costs.\297\
---------------------------------------------------------------------------

    \295\ See EITI Standard, at 30-31.
    \296\ See 2012 Adopting Release, n.405 and accompanying text.
    \297\ See, e.g., letters from Anadarko, AngloGold, API 1, BP 1, 
Chevron 1, Ernst & Young (Jan. 31, 2011), ExxonMobil 1, NYSBA 
Committee, Petrobras, and PWC.
---------------------------------------------------------------------------

    Consistent with the statute and the 2012 Rules, the proposed rules 
would require a resource extraction issuer to include an electronic tag 
that identifies the business segment of the resource extraction issuer 
that made the payments. As suggested by commenters,\298\ we are 
proposing to define ``business segment'' as a business segment 
consistent with the reportable segments used by the resource extraction 
issuer for purposes of financial reporting.\299\ Defining ``business 
segment'' in this way would enable issuers to report the information 
according to how they currently report their business operations, which 
should help to reduce compliance costs.
---------------------------------------------------------------------------

    \298\ See 2012 Adopting Release, n.426 and accompanying text.
    \299\ See proposed Item 2.01(c)(1) of Form SD. The term 
``reportable segment'' is defined in FASB ASC Topic 280, Segment 
Reporting, and IFRS 8, Operating Segments.
---------------------------------------------------------------------------

    We note that some of the electronic tags, such as those pertaining 
to category, currency, country, and financial period would have fixed 
definitions and would enable interested persons to evaluate and compare 
the payment information across companies and governments. Other tags, 
such as those pertaining to business segment, government, and project, 
would be customizable to allow issuers to enter information specific to 
their business. To the extent that payments, such as corporate income 
taxes and dividends, are made for obligations levied at the entity 
level, issuers could omit certain tags that may be inapplicable (e.g., 
project tag, business segment tag) for those payment types as long as 
they provide all other electronic tags, including the tag identifying 
the recipient government.\300\
---------------------------------------------------------------------------

    \300\ See 2012 Adopting Release, n.432 and accompanying text.
---------------------------------------------------------------------------

    Finally, we note that Section 13(q)(3) directs the Commission, to 
the extent practicable, to provide a compilation of the disclosure made 
by resource extraction issuers. The proposed rules would require that 
the disclosures only be made available on EDGAR in an XBRL exhibit. The 
Commission does not anticipate making an additional or different 
compilation of information available to the public. Information 
provided on Form SD using the XBRL standard can be electronically 
searched and extracted and therefore, in our view, would function as an 
effective and efficient compilation for public use by allowing data 
users to create their own compilations and analyses. Moreover, the 
functionality provided by EDGAR would allow a user to create an up-to-
date compilation in real time (rather than looking to a potentially 
dated, periodically released Commission compilation) and to create a 
compilation that is tailored to the specific parameters that the user 
may direct EDGAR to compile.\301\
---------------------------------------------------------------------------

    \301\ Our review of the legislative history leading up to the 
adoption of Section 13(q) persuades us that the public compilation 
requirement was not intended to be a substitute for the public 
disclosure of an issuer's annual reports. Rather, the public 
compilation requirement, added to an earlier version of the 
legislation that became Section 13(q), was intended for the 
convenience of the users of that data--many of whom were not seeking 
the information for purposes of investment activity and thus would 
potentially be unfamiliar with locating information in the extensive 
annual reports that issuers file. In the earlier versions of the 
draft legislation, the resource extraction payment disclosures were 
required to be made in the annual report that each issuer was 
already required to file under the securities laws. See, e.g., 
Extractive Industries Transparency Disclosure Bill (H.R. 6066) (May 
2008) (``requir[ing] that each issuer required [to] file an annual 
report with the Commission shall disclose in such report'' the 
resource extraction payments that the issuer makes) (emphasis 
added). For the convenience of non-investor users of the data, the 
provision included a separate section entitled ``Public Availability 
of Information'' that provided in pertinent part: ``The Securities 
and Exchange Commission shall, by rule or regulation, provide that 
the information filed by all issuers . . . be compiled so that it is 
accessible by the public directly, and in a compiled format, from 
the Web site of the Commission without separately accessing . . . 
the annual reports of each issuer filing such information.'' Id. 
(emphasis added). As the proposed legislative language was later 
being incorporated into the Act, the Commission's staff gave 
technical advice that led to the modification of the legislative 
text to provide the Commission with additional flexibility to permit 
the disclosures in an annual report other than ``the annual report'' 
that issuers already file so as to avoid unnecessarily burdening 
issuers. See 156 CONG. REC. 3815 (May 17, 2010 (Statement of Senator 
Cardin) (``We have been working with a lot of groups on perfecting 
this amendment, and we have made some changes that will give the SEC 
the utmost flexibility in defining how these reports will be made so 
that we not get the transparency we need without burdening the 
companies.''). Our decision to propose a Form SD rather than to 
require the disclosures in an issuer's annual report, when coupled 
with the functionality that the EDGAR system provides, in our view 
sufficiently addresses the Congressional concern that originally led 
to the separate requirement of a publicly available compilation.
---------------------------------------------------------------------------

Request for Comment

    58. Should we require a resource extraction issuer to present 
some or all of the required payment information in the body of the 
annual report on Form SD instead of, or in addition to, presenting 
the information in the exhibits? If we should require disclosure of 
some or all the payment information in the body of the annual 
report, please explain what information should be required and why. 
For example, should we require a

[[Page 80086]]

resource extraction issuer to provide a summary of the payment 
information in the body of the annual report? If so, what items of 
information should be disclosed in the summary?
    59. How should the total amount of payments be reported when 
payments are made in multiple currencies? Do the three proposed 
methods for calculating the currency conversion described above 
provide issuers with sufficient options to address any possible 
concerns about compliance costs, the comparability of the disclosure 
among issuers, or other factors? Why or why not?
    60. Should we require the resource extraction payment disclosure 
to be electronically formatted in XBRL and provided in a new 
exhibit, as proposed? Is XBRL the most suitable interactive data 
standard for purposes of this rule?
    61. Section 13(q) and our proposed rules require an issuer to 
include an electronic tag that identifies the issuer's business 
segment that made the payments. Should we define ``business 
segment'' differently than we have proposed? If so, what definition 
should we use?
    62. As proposed, should we require resource extraction issuers 
to tag the particular resource that is the subject of commercial 
development and the subnational geographic location of the project? 
Why or why not? Would these additional tags further enhance the 
usefulness of the data without significantly increasing compliance 
costs?
    63. As we have noted, we believe that it is important that the 
project-level disclosures enable local communities to identify the 
revenue streams associated with particular extractive projects. When 
combined with the other tagged information, would our proposed 
approach to describing the geographic location of the project 
provide sufficient detail to users of the disclosure? Would users be 
able to identify the location of the project and distinguish that 
project from other projects in the same area? Would allowing 
resource extraction issuers flexibility in describing the location 
of their projects reduce comparability and the usefulness of the 
disclosure? Should we prescribe a different method for describing 
the location of a project? If so, what should that method be?
    64. Proposed Instruction 3 to Item 2.01 states that the 
``geographic location of the project'' must be sufficiently detailed 
to permit a ``reasonable user of the information'' to identify 
specific, subnational geographic locations. Should we provide more 
guidance as to what is a sufficient level of detail or how such 
instruction should be applied?
    65. Is there additional or other information that should be 
required to be electronically tagged to make the disclosure more 
useful to local communities and other users of the information? If 
so, what additional information should be required and why?
    66. Section 13(q)(3) directs the Commission, to the extent 
practicable, to provide a compilation of the disclosure made by 
resource extraction issuers. We believe that we satisfy the 
statutory requirement by making each resource extraction issuer's 
disclosures available on EDGAR in XBRL format. Is a different 
compilation necessary? If so, what information should this 
compilation include and how often should it be provided? Should a 
compilation be provided on a calendar year basis, or would some 
other time period be more appropriate?

6. Treatment for Purposes of Securities Act and Exchange Act
    Consistent with the 2012 Rules, the proposed rules would require 
resource extraction issuers to file the payment information on Form SD. 
Commenters on the 2010 Proposing Release had divergent views as to 
whether the required information should be furnished or filed,\302\ and 
Section 13(q) does not state how the information should be submitted. 
In reaching the conclusion that the information should be ``filed'' 
instead of ``furnished,'' the Commission noted that the statute defines 
``resource extraction issuer'' in part to mean an issuer that is 
required to file an annual report with the Commission,\303\ which, as 
commenters have stated, suggests that the annual report that includes 
the required payment information should be filed.\304\ We believe the 
same logic still applies.
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    \302\ Compare letters from API 1; AngloGold; Barrick Gold; BP 1; 
Cleary; ExxonMobil 1; NMA 2; NYSBA Committee; PetroChina; PWC; and 
RDS 2 (supporting a requirement to furnish the disclosure) with 
letters from Bon Secours Health System (Mar. 1, 2011) (``Bon 
Secours''); Calvert 1; Earthworks; Extractive Industries Working 
Group (Mar. 2, 2011) (``EIWG''); ERI 1; EarthRights International 
(Sept. 20, 2011) (``ERI 2''); Global Financial Integrity (Mar. 1, 
2011) (``Global Financial 2''); Global Witness 1; Harrington 
Investments, Inc. (Jan. 19, 2011) (``HII''); HURFOM 1; HURFOM 2; 
Newground Social Investment (Mar. 1, 2011) (``Newground''); ONE; 
Oxfam 1; PGGM Investments (Mar. 1, 2011) (``PGGM''); PWYP 1; RWI 1; 
Peter Sanborn (Mar. 12, 2011) (``Sanborn''); Sen. Cardin et al. 1; 
Sen. Cardin et al. 2; Sen. Levin 1; Soros; TIAA-CREF (March 2, 2011) 
(``TIAA''); USAID; United Steelworkers (Mar. 29, 2011) (``USW''); 
and WRI (supporting a requirement to file the disclosure).
    \303\ 15 U.S.C. 78m(q)(1)(D)(i).
    \304\ See letters from Global Witness 1; PWYP 1; and Sen. Cardin 
et al. 1.
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    Additionally, many commenters on the 2010 Proposing Release 
believed that investors would benefit from the payment information 
being ``filed'' and subject to Exchange Act Section 18 liability.\305\ 
Some commenters asserted that allowing the information to be furnished 
would diminish the importance of the information.\306\ Some commenters 
believed that requiring the information to be filed would enhance the 
quality of the disclosure.\307\ In addition, some commenters argued 
that the information required by Section 13(q) differs from the 
information that the Commission typically permits issuers to furnish 
and that the information is qualitatively similar to disclosures that 
are required to be filed under Exchange Act Section 13.\308\
---------------------------------------------------------------------------

    \305\ See letters from Bon Secours; Calvert 1; CRS; Earthworks; 
EIWG; ERI 1; ERI 2; Global Financial 2; Global Witness 1; Greenpeace 
(Mar. 8, 2012) (``Greenpeace''); HII; HURFOM 1; HURFOM 2; Newground; 
ONE; Oxfam 1; PGGM; PWYP 1; RWI 1; Sanborn; Sen. Cardin et al. 1; 
Sen. Cardin et al. 2; Sen. Levin 1; Soros; TIAA; USAID; USW; and 
WRI.
    \306\ See letters from Calvert 1 and Global Witness 1.
    \307\ See letters from HURFOM 1; Global Witness 1; and PWYP 1.
    \308\ See letters from ERI 1; HII; Oxfam 1; PGGM; PWYP 1; Sen. 
Cardin et al. 1; and Soros.
---------------------------------------------------------------------------

    Some commenters argued that the disclosure should be furnished 
because the information is not material to investors.\309\ Others, 
including some investors, stated that the information is material.\310\ 
Given this disagreement, and that materiality is a fact specific 
inquiry, we are not persuaded that this is a reason to provide that the 
information should be furnished. After considering the comments and the 
statutory language, we continue to believe that the information should 
be required to be filed. We note that Section 18 does not create strict 
liability for filed information. Rather, it states that a person shall 
not be liable for misleading statements in a filed document if such 
person can establish that he or she acted in good faith and had no 
knowledge that the statement was false or misleading.\311\ As noted

[[Page 80087]]

above, although we are proposing that the information would be filed, 
because the disclosure would be in a new form, rather than in issuers' 
Exchange Act annual reports, the filed disclosure would not be subject 
to the officer certifications required by Rules 13a-14 and 15d-14 under 
the Exchange Act.
---------------------------------------------------------------------------

    \309\ See letters from API 1; ExxonMobil 1; and RDS 2. See also 
letter from AngloGold.
    \310\ See, e.g., letters from Calvert 1; ERI 1; Soros; Global 
Financial Integrity (Jan. 28, 2011) (``Global Financial 1''); Global 
Witness 1; HII; Oxfam 1; Sanborn; PGGM; PWYP 1; Sen. Cardin et al. 
1; and TIAA.
    \311\ Exchange Act Section 18(a) provides: ``Any person who 
shall make or cause to be made any statement in any application, 
report, or document filed pursuant to this title or any rule or 
regulation thereunder or any undertaking contained in a registration 
statement as provided in subsection (d) of section 15 of this title, 
which statement was at the time and in the light of the 
circumstances under which it was made false or misleading with 
respect to any material fact, shall be liable to any person (not 
knowing that such statement was false or misleading) who, in 
reliance upon such statement shall have purchased or sold a security 
at a price which was affected by such statement, for damages caused 
by such reliance, unless the person sued shall prove that he acted 
in good faith and had no knowledge that such statement was false or 
misleading. A person seeking to enforce such liability may sue at 
law or in equity in any court of competent jurisdiction. In any such 
suit the court may, in its discretion, require an undertaking for 
the payment of the costs of such suit, and assess reasonable costs, 
including reasonable attorneys' fees, against either party 
litigant.'' A plaintiff asserting a claim under Section 18 would 
need to meet the elements of the statute to establish a claim, 
including reliance and damages. In addition, we note that issuers 
that fail to comply with the proposed rules could also be violating 
Exchange Act Sections 13(a) and (q) and 15(d), as applicable. 
Issuers also would be subject to potential liability under Exchange 
Act Section 10(b) [15 U.S.C. 78j] and Rule 10b-5 [17 CFR 240.10b-5], 
promulgated thereunder, for any false or misleading material 
statements in the information disclosed pursuant to the rule.
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Request for Comment
    67. Should we, as proposed, require the resource extraction 
payment disclosure to be filed, rather than furnished? If not, why 
not? Are there compelling reasons why the disclosures should not be 
subject to Section 18 liability?
    68. Should we require that certain officers, such as the 
resource extraction issuer's principal executive officer, principal 
financial officer, or principal accounting officer, certify the Form 
SD filing's compliance with the requirements of Section 13(q) of the 
Exchange Act or that the filing fairly presents the information 
required to be disclosed under Rule 13q-1? Are there any other 
certifications we should require officers of resource extraction 
issuers to make?

H. Effective Date

    Section 13(q) provides that, with respect to each resource 
extraction issuer, the final rules issued under that section shall take 
effect on the date on which the resource extraction issuer is required 
to submit an annual report relating to the issuer's fiscal year that 
ends not earlier than one year after the date on which the Commission 
issues the final rules under Section 13(q).\312\ Similar to the 
approach in the 2012 Rules, we are proposing that resource extraction 
issuers would be required to comply with Rule 13q-1 and Form SD for 
fiscal years ending no earlier than one year after the effective date 
of the adopted rules.\313\ Also, as with the 2012 Rules, we intend to 
select a specific compliance date that corresponds to the end of the 
nearest calendar quarter, such as March 31, June 30, September 30, or 
December 31.\314\ For example, if June 17, 2017 was one year after the 
effective date of the rules, a resource extraction issuer with a fiscal 
year end of June 30, 2017 (our selected compliance date) or later would 
be required to file its first resource extraction payment report no 
later than 150 days after its fiscal year end.
---------------------------------------------------------------------------

    \312\ 15 U.S.C. 78m(q)(2)(F).
    \313\ Adopted rules typically go into effect 60 days after they 
are published in the Federal Register.
    \314\ See 2012 Adopting Release at 2 [77 FR 56365].
---------------------------------------------------------------------------

    Upon adoption, if any provision of these proposed rules, or the 
application thereof to any person or circumstance, is held to be 
invalid, such invalidity shall not affect other provisions or 
application of such provisions to other persons or circumstances that 
can be given effect without the invalid provision or application.
Request for Comment
    69. Should we provide a compliance date linked to the end of the 
nearest commonly used quarterly period following the effective date, 
as proposed? Should we adopt a shorter or longer transition period?
    70. Should our rules provide for a longer transition period for 
certain categories of resource extraction issuers, such as smaller 
reporting companies or emerging growth companies? Should the rules 
provide for a longer transition period for smaller reporting 
companies or emerging growth companies to allow for data to be 
collected on the impact the EU Directives or ESTMA would have on 
companies of similar size? Why or why not?

I. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding:
     The proposed amendments that are the subject of this 
release;
     additional or different changes; or
     other matters that may have an effect on the proposals 
contained in this release, particularly any developments since the 
rules adopted in 2012 were vacated.
    We request comment on whether we have properly identified the 
objectives of Section 13(q) and the governmental interests that the 
statute and our rules are designed to advance. We also are interested 
in comments that provide evidence of whether public disclosure 
(particularly company specific, project-level, public disclosure) 
supports the commitment of the Federal Government to international 
transparency promotion efforts, helps to combat corruption, or promotes 
governmental accountability.\315\
---------------------------------------------------------------------------

    \315\ Some commenters have also expressed the view that this 
information is important to investors. See, e.g., note 310 above and 
accompanying text.
---------------------------------------------------------------------------

    We request comment from the point of view of companies, investors, 
other market participants, and civil society actors. We also request 
comment from the U.S. Department of State, the U.S. Agency for 
International Development, the U.S. Department of the Interior and any 
other relevant department or agency on the implications of this 
rulemaking for international transparency promotion efforts. With 
regard to any comments, we note that such comments are of great 
assistance to our rulemaking initiative if accompanied by supporting 
data and analysis of the issues addressed in those comments.

III. Economic Analysis

A. Introduction and Baseline

    As discussed in detail above, we are proposing Rule 13q-1 and an 
amendment to Form SD to implement Section 13(q), which was added to the 
Exchange Act by Section 1504 of the Act. Section 13(q) directs the 
Commission to issue rules that require a resource extraction issuer to 
disclose in an annual report filed with the Commission certain 
information relating to payments made by the issuer (including a 
subsidiary of the issuer or an entity under the issuer's control) to a 
foreign government or the U.S. Federal Government for the purpose of 
the commercial development of oil, natural gas, or minerals. The 
proposed rule and form amendments implement Section 13(q).
    As discussed above, Congress intended that the rules issued 
pursuant to Section 13(q) would help advance the important U.S. foreign 
policy objective of combatting global corruption and, in so doing, to 
potentially improve accountability and governance in resource-rich 
countries around the world.\316\ The statute seeks to achieve this 
objective by mandating a new disclosure provision under the Exchange 
Act that requires resource extraction issuers to identify and report 
payments they make to governments relating to the commercial 
development of oil, natural gas, or minerals. While these objectives 
and benefits differ from the investor protection benefits that our 
rules typically strive to achieve, investors and other market 
participants, as well as civil society in countries that are resource-
rich, may benefit from any increased economic and political stability 
and improved investment climate that such transparency promotes.\317\ 
In addition, some commenters stated that the information disclosed 
pursuant to Section 13(q) would benefit investors by, among other 
things, helping them model project cash

[[Page 80088]]

flows and assess political risk, acquisition costs, and management 
effectiveness.\318\
---------------------------------------------------------------------------

    \316\ See Section I.E.
    \317\ See also 156 CONG. REC. S5873 (2010) (Statement from 
Senator Cardin) (``Transparency helps create more stable 
governments, which in turn allows U.S. companies to operate more 
freely--and on a level playing field--in markets that are otherwise 
too risky or unstable.''); and 156 CONG. REC. S3816 (May 17, 2010) 
(Statement of Senator Lugar) (``Transparency empowers citizens, 
investors, regulators, and other watchdogs and is a necessary 
ingredient of good governance for countries and companies alike. . . 
. Transparency also will benefit Americans at home. Improved 
governance of extractive industries will improve investment climates 
for our companies abroad, it will increase the reliability of 
commodity supplies upon which businesses and people in the United 
States rely, and it will promote greater energy security.'')
    \318\ See, e.g., letters from Calvert 1; CalPERS; and Soros.
---------------------------------------------------------------------------

    We are sensitive to the costs and benefits of the proposed rules, 
and Exchange Act Section 23(a)(2) requires us, when adopting rules, to 
consider the impact that any new rule would have on competition. In 
addition, Section 3(f) of the Exchange Act directs us, when engaging in 
rulemaking that requires us to consider or determine whether an action 
is necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation. We have 
considered the costs and benefits that would result from the proposed 
rule and form amendments, as well as the potential effects on 
efficiency, competition, and capital formation. Many of the potential 
economic effects of the proposed rules would stem from the statutory 
mandate, while others would be a result of the discretion we are 
proposing to exercise in implementing the Congressional mandate. The 
discussion below addresses the costs and benefits that might result 
from both the statute and our proposed discretionary choices, and the 
comments we received about these matters.\319\ In addition, as 
discussed elsewhere in this release, we recognize that the proposed 
rule could impose a burden on competition, but we believe that any such 
burden that might result would be necessary in furtherance of the 
purposes of Exchange Act Section 13(q).
---------------------------------------------------------------------------

    \319\ As discussed above, our discretionary choices are informed 
by the statutory mandate, and thus, discussion of the benefits and 
costs of those choices will necessarily involve the benefits and 
costs of the underlying statute.
---------------------------------------------------------------------------

    As part of our analysis, we have quantified the potential economic 
effects wherever possible. Given both the nature of the statute's 
intended benefits and the lack of data regarding the benefits and the 
costs, in some cases we have been unable to provide a quantified 
estimate. Nevertheless, as described more fully below, we provide both 
a qualitative assessment of the potential effects and a quantified 
estimate of the potential aggregate initial and aggregate ongoing 
compliance costs. We reach our estimates by carefully considering 
comments we previously received on potential costs and taking into 
account additional data and information, including recent global 
developments in connection with resource extraction payment 
transparency. We rely particularly on those comment letters that 
provided quantified estimates and were transparent about their 
methodologies. As discussed in more detail below, after considering the 
comment letters, we determined that it was appropriate to modify and/or 
expand upon some of the submitted estimates and methodologies to 
reflect data and information submitted by other commenters, as well as 
our own judgment and experience.
    The baseline the Commission uses to analyze the potential effects 
of the proposed rules is the current set of regulations and market 
practices.\320\ To the extent not already encompassed by existing 
regulations and current market practices, the proposed rules likely 
would have a substantial impact on the disclosure practices of, and 
costs faced by, resource extraction issuers. The magnitude of the 
potential effects on costs of the proposed disclosure requirements 
would depend on the number of affected issuers and individual issuers' 
costs of compliance. We expect that the proposed rules would affect 
both U.S. issuers and foreign issuers that meet the definition of 
``resource extraction issuer'' in substantially the same way, except 
for those issuers already subject to similar rules adopted in the EEA 
member countries or Canada as discussed below in Section III.C.1. The 
discussion below describes the Commission's understanding of the 
markets that are affected by the proposed rules. We estimate the number 
of affected issuers in this section and quantify their costs in Section 
III.B.2 below.
---------------------------------------------------------------------------

    \320\ See Section I.
---------------------------------------------------------------------------

    To estimate the number of potentially affected issuers, we use data 
from Exchange Act annual reports for 2014, the latest full calendar 
year. We consider all Forms 10-K, 20-F, and 40-F filed in 2014 by 
issuers with oil, natural gas, and mining Standard Industrial 
Classification (``SIC'') codes \321\ and, thus, are most likely to be 
resource extraction issuers. We also considered filings by issuers that 
do not have the above mentioned oil, natural gas, and mining SIC codes 
and added them to the list of potentially affected issuers if we 
determined that they might be affected by the proposed rules.\322\ In 
addition, we have attempted to remove issuers that use oil, natural 
gas, and mining SIC codes but appear to be more accurately classified 
under other SIC codes based on the disclosed nature of their business. 
Finally, we have excluded royalty trusts from our analysis, because we 
believe it is uncommon for such companies to make the types of payments 
that would be covered by the proposed rules. From these filings, we 
estimate that the number of potentially affected issuers is 877. We 
note that this number does not reflect the number of issuers that 
actually made resource extraction payments to governments in 2014, but 
represents the estimated number of issuers that might make such 
payments.
---------------------------------------------------------------------------

    \321\ Specifically, the oil, natural gas, and mining SIC codes 
considered are 1000, 1011, 1021, 1031, 1040, 1041, 1044, 1061, 1081, 
1090, 1094, 1099, 1220, 1221, 1222, 1231, 1311, 1321, 1381, 1382, 
1389, 1400, 2911, 3330, 3331, 3334, and 3339.
    \322\ These are issuers whose primary business is not 
necessarily resource extraction but which have some resource 
extraction operations, such as ownership of mines.
---------------------------------------------------------------------------

    In the following economic analysis, we discuss the potential 
benefits and costs and likely effects on efficiency, competition, and 
capital formation that might result from both the new reporting 
requirement mandated by Congress and from the specific implementation 
choices that we have made in formulating these proposed rules.\323\ We 
analyze these potential economic effects in Sections III.B and III.C 
and provide qualitative and, wherever possible, quantitative 
discussions of the potential costs and benefits that might result from 
the payment reporting requirement and specific implementation choices, 
respectively.
---------------------------------------------------------------------------

    \323\ Our consideration of potential benefits and costs and 
likely effects on efficiency, competition, and capital formation 
also is reflected in Section II.
---------------------------------------------------------------------------

B. Potential Effects Resulting From the Payment Reporting Requirement

1. Benefits
    As noted above, we understand that Section 13(q) and the rules 
required thereunder are intended to advance the important U.S. foreign 
policy objective of combatting global corruption and, in so doing, to 
potentially improve accountability and governance in resource-rich 
countries around the world.\324\ The statute seeks to realize these 
goals by improving transparency about payments extractive industries 
make to national and subnational governments, including local 
governmental entities.\325\ While these statutory goals and intended 
benefits are of global significance, the potential positive economic 
effects that may result cannot be readily quantified with any 
precision. The current empirical evidence on the direct causal effect 
of increased transparency in the resource extraction sector on societal 
outcomes is inconclusive,\326\ and several academic

[[Page 80089]]

papers noted an inherent difficulty in empirically validating a causal 
link between transparency interventions and governance 
improvements.\327\ Further, we note that no commenter provided us with 
data that would allow us to quantify the potential benefits nor did any 
commenter suggest a source of data or a methodology that we could 
readily look to in quantifying the rule's potential benefits.
---------------------------------------------------------------------------

    \324\ See Section I.E above.
    \325\ See id.
    \326\ For positive findings, see Caitlin C. Corrigan, ``Breaking 
the resource curse: Transparency in the natural resource sector and 
the extractive industries transparency initiative'', Resources 
Policy, 40 (2014), 17-30 (finding that the negative effect of 
resource abundance on GDP per capita, the capacity of the government 
to formulate and implement sound policies and the level of rule of 
law is mitigated in EITI countries but noting that the EITI has 
little effect on level of democracy, political stability and 
corruption) and Liz David-Barrett and Ken Okamura, ``The 
Transparency Paradox: Why Do Corrupt Countries Join EITI?'', Working 
Paper No. 38, European Research Centre for Anti-Corruption and 
State-Building (Nov. 2013) (finding that EITI compliant countries 
gain access to increased aid the further they progress through the 
EITI implementation process and that EITI achieves results in terms 
of reducing corruption) available at https://eiti.org/document/transparency-paradox-why-do-corrupt-countries-join-eiti. For 
negative empirical evidence, see [Ouml]lcer, Dilan (2009): 
Extracting the Maximum from the EITI (Development Centre Working 
Papers No. 276): Organisation for Economic Cooperation and 
Development (finding that the EITI has not been able to 
significantly lower corruption levels). However, all these papers 
discuss the earlier version of the EITI which did not require 
project-level disclosure and rely on data generated prior to the 
implementation of the 2013 EITI Standard.
    \327\ See Andr[eacute]s Mej[iacute]a Acosta, ``The Impact and 
Effectiveness of Accountability and Transparency Initiatives: The 
Governance of Natural Resources'', Development Policy Review, 31-S1 
(2013), s89-s105; and Alexandra Gillies and Antoine Heuty, ``Does 
Transparency Work? The Challenges of Measurement and Effectiveness 
in Resource-Rich Countries'', Yale Journal of International Affairs, 
Spring/Summer 2011, 25-42.
---------------------------------------------------------------------------

    We also think it is important to observe that, despite our 
inability to quantify the benefits, Congress has directed us to 
promulgate this disclosure rule. Thus, we believe it reasonable to rely 
on Congress's determination that the rule will produce the foreign 
policy and other benefits that Congress sought in imposing this 
mandate. Because Congress expressly directed us to undertake this 
rulemaking and because it implicates important foreign policy 
objectives, we decline to second-guess its apparent conclusion that the 
benefits from this rule justify its adoption.
    Moreover, as noted above, we concur with Congress' judgment that 
the disclosures could help to achieve a critical foreign policy 
objective of the U.S. Government. In reaching this conclusion, we are 
particularly mindful that a broad international consensus has developed 
regarding the potential benefits of revenue transparency. Not only have 
the Canadian government \328\ and the European Union \329\ acknowledged 
the potential social benefits by adopting disclosure requirements 
similar to what we are proposing, but even members of industry through 
their participation as stakeholders in EITI have acknowledged the 
social benefits that revenue transparency can produce.\330\ Perhaps 
most significantly, industry stakeholders in the EITI process (which 
notably includes a number of industry organizations) \331\ have 
expressly adopted the position that the EITI disclosures (which, as 
noted above, now include project-level disclosures) produce 
``[b]enefits for implementing countries'' by ``strengthening 
accountability and good governance, as well as promoting greater 
economic and political stability.'' \332\ Industry stakeholders in EITI 
have similarly accepted the view that ``[b]enefits to civil society 
come from increasing the amount of information in the public domain 
about those revenues that governments manage on behalf of citizens, 
thereby making governments more accountable.'' \333\
---------------------------------------------------------------------------

    \328\ See, e.g., ESTMA, Section 6 (``The purpose of this Act is 
to implement Canada's international commitments to participate in 
the fight against corruption through the implementation of measures 
applicable to the extractive sector, including measures that enhance 
transparency and measures that impose reporting obligations with 
respect to payments made by entities.''). See also ESTMA Guidance, 
at 2 (``Canadians will benefit from increased efforts to strengthen 
transparency in the extractive sector, both at home and abroad. 
Alongside Canada, the United States and European Union countries 
have put in place similar public disclosure requirements for their 
respective extractive industries. Together these reporting systems 
will contribute to raising global transparency standards in the 
extractive sector.'').
    \329\ See, e.g., European Commission Memo, ``New disclosure 
requirements for the extractive industry and loggers of primary 
forests in the Accounting (and Transparency) Directives (Country by 
Country Reporting)--frequently asked questions'' (June 12, 2013) 
(``The new disclosure requirement will improve the transparency of 
payments made to governments all over the world by the extractive 
and logging industries. Such disclosure will provide civil society 
in resource-rich countries with the information needed to hold 
governments to account for any income made through the exploitation 
of natural resources, and also to promote the adoption of the 
Extractive Industries Transparency Initiative (EITI) in these same 
countries. . . . The reporting of payments to government by the 
extractive and logging industries will provide civil society with 
significantly more information on what specifically is paid by EU 
companies to host governments in exchange for the right to extract 
the relevant countries' natural resources. By requiring disclosure 
of payments at a project level, where those payments had been 
attributed to a specific project and were material, local 
communities will have insight into what governments were being paid 
by EU multinationals for exploiting local oil/gas fields, mineral 
deposits and forests. This will also allow these communities to 
better demand that government accounts for how the money had been 
spent locally. Civil society will be in a position to question 
whether the contracts entered into between the government and 
extractive and logging companies had delivered adequate value to 
society and government.'').
    \330\ For example, in describing its involvement with EITI, 
ExxonMobil states that these ``efforts to promote revenue 
transparency have helped fight corruption, improve government 
accountability and promote greater economic stability around the 
world.'' See http://corporate.exxonmobil.com/en/current-issues/accountability/transparency/overview. Similarly, when discussing its 
role in EITI, Chevron has acknowledged that revenue transparency is 
``an important pathway to improved governance.'' See http://chevron.com/news/speeches/release/?id=2009-02-16-robertson. Royal 
Dutch Shell has also expressed the position that ``[r]evenue 
transparency provides citizens with an important tool to hold their 
government representatives accountable and to advance good 
governance.'' See http://www.shell.com/global/environment-society/society/business/payments-to-governments.html.
    \331\ https://eiti.org/supporters/partnerorganizations.
    \332\ https://eiti.org/eiti/benefits.
    \333\ Id.
---------------------------------------------------------------------------

    While the objectives of Section 13(q) do not appear to be ones that 
would necessarily generate measurable, direct economic benefits to 
investors or issuers, investors and issuers might benefit from the 
proposed rule's indirect effects. In the following paragraphs, we 
discuss existing theoretical arguments and empirical evidence that 
reduced corruption and better governance could have longer term 
positive impacts on economic growth and investment in certain countries 
where the affected issuers operate, which could in turn benefit issuers 
and their shareholders.
    There are several theoretical causal explanations for why reducing 
corruption might increase economic growth and political stability, 
which in turn might reduce investment risk.\334\ High levels of 
corruption could introduce inefficiencies in market prices as a result 
of increased political risks and the potential awarding of projects to 
companies for reasons other than the merit of their bids. This, in 
turn, would prop up inefficient companies and limit investment 
opportunities for others. These potential distortions could have a 
negative impact on the economies of countries with high corruption, 
particularly to the extent that potential revenue streams are 
diminished or diverted. Additionally, the cost of corrupt expenditures, 
direct or indirect, impacts profitability, and, if the cost is 
sufficiently high, some potentially economically efficient or 
productive investments may not be made. Thus, reducing corruption could 
increase the

[[Page 80090]]

number of productive investments and the level of profitability of each 
investment and could lead to improved efficiency in the allocation of 
talent, technology, and capital. Insofar as these effects are realized, 
each of them could benefit issuers operating in countries with reduced 
corruption levels. These and other considerations form a basis for 
several dynamic general equilibrium models predicting a negative 
relationship between corruption and economic development.\335\
---------------------------------------------------------------------------

    \334\ See, e.g., reviews by P. Bardhan, ``Corruption and 
Development: A Review of Issues,'' Journal of Economic Literature, 
35, no. 3, 1320-1346 (1997) and J. Svensson, ``Eight Questions about 
Corruption'', Journal of Economic Perspectives, 19, no. 3, 19-42 
(2005).
    \335\ See, e.g., I. Ehrlich and F. Lui ``Bureaucratic Corruption 
and Endogenous Economic Growth,'' Journal of Political Economy, 107 
(6), 270-293 (1999); K. Blackburn, N. Bose, and E.M. Haque, ``The 
Incidence and Persistence of Corruption in Economic Development'', 
Journal of Economic Dynamics and Control 30, 2447-2467 (2006); and 
C. Leite and J. Weidmann, ``Does Mother Nature Corrupt? Natural 
Resources, Corruption, and Economic Growth'', International Monetary 
Fund Working Paper No. 99/85 (July 1999).
---------------------------------------------------------------------------

    A number of empirical studies have also shown that reducing 
corruption might result in an increase in the level of GDP and higher 
rate of economic growth through more private investments, better 
deployment of human capital, and political stability.\336\ Other 
studies find that corruption reduces economic growth both directly and 
indirectly, through lower investments.\337\ To the extent that 
increased transparency could lead to a reduction in corruption and, in 
turn, improved political stability and investment climate, some 
investors may consider such improvements in their investment decisions, 
including when pricing resource extraction assets of affected issuers 
operating in these countries.\338\ We note that some commenters 
supported this view.\339\ There could also be positive externalities 
from increased investor confidence to the extent that improved economic 
growth and investment climate could benefit other issuers working in 
those countries. Although we cannot state with certainty that such a 
result might occur, we note that there is some empirical evidence 
suggesting that lower corruption might reduce the cost of capital and 
improve valuation for some issuers.\340\
---------------------------------------------------------------------------

    \336\ See, e.g., P. Mauro, ``The effects of corruption on 
growth, investment and government expenditure: A cross country 
analysis,'' in K.A. Elliot (ed.) Corruption and the Global Economy, 
Washington DC: Institute for International Economics, 83-107 (1997); 
H. Poirson, ``Economic Security, Private Investment, and Growth in 
Developing Countries'' International Monetary Fund Working Paper No. 
98/4 (Jan. 1998); Institute for Economics and Peace, Peace and 
Corruption Report (2015).
    \337\ See Pak Hung Mo, ``Corruption and Economic Growth.'' 
Journal of Comparative Economics 29, 66-79 (2001); K. Gyimah-
Brempong, ``Corruption, economic growth, and income inequality in 
Africa'', Economics of Governance 3, 183-209 (2002); and Pierre-
Guillaume M[eacute]on and Khalid Sekkat, ``Does corruption grease or 
sand the wheels of growth?'', Public Choice 122, 69-97 (2005).
    \338\ Several studies present evidence that reduction in 
corruption increases foreign direct investments. See, e.g., S.-J. 
Wei, ``How Taxing is Corruption on International Investors?'' NBER 
Working Paper 6030 (1997) and G. Abed and H. Davoodi, ``Corruption, 
Structural Reforms, and Economic Performance in the Transition 
Economies,'' International Monetary Fund Working Paper No. 00/132 
(July 2000).
    \339\ See letter from Hermes Equity Ownership Services Ltd. 
(Mar. 2, 2011) (``Hermes'') (anticipating benefits of lower capital 
costs and risk premiums as a result of improved stability stemming 
from the statutory requirements and lessened degree of uncertainty 
promoted by greater transparency).
    \340\ See D. Kaufmann and S. J. Wei ``Does ``Grease Money'' 
Speed Up the Wheels of Commerce?'' NBER Working Paper 7093 (1999) 
(finding, using survey evidence, that firms that pay fewer bribes 
have lower, not higher, cost of capital) and C. Lee and D. Ng, 
``Corruption and International Valuation: Does Virtue Pay?'' Journal 
of Investing, 18, no. 4, 23-41 (2009) (finding that firms from more 
corrupt countries trade at significantly lower market multiples).
---------------------------------------------------------------------------

    Although there is no conclusive empirical evidence that would 
confirm whether the project-level, public disclosure that we are 
proposing will in fact reduce corruption, we note that many commenters 
emphasized the potential benefits to civil society of such public 
disclosure.\341\ Indeed, many of these commenters stated that the 
benefits to civil society of project-level reporting in terms of 
helping to reduce corruption and enhance accountability are 
significantly greater than those of country-level reporting.\342\ As 
discussed in Section I.E above, many of these commenters stated that 
public availability of project-level data would enable civil society 
groups and local communities to know how much their governments earn 
from the resources that are removed from their respective territories. 
This information would help empower them to advocate for a fairer share 
of revenues, double-check government-published budget data, and better 
calibrate their expectations from the extractive issuers.\343\ One 
commenter further stated that project-level reporting would enable both 
local government officials and civil society groups to monitor the 
revenue that flows back to the regions from the central government and 
ensure that they receive what is promised--a benefit that would be 
unavailable if revenue streams were not differentiated below the 
country level.\344\ Another commenter noted that project-level 
reporting would shine greater light on dealings between resource 
extraction issuers and governments, thereby providing companies with 
``political cover to sidestep government requests to engage in 
potentially unethical activities.'' \345\
---------------------------------------------------------------------------

    \341\ See, e.g., letters from Global Witness 1; NACE; Oxfam 1; 
PWYP 1; PWYP-CAM; PWYP-IND; PWYP-ZIM; RWI 1; and Syena.
    \342\ See letter from ERI 1; see also letter from Bill and 
Melinda Gates Foundation (Feb. 9, 2012) (``Gates Foundation'') and 
note 341 above.
    \343\ See, e.g., letter from ERI 1; see also letter from Gates 
Foundation (stating that it is important to seek disclosure below 
the country level, that project-level disclosure will give both 
citizens and investors valuable information, and that defining 
``project'' as a geologic basin or province would be of limited use 
to both citizens and investors).
    \344\ See letter from ERI 1.
    \345\ See letter from EG Justice 1.
---------------------------------------------------------------------------

    We also note that some commenters (including a number of large 
investors) have stated that the disclosures required by Section 13(q) 
could provide useful information to them in making investment 
decisions.\346\ Although we do not believe this is the primary 
objective of the required disclosures, we acknowledge the possibility 
that the disclosures could provide potentially useful information to 
certain investors. Some commenters, for example, noted that the new 
disclosures could help investors better assess the risks faced by 
resource extraction issuers operating in resource-rich countries.\347\ 
Other commenters compared the benefits of project-level and country-
level reporting. One commenter noted that project-level reporting would 
enable investors to better understand the risk profiles of individual 
projects within a given country, which could vary greatly depending on 
a number of factors such as regional unrest, personal interest by 
powerful government figures, degree of community oppression, and 
environmental sensitivity.\348\ This commenter indicated that project-
level disclosures would enable investors to better understand these 
risks, whereas country-level reporting would allow issuers to mask 
particularly salient projects by aggregating payments with those from 
less risky projects. Some commenters noted that a further benefit of 
project-level disclosures is that it would assist investors in 
calculations of

[[Page 80091]]

cost curves that determine whether and for how long a project may 
remain economical, using a model that takes into account political, 
social, and regulatory risks.\349\ While we acknowledge these comments, 
we note that the incremental benefit to investors from this information 
may be limited given that a significant number of the impacted issuers, 
in particular all issuers that are not smaller reporting companies, are 
already required to disclose their most significant risks in their 
Exchange Act annual reports.\350\
---------------------------------------------------------------------------

    \346\ See letter from Calvert 1 (stating that payment 
information could ``materially and substantially improve investment 
decision making''). See also note 318 above and accompanying text.
    \347\ See, e.g., letters from Calvert 1; ERI 2; Global Witness 
1; PGGM; and Oxfam 1. Social, political, reputational, regulatory, 
and tax risks were mentioned in the letters. Another commenter 
maintained that transparency of payments is a better indicator of 
risk for extractive issuers than the bond markets and is also a 
better indicator of financial performance. See letter from Vale 
Columbia Center (Dec. 16, 2011). The commenter did not provide 
empirical evidence that compares transparency to bond market 
indicators directly.
    \348\ See letter from ERI 2. This commenter also noted that 
unusually high signing bonus payments for a particular project may 
be a proxy for political influence, whereas unusually low tax or 
royalty payments may signal that a project is located in a zone 
vulnerable to attacks or community unrest.
    \349\ See letter from Calvert Asset Management Company and SIF 
(Nov. 15, 2010). But see note 350 above and accompanying text.
    \350\ See Item 1A of Form 10-K and Item 3.D of Form 20-F. About 
50 percent of affected issuers are smaller reporting companies and 
they are not obligated to disclose in their Exchange Act annual 
reports significant risk factors they face. For such companies, the 
resource extraction projects payments disclosure could provide 
incremental information that might benefit some investors, to the 
extent that they would not otherwise have a requirement to disclose 
the political or economic risks related to operating in resource-
rich countries. We do not, however, have data on whether such 
companies have material operations in politically volatile regions 
and whether they have exposure to risks described by commenters.
---------------------------------------------------------------------------

2. Costs
a. Commenters' Views of Compliance Costs
    Many commenters stated that the reporting regime mandated by 
Section 13(q) would impose significant compliance costs on issuers. 
Several commenters specifically addressed the cost estimates presented 
in the Paperwork Reduction Act (``PRA'') section of the 2010 Proposing 
Release.\351\ Other commenters discussed the costs and burdens to 
issuers generally as well as costs that could have an effect on the PRA 
analysis.\352\ As discussed below, in response to comments we received, 
we have provided our estimate of both initial and ongoing compliance 
costs. In addition, also in response to comments, we have made several 
changes to our PRA estimates that are designed to better reflect the 
burdens associated with the new collections of information.
---------------------------------------------------------------------------

    \351\ See letters from API 1; API 2; Barrick Gold; ERI 2; 
ExxonMobil 1; ExxonMobil (Oct. 25, 2011) (``ExxonMobil 3''); NMA 2; 
Rio Tinto; RDS 2; and RDS 4.
    \352\ See, e.g., letters from BP 1; Chamber Energy Institute; 
Chevron; Cleary; Hermes; and PWYP 1.
---------------------------------------------------------------------------

    Some commenters on the 2010 Proposing Release disagreed with our 
industry-wide estimate of the total annual increase in the collection 
of information burden and argued that it underestimated the actual 
costs that would be associated with the rules.\353\ These and other 
commenters stated that, depending upon the final rules adopted, the 
compliance burdens and costs arising from implementation and ongoing 
compliance with the rules would be significantly higher than those 
estimated by the Commission.\354\ However, these commenters generally 
did not provide any quantitative analysis to support their 
estimates.\355\
---------------------------------------------------------------------------

    \353\ See letters from API 1 and ExxonMobil 1.
    \354\ See letters from API 1; API 2; API 3; Barrick Gold; 
ExxonMobil 1; NMA 2; Rio Tinto; and RDS 2.
    \355\ See letters from API 1 and ExxonMobil 1. ExxonMobil 1 did 
provide estimated implementation costs of $50 million if the 
definition of ``project'' is narrow and the level of disaggregation 
is high across other reporting parameters. This estimate is used in 
our analysis below of the expected implementation costs.
---------------------------------------------------------------------------

    Commenters also noted that modifications to issuers' core 
enterprise resource planning systems and financial reporting systems 
would be necessary to capture and report payment data at the project 
level, for each type of payment, government payee, and currency of 
payment.\356\ These commenters estimated that the resulting initial 
implementation costs of the 2010 Proposing Release would be in the tens 
of millions of dollars for large issuers and millions of dollars for 
many small issuers.\357\ Two of these commenters provided examples of 
the modifications that would be necessary, including establishing 
additional granularity to existing coding structures (e.g., splitting 
accounts that contain both government and non-government payment 
amounts), developing a mechanism to appropriately capture data by 
``project,'' building new collection tools within financial reporting 
systems, establishing a trading partner structure to identify and 
provide granularity around government entities, establishing 
transaction types to accommodate types of payment (e.g., royalties, 
taxes, or bonuses), and developing a systematic approach to handle 
``in-kind'' payments.\358\ These two commenters estimated that total 
industry costs for initial implementation of the final rules could 
amount to hundreds of millions of dollars.\359\
---------------------------------------------------------------------------

    \356\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \357\ See letters from API 1; ExxonMobil 1; and RDS 2. These 
commenters did not describe how they defined small and large 
issuers.
    \358\ See letters from API 1 and ExxonMobil 1.
    \359\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    These commenters added that these estimated costs could be 
significantly greater depending on the scope of the final rules.\360\ 
They suggested, for example, that costs could increase depending on how 
the final rules define ``project'' and whether the final rules require 
reporting of non-consolidated entities, require ``net'' and accrual 
reporting, or require an audit.\361\ Another commenter estimated that 
the initial set up time and costs associated with the rules 
implementing Section 13(q) would require 500 hours for the issuer to 
change its internal books and records and $100,000 in information 
technology consulting, training, and travel costs.\362\ One commenter 
representing the mining industry estimated that start-up costs, 
including the burden of establishing new reporting and accounting 
systems, training local personnel on tracking and reporting, and 
developing guidance to ensure consistency across reporting units, would 
be at least 500 hours for a mid-to-large sized multinational 
issuer.\363\
---------------------------------------------------------------------------

    \360\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \361\ See letters from API 1; ExxonMobil 1; and RDS 2. As 
previously discussed, the proposed rules do not require the payment 
information to be audited or reported on an accrual basis, so 
commenters' concerns about possible costs associated with these 
items should be alleviated. See Section II.G.5 above.
    \362\ See letter from Barrick Gold.
    \363\ See letter from NMA 2.
---------------------------------------------------------------------------

    Two commenters stated that arriving at a reliable estimate for the 
ongoing annual costs of complying with the rules would be difficult 
because the rules were not yet fully defined but suggested that a 
``more realistic'' estimate than the estimate included in the 2010 
Proposing Release is hundreds of hours per year for each large issuer 
that has many foreign locations.\364\ Commenters also indicated that 
costs related to external professional services would be significantly 
higher than the Commission's estimate, resulting primarily from XBRL 
tagging and higher printing costs, although these commenters noted that 
it is not possible to estimate these costs until the specific 
requirements of the final rules are determined.\365\
---------------------------------------------------------------------------

    \364\ See letters from API 1 and ExxonMobil 1 (each noting that 
estimates would increase if the final rules contain an audit 
requirement or if the final rules are such that issuers are not able 
to automate material parts of the collection and reporting process).
    \365\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    One commenter estimated that ongoing compliance with the rules 
implementing Section 13(q) would require 100-200 hours of work at the 
head office, an additional 100-200 hours of work providing support to 
its business units, and 40-80 hours of work each year by each of its 
120 business units, resulting in an approximate yearly total of 4,800-
9,600 hours and $2,000,000-$4,000,000.\366\ One large

[[Page 80092]]

multinational issuer estimated an additional 500 hours each year, 
including time spent to review each payment to determine if it is 
covered by the reporting requirements and ensure it is coded to the 
appropriate ledger accounts.\367\ Another commenter representing the 
mining industry estimated that, for an issuer with a hundred projects 
or reporting units, the annual burden could be nearly 10 times the 
estimated PRA burden set out in the 2010 Proposing Release.\368\ This 
commenter noted that its estimate takes into account the task of 
collecting, cross-checking, and analyzing extensive and detailed data 
from multiple jurisdictions around the world, as well as the potential 
for protracted time investments to comply with several aspects of the 
rules proposed in 2010 that are not included in the current proposed 
rules.\369\ This commenter also noted that the estimate in the 2010 
Proposing Release did not adequately capture the burden to an 
international company with multiple operations where a wide range of 
personnel would need to be involved in capturing and reviewing the data 
for the required disclosures as well as for electronically tagging the 
information in XBRL format.\370\ A number of commenters submitted 
subsequent letters reiterating and emphasizing the potential of the 
proposed rules to impose substantial costs.\371\
---------------------------------------------------------------------------

    \366\ See letter from Rio Tinto. These estimates exclude initial 
set-up time required to design and implement the reporting process 
and develop policies to ensure consistency among business units. 
They also assume that an audit is not required.
    \367\ See letter from Barrick Gold.
    \368\ See letter from NMA 2.
    \369\ See letter from NMA 2. Many of the time investments 
outlined by this commenter would no longer apply to the proposed 
rules or would be significantly reduced from when this commenter's 
letter was submitted, such as the cost of seeking information from 
non-consolidated ``controlled'' entities, obtaining compliance 
advice on the application of undefined terms such as ``project,'' 
and reviews of the disclosure in connection with periodic 
certifications under the Sarbanes Oxley Act. Certain potential costs 
outlined in this letter, however, would still apply, such as those 
associated with implementing new systems based on our proposed 
definition of ``project'' and other definitions and costs associated 
with attempting to secure an exemption from the Commission when 
foreign law prohibitions on disclosure apply.
    \370\ See letter from NMA 2.
    \371\ See letters from API 2; ExxonMobil 3; and RDS 4.
---------------------------------------------------------------------------

    Other commenters believed that concerns over compliance costs have 
been overstated.\372\ One commenter stated that most issuers already 
have internal systems in place for recording payments that would be 
required to be disclosed under Section 13(q) and that many issuers 
currently are subject to reporting requirements at a project 
level.\373\ Another commenter anticipated that while the rules would 
likely result in additional costs to resource extraction issuers, such 
costs would be marginal in scale because, in the commenter's 
experience, many issuers already have extensive systems in place to 
handle their current reporting requirements and any adjustments needed 
as a result of Section 13(q) could be done in a timely and cost-
effective manner.\374\ Another commenter believed that issuers could 
adapt their current systems in a cost-effective manner because they 
should be able to adapt a practice undertaken in one operating 
environment to those in other countries without substantial changes to 
the existing systems and processes of an efficiently-run 
enterprise.\375\
---------------------------------------------------------------------------

    \372\ See letters from ERI 2; Oxfam 1; PWYP 1; and RWI 1.
    \373\ See letter from RWI 1 (noting that Indonesia requires 
reporting at the production sharing agreement level and that 
companies operating on U.S. federal lands report royalties paid by 
lease).
    \374\ See letter from Hermes.
    \375\ See letter from RWI 1.
---------------------------------------------------------------------------

    Another commenter stated that, in addition to issuers already 
collecting the majority of information required to be made public under 
Section 13(q) for internal record-keeping and audits, U.S. issuers 
already report such information to tax authorities at the lease and 
license level.\376\ This commenter added that efficiently-run issuers 
should not have to make extensive changes to their existing systems and 
processes to export practices undertaken in one operating environment 
to another.\377\ However, another commenter disagreed that issuers 
already report the payment information required by Section 13(q) for 
tax purposes.\378\ This commenter also noted that tax reporting and 
payment periods may differ.
---------------------------------------------------------------------------

    \376\ See letter from PWYP 1.
    \377\ See id. (citing statement made by Calvert Investments at a 
June 2010 IASB-sponsored roundtable).
    \378\ See letter from Rio Tinto (``[t]his is a simplistic view, 
and the problem is that tax payments for a specific year are not 
necessarily based on the actual accounting results for that 
year.'').
---------------------------------------------------------------------------

    One commenter, while not providing competing estimates, questioned 
the accuracy of the assertions relating to costs from industry 
participants.\379\ This commenter cited the following factors that led 
it to question the cost assertions from industry participants: (i) Some 
issuers already report project-level payments in certain countries in 
one form or another and under a variety of regimes; (ii) some EITI 
countries are already moving toward project-level disclosure; and (iii) 
it is unclear whether issuers can save much time or money by reporting 
government payments at the material project or country level. This 
commenter also explained that issuers must keep records of their 
subsidiaries' payments to governments as part of the books and records 
provisions of the Foreign Corrupt Practices Act, so the primary costs 
of reporting these payments would be in the presentation of the data 
rather than any need to institute new tracking systems. This commenter 
indicated that to the extent that issuers may need to implement new 
accounting and reporting systems to keep track of government payments, 
issuers presumably would need to develop mechanisms for receiving and 
attributing information on individual payments regardless of the form 
the final rules take. The commenter also observed that the 2010 
proposed rules would require companies to provide the payment 
information in its raw form, rather than requiring them to process it 
and disclose only those payments from projects they deem to be 
``material,'' which could result in savings to issuers of time and 
money by allowing them to submit data without having to go through a 
sifting process. This commenter observed that none of the commenters 
who submitted cost estimates attempted to quantify the savings that 
would ``supposedly accrue'' if disclosure were limited to ``material'' 
projects, as compared to disclosure of all projects, and noted that the 
Commission was not required to accept commenters' bare assertions that 
their ``marginal costs would be reduced very significantly.''
---------------------------------------------------------------------------

    \379\ See letter from ERI 2.
---------------------------------------------------------------------------

b. Quantitative Estimates of Compliance Costs
    To assess the potential initial and ongoing costs of compliance 
with the proposed rules, we use the quantitative information supplied 
by commenters in response to the 2010 Proposing Release.\380\ Our 
general approach is to estimate the upper and lower bounds of the 
compliance costs for each potentially affected issuer and then to sum 
up these estimates to estimate the aggregate impact.\381\ As discussed 
in Section III.A above, we estimate that, as of the end of 2014, 877 
issuers would

[[Page 80093]]

be potentially affected by the proposed rules.\382\ However, in 
determining which issuers are likely to bear the full costs of 
compliance with the proposed rules, we make two adjustments to the list 
of affected issuers. First, we exclude those issuers that would be 
subject to foreign jurisdictions' rules substantially similar to our 
proposed rules and therefore would likely already be bearing compliance 
costs. Second, we exclude small issuers that likely could not have made 
any payment above the proposed de minimis amount of $100,000 to any 
government entity in 2014.
---------------------------------------------------------------------------

    \380\ See letters from Barrick Gold, ExxonMobil 1, and Rio Tinto 
discussed above in Section III.B.2.a. NMA also provided initial 
compliance hours that are similar to Barrick Gold. See letter from 
NMA 2. We do not have comment letters with more up-to-date 
quantitative estimates of compliance costs.
    \381\ We acknowledge that there may be some uncertainty 
surrounding who will ultimately bear the compliance costs. Depending 
on market conditions and the degree of competition, issuers may 
attempt to pass some or all of their costs on to other market 
participants. This consideration, however, does not change our 
estimates.
    \382\ We acknowledge that, as one commenter suggested, some of 
these issuers are affiliated and thus are likely to share compliance 
systems and fixed costs of creating such systems. See letter from 
Publish What You Pay United States (Nov. 12, 2015) (``PWYP-US 2''). 
Due to difficulties in determining affiliation status, however, we 
have not attempted to eliminate these issuers from our estimates, 
and therefore our estimates may overstate the potential costs. 
Nevertheless, this potential overstatement of costs would not apply 
in one of the cases we consider below, the case of no fixed costs, 
because the costs would depend only on the total assets of affected 
issuers, not on the number of them.
---------------------------------------------------------------------------

    To address the first consideration, we searched the filed annual 
forms and forms' metadata for issuers that have a business address, are 
incorporated, or are listed on markets in the EEA or Canada. For 
purposes of our analysis, we assume that those issuers may already be 
subject to similar resource extraction payment disclosure rules in 
those jurisdictions by the time the proposed rules are adopted and, 
thus, that the additional costs to comply with our proposed rules would 
be much lower than costs for other issuers. We identified 268 such 
issuers.\383\
---------------------------------------------------------------------------

    \383\ If we adopt an alternative reporting option as part of the 
final rules, and the disclosure requirements of those jurisdictions 
are subsequently deemed to be substantially similar to our rules, 
then the additional cost would be negligible compared to compliance 
costs we consider in this section.
---------------------------------------------------------------------------

    Second, among the remaining 609 issuers (i.e., 877 minus 268) we 
searched for issuers that, in the most recent fiscal year as of the 
date of their annual report filing, have both revenues and absolute 
value net cash flows from investing activities of less than the 
proposed de minimis payment threshold of $100,000. Under those 
financial constraints, such issuers are unlikely to have made any non-
de minimis and otherwise reportable payments to governments and would 
be unlikely to be subject to the proposed reporting requirements. We 
identified 138 such issuers.
    Taking these estimates of the number of excluded issuers together, 
we estimate that approximately 471 issuers (i.e., 877 minus 268 minus 
138) would bear the full costs of compliance with the proposed 
rules.\384\
---------------------------------------------------------------------------

    \384\ Because it may be uncertain at the beginning of a 
financial period as to whether payments from an issuer will exceed 
the de minimis threshold by the end of such period, an excluded 
issuer may incur costs to collect the information that would need to 
be reported under the proposed rules even if that issuer is not 
subsequently required to file an annual report on Form SD. To the 
extent that excluded issuers incur such costs, our estimate may 
understate the aggregate compliance costs associated with the 
proposed rules.
---------------------------------------------------------------------------

    To establish an upper and lower bound for the initial compliance 
costs estimates, we use the initial compliance cost estimates from 
Barrick Gold and ExxonMobil referenced above. We note, however, that 
these cost estimates were provided by the commenters during the comment 
period after the 2010 Proposing Release and were based on policy 
choices made in that proposal and reflected the other international 
regulatory regimes in place at that time. Since then we have changed 
our approach (e.g., we have proposed to define the term ``control'' 
based on accounting principles, which we believe would be easier and 
less costly for issuers to apply) \385\ and the international reporting 
regimes have changed significantly.\386\ These developments are likely 
to significantly lower the compliance costs associated with the 
currently proposed rules. However, we do not have any reliable 
quantitative assessment of the extent to which these changes would 
reduce commenters' cost estimates and, thus, we use the original 
commenters' estimates without adjustment.
---------------------------------------------------------------------------

    \385\ See Section II.D above.
    \386\ In this regard, we note that some affected issuers, even 
if they are not subject to foreign disclosure rules, might have 
subsidiaries or other entities under their control that are subject 
to such rules. These issuers thus would face lower compliance costs 
because they would already have incurred some of these costs through 
such subsidiaries and other controlled entities.
---------------------------------------------------------------------------

    In our methodology to estimate the initial compliance costs, we 
take the specific issuer estimates from Barrick Gold and ExxonMobil, 
$500,000 and $50,000,000, respectively,\387\ apply these costs to the 
average issuer, and then multiply the costs by the number of affected 
issuers. However, because Barrick Gold and ExxonMobil are very large 
issuers and their compliance costs may not be representative of other 
types of issuers, we apply these costs to all potentially affected 
issuers as a percentage of total assets. This allows for the compliance 
cost estimate for each potentially affected issuer to vary by their 
size, consistent with our expectation that larger issuers will face 
higher compliance costs. For example, we expect larger, multinational 
issuers to need more complex payment tracking systems compared to 
smaller, single country based issuers. This approach is consistent with 
the method used in the 2012 Adopting Release, where we estimated the 
initial compliance costs to be between 0.002% and 0.021% of total 
assets.\388\
---------------------------------------------------------------------------

    \387\ Barrick Gold estimated that it would require 500 hours for 
initial changes to internal books and records and processes, and 500 
hours for ongoing compliance costs. At an hourly rate of $400, this 
amounts to $400,000 (1,000 hours * $400) for hourly compliance 
costs. Barrick Gold also estimated that it would cost $100,000 for 
initial IT/consulting and travel costs, for a total initial 
compliance cost of $500,000. A similar analysis for ExxonMobil 
estimated their initial compliance costs to be $50 million. See 2012 
Adopting Release, Section III.D for details.
    \388\ See 2012 Adopting Release at Section III.D for details 
(the approach we use here is referred to as Method 1 in that 
release). In the 2012 Adopting Release we also used another method 
(referred to as Method 2) to estimate compliance costs. With Method 
2, we first estimated the compliance costs for small and large 
issuers (as determined by market capitalization) using the same 
assumptions as in Method 1 that compliance costs are a constant 
fraction of issuer's total assets (i.e., that all costs are variable 
and there is no fixed component to the costs), and then aggregated 
the compliance costs for all issuers. Although this approach was 
intended to provide limited insight into any differential cost 
impacts on small versus large issuers, it did not separate fixed and 
variable cost components of the total compliance costs. Therefore, 
it did not allow us to apply a differential cost structure to small 
and large issuers. In addition, because of poor data availability 
and data quality on market capitalization for small and foreign 
issuers, the Method 2 approach may yield less accurate estimates 
than the approach we use in this release (on the other hand, Method 
1 could be properly applied because we collected total assets data 
for all affected issuers). As a consequence, we now believe that the 
disaggregation and subsequent aggregation of small and large issuer 
cost estimates does not provide additional insights into the 
difference in cost structure for small versus large issuers and any 
effects of this difference on the aggregate costs. Consequently, we 
have used only one estimation approach in this proposal. As 
discussed below, however, we do believe that there is a fixed 
component to the compliance costs which could potentially have a 
differential impact on small issuers, and we have expanded the 
Method 1 approach to allow for a fixed costs component in the cost 
structure. We also request comments on both the fixed and variable 
components of compliance costs to enable us to better quantitatively 
estimate such impact.
---------------------------------------------------------------------------

    We calculate the average total assets of the 471 potentially 
affected issuers to be approximately $5.8 billion.\389\ Applying the 
ratio of initial compliance costs to total assets (0.002%) from Barrick 
Gold, we estimate the lower

[[Page 80094]]

bound of total initial compliance costs for all issuers to be $54.96 
million (0.002% * $5,834,361,000 * 471). Applying the ratio of initial 
compliance costs to total assets (0.021%) from ExxonMobil, we estimate 
the upper bound of total initial compliance costs for all issuers to be 
$577.1 million (0.021% * $5,834,361,000 * 471). The table below 
summarizes the upper and lower bound of total initial compliance costs 
under the assumption that compliance costs vary according to the 
issuer's size.
---------------------------------------------------------------------------

    \389\ For the 471 potentially affected issuers, we collected 
their total assets for the fiscal year that corresponds to their 
Exchange Act annual reports for 2014 from XBRL filings that 
accompany issuers' annual reports on EDGAR and from Compustat; if 
these two data sources varied on an issuer's total assets, we used 
the higher of the two values. For the remaining issuers that do not 
have total assets data from either of these two data sources, we 
manually collected the data on total assets from their filings. We 
then calculated the average of those total assets across all issuers 
that have the data.

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Average issuer initial compliance costs assuming no fixed costs  Calculation
----------------------------------------------------------------------------------------------------------------
Average 2014 total assets of all affected        $5,834,361,000
 issuers.
Average initial compliance costs per issuer             116,687  $5,834,361,000*0.002%
 using Barrick Gold percentage of total
 assets (lower bound).
                                              ------------------------------------------------------------------
  Total initial compliance costs using               54,959,577  $116,687*471
   Barrick Gold (lower bound).
                                              ------------------------------------------------------------------
Average initial compliance costs per issuer           1,225,216  $5,834,361,000*0.021%
 using Exxon Mobil's percentage of total
 assets (upper bound).
                                              ------------------------------------------------------------------
    Total initial compliance costs using            577,076,736  $1,225,216*471
     ExxonMobil (upper bound).
----------------------------------------------------------------------------------------------------------------

    We also recognize that it is possible that some compliance costs 
may not scale by issuer size and that smaller issuers in particular may 
be subject to certain fixed costs that do not vary with the size of the 
issuers' operations. While commenters did not provide any information 
on what fraction of the initial compliance costs would be fixed versus 
variable, we assume that fixed costs are equal to $500,000--the lower 
of the two compliance cost estimates provided by commenters. To find 
the lower and upper bound estimates of compliance costs in this case, 
we assume that each issuer's costs are the maximum between the fixed 
costs of $500,000 and, respectively, the lower bound (0.002% of total 
assets) or the upper bound (0.021% of total assets) of the variable 
costs. Applying these lower and upper bounds to each issuer and summing 
across all issuers, we find that the lower bound estimate is $262 
million (or, on average, $0.56 million per issuer) and the upper bound 
estimate is $726 million (or, on average, $1.54 million per issuer).
    The table below summarizes the upper and lower bound of total 
initial compliance costs under two fixed costs assumptions.\390\ We 
note that our upper bound estimates are consistent with two commenters' 
qualitative estimates of initial implementation costs.\391\ We also 
note that, if the actual fixed costs component is between $0 and 
$500,000, the lower and upper bounds of compliance costs estimates 
would be between our estimates for the two opposite cases.
---------------------------------------------------------------------------

    \390\ The total estimated compliance cost for PRA purposes is 
$79,302,480. See Section IV below. The compliance costs for PRA 
purposes would be encompassed in the total estimated compliance 
costs for issuers. As discussed in detail below, our PRA estimate 
includes costs related to tracking and collecting information about 
different types of payments across projects, governments, countries, 
subsidiaries, and other controlled entities. The estimated costs for 
PRA purposes are calculated by treating compliance costs as fixed 
costs and by only monetizing costs associated with outside 
professional services. Therefore, despite using similar inputs for 
calculating these costs, the PRA estimate differs from the lower and 
upper bounds calculated above.
    \391\ See letters from API 1 (``Total industry costs just for 
the initial implementation could amount to hundreds of millions of 
dollars even assuming a favorable final decision on audit 
requirements and reasonable application of accepted materiality 
concepts.'') and ExxonMobil 1.

----------------------------------------------------------------------------------------------------------------
                                      Initial compliance costs assuming no    Initial compliance costs assuming
                                                   fixed costs                     fixed costs of $500,000
                                     ---------------------------------------------------------------------------
                                         Costs for an                          Costs for an
                                        average issuer      Total costs       average issuer      Total costs
----------------------------------------------------------------------------------------------------------------
Lower bound.........................           $116,687        $54,959,680           $557,092       $262,390,300
Upper bound.........................          1,225,216        577,076,700          1,540,969        725,796,600
----------------------------------------------------------------------------------------------------------------

    We acknowledge significant limitations on our analysis that may 
result in the actual costs being significantly lower. First, the 
analysis is limited to two large issuers' estimates from two different 
industries, mining and oil and gas, and the estimates may not 
accurately reflect the initial compliance costs of all affected 
issuers. Second, the commenters' estimates were generated based on our 
initial proposal and they do not reflect the current proposed rules or 
the international transparency regimes that subsequently have been 
adopted by other jurisdictions.\392\
---------------------------------------------------------------------------

    \392\ See, e.g., notes 179 and 386 and accompanying text.
---------------------------------------------------------------------------

    We also acknowledge certain limitations on our analysis that could 
potentially cause the cost to be higher than our estimates. First, we 
assume that the variable part of the compliance costs is a constant 
fraction of total assets, but the dependence of costs on issuer size 
might not be linear (e.g., costs could grow disproportionally faster 
than issuer assets). Second, commenters mentioned other potential 
compliance costs not necessarily captured in this discussion of 
compliance costs.\393\
---------------------------------------------------------------------------

    \393\ Those could include, for example, costs associated with 
the termination of existing agreements in countries with laws that 
prohibit the type of disclosure mandated by the rules, costs of 
decreased ability to bid for projects in such countries in the 
future, or costs of decreased competitiveness with respect to non-
reporting entities. Commenters generally did not provide estimates 
of such costs. As discussed further below, we have attempted to 
estimate the costs associated with potential foreign law 
prohibitions on providing the required disclosure.
---------------------------------------------------------------------------

    We estimate ongoing compliance costs using the same method under 
the assumptions of no fixed costs and fixed costs of $200,000 per year 
(as explained below). After the 2010 Proposing Release, we received 
quantitative information from three commenters--Rio Tinto, National 
Mining Association, and Barrick Gold--that we used in the

[[Page 80095]]

analysis.\394\ As in the 2012 Adopting Release, we use these three 
comments to estimate the ongoing compliance costs as a percentage of 
total assets to be 0.003%, 0.02%, and 0.0008%, respectively, and the 
average ongoing compliance costs to be 0.0079% of total assets.\395\ 
For the no fixed costs case, we take the average total assets for all 
affected issuers, $5,834,361,000, and multiply it by a constant 
fraction (either the lower bound of 0.0008%, the average of 0.0079%, or 
the upper bound of 0.02%) of total assets and the number of affected 
companies (471) to get the total lower bound, the average, and the 
upper bound of the annual ongoing compliance costs estimates.
---------------------------------------------------------------------------

    \394\ See letters from Barrick Gold, Rio Tinto, and NMA 2. We 
apply the same caveat as in the initial compliance cost estimates 
above, namely, that these cost estimates were provided by the 
commenters during the comment period after the 2010 Proposing 
Release and were based on policy choices made in that proposal. 
Changes made to the current proposal and recent international 
developments could significantly lower the cost estimates.
    \395\ We estimate the cost percentages the following way. Rio 
Tinto estimated that it would take between 5,000 and 10,000 hours 
per year to comply with the requirements, for a total ongoing 
compliance cost of between $2 million (5,000*$400) and $4 million 
(10,000*$400). We use the midpoint of their estimate, $3 million, as 
their expected ongoing compliance cost. The National Mining 
Association (NMA), which represents the mining industry, estimated 
that ongoing compliance costs would be 10 times our initial estimate 
from the 2010 Proposing Release, although it did not state 
specifically the number to which it referred. We believe NMA was 
referring to our proposed estimate of $30,000. Although this is the 
dollar figure for total costs, NMA referred to it when providing an 
estimate of ongoing costs, so we do the same here, which would 
result in $300,000 (10*$30,000). Finally, Barrick Gold estimated 
that it would take 500 hours per year to comply with the 
requirements, or $200,000 (500*$400) per year. As with the initial 
compliance costs, we calculate the ongoing compliance cost as a 
percentage of total assets. Rio Tinto's total assets as of the end 
of fiscal year 2009 were approximately $97 billion and their 
estimated ongoing compliance costs as a percentage of assets is 
0.003% ($3,000,000/$97,236,000,000). We calculated the average total 
assets of the mining industry to be $1.5 billion, and using NMA's 
estimated ongoing compliance costs, we estimate ongoing compliance 
costs as a percentage of assets of 0.02% ($300,000/$1,515,000,000). 
Barrick Gold's total assets as of the end of fiscal year 2009 were 
approximately $25 billion and their estimated ongoing compliance 
costs as a percentage of assets is 0.0008% ($200,000/
$25,075,000,000). See 2012 Adopting Release at Section III.D for 
details.
---------------------------------------------------------------------------

    Similarly to our estimates of the initial costs, we then consider 
fixed costs equal to the lowest of three estimates given by the 
commenters, the Barrick Gold's estimate of $200,000 per year. To find 
the lower and upper bound estimates, we assume that each issuer's costs 
are the maximum between the fixed costs of $200,000 and either the 
lower bound (0.0008% of total assets) or the upper bound (0.02% of 
total assets) of the variable costs, respectively. Applying these lower 
and upper bounds to each issuer and summing across all issuers, we find 
that the lower bound estimate is $105 million per year (or, on average, 
$0.22 million per issuer per year) and the upper bound estimate is $601 
million per year (or, on average, $1.28 million per issuer per year). 
Our estimates are summarized in the following table. Finally, we note 
that, if the actual fixed costs component is between $0 and $200,000, 
the lower and upper bounds of compliance costs estimates would be 
between our lower and upper bounds estimates for the two opposite fixed 
costs cases.

----------------------------------------------------------------------------------------------------------------
                                         Annual ongoing compliance costs       Annual ongoing compliance costs
                                        under the assumption of no fixed     under the assumption of fixed costs
                                                      costs                              of $200,000
                                     ---------------------------------------------------------------------------
                                         Costs for an                          Costs for an
                                        average issuer      Total costs       average issuer      Total costs
----------------------------------------------------------------------------------------------------------------
Lower bound.........................            $46,675        $21,983,870           $222,837       $104,956,100
Average.............................            460,915        217,090,700            588,790        277,320,000
Upper bound.........................          1,166,872        549,596,800          1,275,390        600,708,700
----------------------------------------------------------------------------------------------------------------

    As noted above, we expect that the initial and ongoing compliance 
costs associated with the proposed rule are likely to be greater for 
larger, multinational issuers as compared to smaller, single country 
based issuers, as larger issuers would likely need more complex systems 
to track and report the required information. However, to the extent 
there is a significant fixed component to the proposed rules' overall 
compliance costs, such costs could be disproportionately burdensome for 
smaller reporting companies and emerging growth companies. In this 
case, the proposed rules could give rise to competitive disadvantages 
for these smaller issuers and could provide incentive for these issuers 
to consider exiting public capital markets to avoid reporting 
requirements (possibly incurring a higher cost of capital and 
potentially limited access to capital in the future). We estimate that 
approximately 50% of affected issuers are smaller reporting companies 
and approximately 6% of affected issuers are emerging growth 
companies.\396\ Given the transparency goals of the statute and the 
fact that smaller issuers constitute a significant portion of the 
public reporting companies making resource extraction payments, 
exempting these issuers from the proposed rules could significantly 
diminish the expected benefits of the required disclosure. To help us 
better understand the potential impact of the proposed rules on smaller 
issuers, we are soliciting comment on the degree to which compliance 
costs are likely to vary by issuer size and complexity of operations 
and our overall approach to estimating these costs, as outlined above.
---------------------------------------------------------------------------

    \396\ As discussed in this section above, our estimate of the 
number of affected issuers already excludes 138 issuers whose 
reported revenues and net cash flows from investing activities 
suggest that they are unlikely to make payments above the proposed 
de minimis threshold. If we apply a significantly higher threshold 
($250,000, $500,000, $750,000, or $1,000,000) to revenues and cash 
flows from investing to estimate the number of such issuers, we 
would exclude a slightly higher number of issuers from our cost 
estimates (169, 201, 214, or 227, respectively). Nonetheless, for 
the reasons described above, we believe that we have proposed to set 
the de minimis threshold at an appropriate level. See Section II.C.2 
above.
---------------------------------------------------------------------------

c. Indirect Costs and Competitive Effects
    In addition to direct compliance costs, we anticipate that the 
statute could result in significant indirect effects. Issuers that have 
a reporting obligation under Section 13(q) could have a competitive 
disadvantage compared to private companies and foreign companies that 
are not subject to the reporting requirements of the United States 
federal securities laws and therefore do not have such an obligation. 
For example, such competitive disadvantage could result from, among 
other things, any preference by the government of the host country to 
avoid disclosure of covered payment information, or any ability of 
market participants to use the information disclosed by reporting 
issuers to derive contract terms, reserve data, or other confidential 
information.

[[Page 80096]]

    Industry commenters have stated that confidential production and 
reserve data can be derived by competitors or other interested persons 
with industry knowledge by extrapolating from the payment information 
required to be disclosed.\397\ Other commenters have argued, however, 
that such extrapolation is not possible, and that information of the 
type required to be disclosed by Section 13(q) would not confer a 
competitive advantage on industry participants not subject to such 
disclosure requirements.\398\ In either event, any competitive impact 
of Section 13(q) should be minimal in those jurisdictions in which 
payment information of the types covered by Section 13(q) is already 
publicly available.\399\ In addition, any competitive impact should be 
substantially reduced to the extent that other jurisdictions, such as 
the European Union and Canada, have adopted laws that require 
disclosure similar to the disclosure required by Section 13(q) and the 
proposed rules.\400\ We note, however, that to the extent that 
commenters are accurate in their assessment of competitive effects 
arising from such disclosure requirements, some U.S. issuers that would 
not be subject to the EU Directives or other international disclosure 
regimes might lose some of their competitive advantage from not being 
obligated to disclose their resource extraction payments.
---------------------------------------------------------------------------

    \397\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \398\ See letters from PWYP 1 and Oxfam 1.
    \399\ In this regard, we note that one commenter provided 
several examples of countries in which payments are publicly 
disclosed on a lease or concession level. See letter from PWYP 3.
    \400\ One commenter suggested that if both the United States and 
European Union implement disclosure requirements regarding payments 
to governments ``around 90% of the world's extractive companies will 
be covered by the rules.'' See letter from Arlene McCarthy (Aug. 10, 
2012) (Ms. McCarthy is a member of the European Parliament and the 
parliamentary draftsperson on the EU transparency rules for the 
extractive sector).
---------------------------------------------------------------------------

    To the extent that the requirement to disclose payment information 
does impose a competitive disadvantage on an issuer, such issuer 
possibly could be motivated to sell assets affected by such competitive 
disadvantage at a price that does not fully reflect the value of such 
assets absent such competitive impact.\401\ Additionally, resource 
extraction issuers operating in countries which prohibit, or could in 
the future prohibit, the disclosure required under the proposed rules 
could bear substantial costs.\402\ One commenter noted that tens of 
billions of dollars of capital investments could potentially be put at 
risk if issuers were required to disclose, pursuant to our proposed 
rules, information prohibited by the host country's laws or 
regulations.\403\ As explained above, pursuant to our existing Exchange 
Act authority, the Commission will consider requests for exemptive 
relief on a case-by-case basis and may grant such relief, if and when 
warranted. The economic implications of providing such relief are 
discussed below in Section III.C.1.
---------------------------------------------------------------------------

    \401\ For example, a study on divestitures of assets find that 
issuers that undertake voluntary divestitures have positive stock 
price reactions, but also finds that issuers forced to divest assets 
due to action undertaken by the antitrust authorities suffer a 
decrease in shareholder value. See Kenneth J. Boudreaux, 
``Divestiture and Share Price.'' Journal of Financial and 
Quantitative Analysis 10 (Sept. 1975), 619-26. See also, G. Hite and 
J. Owers. ``Security Price Reactions around Corporate Spin-Off 
Announcements.'' Journal of Financial Economics 12 (Dec. 1983), 409-
36 (finding that issuers spinning off assets because of legal/
regulatory difficulties experience negative stock returns).
    \402\ See 2012 Adopting Release, nn.52-53 and accompanying text.
    \403\ See letter from RDS 4.
---------------------------------------------------------------------------

    Addressing other potential costs, one commenter referred to a 
potential economic loss borne by shareholders, without quantifying such 
loss, which the commenter believed could result from highly 
disaggregated public disclosure of competitively sensitive information 
causing competitive harm.\404\ The commenter also noted resource 
extraction issuers could suffer competitive harm because they could be 
excluded from many future projects altogether. One commenter also noted 
that because energy underlies every aspect of the economy, these 
negative impacts could potentially have repercussions well beyond 
resource extraction issuers.\405\
---------------------------------------------------------------------------

    \404\ See letter from API 1.
    \405\ See letter from API 1.
---------------------------------------------------------------------------

    Some commenters suggested that we permit issuers to submit payment 
data confidentially to the Commission and make public only an 
aggregated compilation of the information.\406\ The commenters 
suggesting that the Commission make public only a compilation of 
information stated that such an approach would address many of their 
concerns about the disclosure of commercially sensitive or legally 
prohibited information and would significantly mitigate the costs of 
the mandatory disclosure under Section 13(q). As noted above, we did 
not permit confidential submissions in the 2012 Rules, and the current 
proposed rules are generally consistent with that approach. As a 
result, the proposed rules require public disclosure of the 
information. We note that in situations involving more than one 
payment, the information would be aggregated by payment type, 
government, and/or project, which may limit the ability of competitors 
to use the publicly disclosed information to their advantage. In 
addition, as discussed above, the Commission will consider applications 
for exemptive relief from the proposed disclosure requirements on a 
case-by-case basis and may grant such relief, if and when 
warranted.\407\
---------------------------------------------------------------------------

    \406\ See note 242 above and accompanying text.
    \407\ See Section II.G.3 above.
---------------------------------------------------------------------------

    As noted above, the cost of compliance for this provision would be 
primarily borne by the issuer thus potentially diverting capital away 
from other productive opportunities which may result in a loss of 
allocative efficiency.\408\ Such effects may be partially offset over 
time if increased transparency of resource extraction payments reduces 
corrupt practices by governments of resource-rich countries and in turn 
helps promote improved economic development and higher economic growth 
in those countries. In this regard, as we noted above in Section 
III.B.1, a number of economic studies have shown that reducing 
corruption can help promote higher economic growth through more private 
investments, better deployment of human capital, and political 
stability.\409\
---------------------------------------------------------------------------

    \408\ See letter from Chevron. See also letter from Chairman 
Bachus and Chairman Miller. As discussed above in note 381, there is 
some uncertainty regarding who would bear the ultimate costs of 
compliance. Regardless of who bears the majority of the compliance 
costs, we believe that the effects on allocative efficiency and 
capital flows would likely be similar.
    \409\ See note 336 above and accompanying text.
---------------------------------------------------------------------------

C. Potential Effects Resulting From Specific Implementation Choices

    As discussed in detail in Section II, we have revised the rules 
from the 2010 Proposing Release and the 2012 Adopting Release to 
address matters identified in the U.S. District Court for the District 
of Columbia's decision in the API Lawsuit. In developing the proposed 
rules, we have also considered relevant international developments, 
input from staff consultations with other U.S. Government agencies, and 
the public comments that we have received. We discuss below the 
significant choices that we are proposing to implement the statute and 
the associated benefits and costs of those choices. We are unable to 
quantify the impact of each of the proposals we discuss below with any 
precision because reliable, empirical evidence about the effects is not 
readily available to the Commission. We do, however,

[[Page 80097]]

request that commenters provide us with any empirical evidence relating 
to these various choices to the extent that they can.
1. Exemption From Compliance
    Absent potential exemptive relief, resource extraction issuers 
operating in countries which prohibit, or may in the future prohibit, 
the disclosure required under Section 13(q) could bear substantial 
costs.\410\ Such costs could arise if issuers have to choose between 
ceasing operations in certain countries or violating local law, or if 
the country's laws have the effect of preventing them from 
participating in future projects. Some commenters asserted that four 
countries currently have such laws.\411\ Other commenters disputed the 
assertion that there are foreign laws that specifically prohibit 
disclosure of payment information.\412\
---------------------------------------------------------------------------

    \410\ See 2012 Adopting Release, nn.52-53 and accompanying text.
    \411\ See letters from API 1 and ExxonMobil 1 (mentioning 
Angola, Cameroon, China, and Qatar). See also letter from RDS 2 
(mentioning Cameroon, China, and Qatar).
    \412\ See, e.g., letters from ERI 3; Global Witness 1; OpenOil; 
PWYP 1; PWYP 3; and Rep. Frank et al.
---------------------------------------------------------------------------

    A foreign private issuer with operations in a country that 
prohibits disclosure of covered payments, or a foreign issuer that is 
domiciled in such country, might face different types of costs. For 
example, it might decide it is necessary to delist from an exchange in 
the United States, deregister, and cease reporting with the 
Commission,\413\ thus incurring a higher cost of capital and 
potentially limited access to capital in the future. Shareholders, 
including U.S. shareholders, might in turn suffer an economic and 
informational loss if an issuer decides it is necessary to deregister 
and cease reporting under the Exchange Act in the United States as a 
result of the proposed rules.
---------------------------------------------------------------------------

    \413\ See letter from Berns.
---------------------------------------------------------------------------

    Affected issuers also could suffer substantial losses if they have 
to terminate their operations and redeploy or dispose of their assets 
in the host country under consideration. These losses would be 
magnified if an issuer cannot redeploy the assets in question easily, 
or it has to sell them at a steep discount (a fire sale). Even if the 
assets could be easily redeployed, an issuer could suffer opportunity 
costs if they are redeployed to projects with inferior rates of return. 
In the 2012 Adopting Release we estimated that such losses could amount 
to billions of dollars.
    A number of factors may serve to mitigate the costs and competitive 
burdens arising from the impact of foreign laws on the required 
disclosure. For example, the widening global influence of the EITI and 
the recent trend of other jurisdictions to promote transparency, 
including listing requirements adopted by the Hong Kong Stock Exchange 
and the requirements adopted pursuant to the EU Directives and ESTMA, 
may discourage governments in resource-rich countries from rigorously 
enforcing any such prohibitions or from adopting new prohibitions on 
payment disclosure.\414\ Resource extraction issuers concerned that 
disclosure required by Section 13(q) may be prohibited in a given host 
country may also be able to seek authorization from the host country to 
disclose such information.\415\ Commenters did not provide estimates of 
the cost that might be incurred to seek such an authorization.
---------------------------------------------------------------------------

    \414\ See 2012 Adopting Release, n.15 and n.48, and the 
discussion in Section I above.
    \415\ For example, according to some commenters, the Minister of 
Petroleum may provide formal authorization for the disclosure of 
information about a reporting issuer's activities in Angola. See 
letter from ExxonMobil 2. See also letter from PWYP 2 (``Current 
corporate practice suggests that the Angolan government regularly 
provides this authorization. For instance, Statoil regularly reports 
payments made to the Angolan government.'' (internal citations 
omitted)). The legal opinions submitted by Royal Dutch Shell with 
its comment letter also indicate that disclosure of otherwise 
restricted information may be authorized by government authorities 
in Cameroon and China, respectively. See letter from RDS 2.
---------------------------------------------------------------------------

    In addition, these potential costs could be substantially mitigated 
under our proposed rules. We intend to consider using our existing 
authority under the Exchange Act to provide exemptive relief on a case-
by-case basis, if and when warranted, upon the request of a resource 
extraction issuer.\416\ As mentioned above, we believe that a case-by-
case approach to exemptive relief using our existing authority is 
preferable to either including within the final rules a blanket 
exemption for a foreign law prohibition (or for any other reason) or 
providing no exemptions and no avenue for exemptive relief under this 
or other circumstances. The proposed approach should significantly 
decrease compliance and economic costs to the extent that issuers are 
able to demonstrate that an exemption where host country laws prohibit 
disclosure is warranted. Indeed, assuming such laws exist and are 
enforced and that issuers are able to make the required demonstration 
for an exemption to our proposed rules, this approach could potentially 
save affected issuers billions of dollars in compliance and economic 
costs.\417\
---------------------------------------------------------------------------

    \416\ For example, an issuer would be able to request exemptive 
relief in situations where the required payment disclosure is 
prohibited under the host country's laws. See discussion in Section 
II.G.3 above.
    \417\ We note, however, that in addition to reducing costs, 
granting an exemption might diminish some of the benefits of 
enhanced transparency as well.
---------------------------------------------------------------------------

    An alternative to using our exemptive authority on a case-by-case 
basis would be to provide a blanket or per se exemption where specific 
countries have a law prohibiting the required disclosure. Although a 
blanket exemption would reduce potential economic costs (e.g., costs of 
relocating assets) and compliance costs (e.g., costs associated with 
applying for the exemption) for affected issuers, it could create a 
stronger incentive for host countries that want to prevent transparency 
to pass laws that prohibit such disclosure, potentially undermining the 
purpose of Section 13(q) to compel disclosure in foreign countries that 
have failed to voluntarily do so.\418\ It also would remove any 
incentive for issuers to diligently negotiate with host countries for 
permission to make the required disclosures. Furthermore, it would make 
it more difficult to address any material changes over time in the laws 
of the relevant foreign countries, thereby resulting in an outdated 
blanket exemption. By contrast, the tailored case-by-case exemptive 
approach we are contemplating would provide a more flexible and 
targeted mechanism for the Commission to address potential cost 
concerns without creating incentives for host countries to enact laws 
prohibiting disclosure to the extent that the exemptive relief is not 
universally granted.
---------------------------------------------------------------------------

    \418\ See, e.g., 156 Cong. Rec. S3815 (May 17, 2010) (Statement 
of Senator Cardin) (``We currently have a voluntary international 
standard for promoting transparency. . . . But too many countries 
and too many companies remain outside this voluntary system.''). We 
also note that a blanket exemption would incentivize host countries 
that want to prevent transparency to enact laws prohibiting the 
disclosure without suffering the cost of decreasing the number of 
potential bidders on--and competition for--projects within their 
jurisdictions, and thus without the cost of decreasing the potential 
value realized to the host country from awarding a contract.
---------------------------------------------------------------------------

    Finally, we believe that the more tailored case-by-case exemptive 
approach that we are proposing could improve the comparability of 
payment information among resource extraction issuers and across 
countries. As such, it may increase the benefit to users of the Section 
13(q) disclosure. Also, although not providing a blanket exemption 
could encourage issuers to not list on U.S. markets, to the extent that 
other jurisdictions are developing and adopting similar initiatives 
(e.g., the EU and Canada), the advantage to those

[[Page 80098]]

issuers from not being subject to the proposed rules will diminish.
    As discussed above, host country laws that prohibit the type of 
disclosure required under the proposed rules could lead to significant 
additional economic costs that are not captured by the compliance cost 
estimates in Section III.B.2.b. We believe that affording exemptive 
relief from the proposed disclosure requirements on a case-by-case 
basis, as circumstances warrant, should substantially mitigate such 
costs. However, we acknowledge that, if this relief were not provided, 
issuers could potentially incur costs associated with the conflict 
between our requirements and those foreign law prohibitions. Below, we 
have attempted, to the extent possible, to assess the magnitude of 
those potential costs if exemptive relief were not granted.
    We base our analysis on the four countries that some commenters 
claimed have versions of such laws.\419\ We searched (through a text 
search in the EDGAR system) the Forms 10-K, 40-F, and 20-F of affected 
issuers for year 2014 for any mention of Angola, Cameroon, China, or 
Qatar. We found that, out of 471 potentially affected issuers, 163 
mentioned one of these four countries. However, only 49 of them 
described any activity in one of these four countries and 114 mentioned 
these countries for other, unrelated reasons. An examination of these 
49 filings indicates that most filings did not provide detailed 
information on the extent of issuers' operations in these 
countries.\420\ Thus, we are unable to determine the total amount of 
capital that could be lost in these countries if the information 
required to be disclosed under the proposed rules is, in fact, 
prohibited by laws or regulations and exemptive relief is not provided.
---------------------------------------------------------------------------

    \419\ See letters from API 1 and ExxonMobil 1 (mentioning 
Angola, Cameroon, China, and Qatar); see also letter from RDS 2 
(mentioning Cameroon, China, and Qatar). Other commenters disputed 
the assertion that there are foreign laws that specifically prohibit 
disclosure of payment information. See, e.g., letters from ERI 3; 
Global Witness 1; PWYP 1; PWYP 3; and Rep. Frank et al.
    \420\ We note that some resource extraction issuers do not 
operate in those four countries and thus would not have any such 
information to disclose. Other issuers may have determined that they 
were not required to provide detailed information in their filings 
regarding their operations in those countries.
---------------------------------------------------------------------------

    We can, however, assess if the costs of withdrawing from these four 
countries are in line with one commenter's estimate of tens of billions 
of dollars.\421\ To do this, we first estimate the market value of 
assets that an issuer currently owns in a country with such laws. We 
then discuss how the presence of various opportunities for the use of 
those assets by the issuer or another entity would affect the size of 
the issuer's potential losses. We also discuss how these losses would 
be affected if an issuer cannot redeploy the assets in question easily, 
or it has to sell them with a steep discount (a fire sale). In order to 
estimate the market value of assets located in one of these countries, 
we use Compustat geographic segments data extracted from annual reports 
to find the fraction of book value of such assets in the issuer's total 
assets and assume that the market value of such assets is the same 
fraction of the issuer's total market value.\422\
---------------------------------------------------------------------------

    \421\ See letter from RDS 4.
    \422\ This approach assumes that valuation of assets of a firm 
is the same regardless of where these assets are geographically 
located. Not all of the assets located in these host countries might 
be related to resource extraction payments, which disclosure can 
trigger their sale or loss; however, we choose the conservative 
approach and err on the side of overestimating the losses.
---------------------------------------------------------------------------

    As we discuss above, we were able to identify a total of 49 issuers 
that mentioned that they are active in these countries (some operate in 
more than one country). The table below provides information from the 
20 issuers, out of the 49 described above, that provide geographic 
segment data detailed at the country level and that specifically 
identify the value of assets in one of these four countries.\423\ We 
expect that the actions in response to the foreign law prohibition and 
the nature of costs that issuers might face would be different for 
issuers domiciled in the United States and in foreign jurisdictions; 
therefore, we consider these two types of filers separately.
---------------------------------------------------------------------------

    \423\ As noted above, we identified 49 issuers that discussed 
their activities in at least one of the four countries, but only 20 
of the issuers provided country-level geographic segment information 
for those countries that was specific enough to use in our analysis 
(some issuers may have determined that they were not required to 
provide detailed information in their filings and others might not 
have any assets in these countries). In the table, Country Assets 
are defined as either Long-lived Assets, Identifiable Total Assets, 
or Property, Plant & Equipment, whichever was disclosed; Country 
Assets Fraction in Total Assets is Country Assets/Total Assets; and 
Market Value Estimate of Country Assets is Country Assets Fraction 
in Total Assets * Company Market Value, where Company Market Value 
is calculated as Consolidated Company-Level Market Value of Common 
Equity + Total Debt + Preferred Stock Liquidating Value - Deferred 
Taxes and Investment Tax Credits if all these values were available. 
For some issuers we were not able to identify their company-level 
market values, and, thus, we were not able to determine their Market 
Value Estimate of Country Assets. All Compustat data is the latest 
annual data disclosed on or before the date of the company's 2014 
Form 10-K or 20-F filing.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Country assets   Market value
                                              Domicile (business                          Country assets   Total assets     fraction in     estimate of
          Issuer               Form type           address)             Host country          ($ mil)         ($ mil)      total assets   country assets
                                                                                                                             (percent)        ($ mil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.........................            10-K  Foreign..............  China................            23.2            23.2           100.0  ..............
2.........................            10-K  Foreign..............  China................           309.2           309.2           100.0            93.8
3.........................            10-K  Foreign..............  China................           195.9           195.9           100.0            75.8
4.........................            10-K  Foreign..............  China................            25.1            25.1           100.0            19.5
5.........................            10-K  Foreign..............  China................            17.1            17.1           100.0            91.6
6.........................            20-F  Foreign..............  China................           499.6           499.6           100.0            82.2
7.........................            20-F  Foreign..............  China................         8,712.2        21,054.6            41.4  ..............
8.........................            20-F  Foreign..............  China................       276,542.6       386,889.0            71.5  ..............
9.........................            10-K  U.S..................  Angola...............         8,262.0       346,808.0             2.4         9,674.4
10........................            10-K  U.S..................  Angola...............            11.5           308.2             3.7            14.7
11........................            10-K  U.S..................  Cameroon.............           166.5         4,507.2             3.7           168.2
12........................            10-K  U.S..................  China................           388.0        35,742.0             1.1           209.5
13........................            10-K  U.S..................  China................           355.0         4,084.0             8.7           369.9
14........................            10-K  U.S..................  China................           542.0         9,321.0             5.8           343.5
15........................            10-K  U.S..................  China................           125.1           125.1           100.0            46.9
16........................            10-K  U.S..................  China................            96.5            96.5           100.0             1.5
17........................            10-K  U.S..................  China................         2,143.0       118,057.0             1.8         1,689.2
18........................            10-K  U.S..................  China................            15.0           845.2             1.8            28.8
19........................            10-K  U.S..................  China................            53.1         3,006.8             1.8            50.4

[[Page 80099]]

 
20........................            10-K  U.S..................  Qatar................         2,605.0        69,443.0             3.8         2,830.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The magnitude of potential total loss of assets in the host 
countries is represented in the last column of the table, the estimated 
market value of country assets. For the 12 issuers domiciled in the 
United States that have assets in one of these four host countries, the 
estimated total loss range is between $1.5 million and $9.7 billion, 
with a median loss of $188.8 million. The aggregate fraction of total 
assets that might be affected is 2.5%.\424\ We note that these 
estimates apply only to issuers that have assets in one of the host 
countries.
---------------------------------------------------------------------------

    \424\ Total assets of all U.S.-based firms located in these host 
countries divided by total worldwide assets of the same firms.
---------------------------------------------------------------------------

    As shown in the table above, eight issuers have a foreign address 
associated with their Form 10-K or 20-F filing. As we discussed above, 
issuers that are domiciled in foreign countries might face different 
types of costs. For example, they are more likely to decide it is 
necessary to delist from an exchange in the United States, deregister, 
and cease reporting with the Commission, thus incurring a higher cost 
of capital and potentially limited access to capital in the future, 
rather than to sell their assets abroad. Due to limited data 
availability, we cannot reliably quantify these costs.
    Even though our analysis was limited to less than half of issuers 
that are active in these four countries, these estimates suggest that 
commenters' concerns about such host country laws potentially adding 
billions of dollars of costs to affected issuers could be warranted. 
Additional costs at that scale could have a significant impact on 
resource extraction issuers' profitability and competitive position. 
The analysis above assumes that a total loss of assets located in the 
host countries would occur. In a more likely scenario, however, these 
issuers would be forced to sell their assets in the above-mentioned 
host countries at fire sale prices. While we do not have data on fire 
sale prices for the industries of the affected issuers, economic 
studies on fire sales of real assets in other industries could provide 
some estimates to allow us to quantify the potential costs to affected 
issuers from having to sell assets at fire sale prices. For example, a 
study on the airline industry finds that planes sold by financially 
distressed airlines bring 10 to 20 percent lower prices than those sold 
by undistressed airlines.\425\ Another study on aerospace plant 
closings finds that all groups of equipment sold for significant 
discounts relative to estimated replacement cost.\426\ The discounts on 
machine tools, instruments, and miscellaneous equipment were estimated 
to be between 63 and 69 percent. The analysis also suggests that the 
most specialized equipment appears to have suffered substantially 
higher discounts than the least specialized equipment, which may be 
relevant to the extractive industry to the extent that a project would 
not have many potential alternative suitors should it need to be 
disposed of due to a conflict between the proposed rules and foreign 
laws. Other studies provide estimates of fire sale discounts for forced 
house sales (about 3-7 percent for forced sales due to death or 
bankruptcy and about 27 percent for foreclosures) \427\ and sales of 
stand-alone private firms and subsidiaries (15-30 percent relative to 
comparable public acquisition targets).\428\ These estimates suggest a 
possible range for the fire sale discount from 3 to 69 percent.
---------------------------------------------------------------------------

    \425\ See Todd Pulvino 1998. ``Do Fire-Sales Exist? An Empirical 
Study of Commercial Aircraft Transactions.'' Journal of Finance, 
53(3): 939-78.
    \426\ See Ramey, V.A., Shapiro, M.D. 2001. ``Displaced Capital: 
A Study of Aerospace Plant Closings.'' Journal of Political Economy, 
109: 958-92.
    \427\ See Campbell, John Y., Stefano Giglio, and Parag Pathak 
2011. ``Forced Sales and House Prices.'' American Economic Review, 
101: 2108-31.
    \428\ See Officer, M.S. 2007. ``The Price of Corporate 
Liquidity: Acquisition Discounts for Unlisted Targets.'' Journal of 
Financial Economics, 83: 571-98.
---------------------------------------------------------------------------

    To understand how relevant these discounts are to the resource 
extraction issuers affected by the rule, we examine the ease with which 
real assets could be disposed of in different industries. If the forced 
disposal of real assets is more easily facilitated in the resource 
extraction industries compared to other industries (i.e., there is a 
more liquid market for those assets), then the lower range of the fire 
sale discounts will be more appropriate to estimate potential losses 
due to the foreign law prohibitions. We measure the ease with which 
issuers in a given industry could sell their assets by a liquidity 
index.\429\ The index is defined as the ratio of the value of corporate 
control transactions \430\ in a given year to the total book value of 
assets of firms in the industry for that year. We believe that this 
ratio captures the general liquidity of assets in an industry because 
it measures the volume of the type of transactions that companies rely 
on when divesting real assets. Additionally, one economic study finds 
that the liquidity of the market for corporate assets, as measured by 
the liquidity index, plays an important role in explaining assets 
disposals by companies.\431\
---------------------------------------------------------------------------

    \429\ See Frederic Schlingemann, Rene Stulz, and Ralph Walkling 
2002. ``Divestitures and the Liquidity of the Market for Corporate 
Assets.'' Journal of Financial Economics, 64: 117-144. The index 
value is between 0 and 1. A higher value of the index for an 
industry indicates that this is an industry with a more liquid 
market for corporate assets and a firm in that industry would be 
able to sell its real assets easier and at smaller loss than a firm 
in an industry with a lower liquidity index.
    \430\ As corporate control transactions, we consider all 
completed or pending leveraged buyouts, tender offers, spinoffs, 
exchange offers, minority stake purchases, acquisitions of remaining 
interest, privatizations, and equity carve-outs of U.S. targets. We 
exclude buybacks (e.g., repurchases and self-tenders) from the 
sample. Data on these transactions comes from Thomson Financial's 
Mergers & Acquisitions and New Issues databases. Data on the book 
value of total assets is taken from Compustat.
    \431\ See Frederic Schlingemann, Rene Stulz, and Ralph Walkling 
2002. ``Divestitures and the Liquidity of the Market for Corporate 
Assets.'' Journal of Financial Economics, 64: 117-144.
---------------------------------------------------------------------------

    We note, however, that the index, as constructed, will also reflect 
the industry's typical financial leverage, not just the liquidity of 
its assets. To the extent that different industries have different 
leverages, these differences in leverage could explain some of the 
cross-industry variation of the index. Additionally, the index measures 
the ease with which ownership of assets is changed over the time period 
under consideration. Hence, the index is expected to adjust to 
intertemporal changes in the ease with which assets in a certain 
industry can be disposed of, which is important because it is well-
established that control transactions tend to be cyclical in 
nature.\432\
---------------------------------------------------------------------------

    \432\ Gregor Andrade, and Erik Stafford, 2004. ``Investigating 
the economic role of mergers.'' Journal of Corporate Finance 10: 1-
36.
---------------------------------------------------------------------------

    We construct the index for all industries, identified by three-
digit SIC codes. For each industry, after

[[Page 80100]]

estimating the value of the index in each year during the period 2010-
2014, we calculate the average over the five year period. Several 
industries have a liquidity index greater than 1; in those cases we cap 
the index level at 1.
    The table below presents summary statistics for the liquidity index 
for all industries and the resource extraction industries during the 
period 2010-2014.

------------------------------------------------------------------------
                                                             Index value
------------------------------------------------------------------------
All other industries:
  Mean.....................................................         0.11
  Median...................................................         0.03
  Top quartile.............................................         0.09
  Bottom quartile..........................................         0.01
Industries with similar financial leverage:
  Mean.....................................................         0.08
  Median...................................................         0.02
  Top quartile.............................................         0.10
  Bottom quartile..........................................         0.01
Resource extraction issuers:
  Mean.....................................................         0.02
  Median...................................................         0.01
------------------------------------------------------------------------

    The results in the table show that the liquidity of real assets in 
the resource extraction industries is low (an average liquidity index 
of 0.02) compared with the liquidity in other industries (an average 
liquidity index of 0.11). That is, it is harder to dispose of assets in 
the extractive industries relative to other industries. In fact, the 
liquidity index of resource extraction industries is in the lowest 
quartile of the distribution of the index for all industries. As 
mentioned above, this could reflect the fact that resource issuers have 
higher financial leverage than other industries. All other things being 
equal, higher financial leverage will result in a lower liquidity 
index. To control for the effects of financial leverage, we compare the 
liquidity index of resource extraction industries to that of industries 
with similar leverage.\433\ As the results of this comparison show, 
resource extraction industries have lower liquidity index values even 
when compared to industries with similar levels of financial leverage: 
A median of 0.01 for the resource extraction industries compared to a 
median of 0.02 for industries with similar financial leverage.\434\ 
This suggests that affected issuers may still experience difficulty in 
disposing of some of their real assets relative to other industries 
with similar leverage levels when a need arises. It should be noted, 
however, that the liquidity index estimates the liquidity of the real 
assets at the industry level, not at the level of a country with 
disclosure prohibition laws. It is possible that in some of these 
countries the ability of an affected issuer to dispose of assets could 
be more or less constrained than that at the industry level.
---------------------------------------------------------------------------

    \433\ We first estimate the median market leverage of the 
resource extraction industries during the period 2010-2014. Market 
leverage is defined as the ratio Total debt/(Total debt + Market 
value of equity). We then classify as similar those industries whose 
median market leverage that is within -/+ 10% of the median market 
leverage of the resource industries for the same time period, There 
are six industries that are similar to the resource extraction 
industries based on this criterion. Data on total debt and market 
value of equity comes from Compustat.
    \434\ We note that many factors may drive the choice of leverage 
within a given industry, and some of these factors may also affect 
the industry's liquidity index. Thus, the industries that have 
leverage that is similar to that of the resource extraction 
industries may be very different in some other aspects (e.g., growth 
opportunities or intensity of competition) and that could explain 
the differences in their liquidity indices and the liquidity index 
of the resource extraction industries.
---------------------------------------------------------------------------

    Because we lack data to construct the liquidity index at the 
country level, we cannot quantify the liquidity of the single-country 
market for real assets. The table below lists the number of corporate 
control transactions in each of the four countries under consideration 
from 2010 through 2014, broken down by type of industry.\435\ As seen 
from the table, China is by far the most active market for corporate 
control transactions among the four countries, although on a percentage 
basis more deals involving resource extraction industries occur in 
Angola, Cameroon, and Qatar. Although the number of relevant 
transactions gives some indication of how liquid the market in each 
country is, without knowing the size of the discounts and the types of 
companies involved in these deals (e.g., small or large) we cannot 
conclusively say in which country the cost associated with fire sale 
prices would be lower. These costs would likely depend on country-level 
factors such as a country's regulatory framework governing such 
transactions (e.g., how quickly a transaction can get approved), the 
degree of competition in the resource extraction industry, availability 
of capital (e.g., availability and cost of debt and stock market 
valuations), and changes in currency exchange rates. For example, a 
recent study documents that companies from countries whose stock market 
has increased in value and whose currency has recently appreciated are 
more likely to be purchasers of corporate assets.\436\ In a certain 
country, a more competitive resource extraction industry is likely to 
be associated with lower fire sale discounts.
---------------------------------------------------------------------------

    \435\ Corporate control transactions are defined as in footnote 
430. Data on the transactions comes from Thomson Financial's Mergers 
& Acquisitions.
    \436\ See Isil Erel, Rose Liao, and Michael Weisbach 2012. 
``Determinants of Cross-Border Mergers and Acquisitions,'' Journal 
of Finance 67: 1045-82.

------------------------------------------------------------------------
                                                             Number of
                                                           transactions
                         Country                             (% of all
                                                           transactions)
------------------------------------------------------------------------
Angola:
  Resource extraction industries........................         6 (54%)
  All other industries..................................         7 (46%)
Cameroon:
  Resource extraction industries........................        10 (63%)
  All other industries..................................         6 (37%)
China:
  Resource extraction industries........................        885 (6%)
  All other industries..................................    14,304 (94%)
Qatar:
  Resource extraction industries........................          5 (8%)
  All other industries..................................        54 (92%)
------------------------------------------------------------------------

    Given the lower liquidity of the market for the real assets of 
resource extraction issuers, we believe that the upper limit of the 
fire sale discount range would be more appropriate when estimating the 
fire sale prices at which affected issuers could dispose of their 
assets in countries with disclosure prohibition laws, should such need 
arise. If we apply those discount percentages to the market value of 
the issuers' assets in these host countries, this would reduce our 
estimates of their potential losses. For the U.S.-based issuers, if we 
apply the highest discount of 69 percent, the range of losses would be 
between $1 million and $6.7 billion, with a median loss of $130.3 
million. If the true fire sale discounts in the countries with 
disclosure prohibition laws are lower than our highest estimate, the 
losses of affected issuers would be lower. In addition to the dollar 
costs, the process of disposing of assets could involve substantial 
time, which could further increase the total cost of the restructuring. 
We acknowledge, however, that the fire sale discount estimates are 
based on data from other industries that are very different from the 
industries of affected issuers. Thus, our estimates may not accurately 
reflect the true fire sale discounts that affected issuers could face.
    Alternatively, an issuer could redeploy these assets to other 
projects that would generate cash flows. If an issuer could redeploy 
these assets relatively quickly and without a significant cost to 
projects that generate similar rates of returns as those in the above-
mentioned countries, then the issuer's loss from the presence of such 
host country laws would be minimal. The more difficult and costly it is 
for an

[[Page 80101]]

issuer to do so, and the more difficult it is to find other projects 
with similar rates of return, the larger the issuer's losses would be. 
However, we do not have enough data to quantify more precisely the 
potential losses of issuers under those various circumstances. 
Likewise, if there are multiple potential buyers (e.g., companies not 
subject to the proposed rules, the EU Directives, or ESTMA), and if the 
issuer could sell those assets to one of such buyers, then the buyer 
might pay the fair market value for those assets, resulting in minimal 
to no loss for the issuer.
    Overall, the results of our analysis are consistent with 
commenters' assertions that the presence of host country laws that 
prohibit the type of disclosure required under the proposed rules could 
be costly, although, as mentioned in the above paragraph, in some 
instances there may be mitigating factors that could decrease those 
costs. It is also possible that under certain circumstances affected 
issuers could lose 100% of their assets in a given country. The size of 
the potential loss to issuers would depend on the presence of other 
similar opportunities, third parties willing to buy the assets at fair-
market values in the above-mentioned host countries, and the ability of 
issuers to avoid fire sales of these assets. Finally, as we discussed 
above at the beginning of this section, a number of other factors 
should substantially mitigate the competitive burdens arising from the 
required disclosure, including our intent to consider exemptive relief 
on a case-by-case basis.
2. Alternative Reporting
    In a change from the 2012 Adopting Release, the proposed rules 
would allow resource extraction issuers subject to a foreign 
jurisdiction's resource extraction payment disclosure requirements that 
we have determined are substantially similar to our requirements to 
satisfy their filing obligations by filing the report required by that 
foreign jurisdiction with the Commission. This proposed approach would 
decrease the compliance costs for issuers that are cross-listed or 
incorporated in a foreign jurisdiction and have to satisfy at least one 
similar foreign disclosure requirement. Those issuers would save on 
compliance costs associated with filing a Form SD pursuant to Section 
13(q). We estimated above that approximately 268 issuers would be 
subject to other regulatory regimes that may allow them to utilize the 
proposed provision.\437\
---------------------------------------------------------------------------

    \437\ These are issuers that have a business address, are 
incorporated, or are listed on markets in the EEA or Canada and that 
have to provide similar disclosure to the European or Canadian 
authorities.
---------------------------------------------------------------------------

    As an alternative, we could have decided not to propose such a 
provision. Such an alternative would have increased the compliance 
costs for issuers that are subject to similar foreign disclosure 
requirements. These issuers would have to comply with multiple 
disclosure regimes and bear compliance costs for each regime, although 
it is possible that the marginal costs for complying with an additional 
disclosure regime would not be high given the potential similarities 
that may exist between these reporting regimes and the final rules that 
we may adopt.
3. Definition of Control
    Section 13(q) requires resource extraction issuers to disclose 
payments made by a subsidiary or entity under the control of the 
issuer. As discussed above in Section II.D above, we are proposing 
rules that would define the term ``control'' based on accounting 
principles. Alternatively, we could have used a definition based on 
Exchange Act Rule 12b-2 as in the 2012 Rules.\438\ We believe that the 
approach we are proposing would be less costly for issuers to comply 
with because issuers are currently required to apply the definition on 
at least an annual basis for financial reporting purposes. Using a 
definition based on Rule 12b-2 would require issuers to undertake an 
additional process to the one currently required for financial 
reporting purposes.\439\ In addition, there are several other benefits 
from using the proposed definition based on accounting principles. 
There would be audited financial statement disclosure of an issuer's 
significant consolidation accounting policies in the footnotes to its 
audited financial statements contained in its Exchange Act annual 
reports, and an issuer's determination of control under the proposed 
rules would be subject to the audit process as well as subject to the 
internal accounting controls that issuers are required to have in place 
with respect to reporting audited financial statements filed with the 
Commission.\440\ All of these benefits may lead to more accurate, 
reliable, and consistent reporting of subsidiary payments, therefore, 
enhancing the quality of the reported data.
---------------------------------------------------------------------------

    \438\ See note 175 above and accompanying text.
    \439\ See note 179 above and accompanying text.
    \440\ See Section II.D above.
---------------------------------------------------------------------------

    Under the definition we adopted in the 2012 Rules, a resource 
extraction issuer would have been required to make a factual 
determination as to whether it has control of an entity based on a 
consideration of all relevant facts and circumstances. This alternative 
would have required issuers to engage in a separate analysis of which 
entities are included within the scope of the required disclosures 
(apart from the consolidation determinations made for financial 
reporting purposes) and could have increased the compliance costs for 
issuers compared to the approach we are proposing.
4. Definition of ``Commercial Development of Oil, Natural Gas, or 
Minerals''
    As in the 2012 Rules, the proposed rules define ``commercial 
development of oil, natural gas, or minerals'' to include exploration, 
extraction, processing, and export, or the acquisition of a license for 
any such activity. As described above, the rules that we are proposing 
generally track the language in the statute. We are sensitive to the 
fact that a broader definition of ``commercial development of oil, 
natural gas, or minerals'' could increase issuers' costs. We are also 
sensitive to the fact that expanding the definition in a way that is 
broader than other reporting regimes could potentially lead to a 
competitive disadvantage for those issuers covered only by our proposed 
rules. Further, we recognize that limiting the definition to these 
specified activities could potentially negatively affect those using 
the payment information if disclosure about payments made for 
activities not included in the list of specified activities, such as 
refining, smelting, marketing, or stand-alone transportation services 
(that is, transportation that is not otherwise related to export), 
would be useful to users of the information.
    As noted above, to promote the transparency goals of Section 13(q), 
the proposed rules include an anti-evasion provision that requires 
disclosure with respect to an activity or payment that, although not in 
form or characterization one of the categories specified under the 
proposed rules, is part of a plan or scheme to evade the disclosure 
required under Section 13(q).\441\ We recognize that adding this 
requirement may increase the compliance costs for some issuers; 
however, we believe this provision is appropriate in order to minimize 
evasion and improve the effectiveness of the disclosure.
---------------------------------------------------------------------------

    \441\ See proposed Rule 13q-1(b).
---------------------------------------------------------------------------

    In response to commenters' request for clarification of the 
activities covered by the proposed rules, we also are providing 
guidance about the activities covered by the terms ``extraction,'' 
``processing,'' and ``export.'' The

[[Page 80102]]

guidance should reduce uncertainty about the scope of the activities 
that give rise to disclosure obligations under Section 13(q) and the 
related rules, and therefore should facilitate compliance and help 
lessen the costs associated with the disclosure requirements.
5. Types of Payments
    As in the 2012 Rules, the proposed rules would add two categories 
of payments to the list of payment types identified in the statute that 
must be disclosed: Dividends and payments for infrastructure 
improvements. We include these payment types in the proposed rules 
because, based on the comments we have received, we believe they are 
part of the commonly recognized revenue stream. For example, payments 
for infrastructure improvements have been required under the EITI since 
2011. Additionally, we note that the EU Directives and ESTMA also 
require only these payment types to be disclosed. Thus, including 
dividends and payments for infrastructure improvements (e.g., building 
a road) in the list of payment types required to be disclosed under the 
proposed rules would promote consistency with the EU Directives and 
ESTMA and should improve the effectiveness of the disclosure, thereby 
furthering international transparency promotion efforts. Including 
dividends and payments for infrastructure improvements also could help 
alleviate competitiveness concerns by potentially imposing disclosure 
requirements on a wider range of issuers.
    As discussed earlier, under the proposed rules, resource extraction 
issuers would incur costs to provide the payment disclosure for the 
payment types identified in the statute. For example, there would be 
costs to modify the issuers' core enterprise resource planning systems 
and financial reporting systems so that they can capture and report 
payment data at the project level, for each type of payment, government 
payee, and currency of payment.\442\ The addition of dividends and 
payments for infrastructure improvements to the list of payment types 
for which disclosure is required may marginally increase some issuers' 
costs of complying with the final rules. For example, issuers may need 
to add these types of payments to their tracking and reporting systems. 
We understand that these types of payments are more typical for mineral 
extraction issuers than for oil issuers,\443\ and therefore only a 
subset of the issuers subject to the final rules might be affected.
---------------------------------------------------------------------------

    \442\ See note 356 and accompanying text.
    \443\ See, e.g., letters from PWYP 1 and Global Witness 1; see 
also Chapter 19 ``Advancing the EITI in the Mining Sector: 
Implementation Issues'' by Sefton Darby and Kristian Lempa, in 
Advancing the EITI in the Mining Sector: A Consultation with 
Stakeholders (EITI 2009).
---------------------------------------------------------------------------

    The proposed rules do not require disclosure of certain other types 
of payments, such as social or community payments. We recognize that 
excluding those payments reduces the overall level of disclosure. We 
have not, however, proposed requiring disclosure of those payments 
because we do not believe they are part of the commonly recognized 
revenue stream for the commercial development of oil, natural gas, or 
minerals.\444\ In addition, by not including these types of payments, 
the proposed rules avoid potentially imposing additional compliance 
costs on issuers. We acknowledge that some issuers might characterize 
some of their payments as social or community payments instead of other 
types of payment with the intent of avoiding or obfuscating disclosure. 
To the extent that such characterization is done for the purpose of 
evading the proposed disclosure requirement, it would be a violation of 
the anti-evasion provision discussed above.\445\ Alternatively, if such 
payment is genuinely made for the benefit of the local community, it 
could, in certain circumstances, support the statutory intent of 
reducing corruption.
---------------------------------------------------------------------------

    \444\ We note that commenters disagreed on whether such payment 
types are part of the commonly recognized revenue stream. See 2012 
Adopting Release, n.185 and accompanying discussion (citing 
commenters suggesting that social or community payments constitute 
part of the commonly recognized revenue stream of resource 
extraction) and 2012 Adopting Release, n.188 and accompanying 
discussion (citing commenters maintaining that social or community 
payments are not part of the commonly recognized revenue stream for 
the commercial development of oil, natural gas, or minerals). See 
also Section II.C.1 above.
    \445\ See note 441 above and accompanying text.
---------------------------------------------------------------------------

    Under the proposed rules, issuers may disclose payments that are 
made for obligations levied at the entity level, such as corporate 
income taxes, at that level rather than the project level. This 
accommodation also should help reduce compliance costs for issuers 
without significantly interfering with the goal of achieving increased 
payment transparency.
    Under the proposed rules, issuers must disclose payments made in-
kind. The EU Directives and ESTMA require disclosure of in-kind 
payments. This requirement is also consistent with the EITI and should 
help further the goal of supporting international transparency 
promotion efforts and enhance the effectiveness of the disclosure. At 
the same time, this requirement could impose costs if issuers have not 
previously had to value their in-kind payments. To minimize the 
potential additional costs, the proposed rules provide issuers with the 
flexibility of reporting in-kind payments at cost, or if cost is not 
determinable, at fair market value. We believe this approach could 
lower the overall compliance costs associated with our decision to 
include the disclosure of in-kind payments within the proposed rules.
6. Definition of ``Not De Minimis''
    Section 13(q) requires the disclosure of payments that are ``not de 
minimis,'' leaving that term undefined. Consistent with the 2012 Rules, 
the proposed rules define ``not de minimis'' to mean 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 issuer's reporting 
currency. Although we considered leaving ``not de minimis'' undefined, 
we believe that defining this term should help to promote consistency 
in payment disclosures and reduce uncertainty about what payments must 
be disclosed under Section 13(q) and the related rules, and therefore 
should facilitate compliance.\446\ As noted above, because the primary 
purpose of Section 13(q) is to further international transparency 
efforts for payments to governments for the commercial development of 
oil, natural gas, or minerals, we believe that whether a payment is 
``not de minimis'' should be considered in relation to a host country. 
We recognize, however, that issuers may have difficulty assessing the 
significance of particular payments for particular countries or 
recipient governments. Therefore, we are proposing a $100,000 threshold 
that would provide clear guidance about payments that are ``not de 
minimis'' and promote the transparency goals of the statute.
---------------------------------------------------------------------------

    \446\ See 2012 Adopting Release, n.223, n.231, and n.233 and 
accompanying text.
---------------------------------------------------------------------------

    We considered proposing a definition of ``not de minimis'' that was 
based on a qualitative principle or a relative quantitative measure 
rather than an absolute quantitative standard. We chose the absolute 
quantitative approach for several reasons. An absolute quantitative 
approach should promote consistency of disclosure and, in addition, 
would be easier for issuers to apply than a definition based on either 
a qualitative principle or relative quantitative measure.\447\ 
Moreover, using an absolute dollar amount threshold for disclosure 
purposes

[[Page 80103]]

should reduce compliance costs by reducing the work necessary to 
determine what payments must be disclosed.
---------------------------------------------------------------------------

    \447\ See 2012 Adopting Release, n.252 and accompanying text.
---------------------------------------------------------------------------

    In choosing the $100,000 ``de minimis'' threshold, we selected an 
amount that we believe strikes an appropriate balance in light of 
varied commenters' concerns and the purpose of the statute. Although 
commenters suggested various thresholds,\448\ no commenter provided 
data to assist us in determining an appropriate threshold amount. In 
addition, our proposed threshold is very similar to the payment 
thresholds of other resource extraction disclosure laws.\449\ For 
issuers (or their subsidiaries) that are already providing payment 
information under those resource extraction disclosure laws, our 
definition of ``not de minimis'' would likely decrease compliance costs 
(compared to other threshold choices) associated with determining which 
payments should be reported because these issuers would already have 
systems tailored to this threshold. We considered other absolute 
amounts but chose $100,000 as the quantitative threshold in the 
definition of ``not de minimis.'' We decided not to propose a lower 
threshold because we are concerned that such an amount could result in 
undue compliance burdens and raise competitive concerns for many 
issuers. We also considered defining ``not de minimis'' either in terms 
of a materiality standard or by using a larger number, such as 
$1,000,000. Both of these might have resulted in lower compliance costs 
and might have lessened competitive concerns. In determining not to 
propose these options, however, we were mindful that they could leave 
important payment streams undisclosed, reducing the potential benefits 
to be derived from the proposed rule. In short, we believe the $100,000 
threshold strikes an appropriate balance between concerns about the 
potential compliance burdens of a lower threshold and the need to 
fulfill the statutory directive for resource extraction issuers to 
disclose payments that are ``not de minimis.''
---------------------------------------------------------------------------

    \448\ See 2012 Adopting Release, n.235 and n.243 and 
accompanying text.
    \449\ See note 166 above.
---------------------------------------------------------------------------

7. Definition of ``Project''
    Section 13(q) requires a resource extraction issuer to disclose 
information about the type and total amount of payments made to a 
foreign government or the Federal Government for each project relating 
to the commercial development of oil, natural gas, or minerals, but it 
does not define the term ``project.'' As noted above, in a change from 
the 2012 Rules, the proposed rules define ``project'' as operational 
activities governed by a single contract license, lease, concession, or 
similar legal agreement, which forms the basis for payment liabilities 
with a government. The definition is based on the definition in the EU 
Directives and the draft ESTMA definition, but allows for greater 
flexibility when operational activities governed by multiple legal 
agreements may be deemed a project.
    Compared to the 2012 Rules, the proposed definition of ``project'' 
should help reduce costs for issuers listed in both the United States 
and the European Union or in Canada by not requiring different 
disaggregation of project-related costs due to different definitions of 
the term. It also likely would reduce the competitive disadvantage for 
issuers that could be required to make more granular disclosure of 
information than their competitors under a narrower definition. Our 
proposed approach also would provide more flexibility in, and reduce 
the burdens associated with, disaggregating payments made for 
activities that relate to multiple agreements that are both 
operationally and geographically interconnected.
    Our proposed approach may, however, increase the compliance costs 
for issuers that would be required to implement systems to track 
payments at a different level of granularity than what they currently 
track. In a similar vein, it may increase the risk of sensitive 
contract information being released, thus increasing the likelihood of 
competitive harm for some affected issuers. At the same time, the 
ability of issuers to define as a ``project'' agreements that do not 
have substantially similar terms may reduce the risk of sensitive 
information being released.
    As an alternative, we could have proposed to leave ``project'' 
undefined, as in the 2012 Rules. Leaving the term ``project'' undefined 
could have provided issuers more flexibility in applying the term to 
different business contexts depending on factors such as the particular 
industry or business in which the issuer operates or the issuer's size. 
Under such an approach, however, resource extraction issuers could have 
incurred costs in determining their ``projects.'' Moreover, leaving the 
term undefined could result in higher costs for some resource 
extraction issuers than others if an issuer's determination of what 
constitutes a ``project'' would result in more granular information 
being disclosed than another issuer's determination of what constitutes 
a ``project.'' In addition, leaving the term ``project'' undefined may 
not be as effective in achieving the transparency benefits contemplated 
by the statute because resource extraction issuers' determinations of 
what constitutes a ``project'' may differ, which could reduce the 
comparability of disclosure across issuers.
    Finally, we could have adopted the API definition of project, which 
would have defined project-level reporting to allow issuers to combine 
as one ``project'' all of the similar extraction activities within a 
major subnational political jurisdiction. We acknowledge that this 
aggregated disclosure could potentially impose fewer costs on resource 
extraction issuers--particularly those issuers with many similar 
resource extraction activities occurring within a subnational 
jurisdiction--as the API suggested definition would not require issuers 
to expend the time and resources necessary to achieve the type of 
granular reporting that our proposed rules would require.\450\ However, 
as discussed above in Section II.E, we believe that such a high-level 
definition, as opposed to the proposed definition, would not 
appropriately serve the anticorruption and transparency objectives that 
Congress intended when it enacted Section 13(q).
---------------------------------------------------------------------------

    \450\ While it is possible that industry practice regarding the 
scope of resource extraction contracts could change in response to 
the proposed rules (e.g., by entering into contracts that cover 
subnational political jurisdictions), we do not believe such broad 
contracts reflect current industry practice. See also note 204 and 
accompanying discussion.
---------------------------------------------------------------------------

8. Annual Report Requirement
    Section 13(q) provides that the resource extraction payment 
disclosure must be ``include[d] in an annual report.'' The proposed 
rules require an issuer to file the payment disclosure in an annual 
report on new Form SD, rather than furnish it in one of the existing 
Exchange Act annual report forms. Form SD would be due no later than 
150 days after the end of the issuer's most recent fiscal year. This 
should lessen the burden of compliance with Section 13(q) and the 
related rules because issuers generally would not have to incur the 
burden and cost of providing the payment disclosure at the same time 
that they must fulfill their disclosure obligations with respect to 
Exchange Act annual reports.\451\ An additional benefit is that this 
requirement would provide information

[[Page 80104]]

to users in a standardized manner for all issuers rather than in 
different annual report forms depending on whether a resource 
extraction issuer is a domestic or foreign filer. In addition, 
requiring the disclosure in new Form SD, rather than in issuers' 
Exchange Act annual reports, should alleviate any concerns and costs 
associated with the disclosure being subject to the officer 
certifications required by Exchange Act Rules 13a-14 and 15d-14.
---------------------------------------------------------------------------

    \451\ For example, a resource extraction issuer may potentially 
be able to save resources to the extent that the timing of its 
obligations with respect to its Exchange Act annual report and its 
obligations to provide payment disclosure allow for it to allocate 
its resources, in particular personnel, more efficiently.
---------------------------------------------------------------------------

    Resource extraction issuers would incur costs associated with 
preparing and filing each Form SD. We do not believe, however, that the 
costs associated with filing each Form SD instead of furnishing the 
disclosure in an existing form would be significant. Requiring covered 
issuers to file, instead of furnish, the payment information in Form SD 
may create an incremental risk of liability in litigation under Section 
18 of the Exchange Act. This incremental risk of legal liability could 
be a benefit to users of the information to the extent that issuers 
would be more attentive to the information they file, thereby 
increasing the quality of the reported information. However, we note 
that Section 18 does not create strict liability for ``filed'' 
information.\452\
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    \452\ See Exchange Act Section 18 [15 U.S.C. 78r]. A plaintiff 
asserting a claim under Section 18 would need to meet the elements 
of the statute to establish a claim, including purchasing or selling 
a security in reliance on the misstatement and incurring damages 
caused by that reliance.
---------------------------------------------------------------------------

    Finally, the proposed rules do not require the resource extraction 
payment information to be audited or provided on an accrual basis. Not 
requiring the payment information to be audited or provided on an 
accrual basis may result in lower compliance costs than otherwise would 
be the case if resource extraction issuers were required to provide the 
information on an accrual basis or audited information.\453\
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    \453\ See 2012 Adopting Release, n.405 and accompanying text.
---------------------------------------------------------------------------

9. Exhibit and Interactive Data Requirement
    Section 13(q) requires the payment disclosure to be electronically 
formatted using an interactive data format. Consistent with the 2012 
Rules, the proposed rules would require a resource extraction issuer to 
provide the required payment disclosure in an XBRL exhibit to Form SD 
that includes all of the electronic tags required by Section 13(q) and 
the proposed rules.\454\ We believe that requiring the specified 
information to be presented in XBRL format would benefit issuers and 
users of the information by promoting consistency and standardization 
of the information and increasing the usability of the payment 
disclosure. Providing the required disclosure elements in a human-
readable and machine-readable (electronically-tagged) format would 
allow users to quickly examine, extract, aggregate, compare, and 
analyze the information in a manner that is most useful to them. This 
includes searching for specific information within a particular 
disclosure as well as performing large-scale statistical analysis using 
the disclosures of multiple issuers and across date ranges.
---------------------------------------------------------------------------

    \454\ Users of this information should be able to render the 
information by using software available on our Web site at no cost.
---------------------------------------------------------------------------

    Our choice of XBRL as the required interactive data format may 
increase compliance costs for some issuers. The electronic formatting 
costs would vary depending upon a variety of factors, including the 
amount of payment data disclosed and an issuer's prior experience with 
XBRL. While most issuers are already familiar with XBRL because they 
use it for their annual and quarterly reports filed with the 
Commission, issuers that are not already filing reports using XBRL 
(i.e., foreign private issuers that report using IFRS) \455\ would 
incur some start-up costs associated with that format. We do not 
believe that the ongoing costs associated with this data tagging would 
be significantly greater than filing the data in XML.\456\
---------------------------------------------------------------------------

    \455\ We estimate that 13 of the 471 affected issuers fall into 
this category.
    \456\ See Section II.G.5 above.
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    Consistent with the statute, the proposed rules require a resource 
extraction issuer to include an electronic tag that identifies the 
currency used to make the payments. Under the proposed rules, if 
multiple currencies are used to make payments for a specific project or 
to a government, a resource extraction issuer may choose to provide the 
amount of payments made for each payment type and the total amount per 
project or per government in either U.S. dollars or the issuer's 
reporting currency.\457\ We recognize that a resource extraction issuer 
could incur costs associated with converting payments made in multiple 
currencies to U.S. dollars or its reporting currency. Nevertheless, 
given the statute's tagging requirements and requirements for 
disclosure of total amounts, we believe reporting in one currency is 
necessary.\458\ The proposed rules provide flexibility to issuers in 
how to perform the currency conversion, which may result in lower 
compliance costs because it enables issuers to choose the option that 
works best for them. To the extent issuers choose different options to 
perform the conversion, it may result in less comparability of the 
payment information and, in turn, could result in costs to users of the 
information.
---------------------------------------------------------------------------

    \457\ See Instruction 2 to Item 2.01 of Form SD.
    \458\ See discussion in Section II.G.5 above.
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D. Request for Comments

    We request comment on the potential costs and benefits of the 
proposed rules and whether the rules, if adopted, would promote 
efficiency, competition, and capital formation or have an impact or 
burden on competition. In particular, we request comments on the 
potential effect on efficiency, competition, and capital formation 
should the Commission not adopt certain exceptions or accommodations. 
Commenters are requested to provide empirical data, estimation 
methodologies, and other factual support for their views, in 
particular, on costs and benefits estimates. Our specific questions 
follow.

71. We seek information that would help us quantify or otherwise 
qualitatively assess the benefits of the proposed rules. Please 
provide any studies or other evidence that show a causal link 
between transparency efforts, particularly the EITI, EU Directives 
or ESTMA, and societal outcomes.
72. Do smaller reporting companies account for a significant portion 
of the total payments made to governmental entities for the 
extraction of natural resources? Do emerging growth companies 
account for a significant portion of such payments? Generally, what 
is the distribution of reportable payments across issuers of 
different sizes? Are larger issuers more likely to make such 
payments as compared to smaller reporting companies or emerging 
growth companies?
73. We seek information that would help us quantify compliance costs 
(both initial and ongoing) more precisely. In particular, we invite 
issuers and other commenters that have had experience with the costs 
associated with reporting under the EU Directives to provide us with 
information about those costs. What are actual compliance costs for 
issuers that have started to comply with regulations transposed 
under the EU Directives?
74. What is the breakdown of various compliance costs, such as, 
legal fees, direct administrative costs, information technology/
consulting costs, training costs, travel costs, etc.?
75. Is our approach to cost estimates accurate? What is the 
proportion of fixed costs in the direct compliance costs structure 
of potentially affected resource extraction issuers? Would smaller 
resource extraction issuers incur proportionally lower compliance 
costs than larger resource extraction issuers? Why or why not? Would 
affiliated

[[Page 80105]]

issuers be able to save on fixed costs of developing compliance 
systems through sharing such costs? If so, what is the estimate of 
such savings?
76. Is our approach to identify small issuers that likely do not 
make any payments above the proposed de minimis amount of $100,000 
to any government entity accurate? Are annual revenues and net cash 
flows from investing activities taken together an appropriate 
measure for such purpose?
77. What are the compliance costs of converting a resource 
extraction payment report in the format required by EU or Canadian 
regulations (e.g., XLS or PDF) to the report format required by the 
proposed rules (i.e., XBRL)?
78. What are the costs and benefits arising from confidential 
submission of the payment information? What are the costs and 
benefits arising from public disclosure of the payment information? 
How do the potential costs of public disclosure to issuers compare 
to its potential benefits to users of the information?
79. What are the estimated losses of projects (either total loss or 
fire sale discount) in the host countries that prohibit payment 
disclosure? Is our methodology to estimate such losses accurate? 
What industry-specific and country-specific factors affect the 
magnitude of losses in these cases and how can we quantify the 
impact of such factors? Are there any estimates based on the 
experience of issuers subject to EU or other disclosure rules that 
operate in such countries?
80. Are there studies on the potential effects of the proposed 
rules, the EU or Canadian disclosure rules, or EITI compliance on 
efficiency, competition, and capital formation? What are potential 
competitive effects of the proposed rules and how might they be 
impacted when the regulations promulgated pursuant to the EU 
Directives and ESTMA come into full effect? What fraction of 
international extractive companies would be affected by at least one 
of the U.S., EU, or Canadian rules?
81. What are the benefits and costs of an alternative reporting 
option for issuers that are subject to a foreign jurisdiction's 
resource extraction payment disclosure requirements that are 
determined to be substantially similar to our requirements? How much 
would such issuers save in compliance costs if they have the option 
to satisfy their filing obligations by filing the report required by 
that foreign jurisdiction with the Commission?
82. Are there additional benefits associated with the proposed 
rules? For example, would disclosure of payment information required 
by the proposed rules be useful to investors in smaller reporting 
companies who may not otherwise receive disclosure about country-
specific risk? Why or why not?

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed rules contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\459\ The Commission is submitting the 
proposal to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA.\460\ An agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number. The title for 
the collection of information is:
---------------------------------------------------------------------------

    \459\ 44 U.S.C. 3501 et seq.
    \460\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

     ``Form SD'' (OMB Control No. 3235-0697).
    Form SD is currently used to file Conflict Minerals Reports 
pursuant to Rule 13p-1 of the Exchange Act. We are proposing amendments 
to Form SD to accommodate disclosures required by Rule 13q-1, which 
would require resource extraction issuers to disclose information about 
payments made by the issuer, a subsidiary of the issuer, or an entity 
under the control of the issuer to foreign governments or the U.S. 
Federal Government for the purpose of the commercial development of 
oil, natural gas, or minerals. Form SD would be filed on EDGAR with the 
Commission.
    The proposed rules and amendment to the form would implement 
Section 13(q) of the Exchange Act, which was added by Section 1504 of 
the Act. Section 13(q) requires the Commission to ``issue final rules 
that require each resource extraction issuer to include in an annual 
report of the resource extraction issuer information relating to any 
payment made 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, including--(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.'' \461\ Section 13(q) also mandates the submission of 
the payment information in an interactive data format, and provides the 
Commission with the discretion to determine the applicable interactive 
data standard.\462\ We are proposing to require that the mandated 
payment information be provided in an XBRL exhibit to Form SD. The 
disclosure requirements would apply equally to U.S. issuers and foreign 
issuers meeting the definition of ``resource extraction issuer.''
---------------------------------------------------------------------------

    \461\ 15 U.S.C. 78m(q)(2)(A).
    \462\ 15 U.S.C. 78m(q)(2)(C) and (D).
---------------------------------------------------------------------------

    Compliance with the rules by affected issuers would be mandatory. 
Responses to the information collections would not be kept confidential 
and there would be no mandatory retention period for the collection of 
information.

B. Estimate of Issuers

    The number, type, and size of the issuers that would be required to 
file the payment information required in Form SD, as proposed to be 
amended, is uncertain, but, as discussed in the economic analysis 
above, we estimate that the number of potentially affected issuers is 
877.\463\ Of these issuers, we have identified 268 that may be subject 
to similar resource extraction payment disclosure rules in other 
jurisdictions by the time the proposed rules are adopted and 138 
smaller issuers that are unlikely to make any payments that would be 
subject to the proposed disclosure requirements.\464\ For the issuers 
subject to similar disclosure rules in other jurisdictions, the 
additional costs to comply with our proposed rules would be much lower 
than costs for other issuers.\465\ For the smaller issuers that are 
unlikely to be subject to the proposed rules, we believe there would be 
no additional costs associated with

[[Page 80106]]

our proposed rules. Accordingly, we estimate that 471 issuers would 
bear the full costs of compliance with the proposed rules, with 268 
bearing significantly lower costs.
---------------------------------------------------------------------------

    \463\ See Section III.A above. As discussed above, we derived 
877 potentially affected issuers using data from 2014 to estimate 
the number of issuers that might make payments covered by the 
proposed rules. This number does not reflect the number of issuers 
that actually made resource extraction payments to governments.
    \464\ See Section III.B.2.b above (describing in more detail how 
we identified issuers that may be subject to foreign reporting 
requirements and how we used revenues and net cash flows from 
investing activities to identify issuers that would be unlikely to 
make payments exceeding the proposed de minimis threshold).
    \465\ Under the proposed rules, a determination by the 
Commission that another jurisdiction's reporting requirements are 
substantially similar to ours would lower an issuer's compliance 
burden. More significantly, if the issuer is subject to the EU 
Directives or ESTMA it would already have gathered, or have systems 
in place to gather, resource extraction payment data by the time it 
would have to comply with the proposed rules. Although for purposes 
of our economic analysis the costs to the 268 issuers that may 
already be subject to similar resource extraction payment disclosure 
rules would be negligible, we have included them in our estimate of 
issuers for PRA purposes because under the proposed rules they would 
continue to have an obligation to file a report on Form SD, although 
with a significantly lower associated burden. See Section III.B.2.b 
above.
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C. Estimate of Issuer Burdens

    After considering the comments in connection with the 2010 
Proposing Release, international developments, and the differences 
between the proposed rules and the 2012 Rules, we have revised our PRA 
estimates from those discussed in the 2012 Adopting Release.\466\ We 
continue, however, to derive our burden estimates by estimating the 
average number of hours it would take an issuer to prepare and file the 
required disclosure.\467\ In deriving our estimates, we recognize that 
the burdens would likely vary among individual issuers based on a 
number of factors, including the size and complexity of their 
operations and whether they are subject to similar disclosure 
requirements in other jurisdictions.
---------------------------------------------------------------------------

    \466\ Although the comments we received with respect to our PRA 
estimates related to the 2010 Proposing Release, which required the 
disclosure in Forms 10-K, 20-F, and 40-F, among other differences, 
we have considered these estimates in arriving at our PRA estimate 
for Form SD because, although the disclosures would be provided 
pursuant to a new rule and on Form SD, the disclosure requirements 
themselves are similar. We also believe that this is the more 
conservative approach given that changes from the 2010 Proposing 
Release and the 2012 Rules should generally reduce the burdens 
contemplated by those earlier releases.
    \467\ As discussed above, Rule 13q-1 requires resource 
extraction issuers to file the payment information required in Form 
SD. The collection of information requirements are reflected in the 
burden hours estimated for Form SD. Therefore, Rule 13q-1 does not 
impose any separate burden.
---------------------------------------------------------------------------

    When determining the estimates described below, we have assumed 
that 75% of the burden of preparation is carried by the issuer 
internally and 25% of the burden of preparation is carried by outside 
professionals retained by the issuer at an average cost of $400 per 
hour.\468\ The portion of the burden carried by outside professionals 
is reflected as a cost, while the portion of the burden carried by the 
issuer internally is reflected in hours. In connection with the 2010 
Proposing Release, we received estimates from some commenters expressed 
in burden hours and estimates from other commenters expressed in dollar 
costs.\469\ We expect that the rules' effect would be greatest during 
the first year of their effectiveness and diminish in subsequent years. 
To account for this expected diminishing burden, we believe that a 
three-year average of the expected implementation burden during the 
first year and the expected ongoing compliance burden during the next 
two years is a reasonable estimate.
---------------------------------------------------------------------------

    \468\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis we estimate that 
such costs would be an average of $400 per hour. This is the rate we 
typically estimate for outside legal services used in connection 
with public company reporting. We note that no commenters provided 
us with an alternative rate estimate for these purposes in 
connection with the 2010 Proposing Release.
    \469\ See 2012 Adopting Release at Section IV.B.
---------------------------------------------------------------------------

    In connection with the 2010 Proposing Release, some commenters 
estimated implementation costs of tens of millions of dollars for large 
filers and millions of dollars for smaller filers.\470\ These 
commenters did not describe how they defined ``small'' and ``large'' 
filers. One commenter provided an estimate of $50 million in 
implementation costs if the definition of ``project'' is narrow and the 
level of disaggregation is high across other reporting parameters, 
though it did not provide alternate estimates for different definitions 
of ``project'' or different levels of disaggregation.\471\ We note that 
the commenter that provided this estimate was among the largest 20 oil 
and gas companies in world,\472\ and we believe that the estimate it 
provided may be representative of the costs to companies of similar 
large size rather than smaller companies.
---------------------------------------------------------------------------

    \470\ See letters from API 1 and ExxonMobil 1.
    \471\ See letter from ExxonMobil 1.
    \472\ See letter from API (Oct. 12, 2010) (ranking the 75 
largest oil and gas companies by reserves and production).
---------------------------------------------------------------------------

    Generally, we note that some of the estimates we received may 
reflect the burden to a particular commenter, and may not represent the 
burden for other resource extraction issuers.\473\ Also, while we 
received estimates for smaller companies and an estimate for one of the 
largest companies, we did not receive data on companies of varying 
sizes in between the two extremes. Finally, commenters' estimates on 
the burdens associated with initial implementation and ongoing 
compliance varied widely.\474\
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    \473\ For example, one commenter's letter indicated that it had 
approximately 120 operating entities. See letter from Rio Tinto.
    \474\ See letter from API 1 (estimating implementation costs in 
the tens of millions of dollars for large filers and millions of 
dollars for many smaller filers). This commenter did not explain how 
it defined small and large filers.
---------------------------------------------------------------------------

    As discussed above, we estimate that 471 issuers would bear the 
full costs of compliance and 268 issuers may be subject to similar 
resource extraction payment disclosure rules by the time the proposed 
rules are adopted, such that the additional costs to comply with our 
proposed rules would be much lower than costs for other issuers. We 
also estimate that 138 smaller issuers would bear no compliance costs 
because it is likely that any payments they make for the purpose of the 
commercial development of oil, natural gas, or minerals would be 
considered de minimis under the proposed rules. We have used the cost 
estimates provided by commenters to estimate the compliance burden for 
affected issuers for PRA purposes. To distinguish between the burden 
faced by the two groups of affected issuers described above, we have 
assumed that the issuers who may already be complying with a similar 
foreign disclosure regime would have compliance costs of approximately 
five percent of the issuers that bear the full costs of compliance. For 
issuers bearing the full costs, we note that Barrick Gold estimated an 
initial compliance burden of 1,000 hours (500 hours for initial changes 
to internal books and records and 500 hours for initial 
compliance).\475\ Although we believe that initial implementation costs 
would increase with the size of the issuer, as discussed in our 
economic analysis above,\476\ we do not have any estimates on the 
fraction of compliance costs that would be fixed versus variable. Also, 
since commenters' cost estimates were based on policy choices made in 
the 2010 Proposing Release, they might not reflect these commenters' 
views on the proposed rules. Unfortunately, we are unable to reliably 
quantify the reduction in these cost estimates based on the policy 
changes reflected in the proposed rules. Thus, despite Barrick Gold 
being a large accelerated filer and commenting on proposed rules that 
we believe would have been more onerous than our current proposals, we 
use its estimate of 1,000 hours as a conservative estimate pending 
additional input from commenters on the proposed rules and other data 
we may obtain on compliance burdens in similar, foreign disclosure 
regimes.
---------------------------------------------------------------------------

    \475\ We use Barrick Gold's estimate because it is the only 
commenter that provided a number of hours and dollar value estimates 
for initial and ongoing compliance costs. Although in the economic 
analysis above we used ExxonMobil's dollar value estimate to 
calculate an upper bound of compliance costs, we are unable to 
calculate the number of burden hours for purposes of the PRA 
analysis using ExxonMobil's dollar value inputs.
    \476\ See Section III.B above.
---------------------------------------------------------------------------

    We believe that the burden associated with this collection of 
information would be greatest during the implementation period to 
account for initial set up costs, but that ongoing compliance costs 
would be less because companies would have already made any necessary 
modifications to their

[[Page 80107]]

systems to capture and report the information required by the proposed 
rules. Two commenters provided estimates of ongoing compliance costs: 
Rio Tinto provided an estimate of 5,000-10,000 burden hours for ongoing 
compliance,\477\ while Barrick Gold provided an estimate of 500 burden 
hours for ongoing compliance. Based on total assets, Rio Tinto is one 
of the largest resource extraction issuers. We believe that, because of 
Rio Tinto's size, the estimate it provided may be representative of the 
burden for resource extraction issuers of a similar size, but may not 
be a representative estimate for smaller resource extraction issuers. 
Although in terms of total assets Barrick Gold is also among the top 
five percent of resource extraction issuers that are Exchange Act 
reporting companies, it is closer in size to the average issuer than is 
Rio Tinto. As such, we believe that Barrick Gold's estimate is a better 
estimate of the ongoing compliance burden hours. We acknowledge, 
however, that using Barrick Gold's estimate is a conservative approach. 
For example, the average total assets of issuers that we believe would 
be bearing the full costs of the rules is only 15.6% of Barrick Gold's 
total assets for 2014 ($5.8 billion/$37.4 billion).\478\
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    \477\ See letter from Rio Tinto. This commenter estimated 100-
200 hours of work at the head office, an additional 100-200 hours of 
work providing support to its business units, and a total of 4,800-
9,600 hours by its business units. We arrived at the estimated range 
of 5,000-10,000 hours by adding the estimates provided by this 
commenter (100 + 100 + 4,800 = 5,000 and 200 + 200 + 9,600 = 
10,000).
    \478\ The average estimated resource extraction issuer's total 
assets compared to Rio Tinto's total assets ($111.0 billion for 
2014) is 5.3%. See note 389 above for the source of this data.
---------------------------------------------------------------------------

    Thus, using the three-year average of the expected burden during 
the first year and the expected ongoing burden during the next two 
years, we estimate that the incremental collection of information 
burden associated with the proposed rules would be 667 burden hours per 
fully affected respondent (1000 + 500 + 500)/3 years). We estimate that 
the proposed rules would result in an internal burden of approximately 
235,618 hours (471 responses x 667 hours/response x .75) for issuers 
bearing the full costs and 6,703 hours (268 responses x 33.35 hours/
response x .75) for issuers that are subject to similar resource 
extraction payment disclosure rules in other jurisdictions, amounting 
to a total incremental company burden of 242,321 hours (235,618 + 
6,703).
    Outside professional costs would be $31,415,700 (471 responses x 
667 hours/response x .25 x $400) for issuers bearing the full costs and 
$893,780 (268 responses x 33.35 hours/response x .25 x $400) for 
issuers that are subject to similar resource extraction payment 
disclosure rules in other jurisdictions, amounting to total outside 
professional costs of $32,309,480 ($31,415,700 + $893,780). Barrick 
Gold also indicated that its initial compliance costs would include 
$100,000 for IT consulting, training, and travel costs. Again, we 
believe this to be a conservative estimate given the size of Barrick 
Gold compared to our estimate of the average resource extraction 
issuer's size. We do not, however, believe that these initial IT costs 
would apply to the issuers that are already subject to similar resource 
extraction payment disclosure rules, since those issuers should already 
have such IT systems in place to comply with a foreign regime. Thus, we 
estimate total IT compliance costs to be $47,100,000 (471 issuers x 
$100,000). We have added the estimated IT compliance costs to the cost 
estimates for other professional costs discussed above to derive total 
professional costs for PRA purposes of $79,409,480 ($32,309,480 + 
$47,100,000) for all issuers.\479\ The total burden hours and total 
professional costs discussed above would be in addition to the existing 
estimated hour and cost burdens applicable to Form SD as a result of 
compliance with Exchange Act Rule 13p-1.
---------------------------------------------------------------------------

    \479\ We note that this PRA cost estimate serves a different 
purpose than the economic analysis and, accordingly, estimates costs 
differently. See note 390 above. One of these differences is that 
the economic analysis estimates average total compliance costs for 
affected issuers without dividing such costs between internal burden 
hours and external cost burdens. See Section III.B above.
---------------------------------------------------------------------------

D. Solicitation of Comments

    We request comments in order to evaluate: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information would 
have practical utility; (2) the accuracy of our estimate of the burden 
of the proposed collection of information; (3) whether there are ways 
to enhance the quality, utility, and clarity of the information to be 
collected; (4) whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology; and (5) whether the proposed amendments would 
have any effects on any other collections of information not previously 
identified in this section.\480\
---------------------------------------------------------------------------

    \480\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments about the 
accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct the comments to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and should send a copy to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090, with reference to File No. S7-25-15. 
Requests for materials submitted to OMB by the Commission with regard 
to these collections of information should be in writing, refer to File 
No. S7-25-15, and be submitted to the Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 
20549-2736. OMB is required to make a decision concerning the 
collection of information between 30 and 60 days after publication of 
this release. Consequently, a comment to OMB is best assured of having 
its full effect if OMB receives it within 30 days of publication.

V. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\481\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \481\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or 
more;
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether our proposal would be a ``major 
rule'' for purposes of the Small Business Regulatory Enforcement 
Fairness Act. We solicit comment and empirical data on:
     The potential effect on the U.S. economy on an annual 
basis;
     any potential increase in costs or prices for consumers or 
individual industries; and
     any potential effect on competition, investment, or 
innovation.

VI. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared 
in accordance with 5 U.S.C. 603. It relates to proposed rule and form 
amendments to implement Section 13(q) of the Exchange Act, which 
concerns certain disclosure obligations of resource

[[Page 80108]]

extraction issuers. As defined by Section 13(q), a resource extraction 
issuer is 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.

A. Reasons for, and Objectives of, the Proposed Action

    The proposed rule and form amendments are designed to implement the 
requirements of Section 13(q), which was added by Section 1504 of the 
Dodd-Frank Act. Specifically, the proposed rule and form amendments 
would require a resource extraction issuer to disclose in an annual 
report certain information relating to any payment made by the issuer, 
a subsidiary of the issuer, or an entity under the issuer's control to 
a foreign government or the United States Federal Government for the 
purpose of the commercial development of oil, natural gas, or minerals. 
An issuer would have to include that information in an exhibit to Form 
SD. The exhibit would have to be formatted in XBRL.

B. Legal Basis

    We are proposing the rule and form amendments pursuant to Sections 
3(b), 12, 13, 15, 23(a), and 36 of the Exchange Act.

C. Small Entities Subject to the Proposed Rules

    The proposals would affect small entities that are required to file 
an annual report with the Commission under Section 13(a) or Section 
15(d) of the Exchange Act, and are engaged in the commercial 
development of oil, natural gas, or minerals. Exchange Act Rule 0-10(a) 
\482\ defines an issuer (other than an investment company) to be a 
``small business'' or ``small organization'' for purposes of the 
Regulatory Flexibility Act if it had total assets of $5 million or less 
on the last day of its most recent fiscal year. The proposals would 
affect small entities that meet the definition of resource extraction 
issuer under Section 13(q). Based on a review of total assets for 
Exchange Act registrants filing under certain SICs,\483\ we estimate 
that there are approximately 311 companies that would be considered 
resource extraction issuers under the proposed rules and that may be 
considered small entities.
---------------------------------------------------------------------------

    \482\ 17 CFR 240.0-10(a).
    \483\ See Section III.B above for a discussion of how we 
estimated the number of ``resource extraction issuers'' under the 
proposed rules.
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D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed rule and form amendments would add to the annual 
disclosure requirements of companies meeting the definition of resource 
extraction issuer, including small entities, by requiring them to 
provide the payment disclosure mandated by Section 13(q) in Form SD. 
That information must include:
     The type and total amount of payments made for each 
project of the issuer relating to the commercial development of oil, 
natural gas, or minerals; and
     the type and total amount of those payments made to each 
government.
    The same payment disclosure requirements would apply to U.S. and 
foreign resource extraction issuers.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe there are no federal rules that duplicate, overlap, or 
conflict with the proposed rules.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objectives, while 
minimizing any significant adverse impact on small entities. In 
connection with the proposals, we considered the following 
alternatives:
    (1) Establishing different compliance or reporting requirements 
which take into account the resources available to smaller entities;
    (2) Exempting smaller entities from coverage of the disclosure 
requirements, or any part thereof;
    (3) The clarification, consolidation, or simplification of 
disclosure for small entities; and
    (4) Use of performance standards rather than design standards.
    Section 13(q) does not contemplate separate disclosure requirements 
for small entities that would differ from the proposed reporting 
requirements, or exempting them from those requirements. The statute is 
designed to enhance the transparency of payments by resource extraction 
issuers to governments and providing different disclosure requirements 
for small entities or exempting them from the coverage of the 
requirements may impede the transparency and comparability of the 
disclosure mandated by Section 13(q). We have requested comment as to 
whether we should provide an exemption or delayed compliance for 
smaller reporting companies.
    The proposed rules would require clear disclosure about the 
payments made by resource extraction issuers to foreign governments and 
the U.S. Federal Government, which may result in increased transparency 
about those payments. The required electronic formatting of the exhibit 
would simplify the search and retrieval of payment information about 
resource extraction issuers, including small entities, for users of the 
information.
    We have used design rather than performance standards in connection 
with the proposed amendments because the statutory language, which 
requires electronic tagging of specific items, contemplates specific 
disclosure requirements. We further believe that the proposed rules 
would be more useful to users of the information if there are specific 
disclosure requirements that promote transparent and comparable 
disclosure among all resource extraction issuers. Such requirements 
should help further the statutory goal of supporting international 
transparency promotion efforts.

G. Request for Comment

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
     How the proposed rule and form amendments can achieve 
their objective while lowering the burden on small entities;
     the number of small entity companies that may be affected 
by the proposed rule and form amendments;
     the existence or nature of the potential impact of the 
proposed rule and form amendments on small entity companies discussed 
in the analysis; and
     how to quantify the impact of the proposed rule and form 
amendments.

Respondents are asked to describe the nature of any impact and provide 
empirical data supporting the extent of the impact. Such comments will 
be considered in the preparation of the Final Regulatory Flexibility 
Analysis, if the proposed rules are adopted, and will be placed in the 
same public file as comments on the proposed rules themselves.
    We are proposing the rule and form amendments contained in this 
document under the authority set forth in Sections 3(b), 12, 13, 15, 
23(a), and 36 of the Exchange Act.

[[Page 80109]]

List of Subjects in 17 CFR Parts 240 and 249b

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, we are proposing to amend Title 
17, Chapter II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b&4, 80b-11, 7201 et seq., 
and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010), unless otherwise 
noted.
* * * * *
0
2. Section 240.13q-1 is revised to read as follows:


Sec.  240.13q-1  Disclosure of payments made by resource extraction 
issuers.

    (a) A resource extraction issuer must file a report on Form SD (17 
CFR 249b.400) within the period specified in that Form disclosing the 
information required by the applicable items of Form SD as specified in 
that Form.
    (b) Disclosure is required under this section in circumstances in 
which an activity related to the commercial development of oil, natural 
gas, or minerals, or a payment or series of payments made by a resource 
extraction issuer to a foreign government or the Federal Government for 
the purpose of commercial development of oil, natural gas, or minerals 
is not, in form or characterization, within one of the categories of 
activities or payments specified in Form SD, but is part of a plan or 
scheme to evade the disclosure required under this section.
    (c) Definitions. For the purpose of this section the terms 
``resource extraction issuer,'' ``commercial development of oil, 
natural gas, or minerals,'' ``foreign government,'' and ``payment'' are 
defined in Form SD.

PART 249b--FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The authority citation for part 249b is amended by revising the sub-
authority for Sec.  249b.400 to read as follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.
* * * * *
    Section 249b.400 is also issued under secs. 1502 and 1504, 
Public Law 111-203, 124 Stat. 2213 and 2220.
* * * * *
0
4. Amend Form SD (referenced in Sec.  249b.400) by:
0
a. Adding a check box for Rule 13q-1;
0
b. Revising instruction A. under ``General Instructions'';
0
c. Redesignating instruction B.2. as B.3 and adding new instructions 
B.2. and B.4. under the ``General Instructions''; and
0
d. Redesignating Section 2 as Section 3, adding new Section 2, and 
revising newly redesignated Section 3 under the ``Information to be 
Included in the Report''.
    The addition and revision read as follows:

    Note: The text of Form SD does not, and this amendment will not, 
appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM SD

Specialized Disclosure Report

-----------------------------------------------------------------------
(Exact name of the registrant as specified in its charter)

-----------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)

-----------------------------------------------------------------------
(Commission File Number)

-----------------------------------------------------------------------
(I.R.S. Employer Identification No.)

-----------------------------------------------------------------------
(Full mailing address of principal executive offices)

-----------------------------------------------------------------------
(Name and telephone number, including area code, of the person to 
contact in connection with this report.)

Check the appropriate box to indicate the rule pursuant to which this 
Form is being filed, and provide the period to which the information in 
this Form applies:

___ Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for 
the reporting period from January 1 to December 31, ___

___ Rule 13q-1 under the Securities Exchange Act (17 CFR 240.13q-1) for 
the fiscal year ended___
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GENERAL INSTRUCTIONS

A. Rule as to Use of Form SD.

    This Form shall be used for a report pursuant to Rule 13p-1 (17 CFR 
240.13p-1) and Rule 13q-1 (17 CFR 240.13q-1) under the Securities 
Exchange Act of 1934 (the ``Exchange Act'').

B. Information to be Reported and Time for Filing of Reports.

    1. * * *
    2. Form filed under Rule 13q-1. File the information required by 
Section 2 of this form on EDGAR no later than 150 days after the end of 
the issuer's most recent fiscal year.
    3. If the deadline for filing this Form occurs on a Saturday, 
Sunday or holiday on which the Commission is not open for business, 
then the deadline shall be the next business day.
    4. The information and documents filed in this report shall not be 
deemed to be incorporated by reference into any filing under the 
Securities Act or the Exchange Act, unless the registrant specifically 
incorporates it by reference into such filing.
* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

* * * * *

Section 2--Resource Extraction Issuer Disclosure

Item 2.01 Resource Extraction Issuer Disclosure and Report

    (a) Required Disclosure. A resource extraction issuer shall file an 
annual report on Form SD with the Commission, and include as an exhibit 
to this Form SD, information relating to any payment made during the 
fiscal year covered by the annual report 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 issuer must provide a 
statement in the body of the Form SD that the specified payment 
disclosure required by this Form is included in such exhibit. The 
resource extraction issuer must include the following information in 
the exhibit, which must present the information in the eXtensible 
Business Reporting Language (XBRL) electronic format:
    (1) 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;

[[Page 80110]]

    (2) The type and total amount of such payments for all projects 
made to each government;
    (3) The total amounts of the payments, by category listed in 
paragraph (c)(9)(iii) of this Item;
    (4) The currency used to make the payments;
    (5) The financial period in which the payments were made;
    (6) The business segment of the resource extraction issuer that 
made the payments;
    (7) The governments (including any foreign government or the 
Federal Government) that received the payments and the country in which 
each such government is located;
    (8) The project of the resource extraction issuer to which the 
payments relate;
    (9) The particular resource that is the subject of commercial 
development; and
    (10) The subnational geographic location of the project.
    (b) Alternate Reporting. A resource extraction issuer may satisfy 
its disclosure obligations under paragraph (a) of this Item by 
including as an exhibit to this Form SD a report complying with the 
reporting requirements of any alternative reporting regime that are 
deemed by the Commission to be substantially similar to the 
requirements of Rule 13q-1 (17 CFR 240.13q-1). The issuer must state in 
the body of the Form SD that it is relying on this provision and 
identify the alternative reporting regime for which the report was 
prepared. The issuer must also specify that the payment disclosure 
required by this Form is included in an exhibit to this Form SD and 
state where the report was originally filed.
    (c) Definitions. For purposes of this item, the following 
definitions apply:
    (1) Business segment means a business segment consistent with the 
reportable segments used by the resource extraction issuer for purposes 
of financial reporting.
    (2) Commercial development of oil, natural gas, or minerals means 
exploration, extraction, processing, and export of oil, natural gas, or 
minerals, or the acquisition of a license for any such activity.
    (3) Control means that the resource extraction issuer consolidates 
the entity or proportionately consolidates an interest in an entity or 
operation under the accounting principles applicable to the financial 
statements included in the resource extraction issuer's periodic 
reports filed pursuant to the Exchange Act (i.e., under generally 
accepted accounting principles in the United States (U.S. GAAP) or 
International Financial Reporting Standards as issued by the 
International Accounting Standards Board (IFRS), but not both). A 
foreign private issuer that prepares financial statements according to 
a comprehensive set of accounting principles, other than U.S. GAAP or 
IFRS, and files with the Commission a reconciliation to U.S. GAAP must 
determine control using U.S. GAAP.
    (4) Export means the movement of a resource across an international 
border from the host country to another country by a company with an 
ownership interest in the resource. Cross-border transportation 
activities by an issuer that is functioning solely as a service 
provider, with no ownership interest in the resource being transported, 
would not be considered to be export.
    (5) Extraction means the production of oil and natural gas as well 
as the extraction of minerals.
    (6) Financial period means the fiscal year in which the payment was 
made.
    (7) Foreign government means a foreign government, a department, 
agency, or instrumentality of a foreign government, or a company at 
least majority owned by a foreign government. As used in this Item 
2.01, foreign government includes a foreign national government as well 
as a foreign subnational government, such as the government of a state, 
province, county, district, municipality, or territory under a foreign 
national government.
    (8) Not de minimis means any payment, whether made as a single 
payment or a series of related payments, which equals or exceeds 
$100,000, or its equivalent in the issuer's reporting currency, during 
the fiscal year covered by this Form SD. In the case of any arrangement 
providing for periodic payments or installments, a resource extraction 
issuer must consider 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 
accordingly, whether disclosure is required.
    (9) Payment means an amount paid that:
    (i) Is made to further the commercial development of oil, natural 
gas, or minerals;
    (ii) Is not de minimis; and
    (iii) Is one or more of the following:
    (A) Taxes;
    (B) Royalties;
    (C) Fees;
    (D) Production entitlements;
    (E) Bonuses;
    (F) Dividends; and
    (G) Payments for infrastructure improvements.
    (10) Project means operational activities that are governed by a 
single contract, license, lease, concession, or similar legal 
agreement, which form the basis for payment liabilities with a 
government. Agreements that are both operationally and geographically 
interconnected may be treated by the resource extraction issuer as a 
single project.
    (11) Resource extraction issuer means an issuer that:
    (i) Is required to file an annual report with the Commission 
pursuant to Section 13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 
78o(d)); and
    (ii) Engages in the commercial development of oil, natural gas, or 
minerals.
    (12) Subsidiary means an entity controlled directly or indirectly 
through one or more intermediaries.

Instructions to Item 2.01

Disclosure by Subsidiaries and Other Controlled Entities

    (1) If a resource extraction issuer is controlled by another 
resource extraction issuer that has filed a Form SD disclosing the 
information required by Item 2.01 of this Form for the controlled 
entity, then such controlled entity shall not be required to file the 
disclosure required by this Item 2.01 separately. In such 
circumstances, the controlled entity must file a notice on Form SD 
indicating that the required disclosure was filed on Form SD by the 
controlling entity, identifying the controlling entity and the date it 
filed the disclosure. The reporting controlling entity must note that 
it is filing the required disclosure for a controlled entity and must 
identify the controlled entity on its Form SD filing.

Currency Disclosure and Conversion

    (2) An issuer must report the amount of payments made for each 
payment type, and the total amount of payments made for each project 
and to each government, during the reporting period in either U.S. 
dollars or the issuer's reporting currency. If an issuer has made 
payments in currencies other than U.S. dollars or its reporting 
currency, it may choose to calculate the currency conversion between 
the currency in which the payment was made and U.S. dollars or the 
issuer's reporting currency, as applicable, in one of three ways: (a) 
by translating the expenses at the exchange rate existing at the time 
the payment is made; (b) using a weighted average of the exchange rates 
during the period; or (c) based on the exchange rate as of the issuer's 
fiscal year end. A resource extraction issuer

[[Page 80111]]

must disclose the method used to calculate the currency conversion.

Subnational Geographic Location Tagging

    (3) The ``geographic location of the project'' as used in Item 
2.01(a)(10) must be sufficiently detailed to permit a reasonable user 
of the information to identify the project's specific, subnational, 
geographic location. In identifying the location, resource extraction 
issuers may use subnational jurisdiction(s) (e.g., a state, province, 
county, district, municipality, territory, etc.) and/or a commonly 
recognized, subnational, geographic or geological description (e.g., 
oil field, basin, canyon, delta, desert, mountain, etc.). More than one 
descriptive term may be necessary when there are multiple projects in 
close proximity to each other or when a project does not reasonably fit 
within a commonly recognized, subnational geographic location. In 
considering the appropriate level of detail, resource extraction 
issuers may need to consider how the relevant contract identifies the 
location of the project.

Entity Level Disclosure and Tagging

    (4) If a government levies a payment obligation, such as a tax or a 
requirement to pay a dividend, at the entity level rather than on a 
particular project, a resource extraction issuer may disclose that 
payment at the entity level. To the extent that payments, such as 
corporate income taxes and dividends, are made for obligations levied 
at the entity level, an issuer may omit certain tags that may be 
inapplicable (e.g., project tag, business segment tag) for those 
payment types as long as it provides all other electronic tags, 
including the tag identifying the recipient government.

Payment Disclosure

    (5) When a resource extraction issuer proportionately consolidates 
an entity or operation under U.S. GAAP or IFRS, as applicable, and must 
disclose payments made by such entity or operation pursuant to this 
Item, such payments must be disclosed on a proportionate basis and must 
describe the proportionate interest.
    (6) Although an entity providing only services to a resource 
extraction issuer to assist with exploration, extraction, processing or 
export would generally not be considered a resource extraction issuer, 
where such a service provider makes a payment that falls within the 
definition of ``payment'' to a government on behalf of a resource 
extraction issuer, the resource extraction issuer must disclose such 
payment.
    (7) ``Processing,'' as used in this Item 2.01, would include, but 
is not limited to, midstream activities such as the processing of gas 
to remove liquid hydrocarbons, the removal of impurities from natural 
gas prior to its transport through a pipeline, and the upgrading of 
bitumen and heavy oil, through the earlier of the point at which oil, 
gas, or gas liquids (natural or synthetic) are either sold to an 
unrelated third party or delivered to a main pipeline, a common 
carrier, or a marine terminal. It would also include the crushing and 
processing of raw ore prior to the smelting phase. It would not include 
the downstream activities of refining or smelting.
    (8) A resource extraction issuer must disclose payments made for 
taxes on corporate profits, corporate income, and production. 
Disclosure of payments made for taxes levied on consumption, such as 
value added taxes, personal income taxes, or sales taxes, is not 
required.
    (9) Fees include license fees, rental fees, entry fees, and other 
considerations for licenses or concessions. Bonuses include signature, 
discovery, and production bonuses.
    (10) Dividends paid to a government as a common or ordinary 
shareholder of the issuer that are paid to the government under the 
same terms as other shareholders need not be disclosed. The issuer, 
however, must disclose any dividends paid in lieu of production 
entitlements or royalties.
    (11) If a resource extraction issuer makes an in-kind payment of 
the types of payments required to be disclosed, the issuer must 
disclose the payment. When reporting an in-kind payment, an issuer must 
determine the monetary value of the in-kind payment and tag the 
information as ``in-kind'' for purposes of the currency. For purposes 
of the disclosure, an issuer may report the payment at cost, or if cost 
is not determinable, fair market value and should provide a brief 
description of how the monetary value was calculated.

Interconnected Agreements

    (12) The following is a non-exclusive list of factors to consider 
when determining whether agreements are ``operationally and 
geographically interconnected'' for purposes of the definition of 
``project'': (a) whether the agreements relate to the same resource and 
the same or contiguous part of a field, mineral district, or other 
geographic area; (b) whether the agreements will be performed by shared 
key personnel or with shared equipment; and (c) whether they are part 
of the same operating budget.

Section 3--Exhibits

Item 3.01 Exhibits

    List below the following exhibits filed as part of this report:
    Exhibit 1.01--Conflict Minerals Report as required by Items 1.01 
and 1.02 of this Form.
    Exhibit 2.01--Resource Extraction Payment Report as required by 
Item 2.01 of this Form.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, 
the registrant has duly caused this report to be signed on its behalf 
by the duly authorized undersigned.

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(Registrant)

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By (Signature and Title)*

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(Date)

    *Print name and title of the registrant's signing executive officer 
under his or her signature.
* * * * *
* * * * *

    By the Commission.

    Dated: December 11, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015-31702 Filed 12-22-15; 8:45 am]
 BILLING CODE P