On August 22, 2012, the Securities and Exchange Commission adopted rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring resource extraction issuers to disclose certain payments made to the U.S. government or foreign governments. The press release from the SEC announcing the rule can be found here, and the final rule can be found here. This update provides an overview of the new rule; we will follow up with a more complete analysis of the new rule shortly.
It is notable that the rule was approved by a 2-1 vote. Commissioner Paredes and SEC Chairman Schapiro recused themselves due to ties with the industry. Commissioner Gallagher opposed the rule, saying the SEC could have done more to make it less onerous for companies.
Who Must Disclose
The rules require a resource extraction issuer to disclose payments made to governments if:
- The issuer is required to file an annual report to the SEC; and
- The issuer engages in the commercial development of oil, natural gas, or minerals.
The disclosure requirements apply to both domestic and foreign issuers and to smaller reporting companies meeting the definition of Issuers. The disclosure requirement also applies to payments made by a subsidiary or another entity controlled by the issuer.
What Must Be Disclosed
Resource extraction issuers need to disclose payments that are:
- Made to further the commercial development of oil, natural gas, or minerals (includes exploration, extraction, processing, and export, or the acquisition of a license for any such activity);
- “Not de minimis,” meaning any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year; and
- Within the types of payments specified in the rules (taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, infrastructure improvements).
The issuer is required to provide the following information about payments:
- Type and total amount of payments made for each project.
- Type and total amount of payments made to each government.
- Total amounts of the payments, by category.
- Currency used to make the payments.
- Financial period in which the payments were made.
- 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.
- The project of the resource extraction issuer to which the payments relate.
Compliance with the new rules is required for fiscal years ending after September 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after September 30, 2013.
How and When to Disclose
A resource extraction issuer is required to disclose the information annually by filing a new form with the SEC (Form SD). The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.
An issuer would be required to file the form using the SEC's EDGAR system no later than 150 days after the end of its fiscal year.
Disclosing Use of Conflict Minerals
On the same day, the SEC adopted a second rule mandated by Dodd-Frank requiring companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country. The press release from the SEC announcing the rule can be found here, and the final rule can be found here.
Companies are required to disclose their use of conflict minerals including tantalum, tin, gold, or tungsten if those minerals are “necessary to the functionality or production of a product” manufactured by or contracted to be manufactured by those companies and the company is otherwise required to file reports with the SEC. A company is required to provide this disclosure on the same form as is used for the disclosures of payments by resource extraction issuers, Form SD. Additionally, the company is required to make its description of the inquiry it undertook and the results of the inquiry publicly available on the company’s website and to provide the address of that site in the Form SD.