Recent amendments to the US and EU disclosure requirements for companies in extractive industries


The recent publication of new SEC and EU rules will impose extensive reporting obligations on companies active in the extractive industries in relation to payments made by them to governments. These changes will have commercial, political and administrative consequences for companies holding interests in the oil, gas and mining sectors worldwide.

These reforms are part of a global move towards greater transparency which finds its roots in the Extractive Industries Transparency Initiative ("EITI"), a voluntary initiative which is seen as a benchmark for extractive industry disclosure and has gained the support of the G8 and Japanese, US and UK governments, amongst others. The EITI and associated transparency initiatives aim to mitigate the "resource curse" evidenced in the low standards of living and political and social instability in many of the most resource rich nations, by making governments more accountable for money received from resource projects.


Both the EU and US reforms make express reference to the EITI. The EITI only applies to governments which have voluntarily become members of the EITI. Currently 39 countries are members of EITI (either as compliant or candidate countries). Extractive industry companies are required to report payments to EITI member governments confidentially to an independent auditor, according to an agreed set of common procedures. These payments are then reconciled with the government's reports of payments received (also made to the same independent auditor) and a publicly available EITI Report disclosing these payments is published. In this way, any inconsistencies between payments reported as paid and received are exposed. Further information on the EITI can be found here.

The key difference between the EITI and the new EU and US rules is that where EITI seeks accountability of government to civil society in the country of operation, the EU and US rules seek primary accountability to regulators (with secondary social accountability through the publication of company filings). Further, unlike under the EU and US rules (necessarily restricted by the jurisdiction of their legislatures), all companies active in an EITI member country will be subject to EITI reporting requirements, regardless of their place of incorporation.

The new EU and US rules therefore complement, rather than replace, the EITI. This is evidenced by the recent announcement that both the UK and France intend to sign up to the EITI and by the adoption on 23 May 2013 of a new, strengthened EITI Standard, aligning EITI reporting requirements for companies more closely with those in the new EU and US rules.

US reforms – s1504 Dodd-Frank Act: the Cardin-Lugar Amendment

The SEC rules implementing s1504 Dodd-Frank Act (amending the Securities Exchange Act 1934) became effective on 13 November 2012. Under the new US rules, all issuers subject to the US filing regime which conduct activities related to the commercial development of oil, gas or minerals must file a report disclosing all single, or aggregate related, payments of $100,000 or more made to any government. The new US rules will apply to all payments made after 30 September 2013.

Disclosure is to be at project and country level: data should be submitted in a computer readable format to the SEC public database (EDGAR). Government is defined widely to include subnational government and "a company owned by a foreign government" (such as a state owned national oil company). Failure to disclose under the new US rules will be subject to the same penalties applicable to regular SEC filings.

Although lobbied for, there is no exemption to compliance with the new US rules where disclosure is prohibited by a country's national laws or by a confidentiality clause in underlying agreements.

The new US rules are currently the subject of a legal challenge by the American Petroleum Institute and other groups in the US courts1. The key argument of these groups is that the new disclosure requirements weaken the competitive advantages of US extractive companies and unreasonably increase the administrative and cost burden on them. In particular, the API has raised concerns that state-owned national oil companies, which will not be caught by the new US rules, control a large proportion of worldwide oil and gas reserves. There is no suggestion from the SEC that the implementation of the new rules will be delayed on the basis of this challenge.

EU reforms – amendments to the Accounting and Transparency Directives

The proposed amendments to the EU Transparency Directive were agreed on 9 April 2013. These will apply to both issuers of securities traded on regulated markets within the EU and non-listed "large undertakings" incorporated in the EU, which are active in the extractive and logging industries. The new EU rules will require disclosure on an annual basis, of all single or multiple related payments of over EUR100,000 made to governments in all countries in which such entities are active. Reporting is generally required on a project and government basis.

It should be noted that EU Directives must then be adopted into the national laws of each EU member country. They are not directly applicable to extractive industry companies until they have been adopted into national law by the relevant EU member country.

The definitions in the new EU rules are wide: a "large undertaking" is defined as an undertaking which on its relevant balance sheet date has two of: net turnover exceeding EUR 40,000,000; a balance sheet total exceeding EUR 20,000,000; or, on average more than 250 employees in the financial year2. A "payment" includes both monetary payments and payments in kind3, and "government" includes any department, agency or undertaking controlled by a national or local authority4.

Similarly to the new US rules, there is no exception where public disclosure would breach either legislation in the host country or the underlying contractual agreements.

The new EU rules do not prescribe sanctions for breach, however, national implementing laws should provide for "effective, proportionate and dissuasive" penalties5.

Comparing the EU and US rules

While the new EU rules are similar to the new US rules, the EU rules go further in two respects. Firstly, they apply to those involved in the logging of primary forests and, more significantly, they will apply to non-listed "large undertakings" as well as EU listed companies. In drafting the new EU rules this way the EU has sought to consider an entity's size, and therefore relative power, rather than simply its formal listing status.

Further, EU member states will have two years from the publication of the amended Accounting and Transparency Directives in the EU journal to implement the new EU rules into national laws. Therefore, companies caught by both the new EU and US rules should be in compliance with the US requirements before the EU rules take effect. This is significant as the new EU rules provide an exemption for companies complying in another jurisdiction with equivalent disclosure requirements. It is currently unclear whether this will include the US rules, however, it would seem likely that it may.

Implementation issues for the extractive industries

Companies in the oil, gas, mining and logging industries should consider whether they are or will be caught by either the new EU or US rules or by the EITI regime. This will include taking advice in each jurisdiction as to their current and potential obligations under these schemes. In particular, as there are no transitional provisions for the implementation of either the new EU or US rules, those companies which are aware of projects which will be in existence when these rules come into effect and in relation to which there is an agreement or national law which would make the required disclosure a breach of contract or a criminal offence should consider at the earliest possible opportunity how these changes will affect them and the project.

Companies subject to the new EU and US rules will also need to consider, as part of their investment strategy, how non-EITI compliant countries will react to the publication of what they may consider to be sensitive and confidential payment information. They should also consider how future agreements can be structured to address these concerns. In joint ventures in which only one party is caught by the new EU or US rules, parties should consider the potential issues between joint venture parties.


The success of the new EITI Standard, EU and US rules on creating greater transparency remains to be seen. However, companies active in the extractive industries cannot now afford to ignore the requirements for greater transparency within the sector: according to Transparency International, the combined scope of the new EU and US rules will cover 90% of the world’s major international extractive companies. If the intentions of the EITI and the EU and US legislatures are to be fulfilled, the effect of these new reporting requirements will not only be administrative but will be reflected in a more fundamental change to the business practices of those active in the extractive industries.