On 21 July 2010, new financial legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act), was signed into law in the United States of America (USA). This legislation introduces sweeping changes to the financial regulatory system of the USA, including a requirement that oil & gas and mining companies registered with the United States Securities and Exchange Commission (SEC) disclose information relating to payments made to USA Government and non-USA Government agencies.
Who must report?
Companies registered with the SEC that engage in the commercial development of oil, natural gas or minerals must disclose information. Commercial development includes exploration, extraction, processing, export and other significant actions related to these activities such as licence acquisition.
The Act1 requires the SEC to issue rules for the disclosure of information by companies (termed resource extraction issuers) in their annual reports about:
- any payments made by the issuer, any of the issuer’s subsidiaries or any entity under the issuer’s control
- to the United States government or any non-USA government, agency, instrumentality or department (including State owned enterprises)
- made or the purpose of commercial development of oil, natural gas or minerals
- for each project.
The term ‘payment’ includes taxes, royalties, fees, bonuses and other material benefits as determined by the SEC. To the extent practicable, the SEC is required to compile this information from annual reports and make it publicly available.
Disclosures on conflict materials in or near the Democratic Republic of the Congo
The Act2 also requires companies whose products contain Cassiterite, Coltan, Wolframite and Gold to disclose whether these minerals are being sourced from the Democratic Republic of the Congo or neighbouring countries.
Any minerals sourced from these countries will require proof that they have not come from mines controlled by armed groups. In doing so it is hoped that these armed groups will lose the funding from natural resources which has sustained them to date and reduce their ability to purchase arms and maintain the activities which have contributed to instability in Central Africa.
The effective date of these reporting obligations is the date on which each resource extraction issuer is required to file its annual report for the first fiscal year after the release of the SEC final rules. Therefore, disclosure will apply to annual reports filed with the SEC for the 2011-2012 financial year.
The Act requires the SEC to issue final rules within 270 days after the date of enactment.
It may not be easy to determine whether specific payments must be disclosed. For example, payments to foreign governments for general infrastructure development or State owned enterprises acting in a commercial capacity.
It is recommended that companies who may be affected should review their current payment practices and obligations in light of these new disclosure obligations and ensure that internal processes are in place to gather and retain required information relating to development payments and fees requirements. Reporting obligations in relation to this data should also be added to the agenda of any disclosure committee, or brought to the attention of people performing a similar function, for consideration when preparing annual reports.
Any company required to disclose information should also review any confidentiality clauses in contracts or licences with governments to determine whether amendments to these clauses are required.