On October 10, 2012, the American Petroleum Institute and other plaintiffs filed a complaint and petition for review in the Circuit Court and Court of Appeals for the D.C. Circuit relating to new rules promulgated by the SEC under Section 13(q) of the Exchange Act, which was added by the Dodd-Frank Act. The challenged rules require disclosure of certain payments made by any resource extraction issuer to foreign governments and the federal government “for the purpose of the commercial development of oil, natural gas, or minerals.” The plaintiffs later filed a motion requesting that the SEC stay the effective date of the new rules pending resolution of the claims by the courts.
On November 8, 2012, the SEC issued an order denying the motion to stay the effective date of the new rules. The SEC made clear that the rules will go into effect and that issuers affected by the rules will be required to comply the rules for fiscal years ending after September 30, 2013, with each annual report due no later than 150 days after the end of the resource extraction issuer’s most recent fiscal year. Therefore, the earliest a resource extraction issuer will be required to report under the new rules is February 14, 2014.
The SEC’s denial of the motion was based on the plaintiffs’ failure to demonstrate that they would suffer “imminent, irreparable harm” if the rules went into effect. The SEC reasoned that, because the Court of Appeals for the D.C. Circuit has already expedited the plaintiffs’ petition for review, it is likely the court will rule on the validity of the new rules by spring of 2013, almost a year before the first filings under the new resource extraction payment disclosure rules will be due. The plaintiffs argued they would be harmed by the following:
- initial compliance costs of reporting the payment information
- competitive disadvantages in bidding and negotiating new contracts in countries that disfavor disclosure
- detrimental effects on existing contracts and operations in countries that prohibit disclosure, and competitive harms resulting from competitors’ use of the disclosed information
However, the SEC was not persuaded that any of these threats would be avoided by a stay of the effective date of the rules, as no issuer could possibly be required to report under the rules until spring 2014.
Finally, in a statement that may have implications on whether the plaintiffs will ultimately succeed in challenging the rules, the SEC concluded that the plaintiffs had failed to demonstrate a likelihood of success on the merits of the claims. Despite the arguments raised by the plaintiffs, the SEC maintained that the strength of the explanations set forth in the adopting release accompanying the rules relieved any concerns regarding the validity of the rules as passed.