A divided Securities and Exchange Commission (SEC) recently adopted a rule affecting publicly-traded oil, gas, and mining companies. The Commission promulgated these regulations pursuant to Section 1504 of the Dodd-Frank Act. The API, the U.S. Chamber, the Independent Petroleum Association of America, and the National Foreign Trade Council have united to challenge the rulemaking.

The rule requires certain U.S. public companies to disclose payments made to foreign governments or the U.S. federal government for the purposes of developing oil, natural gas, or mineral resources. Such payment information is to be disclosed to the SEC and made public to investors using a new reporting form, the Form SD. See “SEC Adopts Final Rules Affecting Energy Companies; Adds Private Right of Action,” September, 2012, available at www.kslaw.com/library/newsletters/EnergyNewsletter/2012/September/article3.html.

The Lawsuit

Certain representatives of the oil & gas industry have strongly opposed this new rule, claiming that it will have a dampening effect on U.S. companies’ resource extraction efforts abroad. Jack Gerard, President of the American Petroleum Institute stated: “We’ve been working hard to increase transparency for a decade, but this rule could interfere with ongoing efforts by making U.S. firms less competitive against state-owned firms in China and Russia that have no interest in transparency.” Opponents of the rule also claim that it will require disclosure of confidential and sensitive information, such as bidding strategy and production volumes. Because of staunch opposition to the rule by some in the industry, it is no surprise that it has been challenged less than two months after the final rule was adopted.

Plaintiffs assert four primary legal arguments against the rule:

  1. Plaintiffs allege that SEC engaged in a faulty and insufficient analysis of the costs and benefits of the rule. Specifically, plaintiffs claim that the SEC engaged in a flawed evaluation of the direct costs of the rule;
  2. Plaintiffs challenge the rule as violative of their First Amendment rights and state that the rule forces “U.S. companies to engage in speech that discloses sensitive, confidential information” that could cause them substantial economic harm;
  3. Plaintiffs assert that the SEC misinterpreted congressional intent embodied in Section 1504 of the Dodd-Frank Act in promulgating the rule and contend that Section 1504 does not require the public disclosure of an affected company’s payment disclosures; and
  4. Plaintiffs maintain that it is arbitrary and capricious for the SEC to deny an exemption to affected companies in cases where foreign laws prohibit the contemplated disclosures. Plaintiffs list several countries, including Angola, Cameroon, China, and Qatar, as examples of countries whose laws prohibit disclosure


The challenged rule could have long-term repercussions for resource extraction activities of U.S. registered public companies. To require companies to comply with disclosure rules that do not apply to many of their competitors could diminish a critical competitive edge.