The unintended consequences of Dodd-Frank

The statute is intended to further transparency by providing the citizens of resource-rich, developing countries with the information they need to hold their governments accountable. This is a laudable goal, one which API supports, but like the museum’s Doberman, Section 1504 could lead to unintended and unwelcome consequences. It could seriously harm the global competitiveness of U.S.-listed companies while doing little to further transparency. 

The statute is a unilateral mandate, meaning it only applies to the companies listed with the SEC. It does not apply to many of the biggest international oil and gas players, including many of the state-owned companies of foreign governments that control 78 percent of proven worldwide reserves. The only transparency will be into the business decisions of U.S.-listed companies – while leaving a huge gap in information about how much revenue is flowing into foreign treasuries and how much is being siphoned off by corrupt officials. National oil and gas companies and other unlisted companies are very active internationally and becoming more so. In virtually every nation where oil and gas are developed, companies not listed with America’s SEC are competing for business. 

And because the information will be publicly available, every competitor bidding on future oil and gas projects in the same host country or in other countries could, with the click of a mouse, have access to information about U.S.-listed companies. Meanwhile, U.S.-listed companies would have no access to similar information to sharpen their bidding strategies against unlisted companies. This could make U.S.-listed businesses dramatically less competitive internationally in the race for global energy resources, potentially costing jobs in the U.S. and abroad. 

Companies that want to improve transparency are making progress through a different strategy, one which API fully supports. They are participating in the Extractive Industries Transparency Initiative (EITI), a voluntary, multilateral, multi-stakeholder global effort to promote revenue transparency in resource-rich countries. Through EITI, host governments, all oil and natural companies operating within the country, and civil society organizations are working together to ensure accurate reporting and third-party verification of payments made to host governments. Through EITI, all companies operating in a participating country are required to report the same information, placing companies on a level playing field. EITI has been fully operational only since 2006, but the organization has made great progress. Fifty major oil and natural gas and mining companies now support EITI. Nine new countries just joined the EITI fold, increasing the numbers from 32 implementing and 5 compliant to 35 implementing and 11 compliant.   

The SEC is expected to issue a final rule to implement Section 1504 later this spring.  We urge the SEC to correct the anti-competitive aspects of its proposal. Otherwise, it could undermine the hard work that has gone into the EITI effort and, in the long run, undermine transparency efforts. That isn’t what U.S. lawmakers planned when they passed the legislation last year requiring the new regulation, and it’s not what the regulators say they desire. But if the SEC fails to make appropriate changes now, those will be the consequences, unintended or not.   

Misty McGowen is the director of federal relations for the American Petroleum Institute.