On February 14, 2017, President Trump approved Congress’ joint resolution to repeal the SEC’s resource extraction disclosure rule. That action effectively brings to a conclusion the SEC’s efforts to implement a resource extraction disclosure rule mandated more than six years ago by the Dodd-Frank Act.
The Rule and its History
The SEC adopted the latest version of the rule in June 2016 (the “2016 Rule”). Beginning with fiscal years ending on or after September 30, 2018, the 2016 Rule would have required domestic public companies and foreign private issuers engaged in the commercial development of oil, natural gas or minerals to provide annual disclosure of payments to the U.S. and foreign governments in furtherance of the commercial development of such resources.
The SEC first adopted a resource extraction disclosure rule in August 2012 (the “2012 Rule”) to implement Section 13(q) of the Securities Exchange Act (the “Exchange Act”), which was added by Section 1504 of the Dodd-Frank Act. The U.S. District Court for the District of Columbia vacated the 2012 Rule in July 2013, based on two findings: first, that the SEC misread Section 13(q) to compel the public disclosure of the issuers’ reports; and second, the SEC’s explanation for not granting an exemption for when disclosure is prohibited by foreign governments was arbitrary and capricious. In 2014, Oxfam America, Inc. filed suit in the U.S. District Court for the District of Massachusetts to compel the SEC to promulgate a final rule implementing Section 1504. In September 2015, the court issued an order holding that the SEC unlawfully withheld agency action by not promulgating the final rule. The SEC filed an expedited schedule for promulgating the final rule, which culminated in the SEC’s adoption of the 2016 Rule in June 2016.
The Joint Congressional resolution to disapprove of the 2016 Rule was passed by both houses of Congress in early February 2017 pursuant to the Congressional Review Act (the “CRA”), which permits Congress to disapprove a rule within a specified period of time following its adoption. Each house of Congress may act by simple majority. The President may veto a disapproval resolution but is not required to affirmatively approve it for the disapproval to take effect. President Trump elected to formally approve the joint resolution on February 14, 2017, marking only the second time the CRA has been used to invalidate an adopted rule.
As a result of the Congressional action under the CRA, the 2016 Rule will be treated as if it had never taken effect. Further, the CRA expressly prohibits the SEC from any rulemaking that is “substantially the same” as the disapproved rule without additional statutory authorization.
Although the requirement for the SEC to adopt a resource extraction disclosure rule under Section 13(q) of the Exchange Act remains law, we expect the SEC will not revisit a resource extraction disclosure regulation anytime soon, if at all. Further, in light of President Trump’s February 3, 2017 order requiring a review of financial regulations, as well as various potential actions on financial legislation, including the Dodd-Frank Act, being considered by Congress, the repeal of the SEC’s resource extraction regulation may be just the beginning of significant reshaping of the SEC regulatory landscape.