SEC Sued Over Delay in Issuing New Resource Extraction Rule
On September 18, Oxfam America Inc. filed a suit in the U.S. District Court for the District of Massachusetts to compel the Securities and Exchange Commission to issue a resource extraction industries rule as required by Dodd-Frank Section 1504. As discussed in earlier posts (here and here) Section 1504 requires the SEC to implement rules mandating that resource extractive industries issuers must disclose payments made to governments to further the commercial development of oil, natural gas or minerals.
The original resource extractive industries rule adopted by the SEC in 2012 was invalidated by the U.S. District Court for the District of Columbia on the grounds that the SEC misread Section 1504 to mandate public disclosure of the reports required by the rule, and that its decision to deny any exemption to the disclosure requirements of the rule was arbitrary and capricious.
In May of this year, the SEC indicated in its regulatory flexibility agenda that it would hope to issue a new proposal under Section 1504 by March 2015.
In its suit, Oxfam alleges that the SEC's failure to complete work on it directly violates a deadline set by Congress. It stated “[t]he SEC's pattern of delay gives no assurance that it will promulgate a Final Rule, nor even a proposed rule, without the involvement of this Court.”
The filing notes:
- As of this date the SEC has neither promulgated a new Final Rule, nor even issued a new proposed rule. More than one year and two months have passed since the D.C. District Court remanded the 2012 Final Rule to the SEC, during which time the SEC has failed to initiate the new rulemaking process. The SEC has indicated on its published Unified Regulatory Agenda that it may issue a new proposed rule by March 2015.
- By vacating and remanding the 2012 Final Rule to the SEC, the District Court restored the status quo before the 2012 Final Rule took effect . . . . Thus, the SEC is once again in violation of its nondiscretionary duty to issue a Final Rule implementing Section 1504 no later than April 17, 2011.
- As of the filing of this Complaint, the SEC has been in violation of Section 1504 for more than three years.
Oxfam asserts it has standing because the information required to be disclosed pursuant to Section 1504 of the Dodd-Frank Act would be of direct value to Oxfam America, both as a shareholder and as an organization with a mission to advance accountability in the management of extractive resource revenues around the world. It further notes that the Administrative Procedure Act provides a remedy to “compel agency action unlawfully withheld or unreasonably delayed” and that the federal mandamus statute gives a federal district court jurisdiction to compel an agency of the United States to perform a nondiscretionary duty owed to a plaintiff as a matter of law.
Oxfam’s action is not the first attempt to force the SEC’s hand on the resource extractive industries rule issue. In August 2013, (after the original rule was vacated) investors representing more than $5.6 trillion in assets under management wrote to Chairman Mary Jo White saying:
- We encourage the SEC to continue its vigorous defense of the Section 1504 rules as it responds to the U.S. District Court’s decision.
- It is in the interest of investors and companies subject to both the U.S. and EU requirements that the reporting obligations in these jurisdictions are as uniform as possible. Consistent and predictable regulations may lower compliance costs and enhance the salience of disclosures. Therefore, we hope that the SEC will take all necessary steps to ensure that the rules go into effect as early as possible and that they maintain continuity with regulations in other jurisdictions. In doing so, the SEC should have due regard to the lengthy deliberations it conducted before the promulgation of the rules, and the inputs from diverse constituencies including many investors.
When announcing the filing of the suit, Ian Gary, senior policy manager of Oxfam America's extractive industries program, told reporters that:
- The SEC can finish strong and is required by Congress to act promptly. With transactions worth billions of dollars in oil, gas and mining projects taking place in some of the poorest, most corrupt and highest-risk countries in the world, citizens and investors simply cannot wait any longer. Other markets like the UK and France are implementing a European Union (EU) law modeled on the SEC’s original strong rules before the end of the year, making the Commission’s job easier to finish.
The SEC has yet to comment on the suit. Like others of the miscellaneous provisions of Dodd-Frank, most notably the conflict minerals provision of Section 1502, the resource extractive industries provision seems likely to provide challenges to the SEC.