(Adds comments from API, Oxfam, further background)
By Sarah N. Lynch
WASHINGTON, July 2 A U.S. judge tossed out on
Tuesday a new rule requiring oil, natural gas and mining
companies to disclose payments to foreign governments, in a blow
to U.S. securities regulators and human rights groups.
U.S. District Judge John Bates said the Securities and
Exchange Commission erred in its interpretation of part of the
2010 Dodd-Frank Wall Street reform law that called for the rule
and did not properly consider requests for relief.
Proponents of the resource extraction rule, including
international relief organization Oxfam America, say it would
help combat corruption and wasteful spending in resource-rich
But business groups say it would cost billions of dollars
and yield little shareholder benefit.
Trade groups, including the American Petroleum Institute and
U.S. Chamber of Commerce, filed the legal challenge alleging the
SEC misinterpreted the law by forcing the public disclosure of
detailed data on payments.
The industry groups also said the SEC failed to include
common-sense exemptions by forcing disclosure of payments to
countries like China and Angola, where such disclosures are
Bates, in U.S. District Court for the District of Columbia,
"The Commission misread the statute to mandate public
disclosure of the reports, and its decision to deny any
exemption was, given the limited explanation provided, arbitrary
and capricious," Bates wrote in a 30-page opinion.
API General Counsel Harry Ng said the decision was a "win
for American jobs."
"U.S. companies are leading the way to increase
transparency, but the rule would have jeopardized transparency
efforts already underway by making American firms less
competitive against state-owned oil companies," he said in a
SEC spokesman John Nester said the SEC was reviewing Bates'
decision, which vacated the rule and sent it back to the agency.
It was the second major defeat of an SEC rule stemming from
the Dodd-Frank law. In 2011, the U.S. Chamber of Commerce and
the Business Roundtable succeeded in overturning a "proxy
access" rule that would have made it easier for shareholders to
nominate directors to corporate boards.
In that case, a federal appeals court decided the SEC had
failed to properly weigh the costs and benefits of the rule.
Both the proxy access and resource extraction rule
challenges were argued by Gibson Dunn partner Eugene Scalia, the
son of Supreme Court Justice Antonin Scalia.
In a statement, Oxfam senior policy manager Ian Gary said
that while he was disappointed, his group hopes the SEC will be
able to rewrite the rules in a way that preserves their intent
and also takes into account the judge's criticisms.
"Nothing in the decision says that the SEC may not require
public reporting or deny exemptions - it just says that the SEC
needs to use its discretion and provide a fuller analysis," Gary
Last month, the European Union approved a similar but more
expansive measure that would cover more industries and apply to
both public and private companies.
Arlene McCarthy, a British Labour member of the European
Parliament, said she was disappointed by the U.S. ruling.
"It clearly prioritizes the commercial interests of industry
over the public and general interest of investors who are
seeking this information in order to make informed investment
decisions," she said.
Canadian Prime Minister Stephen Harper said last month that
his government is planning a similar mandatory reporting regime.
The trade groups argued the SEC should have allowed
companies to privately disclose the data to regulators. Public
disclosures should only be made through a more general
compilation of the payments, to protect their commercial
interests, they said.
Bates, in his ruling, declined to address some of the
industry groups' other arguments, including whether the SEC had
properly weighed the costs and benefits of the rule, and whether
the rule violated companies' free speech rights.
The U.S. Chamber of Commerce and others have challenged
another Dodd-Frank-based regulation known as the "conflict
minerals" rule, that calls for manufacturers to disclose if
their products contain certain minerals from the war-torn
Democratic Republic of Congo.
That case was argued in court on Monday before a different
judge, but some of the arguments against the rule are similar to
those in the resource extraction case.
(Reporting by Sarah N. Lynch; Additional reporting by Julie
Gordon in Toronto and Barbara Lewis in Brussels; Editing by
Karey Van Hall, Jeffrey Benkoe and Tim Dobbyn)