Two years of uncertainty for big U.S.-listed mining and energy companies will end on Wednesday when U.S. regulators finalize new rules on overseas operations, one set that will require the disclosure of payments to foreign governments while the other seeks to halt the flow of so-called "conflict minerals."
Both sets of rules are part of the Dodd-Frank financial law passed in 2010, but regulators have been slow to implement them amid opposition from the industry, which says U.S.-listed companies will be at a competitive disadvantage compared to foreign rivals who are not required to abide by the rules.
Industry groups, including the U.S. Chamber of Commerce, have also raised concerns that the rules would create a costly compliance regime.
On the disclosure side, the rules to be finalized by the Securities and Exchange Commission require energy and mining firms with U.S. listings including secondary ones to reveal payments to foreign governments, such as drilling or exploration licenses that can run into billions of dollars.
The "blood minerals" provisions say U.S.-listed firms that source gold, tungsten, tantalum and tin from Congo or its neighbors must assure regulators they are not funding conflict in that war-torn country.
The disclosure rules were widely hailed by humanitarian groups as the most sweeping measures yet to try and tackle the problem as they hit the primary cause: opaque deals between governments and industry.
The stakes have been especially high in Africa, where vast oil and mineral wealth has not translated into wider prosperity, a state of affairs widely referred to as the "resource curse".
By exposing how much money is paid to governments, the rules aim to make officials accountable for the funds and reduce graft, which can become entrenched if states become addicted to the spoils that can be reaped from these sectors.
One point of contention that should be clarified on Wednesday is whether or not exemptions should be made if a country has laws that forbid a company from disclosing the payments it makes to the government.
U.S. oil lobbyists, who have claimed these laws exist in countries such as Angola, have pushed for such exemptions.
However, Brazilian oil giant Petrobras (PETR4.SA) (PBR.N), which will fall under the new rules because of a U.S. secondary listing and operates in Angola, has said it was not aware of any country with a curb on official disclosure.
The industry fears it will be forced to show its hand at a time when U.S. companies are competing fiercely with new rivals.
"Forcing publicly traded companies to release proprietary information about their foreign operations would put them at a serious competitive disadvantage because state-owned firms could plunder that information and determine their rivals' strategy and resource levels," Jack Gerard, president of the lobby group American Petroleum Institute, wrote in a Wall Street Journal op-ed article last week. "Information worth billions of dollars would be just a few mouse clicks away."
Heather Lowe, director of government affairs at anti-graft watchdog Global Financial Integrity, dismissed API's concerns.
"This law is not requiring proprietary information to be disclosed but only payments to foreign governments," Lowe told Reuters. "Without additional information it is impossible to derive commercial terms from the data that would need to be provided."
The friction caused by the resource curse has led to turmoil and kidnappings in the oil-rich but impoverished Niger Delta in Nigeria and stirred the labor unrest in South Africa's platinum sector where 34 striking workers were killed last week in a hail of police bullets.
Regarding enhanced disclosure about conflict minerals, research by a U.N. Group of Experts last year found that the law had already helped reduce the sums earned from tungsten, tin and tantalum mining used to support warlords and buy guns.
Electronics companies such as Dell Inc DELL.O and Intel Corp (INTC.O) have signed codes of conduct excluding conflict minerals from their supply chains.
But the U.N. research also found the rule had not had the same effect on the gold industry.
While some European gold refineries say they are no longer sourcing any material from Africa's artisanal miners in an effort to reduce the risk, months of unrest in Congo's volatile but resource-rich east has hampered the international push to curb the traffic of gold by rebel groups.
Some analysts say the net for blocking "conflict minerals" has been cast too wide, ensnaring legitimate operators while the illegal ones behind the fighting may still slip through.
"The law, as it stands, does not discriminate between gold produced from an established mine in the DRC countries, from small-scale mining operations or from illegal diggers. They are all deemed conflict gold," Martin Bauwens, director of mining consultancy MJB Consulting, told Reuters.
The SEC received a flood of comment letters on the rule, with companies such as AT&T (T.N) saying the rule over-reaches. It would require companies to determine if their products contain any tantalum, tin, gold or tungsten from the Democratic Republic of the Congo - something they say can be very difficult to trace through the layers of the supply chain.
Corporations will be closely watching to see if the SEC allows for a phase-in of the rules, and how strict the agency is with audit and due diligence requirements.
PROJECT BY PROJECT
Another area that has stirred controversy revolves around how a resource extraction project is defined.
The legislation calls for project-by-project details of payments to foreign governments, a provision welcomed by some investors and anti-poverty campaigners but resisted by industry groups such as the API.
Among the objections API raised last year in a lengthy submission was that project-by-project payment disclosure could "identify the location of the firms' most important personnel and their most important capital assets."
Anti-poverty campaigners have said if project-level detail is not included the transparency aims of the legislation would be gutted as corruption often bubbles at the micro-level and payments could be hidden there.
Investors are also anxious to see if the SEC will allow disclosure requirements on payments to foreign governments to be "furnished" rather than filed. If they are furnished, the information would be presented in an attachment to the annual report, and not filed in the body.
Analysts have said this will have implications for shareholders. For example, if such a payment was found to have been materially misstated and resulted in a loss to investors, under U.S. law they would have no legal recourse if it was furnished rather than filed in the body of the report.
If a filed disclosure were misstated, investors would have legal recourse.
(Reporting by Ed Stoddard; Editing by Bob Burgdorfer)