WASHINGTON U.S.-listed oil, gas and mining companies will be required to reveal payments they make to foreign governments, including those for drilling or exploration licenses, under rules adopted by U.S. regulators that try to reduce bribery and corruption risks.
The U.S. Securities and Exchange Commission also on Wednesday finalized a rule requiring manufacturers to disclose whether their products include certain minerals from the war-torn Democratic Republic of the Congo.
The SEC was required to write the rules as part of the 2010 Dodd-Frank financial reform law.
The rules have proved controversial, with humanitarian groups accusing the SEC of dragging its feet in carrying out the reforms, and industry associations arguing they will be too costly and give rivals sensitive business information.
The final rules, which the SEC passed by split votes on Wednesday, are more flexible than those originally proposed.
They quickly drew criticism from both sides, which could ultimately lead to a legal challenge.
"Unfortunately, disclosure would not be a two-way street," said John Felmy, chief economist at oil lobbying group the American Petroleum Institute, referring to the payment disclosure rule. "State-owned foreign companies would have to reveal nothing and might even be favored for projects in host countries reluctant to have financial information disclosed."
Regarding the minerals from the Democratic Republic of the Congo - also known as the conflict minerals rule - some humanitarian groups said they were unhappy that the rules would not take effect immediately.
"There is a humanitarian disaster going on and there is an imperative to act now," said Simon Taylor, director of the group Global Witness.
The SEC's Republican commissioners voted against both rules and said they fell outside the SEC's mission of investor protection, despite the reforms being required by law.
Commissioner Troy Paredes said the agency had not assessed how effective the conflict minerals rule might be in addressing the crisis in the African country. He along with SEC Chairman Mary Schapiro were recused on the payment disclosures vote.
The SEC did bend to some industry pleas for less onerous rules. The final conflict mineral rule gives firms leeway on recycled or scrap materials they use.
The rule also allows issuers who cannot immediately determine the source of certain minerals to describe products for two years as "conflict undeterminable" rather than "not conflict free." Smaller companies can use that determination for four years.
"I think the SEC was deliberative in its consideration of the rule and obviously made some very positive changes ... but we still have some significant concerns," said Tom Quaadman, vice president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.
The resource extraction rule will apply to any payment to further exploration, extraction, processing, and export of oil, natural gas or minerals or the acquisition of a license for related activity, the SEC said.
It would apply to any payment, including a series of related payments, over $100,000, the SEC said.
The payments requiring disclosure include taxes and royalties, but also dividends and infrastructure improvements, and other types of fees.
The rule requires companies to provide information on a project-by-project basis, but allows them to define exactly what constitutes a "project."
The minister of mines in the Democratic Republic of the Congo, Martin Kabwelulu, told Reuters by text message that he was "satisfied" with the vote and had begun discussions about tagging bags of minerals.
Companies will be required to report the resource payments information for fiscal years that end after September 30, 2013.
Companies subject to the conflict minerals rule would have until May 31, 2014, to file the first report.
Research by a U.N. Group of Experts last year found that the prospect of the forthcoming rules had already helped reduce the sums earned from tungsten, tin and tantalum mining used to support warlords and buy guns.
Semiconductor maker Advanced Micro Devices Inc, for example, is already meeting with suppliers to help identify the source of covered materials according to Tim Mohin, the company's director of corporate responsibility.
The SEC made a point of detailing the costs of the reforms before voting on both rules. The agency has seen prior rules successfully challenged in court based on allegations it did not adequately weigh costs and benefits.
An SEC official estimated the total industry-wide cost to companies of implementing the conflict minerals rule would be around $3 billion to $4 billion. The annual cost could run between $206 million and $609 million, including expenses for due diligence and investigations to determine the origin of the materials.
On the resource extraction rule, the SEC pegged initial compliance costs at close to $1 billion, and said ongoing compliance costs could run between $200 million and $400 million. Costs include building new internal systems to catch and process the information globally, and hiring compliance and legal employees.
"We have taken those critiques very seriously," said SEC commissioner Elisse Walter, referring to the cost-benefit challenges.
Groups critical of the rules said they would wait until after the full language of the rules is released to make a final decision on whether to file a lawsuit.
"I think that there is a pretty decent likelihood that that final rule will get challenged in court," said Michael Littenberg, a securities lawyer in New York.
(Additional reporting by Braden Reddall in San Francisco, Steve James and Frank Tang in New York, Stella Dawson in Washington, and Jonny Hogg in Kinshasa; editing by Jeffrey Benkoe, Tim Dobbyn and Matthew Lewis)