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US plan to drop transparency rule on oil, gas and mining may not have serious impact, say experts

Out-Law Analysis | 10 Feb 2017 | 11:04 am | 1 min. read

ANALYSIS: US government plans to repeal disclosure rules requiring oil, gas and mining companies to report taxes or other payments made to foreign governments may not have as much impact as anticipated.

The Securities and Exchange Commission (SEC) adopted the rules in June 2016, saying it was required by the 2010 Dodd-Frank Wall Street reform and consumer protection act to "further the statutory objective to advance US foreign policy interests by promoting greater transparency about payments related to resource extraction".

The Republican-controlled Senate approved a resolution last week to eradicate the rule on a 52/47 vote.

However, it remains to be seen whether this change will have a meaningful impact on the various global transparency measures already adopted by the oil and gas sector – of which the Extractive Industries Transparency Initiative (EITI) is a good example. Supported by over 80 of the world’s largest oil, gas and mining companies, the EITI aims to be a global set of standards and expectations for the industry. This includes a number of written principles that promote transparency measures generally. For example, one principal states as an objective that disclosure of payments in a given country should involve all extractive industry companies operating in that country.

To some extent, the transparency genie is already out of the bottle; and in a sector where operators, joint venturers, and their respective supply chains routinely place enhanced due diligence requirements on one another, anti-corruption advocates will make the point that this US law change should not be over-estimated.

Reputational, shareholder and market pressures, and the work done by civil society organisations will also play a role. The increasingly proactive approach of regulators and anti-corruption agencies around the world, as well as the integrity programmes of development banks, mean the disclosure obligations of a company’s home jurisdiction is only one aspect of the enforcement risks it might face – especially if its transparency around payments to foreign governments or their officials were ever questioned.

In reality, around 80% of the world’s largest oil, gas and mining companies are already covered by similar disclosure and anti-corruption rules, with the European Union and Canada having enacted nearly identical disclosure legislation. Many argue that the global anti-corruption playing field is now much more level; and that fears of any competitive disadvantage being suffered by US oil companies as a result of this rule are therefore unfounded.

For further information please contact compliance and investigations expert Neil McInnes and oil and gas expert Ashley Wright of Pinsent Masons MPillay, the Singapore joint law venture partner of Pinsent Masons, the law firm behind Out-Law.com.