The supposedly independent agency is joining other Trump administration officials in the rush to push out last-minute rules, so-called “midnight regulations,” before President Trump leaves office—and before SEC Chair Jay Clayton, who claims to be a political independent, steps down and returns to private life at year’s end.
Specifically, it has announced that on Dec. 16, 2020, it will vote on final regulation implementing the Cardin-Lugar anti-corruption amendment, Sec. 1504 of the Dodd-Frank legislation, which requires all U.S.-listed oil and mining companies to report their payments to governments. It is likely the final rule will be similar to the weak, watered-down proposal the agency issued nearly a year ago. That would be a wonderful gift under the tree for the oil industry, allowing them to hide many of their payments and exempting many companies from any reporting at all.
And it would be the equivalent of a lump of coal in the stockings of investors, who have repeatedly petitioned the SEC for greater transparency in the oil industry’s secretive foreign deals; Congress, which passed the bipartisan legislation to help stem the crippling corruption so common in resource-rich countries, corruption that threatens our own national security interests; and the incoming Biden administration, which has pledged to restore economic cooperation with our allies.
The weak rule proposed last year would leave the United States badly out of step with Canada and the European Union, which for several years have been successfully implementing much stronger disclosure rules for their own extractive industries. SEC commissioner Allison Herren Lee, who voted against the proposed rule last year, said then, “We would deviate widely from existing international disclosure regimes and severely limit the utility of the required disclosure.”
The SEC hasn’t disclosed what changes, if any, it has made to the Cardin-Lugar rule after comments poured in earlier this year from investors, anti-corruption activists, international finance experts, and foreign NGOs, all objecting to the proposed regulation. Kathleen Brophy, head of the Publish What You Pay-US coalition of anti-corruption NGOs, said that rather than allowing citizens to hold their governments to account for natural resource payments, “The draft rule...would instead enable bribery and corruption.” The new, final regulation seems likely to do the same, based on the SEC’s track record of bending to oil industry pressure.
It is not clear why SEC Chair Clayton has decided to push through a final regulation just before the Biden administration takes office. Critics have accused other agencies of using “midnight regulations” to deliberately hamstring Biden, likening them to “booby traps” for the new government. While transitions often see a surge in last-minute rules, Trump’s have a particularly vengeful aspect, punishing foes and rewarding cronies. A weak, pro-industry regulation would fit that pattern.
The case for a strong, pro-investor rule, as Sens. Cardin and Lugar intended, which would conform to the international standard and be a truly useful tool against corruption, has only gotten stronger since the draft regulation was approved in December 2019. In February 2020, for instance, French oil giant Total, which has been disclosing its payments under the more transparent EU rule since 2016, said that its annual compliance costs are about $200,000—or .00007% of its 2019 operating costs of $28 billion, one NGO calculated. That’s clear evidence refuting the industry’s claims that the rule is too costly.
In June, Lisa Woll, head of US SIF, a trade group representing socially responsible investors who have a total of $12 trillion under management, complained about the excessive secrecy in the draft Sec. 1504 rule compared to the international standard: “Investors are not well served by data that obfuscates important issues,” she wrote. Investors, whom the SEC is supposed to serve, have repeatedly told the agency they favor more transparency, not less.
Just last month, the government of Switzerland, a business-friendly country that is not part of the E.U., passed its own extractives disclosure legislation that lines up with the global standard, not the weak U.S. proposal. In other words, a nation famous for financial secrecy is now more transparent that the U.S.
And all the while, hundreds of European and Canadian (and Chinese and Russian) oil, gas and mining companies have continued reporting their payments under the international standard—and the sky did not fall. There is now literally years’ worth of proof that the U.S. oil companies’ exaggerated and fanciful claims of competitive harm are nonsense.
Clayton is a wealthy former corporate lawyer who reportedly plans to go back to New York City. As SEC chair, he had a lower profile than many Trump appointees. (At least until this summer, when he was nominated to be the top federal prosecutor in Manhattan, a powerful and politically sensitive post that the then-current occupant wouldn’t relinquish. Controversy ensued, and his nomination never advanced.)
Supporters credit him with looking out for the small investor. But lately he’s been siding with the two Republican commissioners favoring corporate interests.
Clayton fancies himself as a corruption fighter. During last December’s vote on the draft rule, he pushed back on one GOP commissioner’s complaint that the agency shouldn’t be in the corruption-busting business. “For decades and decades, we have been a leader in anti-corruption, in ferreting out illicit payments to governments and in bringing actions,” Clayton said, referring to the SEC’s long-time enforcement of the Foreign Corrupt Practices Act. “And I’ve often lamented that we have too few followers.”
The Dec. 16 Cardin-Lugar vote will be the final test of whether he meant that, or they were just empty words. The right thing to do would be to delay a decision until a new chair appointed by President Biden can reassess the full record. Otherwise, a vote to join in the Trump administration’s unseemly holiday giveaways would shred his corruption-fighting credentials. He’d return to the Christmas lights of Gotham not as a crusader against corporate bribery, but as the Grinch who stole the hopes of bringing transparency to extractive industry payments.
For more information, see this blog from Earthrights International.
This blog post was updated on December 10, 2020. The original version did not specify a date for the vote of the final regulation. It instead stated that the final regulation would likely be issued by "late December."