Bloomberg News

Chamber, Oil Trade Groups Sue SEC on Foreign Payment Rule

October 11, 2012

The U.S. Chamber of Commerce and two oil industry trade groups brought a court challenge to the Securities and Exchange Commission’s rule requiring public companies to disclose payments of more than $100,000 made to foreign governments for commercial development projects.

The groups, in a lawsuit filed yesterday in federal court in Washington, said the regulation violates the First Amendment of the U.S. Constitution and that the commission failed to properly consider the rule’s effects on competition. The rule will cost U.S. companies more than the $1 billion estimated by the commission, the groups said.

“The costs will actually be far greater, as U.S. oil and mining companies are forced to allow competitors access to sensitive commercial information, and to abandon projects to foreign state-owned companies in countries that forbid the disclosures,” the groups said in the complaint.

The regulation stems from the 2010 Dodd-Frank financial reform law, which ordered the agency to implement rules requiring that 1,100 oil, gas and mining companies report payments made to U.S. and foreign governments.

The trade groups say the SEC “grossly misinterpreted” Congress’s directive by requiring each public company to file a report on the commission’s online database detailing each payment made to a foreign government.

‘Trade Secrets’

A compilation of payments would’ve served the purposes of the law “without further burdening U.S. companies or revealing trade secrets or pricing strategies to consumers,” according to the complaint.

“While we are still reviewing the suit, we believe our legal interpretation and economic analysis are sound and we look forward to defending the rule that Congress directed us to write,” John Nester, an SEC spokesman, said in an e-mail.

The groups filed second lawsuit yesterday challenging the same rule in the U.S. Court of Appeals in Washington. According to the filing, the groups said the district court lawsuit was brought “in an abundance of caution” given the appeals court may not have jurisdiction to consider the case first.

The rules were backed by billionaires Bill Gates and George Soros, who wrote letters to the commission arguing that transparency will help investors assess risk.

The case is being handled by Eugene Scalia, the son of Supreme Court Justice Antonin Scalia and a partner at Gibson, Dunn & Crutcher LLP in Washington. It’s the third challenge to a Dodd-Frank rule by Scalia.

Last month, a federal judge in Washington blocked a Commodity Futures Trading Commission derivatives speculation rule that Scalia brought suit against. Last year, he won a case over an SEC regulation that would have made it easier for shareholders to nominate corporate directors.

The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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