Periodically, I like to show the Opacity Protection Team (OPT) in action. Today’s example comes from the oil and gas industry. Its members would like to repeal the legislation requiring them to disclose the bribes they pay to foreign governments and/or their officials.
As the Oil & Gas Journal observed,
The American Petroleum Institute has criticized the provision because it believes requiring publicly traded US oil, gas, and mining companies to disclose payments to foreign governments gives an unfair advantage to overseas competitors which are not subject to such rules. It supports voluntary reporting under the Extractive Industries Transparency Initiative instead.
How many companies can be expected to voluntarily report anything that would be useful information when said disclosure supposedly puts the companies at a competitive disadvantage?
How many of these companies can be expected to voluntarily report all payments?
If disclosure is so bad, the answer to both questions is 0.
The Oil and Gas OPT has made its position known throughout the process of setting disclosure requirements. The broad membership of the Oil and Gas OPT submitted a veritable blizzard of comment letters throughout the process of setting the requirements.
When it initially proposed rules implementing Section 1504 in late 2011, the SEC received more than 149,000 comment letters from corporations, industry and professional associations, government officials (both foreign and domestic), nongovernmental organizations, academics, and other interested parties.
But it didn’t limit its activities to just commenting on proposed disclosure requirements. It also went to the courts seeking relief.
The Independent Petroleum Association of America, US Chamber of Commerce, and National Foreign Trade Council joined API in suing the SEC on Oct. 10, 2012, over its implementation of disclosure requirements under the provision (OGJ Online, Oct. 11, 2012). US District Court for the District of Columbia struck down the requirements the following summer (OGJ Online, July 2, 2013).
The commission began to rework the requirements to comply with the court’s decision the following May, and reproposed the rule in December 2015 (OGJ Online, Dec. 11, 2015). Its moving the foreign government payment disclosure to the project level still put publicly traded US oil and gas firms at a competitive disadvantage, API Tax and Accounting Policy Director Stephen Comstock said subsequently (OGJ Online, June 29, 2016).
When you see the Opacity Protection Team in action, you realize why the SEC is not up to the task of ensuring disclosure of the information investors need to know what they own.
When you see the Opacity Protection Team in action, you realize why the Transparency Label Initiative is necessary. Since its label divides investments between transparent and opaque, it doesn’t have to deal with the Opacity Protection Team.
Oil and gas companies that want a label will voluntarily disclose all payments to foreign governments and their officials. The oil and gas companies that don’t disclose these payments won’t get a label.
Investors can decide for themselves how much higher a return they need from companies that don’t disclose to compensate them for the unknown risk of these payments.