JOHANNESBURG May 3 The U.S. Securities and Exchange Commission is unlikely to finalise its new anti-corruption requirements for resource companies before August, delaying a process that should have been done by April.
The reasons for the delay remain unclear but the SEC has said it hopes to have the rules completed by August, if not sooner. Some U.S. congressmen have said the process may not be finished before December, several months later. The SEC last year unveiled draft rules related to the Wall Street reform act requiring energy and mining firms -- including non-U.S. firms with secondary U.S. listings -- to disclose payments to foreign governments. [ID:nN16266425]
Through the rules, the SEC aims to enhance transparency for investors and break the "resource curse" in which many emerging countries, especially in Africa, fail to translate mineral or oil wealth into broad prosperity. [ID:nN18273398]
Following are some questions about the routes the SEC may take and the implications of the delay.
WHEN WILL COMPANIES NEED TO START REPORTING?
- Because the legislation was passed in July of last year and the statute required the SEC to provide implementing rules within 270 days, the rules should have been a done deal by April. If that had been the case, companies would have had to disclose payments to foreign governments as early as the beginning of their next fiscal year.
Because of the delay, it is now possible the reporting requirements may only kick in for FY 2013 or in some cases even 2014, as companies may pressure the SEC for extensions to adjust their accounting software.
WHAT COULD A DELAY MEAN FOR THE RULES?
- Activists and investors who support the legislation's goals are concerned the delay could give the industry, with its deep pockets, more time to lobby to remove the teeth from the rules.
Oil companies, more than miners, would like to see its effectiveness diluted.
U.S. oil industry lobbysits have claimed that some countries such as Angola have national non-disclosure legislation that would conflict with the rules and could cost them projects.
But Brazil's Petrobras (PETR4.SA)(PBR.N), which will fall under the new rules because of a secondary listing on the New York stock exchange, has said it was not aware of any country with a curb on official disclosure. [nLDE72M1VF]
WHAT ARE OTHER AREAS OF DEBATE AND CONTENTION
- There are several.
The SEC for example has signaled it may decide to allow the disclosure requirements on payments to foreign governments to be "furnished" rather than "filed."
The information would then be presented in an exhibit attached to the annual report, and not filed in the body.
Analysts say this will have implications for investors. For example, if such a payment was found to have been materially misstated and resulted in a loss to investors, investors would have no legal recourse.
If a filed disclosure were misstated, investors would have legal recourse, removing the burden of enforcement from the SEC itself. This would make it a more efficient regulation and may help tilt the SEC in this direction.
DEFINITION OF A PROJECT
The legislation calls for "project-by-project" details of payments to foreign governments, a provision welcomed by some investors and anti-poverty campaigners but resisted by industry groups such as the American Petroleum Institute (API), which represents more than 450 oil and natural gas companies.
But how will a project be defined? A project for example could be a successful bid to explore or develop an off-shore oil block or start a mine.
Some analysts say a project could be defined all the way up to the country or regional level, so a "mineral trend" -- mineral deposits running through several countries -- could be construed as a "project". This would considerably dilute the legislation's transparency aims.
WHAT IS ULTIMATELY AT STAKE?
For example, the oil and mining industries in particular are seen contributing to triple woes -- graft, capital flight and poverty -- that are the most insidious side of the "resource curse."
In a report last year, anti-graft watchdog Global Financial Integrity estimated that Africa alone lost $854 billion in illicit flows from 1970 to 2008, and much of this outflow came from resource-rich countries.
GFI calculations recently provided to Reuters showed almost $6 billion was spirited out of oil-rich Angola in 2009 -- a vast sum that represented almost a sixth of its national budget. [nLDE733035]
(Sources: Reuters, Global Financial Integrity, SEC)
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