[Federal Register Volume 75, Number 246 (Thursday, December 23, 2010)]
[Proposed Rules]
[Pages 80978-81002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31943]
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Part IV
Securities and Exchange Commission
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17 CFR Parts 229 and 249
Disclosure of Payments by Resource Extraction Issuer; Proposed Rule
Federal Register / Vol. 75 , No. 246 / Thursday, December 23, 2010 /
Proposed Rules
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229 and 249
[Release No. 34-63549; File No. S7-42-10]
RIN 3235-AK85
Disclosure of Payments by Resource Extraction Issuers
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: We are proposing amendments to our rules pursuant to Section
1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
relating to disclosure of payments by resource extraction issuers.
Section 1504 added Section 13(q) to the Securities Exchange Act of
1934, which requires the Commission to issue rules requiring resource
extraction issuers to include in an annual report information relating
to any payment made by the issuer, or by a subsidiary or another entity
controlled by the issuer, to a foreign government or the Federal
Government for the purpose of the commercial development of oil,
natural gas, or minerals. Section 13(q) requires a resource extraction
issuer to provide information about the type and total amount of
payments made for each project related to the commercial development of
oil, natural gas, or minerals, and the type and total amount of
payments made to each government. In addition, Section 13(q) requires a
resource extraction issuer to provide certain information regarding
those payments in an interactive data format, as specified by the
Commission.
DATES: Comments should be received on or before January 31, 2011.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
Send an e-mail to [email protected]. Please include
File Number S7-42-10 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-42-10. This
file number should be included on the subject line if e-mail is used.
To help us process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments also are available for Web site viewing and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. All comments received will be posted without change; we
do not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.
FOR FURTHER INFORMATION CONTACT: Tamara Brightwell, Senior Special
Counsel, Division of Corporation Finance, or Elliot Staffin, Special
Counsel in the Office of International Corporate Finance, Division of
Corporation Finance, at (202) 551-3290, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-4553.
SUPPLEMENTARY INFORMATION: We are proposing new Item 105 \1\ of
Regulation S-K,\2\ an amendment to Item 601 of Regulation S-K,\3\ and
amendments to Forms 10-K,\4\ 20-F,\5\ and 40-F \6\ under the Securities
Exchange Act of 1934 (``Exchange Act'').\7\
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\1\ Proposed 17 CFR 229.105.
\2\ 17 CFR 229.10 et al.
\3\ 17 CFR 229.601.
\4\ 17 CFR 249.310.
\5\ 17 CFR 249.220f.
\6\ 17 CFR 249.240f.
\7\ 15 U.S.C. 78a et seq.
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Table of Contents
I. Background
II. Proposed Rules Under Section 13(q)
A. Summary
B. Definition of ``Resource Extraction Issuer''
C. Definition of ``Commercial Development of Oil, Natural Gas,
or Minerals''
D. Definition of ``Payment''
1. Types of Payments
2. The ``Not De Minimis'' Requirement
3. The ``Project'' Requirement
4. Payments by ``a Subsidiary * * * or an Entity Under the
Control of the Resource Extraction Issuer''
5. Other Matters
E. Definition of ``Foreign Government''
F. Disclosure Required and Form of Disclosure
1. Annual Report Requirement
2. Exhibits and Interactive Data Format Requirement
3. Treatment for Purposes of the Securities Act and the Exchange
Act
G. Effective Date
H. General Request for Comment
III. Paperwork Reduction Act
A. Background
B. Burden and Cost Estimates Related to the Proposed Amendments
1. Form 10-K
2. Regulation S-K
3. Form 20-F
4. Form 40-F
C. Summary of Proposed Changes to Annual Compliance Burden in
Collection of Information
D. Solicitation of Comment
IV. Cost-Benefit Analysis
A. Benefits
B. Costs
V. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
VI. Initial Regulatory Flexibility Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Reporting, Recordkeeping, and Other Compliance Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Solicitation of Comment
VII. Small Business Regulatory Enforcement Fairness Act
VIII. Statutory Authority and Text of Proposed Rule and Form
Amendments
I. Background
This release is one of several we are required to issue to
implement provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the ``Act'').\8\ This release proposes a new
rule \9\ and certain rule \10\ and form amendments \11\ to implement
Section 13(q) of the Exchange Act, which was added by Section 1504 of
the Act. New Section 13(q) requires the Commission to ``issue final
rules that require each resource extraction issuer to include in an
annual report of the resource extraction issuer information relating to
any payment made by the resource extraction issuer, a subsidiary of the
resource extraction issuer, or an entity under the control of the
resource extraction issuer to a foreign government or the Federal
Government
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for the purpose of the commercial development of oil, natural gas, or
minerals, including--(i) the type and total amount of such payments
made for each project of the resource extraction issuer relating to the
commercial development of oil, natural gas, or minerals, and (ii) the
type and total amount of such payments made to each government.'' \12\
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\8\ Public Law 111-203 (July 21, 2010). To facilitate public
input on the Act, the Commission has provided a series of e-mail
links, organized by topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml. The public comments we received
are available on our Web site at http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specialized-disclosures.shtml.
\9\ See proposed Regulation S-K Item 105 [17 CFR 229.105].
\10\ See proposed Regulation S-K Item 601(b)(97) and (98) [17
CFR 229.601(b)(97) and (98)].
\11\ See proposed Item 16I under Part II of Form 20-F, and
proposed paragraph (17) to General Instruction B of Form 40-F.
\12\ 15 U.S.C. 78m(q)(2)(A).
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Section 13(q) provides the following definitions and descriptions
of several key terms:
``Resource extraction issuer'' means an issuer that is
required to file an annual report with the Commission and engages in
the commercial development of oil, natural gas, or minerals; \13\
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\13\ 15 U.S.C. 78m(q)(1)(D).
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``Commercial development of oil, natural gas, or
minerals'' includes exploration, extraction, processing, export, and
other significant actions relating to oil, natural gas, or minerals, or
the acquisition of a license for any such activity, as determined by
the Commission;\14\
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\14\ 15 U.S.C. 78m(q)(1)(A).
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``Foreign government'' means a foreign government, a
department, agency or instrumentality of a foreign government, or a
company owned by a foreign government, as determined by the
Commission;\15\ and
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\15\ 15 U.S.C. 78m(q)(1)(B).
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``Payment'' means a payment that:
Is made to further the commercial development of oil,
natural gas, or minerals;
Is not de minimis; and
Includes taxes, royalties, fees (including license fees),
production entitlements, bonuses, and other material benefits, that the
Commission, consistent with the guidelines of the Extractive Industries
Transparency Initiative (to the extent practicable), determines are
part of the commonly recognized revenue stream for the commercial
development of oil, natural gas, or minerals.\16\
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\16\ 15 U.S.C. 78m(q)(1)(C).
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Section 13(q) specifies that ``[t]o the extent practicable, the
rules issued under [the section] shall support the commitment of the
Federal Government to international transparency promotion efforts
relating to the commercial development of oil, natural gas, or
minerals.'' \17\ As noted above, the statute explicitly refers to one
international initiative, the Extractive Industries Transparency
Initiative (``EITI''),\18\ in the definition of ``payment.'' Although
the provision regarding international transparency efforts does not
explicitly mention the EITI, the legislative history indicates that the
EITI was considered in connection with the new statutory provision.\19\
The United States is one of several countries that support the
EITI.\20\
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\17\ 15 U.S.C. 78m(q)(2)(E).
\18\ The EITI was announced by former UK Prime Minister Tony
Blair at the World Summit on Sustainable Development in Johannesburg
in September 2002. See http://www.eiti.org/eiti/history. The World
Bank Group officially endorsed the EITI in 2003. See Implementing
the Extractive Industries Transparency Initiative (2008)
(``Implementing the EITI'') (available at http://eiti.org/document/implementingtheeiti). The EITI is a voluntary coalition of oil,
natural gas, and mining companies, foreign governments, investor
groups, and other international organizations dedicated to fostering
and improving transparency and accountability in countries rich in
oil, natural gas, and minerals through the publication and
verification of company payments and government revenues from oil,
natural gas, and mining. See Implementing the EITI. According to the
EITI, ``[b]y encouraging greater transparency and accountability in
countries dependent on the revenues from oil, gas and mining, the
potential negative impacts of mismanaged revenues can be mitigated,
and these revenues can instead become an important engine for long-
term economic growth that contributes to sustainable development and
poverty reduction.'' EITI Source Book (2005) at p. 4 (available at
http://eiti.org/files/document/sourcebookmarch05.pdf).
Currently five countries--Liberia, Azerbaijan, Timor Leste,
Ghana, and Mongolia--have achieved ``EITI compliant'' status by
completing a validation process in which company payments are
matched with government revenues by an independent auditor
(available at http://eiti.org/countries/compliant). Some 27 other
countries are EITI candidates in good standing and are in the
process of complying with EITI standards (available at http://eiti.org/candidatecountries). Several other countries have indicated
their intent to implement the EITI (available at http://eiti.org/othercountries). Implementation of the EITI varies across
countries--the EITI provides criteria and a framework for
implementation, but allows countries to make key decisions on the
scope of its program (e.g. degree of aggregation of data, inclusion
of subnational or social or community payments). See Source Book,
pp. 23-24.
\19\ See, e.g., statement by Senator Lugar, one of the authors
of Section 1504 (``This domestic action will complement multilateral
transparency efforts such as the Extractive Industries Transparency
Initiative--the EITI--under which some countries are beginning to
require all extractive companies operating in their territories to
publicly report their payments.''), 111 Cong. Rec. S3816 (daily ed.
May 17, 2010). Other examples of international transparency efforts
include the recent amendments of the Hong Kong Stock Exchange
listing rules for mineral companies and the London Stock Exchange
AIM rules for extractive companies. See Amendments to the GEM
Listing Rules of the Hong Kong Stock Exchange, Chapter 18A.05(6)(c)
(effective June 3, 2010) (available at http://www.hkex.com.hk/eng/rulesreg/listrules/gemrulesup/Documents/gem34_miner.pdf) (requiring
a mineral company to include in its listing document, if relevant
and material to the company's business operations, information
regarding its compliance with host country laws, regulations and
permits, and payments made to host country governments in respect of
tax, royalties and other significant payments on a country by
country basis) and Note for Mining and Oil & Gas Companies--June
2009 (available at http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/rules/guidance-note.pdf) (requiring disclosure
in the initial listing of ``any payments aggregating over
[pound]10,000 made to any government or regulatory authority or
similar body made by the applicant or on behalf of it, in regards to
the acquisition of, or maintenance of its assets.'').
\20\ See the list of EITI supporting countries at http://eiti.org/supporters/countries.
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The Commission's rules under Section 13(q) must require a resource
extraction issuer to submit the payment information included in an
annual report in an interactive data format \21\ using an interactive
data standard established by the Commission.\22\ Section 13(q) defines
``interactive data format'' to mean an electronic data format in which
pieces of information are identified using an interactive data
standard.\23\ The section also defines ``interactive data standard'' as
a standardized list of electronic tags that mark information included
in the annual report of a resource extraction issuer.\24\ The rules
issued pursuant to Section 13(q) \25\ must include electronic tags that
identify:
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\21\ 15 U.S.C. 78m(q)(2)(C).
\22\ 15 U.S.C. 78m(q)(2)(D).
\23\ 15 U.S.C. 78m(q)(1)(E).
\24\ 15 U.S.C. 78m(q)(1)(F).
\25\ 15 U.S.C. 78m(q)(2)(D)(i).
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The total amount of payments, by category;
The currency used to make the payments;
The financial period in which the payments were made;
the business segment of the resource extraction issuer
that made the payments;
The government that received the payments and the country
in which the government is located; and
The project of the resource extraction issuer to which the
payments relate.\26\ Section 13(q) further authorizes the Commission to
require electronic tags for other information that it determines is
necessary or appropriate in the public interest or for the protection
of investors.\27\
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\26\ 15 U.S.C. 78m(q)(2)(D)(ii).
\27\ 15 U.S.C. 78m(q)(2)(D)(ii).
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Section 13(q) provides that the final rules ``shall take effect on
the date on which the resource extraction issuer is required to submit
an annual report relating to the fiscal year * * * that ends not
earlier than 1 year after the date on which the Commission issues final
rules[.]'' \28\
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\28\ 15 U.S.C. 78m(q)(2)(F).
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Finally, Section 13(q) requires the Commission to make publicly
available online, to the extent practicable, a compilation of the
information required to be submitted by resource extraction issuers
under the new rules.\29\ The
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statute does not dictate a particular form or content for that
compilation.
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\29\ 15 U.S.C. 78m(q)(3).
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II. Proposed Rules Under Section 13(q)
A. Summary
As discussed in detail below, we are proposing amendments to Form
10-K, Form 20-F, and Form 40-F to require the disclosures mandated by
Section 13(q). The disclosure requirements for Form 10-K would be set
forth in new Item 105 of Regulation S-K,\30\ which would require a
resource extraction issuer to provide information relating to any
payment made by it, a subsidiary, or an entity under its control to a
foreign government or the U.S. Federal Government during the fiscal
year covered by the annual report for the purpose of the commercial
development of oil, natural gas, or minerals. The item would specify
that this information would be set forth in two exhibits to the
filing--one exhibit filed in HyperText Markup Language (``HTML'') or
American Standard Code for Information Interchange (``ASCII'') format
and another exhibit filed in eXtensible Business Reporting Language
(``XBRL'') format. We are proposing to amend Item 601 of Regulation S-K
to add these new exhibits to Form 10-K for the disclosure.\31\ We also
propose to add new Item 4(c) to Form 10-K to require a resource
extraction issuer to provide disclosure in Part I of Form 10-K noting
that the information required by Section 13(q) and new Item 105 of
Regulation S-K is included in exhibits to the filing.\32\ An issuer
would be required to include in the proposed exhibits the type and
total amount of payments made for each project, as well as the type and
total amount of payments made to each government, relating to the
commercial development of oil, natural gas, or minerals.\33\ The
proposed rules also would require a resource extraction issuer to
include certain detailed information about the payments made.
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\30\ See proposed Item 105 of Regulation S-K.
\31\ See proposed Items 601(b)(97) and (98) of Regulation S-K.
\32\ See proposed Item 4(c) under Part I of Form 10-K.
\33\ See proposed Item 105(a) and Items 601(b)(97) and (b)(98)
of Regulation S-K.
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Section 13(q) applies to any issuer that is required to file an
annual report with the Commission and that engages in the commercial
development of oil, natural gas, or minerals, which includes foreign
private issuers that file annual reports on Forms 20-F and 40-F.\34\
Because Regulation S-K does not apply to those forms, we propose to
amend Forms 20-F and 40-F to include the same disclosure requirements
as those proposed for resource extraction issuers that are not foreign
private issuers.\35\
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\34\ While Form 20-F may be used by any foreign private issuer,
Form 40-F is only available to a Canadian issuer that is eligible to
participate in the U.S.-Canadian Multijurisdictional Disclosure
System (``MJDS'').
\35\ See proposed Item 16I under Part II of Form 20-F and
proposed paragraph (17) to General Instruction B of Form 40-F.
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As noted above, Section 13(q) requires the Commission to issue
rules requiring the payment information to be submitted in an
interactive data format. We propose to require a resource extraction
issuer to submit the information in an exhibit using the interactive
data standard known as XBRL.
B. Definition of ``Resource Extraction Issuer''
Under the proposed rule and form amendments, ``resource extraction
issuer'' would be defined as it is under Section 13(q). Specifically, a
resource extraction issuer would be defined as an issuer that:
Is required to file an annual report with the Commission;
and
Engages in the commercial development of oil, natural gas,
or minerals.\36\
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\36\ See proposed Item 105(b)(4) of Regulation S-K, proposed
Item 16I.B.(4) under Part II of Form 20-F, and proposed paragraph
B.(17)(b)(4) under the General Instructions of Form 40-F.
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Section 13(q) specifically applies to issuers that are required to
file an annual report with the Commission and that engage in the
commercial development of oil, natural gas, or minerals. The provision
does not indicate that the Commission, in adopting implementing rules,
should provide different standards for different issuers or should
exempt any issuers from the new requirements.\37\ Thus, under the
proposal, all U.S. companies and foreign companies that are engaged in
the commercial development of oil, natural gas, or minerals, and that
are required to file annual reports with the Commission, regardless of
size or the extent of business operations constituting commercial
development of oil, natural gas, or minerals, would be subject to
Section 13(q). Likewise, the proposed rules would apply equally to
companies that fall within this definition whether or not they are
owned or controlled by governments.
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\37\ A commentator requested that the Commission consider an
exemption to allow foreign private issuers to follow their home
country rules and disclose in their Form 20-F the required home
country disclosure. The commentator expressed concern that foreign
private issuers will be required to provide multiple payment
disclosures in their Form 20-F to satisfy U.S., UK, and EU
requirements. See letter from Royal Dutch Shell plc (``RDS'')
(October 25, 2010).
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Request for Comment
1. Should the Commission exempt certain categories of issuers, such
as smaller reporting companies or foreign private issuers,\38\ from the
proposed rules? If so, which ones and why? If not, why not? Would
providing an exemption for certain issuers be consistent with the
statute? \39\ If we do not provide such an exemption when adopting
final rules, would foreign private issuers or any other issuers
deregister to avoid the disclosure requirement?
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\38\ See the definition of ``smaller reporting company'' in
Exchange Act Rule 12b-2 [17 CFR 240.12b-2] and the definition of
``foreign private issuer'' in Exchange Act Rule 3b-4 [17 CFR 240.3b-
4].
\39\ Cf., Statement of Senator Cardin in support of Amendment
No. 3732 to Restoring American Financial Stability Act (S. 3217)
(indicating the legislation was intended to cover foreign private
issuers by stating that ``The provisions of this amendment would
apply to all oil, gas, and mining companies required to file
periodic reports with the SEC; namely, 90 percent of the major
internationally operating oil companies and 8 out of the 10 largest
mining companies in the world--only 2 of which are U.S. companies.
We are talking about foreign-owned companies, not U.S. companies, by
and large. Of the top 50 oil and gas companies by proven oil
reserves, 20 are national oil companies that do not usually operate
internationally. These companies are not registered with the SEC and
* * * do not compete with internationally operating companies. Of
the remaining 30 companies that do operate internationally, 27 would
be covered by this legislation--27 of the 30. These include
Canadian, European, Russian, Chinese, Brazilian, and other
international companies.''), 111 Cong. Rec. S3316 (daily ed. May 6,
2010). See also letter from Senator Cardin (December 1, 2010)
(``Senator Cardin'') (stating that, with respect to the meaning of
resource extraction issuer, ``the intent was to include all issuers,
including foreign issuers, which have a reporting requirement to the
SEC.'').
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2. Would our proposed rules present undue costs to smaller
reporting companies? If so, how could we mitigate those costs? Also, if
our proposed rules present undue costs to smaller reporting companies,
do the benefits of making their resource extraction payment information
publicly available justify these costs? Should our rules provide more
limited disclosure and reporting obligations for smaller reporting
companies? If so, what should these limited requirements entail? Should
our rules provide for a delayed implementation date for smaller
reporting companies in order to provide them additional time to prepare
for the requirement and the benefit of observing how larger companies
comply?
3. Should the Commission provide an exemption to allow foreign
private issuers to follow their home country rules and disclose in
their Form 20-F the required home country disclosure?
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4. Should the rules apply to issuers that are owned or controlled
by governments, as proposed? If so, why? If not, why not? Should the
disclosure requirements be varied for such entities?
5. General Instructions I and J to Form 10-K contain special
provisions for the omission of certain information by wholly-owned
subsidiaries and asset-backed issuers. Should either or both of these
types of registrants be permitted to omit the proposed resource
extraction payment disclosure in the annual reports on Form 10-K?
C. Definition of ``Commercial Development of Oil, Natural Gas, or
Minerals''
As noted above, Section 13(q) defines ``commercial development of
oil, natural gas, or minerals'' for purposes of the section.\40\
Consistent with Section 13(q), we propose to define ``commercial
development of oil, natural gas, or minerals'' to include the
activities of exploration, extraction, processing, export and other
significant actions relating to oil, natural gas, or minerals, or the
acquisition of a license for any such activity.\41\ While Section 13(q)
provides the Commission with flexibility to define commercial
development, we believe it is appropriate to use the statutory
direction in the proposed rules and to seek comment on the scope of
activities included in the proposed definition.
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\40\ See Section I. above and 15 U.S.C. 78m(q)(1)(A).
\41\ See proposed Item 105(b)(1) of Regulation S-K, proposed
Item 16I.B.(1) under Part II of Form 20-F, and proposed paragraph
B.(17)(b)(1) under the General Instructions of Form 40-F.
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We understand that the EITI criteria primarily focus on exploration
and production activities.\42\ Thus, the statutory language appears to
include activities beyond what is currently contemplated by the
EITI.\43\ However, because the statute sets forth a clear list of
activities, we preliminarily believe that our rules should be
consistent with that list.
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\42\ See, e.g., Implementing the EITI at p. 24. Exploration and
production activities often are referred to as ``upstream
activities.'' Id. We note, however, that at least one EITI program
has included the disclosure of payments made in connection with or
following processing activities, such as excise and export taxes, in
addition to those relating to exploration and production activities.
See Liberian Extractive Industries Transparency Initiative
Secretariat, Final Report of the Administrators of the Second LEITI
Reconciliation, Annex 2 (February 2010) (``Liberian Final Report'')
(available at http://leiti.org.lr/doc/LEITI2ndReconciliationFinalReport.pdf).
\43\ See also letter from Senator Cardin, stating that `` * * *
EITI is a minimum reporting standard, and the intent of Sec. 1504
was to go beyond these requirements.'').
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The proposed definition is intended to capture only activities that
are directly related to the commercial development of oil, natural gas,
or minerals. It is not intended to capture activities that are
ancillary or preparatory to such commercial development. Accordingly,
we would not consider a manufacturer of a product used in the
commercial development of oil, natural gas, or minerals to be engaged
in the commercial development of the resource.\44\ For example, a
manufacturer of drill bits or other machinery used in the extraction of
oil would not fall within the definition of commercial development.
Similarly, transportation activities generally would not be included
within the proposed definition. On the other hand, an issuer engaged in
the removal of impurities, such as sulfur, carbon dioxide, and water,
from natural gas after extraction but prior to its transport through
the pipeline would be included in the definition of commercial
development because such removal is generally considered to be a
necessary part of the processing of natural gas in order to prevent
corrosion of the pipeline.
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\44\ In this regard, we have received a letter suggesting that
we clarify whether selling equipment to a resource extraction
company, which is then used to explore for oil, natural gas, or
minerals, is a significant action relating to oil, natural gas, or
minerals. See letter from Mike Koehler, Assistant Professor of
Business Law, Butler University (September 3, 2010).
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Request for Comment
6. Should we, as proposed, define ``commercial development of oil,
natural gas, or minerals'' as the term is described in the statute?
Should it be defined differently (e.g. more broadly or more narrowly)?
If we should define the term, what definition would be appropriate?
7. Should the definition of ``commercial development of oil,
natural gas, or minerals'' include the activities of exploration,
extraction, processing, and export, as proposed? \45\ Should we exclude
any of these activities? If so, which activities and why? If not, why
not? Would excluding certain activities be consistent with the statute?
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\45\ In this regard, we have received a letter suggesting that
we interpret the statutory definition of commercial development to
include ``upstream'' activities involved in the exploration and
production of resources, ``midstream'' activities involved in the
trading and transport of resources, and ``downstream'' activities
involved in the refining, ore processing and marketing of resources.
See the letter from Calvert Investments and Social Investment Forum
(``Calvert and SIF'') (November 15, 2010).
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In this regard, we note that, as discussed above,
disclosing payments beyond those related to exploration and production
is not required by the EITI criteria, and other countries have focused
on identifying, reporting and verifying revenue streams related to
those activities only.\46\ Should the definition only include the
activities of exploration and extraction, consistent with the EITI, and
not include processing, export, and other significant actions? \47\
Should the definition include the activities of exploration,
extraction, and only some processing activities, such as those related
to the upgrading of bitumen and heavy oil? \48\ Should the definition
explicitly include production, consistent with the use of that term by
the EITI? \49\ Does ``production'' in the oil, natural gas, and mining
industries include activities that are different than those covered by
``extraction'' so that if we do not include production in the
definition of commercial development, some payments may go unreported?
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\46\ See Implementing the EITI at p. 35.
\47\ Some commentators support limiting the definition of
commercial development to ``upstream'' activities only. See letters
from American Petroleum Institute (``API'') (October 12, 2010);
National Mining Association (``NMA'') (November 16, 2010) (submitted
as a ``White Paper''); and RDS. In contrast, other commentators
support a definition of commercial development that covers
``upstream,'' ``midstream,'' and ``downstream'' activities. See
letters from Calvert and SIF and Publish What You Pay United States
(``PWYP'') (November 22, 2010).
\48\ See letter from API, which suggests this approach.
\49\ We believe the term ``extraction'' would include the
production of oil and natural gas as well as the extraction of
minerals. The EITI appears to use the terms ``extraction'' and
``production'' interchangeably. For example, the EITI recognizes
that ``the benefits of resource extraction occur as revenue streams
over many years * * *.'' EITI Source Book at p. 8. However, when
discussing various aspects of benefit streams, such as their
materiality, the EITI refers to a company's or host government's
estimated total production value. See EITI Source Book, p. 27.
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8. Are there other significant activities that we should include in
the definition? \50\ Should we provide further guidance regarding
activities that may not be covered by the list of activities, but could
constitute a ``significant action?'' If so, what activities should be
covered?
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\50\ We have received a request to specify that other
significant actions ``includes the transport of oil, natural gas or
ores, such as in pipelines or other mechanisms'' and ``may include,
but not be limited to, contracting for services such as security
operations that may be necessary to the operation of a particular
element of the resource extraction life cycle.'' Letter from PWYP.
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9. As noted, we do not believe the proposed definition of
``commercial development of oil natural gas, or minerals'' would
include transportation to the extent that the oil, natural gas, or
minerals are transported for purposes
[[Page 80982]]
other than export, and we note that payments related to transportation
activities generally are not included in EITI programs.\51\ Should the
definition include transportation of oil, natural gas, or minerals?
\52\ Should compression of natural gas be treated as processing, and
therefore subject to the proposed rules, or transportation, and
therefore not subject to the proposed rules?
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\51\ Implementing the EITI at p. 35. While transporting,
processing, and refining are activities that are outside the scope
of most EITI programs, the EITI has stated that ``a country may find
it useful to cover these `downstream' oil, gas, and mining
transactions in order to gain a better understanding of overall
sector financial flows, and possibly to obtain a better
understanding of the link between the value of downstream
transactions and original, upstream transactions (exploration and
production-related).'' Implementing the EITI at pp. 35-36.
\52\ PWYP advocated including transportation under the
definition of commercial development ``[g]iven the potential size of
the payments involved, and the capacity of vertically integrated
companies to substitute payments to governments at different levels
* * *.'' Letter from PWYP.
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10. Should the definition of ``commercial development of oil,
natural gas, or minerals'' explicitly exclude any other oil, natural
gas, or mining activities? If so, please tell us what types of
activities should be excluded and why.
11. Should we provide any additional guidance regarding the types
of activities that may be within or outside of the scope of the
definition?
D. Definition of ``Payment''
Section 13(q) defines ``payment'' to mean a payment that:
Is made to further the commercial development of oil,
natural gas, or minerals;
Is not de minimis; and
Includes taxes, royalties, fees (including license fees),
production entitlements, bonuses, and other material benefits, that the
Commission, consistent with EITI's guidelines (to the extent
practicable), determines are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, or
minerals.\53\
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\53\ 15 U.S.C. 78m(q)(1)(C).
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We propose to define the term ``payment'' in the proposed rule and form
amendments using the definition provided in the statute.\54\
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\54\ See proposed Item 105(b)(3) of Regulation S-K, proposed
Item 16I.B.(3) under Part II of Form 20-F, and proposed paragraph
B.(17)(b)(3) under the General Instructions of Form 40-F.
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1. Types of Payments
We interpret Section 13(q) to provide that the types of payments
that are included in the statutory language should be subject to
disclosure under our rules to the extent that the Commission determines
that the types of payments and any ``other material benefits'' are part
of the ``commonly recognized revenue stream for the commercial
development of oil, natural gas, or minerals.'' Consistent with Section
13(q), we propose to require resource extraction issuers to disclose
payments of the type identified in the statute because, as discussed
below, we preliminarily believe that they are part of the ``commonly
recognized revenue stream for the commercial development of oil,
natural gas, or minerals.'' Therefore, we are proposing to include the
statutory list as the list of payments covered by the rules. We note
that the types of payments listed in the statute generally are
consistent with the types of payments the EITI suggests should be
disclosed, which we believe is evidence that the payment types are part
of the commonly recognized revenue stream for this purpose. As noted
above, the statute provides that our determination should be consistent
with the EITI's guidelines, to the extent practicable. Guidance for
implementing the EITI suggests that a country's disclosure requirements
might include the following benefit streams: \55\
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\55\ EITI Source Book, pp. 27-28.
\56\ Under the EITI, benefit streams are defined as being any
potential source of economic benefit which a host government
receives from an extractive industry. See EITI Source Book, p. 26.
\57\ Dividends are not included in the list of payments
identified in Section 13(q) and the proposed rules do not include
dividends in the list of payments required to be disclosed.
\58\ Under our proposed rules, taxes include both profit taxes
and taxes that the EITI suggests are significant benefits to host
governments. We have not identified any other material benefits at
this time.
------------------------------------------------------------------------
Benefit Stream \56\ Further description
------------------------------------------------------------------------
Host government's production This is the host government's share of
entitlement. the total production. This production
entitlement can either be transferred
directly to the host government or to
the national state-owned company. Also,
this stream can either be in kind and/or
in cash.
National state-owned company This is the national state-owned
production entitlement. company's share of the total production.
This production entitlement is derived
from the national state-owned company's
equity interest. This stream can either
be in kind and/or in cash.
Profits taxes................ Taxes levied on the profits of a
company's upstream activities.
Royalties.................... Royalty arrangements will differ between
host government regimes.
Royalty arrangements can include a
company's obligation to dispose of all
production and pay over a proportion of
the sales proceeds.
On other occasions, the host government
has a more direct interest in the
underlying production and makes sales
arrangements independently of the
concession holder. These ``royalties''
are more akin to a host government's
production entitlement.
Dividends \57\............... Dividends paid to the host government as
shareholder of the national state-owned
company in respect of shares and any
profit distributions in respect of any
form of capital other than debt or loan
capital.
Bonuses (such as signature, Payments related to bonuses for and in
discovery, production). consideration of:
Awards, grants and transfers of
extraction rights;
Achievement of certain
production levels or certain targets;
and
Discovery of additional
mineral reserves/deposits.
Licence fees, rental fees, Payments to the host government and/or
entry fees and other national state-owned company for:
considerations for licences Receiving and/or commencing
and/or concessions. exploration and/or for the retention of
a licence or concession (licence/
concession fee)[.]
Performing exploration work
and/or collecting data (entry fees).
These are likely to be made in the
pre-production phase.
Leasing or renting the
concession or licence area.
Other significant benefits to These benefit streams include tax that is
host governments \58\. levied on the income, production or
profits of companies. These exclude tax
that is levied on consumption, such as
value-added taxes, personal income taxes
or sales taxes.
------------------------------------------------------------------------
[[Page 80983]]
We preliminary believe that a definition that is generally consistent
with EITI guidance furthers the intent of the statute to support
international transparency efforts.
At this time we are not proposing to determine ``other material
benefits'' that should be classified as payments subject to disclosure.
We recognize that there may be other payments that should be included
in, or excluded from, the list. In addition, it is possible that the
nature of payments that are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, or minerals
may change over time, including in response to final rules promulgated
under Section 13(q). We also recognize that it may be appropriate to
provide more specific guidance about the particular payments that
should be disclosed. Our requests for comment are intended to elicit
detailed information about what types of payments should be included
in, or excluded from, the rules; what additional guidance may be
helpful or necessary; and whether there are ``other material benefits''
that should be specified in the list of payments subject to disclosure
because they are part of the commonly recognized revenue stream for the
commercial development of oil, natural gas, or minerals.
Request for Comment
12. Should the definition of ``payment'' include the list of the
types of payments from Section 13(q), as proposed? Are there additional
types of payments that we should include in the definition of
``payment?'' Should the definition exclude certain types of payments?
Are there certain payments, for example, specific types of taxes, fees,
or benefits that we should include in, or exclude from, the list?
Alternatively, should we provide guidance in our rules in the form of
examples of payments that we believe resource extraction issuers would
be required to disclose?
13. As noted above, the definition of payment includes ``taxes,''
which is consistent with Section 13(q) and the EITI.\59\ In order to
clarify the meaning of this term in a manner consistent with the EITI,
we have included an instruction in our proposal noting that resource
extraction issuers would be required to disclose taxes on corporate
profits, corporate income, and production and would not be required to
disclose taxies levied on consumption, such as value added taxes,
personal income taxes, or sales taxes.\60\ Consistent with the EITI, we
are not proposing to require disclosure of consumption taxes because we
do not believe such taxes are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, and
minerals. Is our proposal regarding disclosure of taxes appropriate?
Should the types of taxes listed as requiring disclosure, or not
requiring disclosure, be revised? If so, how should they be revised?
Are there other taxes that we should include in or exclude from the
disclosure requirements?
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\59\ As noted above, the EITI includes in its suggested list of
payments to be disclosed profits taxes and ``other significant
benefits,'' which include taxes levied on the ``income, production
or profits of companies.'' EITI Source Book at pp. 27-28.
\60\ See proposed Instruction to paragraph (b)(3)(iii)(A) of
Regulation S-K Item 105, proposed Instruction 3 to Item 16I of Form
20-F, and proposed Note 3 to Instruction B.(17) of Form 40-F.
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14. While the definition of ``payment'' in Section 13(q) does not
address the means by which a payment may be made, we believe it would
cover payments made in cash or in kind. Should a resource extraction
issuer be required to disclose payments regardless of how the payment
is made (e.g. in cash or in kind)? \61\ Should the rule be revised to
make clear that ``payment'' would include payments made in cash or in
kind?
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\61\ For example, the EITI permits the use of an ``in kind''
measure, such as the number of barrels or volume conveyed to the
host government, instead of a cash value, for production
entitlements and royalty arrangements that are similar to production
entitlements. See EITI Source Book, p. 27.
---------------------------------------------------------------------------
15. The definition includes ``fees (including license fees),''
which is consistent with Section 13(q) and the EITI. As noted above,
the EITI gives examples of the fees that should be disclosed, including
concession fees, entry fees, and leasing and rental fees, which would
likewise be covered under our proposal. In addition to license fees,
should the rules specifically list other types of fees that would be
subject to disclosure?
16. Are there other fees that we should identify in the rules or in
guidance? For example, should we specify that disclosure would be
required for fees paid for environmental permits, water and surface use
permits, and other land use permits; fees for construction and
infrastructure planning permits, air quality and fire permits,
additional environmental permits, customs duties, and trade levies?
Would these types of fees be considered to fall within the categories
of fees that we have identified as being subject to disclosure?
17. Are there some types of fees that we should explicitly exclude
from the definition?
18. The definition includes ``bonuses,'' which is consistent with
Section 13(q) and the EITI. ``Bonuses'' would include the examples of
bonuses identified by the EITI as noted in the table above. Should we
provide further guidance about the meaning of the term ``bonus'' for
purposes of this disclosure?
19. Are there types of bonuses that we should exclude from the
definition of ``payment?''
20. Are there ``other material benefits'' that we should specify as
being included within the definition of ``payment?'' In that regard,
how should we determine what benefits ``are part of the commonly
recognized revenue stream for the commercial development of oil,
natural gas, or minerals?'' Should we include a broad, non-exclusive
definition of ``other material benefits,'' such as benefits that are
material to and directly result from or directly relate to the
exploration, extraction, processing, or export of oil, natural gas, or
minerals? \62\ Or would including a broad definition be inconsistent
with the statutory language directing us to identify other material
benefits that ``are part of the commonly recognized revenue stream for
the commercial development of oil, natural gas, or minerals?''
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\62\ One commentator requested that we define broadly other
material benefits as governmental payments ``relating to the
execution of any aspect of covered operations in the relevant
jurisdiction that a reasonable person would find material to the
project's net worth,'' including but not limited to activities
involved in the exploration and production of resources, the trading
and transport of resources, and the refining and marketing of
resources. Letter from PWYP.
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21. As noted, dividends are not included in the list of payments
required to be disclosed under the proposed rules. Should we determine
that dividends are ``other material benefits'' and require disclosure
of dividends? Are dividends part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, or minerals?
22. We do not believe the proposed definition of payment should
include payments resource extraction issuers make for infrastructure
improvements, even if they are a direct cost of engaging in the
commercial development of oil, natural gas, or minerals because it is
not clear that such payments would be covered by the specific list of
items in the statute or otherwise would be a part of the commonly
recognized revenue stream for the commercial development of oil,
natural gas, or minerals.\63\ Should
[[Page 80984]]
our definition cover such payments? Would such payments be considered
part of the commonly recognized revenue stream? Would these types of
payments distort the disclosure of payments for extractive activities?
---------------------------------------------------------------------------
\63\ Mining companies often make such payments either because,
due to the poor level of development in a host country,
infrastructure improvements are necessary to gain access to the host
country's minerals, or because the companies are contractually
obligated to improve the host country's roads as a condition of
engaging in exploration or extraction activities. The EITI has
acknowledged that the scope of an EITI program might have to be
expanded to include such infrastructure payments. See Implementing
the EITI, p. 25.
---------------------------------------------------------------------------
23. ``Social or community'' payments generally include payments
that relate to improvements of a host country's schools or hospitals,
or to contributions to a host country's universities or funds to
further resource research and development. As proposed, our rules would
not expressly include social or community payments within the
definition of ``payment.'' Some EITI programs include social or
community payments while others do not.\64\ Are such payments part of
the commonly recognized revenue stream for the commercial development
of oil, natural gas, or minerals? Should we require disclosure of only
certain ``social or community'' payments under the ``other material
benefits'' provision, such as if those payments directly fulfill a
condition to engaging in resource extraction activities in the host
country? \65\ Would such payments be considered part of the commonly
recognized revenue stream?
---------------------------------------------------------------------------
\64\ See Implementing the EITI, p. 24. See also letter from
Senator Cardin (noting that many EITI implementing countries are
considering reporting on social payments). One commentator has
requested that we exclude payments relating to community
development, including those pertaining to local purchasing or
employment, from the disclosure requirements. See letter from NMA.
\65\ See letter from PWYP (supporting the inclusion of
``social'' payments under the definition of payment, which it
defines as payments ``made by extractive industry participants in
order to reduce operational risk by improving the welfare of local
communities, individual citizens and organizations in the villages,
cities or countries where these companies work, or in order to
obtain a `social license to operate'.''). Cf. letter from NMA
(opposing disclosure of payments ``that provide only `indirect
economic benefits' such as construction of local infrastructure
(like schools, roads, hospitals, and the like) that are not
primarily used for extractive activities.'').
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24. Are there other types of payments that we should include as
``other material benefits?'' For example, should we, as requested by
one commentator, require disclosure of ``ancillary payments made
pursuant to the investment contract (including personnel training
programs, local content, technology transfer and local supply
requirements)'' and payments ``related to any liabilities incurred
(including penalties for violations of law or regulation, environmental
and remediation liabilities, and bond guarantees entered into with the
central banks or similar national or multi-national entities, as well
as costs arising in connection with any such bond guarantees)''? \66\
---------------------------------------------------------------------------
\66\ Letter from PWYP.
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25. Should we provide additional guidance regarding the types of
payments that resource extraction issuers should disclose? If
additional guidance is appropriate, should we provide clarification in
the rules or as interpretive guidance?
2. The ``Not De Minimis'' Requirement
Section 13(q) defines ``payment,'' in part, to be a payment that is
``not de minimis,'' without defining what would be considered ``not de
minimis.'' If a payment is de minimis, it would not be subject to
disclosure; if it is not de minimis, it could be subject to disclosure
if the other standards for disclosure are present.
Under the EITI, countries are free to establish a materiality level
for disclosure. For example, countries may establish a materiality
level based on the size of payments or the size of companies subject to
disclosure.\67\ As noted, Section 13(q) established the threshold for
payment disclosure as ``not de minimis'' rather than requiring
disclosure of ``material'' payments.\68\ Given the use of the phrase
``not de minimis,'' we preliminarily do not believe that ``not de
minimis'' equates to a materiality standard. The term ``de minimis'' is
defined generally as something that is ``lacking significance or
importance'' or ``so minor as to merit disregard.'' \69\ We
preliminarily believe the phrase ``not de minimis'' is sufficiently
clear that further explication is unnecessary, and we do not propose to
prescribe a standard for what amounts would be considered de minimis or
not de minimis for purposes of the new disclosure requirement.
---------------------------------------------------------------------------
\67\ Implementing the EITI, p. 30. The EITI Source Book notes
that a benefit stream is material ``if its omission or misstatement
could distort the final EITI report'' for the country. EITI Source
Book at p. 26.
\68\ In contrast, the definition of payment also includes the
phrase ``other material benefits.''
\69\ Merriam-Webster Dictionary (available at http://www.merriam-webster.com/dictionary/deminimis).
---------------------------------------------------------------------------
We preliminarily believe it is more appropriate to define the term
``payment'' consistent with the definition in Section 13(q) without
specifically defining ``not de minimis'' for purposes of the
requirement. However, we seek comment, as described below, on whether
to define ``not de minimis.'' We also are soliciting comment on several
possible standards to include in our final rule, as necessary or
appropriate, to provide additional certainty concerning what payments
are required to be disclosed under these new rules. As described in
more detail below, the possible standards could include an absolute
dollar amount, a relative measure (e.g. a percentage of expenses,
revenues or some other amount incurred per project or in total for the
year covered by the annual report), or a combination of the two
approaches.\70\
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\70\ For example, we could define ``not de minimis'' to be an
amount that meets or exceeds the lesser of a dollar amount, such as
$100,000, or a percentage, such as 1%, of an issuer's expenses,
revenues or some other amount for the year.
---------------------------------------------------------------------------
Request for Comment
26. Section 13(q) establishes the threshold for payment disclosure
as ``not de minimis,'' which we preliminarily believe is a standard
different from a materiality standard.\71\ Is our interpretation that
``not de minimis'' is not the same as ``material'' correct?
---------------------------------------------------------------------------
\71\ One commentator stated that ``reporting only on material
payments is contrary to Congress's distinction between a de minimis
standard applied to individual payments and a materiality standard
applied to benefit streams.'' See letter from Revenue Watch
Institute (December 6, 2010) (``RWI'').
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27. Should we define ``not de minimis'' for purposes of the
proposed rules? Why or why not? \72\ What would be the advantages or
disadvantages of not defining that term? If the final rules do not
provide a definition, should an issuer be required to disclose the
basis and methodology it used in assessing whether a payment amount was
``not de minimis?''
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\72\ Some commentators have requested that we provide a
definition of ``not de minimis.'' See letter from Calvert and SIF
(stating such a definition is necessary ``due to the lack of
applicable precedent regarding the de minimis concept featured in
Section 1504* * *''); NMA; and PWYP.
---------------------------------------------------------------------------
28. If we should define ``not de minimis,'' what should that
definition be? \73\ Provide data to support your definition if you are
able to do so.
---------------------------------------------------------------------------
\73\ Calvert and SIF have suggested that we set the ``de minimis
threshold'' at $15,000, which is similar to the level used by the
London Stock Exchange's Alternative Investment Market (``AIM'')
listing rule that requires disclosure of any payment above
[pound]10,000 (approximately $15,000) made to any government or
regulatory authority by an oil, gas or mining company. See letter
from Calvert and SIF. PWYP has suggested both qualitative and
quantitative definitions of de minimis. According to its qualitative
definition, de minimis ``means an item so insignificant that it is
not relevant to a reasonable person in determining the net value of
the project's annual liabilities.'' According to its quantitative
definition, de minimis ``means any payment that exceeds the
equivalent of $1,000 or payments that, in the aggregate, exceed the
equivalent of $15,000.'' Letter from PWYP.
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29. What would be the advantages or disadvantages of defining ``not
de
[[Page 80985]]
minimis'' as ``material?'' Would such a reading be consistent with the
language and intent of the statute? Would such a standard be a
reasonable means of encouraging consistent disclosure? Would it be
necessary for the Commission to provide additional guidance on how to
determine materiality if a materiality standard governed this
disclosure? If so, what guidance would be appropriate in the context of
this information?
30. Should we adopt a definition of ``not de minimis'' that uses an
absolute dollar amount as the threshold? If so, what would be the
appropriate dollar amount? Should the ``not de minimis'' payment
threshold be $100,000, an amount less than $100,000, such as $1,000,
$10,000, $15,000,\74\ or $50,000, or an amount greater than $100,000,
such as $200,000, $500,000, $1,000,000, or $10,000,000? Should some
other dollar amount be used?
---------------------------------------------------------------------------
\74\ See letter from Calvert and SIF and PWYP.
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31. The type and amount of payments made by resource extraction
issuers may vary greatly, depending on the size of the issuer and the
nature and size of a particular project. Should the rules account for
variations in size of issuers and projects? Would doing so be
consistent with Section 13(q)?
32. Should a payment be considered ``not de minimis'' if it meets
or exceeds a percentage of expenses incurred per project for the year
that is the subject of the annual report? Is a per project basis
appropriate because Section 13(q) requires an issuer to disclose
payment information for each project as well as for each government?
Instead of a per project basis, should we base a definition of ``not de
minimis'' on a threshold that uses a percentage of an issuer's total
expenses for the year or its total expenses incurred for all projects
undertaken in a particular country for the year? \75\ Should the
percentage threshold be based on something else, such as revenues,
profits or income? Would using a percentage threshold further the
intent of the statute and help minimize the costs associated with
providing the disclosure?
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\75\ One commentator suggested a definition of ``de minimis''
that would require an issuer to disclose payments to a government
if, in the aggregate, payments across all categories exceeded five
percent or more of the issuer's gross expenses. Once the aggregate
amount of payments exceeded the specified threshold, ``then all
payments in that country otherwise meeting the definition in the Act
would be reportable, even though each payment stream would not
necessarily be material.'' Letter from NMA.
---------------------------------------------------------------------------
33. If a percentage threshold should be used to define ``not de
minimis,'' should the percentage be 1%, 2%, 3%, 4%, 5%, or a higher
percentage? Should the definition use a percentage lower than 1%, such
as 0.1%, 0.2%, 0.3%, 0.4%, or 0.5%?
34. Should we adopt a definition of ``not de minimis'' that uses
the same dollar amount or the same percentage threshold for all
resource extraction issuers, regardless of size?
35. Should we adopt a definition of ``not de minimis'' that depends
on the size of a resource extraction issuer so that the dollar amount
or percentage threshold would vary depending on the size of the issuer?
For example, should the threshold be $1,000 for non-accelerated filers,
$10,000 for accelerated filers, and $100,000 for large accelerated
filers? Should some other dollar amount be used for each filer
category? If so, what amount? If we use a percentage threshold, should
the threshold be 1% for non-accelerated filers, 2% for accelerated
filers, and 3% for large accelerated filers? Should some other
percentage be used for each filer category? If so, what percentage?
36. Should we define ``not de minimis'' to be an amount that meets
or exceeds the lesser of two measures, for example, a dollar amount,
such as $100,000, or a percentage, such as 1%, of an issuer's expenses,
revenues or some other amount for the year? Would such an approach be
appropriate to address variations in the size of resource extraction
issuers?
37. Should we define payments that are ``not de minimis'' to mean
payments that are significant compared to the total expenses incurred
by an issuer for a particular project, or with regard to a particular
government for the year?
38. We note that the phrase ``not de minimis'' is used only in the
definition of the term ``payment.'' Would it be consistent with the
statute to require disclosure of payments that are ``not de minimis''
only if they are related to material projects of a resource extraction
issuer? \76\
---------------------------------------------------------------------------
\76\ Commentators have suggested such an approach, noting that
this approach would be consistent with the EITI, which requires
disclosure of material payments only. See letters from API and RDS.
Under the EITI, countries can determine the appropriate threshold
for materiality. See, e.g., EITI Source Book, p. 26. Cf. letter from
Senator Cardin (stating that ``[r]eporting under Sec. 1504 is
designed to complement reporting done under the Extractive
Industries Transparency Initiative (EITI), but does not mimic it,
and purposefully requires reporting at the project level,
disaggregated by payment stream.'').
---------------------------------------------------------------------------
3. The ``Project'' Requirement
While Section 13(q) requires a resource extraction issuer to
disclose information regarding the type and total amount of payments
made to a foreign government or the Federal Government for each project
relating to the commercial development of oil, natural gas, or
minerals, it does not define the term ``project.'' \77\ We note the
EITI does not provide for the disclosure of payments on a per project
basis, and thus, does not define the term or provide guidance on how we
should define the term. Our rules currently do not include a definition
of ``project,'' although, as noted below, our rules include some
references to the term ``project'' that may be useful in considering
the term. We understand that, depending upon the particular industry or
business in which an issuer operates, and other factors such as the
size of an issuer, ``project'' may be defined in a variety of ways. In
light of the fact that neither Section 13(q) nor our current disclosure
rules include a definition of the term and to provide flexibility in
applying the term to different business contexts, we are not proposing
a specific definition for the term. However, we are soliciting comment
regarding whether we should define ``project,'' and, if so, what
definition would be appropriate.
---------------------------------------------------------------------------
\77\ The legislative history does not provide an indication as
to how we should define the term.
---------------------------------------------------------------------------
Request for Comment
39. Should we define ``project'' for purposes of this new
disclosure requirement? If so, why? If not, why not?
40. If we should define ``project,'' what definition would be
appropriate? \78\ Please be as specific as possible and discuss the
basis for your recommendation.
---------------------------------------------------------------------------
\78\ API suggested defining project to mean ``technical and
commercial activities carried out within a particular geological
basin or province to explore for, develop and produce oil, natural
gas or minerals. These activities include, but are not limited to,
acreage acquisition, exploration studies, seismic data acquisition,
exploration drilling, reservoir engineering studies, facilities
engineering design studies, commercial evaluation studies,
development drilling, facilities construction, production
operations, and abandonment. A project may consist of multiple
phases or stages.'' Letters from American Petroleum Institute
(December 9, 2010). PWYP has requested that we define project ``in
relation to each lease, license and/or other concession-level
arrangement entered into by a resource extraction issuer,'' so as to
``capture information related to the discrete, project-specific
financial flows affiliated with extractive industry development
activities.'' Letter from PWYP.
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41. Should we define ``project'' to mean a project as that term is
used by a resource extraction issuer in the ordinary course of
business? What are the advantages and disadvantages of such an
approach? If the final rules were to use such an approach, should an
issuer be required to disclose the basis and methodology it used in
defining what constitutes a project?
[[Page 80986]]
42. Should we define ``project'' to mean a field, mining property,
refinery or other processing plant, or pipeline or other mode of
transport? Should we define ``project'' to permit the inclusion of more
than one field, mining property, refinery or other processing plant, or
pipeline or other mode of transport?
43. Should we adopt a definition of ``project'' that is
substantially similar to the definition of ``development project''
under Rule 4-10(a)(8) of Regulation S-X? \79\ Would reliance on that
existing definition, with which oil and natural gas companies are
already familiar, help to elicit appropriate payment disclosure under
Section 13(q) without over-burdening issuers? \80\ Or is that
definition unsuitable for purposes of Section 13(q) because it does not
explicitly encompass other types of projects, such as exploration
projects, and does not relate to mining activities? What modifications
to the Regulation S-X definition of ``development project,'' if any,
would be appropriate to provide a definition for ``project'' for it to
be suitable for purposes of the disclosure required by Section 13(q)?
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\79\ Under that rule, the term ``development project'' is
defined as the ``means by which petroleum resources are brought to
the status of economically producible. As examples, the development
of a single reservoir or field, an incremental development in a
producing field, or the integrated development of a group of several
fields and associated facilities with a common ownership may
constitute a development project.'' 17 CFR 210.4-10(a)(8). See also
Compliance and Disclosure Interpretation (``CDI'') 108.01 under the
Oil and Gas Rules issued by the Commission's Division of Corporation
Finance on October 26, 2009 (available at http://www.sec.gov/divisions/corpfin/guidance/oilandgas-interp.htm). The CDI provides
in relevant part that a ``development project is typically a single
engineering activity with a distinct beginning and end, which, when
completed, results in the production, processing or transportation
of crude oil or natural gas. A project typically has a definite cost
estimate, time schedule and investment decision; is approved for
funding by management; may include all classifications of reserves;
and will be fully operational after the completion of the initial
construction or development. The scope and scale of a project are
such that, if a project were terminated before completion, for
whatever reason, a significant portion of the previously invested
capital would be lost.''
\80\ One commentator suggested the Commission could use this
definition as a basis for defining project because it is well
understood by the industry and investors. See letter from RDS.
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In particular, similar to Rule 4-10(a)(8) and staff
guidance regarding the rule, should we define project as:
The means by which oil, natural gas, or mineral resources
are brought to the status of being economically producible or
commercially developed;
typically involving a single engineering activity with a
distinct beginning and end;
having a definite cost estimate, time schedule, or
investment decision, and approved for funding by management;
one that, when completed, results in the exploration,
extraction or production, processing, transportation or export of oil,
natural gas, or minerals; and
one that may involve a single reservoir, field or mine,
the incremental development of a producing field or mine, or the
integrated development of a group of several fields or mines and
associated facilities with a common ownership?
Would it be appropriate to include or exclude any of the
aspects listed above? Why or why not?
Should the definition of project include one that involves
more than one engineering activity or an engineering activity that is
open-ended? Would a definition that focuses on the level of engineering
activity fail to elicit the disclosure of payments in connection with
some projects, for example, an exploration project?
Would a project always have a definite cost estimate, time
schedule, or investment decision, or be approved by management? Should
any of these characteristics be excluded from any definition of
project? Are there any additional characteristics that we should
include in any definition of project?
Should any definition of project encompass only a single
reservoir, field or mine? Why or why not?
44. Should we permit issuers to treat operations in a country as a
``project?'' Would doing so be consistent with the statute? \81\
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\81\ See statement from Senator Cardin (explaining the need for
the statute because existing disclosures are ``not useful in
determining the extent of a company's operations in or its ongoing
financial arrangements with a country.''). 111 Cong. Rec. S3315
(daily ed. May 6, 2010). PWYP has suggested permitting an issuer to
disclose certain payments on an entity level with respect to a
particular jurisdiction but only when the payment, such as a
corporate income tax, is calculated at the entity level rather than
the project level. See letter from PWYP.
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45. We note that issuers currently use the concept of ``reporting
unit'' for financial reporting purposes (e.g., an operating segment or
one level below an operating segment). Should the definition of
``project'' be consistent with the ``reporting unit'' concept? \82\ Is
that definition consistent with the statute? Would using such a
definition ease implementation of the disclosure requirements for
resource extraction issuers given that payments currently may be
tracked on that basis? What concerns, if any, are raised by using such
a concept as the basis for defining ``project?'' Are there other
concepts, such as an ``asset group'' or ``cash generating unit,'' that
would provide a more appropriate basis for the definition of
``project?''
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\82\ One commentator suggested that we define project to be
``consistent with the concepts of operating segments and reporting
units under which mining companies currently provide information.''
The suggested definition would include preparation for, or
exploitation of, mineral deposits in an identified geographic area,
and ``would exclude activities such as prospecting, surveying and
exploration, which are undertaken well before a `project' has
materialized.'' Letter from NMA.
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46. Are there any other factors that we should include in the
definition of ``project?''
47. Should we define ``project'' to mean a material project? \83\
If so, what should be the basis for determining whether a project is
material for purposes of the resource extraction payment disclosure
rules? Would defining project to mean a material project be consistent
with Section 13(q)?
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\83\ Some commentators have suggested defining project in this
way. See letters from API; Cravath, Swaine & Moore LLP, Cleary
Gottlieb Steen & Hamilton LLP, Davis Polk & Wardwell LLP, Shearman &
Sterling LLP, Simpson Thacher & Bartlett LLP, Skadden, Arps, Slate,
Meagher & Flom LLP, Sullivan & Cromwell LLP, and Wilmer Cutler
Pickering Hale and Dorr LLP (November 5, 2010) (``Eight Law
Firms''); and RDS. But see letter from RWI (stating that ``* * *
limiting reporting to material projects contravenes Congress's
intent to implement a level playing field through a project-by-
project disclosure standard.'').
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48. Should we permit issuers to aggregate payments by country
rather than project? \84\ Would that be consistent with Section 13(q)?
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\84\ See letter from API suggesting such an approach. In
addition, the NMA has suggested permitting disclosure of payments at
the country level for prospecting, surveying, and exploration
activities, and for payments that constitute commercially sensitive
information or are subject to reasonable host government
confidentiality restrictions, in addition to payments, such as
corporate income tax payments, that are calculated at the country
level. Letter from NMA. Another commentator noted that some payments
may be made at the entity level rather than at the project level,
and that establishing systems to apportion entity level payments may
be prohibitively expensive and that such apportionment could be
somewhat arbitrary. The commentator suggested that compliance costs
could be mitigated by allowing entity-level payments to be reported
at the country level rather than the project level. See letter from
RWI. See also letter from PWYP (``Where * * * certain payments are
made at an entity level rather than at the lease/license level * * *
this fact should have no bearing on the definition of `project' but,
rather, may give rise to a limited reporting allowance whereby
issuers could report at an entity level, rather than project-level,
for that specific payment only.'').
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4. Payments by ``a Subsidiary * * * or an Entity Under the Control of
the Resource Extraction Issuer''
Section 13(q) requires a resource extraction issuer to disclose
payments made by a subsidiary or an entity under the control of the
resource extraction issuer, in addition to its own payments, to a
foreign government or the Federal
[[Page 80987]]
Government for the purpose of the commercial development of oil,
natural gas, or minerals.\85\ We are proposing to use the language from
Section 13(q) in the disclosure requirements.
---------------------------------------------------------------------------
\85\ 15 U.S.C. 78m(q)(2)(A).
---------------------------------------------------------------------------
Under our proposal and consistent with the statutory language, a
resource extraction issuer would be required to provide disclosure if
control is present. Consistent with the definition of control under the
securities laws, such as in Exchange Act Rule 12b-2, a resource
extraction issuer would need to make a factual determination as to
whether it has control of an entity based on a consideration of all
relevant facts and circumstances.\86\ At a minimum, under our proposal,
payments made by a subsidiary or entity under the control of a resource
extraction issuer would be subject to disclosure under this standard if
the resource extraction issuer must provide consolidated financial
information for the subsidiary or other entity in the issuer's
financial statements included in its Exchange Act reports.\87\
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\86\ Under Exchange Act Rule 12b-2 [17 CFR 240.12b-2] and Rule
1.02 of Regulation S-X [17 CFR 210.1.02], ``control'' is defined to
mean ``the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or
otherwise.'' The rules also define ``subsidiary'' (``A `subsidiary'
of a specified person is an affiliate controlled by such person
directly, or indirectly through one or more intermediaries. (See
also `majority-owned subsidiary,' `significant subsidiary,' and
`totally-held subsidiary.' '').
\87\ This would be the case whether the resource extraction
issuer provides consolidated financial information under U.S.
Generally Accepted Accounting Principles (``GAAP'') or International
Financial Reporting Standards as issued by the International
Accounting Standards Board (``IFRS''). See also letters from API;
NMA; and RDS. Those commentators support limiting disclosure of
payments made by a subsidiary or other entity to only those entities
for which an issuer must consolidate financial information in its
Exchange Act reports.
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Request for Comment
49. As noted above, our rules currently include definitions of
``subsidiary'' and ``control,'' which would apply in this context as
well. Should we include a different definition for ``subsidiary'' or
``entity under the control of'' a resource extraction issuer? If so,
why? How should the definitions vary?
50. Under the definition of control, a resource extraction issuer
may be determined to control entities that are not consolidated
subsidiaries. Is the requirement to disclose payments by an entity
under the control of the issuer even though the issuer does not
consolidate the entity appropriate?
51. Under the proposed rules, a resource extraction issuer would be
required to provide disclosure for an entity if it is consolidated in
the financial statements of the resource extraction issuer presented
under U.S. GAAP (or other jurisdictional GAAP that requires a U.S. GAAP
reconciliation) and IFRS as issued by the IASB because entities meeting
the consolidation requirement generally also meet the definition of
control. Are there circumstances under U.S. GAAP and IFRS that would
render different consolidation results, such as proportionate
consolidation, that we should consider? If so, please describe the
circumstances and indicate how the different circumstances should be
addressed in the new rules. We understand that entities and operations
that are proportionately consolidated are viewed as consolidated
entities or operations of an extractive issuer, while investments
presented on the equity method are not viewed as consolidated entities
or operations. Should our rules specifically include these concepts?
For instance, should our rules treat equity investees differently even
if they are controlled by the resource extraction issuer? Should our
rules, as proposed, include equity investees that the issuer controls
but does not consolidate?
52. Are there instances, other than control in which a resource
extraction issuer should have to disclose payments made by a subsidiary
or other entity? If so, should we revise our proposal to mandate
disclosure in those circumstances? \88\ Would resource extraction
issuers have access to payment information in those circumstances?
Should our rules specify that an issuer would have to disclose payments
made by a non-controlled entity only if the issuer is the operator of
the joint venture or other project? \89\ Would it be appropriate to
require an issuer to disclose payments that correspond to its
proportional interest in the joint venture rather than all of the
payments made by or for the joint venture? \90\
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\88\ One commentator stated that ``[d]isclosure of payment
information with respect to unconsolidated equity investees and
joint venture interests is crucial to fulfill the intent of the
legislation as such information provides information necessary for
analysts and investors to analyze issuer's future production and
assess equity valuation on a risk-adjusted basis. The definition of
`control' must therefore be sufficiently broad to cover all
relationships through which an issuer directly or indirectly exerts,
or has the right to exert, significant influence, whether sole or
shared, over an entity making extraction-related payments to a
foreign government.'' Letter from PWYP.
\89\ We note that, depending on the circumstances, a resource
extraction issuer that is the operator of a joint venture may be
deemed to control the joint venture, and therefore would be required
to provide the payment disclosure for the joint venture pursuant to
the disclosure requirements as proposed.
\90\ PWYP supports proportionate reporting with respect to
unconsolidated equity investees and joint venture interests. See
letter from PWYP. The NMA also supports proportional reporting when
an issuer controls a venture but holds less than a 100 percent
interest in the venture and further suggests that proportional
reporting would be appropriate if an issuer does not wholly own an
entity even though it fully consolidates the financial results of
that entity. See letter from NMA.
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53. Are there factors or concepts different than the ones discussed
above that should determine whether a resource extraction issuer must
disclose payments made for a subsidiary or other entity under the
issuer's control for the purpose of commercial development of oil,
natural gas, or minerals? For example, should the rules require
disclosure only of information that the issuer knows or has reason to
know?
5. Other Matters
Under the disclosure rules concerning oil and gas reserves adopted
in 2008,\91\ the Commission required disclosure of reserves in the
aggregate and by geographic area and for each country containing 15% or
more of a registrant's proved reserves.\92\ The oil and gas disclosure
rules provide an exception that a registrant need not provide
disclosure of the reserves in a country containing 15% or more of the
registrant's proved reserves if that country's government prohibits
disclosure of reserves in that country.\93\ Section 13(q) does not
contain an exception to the requirement to disclose payments made to
foreign governments for the purpose of commercial development of oil,
natural gas, or minerals in circumstances when the host country
prohibits the disclosure. The provision also does not include an
exception for confidentiality clauses in existing or future agreements.
Thus, we have not proposed any exceptions to the proposed disclosure
requirements under Section 13(q). Nevertheless, we are interested in
learning whether the disclosure requirement would potentially cause a
resource extraction issuer to violate any host country's laws and
whether an exception similar to the exception in the oil and gas
disclosure
[[Page 80988]]
rules would be appropriate for the disclosure requirements under
Section 13(q).
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\91\ Modernization of Oil and Gas Reporting, Release No. 33-8995
(December 31, 2008), 74 FR 2158 (January 14, 2009) (``Oil and Gas
Adopting Release'').
\92\ See Item 1202(a)(2) of Regulation S-K [17 CFR 1202(a)(2)].
\93\ Instruction 4 to Item 1202(a)(2). In addition, a registrant
need not provide disclosure of the reserves in a country containing
15% or more of the registrant's proved reserves if that country's
government prohibits disclosure in a particular field and disclosure
of reserves in that country would have the effect of disclosing
reserves in particular fields.
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In this regard, some commentators have stated that, should a host
government prohibit the disclosure of payments made by resource
extraction issuers to the host government, without an appropriate
exception for that prohibition, an issuer could be compelled to select
between avoiding or abandoning projects in that country and maintaining
its registration under the Exchange Act. According to those
commentators, such a situation would be contrary to the interests of
investors and the principles of competition and comity.\94\
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\94\ See, e.g., letter from Eight Law Firms. But see letter from
Senator Cardin, stating that ``[t]he language of Sec. 1504 is very
clear: there should be no exemptions for confidentiality or for
host-country restrictions. It would be too easy for countries who
want to avoid disclosures to simply pass their own law against
disclosure. The purpose of Sec. 1504 is to not allow for exemptions
for confidentiality or other reasons that undermine the principle of
transparency and full disclosure.'').
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Request for Comment
54. Would the disclosure requirement in Section 13(q) and the
proposed rules potentially cause a resource extraction issuer to
violate any host country's laws? Are there laws that currently prohibit
such disclosure? Would the answer depend on the type of payment or the
level of aggregation of the payment information required to be
disclosed? If there are laws that currently prohibit the type of
disclosure required by Section 13(q) and the proposed rules, please
identify the specific law and the corresponding country.
55. Should the Commission include an exception to the requirement
to disclose the payment information if the laws of a host country
prohibit the resource extraction issuer from disclosing the
information? \95\ Would such an exception be consistent with the
statutory provision and the protection of investors? If we provide such
an exception, should it be similar to the exception provided in
Instruction 4 to Item 1202 of Regulation S-K? \96\ Should we require
the registrant to disclose the project and the country and to state why
the payment information is not disclosed? If so, should we revise Item
1202 to require the same disclosure of the country and reason for non-
disclosure?
---------------------------------------------------------------------------
\95\ See letters from API; Eight Law Firms; NMA; and RDS
supporting such an exception. One commentator suggested that laws
prohibiting disclosure are uncommon, but ``normal exemption
procedures conducted on a case-by-case basis are sufficient to deal
with such conflicts.'' Letter from RWI. But see letter from Senator
Cardin.
\96\ See discussion in footnote 93 and accompanying text above
regarding the exception for disclosure of certain proved reserves.
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56. Should the rules provide an exception only if a host country's
statutes or administrative code prohibits disclosure of the required
payment information? Should we provide an exception if a judicial or
administrative order or executive decree prohibits disclosing the
required payment information as long as the order or decree is in
written form? Should we limit any exception provided to circumstances
in which such a prohibition on disclosure was in place prior to the
enactment of the Act?
57. Should the rules provide an exception for existing or future
agreements that contain confidentiality provisions? \97\ Would an
exception be consistent with the statute and the protection of
investors?
---------------------------------------------------------------------------
\97\ See letter from API supporting such an exception.
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58. Are there circumstances in which the disclosure of the required
payment information would jeopardize the safety and security of a
resource extraction issuer's operations or employees? If so, should the
rules provide an exception for those circumstances? \98\
---------------------------------------------------------------------------
\98\ See letter from API suggesting such an exception.
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59. Should we permit a foreign private issuer that is already
subject to resource payment disclosure obligations under its home
country laws or the rules of its home country stock exchange to follow
those home country laws or rules instead of the resource extraction
disclosure rules mandated under Section 13(q)? \99\
---------------------------------------------------------------------------
\99\ See letter from RDS suggesting such an exception.
---------------------------------------------------------------------------
60. Are there any other circumstances in which an exception to the
disclosure requirement would be appropriate? For instance, would it be
appropriate to provide an exception for commercially or competitively
sensitive information,\100\ or when disclosure would cause a resource
extraction issuer to breach a contractual obligation?
---------------------------------------------------------------------------
\100\ See letter from API; NMA; and RDS. But see letter from
PWYP (discussing concerns regarding competitiveness and commercially
sensitive information and noting a study of ``over 100 oil and
mining contracts between host governments and extractive companies
worldwide found that `stock exchange disclosures are a widely stated
exception in confidentiality clauses and where not explicitly
stated, would be interpreted to include such an exception.' '')
(footnote omitted).
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E. Definition of ``Foreign Government''
Under Section 13(q), Congress defined ``foreign government'' to
mean a foreign government, a department, agency, or instrumentality of
a foreign government, or a company owned by a foreign government, while
granting the Commission the authority to determine the scope of the
definition.\101\ For purposes of the disclosure requirement, we propose
to define the term ``foreign government'' consistent with the statute
and to specifically include foreign subnational governments in the
definition to provide additional clarity regarding the definition.\102\
Resource extraction issuers may be required to pay fees for permits,
licenses, concessions, and other entry requirements to a variety of
national and subnational foreign governments, including a state,
province, county, district, municipality or other level of subnational
government.\103\ The proposed definition, is intended to capture
payments made by resource extraction issuers to any foreign government
and would not be limited to payments made to foreign national
governments.\104\
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\101\ 15 U.S.C. 78m(q)(1)(B).
\102\ See proposed Regulation S-K Item 105(b)(2), proposed Item
16I.B.(2) under Part II of Form 20-F, and proposed paragraph
B.(17)(b)(2) under the General Instructions of Form 40-F.
\103\ Of course, if a resource extraction issuer makes a payment
(that is otherwise covered by the definition of payment) to a third
party to be paid to the government on its behalf, disclosure of that
payment would be covered under our proposed rule.
\104\ This is consistent with the EITI, which recognizes that
payments to subnational governments may have to be included within
the scope of an EITI program. See Implementing the EITI, p. 34. We
also believe this is consistent with the statutory scheme of Section
13(q), which requires an issuer to identify, for each disclosed
payment, the government that received the payment, and the country
in which the government is located. See Exchange Act Section
13(q)(2)(D)(ii)(V) [15 U.S.C. 78m(q)(2)(D)(ii)(V)].
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Section 13(q) requires that a resource extraction issuer disclose
payments to the Federal Government in addition to payments made to a
foreign government. While Congress left undefined the term ``Federal
Government,'' typically that term refers only to the U.S. national
government, and not to the states or other subnational governments in
the United States.\105\ We propose to clarify in the rule text that
``Federal Government'' means the United States Federal Government.\106\
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\105\ In this regard, given that the statute requires disclosure
of payments made to a ``foreign government or the Federal
Government,'' we believe the term ``foreign government'' is meant to
refer to a non-U.S. government.
\106\ See proposed Item 105(a) of Regulation S-K, proposed Item
16I.A. under Part II of Form 20-F, and proposed paragraph B.(17)(a)
under the General Instructions of Form 40-F.
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Request for Comment
61. Should the definition of foreign government include a foreign
government, a department, agency, or
[[Page 80989]]
instrumentality of a foreign government, or a company owned by a
foreign government, as proposed?
62. We note that the definition of foreign government would include
a company owned by a foreign government. We understand that in the case
of certain state owned companies, the government would be a
shareholder. Thus, certain transactions may occur as transactions
between the company and the government and as transactions between
company and shareholder. Should we adopt specific rules or provide
guidance regarding payments made by state owned companies that
distinguish between such types of transactions?
63. Under Section 13(q) and the proposal, the definition of
``foreign government'' includes ``a company owned by a foreign
government.'' We are proposing to include an instruction in the rules
clarifying that a company owned by a foreign government is a company
that is at least majority-owned by a foreign government.\107\ Is this
clarification appropriate? Should a company be considered to be owned
by a foreign government if government ownership is lower than majority-
ownership? Should the rules provide that a company is owned by a
foreign government if government ownership is at a level higher than
majority-ownership? If so, what level of ownership would be
appropriate? Are there some levels of ownership of companies by a
foreign government that should be included in or excluded from the
proposed definition of foreign government?
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\107\ See proposed Instruction to Item 105(b)(2) of Regulation
S-K; proposed Instruction 2 to Item 16I.B.(2) of Form 20-F; and
proposed Note 2 to Instruction B.17(b)(2) of Form 40-F.
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64. Should the definition of foreign government include a foreign
subnational government, such as a state, province, county, district,
municipality or territory of a non-U.S. government, in addition to a
non-U.S. national government, as proposed?
65. Are there some levels of subnational government that should be
excluded from the proposed definition of foreign government? If so,
please provide specific examples of those levels of subnational
government that should be excluded.
66. Should we also require a resource extraction issuer to disclose
amounts paid to the states and other subnational governments in the
United States in addition to payments to the Federal Government?
67. Is there additional guidance that we should provide regarding
the definition of foreign government? \108\
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\108\ In this regard, one commentator has requested that we
require an issuer to conduct an appropriate level of due diligence
to determine whether a company to which it is making a payment is
owned by a foreign government. See letter from PWYP.
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F. Disclosure Required and Form of Disclosure
Section 13(q) mandates that a resource extraction issuer disclose
in an annual report the type and total amount of payments made for each
project relating to the commercial development of oil, natural gas, or
minerals as well as the type and total amount of such payments made to
each government.\109\ Section 13(q) also mandates the submission of the
payment information in an interactive data format, and provides the
Commission with the discretion to determine the applicable interactive
data standard.\110\
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\109\ 15 U.S.C. 78m(q)(2)(A).
\110\ 15 U.S.C. 78m(q)(2)(C) and (D).
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1. Annual Report Requirement
Section 13(q) mandates that a resource extraction issuer provide
the payment disclosure required by that section in an annual report,
but otherwise does not specify the location of the disclosure, either
in terms of a specific form or in terms of location within a specific
form. As proposed, a resource extraction issuer would have to provide
the required payment disclosure in its Exchange Act annual report filed
on Form 10-K, Form 20-F, or Form 40-F. We preliminarily believe this
approach is an appropriate way to implement the Act's disclosure
requirements for resource extraction issuers without imposing
additional burdens that might be associated with submitting a separate
annual report to the Commission.\111\ In addition, to facilitate
investors' ability to locate the disclosure within the annual report
without over-burdening them with extensive information about resource
extraction payments in the body of the report, our proposed rules would
require issuers to include a brief statement under a separate heading
entitled, ``Payments Made By Resource Extraction Issuers,'' directing
investors to the detailed information about payments provided in the
exhibits.
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\111\ We received comment that due to the ``tight annual
reporting deadline,'' we should not require the payment disclosure
to be part of the audited financial statements and that we should
keep the reporting separate from annual reporting on Form 10-K and
Form 20-F. Letter from API. The commentator recommended requiring
the payment disclosure in a separate report with an annual deadline
of 150 days following the fiscal year end. See id. We note that the
statute does not require the payment disclosure to be part of the
audited financial statements, and the rules do not propose to do so.
Therefore, we preliminarily believe it could be less burdensome for
resource extraction issuers, as well as more useful to investors, to
provide the disclosure in a form that issuers are already required
to file rather than requiring them to furnish a separate report;
however, we are soliciting comment about this issue.
---------------------------------------------------------------------------
While Section 13(q) mandates that a resource extraction issuer
provide the payment disclosure required by that section in an annual
report, it does not specifically mandate the time period for which a
resource extraction issuer must provide the disclosure. Given that the
statute requires the disclosure in an annual report and we are
proposing to require resource extraction issuers to furnish the
disclosure in the annual report on Form 10-K, Form 20-F, or Form 40-F,
as applicable, we believe it is reasonable to require resource
extraction issuers to provide the mandated payment information for the
fiscal year covered by the applicable annual report.
Request for Comment
68. Section 13(q) requires disclosure of the payment information in
an annual report but does not specify the type of annual report. Should
we require resource extraction issuers to provide the payment
disclosure mandated under Section 13(q) in its Exchange Act annual
report, as proposed? \112\ Should we require, or permit, resource
extraction issuers to provide the payment information in an annual
report other than an annual report on Form 10-K, Form 20-F, or Form 40-
F? For example, should we require the disclosure in a new form filed
annually on the Commission's Electronic Data Gathering, Analysis, and
Retrieval system (``EDGAR'')? \113\ Would requiring resource extraction
issuers to disclose the information in a separate annual report be
consistent with Section 13(q)? Should we require an oil, natural gas,
or mining company to file a separate annual report containing all of
the specialized disclosures mandated by the Dodd-Frank Act? \114\ What
would be the benefits or burdens of such a form for investors or
resource extraction issuers? If we should require, or permit, a
separate annual report, what should be the due date of the report (e.g.
30, 60, 90, 120, or 150 days after the end of the fiscal year covered
by the report)?
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\112\ See letters from Calvert and SIF and PWYP supporting that
approach.
\113\ See letters from API and NMA suggesting such an approach.
\114\ See Sections 1502 and 1503 of the Dodd-Frank Act.
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69. If we require resource extraction issuers to provide the
disclosure of payment information in their Exchange
[[Page 80990]]
Act annual reports, should we permit resource extraction issuers to
file an amendment to the annual report within a specified period of
time subsequent to the due date of the report, similar to Article 12
schedules or financial statements provided in accordance with
Regulation S-X Rule 3-09,\115\ to provide the payment information? If
so, what would be the appropriate time period (e.g. 30, 60 or 90 days
after the due date of the report)?
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\115\ 17 CFR 210.3-09.
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70. As noted above, Section 13(q) mandates that a resource
extraction issuer provide the payment disclosure required by that
section in an annual report, but it does not specifically mandate the
time period for which a resource extraction issuer must provide the
disclosure. Is it reasonable to require resource extraction issuers to
provide the mandated payment information for the fiscal year covered by
the applicable annual report, as proposed? Why or why not? Should the
rules instead require disclosure of payments made by resource
extraction issuers during the most recent calendar year?
71. Should we also require an issuer to provide the resource
extraction payment disclosure in a registration statement under the
Securities Act of 1933 \116\ or under the Exchange Act? If so, what
time period should the disclosure cover?
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\116\ 15 U.S.C. 77a et seq.
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72. Should we require an issuer that has a class of securities
exempt from Exchange Act registration pursuant to Exchange Act Rule
12g3-2(b) \117\ to provide the resource extraction payment disclosure
in its home country annual report or in a report on EDGAR? \118\ Would
such an approach be consistent with the Exchange Act? \119\
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\117\ 17 CFR 240.12g3-2(b). A foreign private issuer may claim
that exemption as long as it meets a foreign listing requirement,
publishes its material home country documents in English on its
Internet Web site or through another electronic information delivery
system that is generally available to the public in its primary
trading market, and otherwise is not required to file Exchange Act
reports. A foreign private issuer typically relies on the Rule 12g3-
2(b) exemption in order to establish an unlisted American Depositary
Receipt (``ADR'') facility for the issuance and trading of ADRs
through the over-the-counter market.
\118\ See letters from Calvert and SIF and PWYP supporting such
an approach.
\119\ The Commission has not considered Rule 12g3-2(b)--exempt
companies to be subject to Exchange Act reporting and filing
requirements. Prior to the amendment to Rule 12g3-2(b) in 2008, we
required issuers claiming the Rule 12g3-2(b) exemption to furnish
paper copies of their material home country documents to the
Commission. The documents were deemed furnished and not filed under
the Exchange Act because they were subject to their home country,
and not Exchange Act, disclosure rules. (See the discussion of
``furnished'' vs. ``filed'' in Section II.F.3 of this release.)
Since the 2008 amendment, Rule 12g3-2(b)-exempt companies do not
submit or file any document with the Commission, and must comply
only with the rule's Internet publishing requirement.
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2. Exhibits and Interactive Data Format Requirement
We propose to require a resource extraction issuer to present the
mandated payment information in two exhibits to its annual report on
Form 10-K, Form 20-F, or Form 40-F, as applicable.\120\ Specifically,
the proposed rules would add new exhibits (97) and (98) to Item 601 of
Regulation S-K, new paragraphs 17 and 18 to the ``Instructions as to
Exhibits'' in Form 20-F, and new paragraph B(17) of the ``General
Instructions'' in Form 40-F.\121\ We believe two exhibits are necessary
to provide investors with the information in a format that is useful to
them. Resource extraction issuers would be required to file the
information in HTML or ASCII format in one exhibit, which would enable
investors to easily read the disclosure about payment information
without additional computer programs or software. Resource extraction
issuers also would be required to file an exhibit with the information
electronically tagged in XBRL format and the disclosure would be
readable through a viewer. As noted above, Section 13(q) requires that
the rules issued pursuant to the section require that the information
included in the annual report be submitted in an interactive data
format. We are proposing to require resource extraction issuers to
submit the mandated payment information in XBRL in an exhibit.\122\
Some commentators indicated a preference for XBRL.\123\
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\120\ See proposed Regulation S-K Items 601(a), (b)(97), and
(b)(98), proposed paragraphs 17 and 18 of the Instructions as to
Exhibits for Form 20-F, and proposed paragraph B.(17)(a) under the
General Instructions of Form 40-F.
\121\ See id.
\122\ See proposed Regulation S-K Item 601(b)(98), proposed
paragraph 18 under Instructions as to Exhibits for Form 20-F, and
proposed paragraph B.(17)(a)(2) under the General Instructions of
Form 40-F.
\123\ See letters from API; Calvert and SIF; and PWYP. Calvert
and SIF stated that XBRL ``reduces the costs for investors
associated with obtaining and assimilating information from issuers,
and, at the same time, reduces the costs to issuers submitting data
to regulators.'' In addition, Calvert and SIF noted that ``XBRL
allows far more standardization and harmonization of international
business reporting standards, thereby lowering the costs of
compliance and reporting for issuers, while making the information
far more valuable and easily interpreted and analyzed by
investors.'' Letter from Calvert and SIF. PWYP recommended XBRL ``in
order to more seamlessly integrate with existing company filings
formatted in XBRL, as well as the Commission's existing XBRL
reporting platform, and with external XBRL-based databases managed
by private sector companies.'' Letter from PWYP. Cf. letter from NMA
(stating that ``issuers should be given the flexibility to disclose
the data in any format that would allow users to click through the
information in a standard file type (e.g. Microsoft Word, Web-based
HTML, Microsoft Excel, or .pdf) to reach data sorted by each of the
electronic tags specified in the Act.'' According to this
commentator, while XBRL could satisfy the statutory requirement,
``issuers should not be prohibited from using other formats that
allow for meaningful use of `electronic tags'.'').
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In addition, we propose to require a resource extraction issuer to
provide a statement, under an appropriate heading in the issuer's
annual report, referring to the payment information provided in the
exhibits to the report.\124\ We believe this approach would facilitate
access to the information by placing it outside the body of the annual
report. By requiring resource extraction issuers to provide the payment
information in exhibits to the annual report, the proposed rules would
enable anyone accessing EDGAR to determine quickly whether an issuer
provided disclosure in accordance with Section 13(q) and the rules
issued pursuant to that section. In addition, we are concerned that
presenting the information in interactive data format in the body of
the annual report would not be comprehensible. Thus, we believe a brief
reference in the body of the filing to the disclosure and the complete
presentation in the exhibits to the filing is the most appropriate
approach.
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\124\ See proposed Item 4(c) under Part I of Form 10-K, proposed
Item 16I.A. under Part II of Form 20-F, and proposed paragraph
B.(17)(a) under the General Instructions of Form 40-F.
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Resource extraction issuers currently are required to file their
registration statements, current and periodic reports in ASCII or
HTML.\125\ Our electronic filing system also uses other formats for
reporting related to corporate issuers, such as XML, to process reports
of beneficial ownership of equity securities on Forms 3, 4, and 5 under
Section 16(a) of the Exchange Act,\126\ and a form of XML known as XBRL
to provide financial statement data.\127\ As we explained in the XBRL
Adopting Release and the proposing release for asset-backed
securities,\128\ electronic formats such as HTML, XML, and XBRL are
open standards \129\ that define or
[[Page 80991]]
``tag'' data using standard definitions. The tags establish a
consistent structure of identity and context. This consistent structure
can be recognized and processed by a variety of different software
applications.
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\125\ Rule 301 under Regulation S-T [17 CFR 232.301] requires
electronic filings to comply with the EDGAR Filer Manual, and
Section 5.1 of the Filer Manual requires that electronic filings be
in ASCII or HTML format. Rule 104 under Regulation S-T [17 CFR
232.104] permits filers to submit voluntarily as an adjunct to their
official filings in ASCII or HTML unofficial PDF copies of filed
documents.
\126\ 15 U.S.C. 78p(a).
\127\ See Interactive Data to Improve Financial Reporting,
Release No. 33-9002 (January 30, 2009), 74 FR 6776 (February 10,
2009) (``XBRL Adopting Release'').
\128\ See Asset-Backed Securities, Release No. 33-9117 (April 7,
2010), 75 FR 23328 (May 3, 2010).
\129\ The term ``open standard'' is generally applied to
technological specifications that are widely available to the
public, royalty-free, and at minimal or no cost.
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In the case of HTML, the standardized tags enable Web browsers to
present Web sites' embedded text and information in a predictable
format so that they are human readable. In the case of XML and XBRL,
software applications, such as databases, financial reporting systems,
and spreadsheets recognize and process tagged information. As noted
above, some commentators have indicated we should require these data
points in XBRL as we are proposing.\130\
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\130\ See letter from API; Calvert and SIF; and PWYP.
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As mandated by Section 13(q),\131\ the proposed rules would require
a resource extraction issuer to submit the payment information using
electronic tags that identify, for any payments made by a resource
extraction issuer to a foreign government or the U.S. Federal
Government:
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\131\ 15 U.S.C. 78m(q)(2)(D)(ii).
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The total amounts of the payments, by category;
The currency used to make the payments;
The financial period in which the payments were made;
The business segment of the resource extraction issuer
that made the payments;
The government that received the payments, and the country
in which the government is located; and
The project of the resource extraction issuer to which the
payments relate.\132\
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\132\ See proposed Regulation S-K Item 601(b)(98), paragraph 18
under Instructions as to Exhibits of Form 20-F, and paragraph
B.(17)(a)(2) under the General Instructions of Form 40-F.
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In addition, under Section 13(q), a resource extraction issuer
would be required to provide the type and total amount of payments made
for each project and the type and total amount of payments made to each
government in interactive data format. Consistent with the statute, the
proposed rules require a resource extraction issuer to include an
electronic tag that identifies the currency used to make the payments.
The statute does not otherwise specify how the resource extraction
issuer should present the type and total amount of payments for each
project or to each government. We preliminarily believe it is
appropriate to require resource extraction issuers to provide the type
and total amount of payments for each project and to each government in
the currency in which the payments were made, as we believe it may
increase comparability with disclosure provided under EITI programs in
other countries.
We expect that some of the electronic tags, such as those
pertaining to category, currency, country, and financial period would
have fixed definitions and would enable interested persons to evaluate
and compare the payment information across companies and governments.
Other tags, which could include those pertaining to business segment,
government, and project, would allow for issuers to enter information
specific to their business.
Section 13(q) requires the Commission, to the extent practicable,
to make available online, to the public, a compilation of the
information required under paragraph (2)(A) of that section.\133\ We
request comment on the particular form, content, or time period for the
compilation.\134\
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\133\ 15 U.S.C. 78m(q)(3)(A). That information includes the type
and total amount of payments made by resource extraction issuers to
foreign governments or the U.S. Federal Government for the purpose
of the commercial development of oil, natural gas, or minerals on a
per project and per government basis.
\134\ Section 13(q) provides that ``[n]othing in [Section
13(q)(3)(A)] shall require the Commission to make available online
information other than the information required to be submitted
under the rules issued under paragraph (2)(A).'' 15 U.S.C.
78m(q)(3)(B).
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Request for Comment
73. Should we require that information concerning the type and
total amount of payments made for each project and to each government
relating to the commercial development of oil, natural gas, or minerals
be provided in the exhibits to Form 10-K, Form 20-F, or Form 40-F, as
proposed?
74. Should we require, as proposed, a resource extraction issuer to
provide a statement, under an appropriate heading in the issuer's
annual report, referring to the payment information provided in the
exhibits to the report, as proposed?
75. Should we require a resource extraction issuer to present some
or all of the required payment information in the body of the annual
report instead of, or in addition to, presenting the information in the
exhibits? If you believe we should require disclosure of some or all
the payment information in the body of the annual report, please
explain what information should be required and why. For example,
should we require a resource extraction issuer to provide a summary of
the payment information in the body of the annual report? If so, what
items of information should be disclosed in the summary?
76. Section 13(q) does not require the resource extraction payment
information to be audited or provided on an accrual basis.\135\
Accordingly, the proposed rules do not include such requirements.
Should we require resource extraction issuers to have the payment
information audited or provide the payment information on an accrual
basis? Why or why not? What would be the likely benefits and burdens?
Would including such requirements be consistent with the statute?
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\135\ One commentator requested that we require issuers to
disclose the payment information as a separate section of the
audited financial statements that are filed with the Exchange Act
annual report and that we require the payment disclosure on both a
cash and accrual basis. See letter from Calvert and SIF. See also
letter from PWYP (requesting that we require the information to be
included in a separate section of the Exchange Act annual report and
subject to ``rigorous audit or review procedures by the company's
independent external auditor'').
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77. Should we require two new exhibits for the resource extraction
disclosure, as proposed?
78. Should we require that the resource extraction payment
disclosure be provided in a new exhibit in HTML or ASCII, as proposed?
Why or why not?
79. Should we require the resource extraction payment disclosure to
be electronically formatted in XBRL and provided in a new exhibit, as
proposed? Is XBRL the most suitable interactive data standard for
purposes of this rule? If not, why not? Should the information be
provided in XML format? If so, why? Are there characteristics of XML,
such as ease of entering information into a form, which makes it a
better interactive data standard for the payment information than XBRL?
Would the use of the XBRL taxonomy based on U.S. GAAP cause confusion
in light of the fact that the information required under Section 13(q)
is information about cash or in kind payments (that are not computed in
accordance with GAAP) made by resource extraction issuers? Should we
require an interactive data standard for the payment information other
than XML or XBRL?
80. Section 13(q) and our proposed rules require a resource
extraction issuer to include an electronic tag that identifies the
currency used to make the payments. If the currency in which the
payment was made differs from the issuer's reporting currency, should
the rules require issuers to convert the payments to the issuer's
reporting currency at the applicable rate? If the rules should, as
proposed, require disclosure of in kind payments, should the rules
require in kind payments to be converted to the host country currency?
[[Page 80992]]
Should the rules require in kind payments to be converted to the
issuer's reporting currency at the applicable rate? Should the rules
require disclosure of the in kind payments in the form in which the
payments were made and also require the payments to be converted to the
issuer's reporting currency? Should we require issuers to provide a
conversion to U.S. dollars for payments made in cash and in kind, and
to electronically tag that information?
81. Section 13(q) and our proposed rules require an issuer to
include an electronic tag that identifies the financial period in which
the payments were made.\136\ Should we require an issuer to identify in
the tag the particular fiscal year, quarter, or other period, such as a
particular half-year, in which the payments were made?
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\136\ 15 U.S.C. 78m(q)(2)(D)(ii)(III).
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82. Section 13(q) and our proposed rules require an issuer to
include an electronic tag that identifies the issuer's business segment
that made the payments.\137\ Should we define ``business segment'' for
purpose of disclosing and tagging the payment information required by
Section 13(q)? If so, what definition should we use? Should we instead
allow resource extraction issuers to disclose and identify the business
segment in accordance with how it operates its business? What are the
advantages and disadvantages of allowing an issuer to rely on its
definition of business segment?
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\137\ 15 U.S.C. 78m(q)(2)(D)(ii)(IV).
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83. Section 13(q) and our proposed rules require an issuer to
include an electronic tag that identifies the project to which the
payments relate.\138\ Are there some payments that would not relate to
a particular project? If so, should we nevertheless require that each
payment be allocated to a particular project? Should we instead permit
an issuer to use only the electronic tag that identifies the government
receiving the payments if those payments do not relate to, or cannot be
allocated to, a particular project?
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\138\ 15 U.S.C. 78m(q)(2)(D)(ii)(VI).
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84. Section 13(q) requires an issuer to electronically tag ``such
other information as the Commission may determine is necessary or
appropriate in the public interest or for the protection of
investors.'' \139\ Would it be useful to have additional information
about the payments electronically tagged? If so, what additional tags
should we require? Are there any other items of information that should
be electronically tagged?
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\139\ 15 U.S.C. 78m(q)(2)(D)(ii)(VII).
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85. Should we permit issuers to aggregate their payments into three
categories: ``taxes and royalties,'' ``production entitlements,'' and
``other payments''? \140\ Would that approach be consistent with
Section 13(q)?
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\140\ See letter from API.
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86. Section 13(q)(3) requires the Commission to provide a
compilation of the disclosure made by resource extraction issuers.
Should the Commission provide the compilation on an annual basis?
Should the compilation be provided on a calendar year basis, or would
some other time period be more appropriate? Should the compilation
provide information as to the type and total amount of payments made on
a country basis? What other information should be provided in the
compilation? \141\
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\141\ We received a suggestion that the compilation take the
form of an online database and summary report. The online database
would enable users to search by country and company, as well as by
year or multiple years of reporting. The suggested summary report
would list the total payments by each issuer for each government,
total payments within each payment category, the total payments per
project for each issuer, and project payments within each payment
category. See letter from PWYP.
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3. Treatment for Purposes of the Securities Act and the Exchange Act
The statutory language of Section 13(q) does not specify that the
information about resource extraction payments must be ``filed,''
rather, it states that the information should be ``include[d] in an
annual report[.]'' \142\ We are proposing that the disclosure required
by Section 13(q) would be required to be ``furnished'' rather than
``filed'' and not be subject to liability under Section 18 of the
Exchange Act, unless the issuer explicitly states that the resource
extraction disclosure is filed under the Exchange Act. Issuers that
fail to comply with the rules would be subject to violations of
Exchange Act Sections 13(a) or 15(d), as applicable.\143\ The
disclosure would be treated in the same manner as other furnished
documents, such as the certifications required to be submitted as
exhibit 32 \144\ to Exchange Act documents under Rule 13a-14(b) \145\
or Rule 15d-14(b) \146\ and Section 1350 of Chapter 63 of Title 18 of
the United States Code,\147\ the Audit Committee Report required by
Item 407(d) of Regulation S-K \148\ and the Compensation Committee
Report required by Item 407(e)(5) of Regulation S-K.\149\
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\142\ 15 U.S.C. 78m(q)(2)(A).
\143\ 15 U.S.C. 78m(a) and 15 U.S.C. 78o(d).
\144\ Item 601(b)(32)(ii) of Regulation S-K [17 CFR
229.601(b)(32)].
\145\ 17 CFR 240.13a-14(b).
\146\ 17 CFR 240.15d-14(b).
\147\ 18 U.S.C. 1350.
\148\ 17 CFR 229.407(d).
\149\ 17 CFR 229.407(e)(5).
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We believe this approach is consistent with the statute. Section
13(q) does not mandate that the disclosure be included in the annual
report on Form 10-K, Form 20-F, or Form 40-F.\150\ In addition, we
preliminarily believe this approach is appropriate in light of the
nature and primary purpose of the disclosure. Section 13(q) requires
the Commission, to the extent practicable, to issue rules under the
section that support the Federal Government's commitment to
international transparency promotion efforts relating to the commercial
development of oil, natural gas, or minerals.\151\ We believe the
nature and purpose of the disclosure required by Section 13(q) is
qualitatively different from the nature and purpose of existing
disclosure that has historically been required under Section 13 of the
Exchange Act. As a result, we preliminarily believe it is appropriate
to require a resource extraction issuer to furnish the disclosure.
Therefore, we are proposing new Instructions to Item 105 of Regulation
S-K, Item 16I of Form 20-F, and Instruction B.(17) of Form 40-F, which
would state that the disclosure provided in response to those items
would not be deemed to be ``filed'' with the Commission or subject to
the liabilities of Section 18 of the Exchange Act, and will not be
deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that
[[Page 80993]]
the issuer specifically incorporates it by reference.
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\150\ See letter from NMA.
\151\ 15 U.S.C. 78m(q)(2)(E). In addition, an author of the
legislation has noted that the purpose of the legislation is to
provide information to investors. See, e.g., Statement of Senator
Cardin in support of Amendment No. 3732 to Restoring American
Financial Stability Act (S3217), 111 Cong. Rec. S3316 (daily ed. May
6, 2010) (stating that ``Investors need to be able to assess the
risks of their investments. Investors need to know where, in what
amount, and on what terms their money is being spent in what are
often very high-risk operating environments. These environments are
often poor developing countries that may be politically unstable,
have lots of corruption, and have a history of civil unrest. The
investor has a right to know about the payments. Secrecy of payments
carries real bottom-line risks for investors. Creating a reporting
requirement with the SEC will capture a larger portion of the
international extractive industries corporations than any other
single mechanism, thereby setting a global standard for transparency
and promoting a level playing field. Investors should be able to
know how much money is being invested up front in oil, gas, and
mining projects. For example, oil companies often pay very large
signature payments to secure the rights for an oilfield, long before
the first drop of oil is produced. Such payments are in addition to
the capital investment required.'').
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Request for Comment
87. Should we, as proposed, require the resource extraction payment
disclosure to be furnished as exhibits to the annual report? If not,
why not? How should it be provided?
88. Should we require the resource extraction payment disclosure to
be filed as exhibits, rather than furnished, which would affect
issuers' liability under the Exchange Act or under the Securities Act
(if any such issuer incorporates by reference its annual report into a
Securities Act registration statement)?
89. Under Exchange Act section 18, ``Any person who shall make or
cause to be made any statement in any application, report, or document
filed pursuant to [the Exchange Act] or any rule or regulation
thereunder or any undertaking contained in a registration statement as
provided in subsection (d) of section 15, which statement was at the
time and in the light of the circumstances under which it was made
false or misleading with respect to any material fact, shall be liable
to any person (not knowing that such statement was false or misleading)
who, in reliance upon such statement, shall have purchased or sold a
security at a price which was affected by such statement, for damages
caused by such reliance, unless the person sued shall prove that he
acted in good faith and had no knowledge that such statement was false
or misleading.'' \152\ Is it appropriate not to have the disclosures
subject to Section 18 liability even if the elements of Section 18
could otherwise be established? Should we require the resource
extraction payment disclosure to be filed for purposes of Section 18 of
the Exchange Act, but permit an issuer to elect not to incorporate the
disclosure into Securities Act filings?
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\152\ Exchange Act Section 18(a).
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90. Should the resource extraction payment disclosure be furnished
annually on Form 8-K? Would that approach be consistent with the
statute? If so, should foreign private issuers, which do not file Forms
8-K, be permitted to submit the resource extraction payment disclosure
either in their Form 20-F or Form 40-F, as applicable, or annually on
Form 6-K, at their election?
G. Effective Date
Section 13(q) provides that, with respect to each resource
extraction issuer, the final rules issued under that section shall take
effect on the date on which the resource extraction issuer is required
to submit an annual report relating to the issuer's fiscal year that
ends not earlier than one year after the date on which the Commission
issues the final rules under Section 13(q).\153\ Because the Commission
must enact final rules under Section 13(q) at the latest by April 15,
2011,\154\ the statute appears to require disclosure in an issuer's
annual report relating to the fiscal year ending on or after April 15,
2012.
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\153\ 15 U.S.C. 78m(q)(2)(F).
\154\ Section 13(q)(2)(A) requires that the Commission issue
final rules under that section no later than 270 days after the
Dodd-Frank Act's enactment. The Act was signed into law on July 21,
2010; therefore the Commission must enact final rules no later than
April 15, 2011.
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Request for Comment
91. Should we provide a delayed effective date for the final rules,
either for all issuers subject to the rules or for certain types of
issuers (e.g. smaller reporting companies or foreign private issuers)?
\155\ Would doing so be consistent with the statute? Why or why not? If
we should provide for a delayed effective date, should issuers be
required to provide disclosure in an annual report for the fiscal year
ending on or after June 30, 2012, September 30, 2012, December 31,
2012, or some other date?
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\155\ One commentator has requested that we delay the effective
date of the resource extraction payment disclosure rules until
fiscal year 2013. See letter from NMA. Another commentator
recommended that ``first reporting be for the 2012 fiscal year in
2013.'' Letter from API.
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H. General Request for Comment
We request and encourage any interested person to submit comments
regarding:
The proposed amendments that are the subject of this
release;
Additional or different changes; or
Other matters that may have an effect on the proposals
contained in this release.
We request comment from the point of view of companies, investors
and other market participants. With regard to any comments, we note
that such comments are of great assistance to our rulemaking initiative
if accompanied by supporting data and analysis of the issues addressed
in those comments.
III. Paperwork Reduction Act
A. Background
The proposed rule and form amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\156\ We are submitting the proposal to
the Office of Management and Budget for review in accordance with the
PRA.\157\ The titles for the collections of information are:
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\156\ 44 U.S.C. 3501 et seq.
\157\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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(1) ``Regulation S-K'' (OMB Control No. 3235-0071); \158\
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\158\ The paperwork burden from Regulation S-K is imposed
through the forms that are subject to the disclosures in Regulation
S-K and is reflected in the analysis of those forms. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens,
for administrative convenience we estimate the burdens imposed by
Regulation S-K to be a total of one hour.
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(2) ``Form 10-K'' (OMB Control No. 3235-0063);
(3) ``Form 20-F'' (OMB Control No. 3235-0288); and
(4) ``Form 40-F'' (OMB Control No. 3235-0381).
The regulation and forms were adopted under the Securities Act and
the Exchange Act. The regulation and forms set forth the disclosure
requirements for periodic reports and registration statements filed by
companies to help shareholders make informed investment and voting
decisions. The hours and costs associated with preparing and filing the
forms constitute reporting and cost burdens imposed by each collection
of information. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a currently valid OMB control number.
The proposed rule and form amendments would implement Section 13(q)
of the Exchange Act, which was added by Section 1504 of the Act.
Section 13(q) requires the Commission to ``issue final rules that
require each resource extraction issuer to include in an annual report
of the resource extraction issuer information relating to any payment
made by the resource extraction issuer, a subsidiary of the resource
extraction issuer, or an entity under the control of the resource
extraction issuer to a foreign government or the Federal Government for
the purpose of the commercial development of oil, natural gas, or
minerals, including--(i) the type and total amount of such payments
made for each project of the resource extraction issuer relating to the
commercial development of oil, natural gas, or minerals, and (ii) the
type and total amount of such payments made to each government.'' \159\
Section 13(q) also mandates the submission of the payment information
in an interactive data format, and provides the Commission with the
discretion to
[[Page 80994]]
determine the applicable interactive data standard.\160\
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\159\ 15 U.S.C. 78m(q)(2)(A).
\160\ 15 U.S.C. 78m(q)(2)(C) and (D).
---------------------------------------------------------------------------
The proposed rule and form amendments would require an issuer to
provide the statutorily-mandated information about resource extraction
payments in an exhibit filed in HTML or ASCII format, which would
enable investors to easily read the disclosure about payment
information without additional computer programs or software. A
resource extraction issuer also would be required to file another
exhibit with the information electronically tagged in XBRL format,
which would be readable through a viewer. In addition, the proposed
rule and form amendments would require a resource extraction issuer to
provide a statement, under an appropriate heading in the issuer's
annual report, referring to the payment information provided in the
exhibits to the report.
The same payment disclosure requirements would apply to U.S. and
foreign resource extraction issuers. As discussed above, we propose to
add new Item 105 to Regulation S-K \161\ to require a resource
extraction issuer to provide information relating to any payment made
by it, a subsidiary, or an entity under its control to a foreign
government or the U.S. Federal Government during the fiscal year
covered by the annual report for the purpose of the commercial
development of oil, natural gas, or minerals. We also propose to add
new Item 4(c) to Form 10-K to require a resource extraction issuer to
provide a statement that the information required by Section 13(q) and
new Item 105 of Regulation S-K is included in two specified
exhibits.\162\ In addition, we are proposing to amend Regulation S-K
Item 601 to add the two new exhibits to Form 10-K. Because Regulation
S-K does not apply to Forms 20-F and 40-F,\163\ we propose to amend
those forms to include the same disclosure requirements as those
proposed for resource extraction issuers that are not foreign private
issuers.\164\
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\161\ See proposed Item 105 of Regulation S-K.
\162\ See proposed Item 4(c) under Part I of Form 10-K.
\163\ While Form 20-F may be used by any foreign private issuer,
Form 40-F is only available to a Canadian issuer that is eligible to
participate in the U.S.-Canadian Multijurisdictional Disclosure
System (``MJDS'').
\164\ See proposed Item 16I under Part II of Form 20-F and
proposed paragraph (17) to General Instruction B of Form 40-F.
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Compliance with the proposed rule and form amendments by affected
issuers would be mandatory. The disclosure and reports submitted by
issuers would not be kept confidential, and there would be no mandatory
retention period for the information disclosed.
B. Burden and Cost Estimates Related to the Proposed Amendments
The proposed rule and form amendments would require, if adopted,
additional disclosure for a resource extraction issuer's annual report
filed on Form 10-K, Form 20-F or Form 40-F, which would increase the
burden hour and cost estimates for each of those forms. For purposes of
the Paperwork Reduction Act, we estimate the total annual increase in
the paperwork burden for all affected companies to comply with our
proposed collection of information requirements to be approximately
52,932 hours of company personnel time and to be approximately
$11,857,200 for the services of outside professionals. These estimates
include the time and cost of collecting the information, preparing and
reviewing disclosure, filing documents, and retaining records.
We derived the above estimates by estimating the average number of
hours it would take an issuer to prepare and review the proposed
disclosure requirements. In deriving our estimates, we recognize that
the burdens will likely vary among individual issuers based on a number
of factors, including the size and complexity of their operations. We
believe that some issuers will experience costs in excess of this
average in the first year of compliance with the proposals and some
issuers may experience less than these average costs. When determining
these estimates, we have assumed that:
For Form 10-K, 75% of the burden of preparation is carried
by the issuer internally and 25% of the burden of preparation is
carried by outside professionals retained by the issuer at an average
cost of $400 per hour; and
For Forms 20-F and 40-F, 25% of the burden of preparation
is carried by the issuer internally and 75% of the burden of
preparation is carried by outside professionals retained by the issuer
at an average cost of $400 per hour.
The portion of the burden carried by outside professionals is
reflected as a cost, while the portion of the burden carried by the
issuer internally is reflected in hours. We request comment regarding
the allocation of the annual burden. In particular, we request comment
regarding whether the proposed rules would add more internal burden
hours rather than costs for outside professionals.
We have based our estimates of the effect that the proposed rule
and form amendments, if adopted, would have on those collections of
information primarily on our review of the most recently completed PRA
submissions for the affected rules and forms as well as on PRA
submissions for similar rule and form amendments. We expect that the
rules' effect will be greatest during the first year of their
effectiveness and diminish in subsequent years.
1. Form 10-K
For purposes of the PRA, we estimate that, of the 13,545 Form 10-Ks
filed annually, approximately 861 are filed by issuers that would be
affected by the proposed rule and form amendments.\165\ We further
estimate that the annual incremental paperwork burden for the Forms 10-
K as a result of the proposed rule and form amendments would be 75
burden hours per affected form.\166\
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\165\ We derived this number by determining the number of
issuers that fall under all the SIC codes that pertain to oil,
natural gas, and mining companies and, thus, are most likely to be
resource extraction issuers, and subtracting from that figure the
number of issuers that file annual reports on Form 20-F and Form 40-
F.
\166\ In estimating 75 burden hours, we looked to the burden
hours associated with the disclosure required by the oil and gas
rules adopted in 2008, which estimated an increase of 100 hours for
domestic issuers and 150 hours for foreign private issuers. We
preliminarily believe that the disclosure required by the proposed
rules is less extensive than the disclosure required by the oil and
gas rules, and therefore we have estimated 75 burden hours.
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2. Regulation S-K
While the proposed rule and form amendments would make revisions to
Regulation S-K, the collection of information requirements for that
regulation are reflected in the burden hours estimated for Form 10-K.
The rules in Regulation S-K do not impose any separate burden.
Consistent with historical practice, we are proposing to retain an
estimate of one burden hour to Regulation S-K for administrative
convenience.
3. Form 20-F
For purposes of the PRA, we estimate that, of the 942 Form 20-F
annual reports filed each year, approximately 166 are filed by issuers
that would be affected by the proposed form amendments.\167\ We
estimate that the annual incremental paperwork burden for the Forms 20-
F as a result of the proposed rule and form amendments would be 75
burden hours per affected form.
---------------------------------------------------------------------------
\167\ We derived this number by determining the number of
issuers that fall under all the SIC codes that pertain to oil,
natural gas, and mining companies and, thus, are most likely to be
resource extraction issuers, and that file annual reports on Form
20-F.
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[[Page 80995]]
4. Form 40-F
For purposes of the PRA, we estimate that, of the 205 Form 40-F
annual reports filed each year, approximately 74 are filed by companies
that would be affected by the proposed form amendments.\168\ We
estimate that the annual incremental paperwork burden for the Forms 40-
F as a result of the proposed form amendments would be 75 burden hours
per affected form.
---------------------------------------------------------------------------
\168\ We derived this number by determining the number of
issuers that fall under all the SIC codes that pertain to oil,
natural gas, and mining companies and, thus, are most likely to be
resource extraction issuers, and that file annual reports on Form
40-F.
---------------------------------------------------------------------------
C. Summary of Proposed Changes to Annual Compliance Burden in
Collection of Information
The following tables summarize the estimated changes in annual
compliance burden in the collection of information in hours and costs
for Exchange Act annual reports as a result of the proposed rule and
form amendments. Table 1 illustrates the incremental annual compliance
burden of the collection of information in hours and cost for our
amendments.
Table 1
----------------------------------------------------------------------------------------------------------------
Incremental Incremental
Total company professional Incremental
Number of Incremental incremental (D)=(C)*0.75 (E)=(C)*0.25 professional
Form responses burden burden (Form 10-K) (Form 10-K) cost
\169\ (A) hours/form hours (D)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400/
(B) (C)=(A)*(B) (Forms 20-F (Forms 20-F hr.
& 40-F) & 40-F)
----------------------------------------------------------------------------------------------------------------
10-K.......................... 861 75 64,575 48,431 16,144 $6,457,600
20-F.......................... 166 75 12,450 3,112.5 9,337.5 3,735,000
40-F.......................... 74 75 5,550 1,387.5 4,162.5 1,665,000
----------------------------------------------------------------------------------------------------------------
Table 2 illustrates the total annual compliance burden of the
collection of information in hours and cost resulting from the proposed
amendments. That burden was calculated by adding the incremental
burdens to the existing burdens.
---------------------------------------------------------------------------
\169\ This number corresponds to the estimated number of forms
expected to be affected by the proposed rule and form amendments.
\170\ The proposed rule and form amendments would not change the
number of annual responses.
Table 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Proposed
annual Current Increase in Proposed Current Increase in professional
Form response burden burden burden hours professional professional costs
\170\ hours (A) hours (B) (C)=(A)+(B) costs (D) costs (E) (F)=(D)+(E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K........................................ 13,545 21,363,548 48,431 21,411,979 $2,848,473,000 $6,457,600 $2,854,930,600
20-F........................................ 942 622,907 3,112.5 626,019.5 743,089,980 3,735,000 746,824,980
40-F........................................ 205 21,884 1,387.5 23,271.5 26,260,500 1,665,000 27,925,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
D. Solicitation of Comment
We request comment on the accuracy of our estimates. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i) Evaluate
whether the proposed collections of information are necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (ii) evaluate the accuracy
of the Commission's estimate of burden of the proposed collections of
information; (iii) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; (iv)
evaluate whether there are ways to minimize the burden of the
collections of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology; and (v) evaluate whether the proposed
amendments will have any effects on any other collections of
information not previously identified in this section.
In particular, we request comment and supporting empirical data for
purposes of the PRA on whether the proposed rule and form amendments:
Will affect the burden hours and costs required to produce
the annual reports on Forms 10-K, 20-F and 40-F; and
If so, whether the resulting change in the burden hours
and costs required to produce those Exchange Act annual reports is the
same as or different than the estimated incremental burden hours and
costs proposed by the Commission.
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct the comments to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs, Room
10102, New Executive Office Building, Washington, DC 20503, and should
send a copy to Elizabeth M. Murphy, Secretary, Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-1090, with
reference to File No. S7-42-10. Requests for materials submitted to OMB
by the Commission with regard to these collections of information
should be in writing, refer to File No. S7-42-10, and be submitted to
the Securities and Exchange Commission, Office of Investor Education
and Advocacy, 100 F Street NE., Washington, DC 20549-0213. OMB is
required to make a decision concerning the collection of information
between 30 and 60 days after publication of this release. Consequently,
a comment to OMB is best assured of having its full effect if
[[Page 80996]]
OMB receives it within 30 days of publication.
IV. Cost-Benefit Analysis
We are proposing the rule and form amendments discussed in this
release in order to implement Section 13(q), which was added to the
Exchange Act by Section 1504 of the Act. As mandated by Section 13(q),
the proposed rule and form amendments would require a resource
extraction issuer to disclose in its annual report filed with the
Commission certain information relating to any payment made by the
issuer, a subsidiary, or an entity under the issuer's control to a
foreign government or the U.S. Federal Government for the purpose of
the commercial development of oil, natural gas, or minerals. The
statutorily required information would include the type and total
amount of payments made for each project of the issuer relating to the
commercial development of oil, natural gas, or minerals as well as the
type and total amount of those payments made to each government. We
expect that the proposed rule and form amendments would affect in
substantially the same way both U.S. companies and foreign companies
that meet Section 13(q)'s definition of ``resource extraction issuer,''
which is an issuer that is required to file an annual report with the
Commission and engages in the commercial development of oil, natural
gas, or minerals.
We are sensitive to the costs and benefits of the proposed rule and
form amendments. Section 1504 of the Dodd-Frank Act added Section 13(q)
to the Exchange Act, which establishes a disclosure requirement for
payments made by resource extraction issuers. The rules proposed to
implement the statute largely track the statutory provision. The cost-
benefit analysis that follows focuses on the benefits and costs related
to the aspects of the proposed rules in which we exercised discretion,
and not on the overall benefits and costs of the statutory regime for
disclosure of payments by resource extraction issuers.
A. Benefits
The proposed rulemaking is intended to implement the requirements
of Exchange Act Section 13(q) as set forth in Section 1504 of the Dodd-
Frank Act. Overall, we expect that the proposed rules will have the
benefit of furthering Congress' goal of promoting international
transparency efforts.
The proposed rules would clarify that resource extraction issuers
would be required to provide information about certain payments made to
foreign governments, including foreign subnational governments. This
clarification may reduce uncertainty about compliance for resource
extraction issuers and increase transparency with regard to the
payments made to foreign governments. It also may provide increased
consistency in the application of the requirement across resource
extraction sectors to the extent that it is more common for certain
resource extraction issuers, such as mining companies, to make payments
to subnational governments than national governments.
The proposed rules do not provide a definition of what ``other
material benefits'' should be classified as payments subject to
disclosure. Specifically, the Commission is not proposing that social
or community payments be included in the disclosure mandated by Section
13(q).
Section 13(q) provides that the resource extraction payment
disclosure must be ``included in an annual report.'' As proposed, the
rules would specify the forms in which the required payment information
must be disclosed and location of the required disclosure. The proposed
rules would require a resource extraction issuer to provide the
required payment disclosure in its Exchange Act annual report filed on
Form 10-K, Form 20-F, or Form 40-F. We preliminarily believe this
approach is an appropriate way to implement Section 13(q)'s disclosure
requirements for resource extraction issuers without imposing
additional burdens that might be associated with submitting a separate
annual report to the Commission. To facilitate investors' ability to
locate the disclosure within the annual report, our proposed rules
would require issuers to provide the payment information in exhibits to
the annual report and include a brief statement in the body of the
annual report under a separate heading entitled, ``Payments Made By
Resource Extraction Issuers,'' directing investors to the detailed
information about payments provided in the exhibits.
In this regard, the proposed rules would require that the resource
extraction payment disclosure be furnished with the Commission, rather
than filed. As noted above, Section 13(q) provides that the resource
extraction payment disclosure must be ``included in an annual report,''
but it does not indicate whether the disclosure should be filed or
furnished. Information that is furnished, rather than filed, is not
subject to liability under Section 18 of the Exchange Act, although
issuers that fail to comply with the rules would be subject to
violations of Exchange Act Sections 13(a) or 15(d), as applicable.\171\
By requiring the resource extraction payment disclosure to be furnished
rather than filed, we are subjecting the disclosure to less liability
than would exist if the disclosure were filed.
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\171\ 15 U.S.C. 78(a) and 15 U.S.C. 78o(d).
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To meet the mandate of Section 13(q), the proposed disclosure would
have to be electronically formatted using an interactive data standard.
We have considered two alternative standards, XML and XBRL, for this
purpose. Either standard would benefit market participants and
observers, including investors, by enabling them to more easily search,
retrieve and analyze the formatted information. To the extent that
requiring the specified information to be presented in XBRL format may
promote consistency and standardization in business reporting standards
and reduce compliance costs, it could benefit both issuers and users of
the information. Moreover, the proposed rule and form amendments would
require a resource extraction issuer to provide the required payment
disclosure in two exhibits to its Exchange Act annual report--one
exhibit formatted in HTML or ASCII so that it is easily readable as
text and another exhibit formatted in XBRL and providing all of the
electronic tags required by Section 13(q) and the proposed rules. We
believe that requiring the specified information to be presented in two
separate formats will benefit users of the information by allowing them
to access the information in whatever format is most useful for their
purposes.
B. Costs
Section 13(q) requires the Commission to adopt rules that support
the U.S. Federal Government's commitment to international transparency
promotion efforts relating to the commercial development of oil,
natural gas, or minerals.\172\ Resource extraction issuers would incur
costs in meeting the additional disclosure required for their Exchange
Act annual reports under Section 13(q) and the proposed rule and form
amendments. Those costs would include costs related to tracking and
collecting information about different types of payments across
projects, governments, countries, subsidiaries and other controlled
entities. Those tracking and collecting costs would vary depending upon
how an issuer would need to modify its existing systems to track,
collect, and report the proposed payment information. While some
issuers are
[[Page 80997]]
already providing some payment information on a voluntary basis under
an EITI program, others are currently not reporting any payment
information. Moreover, the EITI requires the disclosure of payment
information on a per country basis, and not per project. Therefore, we
expect that most resource extraction issuers would incur some costs to
develop disclosure controls and procedures to record, process,
summarize and report the required payment information.\173\ However, we
believe these costs are a result of the statutory requirements that we
are required to implement.
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\172\ 15 U.S.C. 78m(q)(2)(E).
\173\ See 17 CFR 240.13a-15(e) and 17 CFR 240.15d-15(e).
---------------------------------------------------------------------------
The proposed rules do not define ``other material benefits'' that
should be considered payments subject to disclosure, which could impose
some costs. First, resource extraction issuers that predominantly make
payments that would be required to be disclosed pursuant to the
proposed rules (e.g. royalties, license fees, bonuses) may be at a
competitive disadvantage as compared to resource extraction issuers
that predominantly make payments that are not identified in the
proposed rules (e.g. social and community payments). Second, to the
extent that other types of payments could be used to substitute for
explicitly defined payments, resource extraction issuers may try to
circumvent the required disclosures by shifting to other, not
explicitly defined payments, and away from payments defined by the
statute. This could have the effect of reducing the transparency
contemplated by Section 1504 of the Dodd-Frank Act.
The proposed rules would require a resource extraction issuer to
provide the required payment disclosure in its Exchange Act annual
report filed on Form 10-K, Form 20-F, or Form 40-F. While we
preliminarily believe that requiring resource extraction issuers to
provide the information in an existing form that they already file
would be less burdensome than providing the information in a new
separate form, to the extent that issuers have concerns with regard to
the time period in which to provide the disclosure in the existing
form,\174\ the proposed rules could result in increased compliance
costs.
---------------------------------------------------------------------------
\174\ See letters from API and NMA.
---------------------------------------------------------------------------
The proposed rules would require resource extraction issuers to
submit the information required by Section 13(q) in two separate
exhibits, one formatted in HTML or ASCII so that it is easily readable
as text and another exhibit formatted in XBRL and providing all of the
electronic tags required by Section 13(q). The requirement to provide
two separately formatted versions of the required information will
result in some increased compliance costs for issuers; however, we
believe it is appropriate to require the information in readable format
as text in addition to the statutorily-mandated interactive data format
in order for the information to be readily accessible to different
users. In addition, the electronic formatting costs would vary
depending upon an issuer's prior experience with XBRL. While many
issuers are already familiar with XBRL because they currently use XBRL
for their annual and quarterly reports filed with the Commission,
issuers not already filing reports using XBRL would incur some start-up
costs associated with XBRL.
V. Consideration of Burden on Competition and Promotion of Efficiency,
Competition and Capital Formation
Section 23(a)(2) of the Exchange Act \175\ requires us, when
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition. In addition, Section 23(a)(2)
prohibits us from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act. Section 3(f) of the Exchange Act \176\ requires
us, when engaging in rulemaking that requires us to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition and capital
formation.
---------------------------------------------------------------------------
\175\ 15 U.S.C. 78w(a)(2).
\176\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission is proposing the rule and form amendments discussed
in this release to implement the requirements of Exchange Act Section
13(q) as added by Section 1504 of the Dodd-Frank Act. Section 13(q)
mandates that the Commission adopt rules requiring resource extraction
issuers to disclose in an annual report payments made to a foreign
government or the Federal Government for the purpose of the commercial
development of oil, natural gas, or minerals. In addition, Section
13(q) requires the Commission to adopt rules that support the U.S.
Federal Government's commitment to international transparency promotion
efforts relating to the commercial development of oil, natural gas, or
minerals.\177\
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\177\ 15 U.S.C. 78m(q)(2)(E).
---------------------------------------------------------------------------
A commentator stated that, should a host government prohibit the
disclosure of payments made by resource extraction issuers to the host
government, and if the Commission does not adopt an appropriate
exception for that prohibition, an issuer could be compelled to select
between avoiding or abandoning projects in that country and maintaining
its registration under the Exchange Act.\178\ According to the
commentator, such a situation would harm the competitive position of
issuers and be contrary to the interests of their investors. Some
commentators have further maintained that, if the Commission adopts a
rule requiring the disclosure of payments without regard to the
materiality of the project to which the payments relate, that rule
would result in voluminous disclosures of immaterial information of
little to no benefit to investors, which may harm the competitive
position of affected issuers and may harm efficient capital
formation.\179\
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\178\ See letter from Eight Law Firms.
\179\ See letters from API and Eight Law Firms.
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Request for Comment
We request comment on whether the proposals, if adopted, would
promote efficiency, competition and capital formation or have an impact
or burden on competition. In particular, we request comment on the
potential effect on efficiency, competition and capital formation
should the Commission not adopt certain exceptions or accommodations.
Commentators are requested to provide empirical data and other factual
support for their views, if possible.
VI. Initial Regulatory Flexibility Analysis
This Initial Regulatory Flexibility Act Analysis has been prepared
in accordance with 5 U.S.C. 603. It relates to proposed rule and form
amendments to implement Section 13(q) of the Exchange Act, which
concerns certain disclosure obligations of resource extraction issuers.
As defined by Section 13(q), a resource extraction issuer is an issuer
that is required to file an annual report with the Commission, and
engages in the commercial development of oil, natural gas, or minerals.
A. Reasons for, and Objectives of, the Proposed Action
The proposed rule and form amendments are designed to implement the
requirements of Section 13(q), which was added by Section 1504 of the
Dodd-Frank Act. Specifically, the proposed rule and form amendments
would require a resource extraction
[[Page 80998]]
issuer to disclose in an annual report certain information relating to
any payment made by the issuer, a subsidiary, or an entity under the
issuer's control to a foreign government or the United States Federal
Government for the purpose of the commercial development of oil,
natural gas, or minerals. An issuer would have to include that
information in an exhibit to its Exchange Act annual report. An issuer
also would have to submit the payment information in two exhibits--one
formatted in HTML or ASCII and one formatted in XBRL.
B. Legal Basis
We are proposing the rule and form amendments pursuant to Sections
12, 13, 23(a), and 35A of the Exchange Act.
C. Small Entities Subject to the Proposed Amendments
The proposals would affect small entities that are required to file
an annual report with the Commission under Section 13(a) or Section
15(d) of the Exchange Act, and are engaged in the commercial
development of oil, natural gas, or minerals. Exchange Act Rule 0-10(a)
\180\ defines an issuer to be a ``small business'' or ``small
organization'' for purposes of the Regulatory Flexibility Act if it had
total assets of $5 million or less on the last day of its most recent
fiscal year. We believe that the proposals would affect small entities
that meet the definition of resource extraction issuer under Section
13(q). Based on a review of total assets for Exchange Act registrants
filing under certain SICs, we estimate that there are approximately 196
oil, natural gas, and mining companies that are resource extraction
issuers and that may be considered small entities.
---------------------------------------------------------------------------
\180\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------
D. Reporting, Recordkeeping, and Other Compliance Requirements
The proposed rule and form amendments would add to the annual
disclosure requirements of companies meeting the definition of resource
extraction issuer, including small entities, by requiring them to
provide the payment disclosure mandated by Section 13(q) in their
Exchange Act annual reports. That information must include:
The type and total amount of payments made for each
project of the issuer relating to the commercial development of oil,
natural gas, or minerals; and
The type and total amount of those payments made to each
government.
The same payment disclosure requirements would apply to U.S. and
foreign resource extraction issuers. We are proposing to amend Form 10-
K and Regulation S-K to require domestic resource extraction issuers to
provide the information about payments made to foreign governments or
the U.S. Federal Government. Because Regulation S-K does not apply to
Forms 20-F and 40-F,\181\ we propose to amend those forms to include
the same disclosure requirements as those proposed for resource
extraction issuers that are not foreign private issuers.\182\
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\181\ While Form 20-F may be used by any foreign private issuer,
Form 40-F is only available to a Canadian issuer that is eligible to
participate in the U.S.-Canadian Multijurisdictional Disclosure
System (``MJDS'').
\182\ See proposed Item 16I under Part II of Form 20-F and
proposed paragraph (17) to General Instruction B of Form 40-F.
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E. Duplicative, Overlapping, or Conflicting Federal Rules
We believe there are no federal rules that duplicate, overlap or
conflict with the proposed rules.
F. Significant Alternatives
The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with the proposals, we considered the following
alternatives:
(1) Establishing different compliance or reporting requirements
which take into account the resources available to smaller entities;
(2) Exempting smaller entities from coverage of the disclosure
requirements, or any part thereof;
(3) The clarification, consolidation, or simplification of
disclosure for small entities; and
(4) Use of performance standards rather than design standards.
Section 13(q) does not contemplate separate disclosure requirements
for small entities that would differ from the proposed reporting
requirements, or exempting them from those requirements. The proposed
rules are designed to implement the payment disclosure requirements of
Section 13(q). That statutory section applies to resource extraction
issuers, regardless of size. We have requested comment as to whether we
should provide an exemption or delayed compliance for smaller reporting
companies and whether doing so would be consistent with the statute and
the protection of investors.
The proposed rules would require clear disclosure about the
payments made by resource extraction issuers to foreign governments and
the U.S. Federal Government, which may result in increased transparency
about those payments. The proposed requirement to disclose the payment
information in exhibits to an issuer's Exchange Act annual report may
simplify the process of submitting the proposed payment disclosure. In
addition, the required electronic formatting of one of the exhibits
would simplify the search and retrieval of payment information
regarding resource extraction issuers, including small entities, for
investors and other interested persons.
We have used design rather than performance standards in connection
with the proposed amendments because, based on our past experience, we
believe the proposed amendments would be more useful to investors if
there were specific disclosure requirements. In addition, the specific
disclosure requirements in the proposed amendments would promote
consistent and comparable disclosure among all resource extraction
issuers.
G. Solicitation of Comment
We encourage the submission of comments with respect to any aspect
of this Initial Regulatory Flexibility Analysis. In particular, we
request comments regarding:
How the proposed amendments can achieve their objective
while lowering the burden on small entities;
The number of small entity companies that may be affected
by the proposed amendments;
The existence or nature of the potential impact of the
proposed amendments on small entity companies discussed in the
analysis; and
How to quantify the impact of the proposed amendments.
Respondents are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. Such
comments will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed rule amendments are adopted, and
will be placed in the same public file as comments on the proposed
amendments themselves.
VII. Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\183\ a rule is ``major'' if it has resulted,
or is likely to result in:
---------------------------------------------------------------------------
\183\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------
An annual effect on the economy of $100 million or more;
[[Page 80999]]
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment or
innovation.
Request for Comment
We request comment on whether our proposals would be a ``major
rule'' for purposes of SBREFA. We solicit comment and empirical data
on:
The potential effect on the U.S. economy on an annual
basis;
Any potential increase in costs or prices for consumers or
individual industries; and
Any potential effect on competition, investment or
innovation.
VIII. Statutory Authority and Text of Proposed Rule and Form Amendments
We are proposing the rule and form amendments contained in this
document under the authority set forth in Sections 12, 13, 23(a), and
35A the Exchange Act.
List of Subjects in 17 CFR Parts 229 and 249
Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, we propose to amend Title 17,
Chapter II of the Code of Federal Regulations as follows:
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
1. The authority citation for part 229 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 777iii,
77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w,
78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37,
80a-38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
* * * * *
2. Add Sec. 229.105 to read as follows:
Sec. 229.105 (Item 105) Disclosure of payments made by resource
extraction issuers.
(a) Pursuant to Section 13(q) of the Securities Exchange Act of
1934 (15 U.S.C. 78m(q)), a resource extraction issuer must include in
an annual report filed with the Commission information relating to any
payment made during the fiscal year covered by the annual report by the
resource extraction issuer, a subsidiary of the resource extraction
issuer, or an entity under the control of the resource extraction
issuer to a foreign government or the United States Federal Government,
for the purpose of the commercial development of oil, natural gas, or
minerals. Specifically, the information must include:
(1) The type and total amount of such payments made for each
project of the resource extraction issuer relating to the commercial
development of oil, natural gas, or minerals;
(2) The type and total amount of such payments made to each
government;
(3) The total amounts of the payments, by category;
(4) The currency used to make the payments;
(5) The financial period in which the payments were made;
(6) The business segment of the resource extraction issuer that
made the payments;
(7) The government that received the payments, and the country in
which the government is located; and
(8) The project of the resource extraction issuer to which the
payments relate.
Instructions to paragraph (a).
1. The resource extraction issuer must provide the information
required by this Item as specified by Sec. 229.601(b)(97) and (b)(98)
of this chapter. In addition, the resource extraction issuer must
provide a statement, in an appropriately captioned section of the
annual report, that the information required by Section 13(q) and this
Item is included in exhibits 97 and 98 to the annual report.
2. The disclosure required by this Item and Sec. 229.601(b)(97)
and (b)(98) of this chapter shall not be deemed to be ``filed'' with
the Commission or subject to the liabilities of section 18 of the
Exchange Act (15 U.S.C. 78r), except to the extent that the registrant
specifically incorporates the information by reference into a document
filed under the Securities Act or the Exchange Act. The disclosure
required by this Item need not be provided in any filings other than an
annual report on Form 10-K (Sec. 249.310 of this chapter). Such
information will not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.
(b) For the purpose of this item:
(1) Commercial development of oil, natural gas, or minerals
includes exploration, extraction, processing, export, and other
significant actions relating to oil, natural gas, or minerals, or the
acquisition of a license for any such activity.
(2) Foreign government means a foreign government, a department,
agency, or instrumentality of a foreign government, or a company owned
by a foreign government. As used in this item, foreign government
includes a foreign national government as well as a foreign subnational
government, such as the government of a state, province, county,
district, municipality, or territory under a foreign national
government.
(3) Payment means an amount paid that:
(i) Is made to further the commercial development of oil, natural
gas, or minerals;
(ii) Is not de minimis; and
(iii) Includes:
(A) Taxes;
(B) Royalties;
(C) Fees (including license fees);
(D) Production entitlements; and
(E) Bonuses.
(4) Resource extraction issuer means an issuer that:
(i) Is required to file an annual report with the Commission; and
(ii) Engages in the commercial development of oil, natural gas, or
minerals.
Instruction to paragraph (b)(2): For purposes of this item, a
company owned by a foreign government is a company that is at least
majority-owned by a foreign government.
Instruction to paragraph (b)(3)(iii)(A): A resource extraction
issuer must disclose taxes on corporate profits, corporate income, and
production. Disclosure of taxes levied on consumption, such as value
added taxes, personal income taxes, or sales tax is not required.
3. Amend Sec. 229.601 by adding entries (97) and (98) to the
exhibit table in paragraph (a), and adding paragraphs (b)(97) and
(b)(98), to read as follows:
Sec. 229.601 (Item 601) Exhibits.
(a) * * *
[[Page 81000]]
Exhibit Table
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Securities Act forms Exchange Act forms
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
S-1 S-3 S-4 \1\ S-8 S-11 F-1 F-3 F-4 \1\ 10 8-K \2\ 10-D 10-Q 10-K
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * *
(36) through (96) [Reserved].. N/A.............. N/A.............. N/A.............. N/A.............. N/A.............. N/A.............. N/A.............. N/A.............. N/A............. N/A............. N/A............. N/A............. N/A
(97) Resource Extraction X
Issuers Exhibit.
(98) Resource Extraction...... X
Issuers Exhibit (Interactive
Data).
* * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(b) * * *
(97) Resource Extraction Issuers Exhibit. A resource extraction
issuer that is required to disclose information relating to payments
made to foreign governments or the United States Federal Government
under Exchange Act Section 13(q) (15 U.S.C. 78m(q)) must provide the
information required by Item 105 of Regulation S-K (Sec. 229.105 of
this chapter) in an exhibit to its Exchange Act annual report. This
exhibit must be provided in HTML or ASCII format. Specifically, a
resource extraction issuer must provide the following disclosure:
(i) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(ii) The type and total amount of such payments made to each
government;
(iii) The total amounts of the payments, by category;
(iv) The currency used to make the payments;
(v) The financial period in which the payments were made;
(vi) The business segment of the resource extraction issuer that
made the payments;
(vii) The government that received the payments, and the country in
which the government is located; and
(viii) The project of the resource extraction issuer to which the
payments relate.
(98) Resource Extraction Issuers Exhibit (Interactive Data). A
resource extraction issuer that is required to disclose information
relating to payments made to foreign governments or the United States
Federal Government under Exchange Act Section 13(q) (15 U.S.C. 78m(q))
must provide the information required by Item 105 of Regulation S-K
(Sec. 229.105 of this chapter) in an exhibit to its Exchange Act
annual report. This exhibit must be electronically formatted using the
eXtensible Business Reporting Language (XBRL) interactive data
standard. This exhibit must include electronic tags that identify the
following information for any payments made by a resource extraction
issuer to a foreign government or the United States Federal Government:
(i) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(ii) The type and total amount of such payments made to each
government;
(iii) The total amounts of the payments, by category;
(iv) The currency used to make the payments;
(v) The financial period in which the payments were made;
(vi) The business segment of the resource extraction issuer that
made the payments;
(vii) The government that received the payments, and the country in
which the government is located; and
(viii) The project of the resource extraction issuer to which the
payments relate. Refer to the EDGAR Filer Manual (Sec. 232.301 of this
chapter) and the corresponding technical specification for resource
extraction issuers disclosure for further guidance.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
4. The authority citation for part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a et seq., 7202, 7233, 7241, 7262, 7264,
and 265; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *
5. Amend Form 20-F (referenced in Sec. 249.220f) by adding Item
16I to Part II, and adding Instruction 17 and 18 to the Instructions as
to Exhibits, of Form 20-F, to read as follows:
Note: The text of Form 20-F does not, and this amendment will
not, appear in the Code of Federal Regulations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
* * * * *
Part II
* * * * *
Item 16I. Disclosure of Payments Made by Resource Extraction Issuers
A. If you are a resource extraction issuer, pursuant to Section
13(q) of the Exchange Act (15 U.S.C. 78m(q)), include information
relating to any payment made during the fiscal year covered by the
annual report by you, your subsidiary, or an entity under your control
to a foreign government or the United States Federal Government for the
purpose of the commercial development of oil, natural gas, or minerals.
Under the heading ``Payments Made By Resource Extraction Issuers'' in
the annual report, provide a statement that the information concerning
payments to governments required by Section 13(q) and paragraph A. of
this Item is included in exhibits 17 and 18 to the annual report.
Include the following information as specified in exhibits 17 and 18 to
the annual report:
(1) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(2) The type and total amount of those payments made to each
government;
(3) The total amounts of the payments, by category;
(4) The currency used to make the payments;
(5) The financial period in which the payments were made;
(6) The business segment of the resource extraction issuer that
made the payments;
(7) The government that received the payments, and the country in
which the government is located; and
[[Page 81001]]
(8) The project of the resource extraction issuer to which the
payments relate.
B. For the purpose of this item:
(1) Commercial development of oil, natural gas, or minerals
includes exploration, extraction, processing, export, and other
significant actions relating to oil, natural gas, or minerals, or the
acquisition of a license for any such activity.
(2) Foreign government means a foreign government, a department,
agency, or instrumentality of a foreign government, or a company owned
by a foreign government. As used in this item, foreign government
includes a foreign national government as well as a foreign subnational
government, such as the government of a state, province, county,
district, municipality, or territory under a foreign national
government.
(3) Payment means an amount paid that:
(i) Is made to further the commercial development of oil, natural
gas, or minerals;
(ii) Is not de minimis; and
(iii) Includes:
(a) Taxes;
(b) Royalties;
(c) Fees (including license fees);
(d) Production entitlements; and
(e) Bonuses.
(4) Resource extraction issuer means an issuer that:
(i) Is required to file an annual report with the Commission; and
(ii) Engages in the commercial development of oil, natural gas, or
minerals.
Instructions to Item 16I:
1. Item 16I only applies to annual reports, and not to registration
statements on Form 20-F.
2. For purposes of paragraph B.(2), a company owned by a foreign
government is a company that is at least majority-owned by a foreign
government.
3. For purposes of paragraph B.(3)(iii)(a), a resource extraction
issuer must disclose taxes on corporate profits, corporate income, and
production. Disclosure of taxes levied on consumption, such as value
added taxes, personal income taxes, or sales tax is not required.
4. The exhibits described in paragraph A. of this Item must meet
the requirements under Instruction 17 and 18 as to Exhibits of this
Form.
5. The disclosure required by paragraph A. of this Item and
Instructions 17 and 18 of this Form shall not be deemed to be ``filed''
with the Commission or subject to the liabilities of section 18 of the
Exchange Act (15 U.S.C. 78r), except to the extent that the registrant
specifically incorporates the information by reference into a document
filed under the Securities Act or the Exchange Act. The disclosure
required by this Item need not be provided in any filings other than an
annual report on Form 20-F (Sec. 249.220f of this chapter). Such
information will not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.
* * * * *
INSTRUCTIONS AS TO EXHIBITS
* * * * *
17. The disclosure of payments by resource extraction issuers
required by Exchange Act Section 13(q) (15 U.S.C. 78m(q)).
A registrant that is required to disclose the payments made to
foreign governments or the United States Federal Government under
Exchange Act Section 13(q) and Item 16I must provide the information
required by Item 16I.A. in exhibit 17 to its annual report on Form 20-
F. This exhibit must provide the following information in HTML or ASCII
format:
(a) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(b) The type and total amount of such payments made to each
government;
(c) The total amounts of the payments, by category;
(d) The currency used to make the payments;
(e) The financial period in which the payments were made;
(f) The business segment of the resource extraction issuer that
made the payments;
(g) The government that received the payments, and the country in
which the government is located; and
(h) The project of the resource extraction issuer to which the
payments relate.
18. The disclosure of payments by resource extraction issuers
required by Exchange Act Section 13(q) (15 U.S.C. 78m(q)) (interactive
data).
A registrant that is required to disclose the payments made to
foreign governments or the United States Federal Government under
Exchange Act Section 13(q) and Item 16I must provide the information
required by Item 16I.A. in exhibit 18 to its annual report on Form 20-
F. This exhibit must:
(a) Be electronically formatted using the eXtensible Business
Reporting Language (XBRL) interactive data standard; and
(b) Include electronic tags that identify the following information
specified by Exchange Act Section 13(q)(2)(D)(ii) (15 U.S.C.
78m(q)(2)(D)(ii)) for any payments made by a resource extraction issuer
to a foreign government or the United States Federal Government:
(1) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(2) The type and total amount of such payments made to each
government;
(3) The total amounts of the payments, by category;
(4) The currency used to make the payments;
(5) The financial period in which the payments were made;
(6) The business segment of the resource extraction issuer that
made the payments;
(7) The government that received the payments, and the country in
which the government is located; and
(8) The project of the resource extraction issuer to which the
payments relate.
Refer to the EDGAR Filer Manual (Sec. 232.301 of this chapter) and
the corresponding technical specification for resource extraction
issuers disclosure for further guidance.
19. through 99. [Reserved]
* * * * *
6. Amend Form 40-F (referenced in Sec. 249.240f) by adding
paragraph (17) to General Instruction B of Form 40-F to read as
follows:
Note: The text of Form 40-F does not, and this amendment will
not, appear in the Code of Federal Regulations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 40-F
* * * * *
GENERAL INSTRUCTIONS
* * * * *
B. Information To Be Filed on This Form
* * * * *
(17) Disclosure of Payments Made By Resource Extraction Issuers.
(a) If you are a resource extraction issuer, pursuant to Section
13(q) of the Exchange Act (15 U.S.C. 78m(q)), disclose information
relating to any payment made during the fiscal year covered by the
annual report by you, your subsidiary, or an entity under your
[[Page 81002]]
control to a foreign government or the United States Federal Government
for the purpose of the commercial development of oil, natural gas, or
minerals. Under the heading ``Payments Made By Resource Extraction
Issuers'' in the annual report, provide a statement that the
information concerning payments to governments required by Section
13(q) and paragraph (a) of this Item is included in specified exhibits
to the annual report.
(1) Include the following information, provided in HTML or ASCII
format, in an exhibit to the annual report:
(i) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(ii) The type and total amount of those payments made to each
government;
(iii) The total amounts of the payments, by category;
(iv) The currency used to make the payments;
(v) The financial period in which the payments were made;
(vi) The business segment of the resource extraction issuer that
made the payments;
(vii) The government that received the payments, and the country in
which the government is located; and
(viii) The project of the resource extraction issuer to which the
payments relate.
(2) Include the following information, electronically formatted
using the eXtensible Business Reporting Language (XBRL) interactive
data standard in an exhibit to the annual report:
(i) The type and total amount of payments made for each project of
the resource extraction issuer relating to the commercial development
of oil, natural gas, or minerals;
(ii) The type and total amount of such payments made to each
government;
(iii) The total amounts of the payments, by category;
(iv) The currency used to make the payments;
(v) The financial period in which the payments were made;
(vi) The business segment of the resource extraction issuer that
made the payments;
(vii) The government that received the payments, and the country in
which the government is located; and
(viii) The project of the resource extraction issuer to which the
payments relate. Refer to the EDGAR Filer Manual (Sec. 232.301 of this
chapter) and the corresponding technical specification for resource
extraction issuers disclosure for further guidance.
(b) For the purpose of Item 17:
(1) Commercial development of oil, natural gas, or minerals
includes exploration, extraction, processing, export, and other
significant actions relating to oil, natural gas, or minerals, or the
acquisition of a license for any such activity.
(2) Foreign government means a foreign government, a department,
agency, or instrumentality of a foreign government, or company owned by
a foreign government. As used in this item, foreign government includes
a foreign national government as well as a foreign subnational
government, such as the government of a state, province, county,
district, municipality, or territory under a foreign national
government.
(3) Payment means an amount paid that:
(i) Is made to further the commercial development of oil, natural
gas, or minerals;
(ii) Is not de minimis; and
(iii) Includes:
(A) Taxes;
(B) Royalties;
(C) Fees (including license fees);
(D) Production entitlements; and
(E) Bonuses.
(4) Resource extraction issuer means an issuer that:
(i) Is required to file an annual report with the Commission; and
(ii) Engages in the commercial development of oil, natural gas, or
minerals.
Notes to Instruction B.(17)
1. Instruction B.(17) only applies to annual reports, and not to
registration statements on Form 40-F.
2. For purposes of paragraph (b)(2), a company owned by a foreign
government is a company that is at least majority-owned by a foreign
government.
3. For purposes of paragraph (b)(3)(iii)(A), a resource extraction
issuer must disclose taxes on corporate profits, corporate income, and
production. Disclosure of taxes levied on consumption, such as value
added taxes, personal income taxes, or sales tax is not required.
4. The disclosure required by Instruction B.(17) of this Form shall
not be deemed to be ``filed'' with the Commission or subject to the
liabilities of section 18 of the Exchange Act (15 U.S.C. 78r), except
to the extent that the registrant specifically incorporates the
information by reference into a document filed under the Securities Act
or the Exchange Act. The disclosure required by this Item need not be
provided in any filings other than an annual report on Form 40-F (Sec.
249.240f of this chapter). Such information will not be deemed to be
incorporated by reference into any filing under the Securities Act or
the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.
* * * * *
7. Amend Form 10-K (referenced in Sec. 249.310) by adding
paragraph (c) to Item 4 under Part I of Form 10-K to read as follows:
Note: The text of Form 10-K does not, and this amendment will
not, appear in the Code of Federal Regulations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
* * * * *
PART I
* * * * *
Item 4. Specialized Disclosures * * *
(c) Disclosure of Payments Made By Resource Extraction Issuers. If
you are a resource extraction issuer, as defined under Section 13(q) of
the Exchange Act and Item 105(b)(4) of Regulation S-K (Sec.
229.105(b)(4) of this chapter), provide a statement under the heading
``Payments Made By Resource Extraction Issuers'' that the information
concerning payments to governments required by Section 13(q) and Item
105 of Regulation S-K (Sec. 229.105 of this chapter) is included in
exhibits 97 and 98 to the annual report.
* * * * *
By the Commission.
Dated: December 15, 2010.
Elizabeth Murphy,
Secretary.
[FR Doc. 2010-31943 Filed 12-22-10; 8:45 am]
BILLING CODE 8011-01-P