[Federal Register Volume 77, Number 177 (Wednesday, September 12, 2012)]
[Rules and Regulations]
[Pages 56365-56419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21155]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-67717; File No. S7-42-10]
RIN 3235-AK85


Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting new rules and an amendment to a new form 
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, a subsidiary of 
the issuer, or an entity under the control of 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 such 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 
information regarding those payments in an interactive data format.

DATES: Effective date: November 13, 2012.
    Compliance date: A resource extraction issuer must comply with the 
new rules and form for fiscal years ending after September 30, 2013. 
For the first report filed for fiscal years ending after September 30, 
2013, a resource extraction issuer may provide a partial year report if 
the issuer's fiscal year began before September 30, 2013. The issuer 
will be required to provide a report for the period beginning October 
1, 2013 through the end of its fiscal year. For any fiscal year 
beginning on or after September 30, 2013, a resource extraction issuer 
will be required to file a report disclosing payments for the full 
fiscal year.

FOR FURTHER INFORMATION CONTACT: Tamara Brightwell, Senior Special 
Counsel, Division of Corporation Finance, Elliot Staffin, Special 
Counsel, Office of International Corporate Finance, Division of 
Corporation Finance, or Eduardo Aleman, Special Counsel, Office of 
Rulemaking, 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 adopting new Rule 13q-1 \1\ and an 
amendment to new Form SD \2\ under the Securities Exchange Act of 1934 
(``Exchange Act'').\3\
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    \1\ 17 CFR 240.13q-1.
    \2\ 17 CFR 249.448.
    \3\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Background
II. Final Rules Implementing Section 13(q)
    A. Summary of the Final Rules
    B. Definition of ``Resource Extraction Issuer'' and Application 
of the Disclosure Requirements
    1. Proposed Rules
    2. Comments on the Proposed Rules
    3. Final Rules
    C. Definition of ``Commercial Development of Oil, Natural Gas, 
or Minerals''
    1. Proposed Rules
    2. Comments on the Proposed Rules
    3. Final Rules
    D. Definition of ``Payment''
    1. Types of Payments
    2. The ``Not De Minimis'' Requirement
    3. The Requirement To Provide Disclosure for ``Each Project''
    4. Payments by ``a Subsidiary * * * or an Entity Under the 
Control of * * *''
    E. Definition of ``foreign government''
    1. Proposed Rules
    2. Comments on the Proposed Rules
    3. Final Rules
    F. Disclosure Required and Form of Disclosure
    1. Annual Report Requirement
    2. Exhibits and Interactive Data Format Requirements
    3. Treatment for Purposes of Securities Act and Exchange Act
    G. Effective Date
    1. Proposed Rules
    2. Comments on the Proposed Rules
    3. Final Rules
III. Economic Analysis
    A. Introduction
    B. Benefits and Costs Resulting From the Mandatory Reporting 
Requirement
    1. Benefits
    2. Costs
    C. Benefits and Costs Resulting From Commission's Exercise of 
Discretion
    1. Definition of ``Commercial Development of Oil, Natural Gas, 
or Minerals''
    2. Types of Payments
    3. Definition of ``Not De Minimis''
    4. Definition of ``Project''
    5. Annual Report Requirement
    6. Exhibit and Interactive Data Requirement
    D. Quantified Assessment of Overall Economic Effects
IV. Paperwork Reduction Act
    A. Background
    B. Summary of the Comment Letters
    C. Revisions to PRA Reporting and Cost Burden Estimates
    D. Revised PRA Estimate
V. Final Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Final Rules
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Rules
    D. Reporting, Recordkeeping, and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
VI. Statutory Authority and Text of Final Rule and Form Amendments

[[Page 56366]]

I. Background

    On December 15, 2010, we proposed rule and form amendments \4\ 
under the Exchange Act to implement Section 13(q) of the Exchange Act, 
which was added by Section 1504 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (``the Act'').\5\ 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.'' \6\
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    \4\ See Exchange Act Release No. 63549 (December 15, 2010), 75 
FR 80978 (December 23, 2010), available at http://www.sec.gov/rules/proposed/2010/34-63549.pdf (``Proposing Release'').
    \5\ Public Law 111-203 (July 21, 2010).
    \6\ 15 U.S.C. 78m(q)(2)(A). As discussed further below, Section 
13(q) also specifies that the Commission's rules must require 
certain information to be provided in interactive data format.
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    Based on the legislative history, we understand that Congress 
enacted Section 1504 to increase the transparency of payments made by 
oil, natural gas, and mining companies to governments for the purpose 
of the commercial development of their oil, natural gas, and minerals. 
A primary goal of such transparency is to help empower citizens of 
those resource-rich countries to hold their governments accountable for 
the wealth generated by those resources.\7\ To accomplish this goal, 
Congress created a disclosure regime under the Exchange Act that would 
support the commitment of the U.S. Federal Government to international 
transparency promotion efforts relating to the commercial development 
of oil, natural gas, or minerals.\8\
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    \7\ See, e.g., statement by Senator Richard Lugar, one of the 
sponsors of Section 1504 (``Adoption of the Cardin-Lugar amendment 
would bring a major step in favor of increased transparency at home 
and abroad * * *. More importantly, it would help empower citizens 
to hold their governments to account for the decisions made by their 
governments in the management of valuable oil, gas, and mineral 
resources and revenues * * *. The essential issue at stake is a 
citizen's right to hold its government to account. Americans would 
not tolerate the Congress denying them access to revenues our 
Treasury collects. We cannot force foreign governments to treat 
their citizens as we would hope, but this amendment would make it 
much more difficult to hide the truth.''), 156 Cong. Rec. S3816 (May 
17, 2010).
    \8\ See 15 U.S.C. 78m(q)(2)(E).
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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; \9\
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    \9\ 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; \10\
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    \10\ 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; 
\11\ and
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    \11\ 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.\12\
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    \12\ 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.'' \13\ As noted above, the statute explicitly refers to one 
international initiative, the Extractive Industries Transparency 
Initiative (``EITI''),\14\ in the definition of ``payment.'' Although a 
separate provision in Section 13(q) regarding international 
transparency

[[Page 56367]]

efforts does not explicitly mention the EITI, the legislative history 
indicates that the EITI was considered in connection with the new 
statutory provision.\15\ The United States is one of several countries 
that supports the EITI.\16\
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    \13\ 15 U.S.C. 78m(q)(2)(E).
    \14\ 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 Extractive Industries Transparency 
Initiative (2008) (``Implementing the EITI''), available at http://eiti.org/document/implementingtheeiti. 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 4, available at 
http://eiti.org/files/document/sourcebookmarch05.pdf. Announced by 
former UK Prime Minister Tony Blair at the World Summit on 
Sustainable Development in Johannesburg in September 2002, the EITI 
received the endorsement of the World Bank Group in 2003. See 
History of EITI, http://www.eiti.org/eiti/history (last visited 
August 15, 2012).
    Currently 14 countries--Azerbaijan, Central African Republic, 
Ghana, Kyrgyz Republic, Liberia, Mali, Mauritania, Mongolia, Niger, 
Nigeria, Norway, Peru, Timor Leste, and Yemen--have achieved ``EITI 
compliant'' status by completing a validation process in which 
company payments are matched with government revenues by an 
independent auditor. See http://eiti.org/countries/compliant (last 
visited August 15, 2012). Some 22 other countries are EITI 
candidates in the process of complying with EITI standards, although 
one of the countries, Madagascar, recently had its EITI candidate 
status suspended. See http://eiti.org/candidatecountries (last 
visited August 15, 2012). Several other countries have indicated 
their intent to implement the EITI. See 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 Implementing the EITI, at 23-24.
    On September 20, 2011, President Obama declared that the United 
States will join the global initiative and released a National 
Action Plan stating that the Administration is committing to 
implement the EITI. See http://www.whitehouse.gov/the-press-office/2011/09/20/opening-remarks-president-obama-open-government-partnership and http://www.whitehouse.gov/sites/default/files/us_national_action_plan_final_2.pdf. The U.S. Department of the 
Interior (``DOI'') is responsible for implementing the U.S. EITI. 
See ``White House Announces Secretary Ken Salazar as Senior Official 
Responsible for Oversight of Implementation of Extractive Industries 
Transparency Initiative,'' White House Statements and Releases 
(October 25, 2011), available at http://www.whitehouse.gov/the-press-office/2011/10/25/white-house-announces-secretary-ken-salazar-administrations-senior-offic. After soliciting comment on and 
evaluating comments regarding the formation of the multi-stakeholder 
group for the U.S. EITI, the DOI announced that the assessment phase 
of the U.S. EITI implementation was complete, and the next phase of 
the U.S. EITI implementation will involve establishing the multi-
stakeholder group. See ``U.S. Department of the Interior Announces 
Results of USEITI Implementation Assessment,'' U.S. Department of 
the Interior News Release (July 10, 2012), available at http://www.doi.gov/EITI/index.cfm. See also letter from Batirente Inc. and 
NEI Investments (February 10, 2012) (``Batirente and NEI 
Investments'') (submitting a copy of a statement by 17 Canadian 
investment institutions calling on the Canadian government to become 
an EITI implementing country). One commentator indicated that the 
final rules should be ``aligned and coordinated'' with the process 
being developed by the DOI to fulfill the United States' commitment 
to implementing the EITI. See letter from NMA 3.
    \15\ See, e.g., statement by Senator Lugar (``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 
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.'').
    \16\ See the list of EITI supporting countries, available at 
http://eiti.org/supporters/countries (last visited August 15, 2012).
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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 \17\ using an interactive 
data standard established by the Commission.\18\ 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.\19\ 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.\20\ The rules 
issued pursuant to Section 13(q) \21\ must include electronic tags that 
identify:
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    \17\ 15 U.S.C. 78m(q)(2)(C).
    \18\ 15 U.S.C. 78m(q)(2)(D).
    \19\ 15 U.S.C. 78m(q)(1)(E).
    \20\ 15 U.S.C. 78m(q)(1)(F).
    \21\ 15 U.S.C. 78m(q)(2)(D)(i).
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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.\22\ 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.\23\
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    \22\ 15 U.S.C. 78m(q)(2)(D)(ii).
    \23\ 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[.]'' \24\
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    \24\ 15 U.S.C. 78m(q)(2)(F).
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    Finally, Section 13(q) requires, to the extent practicable, the 
Commission to make publicly available online a compilation of the 
information required to be submitted by resource extraction issuers 
under the new rules.\25\ The statute does not define the term 
compilation.
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    \25\ 15 U.S.C. 78m(q)(3).
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    The Commission received over 150 unique comment letters on the 
proposal as well as over 149,000 form letters (including a petition 
with 143,000 signatures).\26\ These letters came from corporations in 
the resource extraction industries, industry and professional 
associations, United States and foreign government officials, non-
governmental organizations, law firms, pension and other investment 
funds, academics, investors, a labor union and other employee groups, 
and other interested parties. Commentators generally supported 
transparency efforts and offered numerous suggestions for revising 
certain aspects of the proposal in the final rules.
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    \26\ The letters, including the form letters designated as Type 
A, Type B, and Type C, are available at http://www.sec.gov/comments/s7-42-10/s74210.shtml. In addition, to facilitate public input on 
the Act, the Commission provided a series of email links, organized 
by topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml. The public comments we received on Section 
1504 of the Act, which were submitted prior to the Proposing 
Release, are available on our Web site at http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specialized-disclosures.shtml. Many commentators provided comments both prior 
to, and in response to, the proposal. Generally, our references to 
comment letters refer to the comments submitted in response to the 
proposal. When we refer to a comment letter submitted prior to the 
proposal, however, we make that clear in the citation.
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    We have reviewed and considered all of the comments that we 
received and the rules we are adopting reflect changes made in response 
to many of the comments. Generally, as adopted, the final rules track 
the language in the statute, and except for where the language or 
approach of Section 13(q) clearly deviates from the EITI, the final 
rules are consistent with the EITI.\27\ In instances where the language 
or approach of Section 13(q) clearly deviates from the EITI, the final 
rules track the statute rather than the EITI because in those instances 
we believe Congress intended the final rules to go beyond what is 
required by the EITI. We believe this approach is consistent with 
Section 13(q) and furthers the statutory goal to support international 
transparency promotion efforts relating to the commercial development 
of oil, natural gas, or minerals because the EITI is referenced in 
Section 13(q) and is well-recognized for promoting such 
transparency.\28\
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    \27\ A country volunteers to become an EITI member. To become an 
EITI member country, among other things, a country must establish a 
multi-stakeholder group, including representatives of civil society, 
industry, and government, to oversee implementation of the EITI. The 
stakeholder group for a particular country agrees to the terms of 
that country's EITI plan, including the requirements for what 
information will be provided by the governments and by the companies 
operating in that country. Generally, as we understand it, under the 
EITI, companies and the host country's government submit payment 
information confidentially to an independent administrator selected 
by the country's multi-stakeholder group, which is frequently an 
independent auditor. The auditor reconciles the information provided 
to it by the government and by the companies and produces a report. 
The information provided in the reports varies widely among 
countries. A country must complete an EITI validation process to 
become a compliant member. The EITI Source Book and Implementing the 
EITI provide guidance regarding what should be included in a 
country's EITI plan, and we have looked to those materials and to 
the reports made by EITI member countries for guidance as to EITI 
requirements. See the EITI's Web site at http://eiti.org.
    \28\ See Exchange Act Sections 13(q)(2)(C)(ii) and 13(q)(2)(E) 
[15 U.S.C. 78m(q)(2)(C)(ii) and 78m(q)(2)(E)].
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II. Final Rules Implementing Section 13(q)

A. Summary of the Final Rules

    Consistent with the proposal, we are adopting final rules that 
define the term ``resource extraction issuer'' as defined in Section 
13(q). As proposed, the final rules will apply to 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 the size of the company or 
the extent of business operations constituting commercial development 
of oil, natural gas, or minerals. Consistent with the proposal, the 
final rules will apply to an issuer, whether government-owned or not, 
that

[[Page 56368]]

meets the definition of resource extraction issuer.
    Consistent with the proposal and in light of the structure, 
language, and purpose of the statute, the final rules do not provide 
any exemptions from the disclosure requirements. As such, the final 
rules do not include an exemption for certain categories of issuers or 
for resource extraction issuers subject to similar reporting 
requirements under home country laws, listing rules, or an EITI 
program. The final rules also do not provide an exemption for 
situations in which foreign law may prohibit the required disclosure. 
In addition, the final rules do not provide an exemption for instances 
when an issuer has a confidentiality provision in an existing or future 
contract or for commercially sensitive information.
    Consistent with Section 13(q) and the proposal, the final rules 
define ``commercial development of oil, natural gas, or minerals'' to 
include the activities of exploration, extraction, processing, and 
export, or the acquisition of a license for any such activity.
    Consistent with Section 13(q) and the proposal, the final rules 
define ``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, and bonuses. After considering the 
comments, under the final rules and in accordance with Section 
13(q)(1)(C)(ii), we also are including dividends and payments for 
infrastructure improvements in the list of payments required to be 
disclosed. The final rules include instructions to clarify the types of 
taxes, fees, bonuses, and dividends that are covered. In addition, 
after considering the comments, we have determined to define the term 
``not de minimis.'' Unlike the proposed rules, which left the term 
``not de minimis'' undefined, the final rules define ``not de minimis'' 
to mean any payment, whether a single payment or a series of related 
payments, that equals or exceeds $100,000 during the most recent fiscal 
year.
    Consistent with Section 13(q) and the proposal, after considering 
the comments, we have decided to leave the term ``project'' undefined.
    Consistent with the proposal, the final rules require a resource 
extraction issuer to disclose payments made by the issuer, a subsidiary 
of the issuer, or an entity under the control of the issuer to a 
foreign government or the U.S. Federal Government for the purpose of 
commercial development of oil, natural gas, or minerals. A resource 
extraction issuer will be required to disclose payments made directly, 
or by any subsidiary, or entity under the control of the resource 
extraction issuer. Therefore, a resource extraction issuer must 
disclose payments made by a subsidiary or entity under the control of 
the resource extraction issuer where the subsidiary or entity is 
consolidated in the resource extraction issuer's financial statements 
included in its Exchange Act reports, as well as payments by other 
entities it controls as determined in accordance with Rule 12b-2. A 
resource extraction issuer may be required to provide the disclosure 
for entities in which it provides proportionately consolidated 
information. A resource extraction issuer will be required to determine 
whether it has control of an entity for purposes of the final rules 
based on a consideration of all relevant facts and circumstances.\29\
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    \29\ See Exchange Act Rule 12b-2 for the definition of 
``control.'' See also note 315.
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    We are adopting the definition of ``foreign government'' consistent 
with the definition in Section 13(q), as proposed. A ``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. As proposed, the final rules clarify that 
``Federal Government'' means the United States Federal Government. The 
final rules do not require disclosure of payments made to subnational 
governments in the United States. Consistent with the proposal, the 
final rules clarify that a company owned by a foreign government is a 
company that is at least majority-owned by a foreign government.
    After considering the comments, the final rules we are adopting 
require resource extraction issuers to provide the required disclosure 
about payments in a new annual report, rather than in the issuer's 
existing Exchange Act annual report as proposed. We are adopting 
amendments to new Form SD to require the disclosure.\30\ Similar to the 
proposal, the Form SD will require issuers to include a brief statement 
in the body of the form in an item entitled, ``Disclosure of Payments 
By Resource Extraction Issuers,'' directing users to detailed payment 
information provided in an exhibit to the form. As adopted, in response 
to comments, the final rules require resource extraction issuers to 
file Form SD on EDGAR no later than 150 days after the end of the 
issuer's most recent fiscal year. The final rules will require resource 
extraction issuers to present the payment information in one exhibit to 
new Form SD rather than in two exhibits, as was proposed. The required 
exhibit must provide the information using the XBRL interactive data 
standard.\31\ Because the XBRL exhibit will be automatically rendered 
into a readable form available on EDGAR, we are not requiring a 
separate HTML or ASCII exhibit in addition to the XBRL exhibit. Under 
the final rules, and as required by the statute, a resource extraction 
issuer must 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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    \30\ In another release we are issuing today, we are adopting 
rules to implement the requirements of Section 1502 of the Dodd-
Frank Act and requiring issuers subject to those requirements to 
file the disclosure on Form SD. See Conflict Minerals, Release 34-
67716 (August 22, 2012) (``Conflict Minerals Adopting Release''). 
Because of the order of our actions, we are adopting Form SD in that 
release and we are amending the form in this release, but we intend 
for the form to be used equally for these two separate disclosure 
requirements and potentially others that would benefit from 
placement in a specialized disclosure form.
    \31\ As proposed, an issuer would have been required to submit 
two exhibits--one in HTML or ASCII and the other in XBRL. As 
discussed below, we have decided to require only one exhibit for 
technical reasons and to reduce the compliance burden of the final 
rules.
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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.\32\

    \32\ See Item 2.01(a) of Form SD (17 CFR 249.448).
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In addition, a resource extraction issuer must 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. 
Unlike the proposal, in response to comments we received, the final 
rules require resource extraction issuers to file rather than furnish 
the payment information.
    Under the final rules, a resource extraction issuer will be 
required to comply with the new rules and form for fiscal years ending 
after September 30, 2013. For the first report filed for fiscal years 
ending after September 30, 2013, a resource extraction issuer may 
provide

[[Page 56369]]

a partial year report if the issuer's fiscal year began before 
September 30, 2013. The issuer will be required to provide a report for 
the period beginning October 1, 2013 through the end of its fiscal 
year. For any fiscal year beginning on or after September 30, 2013, a 
resource extraction issuer will be required to file a report disclosing 
payments for the full fiscal year.

B. Definition of ``Resource Extraction Issuer'' and Application of the 
Disclosure Requirements

1. Proposed Rules
    In accord with Section 13(q), the proposed rules would have applied 
to issuers meeting the definition of ``resource extraction issuer'' and 
would have defined the term to mean an 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. Consistent with Section 
13(q), the proposed rules would not have provided any exemptions from 
the disclosure requirements for resource extraction issuers. The 
Proposing Release further clarified that the proposed rules would apply 
to companies that fall within the definition of resource extraction 
issuer whether or not they are owned or controlled by governments.
2. Comments on the Proposed Rules
    We received a variety of comments regarding the proposed rules and 
the application of the disclosure requirements. Numerous commentators 
supported the Commission's proposed definition and application of the 
disclosure requirements, including that the rules should not provide 
any exemptions from the disclosure requirements.\33\ Noting an absence 
of statutory language regarding exemptions, several commentators stated 
that the legislative intent underlying Section 1504 was to provide the 
broadest possible coverage of extractive companies so as to create a 
level playing field.\34\
---------------------------------------------------------------------------

    \33\ See letters from Association of Forest Communities in 
Guatemala (March 8, 2012) (``Guatemalan Forest Communities''), 
Batirente (February 28, 2011), BC Investment Management Corporation 
(March 2, 2011) (``bcIMC''), Bon Secours Health System (March 1, 
2011) (``Bon Secours''), California State Teachers' Retirement 
System (March 1, 2011) (``CalSTRS''), Calvert Investments (March 1, 
2011) (``Calvert''), Catholic Relief Services and Committee on 
International Justice and Peace (February 9, 2011) (``CRS''), 
Derecho Ambiente y Recursos Naturales DAR (March 23, 2012) 
(``Derecho''), EarthRights International (December 2, 2010) (pre-
proposing letter) (``ERI pre-proposal''), EarthRights International 
(January 26, 2011), (September 20, 2011), (February 3, 2012), 
(February 7, 2012) (respectively, ``ERI 1,'' ``ERI 2,'' ``ERI 3,'' 
and ``ERI 4''), Earthworks (March 2, 2011), Extractive Industries 
Working Group (March 2, 2011) (``EIWG''), Global Financial Integrity 
(March 1, 2011) (``Global Financial 2''), Global Witness (February 
25, 2011) (``Global Witness 1''), Global Witness (February 24, 2012) 
(with attachments) (``Global Witness 2''), Global Witness (February 
24, 2012) (``Global Witness 3''), Greenpeace (March 8, 2012), Grupo 
FARO (February 13, 2012), Philippe Le Billon (March 2, 2012) (``Le 
Billon''), Libyan Transparency Association (February 22, 2012) 
(``Libyan Transparency''), National Civil Society Coalition on 
Mineral Resource Governance of Senegal (February 14, 2012) 
(``National Coalition of Senegal''), Newground Social Investment 
(March 1, 2011) (``Newground''), Nigeria Union of Petroleum and 
Natural Gas Workers (July 8, 2011) (``NUPENG''), ONE (March 2, 
2011), ONE Petition (February 23, 2012), Oxfam America (February 21, 
2011) (``Oxfam 1''), Petroleum and Natural Gas Senior Staff 
Association of Nigeria (June 27, 2011) (``PENGASSAN''), PGGM 
Investments (March 1, 2011) (``PGGM''), PricewaterhouseCoopers LLP 
(March 2, 2011) (``PWC''), Publish What You Pay U.S. (November 22, 
2010) (pre-proposing letter) (``PWYP pre-proposal''), Publish What 
You Pay U.S. (February 25, 2011) (``PWYP 1''), Railpen Investments 
(February 25, 2011), Representative Barney Frank, Representative 
Jose Serrano, Representative Norman Dicks, Representative Henry 
Waxman, Representative Maxine Waters, Representative Donald Payne, 
Representative Nita Lowey, Representative Betty McCollum, 
Representative Barbara Lee, Representative Jesse Jackson, Jr., 
Representative Alcee Hastings, Representative Gregory Meeks, 
Representative Rosa DeLauro, and Representative Marcy Kaptur 
(February 15, 2012) (``Rep. Frank et al.''), Revenue Watch Institute 
(February 17, 2011) (``RWI 1''), Peter Sanborn (March 12, 2011) 
(``Sanborn''), Senator Benjamin Cardin, Senator John Kerry, Senator 
Patrick Leahy, Senator Charles Schumer, and Representative Barney 
Frank (March 1, 2011) (``Sen. Cardin et al. 1''), Senator Benjamin 
Cardin, Senator John Kerry, Senator Patrick Leahy, Senator Carl 
Levin, and Senator Charles Schumer (January 31, 2012) (``Sen. Cardin 
et al. 2''), Senator Carl Levin (February 1, 2011) (``Sen. Levin 
1''), Social Investment Forum (March 2, 2011) (``SIF''), George 
Soros (February 23, 2011) and (February 21, 2012) (``Soros 1'' and 
``Soros 2'', respectively), Syena Capital Management LLC (February 
17, 2011) (``Syena''), Ta'ang Students and Youth Organization 
(``TSYO''), TIAA-CREF (March 2, 2011) (``TIAA''), U.S. Agency for 
International Development (July 15, 2011) (``USAID''), United 
Steelworkers (March 29, 2011) (``USW''), WACAM (February 2, 2012), 
and World Resources Institute (March 1, 2011) (``WRI''), and letters 
designated as Type A and Type B. Other commentators generally voiced 
their support for strong rules under Section 1504. See letters from 
Cambodians for Resource Revenue Transparency (February 7, 2012) 
(``Cambodians''), Conflict Risk Network (February 7, 2012), Bill and 
Melinda Gates Foundation (February 9, 2012) (``Gates Foundation''), 
Global Witness 2, Barbara and Richard Hause (February 24, 2012), 
Network for the Fight Against Hunger in Cameroon (February 20, 2012) 
(``RELUFA 3''), Oxfam America (March 7, 2012) (``Oxfam 3''), Gradye 
Parsons (February 15, 2012), Representative Raul M. Grijalva 
(November 15, 2011), Reverend Jed Koball (February 10, 2012), and 
letters designated as Type C.
    \34\ See, e.g., letters from Calvert, Global Witness 1, Oxfam 1, 
PWYP 1, Sen. Cardin et al. 1, Sen. Levin 1, and WRI.
---------------------------------------------------------------------------

    Most commentators that addressed the issue supported including 
issuers that are owned or controlled by governments within the 
definition of resource extraction issuer, as proposed.\35\ Commentators 
favored such inclusion because it would be consistent with the intent 
of the statute to hold all resource extraction issuers accountable for 
payments to governments,\36\ would adhere to EITI's universality 
principle that payment disclosure in a given country should involve all 
extractive industry companies operating in that country,\37\ and would 
avoid anti-competitive effects because many government-owned companies 
are the largest in the industry.\38\ Another commentator stated that, 
while it did not believe government-owned entities should be exempt 
from the payment disclosure rules, it opposed requiring a government-
owned entity to disclose payments made to the government that controls 
it. According to that commentator, such payments are not ``made to 
further commercial development,'' but rather are ``distributions to the 
entity's controlling shareholder (or to itself), and requiring them to 
be disclosed is inappropriate as a matter of comity.'' \39\ Another 
commentator sought an exemption for payments made by a foreign 
government-owned company to a subsidiary or entity controlled by 
it.\40\
---------------------------------------------------------------------------

    \35\ See letters from American Petroleum Institute (January 28, 
2011) (``API 1''), Chevron Corporation (January 28, 2011) 
(``Chevron''), Exxon Mobil (January 31, 2011) (``ExxonMobil 1''), Le 
Billon, PWYP 1, and Royal Dutch Shell plc (January 28, 2011) (``RDS 
1'').
    \36\ See letter from PWYP 1.
    \37\ See letters from API 1 and ExxonMobil 1.
    \38\ See letters from Chevron and RDS 1.
    \39\ See letter from Cleary Gottlieb Steen & Hamilton (March 2, 
2011) (``Cleary'').
    \40\ See letter from Statoil ASA (February 22, 2011) 
(``Statoil'').
---------------------------------------------------------------------------

    Several other commentators supported exemptions for certain 
categories of issuers or for certain circumstances.\41\ For example, 
while opposing a general exemption for smaller reporting companies, 
some commentators supported an exemption for a small entity having $5 
million or less in assets on the last day of its most recently 
completed fiscal year.\42\ Other commentators opposed an exemption for 
smaller companies because of their belief that those companies 
generally face greater equity risk from their

[[Page 56370]]

operations in host countries than larger issuers.\43\
---------------------------------------------------------------------------

    \41\ See, e.g., letters from API 1, API (August 11, 2011) (``API 
2'') and API (May 18, 2012) (``API 5''), ExxonMobil 1, Cleary, New 
York State Bar Association, Securities Regulation Committee (March 
1, 2011) (``NYSBA Committee''), PetroChina Company Limited (February 
28, 2011) (``PetroChina''), Petroleo Brasileiro S.A. (February 21, 
2011) (``Petrobras''), Rio Tinto plc (March 2, 2011) (``Rio 
Tinto''), RDS 1, and Statoil.
    \42\ See letters from API 1 and ExxonMobil 1. Those commentators 
otherwise supported the application of the payment disclosure 
requirements to all classes of issuers.
    \43\ See letters from Global Witness 1, PWYP 1, Sen. Cardin et 
al. 1, and Soros 1.
---------------------------------------------------------------------------

    In addition, some commentators supported an exemption for 
circumstances in which issuers were subject to other resource 
extraction payment disclosure requirements, such as host country law, 
stock exchange listing requirements, or an EITI program.\44\ 
Commentators believed that issuers should be able to satisfy their 
obligations under Section 13(q) and the related rules by providing the 
disclosure reported under applicable home country laws, listing rules, 
or the EITI.\45\ Commentators asserted that this would minimize an 
issuer's burden of having to comply with multiple transparency 
standards and avoid potentially confusing duplicative disclosure.\46\ 
Other commentators, however, opposed providing an exemption for issuers 
based on other reporting requirements because such an exemption would 
result in an unlevel playing field and loss of comparability.\47\ Some 
commentators asserted that because there are not currently any other 
national extractive disclosure regulatory regimes equivalent to Section 
13(q), providing such an exemption would be premature.\48\ In addition, 
several commentators maintained that Section 13(q) was intended to go 
beyond the disclosure provided under the EITI.\49\
---------------------------------------------------------------------------

    \44\ See, e.g., letters from API 1, British Petroleum p.l.c. 
(February 11, 2011 and July 8, 2011) (respectively ``BP 1'' and ``BP 
2''), Cleary, ExxonMobil 1, NYSBA Committee, Petrobras, Rio Tinto, 
RDS 1, Royal Dutch Shell (July 11, 2011) (``RDS 3''), Statoil, and 
Vale S.A. (March 2, 2011) (``Vale''). In addition, two commentators 
requested that the Commission align the rules with the reporting 
requirements to be adopted by the DOI for the U.S. EITI. See letters 
from NMA (June 15, 2012) (``NMA 3'') and Northwest Mining 
Association (June 29, 2012) (``NWMA'').
    \45\ See, e.g., letters from API 1, ExxonMobil 1, and RDS 1 
(suggesting such an approach if home country requirements are at 
least as rigorous as Section 13(q)); AngloGold Ashanti (January 31, 
2011) (``AngloGold''), BHP Billiton Limited (July 28, 2011) (``BHP 
Billiton''), and Vale (suggesting such an approach if disclosure is 
made based on EITI principles); BP 2 and RDS 3 (supporting a global 
common standard for transparency disclosure and, alternatively, 
suggesting such an approach if disclosure is made in a broadly 
similar manner based on EITI principles); Cleary, NYSBA Committee, 
Petrobras, Rio Tinto, and Statoil (suggesting such an approach if 
disclosure is made pursuant to home country requirements regardless 
of whether those requirements follow EITI principles); and Cleary, 
NYSBA Committee, and Statoil (suggesting alternatively such an 
approach if disclosure is made based on EITI principles if the 
company is a participant in an EITI program).
    \46\ See, e.g., letters from Cleary, Rio Tinto, and Statoil.
    \47\ See, e.g., letters from ERI 1, Global Witness 1, PWYP 1, 
Rep. Frank et al., Sen. Cardin et al. 1, and Sen. Levin 1.
    \48\ See, e.g., letter from PWYP 1. In this regard, after noting 
that the European Commission (``EC'') is developing legislative 
proposals for extractive industry reporting rules in the European 
Union (``EU''), one commentator stated that ``it is critical that 
country-by-country and project-by-project disclosure regulations are 
adopted across other major markets to ensure a level playing field 
and consistent reporting across countries.'' Letter from Publish 
What You Pay U.K. (April 28, 2011) (``PWYP U.K.''). The EC 
subsequently published proposals for extractive industry payment 
disclosure requirements. See discussion in note 82. After the EC 
published the proposals, PWYP urged the Commission to take the 
initiative and promptly adopt final rules so that the EC can 
harmonize its extractive disclosure requirements with the Section 
13(q) rules. See letter from Publish What You Pay (December 19, 
2011) (``PWYP 2''). The EC proposals are currently pending.
    \49\ See letters from Global Witness 1, PWYP 1, and Sen. 
Benjamin Cardin (December 1, 2010) (pre-proposal letter) (``Cardin 
pre-proposal'').
---------------------------------------------------------------------------

    Many commentators supported an exemption from the disclosure 
requirements when the required payment disclosure is prohibited under 
the host country's laws.\50\ Some commentators stated that the laws of 
China, Cameroon, Qatar, and Angola would prohibit disclosure required 
under Section 13(q) and expressed concern that other countries would 
enact similar laws.\51\ Commentators stated that without an appropriate 
exemption, Section 13(q) would become a ``business prohibition'' 
statute that would force issuers to choose between leaving their 
operations in certain countries or breaching local law and incurring 
penalties in order to comply with the statute's requirements.\52\ 
Either outcome, according to commentators, would adversely affect 
investors, efficiency, competition, and capital formation.\53\ Some 
commentators further suggested that failure to adopt such an exemption 
could encourage foreign issuers to deregister from the U.S. market.\54\ 
Other commentators maintained that comity concerns must be considered 
when the Section 13(q) disclosure requirements conflict with foreign 
law.\55\ One commentator suggested that an exemption would be 
consistent with Executive Order 13609, which directs federal agencies 
to take certain steps to ``reduce, eliminate, or prevent unnecessary 
differences in [international] regulatory requirements.'' \56\
---------------------------------------------------------------------------

    \50\ See letters from API 1, API 2, API 5, AngloGold Ashanti 
(January 31, 2011) (``AngloGold''), Spencer Bachus, Chairman of the 
U.S. House of Representatives Committee on Financial Services, and 
Gary Miller, Chairman of the U.S. House of Representatives 
Subcommittee on International Monetary Policy, Committee on 
Financial Services (March 4, 2011) (``Chairman Bachus and Chairman 
Miller''), Barrick Gold Corporation (February 28, 2011) (``Barrick 
Gold''), BP 1, Chamber of Commerce Institute for 21st Century Energy 
(March 2, 2011) (``Chamber Energy Institute''), Chevron, Cleary, 
ExxonMobil 1, ExxonMobil (March 15, 2011) (``ExxonMobil 2''), 
International Association of Oil and Gas Producers (January 27, 
2011) (``IAOGP''), NMA 2, NYSBA Committee, Nexen Inc. (March 2, 
2011) (``Nexen''), PetroChina, Petrobras, PWC, Rio Tinto, RDS 1, 
Royal Dutch Shell (May 17, 2011) (``RDS 2''), Royal Dutch Shell 
(August 1, 2011) (``RDS 4''), Senator Lisa Murkowski and Senator 
John Cornyn (February 28, 2012) (``Sen. Murkowski and Sen. 
Cornyn''), Split Rock International, Inc. (March 1, 2011) (``Split 
Rock''), Statoil, Talisman Energy Inc. (``Talisman'') (June 23, 
2011), and Vale. See also letter from 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) (pre-proposal 
letter) (``Cravath et al. pre-proposal'').
    \51\ See letters from API 1 and ExxonMobil 1. See also letter 
from RDS 1 (mentioning China, Cameroon, and Qatar).
    \52\ See letters from Barrick Gold, Cleary, NYSBA Committee, Rio 
Tinto, and Statoil; see also letter from API 5.
    \53\ See, e.g., letters from API 1, ExxonMobil 1, and RDS 1; see 
also letter from API 5. Several commentators noted that the 
Commission has a statutory duty to consider efficiency, competition, 
and capital formation when adopting rules. See letter from American 
Petroleum Institute (January 19, 2012) (``API 3''), Cravath et al. 
pre-proposal, Senator Mary L. Landrieu (March 6, 2012), and Sen. 
Murkowski and Sen. Cornyn.
    \54\ See letters from Cleary, Royal Dutch Shell (October 25, 
2010) (pre-proposal letter) (``RDS pre-proposal''), Split Rock, and 
Statoil. See also letter from Branden Carl Berns (December 7, 2011) 
(``Berns'') (maintaining that some foreign issuers subject to 
Section 13(q) with modest capitalizations on U.S. exchanges might 
choose to delist in response to competitive advantages enjoyed by 
issuers not subject to Section 13(q)).
    \55\ See letters from API 5 and NMA 2.
    \56\ See letter from API 5. We note that the responsibilities of 
federal agencies under Executive Order 13609 are to be carried out 
``[t]o the extent permitted by law'' and that foreign regulatory 
approaches are to be considered ``to the extent feasible, 
appropriate, and consistent with law.'' See Proclamation No. 13609, 
77 FR 26413 (May 4, 2012).
---------------------------------------------------------------------------

    Other commentators opposed an exemption for host country laws 
prohibiting disclosure of payment information because they believed it 
would undermine the purpose of Section 13(q) and create an incentive 
for foreign countries that want to prevent transparency to pass such 
laws, thereby creating a loophole for companies to avoid 
disclosure.\57\ Commentators also disputed the assertion that there are 
foreign laws that specifically prohibit disclosure of payment 
information.\58\ Those commentators noted that most confidentiality 
laws in the extractive industry sector relate to the

[[Page 56371]]

confidentiality of geological and other technical data, and in any 
event, contain specific provisions that allow for disclosures to stock 
exchanges.\59\
---------------------------------------------------------------------------

    \57\ See, e.g., letters from Cambodians, EG Justice (February 7, 
2012) (``EG Justice 2''), Global Witness 1, Grupo Faro, Human Rights 
Foundation of Monland (March 8, 2011 and July 15, 2011) 
(respectively, ``HURFOM 1'' and ``HURFOM 2''), National Coalition of 
Senegal, PWYP 1, Rep. Frank et al., Sen. Cardin et al. 1, Sen. 
Cardin et al. 2, Sen. Levin 1, Soros 2, U.S. Agency for 
International Development (July 15, 2011) (``USAID''), and WACAM.
    \58\ See, e.g., letters from ERI 3, Global Witness 1, PWYP 1, 
Publish What You Pay (December 20, 2011) (``PWYP 3''), and Rep. 
Frank et al.
    \59\ See letters from Global Witness 1, Susan Maples, J.D., 
Post-Doctoral Research Fellow, Columbia University School of Law 
(March 2, 2011) (``Maples''), Network for the Fight Against Hunger 
in Cameroon (March 14, 2011 and July 11, 2011) (respectively, 
``RELUFA 1'' and ``RELUFA 2''), and PWYP 1.
---------------------------------------------------------------------------

    Many commentators also sought an exemption from the disclosure 
requirements for payments made under existing contracts that contain 
confidentiality clauses prohibiting such disclosure.\60\ According to 
commentators, while some contracts may permit the disclosure of 
information to comply with an issuer's home country laws, regulations, 
or stock exchange rules, those contractual provisions only allow the 
contracting party, not its parent or affiliate companies, to make the 
disclosure.\61\ Some commentators also sought an exemption from the 
requirements for payments made under future contracts containing 
confidentiality clauses.\62\
---------------------------------------------------------------------------

    \60\ See letters from API 1, AngloGold, Barrick Gold, Chairman 
Bachus and Chairman Miller, BP 1, Chamber Energy Institute, Chevron, 
Cleary, ExxonMobil 1, IAOGP, NMA 2, NYSBA Committee, Nexen, 
PetroChina, Petrobras, PWC, Rio Tinto, RDS 1, Split Rock, Statoil, 
and Vale.
    \61\ See letters from API 1 and ExxonMobil 1.
    \62\ See letters from AngloGold and NMA 2. AngloGold suggested 
conditioning the exemption on an issuer having made a good faith 
determination that it would not have been able to enter into the 
contract but for agreeing to a confidentiality provision.
---------------------------------------------------------------------------

    Other commentators opposed an exemption based on confidentiality 
clauses in contracts on the grounds that such an exemption was not 
necessary.\63\ Commentators maintained that most contracts include an 
explicit exception for information that must be disclosed by law, and, 
in cases where such language is not explicit, it generally would be 
read into any such contract under judicial or arbitral review.\64\ 
Commentators further stated that an exemption based on contract 
confidentiality would undermine Section 13(q) by creating incentives 
for issuers to craft such contractual provisions.\65\
---------------------------------------------------------------------------

    \63\ See letters from Global Witness 1, Maples, Oxfam (March 20, 
2012) (``Oxfam 3''), and PWYP 1.
    \64\ See, e.g., letters from Oxfam 3 and PWYP 1. See also letter 
from SIF citing the ``official Production Sharing Contract of the 
government of Equatorial Guinea'' and noting that it explicitly 
states that companies are permitted to share all information 
relating to the Contract or Petroleum Operations in the following 
instances: ``To the extent that such data and information is 
required to be furnished in compliance with any applicable laws or 
regulation'' (Article 20.1.1c) and ``[i]n conformity with the 
requirements of any stock exchange having jurisdiction over a 
Party[.]'' (Article 20.1.1d)).
    \65\ See, e.g., letters from Global Witness 1 and Oxfam 1.
---------------------------------------------------------------------------

    Several commentators supported an exemption for situations when, 
regardless of the existence of a contractual confidentiality clause, 
such disclosure would jeopardize commercially or competitively 
sensitive information.\66\ Other commentators expressed doubt that 
disclosure of payment information would create competitive 
disadvantages because much of the information is already available from 
third-party service providers or through the large number of joint 
ventures between competitors in the extractive industries.\67\ 
Commentators also expressed concern that providing an exemption for 
commercially or competitively sensitive information would frustrate 
Congress' intent to achieve payment transparency and 
accountability.\68\
---------------------------------------------------------------------------

    \66\ See letters from American Exploration and Production 
Council (January 31, 2011) (``AXPC''), API 1, Chamber Energy 
Institute, Chevron, ExxonMobil 1, IAOGP, Local Authority Pension 
Fund Forum (January 31, 2011) (``LAPFF''), NMA 2, Rio Tinto, RDS 1, 
and United States Council for International Business (February 4, 
2011) (``USCIB'').
    \67\ See letters from PWYP 1 and RWI 1; see also letter from 
Global Witness 1 (noting a study finding that the majority of 
disclosures that would be required pursuant to Section 13(q) would 
already be known to actors within the industry).
    \68\ See, e.g., letter from Global Witness 1. Another 
commentator stated that ``to the extent that Section 13(q)'s 
reporting obligations result in some competitive disadvantage to 
regulated issuers, Congress already accepted this risk when it 
determined that pursuing the goals of promoting transparency and 
good governance was of paramount importance--even at the cost of an 
incidental burden on issuers * * * As with the Foreign Corrupt 
Practices Act, Congress made the affirmative choice to set a higher 
standard for global corporate practice. Other countries have already 
started to follow Congress' lead in this area * * * Strong U.S. 
leadership with respect to transparency in the extractive industries 
will make it easier for foreign governments to adopt similar 
reporting requirements, which in turn will serve to level the 
playing field. Letter from Oxfam 1.
---------------------------------------------------------------------------

    Some commentators believed that the disclosure of detailed payment 
information would jeopardize the safety and security of a resource 
extraction issuer's operations or employees and requested an exemption 
in such circumstances.\69\ Other commentators believed that detailed 
payment disclosure was critical for workers and their communities to 
achieve benefits from investment transparency, including a decrease in 
unrest and conflict and increased stability and safety.\70\
---------------------------------------------------------------------------

    \69\ See letters from API 1, Spencer Bachus, Chairman of the 
U.S. House of Representatives Committee on Financial Services 
(August 21, 2012) (``Chairman Bachus''), Chevron, ExxonMobil 1, NMA 
2, Nexen, PetroChina, and RDS 1.
    \70\ See letters from NUPENG, PENGASSAN, PWYP 1, and USW.
---------------------------------------------------------------------------

    Some commentators requested that the Commission extend the 
disclosure requirements to foreign private issuers that are exempt from 
Exchange Act reporting obligations but publish their annual reports and 
other material home country documents electronically in English 
pursuant to Exchange Act Rule 12g3-2(b).\71\ Those commentators 
asserted that requiring such issuers to comply with the disclosure 
requirements would help ameliorate anti-competitive concerns. Other 
commentators, however, opposed extending the disclosure required under 
Section 13(q) to companies that are exempt from Exchange Act 
registration and reporting because it would discourage use of the Rule 
12g3-2(b) mechanism \72\ and because such an extension would be 
inconsistent with the premise of Rule 12g3-2(b).\73\
---------------------------------------------------------------------------

    \71\ See letters from API 1, Calvert, ExxonMobil 1, Global 
Witness 1, RWI 1, and RDS 1.
    \72\ See letter from NYSBA Committee.
    \73\ See letter from NMA 2 and NYSBA Committee.
---------------------------------------------------------------------------

3. Final Rules
    Consistent with the proposal, we are adopting final rules that 
define the term ``resource extraction issuer'' as it is defined in 
Section 13(q). The final rules will apply to 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 the size of the company or 
the extent of business operations constituting commercial development 
of oil, natural gas, or minerals.\74\ Consistent with the proposal, the 
final rules will apply to a company, whether government-owned or not, 
that meets the definition of resource extraction issuer.\75\ Any 
failure to include government-owned companies within the scope of the

[[Page 56372]]

disclosure rules could raise competitiveness concerns.\76\
---------------------------------------------------------------------------

    \74\ See new Exchange Act Rule 13q-1.
    \75\ As discussed below, a resource extraction issuer, including 
a government-owned resource extraction issuer, will be required to 
provide the payment disclosure if the other requirements of the rule 
are met. Contrary to some commentators' suggestions, we are not 
providing a carve-out from the rules for payments made by a 
government-owned resource extraction issuer to its controlling 
government because we believe it would be inconsistent with the 
purpose of the statute. We note a government-owned resource 
extraction issuer would only disclose payments made to the 
government that controls it if those payments were made for the 
purpose of commercial development of oil, natural gas, or minerals 
and the payments are within the categories of payments that would be 
required to be disclosed under the rules.
    \76\ See note 38 and accompanying text.
---------------------------------------------------------------------------

    Although some commentators urged us to provide exemptions for 
certain categories of issuers,\77\ in light of the statutory purpose of 
Section 13(q),\78\ we have decided not to adopt exemptions from the 
disclosure requirement for any category of resource extraction issuers, 
including smaller issuers and foreign private issuers. We believe the 
transparency objectives of Section 13(q) are best served by requiring 
disclosure from all resource extraction issuers. In addition, we agree 
with commentators that providing an exemption for smaller reporting 
companies or foreign private issuers could contribute to an unlevel 
playing field and raise competitiveness concerns for larger companies 
and domestic companies.\79\ We also note that some commentators opposed 
an exemption for smaller companies because of their belief that those 
companies generally face greater equity risk from their operations in 
host countries than larger issuers.\80\
---------------------------------------------------------------------------

    \77\ See note 41 and accompanying text.
    \78\ See note 7 and accompanying text.
    \79\ See notes 33 and 34 and accompanying text.
    \80\ See letters from Global Witness 1, PWYP 1, Sen. Cardin et 
al. 1, and Soros 1.
---------------------------------------------------------------------------

    The final rules also do not permit resource extraction issuers to 
satisfy the disclosure requirements adopted under Section 13(q) by 
providing disclosures required under other extractive transparency 
reporting requirements, such as under home country laws, listing rules, 
or an EITI program. Section 13(q) does not provide such an 
accommodation and, as noted by some commentators, in some respects the 
statute extends beyond the disclosure required under other transparency 
initiatives.\81\ In addition, we note that transparency initiatives for 
resource extraction payment disclosure are continuing to develop.\82\ 
Therefore, we believe it would be premature to permit issuers to 
satisfy their disclosure obligation by complying with other extractive 
transparency reporting regimes or by providing the disclosure required 
by those regimes in lieu of the disclosure required by the rules we are 
adopting under Section 13(q).\83\
---------------------------------------------------------------------------

    \81\ See note 49 and accompanying text.
    \82\ One recent development is the European Commission's 
issuance in October 2011 of proposed directives that would require 
companies listed on EU stock exchanges and large private companies 
based in EU member states to disclose their payments to governments 
for oil, gas, minerals, and timber. See the European Commission's 
press release concerning the proposal, which is available at: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1238&format=HTML&aged=0&language=EN&guiLanguage=en. The EU proposal 
differs from the final rules we are adopting in several respects. 
For example, the EU proposal would apply to large, private EU-based 
companies as well as EU-listed companies engaged in oil, natural 
gas, minerals, and timber, whereas the final rules apply only to 
Exchange Act reporting companies engaged in oil, natural gas, and 
mining. The EU proposal would require disclosure of payments that 
are material to the recipient government, whereas the final rules 
require disclosure of payments that are not de minimis. Further, the 
EU proposal would apply to exploration, discovery, development, and 
extraction activities, whereas the final rules apply to exploration, 
extraction, processing, and export activities. In addition, while 
both the EU proposal and final rules require payment disclosure per 
project and government, the EU proposal would base project reporting 
on a company's current reporting structure whereas, as discussed 
below, the final rules leave the term ``project'' undefined. See 
also letter from PWYP 2. Other jurisdictions have introduced, but 
have not adopted, transparency initiatives. See letter from ERI 4 
and note 14 and accompanying text.
    \83\ In this regard, we are not persuaded by comments suggesting 
that we should align our rules with any reporting requirements that 
may be adopted by the DOI as part of U.S. EITI. DOI is continuing 
its efforts to develop a U.S. EITI program and is currently working 
to form the stakeholder group. In addition, the scope of EITI 
programs generally differs from the scope of the requirements of 
Section 13(q). An EITI program adopted by a particular country 
generally requires disclosure of payments to that country's 
governments by companies operating in that country, but does not 
require disclosure of payments made by those companies to foreign 
governments. The disclosure requirements are developed country by 
country. In contrast, Section 13(q) requires disclosure of payments 
to the federal and foreign governments by resource extraction 
issuers. As noted elsewhere in this release, the requirements of the 
statute differ from the EITI in a number of respects.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the proposed rules, we also are 
not providing an exemption for any situations in which foreign law may 
prohibit the required disclosure. Although some commentators asserted 
that certain foreign laws currently in place would prohibit the 
disclosure required under Section 13(q), other commentators disagreed 
and asserted that currently no foreign law prohibits the 
disclosure.\84\ Further, as noted above, some commentators believed 
that we should adopt final rules providing an exemption from the 
disclosure requirements where foreign laws prohibit the required 
disclosure, including laws that may be adopted in the future,\85\ while 
others believed that providing such an exemption would be inconsistent 
with the statute and would encourage countries to adopt laws 
specifically prohibiting the required disclosure.\86\ While we 
understand commentators' concerns regarding the situation an issuer may 
face if a country in which it does business or would like to do 
business prohibits the disclosure required under Section 13(q),\87\ the 
final rules we are adopting do not include an exemption for situations 
in which foreign law prohibits the disclosure. We believe that adopting 
such an exemption would be inconsistent with the structure and language 
of Section 13(q) \88\ and, as some commentators have noted,\89\ could 
undermine the statute by encouraging

[[Page 56373]]

countries to adopt laws, or interpret existing laws, specifically 
prohibiting the disclosure required under the final rules.
---------------------------------------------------------------------------

    \84\ Compare letters from API 1, Barrick Gold, Cleary, 
ExxonMobil 1, NMA 2, NYSBA Committee, Rio Tinto, RDS 1, and Statoil 
with letters from EarthRights International (February 3, 2012) 
(``ERI 3''), Global Witness, PWYP, Publish What You Pay (December 
20, 2011) (``PWYP 2''), Maples, and Rep. Frank et al. Several of the 
comment letters from issuers and industry associations assert that 
existing laws in Angola, Cameroon, China, and Qatar prohibit, or in 
some situations may prohibit, disclosure of the type required by 
Section 13(q). One commentator submitted translations of Despacho 
385/06, issued by the Minister of the Angola Ministry of Petroleum, 
as amended by Despacho 409/06 (the ``Angola Order'') and a letter 
dated December 23, 2009, from the Deputy Premier, Minister of Energy 
& Industry, of the State of Qatar (the ``Qatar Directive''). See 
letter from ExxonMobil 2. Another commentator submitted a 
translation of certain sections of Decree No. 2000/465 relating to 
the Cameroon Petroleum Code, a copy of a legal opinion from Cameroon 
counsel, and a copy of a legal opinion from Chinese counsel. See 
letter from RDS 1. We are not aware of any other examples submitted 
on the public record of foreign laws purported to prohibit 
disclosure of payments by resource extraction issuers. Other 
commentators have submitted contrary data, arguing that the laws of 
Angola, Cameroon, China, and Qatar do not prohibit a resource 
extraction issuer from complying with Section 13(q) and the final 
rules, and providing examples of companies that have disclosed 
payment information relating to resource development activities in 
Angola, Cameroon, and China. See letter from ERI 3. One commentator 
submitted a legal opinion stating that ``[n]othing in Cameroonian 
law prevents oil companies from publishing data on revenues they pay 
to the state derived from oil contracts signed with the 
government.''
    \85\ See, e.g., API 1, ExxonMobil 1, and RDS 1.
    \86\ See, e.g., letters from Cambodians, EG Justice (February 7, 
2012) (``EG Justice 2''), Global Witness 1, Grupo Faro, HURFOM 1 and 
HURFOM 2, National Coalition of Senegal, PWYP, Rep. Frank et al., 
Sen. Cardin et al., Sen. Cardin et al. 2, Sen. Levin 1, Soros 2, US 
Agency for International Development (July 15, 2011) (``USAID''), 
and WACAM.
    \87\ See, e.g., API 1, ExxonMobil 1, and RDS 1.
    \88\ As noted by some commentators, Section 23(a)(2) requires 
us, when adopting rules, to consider the impact any new rule would 
have on competition. See, e.g., letters from API 1, API 3, Chairman 
Bachus, Cravath et al pre-proposal, and ExxonMobil 1. Specifically, 
Section 23(a)(2) requires us ``to consider * * * the impact any such 
rule or regulation would have on competition'' in making rules 
pursuant to the Exchange Act. Further, the section states that the 
Commission ``shall not adopt any such rule * * * which would impose 
a burden on competition not necessary or appropriate in furtherance 
of [the Exchange Act].'' As discussed further below, we recognize 
the final rules may impose a burden on competition; however, in 
light of the language and purpose of Section 13(q), which is now 
part of the Exchange Act, we believe the rules we are adopting 
pursuant to the provision and any burden on competition that may 
result are necessary in furtherance of the purpose of the Exchange 
Act, including Section 13(q) of the Exchange Act.
    \89\ See, e.g., letters from Cambodians, EG Justice (February 7, 
2012) (``EG Justice 2''), Global Witness 1, Grupo Faro, HURFOM 1 and 
HURFOM 2, National Coalition of Senegal, PWYP, Rep. Frank et al., 
Sen. Cardin et al., Sen. Cardin et al. 2, Sen. Levin 1, Soros 2, 
USAID, and WACAM.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the proposed rules, the final 
rules do not provide an exemption for instances when an issuer has a 
confidentiality provision in a relevant contract, as requested by some 
commentators.\90\ We understand that contracts typically allow for 
disclosure to be made when required by law for reporting purposes.\91\ 
Although some commentators maintained that those types of contractual 
provisions only allow the contracting party, not its parent or 
affiliate companies, to make the disclosure,\92\ the final rules we are 
adopting do not include an exemption for confidentiality provisions in 
contracts because we believe this issue can be more appropriately 
addressed through the contract negotiation process.\93\ As noted by 
some commentators, a different approach might encourage a change in 
practice or an increase in the use of confidentiality provisions to 
circumvent the disclosure required by the final rules.\94\ In addition, 
including an exemption from the disclosure requirements for payments 
made under existing contracts that contain confidentiality clauses 
prohibiting such disclosure, as suggested by some commentators,\95\ 
would frustrate the purpose of Section 13(q).
---------------------------------------------------------------------------

    \90\ See, e.g., letters from API 1, Chevron, Cleary, ExxonMobil 
1, NMA 2, and RDS 1.
    \91\ See letters from Global Witness 1, Maples, and PWYP 1.
    \92\ See letters from API 1 and ExxonMobil 1.
    \93\ See letter from Maples.
    \94\ See letters from Global Witness and Oxfam.
    \95\ See note 60 and accompanying text.
---------------------------------------------------------------------------

    Although some commentators sought an exemption for commercially or 
competitively sensitive information, regardless of the existence of a 
confidentiality provision in a contract,\96\ the final rules do not 
provide such an exemption. We note that commentators disagreed on the 
need for an exemption for commercially or competitively sensitive 
information.\97\ While we understand commentators' concerns about 
potentially being required to provide commercially or competitively 
sensitive information,\98\ we also are cognizant of other commentators' 
concerns that such an exemption would frustrate the purpose of Section 
13(q) to promote international transparency efforts.\99\ We note that 
in situations involving more than one payment, the information will be 
aggregated by payment type, government, and/or project, and therefore 
may limit the ability of competitors to use the information to their 
advantage.
---------------------------------------------------------------------------

    \96\ See note 66 and accompanying text.
    \97\ See notes 66 and 67 and accompanying text.
    \98\ See note 66 and accompanying text.
    \99\ See note 68 and accompanying text.
---------------------------------------------------------------------------

    We note that some commentators sought an exemption for 
circumstances in which a company believes that disclosure might 
jeopardize the safety and security of its employees and 
operations,\100\ while other commentators opposed such an exemption and 
noted their belief that increased transparency would instead increase 
safety for employees.\101\ We understand issuers' concerns about the 
safety of their employees and operations; however, in light of 
commentators' disagreement on this issue, including the belief by some 
commentators that disclosure will improve employee safety, and the fact 
that the statute seeks to promote international transparency efforts, 
we are not persuaded that such an exemption is warranted and we are not 
including it in the final rules. We also note that neither the statute 
nor the final rules require disclosure regarding the names or location 
of employees.
---------------------------------------------------------------------------

    \100\ See note 69 and accompanying text.
    \101\ See note 70 and accompanying text.
---------------------------------------------------------------------------

    The final rules do not extend the disclosure requirements to 
foreign private issuers that are exempt from Exchange Act registration 
pursuant to Rule 12g3-2(b). Foreign private issuers relying on Rule 
12g3-2(b) are not required to file annual reports with the Commission 
and thus, they do not fall within the plain definition of resource 
extraction issuer provided in the statute. In addition, we believe that 
such an extension would be inconsistent with the premise of Rule 12g3-
2(b).\102\ Issuers that are exempt from Exchange Act registration 
pursuant to Rule 12g3-2(b) are not subject to reporting requirements 
under the Exchange Act, including any requirement to file an annual 
report.
---------------------------------------------------------------------------

    \102\ See note 73 and accompanying text.
---------------------------------------------------------------------------

C. Definition of ``Commercial Development of Oil, Natural Gas, or 
Minerals''

1. Proposed Rules
    Consistent with Section 13(q), the proposed rules defined 
``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. In proposing the 
definition, we intended to capture only activities that are directly 
related to the commercial development of oil, natural gas, or minerals, 
but not activities that are ancillary or preparatory, such as the 
manufacture of a product used in the commercial development of oil, 
natural gas, or minerals. In the Proposing Release, we noted that 
commercial development would not include transportation activities for 
a purpose other than export. In addition, we noted, as an example, that 
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.
2. Comments on the Proposed Rules
    Commentators supported various aspects of the proposed definition 
\103\ while suggesting clarifications or alternative approaches to the 
definition of commercial development. For example, numerous 
commentators suggested defining commercial development to include 
upstream activities (exploration and extraction of resources) 
only.\104\ Commentators noted that Section 13(q) is entitled 
``Disclosure of Payments by Resource Extraction Issuers,'' and as such, 
the statute ``is directed toward those issuers who are engaged in 
extractive activities, or what are commonly referred to as `upstream 
activities.' '' \105\ Commentators also noted that the EITI focuses on 
upstream activities \106\ and that the statute directs the Commission 
``to consider consistency with EITI guidelines in the rules it 
develops.'' \107\ Several commentators noted they believed defining 
commercial development to include only upstream activities would be 
consistent with the Commission's existing definition of ``oil and gas 
producing activities'' in Regulation S-X Rule 4-10.\108\ In addition, 
commentators

[[Page 56374]]

noted that adopting a definition of commercial development that is 
based on the definition of ``oil and gas producing activities'' in 
Regulation S-X would align it with a widely understood and accepted 
industry definition.\109\ According to commentators advocating this 
approach, ``commercial development of oil, natural gas, or minerals'' 
would include ``exploration, extraction, field processing and 
gathering/transportation activities to the first marketable 
location.''\110\ Some commentators suggested clarifying, either in the 
regulatory text or in the adopting release, that the definition would 
include field processing activities prior to the refining or smelting 
phase, such as upgrading of bitumen and heavy oil and crushing and 
processing of raw ore, as well as transport activities related to the 
export of oil, natural gas, or minerals to the first marketable 
location.\111\ In focusing exclusively on mining activities, one 
commentator stated that the definition of ``commercial development'' 
should include exploration, extraction, and production, and activities 
of processing and export to the extent that they are associated with 
production.\112\ Under that approach, the definition would include 
steps in production prior to the smelting or refining phase, such as 
crushing of raw ore, processing of the crushed ore, and export of 
processed ore to the smelter, but would not include the actual smelting 
or refining. Several commentators stated that the definition should 
exclude transportation and other midstream or downstream activities, 
including export.\113\ According to some of those commentators, `` 
`export' activities are not always directly associated with oil and gas 
producing activities, and can often be undertaken by issuers that are 
not engaged in `resource extraction' at all.''\114\ They believed that 
requiring the reporting of payments by such issuers goes beyond the 
intended scope of the statute. One commentator urged us to state 
explicitly that ``commercial development'' does not include 
transportation activities and that transportation activities include 
the underground storage of natural gas.\115\ Another commentator stated 
that an issuer should be allowed to choose whether to include 
transportation in the definition of ``commercial development'' as long 
as it discloses the basis for its definition.\116\
---------------------------------------------------------------------------

    \103\ See, e.g., letters from API 1, AngloGold, BP 1, CRS, 
Global Financial Integrity 2, NMA 2, and PWYP 1.
    \104\ See letters from API 1, AXPC, Barrick Gold, BP 1, Chevron, 
ExxonMobil 1, NMA 2, Petrobras, PWC, RDS 1, and Statoil.
    \105\ See letters from API 1 and ExxonMobil 1.
    \106\ See, e.g., letters from API 1 and NMA 2.
    \107\ See letters from API 1 and ExxonMobil 1.
    \108\ See, e.g., letters from API 1, Chevron, ExxonMobil 1, and 
RDS 1. Rule 4-10(a)(16) defines ``oil and gas producing activities'' 
to include:
    (A) The search for crude oil, including condensate and natural 
gas liquids, or natural gas (``oil and gas'') in their natural 
states and original locations;
    (B) The acquisition of property rights or properties for the 
purpose of further exploration or for the purpose of removing the 
oil or gas from such properties;
    (C) The construction, drilling, and production activities 
necessary to retrieve oil and gas from their natural reservoirs, 
including the acquisition, construction, installation, and 
maintenance of field gathering and storage systems, such as:
    (1) Lifting the oil and gas to the surface; and
    (2) Gathering, treating, and field processing (as in the case of 
processing gas to extract liquid hydrocarbons); and
    (D) Extraction of saleable hydrocarbons, in the solid, liquid, 
or gaseous state, from oil sands, shale, coalbeds, or other 
nonrenewable natural resources which are intended to be upgraded 
into synthetic oil or gas, and activities undertaken with a view to 
such extraction.
    (ii) Oil and gas producing activities do not include:
    (A) Transporting, refining, or marketing oil and gas;
    (B) Processing of produced oil, gas or natural resources that 
can be upgraded into synthetic oil or gas by a registrant that does 
not have the legal right to produce or a revenue interest in such 
production;
    (C) Activities relating to the production of natural resources 
other than oil, gas, or natural resources from which synthetic oil 
and gas can be extracted; or
    (D) Production of geothermal steam. (Instructions omitted.)
    \109\ See letters from API 1 and ExxonMobil 1.
    \110\ See, e.g., letter from API 1.
    \111\ See letters from AXPC, API 1, Barrick Gold, BP 1, Chevron, 
ExxonMobil 1, NMA 2, Petrobras, PWC, RDS 1, and Statoil.
    \112\ See letter from NMA 2.
    \113\ See letters from API 1, Barrick Gold, ExxonMobil 1, 
National Fuel Gas Supply Corporation (March 1, 2011) (``National 
Fuel''), and NMA 2.
    \114\ See letter from API 1. See also letter from ExxonMobil 1.
    \115\ See letter from National Fuel.
    \116\ See letter from Rio Tinto.
---------------------------------------------------------------------------

    Other commentators stated that, at a minimum, the definition of 
``commercial development'' must include the activities of exploration, 
extraction, processing, and export.\117\ One commentator argued that, 
although the EITI does not include processing and export activities in 
its minimum disclosure requirements, the definition of ``commercial 
development'' must include those activities to be consistent with the 
plain language of Section 13(q) and because Congress intended the 
statute to go beyond the EITI's requirements.\118\ Another commentator 
suggested expanding the proposed definition to include not just 
upstream activities, but also midstream activities (activities involved 
in trading and transport of resources), and downstream activities 
(activities involved in refining, ore processing, and marketing of 
resources).\119\ The commentator agreed with the proposal that the 
definition should not include activities of a manufacturer of a product 
used in the commercial development of oil, natural gas, or minerals.
---------------------------------------------------------------------------

    \117\ See letters from CRS and PWYP 1.
    \118\ See letter from PWYP 1.
    \119\ See letter from Calvert.
---------------------------------------------------------------------------

    Some commentators requested further clarification that covered 
transport activities include not just those related to export, but 
those related to the processing or marketing of resources, whether 
intra-country or cross-border, and whether by pipeline, rail, road, 
air, ship, or other means.\120\ Two commentators requested that the 
Commission define ``transportation activities'' to include pipelines 
and security arrangements associated with a pipeline within a host 
country.\121\
---------------------------------------------------------------------------

    \120\ See letters from Calvert, CRS, Earthworks, EIWG, HURFOM 1, 
PWYP pre-proposal, PWYP 1, and WRI.
    \121\ See letters from PWYP 1 and Syena; see also letter from Le 
Billon (suggesting coverage of transportation in general, security 
services, and trading).
---------------------------------------------------------------------------

    Some commentators agreed with the proposal that ``commercial 
development'' should exclude activities that are ancillary or 
preparatory to commercial development.\122\ One commentator suggested 
that the term focus on activities that ``directly relate to, and 
provide material support for, the physical process of extracting and 
processing ore and producing minerals from that ore, including the 
export of ore to the smelter.'' \123\ The commentator further noted 
that activities that ``do not directly and materially further this 
process, such as development of infrastructure and the community, as 
well as security support, generally would fall outside this definition, 
unless they include payments to governments that are expressly required 
by concession, contract, law, or regulation.'' \124\ Another 
commentator requested that we provide further detail about the 
extractive activities to which the rules would apply.\125\
---------------------------------------------------------------------------

    \122\ See letters from NMA 2 and Statoil.
    \123\ Letter from NMA 2.
    \124\ Letter from NMA 2.
    \125\ See letter from Syena.
---------------------------------------------------------------------------

3. Final Rules
    Consistent with Section 13(q) and the proposal, the final rules 
define ``commercial development of oil, natural gas, or minerals'' to 
include the activities of exploration, extraction, processing, and 
export, or the acquisition of a license for any such activity. As we 
noted in the Proposing Release, the statutory language sets forth a 
clear list of activities in the definition and gives us discretionary 
authority to include other significant activities relating to oil, 
natural gas, or minerals under the definition of ``commercial 
development.'' As described above, the final rules we are adopting 
generally track the language in the statute, and except for where the 
language or approach of Section 13(q) clearly deviates from the EITI, 
the final rules are consistent with the EITI. In

[[Page 56375]]

instances where the language or approach of Section 13(q) clearly 
deviates from the EITI, the final rules track the statute rather than 
the EITI. The definition of ``commercial development'' in Section 13(q) 
is broader than the activities covered by the EITI and thus clearly 
deviates from the EITI; therefore, we believe the definition of the 
term in the final rules should be consistent with Section 13(q).
    As noted above, we received significant comment on this aspect of 
the proposal. Some commentators sought a more narrow definition than 
proposed, while other commentators sought a broader definition. We are 
not persuaded that we should narrow the scope of the definition in 
Section 13(q) by re-defining ``commercial development'' to only include 
upstream activities \126\ or using the definition of ``oil and gas 
producing activities'' in Rule 4-10.\127\ Nor are we persuaded that we 
should expand the covered activities \128\ beyond those identified in 
the statute.\129\ Under the final rules, the definition of commercial 
development includes all of the activities specified in the statutory 
definition, even though the statute includes activities beyond what is 
currently contemplated by the EITI.\130\
---------------------------------------------------------------------------

    \126\ See note 104 and accompanying text.
    \127\ See note 108 and accompanying text.
    \128\ See note 119 and accompanying text.
    \129\ We believe the phrase ``as determined by the Commission'' 
at the end of the definition of ``commercial development'' in 
Section 13(q) requires the Commission to identify any ``other 
significant actions'' that would be covered by the rules. See 15 
U.S.C. 78m(q)(1)(A). As noted above, we are not expanding the list 
of activities covered by the definition of ``commercial 
development.'' Therefore, to avoid confusion as to the scope of the 
activities covered by the rules, the final rules do not include the 
phrase ``and other significant actions relating to oil, natural gas, 
or minerals.''
    \130\ In the Proposing Release, we noted our understanding that 
the EITI criteria primarily focus on exploration and production 
activities. See, e.g., Implementing the EITI, at 24. We note that 
although export payments are not typically included under the EITI, 
some EITI programs have reported export taxes or related duties. See 
the 2005 EITI Report of Guinea, the 2008-2009 EITI Report of 
Liberia, and the 2006-2007 EITI Report of Sierra Leone, available at 
http://eiti.org/document/eitireports.
---------------------------------------------------------------------------

    Section 13(q) grants us the discretionary authority to include 
other significant activities relating to oil, natural gas, or minerals 
under the definition of ``commercial development.'' \131\ In deciding 
whether to expand the statutory list of covered activities, we have 
considered both commentators' views and the need to promote consistency 
with EITI principles. We are not persuaded that we should extend the 
rules to activities beyond the statutory list of activities comprising 
``commercial development'' because we are mindful of imposing 
additional costs resulting from adopting rules that extend beyond 
Congress' clear directive.
---------------------------------------------------------------------------

    \131\ See 15 U.S.C. 78m(q)(1)(A).
---------------------------------------------------------------------------

    As noted in the Proposing Release, the definition of ``commercial 
development'' 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. For example, in contrast to the process of 
extraction, manufacturing drill bits or other machinery used in the 
extraction of oil would not fall within the definition of commercial 
development.
    In response to commentators' requests for clarification of the 
activities covered by the final rules, we also are providing examples 
of activities covered by the terms ``extraction,'' ``processing,'' and 
``export.'' We note, however, that whether an issuer is a resource 
extraction issuer will depend on its specific facts and circumstances.
    As we noted in the Proposing Release, ``extraction'' includes the 
production of oil and natural gas as well as the extraction of 
minerals. Under the final rules, ``processing'' includes field 
processing activities, such as the processing of gas to extract liquid 
hydrocarbons, the removal of impurities from natural gas after 
extraction and prior to its transport through the pipeline, and the 
upgrading of bitumen and heavy oil. Processing also includes the 
crushing and processing of raw ore prior to the smelting phase. We do 
not believe that ``processing'' was intended to include refining or 
smelting,\132\ and we note that refining and smelting are not 
specifically listed in Section 13(q). In addition, as some commentators 
noted, including refining or smelting within the final rules under 
Section 13(q) would go beyond what is currently contemplated by the 
EITI, which does not include refining and smelting activities.\133\
---------------------------------------------------------------------------

    \132\ The Commission's oil and gas disclosure rules identify 
refining and processing separately in the definition of ``oil and 
gas producing activities,'' which excludes refining and processing 
(other than field processing of gas to extract liquid hydrocarbons 
by the company and the upgrading of natural resources extracted by 
the company other than oil or gas into synthetic oil or gas). See 
Rule 4-10(a)(16)(ii) of Regulation S-X [17 CFR 210.4-10(a)(16)(ii)] 
and note 108. In addition, we note that in another statute adopted 
by Congress, the Sudan Accountability and Divestment Act of 2007 
(SADA), relating to resource extraction activities, the statute 
specifically identifies ``processing'' and ``refining'' separately 
in defining ``mineral extraction activities'' and ``oil-related 
activities.'' 110 P.L. No. 174 (2007). Specifically, Section 2(7) of 
SADA defines ``mineral extraction activities'' to mean ``exploring, 
extracting, processing, transporting, or wholesale selling of 
elemental minerals or associated metal alloys or oxides (ore) * * 
*.'' Section 2(8) of SADA defines ``oil-related activities'' to mean 
in part ``exporting, extracting, producing, refining, processing, 
exploring for, transporting, selling, or trading oil * * *.'' The 
inclusion of ``processing'' and ``refining'' in SADA, in contrast to 
the language of Section 13(q), suggests that the terms have 
different meanings. Absent designation by the Commission, we do not 
believe that ``refining'' was intended to be included in the scope 
of the express terms in Section 13(q).
    \133\ See, e.g., letters from API and NMA 2.
---------------------------------------------------------------------------

    We believe that ``export'' includes the export of oil, natural gas, 
or minerals from the host country. We disagree with those commentators 
who maintained that ``export'' means the removal of the resource from 
the place of extraction to the refinery, smelter, or first marketable 
location.\134\ Adopting such a definition would be contrary to the 
plain meaning of export,\135\ and nothing in Section 13(q) or the 
legislative history suggests that Congress meant ``export'' to have 
such a meaning; \136\ thus, we believe such a definition would be 
contrary to the intent of Section 13(q). We also are not persuaded by 
the argument presented by some commentators \137\ that the final rules 
should be limited only to upstream activities because the reference in 
the title of Section 13(q) to ``Resource Extraction Issuers'' 
demonstrates Congressional intent that the statute should apply only to 
issuers engaged in extractive activities.\138\ Accordingly, under the 
final rules, ``commercial development'' includes the export of oil, 
natural gas, or minerals and, therefore, the definition of

[[Page 56376]]

``resource extraction issuer'' will capture an issuer that engages in 
the export of oil, natural gas, or minerals. We note that these 
definitions could require companies that may only be engaged in 
exporting oil, natural gas, or minerals and that may not have engaged 
in exploration, extraction, or processing of those resources to provide 
payment disclosure.
---------------------------------------------------------------------------

    \134\ See notes 111 and 112 and accompanying text.
    \135\ For example, Merriam-Webster dictionary defines ``export'' 
to mean ``to carry or send (as a commodity) to some other place (as 
another country).'' Merriam-Webster Dictionary, http://www.merriam-webster.com/dictionary/export (last visited August 15, 2012). See 
also letters from CRS, Global Financial Integrity 2, and PWYP 1 
(stating that exclusion of export activities would be inconsistent 
with plain language of statute).
    \136\ See note 118 and accompanying text.
    \137\ See note 105 and accompanying text.
    \138\ The statutory definition of ``commercial development'' 
includes activities, such as processing and export, that go beyond 
mere extractive activities. In this regard, we note that ``the title 
of a statute and the heading of a section cannot limit the plain 
meaning of the text * * *. For interpretative purposes, they are of 
use only when they shed light on some ambiguous word or phrase. They 
are but tools available for the resolution of a doubt. But they 
cannot undo or limit that which the text makes plain.'' Brotherhood 
of Railroad Trainmen v. Baltimore & Ohio Railroad Co., 331 U.S. 519, 
528-29 (1947); see also Intel Corporation v. Advanced Micro Devices, 
Inc., 542 U.S. 241, 256 (2004) (quoting Trainmen).
---------------------------------------------------------------------------

    Consistent with the proposal, the definition of ``commercial 
development'' in the final rules does not include transportation in the 
list of covered activities.\139\ Section 13(q) does not include 
transportation in the list of activities covered by the definition of 
``commercial development.'' In addition, including transportation 
activities within the final rules under Section 13(q) would go beyond 
what is currently contemplated by the EITI, which focuses on 
exploration and production activities and does not explicitly include 
transportation activities.\140\ Thus, the final rules do not require a 
resource extraction issuer to disclose payments made for transporting 
oil, natural gas, or minerals for a purpose other than export.\141\ As 
recommended by several commentators, transportation activities 
generally would not be included within the definition \142\ unless 
those activities are directly related to the export of the oil, natural 
gas, or minerals. For example, under the final rules, transporting a 
resource to a refinery or smelter, or to underground storage prior to 
exporting it, would not be considered ``commercial development,'' and 
therefore, an issuer would not be required to disclose payments related 
to those activities.
---------------------------------------------------------------------------

    \139\ Adopting a definition of ``commercial development'' that 
does not include transport activities other than in connection with 
export is consistent with the EITI, which generally does not require 
the disclosure of transportation-related payments. See Implementing 
the EITI, at 35.
    \140\ See letters from API 1, ExxonMobil 1, and NMA 2.
    \141\ In addition, we note that Section 13(q) does not include 
transporting in the list of covered activities, unlike another 
federal statute--the SADA--that specifically includes 
``transporting'' in the definition of ``oil and gas activities'' and 
``mineral extraction activities.'' The inclusion of ``transporting'' 
in SADA, in contrast to the language of Section 13(q), suggests that 
the term was not intended to be included in the scope of Section 
13(q).
    \142\ See, e.g., letters from API, Barrick Gold, National Fuel, 
and NMA 2.
---------------------------------------------------------------------------

    In an effort to emphasize substance over form or characterization 
and to reduce the risk of evasion, as discussed in more detail below, 
we are adding an anti-evasion provision to the final rules.\143\ The 
provision requires disclosure with respect to an activity or payment 
that, although not in form or characterization of one of the categories 
specified under the final rules, is part of a plan or scheme to evade 
the disclosure required under Section 13(q).\144\ Under this provision, 
a resource extraction issuer could not avoid disclosure, for example, 
by re-characterizing an activity that would otherwise be covered under 
the final rules as transportation.
---------------------------------------------------------------------------

    \143\ See Section II.D.1.c.
    \144\ See Instruction 9 to Item. 2.01 of Form SD.
---------------------------------------------------------------------------

    Consistent with the proposal, the definition of ``commercial 
development'' in the final rules would not include marketing in the 
list of covered activities. Section 13(q) does not include marketing in 
the list of activities covered by the definition of ``commercial 
development.'' In addition, including marketing activities within the 
final rules under Section 13(q) would go beyond what is currently 
contemplated by the EITI, which focuses on exploration and production 
activities and does not include marketing activities.\145\ Thus, the 
final rules do not include marketing in the list of covered activities 
in the definition of ``commercial development.'' \146\
---------------------------------------------------------------------------

    \145\ See letters from API 1 and ExxonMobil 1.
    \146\ For similar reasons, the definition of ``commercial 
development'' does not include activities relating to security 
support. See Section II.D. below for a related discussion of 
payments for security support.
---------------------------------------------------------------------------

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.
1. Types of Payments
a. Proposed Rules
    In the Proposing Release, we explained that 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 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 proposed to require 
resource extraction issuers to disclose payments of the types 
identified in the statute because of our preliminary belief that they 
are part of the ``commonly recognized revenue stream for the commercial 
development of oil, natural gas, or minerals.'' We noted that the types 
of payments listed in Section 13(q) generally are consistent with the 
types of payments the EITI suggests should be disclosed and expressed 
our belief that this is evidence that the payment types are part of the 
commonly recognized revenue stream. As noted above, Section 13(q) 
provides that our determination should be consistent with the EITI's 
guidelines, to the extent practicable. Therefore, we are including all 
the payments listed above in the final rules because they are included 
in the EITI, which indicates they are part of the commonly recognized 
revenue stream. Guidance for implementing the EITI suggests that a 
country's disclosure requirements might include the following benefit 
streams: \147\ Production entitlements; profits taxes; royalties; 
dividends; bonuses, such as signature, discovery, and production 
bonuses; fees, such as license, rental, and entry fees; and other 
significant benefits to host governments, including taxes on corporate 
income, production, and profits but excluding taxes on 
consumption.\148\
---------------------------------------------------------------------------

    \147\ 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, at 26.
    \148\ EITI Source Book, at 27-28.
---------------------------------------------------------------------------

    We did not propose specific definitions for each payment type, 
although we stated that fees and bonuses identified as examples in the 
EITI would be covered by the proposed rules. In addition, we provided 
an instruction to the rules to clarify the taxes a resource extraction 
issuer would be required to disclose. Under the proposal, resource 
extraction issuers would have been required to disclose taxes on 
corporate profits, corporate income, and production, but would not have 
been required to disclose taxes levied on consumption, such as value 
added taxes, personal income taxes, or sales taxes, because consumption 
taxes are not typically disclosed under the EITI. We did not propose 
any other ``material benefits'' that should be disclosed. Thus, we did 
not propose to require disclosure of dividends, payments for 
infrastructure improvements, or social or community payments because 
those types of payments are not included in the statutory list of 
payments. We recognized that it may be appropriate to

[[Page 56377]]

provide more specific guidance about the particular payments that 
should be disclosed. We requested comment 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.
b. Comments on the Proposed Rules
    Several commentators supported the proposal and stated that it was 
not necessary to provide further guidance regarding the types of 
payments covered or to define ``other material benefits'' that are part 
of the commonly recognized revenue stream for the commercial 
development of oil, natural gas, or minerals.\149\ Those commentators 
noted that the proposed types of payments were largely consistent with 
the benefit streams listed in the EITI Source Book and represented the 
commonly recognized revenue stream for the commercial development of 
oil, natural gas, or minerals. Another commentator agreed the payment 
types should be based on the benefit streams outlined in the EITI 
Source Book, and suggested that we provide some limited guidance on the 
types of payments that should be disclosed to ``ensure consistency of 
presentation and to facilitate the interpretation of the rules.'' \150\
---------------------------------------------------------------------------

    \149\ See letters from API 1, Chevron, ExxonMobil 1, NMA 2, 
PetroChina, RDS 1, and Statoil.
    \150\ See letter from BP 1.
---------------------------------------------------------------------------

    Several other commentators, however, urged the Commission to adopt 
a broader, more detailed, and non-exhaustive list of payment 
types.\151\ For example, in addition to the statutory list of payments, 
some commentators suggested the rule specify as fees required to be 
disclosed a wide range of fees, including concession fees, entry fees, 
leasing and rental fees, which are covered under the EITI, as well as 
acreage fees, pipeline and other transportation fees, fees for 
environmental, water and surface use, land use, and construction 
permits, customs duties, and trade levies.\152\ Other commentators 
opposed the disclosure of any fees or permits that are not unique to 
the resource extraction industry or that represent ordinary course 
payments for goods and services to government-owned entities acting in 
a commercial capacity.\153\
---------------------------------------------------------------------------

    \151\ See letters from Calvert, CRS, Earthworks, Global Witness 
1, Le Billon, ONE, PWYP 1, TIAA, and WRI.
    \152\ See letters from Earthworks (supporting PWYP), CRS, Global 
Witness 1, Le Billon, ONE, PWYP pre-proposal, and PWYP 1.
    \153\ See letters from Cleary and Vale.
---------------------------------------------------------------------------

    Some commentators agreed that, as proposed, resource extraction 
issuers should have to disclose taxes on corporate profits, corporate 
income, and production, but should not be required to disclose taxes 
levied on consumption.\154\ Commentators expressed concern, however, 
that because corporate income taxes are measured at the entity level, 
it would be difficult to derive a disaggregated, per project amount for 
those tax payments.\155\ A couple of those commentators noted that 
compounding this difficulty is the fact that the total amount of income 
tax paid is a net amount reflecting tax credits and other tax 
deductions included under commercial arrangements with the host 
government. Tax credits and deductions may result from offsetting 
results from one set of projects against credits and deductions of 
other projects, according to some commentators, and therefore deriving 
an income tax payment by individual project would be very 
difficult.\156\ Other commentators opposed requiring the disclosure of 
payments for corporate income taxes because those payments are 
generally applicable to any business activity and are not specifically 
made to further the commercial development of oil, natural gas, or 
minerals.\157\ Still other commentators believed that issuers should 
have to disclose payments for consumption and other types of taxes, 
including value added taxes, withholding taxes, windfall or excess 
profits taxes, and environmental taxes.\158\ One commentator believed 
consumption and other taxes should be disclosed to the extent they are 
``discriminatory taxes targeted at specific industries, as opposed to 
taxes of general applicability.'' \159\
---------------------------------------------------------------------------

    \154\ See letters from API 1, ExxonMobil 1, NMA 2, and RDS 1.
    \155\ See letters from API 1, BHP Billiton, BP 1, ExxonMobil 1, 
IAOGP, Petrobras, Statoil, and Talisman.
    \156\ See letters from API 1 and ExxonMobil 1.
    \157\ See letters from Akin Gump Strauss Hauer & Feld LLP (March 
2, 2011) and Cleary.
    \158\ See letters from Barrick Gold, Earthworks, and PWYP 1.
    \159\ Letter from AngloGold.
---------------------------------------------------------------------------

    Several commentators requested expansion of the proposed list of 
payment types to include specifically at least those types typically 
disclosed under the EITI, such as signature, discovery, and production 
bonuses, and dividends.\160\ With regard to dividends, commentators 
noted that a government or government-owned company often owns shares 
in a holding company formed to develop and produce resources.\161\ In 
those situations, an issuer may pay dividends to the government or 
government-controlled company in lieu of royalties or production 
entitlements.\162\ One commentator further stated that, unlike the 
equity share that a private operator would enjoy, in those situations 
the government participates on a preferential basis not available to 
other entities.\163\ According to commentators, dividends paid to the 
government or government-owned company in those situations would be a 
material benefit, reportable under the EITI, and part of the commonly 
recognized revenue stream for the commercial development of oil, 
natural gas, or minerals.\164\ Focusing on the mining industry, one 
commentator explained that ``[o]wnership in the share capital of a 
holding company that owns a mine is an alternative structure to a 
production entitlement or royalty interest, and dividends paid are part 
of the commonly recognized revenue stream for the commercial 
development of oil, natural gas, or minerals.'' \165\
---------------------------------------------------------------------------

    \160\ See letters from AngloGold, Barrick Gold, ERI 1, 
Earthworks, ExxonMobil 1, Global Witness 1, ONE, and PWYP 1.
    \161\ See letters from API 1, AngloGold, ERI 1, and ExxonMobil 
1.
    \162\ See letters from AngloGold and ERI 1.
    \163\ See letter from ERI 1. This commentator noted that a 
significant portion of the revenue recognized by the government in 
such cases comes from its ``equity stake in the operation--often 
known as the production share--or from dividends.''
    \164\ See letters from API 1, AngloGold, ExxonMobil 1, and PWYP 
1.
    \165\ See letter from AngloGold.
---------------------------------------------------------------------------

    Other commentators, however, opposed requiring disclosure of 
dividend payments.\166\ According to one commentator, dividends are 
indirect payments that are outside the core elements of the revenue 
stream for the commercial development of oil, natural gas or minerals, 
and therefore should be excluded.\167\ Another commentator opposed the 
inclusion of dividends because of its belief that dividend payments are 
not generally associated with a particular project.\168\ A third 
commentator believed that, because ``the term `dividends' relates to 
amounts received by the host country government as a shareholder in a 
state enterprise[,]'' dividend payments ``essentially are inter-
governmental transfers'' and therefore are more

[[Page 56378]]

appropriately reported by the government in an EITI reporting 
country.\169\
---------------------------------------------------------------------------

    \166\ See letters from NMA 2, RDS 1, and Statoil.
    \167\ See letter from Statoil.
    \168\ See letter from RDS 1.
    \169\ Letter from NMA 2.
---------------------------------------------------------------------------

    Many commentators supported the inclusion of in-kind payments, 
particularly in connection with production entitlements.\170\ A couple 
of commentators requested that the Commission add language to the rule 
text to make explicit that issuers would be permitted to report 
payments in cash or in kind.\171\ Another commentator stated that the 
Commission should provide instructions concerning how to disclose a 
production entitlement in kind, including which unit of measure to use, 
whether to provide a monetary value, and, if so, which currency to 
use.\172\ A couple of commentators suggested allowing companies to 
report the payments at cost or, if not determinable, at fair market 
value.\173\
---------------------------------------------------------------------------

    \170\ See letters from API 1, AngloGold, Barrick Gold, ERI 1, EG 
Justice (March 29, 2011), ExxonMobil 1, HURFOM 1, Le Billon, NMA 2, 
Petrobras, RDS 1, TIAA, and WRI. One commentator noted that payments 
in kind for ``infrastructure barter deals'' have greatly increased 
over the past decade. See letter from Le Billon.
    \171\ See letters from ERI 1 and NMA 2.
    \172\ See letter from Petrobras.
    \173\ See letters from AngloGold and NMA 2. NMA also suggested 
requiring companies to report in-kind payments in the currency of 
the country in which it is made and not requiring conversion of all 
payments to the reporting currency.
---------------------------------------------------------------------------

    Some commentators did not believe that we need to further identify 
``other material benefits'' that are part of the commonly recognized 
revenue stream for the commercial development of oil, natural gas, or 
minerals.\174\ Other commentators, however, either urged us to provide 
a broad, non-exclusive definition of ``other material benefits'' or to 
specify that certain types of payments should be included under that 
category because they are part of the commonly recognized revenue 
stream.\175\
---------------------------------------------------------------------------

    \174\ See letters from API 1, ExxonMobil 1, PetroChina, and RDS 
1.
    \175\ See, e.g., letters from AngloGold, Barrick Gold, ERI 1, 
Earthworks, Global Witness 1, ONE, PWYP 1, Sen. Levin 1, and WRI.
---------------------------------------------------------------------------

    Some commentators suggested that ``other material benefits'' should 
include payments for infrastructure improvements because natural 
resources are frequently located in remote or undeveloped areas, which 
requires resource extraction issuers, particularly mining companies, to 
make payments for infrastructure improvements that are generally viewed 
as part of the cost of doing business in those areas.\176\ One 
commentator stated that payments for infrastructure improvements should 
be considered part of the commonly recognized revenue stream to the 
extent that they constitute part of the issuer's overall relationship 
with the government according to which the issuer engages in the 
commercial development of oil, natural gas, or minerals, while 
voluntary payments for infrastructure improvements should be 
excluded.\177\ Another commentator believed that payments for 
infrastructure improvements should be disclosed even if not required by 
contract if an issuer undertakes them to build goodwill with the local 
population.\178\
---------------------------------------------------------------------------

    \176\ See, e.g., letters from ERI 1, Global Witness 1, and PWYP 
1.
    \177\ See letter from AngloGold.
    \178\ See letter from ERI 1.
---------------------------------------------------------------------------

    Other commentators opposed requiring the disclosure of payments for 
infrastructure improvements.\179\ One commentator maintained that 
voluntary payments for infrastructure improvements should not be 
covered by the rules because they do not constitute part of the 
commonly recognized revenue stream for the commercial development of 
oil, natural gas, or minerals.\180\ Other commentators acknowledged 
that infrastructure improvements are often funded by issuers as part of 
the commercial development of oil and gas resources, but those 
commentators nevertheless believed that such payments should be 
excluded because they are typically not material compared to the 
primary types of payments required to be disclosed under Section 
13(q).\181\ Another commentator stated that payments for infrastructure 
improvements are of a de minimis nature compared to the overall costs 
of the commercial development of oil, natural gas, or minerals and, in 
many cases, are paid to private parties and not to government 
agencies.\182\
---------------------------------------------------------------------------

    \179\ See letters from API 1, ExxonMobil 1, NMA 2, RDS 1, and 
Statoil.
    \180\ See letter from NMA 2.
    \181\ See letters from API 1 and ExxonMobil 1. See also letter 
from Statoil (stating that payments for infrastructure improvements 
are indirect payments that are not part of the core elements of the 
revenue stream for the commercial development of oil, natural gas, 
or minerals).
    \182\ See letter from RDS 1.
---------------------------------------------------------------------------

    Several commentators recommended defining ``other material 
benefits'' to include social or community payments related to, for 
example, improvements of a host country's schools, hospitals, or 
universities.\183\ While some commentators believed that, at a minimum, 
social or community payments should be included if required under the 
investment contract or the law of the host country,\184\ other 
commentators suggested that voluntary social or community payments 
should be included as ``other material benefits'' because they 
represent an in-kind contribution to the state that, given their 
frequency, constitute part of the commonly recognized revenue stream of 
resource extraction.\185\ One commentator noted that the Board of the 
EITI approved a revision to the EITI rules that would encourage EITI 
participants to disclose social payments that are material.\186\ Some 
commentators also sought to include within the scope of ``other 
material benefits'' other types of payments, such as payments for 
security, personnel training, technology transfer, and local content 
and supply requirements, if required by the production contract.\187\
---------------------------------------------------------------------------

    \183\ See letters from AngloGold, Barrick Gold, ERI 1, 
Earthworks, EG Justice, ONE, PWYP 1, Sen. Levin 1, and WRI.
    \184\ See letters from AngloGold, EG Justice (noting that in at 
least one country, Equatorial Guinea, companies engaged in upstream 
oil activities are required by that country's hydrocarbons law to 
invest in the country's development), ONE, and PWYP 1.
    \185\ See letters from Barrick Gold, ERI 1, Earthworks, and WRI.
    \186\ See letter from PWYP 1.
    \187\ See, e.g., letters from ERI 1, Global Witness 1, and PWYP 
1.
---------------------------------------------------------------------------

    Several other commentators, however, maintained that social or 
community payments or other ancillary payments are considered indirect 
benefits under EITI guidelines, are typically not material, and 
therefore are not part of the commonly recognized revenue stream for 
the commercial development of oil, natural gas, or minerals.\188\ 
Another commentator stated that payments for social and community needs 
and ancillary payments should be excluded from the final rules unless 
they are expressly required by the concession contract, law, or 
regulation.\189\
---------------------------------------------------------------------------

    \188\ See letters from API 1, ExxonMobil 1, PetroChina, RDS 1, 
and Statoil.
    \189\ See letter from NMA 2.
---------------------------------------------------------------------------

c. Final Rules
    While we are adopting the list of payment types largely as 
proposed, we are making some additions and clarifications to the list 
of payment types in response to comments. Specifically, the final rules 
are consistent with the definition of payment in Section 13(q) and 
state that the term ``payment'' includes:
     Taxes;
     Royalties;
     Fees;
     Production Entitlements;
     Bonuses;
     Dividends; and

[[Page 56379]]

     Payments for infrastructure improvements.\190\
---------------------------------------------------------------------------

    \190\ Under Section 13(q) and the final rules, the term 
``payment'' is defined as a payment that is not de minimis, that is 
made to further the commercial development of oil, natural gas, or 
minerals, and includes specified types of payments. Thus, in 
determining whether disclosure is required, resource extraction 
issuers will need to consider whether they have made payments that 
fall within the specified types and otherwise meet the definition of 
payment.
---------------------------------------------------------------------------

    As we noted in the Proposing Release and above, 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. As noted, the statute provides that our 
determination should be consistent with the EITI's guidelines, to the 
extent practicable. Therefore, we are including all the payments listed 
above in the final rules because they are part of the commonly 
recognized revenue stream. We do not believe the final rules should 
include a broad, non-exhaustive list of payment types or category of 
``other material benefits,'' as was suggested by some 
commentators,\191\ because we do not believe including a broad, non-
exclusive category would be consistent with our interpretation that the 
Commission must determine the ``material benefits'' that are part of 
the commonly recognized revenue stream. Thus, under the final rules, 
resource extraction issuers will be required to disclose only those 
payments that fall within the specified list of payment types in the 
rules, which include payment types that we have determined to be 
material benefits that are part of the commonly recognized revenue 
stream, and that otherwise meet the definition of ``payment.''
---------------------------------------------------------------------------

    \191\ See note 175 and accompanying text.
---------------------------------------------------------------------------

    We agree generally with those commentators who stated that it would 
be appropriate to add the types of payments included under the EITI but 
not explicitly mentioned under Section 13(q) to the list of payment 
types required to be disclosed because their inclusion under the EITI 
is evidence that they are part of the commonly recognized revenue 
stream for the commercial development of oil, natural gas, or 
minerals.\192\ Accordingly, the final rules add dividends to the list 
of payment types required to be disclosed.\193\ The final rules clarify 
in an instruction that a resource extraction issuer generally need not 
disclose dividends paid to a government as a common or ordinary 
shareholder of the issuer as long as the dividend is paid to the 
government under the same terms as other shareholders. The issuer will 
however be required to disclose any dividends paid to a government in 
lieu of production entitlements or royalties.\194\ We agree with the 
commentators that stated ordinary dividends would not comprise part of 
the commonly recognized revenue stream because such dividend payments 
are not made to further the commercial development of oil, natural gas, 
or minerals,\195\ except in cases where the dividend is paid to a 
government in lieu of production entitlements or royalties.
---------------------------------------------------------------------------

    \192\ See, e.g., letter from AngloGold.
    \193\ The EITI describes dividends as ``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.'' EITI Source Book, 
at 27-28.
    \194\ See Instruction 7 to Item 2.01.
    \195\ See letters from Cleary and Statoil.
---------------------------------------------------------------------------

    The final rules also include, in the list of payment types subject 
to disclosure, payments for infrastructure improvements, such as 
building a road or railway. Several commentators stated that, because 
resource extraction issuers often make payments for infrastructure 
improvements either as required by contract or voluntarily, those 
payments constitute other material benefits that are part of the 
commonly recognized revenue stream for the commercial development of 
oil, natural gas, or minerals.\196\ We further note that some EITI 
participants have included infrastructure improvements within the scope 
of their EITI program, even though those payments were not required 
under the EITI until recently.\197\ In February 2011 the EITI Board 
issued revised EITI rules \198\ that require participants to develop a 
process to disclose infrastructure payments under an EITI program.\199\ 
Thus, including infrastructure payments within the list of payment 
types required to be disclosed under the final rules will make the 
rules more consistent with the EITI, as directed by the statute.
---------------------------------------------------------------------------

    \196\ See letters from AngloGold, Barrick Gold, ERI 1, 
Earthworks, EG Justice, Global Witness 1, ONE, and PWYP 1.
    \197\ See the 2009 EITI report for Ghana (reported under Mineral 
Development Fund contributions), the 2008 EITI report for the Kyrgyz 
Republic (reported under social and industrial infrastructure 
payments), the 2008-2009 EITI report for Liberia (reported under 
county and community contributions), and the 2008 EITI report for 
Mongolia (reported under donations to government organizations).
    \198\ See EITI Rules 2011, available at http://eiti.org/document/rules.
    \199\ See EITI Requirement 9(f) in EITI Rules 2011, at 24 
(``Where agreements based on in-kind payments, infrastructure 
provision or other barter-type arrangements play a significant role 
in the oil, gas or mining sectors, the multi-stakeholder group is 
required to agree [to] a mechanism for incorporating benefit streams 
under these agreements in to its EITI reporting process * * *.''). 
The EITI Board has established a procedure to implement the new 
rules. According to the procedure, any country admitted as an EITI 
candidate on or after July 1, 2011 must comply with the new rules. 
Compliant countries are encouraged to make the transition to the new 
rules as soon as possible. The procedure also establishes a 
transition schedule for countries that are implementing the EITI but 
are not yet compliant. See the EITI newsletter, available at http://eiti.org/news-events/eiti-board-agrees-transition-procedures-2011-edition-eiti-rules.
---------------------------------------------------------------------------

    Under the final rules, consistent with the recommendation of some 
commentators,\200\ a resource extraction issuer must disclose payments 
that are not de minimis that it has made to a foreign government or the 
U.S. Federal Government for infrastructure improvements if it has 
incurred those payments, whether by contract or otherwise, to further 
the commercial development of oil, natural gas, or minerals. For 
example, payments required to build roads to gain access to resources 
for extraction would be covered by the final rules. If an issuer is 
obligated to build a road rather than paying the host country 
government to build the road, the issuer would be required to disclose 
the cost of building the road as a payment to the government to the 
extent that the payment was not de minimis.\201\
---------------------------------------------------------------------------

    \200\ See note 176 and accompanying text.
    \201\ For a discussion of the treatment of in-kind payments 
under the final rules, see the text accompanying note 212. We note 
some commentators suggested infrastructure payments are usually not 
material compared to the other types of payments required to be 
disclosed under Section 13(q) and that infrastructure payments are 
of a de minimis nature compared to the overall costs of commercial 
development. See API 1, ExxonMobil 1, RDS 1, and Statoil. As 
discussed further below, the not de minimis requirement applies to 
all payment types, not just infrastructure payments.
---------------------------------------------------------------------------

    The final rules do not require a resource extraction issuer to 
disclose social or community payments, such as payments to build a 
hospital or school, because it is not clear that these types of 
payments are part of the commonly recognized revenue stream. We note 
commentators' views on whether social or community payments should be 
included varied more than their views on whether payments for 
infrastructure improvements should be included. Further, this treatment 
of social or community payments is consistent with the EITI, which 
encourages, but does not require, EITI participants to include social 
payments and transfers in EITI

[[Page 56380]]

programs if the participants deem the payments to be material.\202\
---------------------------------------------------------------------------

    \202\ See EITI Requirement 9(g) in EITI Rules 2011, at 24. 
Resource extraction issuers could, of course, voluntarily include 
information about these types of payments in their disclosure on 
Form SD.
---------------------------------------------------------------------------

    Consistent with the proposal and Section 13(q), the final rules 
will require a resource extraction issuer to disclose fees, including 
license fees, and bonuses paid to further the commercial development of 
oil, natural gas, or minerals. In response to requests by some 
commentators,\203\ we are adding an instruction to clarify that fees 
include rental fees, entry fees, and concession fees, and bonuses 
include signature, discovery, and production bonuses.\204\ As 
commentators noted,\205\ the EITI Source Book specifically mentions 
these types of fees and bonuses as payments that are typically 
disclosed by EITI participants.\206\ We believe this demonstrates that 
these types of fees and bonuses are part of the commonly recognized 
revenue stream, and therefore the final rules include an instruction 
clarifying that disclosure of these payments is required. The fees and 
bonuses identified are not an exclusive list, and there may be other 
fees and bonuses a resource extraction issuer would be required to 
disclose. A resource extraction issuer will need to consider whether 
payments it makes fall within the payment types covered by the rules.
---------------------------------------------------------------------------

    \203\ See note 160 and accompanying text.
    \204\ See Instruction 6 to Item 2.01 of Form SD.
    \205\ See, e.g., letters from API 1 and ExxonMobil 1.
    \206\ See the EITI Source Book, at 28.
---------------------------------------------------------------------------

    Consistent with the proposal and Section 13(q), the final rules 
will require a resource extraction issuer to disclose taxes. In 
addition, the final rules include an instruction, as proposed, to 
clarify that a resource extraction issuer will be required to disclose 
payments for taxes levied on corporate profits, corporate income, and 
production, but will not be required to disclose payments for taxes 
levied on consumption, such as value added taxes, personal income 
taxes, or sales taxes.\207\ This approach is consistent with the 
statute, which includes taxes in the list of payment types required to 
be disclosed, and with the EITI.\208\ In response to concerns expressed 
about the difficulty of allocating certain payments that are made for 
obligations levied at the entity level, such as corporate taxes, to the 
project level,\209\ the final rules provide that issuers may disclose 
those payments at the entity level rather than the project level.\210\
---------------------------------------------------------------------------

    \207\ See Instruction 5 to Item 2.01 of Form SD.
    \208\ The EITI Source Book specifically mentions the inclusion 
of taxes levied on income, production or profits and the exclusion 
of taxes levied on consumption, such as value-added taxes, personal 
income taxes or sales taxes. See the EITI Source Book, at 28.
    \209\ See note 155 and accompanying text.
    \210\ See discussion in Section II.F.2.c below.
---------------------------------------------------------------------------

    We are not persuaded that there are other types of payments that 
currently constitute material benefits that are part of the commonly 
recognized revenue stream. Therefore, the final rules do not include 
any additional payment types in the list of payment types resource 
extraction issuers must disclose.
    As previously noted, many commentators supported the inclusion of 
in-kind payments, particularly in connection with production 
entitlements.\211\ Under the final rules, resource extraction issuers 
must disclose payments of the types identified in the rules that are 
made in kind.\212\ Because Section 13(q) specifies that the final rules 
require the disclosure of the type and total amount of payments made 
for each project and to each government, issuers will need to determine 
the monetary value of in-kind payments.\213\ Consistent with 
suggestions we received on disclosing these types of payments,\214\ the 
final rules specify that issuers may report in-kind payments at cost, 
or if cost is not determinable, fair market value, and provide a brief 
description of how the monetary value was calculated.\215\
---------------------------------------------------------------------------

    \211\ See note 170 and accompanying text. In-kind payments 
include, for example, making a payment to a government in oil rather 
than a monetary payment.
    \212\ We note that this is consistent with the reporting of 
production entitlements under the EITI. See the EITI Source Book, at 
27.
    \213\ Although a couple of commentators suggested that issuers 
be permitted to report payments in cash or in kind, we note that 
Section 13(q) requires the type and total amount of payments made 
for each project and to each government, and total amount of 
payments by category. In order for issuers to provide a these total 
amounts, we believe it is necessary to provide a monetary value for 
any in-kind payments. Thus, the final rules require that issuers 
provide a monetary value for payments made in kind. In addition, in 
light of the requirement in Section 13(q) to tag the information to 
identify the currency in which the payments were made, the final 
rules instruct issuers providing a monetary value for in-kind 
payments to tag the information as ``in kind'' for purposes of the 
currency tag.
    \214\ See note 173 and accompanying text.
    \215\ See Instruction 1 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    Finally, a resource extraction issuer may not conceal the true 
nature of payments or activities that otherwise would fall within the 
scope of the final rules, or create a false impression of the manner in 
which it makes payments, in order to circumvent the disclosure 
requirements. As suggested by one commentator,\216\ to address the 
potential for circumvention of the disclosure requirements, the final 
rules include an anti-evasion provision. This provision is intended to 
emphasize the substance over the form or characterization of an 
activity or payment. For example, a resource extraction issuer that 
typically engages in a particular activity that otherwise would be 
covered under the definition of commercial development of oil, natural 
gas, or minerals, and that changes the way it categorizes the same 
activity after the issuance of final rules to avoid disclosing payments 
related to the activity may be viewed as seeking to evade the 
disclosure requirements. Similarly, a resource extraction issuer that 
typically makes payments of the type that would otherwise be covered 
under the final rules and that changes the way it categorizes or makes 
payments after issuance of the final rules so that the payments are not 
technically required to be disclosed may be viewed as seeking to evade 
the disclosure requirements. The final rules will require disclosure 
with respect to activities or payments that, although not in form or 
characterization of one of the categories specified under the final 
rules, are part of a plan or scheme to evade the disclosure 
requirements under Section 13(q).\217\
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    \216\ See letter from Sen. Levin (February 17, 2012) (``Sen. 
Levin 2'').
    \217\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

2. The ``Not De Minimis'' Requirement
a. Proposed Rules
    Section 13(q) and the proposal define payment, in part, to be a 
payment that is ``not de minimis.'' Neither the statute nor the 
proposed rules define ``not de minimis.'' Under Section 13(q) and the 
proposal, if the other standards for disclosure are met, resource 
extraction issuers would be required to disclose payments made that are 
``not de minimis.''
    Under the EITI, countries are free to establish a materiality level 
for disclosure.\218\ Section 13(q) established

[[Page 56381]]

the threshold for payment disclosure as ``not de minimis'' rather than 
requiring disclosure of ``material'' payments. Given the use of the 
phrase ``not de minimis,'' we stated in the Proposing Release our 
preliminary belief that ``not de minimis'' does not equate with a 
materiality standard. In doing so, we noted that that the term ``de 
minimis'' is generally defined as something that is ``lacking 
significance or importance'' or ``so minor as to merit disregard.'' 
\219\ We also noted that we preliminarily believed that the term is 
sufficiently clear and that further explication was unnecessary.
---------------------------------------------------------------------------

    \218\ For example, countries may establish a materiality level 
based on the size of payments or the size of companies subject to 
disclosure. See Implementing the EITI, at 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 26. Because there is no pre-determined 
materiality level prescribed for all countries implementing the 
EITI, the multi-stakeholder group in each EITI-implementing country 
determines the threshold for disclosure that is appropriate for that 
country. See Implementing the EITI, at 31. The EITI recommends the 
following alternatives for considering a benefit stream to be 
material:
    ``Alternative 1: [if it is] more than A% of the host 
government's estimated total production value for the reporting 
period;
    Alternative 2: [if it is] more than B% of the company's 
estimated total production value in the host country for the 
reporting period; or
    Alternative 3: [if it is] more than USD C million [or local 
currency D million].''
    EITI Source Book, at 27.
    \219\ See the definition of ``de minimis'' in Merriam-Webster 
Dictionary, available at http://www.merriam-webster.com/dictionary/deminimis. We note, in contrast, that Rule 12b-2 under the Exchange 
Act [17 CFR 240.12b-2] defines ``material'' when used to qualify a 
requirement for the furnishing of information as to any subject, as 
limited to information required to those matters to which there is a 
substantial likelihood that a reasonable investor would attach 
importance in determining whether to buy or sell the securities 
registered. See also Rule 405 under the Securities Act [17 CFR 
230.405]. In addition, the U.S. Supreme Court has held that, in a 
securities fraud suit, an omitted fact is material if there is a 
substantial likelihood that its disclosure would have been 
considered significant by a reasonable investor. See Basic Inc. v. 
Levinson, 485 U.S. 224 (1988) and TSC Industries. Inc., et al. v. 
Northway, Inc., 426 U.S. 438 (1976).
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    We received significant comment on this aspect of the proposal. 
Some commentators agreed that it is not necessary to define ``not de 
minimis.'' \220\ Two of those commentators suggested that an issuer 
should be required to disclose the methodology used to determine what 
is ``not de minimis.'' \221\ One commentator noted that ``not de 
minimis'' is a commonly-understood term.\222\
---------------------------------------------------------------------------

    \220\ See letters from Cleary, Global Witness 1, NMA 2, 
PetroChina, and Rio Tinto.
    \221\ See letters from NMA 2 and Rio Tinto.
    \222\ See letter from Global Witness 1. This commentator 
suggested that, in the alternative, we should define the term as an 
amount that meets or exceeds the lesser of (1) $1,000 for an 
individual payment or $15,000 in the aggregate over a period, or (2) 
a particular percentage of the issuer's per project expenditures. It 
also noted that it believes ``not de minimis'' should be assessed 
relative to the total expenditures on a project and not relative to 
the size or valuation of the entity making the payments.
---------------------------------------------------------------------------

    Most commentators that addressed the issue urged the Commission to 
define ``not de minimis.'' \223\ Several commentators stated that the 
Commission should avoid adopting a definition that uses one or more 
quantitative measures and, instead, should define ``not de minimis'' to 
mean material.\224\ According to those commentators, a definition based 
on materiality would be consistent with the EITI and the Commission's 
longstanding disclosure regime.\225\ One commentator stated that 
adopting a definition of ``not de minimis'' based on materiality would 
encourage ``reasonable consistency of disclosure across all issuers'' 
and result ``in the disclosure of all material facts necessary for 
investors'' without the Commission having to provide further guidance 
on how to determine materiality.\226\
---------------------------------------------------------------------------

    \223\ See, e.g., letters from AngloGold, Barrick Gold, BP 1, 
CalSTRS, Calvert, CRS, Earthworks, Harrington Investments, Inc. 
(January 19, 2011) (``HII), RDS 1, Sen. Levin 1, and SIF.
    \224\ See letters from API 1, BP 1, Chevron, ExxonMobil 1, RDS 
1, and Statoil.
    \225\ See, e.g., letters from API 1 and Chevron. According to 
one commentator, adopting a definition based on specific 
quantitative measures rather than existing materiality guidance 
would ``substantially increase the likelihood of overburdening 
issuers and users with large volumes of unnecessary and immaterial 
detail * * * and significantly increase the regulatory burden and 
cost of compliance.'' See letter from Chevron. See also letters from 
API 1 and ExxonMobil 1. Other commentators believed that an issuer 
should be able to rely on materiality principles for guidance when 
determining whether a payment is ``not de minimis,'' but did not 
think that a definition of ``not de minimis'' was necessary. See 
letters from Cleary, NMA 2, PetroChina, and Rio Tinto.
    \226\ See letter from API 1.
---------------------------------------------------------------------------

    Other commentators, however, agreed with our belief that ``not de 
minimis'' does not equate with material.\227\ Several commentators 
noted that a provision of the U.S. federal tax code includes the 
following definition of ``de minimis'': ``[a] property or service the 
value of which is * * * so small as to make accounting for it 
unreasonable or administratively impracticable.'' \228\ One commentator 
stated that if we were to adopt a qualitative, principle-based standard 
when defining de minimis, it should be based on ``the relevance of a 
payment in relation to a country's size'' rather than with regard to a 
company's overall payments, assets or similar metric.\229\ A few 
commentators requested ``that a reasonable minimum threshold for 
payments to be reported should be set'' without suggesting a particular 
minimum threshold.\230\
---------------------------------------------------------------------------

    \227\ See, e.g., letters from Barrick Gold, Calvert, ERI 1, 
Global Witness 1, HURFOM 1, PWYP 1, and TIAA.
    \228\ Letter from Calvert (quoting 26 U.S.C. Sec.  132(e)(1)); 
see also letters from Global Witness 1, PWYP 1, and TIAA.
    \229\ See letter from PWYP 1.
    \230\ See letters from Derecho, Greenpeace, and Guatemalan 
Forest Communities.
---------------------------------------------------------------------------

    Several commentators urged us to adopt a definition of ``not de 
minimis'' based on one or more quantitative measures.\231\ Commentators 
stated that such a definition was necessary to provide clarity 
regarding the disclosure requirements.\232\ Two commentators suggested 
using an absolute dollar amount in the definition because they believed 
that such a standard would be easier to apply than a percentage, would 
reduce compliance costs, and would help ensure consistent disclosure 
and comparability.\233\ Another commentator similarly believed that the 
use of an absolute dollar amount would help level the playing field 
among issuers.\234\
---------------------------------------------------------------------------

    \231\ See letters from AngloGold, Barrick Gold, CalSTRS, CRS, 
Earthworks, HII, PWYP 1 (suggesting both qualitative and 
quantitative standards), RWI 1, Sen. Levin 1, and SIF. Another 
commentator noted that we have adopted objective standards in other 
contexts and requested that we do so for the definition of ``not de 
minimis.'' That commentator further suggested that we may need to 
adopt different quantitative standards for large-cap and small-cap 
companies, but it did not recommend particular standards. See letter 
from AXPC.
    \232\ See letters from Barrick Gold and Talisman.
    \233\ See letters from AngloGold (recommending defining ``de 
minimis'' to mean ``any payment or series of related payments made 
at the tax-paying entity level which in the aggregate is less than 
U.S.$1,000,000'') and CRS (recommending an amount ``significantly 
less than $100,000'' and as an aggregate of payments of the same 
type during the reporting period covered).
    \234\ See letter from Talisman (noting that it currently reports 
payments in excess of one million dollars and supporting a minimum 
level of reporting of one million dollars).
---------------------------------------------------------------------------

    Commentators offered various suggestions for a quantitative 
threshold. Some commentators suggested requiring the reporting of 
payments above $10,000.\235\ In addition, numerous commentators signed 
a petition supporting a de minimis threshold ``in the low thousands 
(U.S. dollars) to prevent millions of dollars from going unreported.'' 
\236\ Several commentators suggested that we should define ``not de 
minimis'' using a standard similar to a listing standard of the London 
Stock Exchange's Alternative Investment Market (``AIM''), which 
requires disclosure of any payment made to any government or regulatory 
authority by an oil, gas, or mining company registrant that, alone or 
as a whole, is over [pound]10,000, or approximately $15,000.\237\ One 
commentator suggested a reporting threshold ``in the tens of

[[Page 56382]]

thousands.'' \238\ Another commentator believed that we should provide 
a specific threshold and that it should be significantly less than 
$100,000.\239\ The commentator further stated that the threshold should 
be defined as an aggregate of payments of the same type during the 
reporting period covered. Another commentator suggested using an 
absolute dollar amount that would vary depending on the size of an 
issuer's market capitalization.\240\
---------------------------------------------------------------------------

    \235\ See letters designated ``Type B'' (suggesting $10,000 
threshold without elaboration) and letter from Le Billon (stating 
that a ``minimal value of $10,000 would be consistent with many 
legislations seeking to track financial flows, e.g. for the purpose 
of money laundering'').
    \236\ ONE Petition.
    \237\ See letters from CalSTRS, HII, RWI 1, Sen. Levin 1, SIF, 
and WACAM. Several commentators suggested defining the term further 
to require disclosure of any individual payment that exceeded $1,000 
as well as payments of the same type that in the aggregate exceeded 
$15,000. See letters from Earthworks, Global Witness 1, Global 
Witness 3, and PWYP 1.
    \238\ See letter from Global Movement for Budget Transparency, 
Accountability and Participation (March 30, 2012) (``BTAP'').
    \239\ See letter from CRS. See also letter from PWYP 1 (stating 
that $100,000 would not be an appropriate de minimis threshold 
because $100,000 could exceed the annual payments, such as lease 
rents or license fees, in some projects).
    \240\ See letter from AXPC. That commentator, however, did not 
specify any particular dollar amount or corresponding size of market 
capitalization.
---------------------------------------------------------------------------

    One commentator suggested defining ``de minimis'' to mean ``any 
payment or series of related payments made at the tax-paying entity 
level which in the aggregate is less than U.S.$1,000,000.'' \241\ 
Another commentator similarly suggested using an absolute dollar amount 
threshold of $1,000,000 while noting that it currently reports payments 
in excess of that amount. According to that commentator, its 
``experience supports [$1,000,000] as the minimum level of reporting to 
ensure that the objectives of revenue transparency are met while not 
clouding the data with largely irrelevant information.'' \242\ One 
commentator, however, opposed a ``not de minimis'' threshold of 
$1,000,000 because it believed such a threshold would exclude many 
payments made in the extractive industry.\243\ Another commentator 
similarly cautioned against setting the ``not de minimis'' threshold 
too high because it would leave important payment streams undisclosed 
and could encourage companies and governments to structure payments in 
future contracts in a way that would avoid the disclosure 
requirement.\244\
---------------------------------------------------------------------------

    \241\ See letter from AngloGold.
    \242\ Letter from Talisman.
    \243\ See letter from ERI 3 (referring to disclosure in Sierra 
Leone's 2010 EITI Report and noting that a $1,000,000 threshold 
would exclude payments for half of the companies reporting in Sierra 
Leone). See also ONE Petition (urging the Commission to adopt a 
final rule that ``sets the de minimis threshold in the low thousands 
(U.S. dollars) to prevent millions of dollars from going 
unreported'').
    \244\ See letter from Rep. Frank et al.
---------------------------------------------------------------------------

    Other commentators suggested adopting a quantitative definition of 
``not de minimis'' that uses a relative measure, either alone or with 
an absolute dollar amount.\245\ One commentator suggested defining 
``not de minimis'' to mean five percent or more of an issuer's upstream 
expenses or revenues.\246\ Another commentator suggested defining ``not 
de minimis'' as the lesser of two percent of the issuer's consolidated 
expenditures and $1,000,000.\247\ According to that commentator, using 
a standard based on the lesser of a dollar amount or a percentage of 
expenses would reflect the size of a company but still ensure the 
disclosure of significant payments by a larger company.\248\
---------------------------------------------------------------------------

    \245\ See letters from Barrick Gold and RDS 1 (RDS suggested a 
quantitative definition if the Commission determines not to define 
the term as ``material'').
    \246\ See letter from RDS 1.
    \247\ See letter from Barrick Gold (suggested ``consolidated 
expenditures'' but did not provide an explanation of the term).
    \248\ See letter of Barrick Gold.
---------------------------------------------------------------------------

c. Final Rules
    We have determined to adopt a definition of ``not de minimis'' to 
provide clear guidance regarding when a resource extraction issuer must 
disclose a payment.\249\ We have considered whether to define the term 
using a materiality standard, as some commentators have 
recommended.\250\ We continue to believe that given the use of the 
phrase ``not de minimis'' in Section 13(q) rather than use of a 
materiality standard, which is used elsewhere in the federal securities 
laws and in the EITI,\251\ ``not de minimis'' was not intended to 
equate to a materiality standard.
---------------------------------------------------------------------------

    \249\ See, e.g., letters from Barrick Gold and Talisman.
    \250\ See note 224 and accompanying text.
    \251\ See note 218 and accompanying text.
---------------------------------------------------------------------------

    More fundamentally, for purposes of Section 13(q), we do not 
believe the relevant point of reference for assessing whether a payment 
is ``not de minimis'' is the particular issuer. Rather, because the 
disclosure is designed to further international transparency 
initiatives regarding payments to governments for the commercial 
development of oil, natural gas, or minerals, we think the better way 
to consider whether a payment is ``not de minimis'' is in relation to 
host countries. We recognize that issuers may have difficulty assessing 
the significance of particular payments for particular countries or 
recipient governments and, as explained below, are adopting a $100,000 
threshold that, we believe, will facilitate compliance with the statute 
by providing clear guidance regarding the payments that resource 
extraction issuers will need to track and report and will promote the 
transparency goals of the statute. In addition, we believe the 
threshold we are adopting will result in a lesser compliance burden 
than would otherwise be associated with the final rules if a lower 
threshold were used because issuers may track and report fewer payments 
than they would be required to report if a lower threshold was adopted.
    Of the suggested approaches for defining ``not de minimis,'' we 
believe that a standard based on an absolute dollar amount is the most 
appropriate because it will be easier to apply than a qualitative 
standard or a relative quantitative standard based on a percentage of 
expenses or revenues of the issuer,\252\ or some other fluctuating 
measure, such as a percentage of the host government's or issuer's 
estimated total production value in the host country for the reporting 
period. Using an absolute dollar amount threshold for disclosure 
purposes should help reduce compliance costs and may also promote 
consistency and comparability.\253\
---------------------------------------------------------------------------

    \252\ See notes 231-233 and accompanying text.
    \253\ See note 233 and accompanying text. Furthermore, some 
commentators who suggested a relative standard did not provide 
definitions, or suggested a standard based on upstream payments only 
even though the required disclosure includes additional payments.
---------------------------------------------------------------------------

    The final rules define ``not de minimis'' \254\ to mean any 
payment, whether made as a single payment or series of related 
payments, that equals or exceeds $100,000 during the most recent fiscal 
year.\255\ The final rules provide that in the case of any arrangement 
providing for periodic payments or installments (e.g., rental fees), a 
resource extraction issuer must consider the aggregate amount of the 
related periodic payments or installments of the related payments in 
determining whether the payment threshold has been met for that series 
of payments, and accordingly, whether disclosure is required.\256\ As 
discussed further below, we considered a variety of alternatives when 
considering what, if any, definition would be appropriate for ``not de 
minimis.''
---------------------------------------------------------------------------

    \254\ See Item 2.01(c)(7) of Form SD.
    \255\ For example, a resource extraction issuer that paid a 
$150,000 signature bonus would be required to disclose that payment. 
As another example, a resource extraction issuer obligated to pay 
royalties to a government annually and that paid $10,000 in 
royalties on a monthly basis to satisfy its obligation would be 
required to disclose $120,000 in royalties.
    \256\ See Item 2.01(c)(7) of Form SD. This is similar to other 
instructions in our rules requiring disclosure of a series of 
payments. See, e.g., Instructions 2 and 3 to Item 404(a) of 
Regulation S-K (17 CFR 229.404(a)).
---------------------------------------------------------------------------

    We believe that a $100,000 threshold is more appropriate than, and 
an acceptable compromise to, the amounts

[[Page 56383]]

suggested by commentators.\257\ Commentators supporting an absolute 
dollar amount differed widely on the amount best suited for the 
threshold, with commentators suggesting an amount in the ``low 
thousands'' of U.S. dollars,\258\ $10,000,\259\ $15,000,\260\ an amount 
less than $100,000,\261\ and $1,000,000.\262\ We are not adopting a 
threshold in the low thousands of U.S. dollars, $10,000, or $15,000 
threshold. In light of the comments received, we are concerned that 
those amounts could result in undue compliance burdens and raise 
competitive concerns for many issuers. While supporters of a $15,000 
threshold noted its similarity to the AIM listing requirement, we do 
not believe that applying the threshold used in that listing 
requirement is appropriate for purposes of Section 13(q) because that 
threshold was designed to apply to the smaller companies that comprise 
the AIM market.\263\
---------------------------------------------------------------------------

    \257\ The Proposing Release solicited comment on a wide range of 
absolute dollar amounts for the ``de minimis'' threshold, and 
requested data to support the definitions suggested by commentators. 
See Part II.D.2. of the Proposing Release. We received little data 
that was helpful. Although one commentator submitted data regarding 
payments made by some oil companies for tuition, rent, and living 
expenses for the students and relatives of officials in Equatorial 
Guinea, those payments are not within the list of payments types 
specified by Section 13(q). See letter from Sen. Levin 2. Another 
commentator noted that, based on Sierra Leone's 2007 EITI 
Reconciliation Report (published in 2010), a $1 million threshold 
would result in non-disclosure of over 40% of payments made by 
mining companies and all payments made by half of EITI reporting 
companies in that country. See letter from ERI 3. Although the 
letter provides information about payments made to Sierra Leone, it 
appears that the companies for which data is provided would not be 
subject to the reporting requirements under Section 13(q) and the 
related rules.
    \258\ See ONE Petition.
    \259\ See letters designated Type B and letter from Le Billon.
    \260\ See letters from CalSTRS, ERI 3, HII, RWI 1, Sen. Levin 1, 
SIF, and WACAM.
    \261\ See letters from CRS and PWYP 1.
    \262\ See letters from AngloGold and Talisman; see also letter 
from Barrick Gold.
    \263\ We also note that the AIM requirement differs from the 
disclosure required by Section 13(q) and the final rules in that the 
AIM only requires disclosure of payments by extractive issuers as an 
initial listing requirement and does not impose an ongoing reporting 
requirement related to those payments.
---------------------------------------------------------------------------

    Although a few commentators suggested we use $1,000,000 as the 
threshold,\264\ including one commentator that stated it reports 
payments to governments in excess of $1,000,000,\265\ we do not believe 
that $1,000,000 would be an appropriate threshold. While many EITI-
reporting companies have reported payments in excess of 
$1,000,000,\266\ we note that the EITI provides that countries may 
establish a ``materiality'' level for disclosure, which, as noted, is 
different from the ``not de minimis'' standard in Section 13(q). We 
agree with those commentators that cautioned against setting the 
threshold too high so as to leave important payment streams 
undisclosed.\267\ Adopting $100,000 as the ``not de minimis'' threshold 
furthers the purpose of Section 13(q) and will result in a lesser 
compliance burden than would otherwise be associated with the final 
rules if a lower threshold were used.
---------------------------------------------------------------------------

    \264\ See letters from AngloGold, Barrick Gold, and Talisman.
    \265\ See letter from Talisman.
    \266\ See, e.g., the 2009 EITI Report for Ghana (regarding 
payment of royalties, corporate taxes, and dividends); the 2006-2008 
EITI Report for Nigeria (regarding payment of petroleum taxes, 
royalties and signature bonuses); the 2004-2007 EITI Report for Peru 
(regarding payment of corporate income taxes and royalties); and the 
2009 EITI Report for Timor Leste (regarding payment of petroleum 
taxes).
    \267\ See letters from ERI 3 and Rep. Frank et al.
---------------------------------------------------------------------------

    Although adoption of a $100,000 threshold may be viewed as somewhat 
high by some commentators \268\ and may result in some smaller payments 
not being reported, we believe this threshold strikes an appropriate 
balance between concerns about the potential compliance burdens of a 
lower threshold and the need to fulfill the statutory directive that 
payments greater than a ``de minimis'' amount be covered. We 
acknowledge that a ``not de minimis'' definition based on a materiality 
standard, or a much higher amount, such as $1,000,000, would lessen 
commentators' concerns about the compliance burden and potential for 
competitive harm.\269\ We believe, however, that use of the term ``not 
de minimis'' in Section 13(q) indicates that a threshold quite 
different from a materiality standard, and significantly less than 
$1,000,000, is necessary to further the transparency goals of the 
statute.
---------------------------------------------------------------------------

    \268\ See, e.g., letters from CRS (supporting a ``not de 
minimis'' threshold that is significantly less than $100,000) and 
PWYP 1 (supporting a ``not de minimis'' threshold of $1,000 for 
individual payments and $15,000 for payments in the aggregate); see 
also letter from ERI 3.
    \269\ See notes 224, 241, and 242 and accompanying text.
---------------------------------------------------------------------------

    In adopting the final rules, we believe an absolute, rather than 
relative, threshold may make the requirement easier for issuers to 
comply with and allow for increased comparability of payment 
disclosures. We considered adopting a threshold that would have 
required disclosure of the lesser of a specific dollar amount or a 
percentage of expenses, as suggested by commentators.\270\ We 
determined not to adopt such an approach because we agree with other 
commentators that noted such an approach would be more difficult for 
issuers to comply with, could raise the compliance costs associated 
with tracking and reporting the information, and would make 
comparability of disclosure more difficult.\271\ For similar reasons, 
we decided not to adopt a threshold that exclusively used a percentage 
threshold based on an issuer's expenses or revenues, or some other 
fluctuating measure. We note that exclusively using a percentage 
threshold based on an issuer's expenses or revenues could result in 
larger companies having a higher payment threshold for disclosure than 
contemplated by the ``de minimis'' language in the statute.
---------------------------------------------------------------------------

    \270\ See note 247 and accompanying text.
    \271\ See note 233 and accompanying text.
---------------------------------------------------------------------------

3. The Requirement To Provide Disclosure for ``Each Project''
a. Proposed Rules
    As noted in the proposal, 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, but it does not define the term 
``project.'' \272\ Consistent with Section 13(q), the proposed rules 
would have required a resource extraction issuer to disclose payments 
made to governments by type and total amount per project. The proposed 
rules did not define ``project'' in light of the fact that neither 
Section 13(q) nor our current disclosure rules include a definition of 
the term. In addition, the EITI does not define the term or provide 
guidance on how it should be defined.
---------------------------------------------------------------------------

    \272\ The legislative history does not provide an indication as 
to how we should define the term.
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Two commentators supported the proposed approach of leaving the 
term ``project'' undefined to allow flexibility for different types and 
sizes of businesses.\273\ Most commentators that addressed the issue 
supported defining the term ``project,'' \274\ but they disagreed as to 
the appropriate definition, with recommendations ranging from defining 
a ``project'' as each individual lease or license to defining it as a 
country. One commentator stated that leaving the term undefined ``would 
create significant uncertainty for issuers and

[[Page 56384]]

result in disclosures that are not comparable from issuer to issuer.'' 
\275\ Several commentators urged us to adopt a definition of project 
that would not impede the ability of companies to compete for 
extractive industry contracts, but did not provide a particular 
definition.\276\ One of those commentators recommended broadly defining 
``project'' so that issuers would not have to disclose disaggregated 
price and cost information that could have anti-competitive 
effects.\277\ Another of those commentators stated that we must adopt a 
definition of ``project,'' among other definitions, that is ``narrowly 
tailored to prevent a competitive imbalance for those SEC-registered 
companies which make payments to governments for the privilege of 
extracting natural resources.'' \278\
---------------------------------------------------------------------------

    \273\ See letters from Cleary and NMA 2.
    \274\ See, e.g., letters from API 1, Calvert, Chevron, PWYP 1, 
RDS 1, and Sen. Levin 1.
    \275\ Letter from API 1.
    \276\ See letters from Chairman Bachus and Chairman Miller, 
Timothy J. Muris and Bilal Sayyed (March 2, 2011) (``Muris and 
Sayyed''), and Split Rock.
    \277\ See letter from Muris and Sayyed.
    \278\ Letter from Chairman Bachus and Chairman Miller.
---------------------------------------------------------------------------

    Some commentators suggested that we permit a resource extraction 
issuer to treat all of its operations in a single country as a 
project.\279\ Commentators asserted that doing so would be consistent 
with the EITI and would prevent issuers from incurring tens of millions 
of dollars in compliance costs.\280\ One commentator stated that 
defining ``project'' to require country-level disclosure would be 
consistent with Item 1200 of Regulation S-K, which treats an individual 
country as the lowest geographic level at which comprehensive oil and 
gas disclosures must be provided.\281\ Commentators that opposed 
defining ``project'' as a country stated that such a definition would 
be inconsistent with the statute and Congressional intent.\282\
---------------------------------------------------------------------------

    \279\ See letters from AXPC, AngloGold, Barrick Gold, bcIMC, BHP 
Billiton, BP 1, Hispanic Leadership Fund (February 27, 2012), 
Petrobras, PWC, RDS 1, Sen. Murkowski and Sen. Cornyn, and Statoil. 
See also letters from API 1 and ExxonMobil 1 (stating that under 
certain circumstances, an issuer should be permitted to treat 
operations in a country as a project, for example, when all of an 
issuer's operations in a country relate to a single geologic basin 
or province).
    \280\ See letters from API 1, ExxonMobil 1, Petrobras, and RDS 
1.
    \281\ See letter from PWC.
    \282\ See, e.g., letters from Calvert, Earthworks, Global 
Financial 2, Global Witness 1, HURFOM 2, ONE, Oxfam 1, PWYP 1, Rep. 
Frank et al., and Sen. Cardin et al 1. See also letter from Gates 
Foundation and Le Billon.
---------------------------------------------------------------------------

    Other commentators supported defining ``project'' consistent with 
the definition of ``reporting unit.'' \283\ According to one of those 
commentators, using a definition consistent with reporting unit ``would 
allow issuers to collect information on a basis with which they already 
are familiar, and draw upon established internal controls over 
financial reporting (``ICFR''), instead of having to reallocate and 
assign payments arbitrarily at a lower or different level than which 
they manage their operations, and incurring cost and burden beyond 
their existing ICFR systems.'' \284\
---------------------------------------------------------------------------

    \283\ See letters from API 1, Chevron, ExxonMobil 1, NMA 2, Rio 
Tinto, and Talisman. Generally, the commentators did not specify 
what they meant by reporting unit, but we assume that they were 
referring to a reporting unit as used for financial reporting 
purposes. See also note 305.
    \284\ Letter from NMA 2. In this regard, we note that the 
European Commission proposed disclosure requirements that would 
require companies that are registered or listed in the European 
Union to report payments to governments on a country and project 
basis where those payments had been attributed to a specific 
project. The reporting on a project basis would be made on the basis 
of companies' current reporting structures. See Proposal for 
Directive on transparency requirements for listed companies and 
proposals on country by country reporting--frequently asked 
questions, COM (2011) MEMO/11/734 (October 25, 2011), available at 
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/734&format=HTML&aged=0. As noted above, the proposals are currently 
pending.
---------------------------------------------------------------------------

    Other commentators stated that there are relatively limited 
instances in which resource extraction issuers make payments to 
governments at the entity level (for example, the payment of corporate 
income taxes), and that fact should have no bearing on the definition 
of ``project.'' \285\ Those commentators noted that issuers could be 
permitted to report at the entity level those payments that are levied 
at the entity level that are not associated with a specific project.
---------------------------------------------------------------------------

    \285\ See letters from Global Witness 1 and PWYP 1 (stating that 
a limited disclosure accommodation could be given in the relatively 
few instances that payments are made at the entity level). See also 
letter from Calvert (define ``project'' at the lease or license 
level except where payments originate at the entity level).
---------------------------------------------------------------------------

    Several commentators suggested defining the term in relation to a 
particular geologic resource. For example, ``project'' could be defined 
to mean technical and commercial activities carried out within a 
particular geologic basin or province to explore for, develop, and 
produce oil, natural gas, or minerals.\286\ Two commentators further 
suggested that the definition could specify the covered activities to 
include 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.\287\ The definition could further state that a project 
may consist of multiple phases or stages.\288\
---------------------------------------------------------------------------

    \286\ See letters from API 1, API 3, Chairman Bachus, BP 1, 
Chamber Energy Institute, Chevron, ExxonMobil 1, IAOGP, Sen. 
Murkowski and Sen. Cornyn, Statoil, and USCIB.
    \287\ See letters from API 1 and ExxonMobil 1.
    \288\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    Other commentators, however, opposed a definition of ``project'' 
based on a particular geologic basin or province.\289\ Those 
commentators maintained that, because multiple companies often conduct 
activities in a single geologic basin, and because a basin may span 
more than one country, such a definition would be counter to the 
``company-by-company'' and ``country-by-country'' reporting 
requirements of Section 13(q) and would be of limited use to citizens 
and investors. Commentators further stated that a definition of 
``project'' based on a particular geologic basin would have no relation 
to the level at which royalty rates, tax payments, and other rights and 
fiscal obligations are assigned.\290\
---------------------------------------------------------------------------

    \289\ See, e.g., letters from ERI 3, Gates Foundation, Oxfam 
(February 6, 2012) (``Oxfam 2''), Petition from Angolan citizens and 
Angolan civil society organizations (March 13, 2012) (``Angolan 
citizens''), Rep. Frank et al., and Soros 2.
    \290\ See, e.g., letters from Gates Foundation, Oxfam 2, and 
Rep. Frank et al.
---------------------------------------------------------------------------

    Some commentators supported defining ``project'' to mean a material 
project,\291\ while others opposed such a definition.\292\ The 
commentators that supported defining the term to be a material project 
asserted that doing so would enable issuers to rely on traditional 
principles of materiality when determining what constitutes a 
project.\293\ One commentator stated that materiality ``should be 
determined with reference to the issuer's total worldwide government 
payments and other qualitative factors.'' \294\ Commentators that 
opposed defining ``project'' as a material project stated that such a 
definition is not supported by the plain

[[Page 56385]]

language of Section 13(q) and would result in inconsistent 
disclosures.\295\
---------------------------------------------------------------------------

    \291\ See letters from API 1, API 2, API 3, Chamber Energy 
Institute, Chevron, Cravath et al. pre-proposal, ExxonMobil 1, 
IAOGP, PetroChina, RDS 1, Sen. Murkowski and Sen. Cornyn, and 
Statoil.
    \292\ See letters from Global Witness 1, Oxfam 1, PWYP 1, and 
ERI 2. Oxfam and PWYP stated that should the Commission define 
``project'' as a material project, it should clarify that, when 
determining the materiality of a project, consideration should be 
given to the significance of a project to a country and its citizens 
in addition to its significance to an issuer. According to PWYP, 
``[t]he disclosure of projects that are material to the country 
would allow comparability across projects and meet the intent of the 
statute to provide information of use to hold governments 
accountable.''
    \293\ See letters from API 1, Chamber Energy Institute, Chevron, 
ExxonMobil 1, IAOGP, PetroChina, RDS 1, and Statoil.
    \294\ Letter from API 1.
    \295\ See letters from Global Witness 1, Oxfam 1, and PWYP 1.
---------------------------------------------------------------------------

    Several commentators urged the Commission to adopt a definition of 
``project'' in relation to each lease, license, or other concession-
level arrangement entered into by a resource extraction issuer.\296\ In 
particular, one commentator urged us to adopt a definition of 
``project'' as ``any oil, natural gas or mineral exploration, 
development, production, transport, refining or marketing activity from 
which payments above the de minimis threshold originate at the lease or 
license level, except where these payments originate from the entity 
level.'' \297\ The commentators supporting a definition of ``project'' 
in relation to a lease or license asserted that such an approach would 
be appropriate because they believed the intent of Section 13(q) was to 
go beyond the EITI standards, and it would enable investors and others 
to evaluate the risks faced by issuers operating in resource-rich 
countries.\298\
---------------------------------------------------------------------------

    \296\ See letters from Angolan citizens, BTAP, California Public 
Employees Retirement System (February 28, 2011) (``CalPERS''), 
Calvert, Cambodians, Derecho, Earthworks, ERI 2, Gates Foundation, 
Global Financial 2, Global Witness 1, Global Witness 2, Global 
Witness 3, Greenpeace, Grupo Faro, Guatemalan Forest Communities, 
Libyan Transparency, Arlene McCarthy, Member of the European 
Parliament (March 13, 2012) (``McCarthy''), NUPENG, Office of 
Natural Resources Revenue, US Department of the Interior (August 4, 
2011) (``ONRR''), ONE, ONE Petition, Oxfam 1, Oxfam 2, PENGASSAN, 
PWYP pre-proposal, PWYP 1, PWYP (December 20, 2011) (nine page 
letter plus appendix) (``PWYP 4''), PWYP (February 23, 2012) (``PWYP 
5''), Rep. Frank et al., RWI 1, Revenue Watch Institute (February 
27, 2012) (``RWI 2''), Sen. Cardin et al. 1, Soros 2, Syena, TIAA, 
and WACAM. See also letters designated as Type B (stating that a 
project should be ``defined as our Interior Department does it''). 
But see the letter from King & Spalding LLP (September 8, 2011) 
(``King & Spalding'') (objecting to ONRR's request for lease by 
lease payment disclosure because such a disclosure requirement would 
conflict with ONRR's duty under the Outer Continental Shelf Lands 
Act to protect the confidentiality of lease-level oil and gas 
exploration and production information submitted to the agency by a 
company operating under a federal lease or permit).
    \297\ Letter from Calvert.
    \298\ See, e.g., letters from CRS, Global Witness 1, Oxfam 1, 
PWYP 1, and RWI 1.
---------------------------------------------------------------------------

    According to some commentators, concerns expressed about compliance 
costs associated with project-level reporting ``inflate their likely 
impact'' because most issuers already have internal systems in place 
for recording payments that would be required to be disclosed under 
Section 13(q) and many issuers already report payments at the project 
level or are moving towards project-level disclosure.\299\ Another 
commentator stated that project-level disclosure ``would have an 
extremely beneficial impact on improving investment risk assessment and 
would provide further levels of corporate and sovereign 
accountability.'' \300\ That commentator further suggested that 
consistently applying the rules to all resource extraction issuers 
would diminish anti-competitive concerns.\301\
---------------------------------------------------------------------------

    \299\ Letter from RWI 1; see also letters from PWYP 1 and ERI 2.
    \300\ Letter from Syena.
    \301\ See id.
---------------------------------------------------------------------------

c. Final Rules
    After carefully considering the comments, we have determined, 
consistent with the proposal, to leave the term ``project'' undefined 
in the final rules. We continue to believe that not adopting a 
definition of ``project'' has the benefit of giving issuers flexibility 
in applying the term to different business contexts depending on 
factors such as the particular industry or business in which the issuer 
operates, or the issuer's size. As noted above, neither Section 13(q) 
nor our rules include a definition of ``project,'' and the EITI does 
not define the term. In view of concerns expressed by some commentators 
with regard to leaving the term undefined,\302\ we are providing some 
guidance about the meaning of the term.
---------------------------------------------------------------------------

    \302\ See note 275 and accompanying text.
---------------------------------------------------------------------------

    We understand that the term ``project'' is used within the 
extractive industry in a variety of contexts. While there does not 
appear to be a single agreed-upon application in the industry, we note 
that individual issuers routinely provide disclosure about their own 
projects in their Exchange Act reports and other public statements, and 
as such, we believe ``project'' is a commonly used term whose meaning 
is generally understood by resource extraction issuers and investors. 
In this regard, we note that resource extraction issuers routinely 
enter into contractual arrangements with governments for the purpose of 
commercial development of oil, natural gas, or minerals. The contract 
defines the relationship and payment flows between the resource 
extraction issuer and the government,\303\ and therefore, we believe it 
generally provides a basis for determining the payments, and required 
payment disclosure, that would be associated with a particular 
``project.''
---------------------------------------------------------------------------

    \303\ See letter from TIAA (stating that ``disclosure 
requirements should shed light on the financial relationship between 
companies and host governments by linking the definition of 
``project'' to the individual contracts between the issuer and host 
country'').
---------------------------------------------------------------------------

    We considered defining ``project'' by reference to a materiality 
standard as it is used under the federal securities laws, as suggested 
by some commentators.\304\ We recognize that such an approach may 
reduce compliance burdens for issuers; however, we believe that 
approach would be inconsistent with Congress' intent to provide more 
detailed disclosure than would be provided using such a materiality 
standard and would not result in the transparency benefits that the 
statute seeks to achieve. In addition, based on Congress' use of the 
terms ``de minimis'' and ``material'' in other provisions of Section 
13(q), we believe that if it intended to limit the disclosure 
requirement to ``material projects'' it would have drafted the 
statutory language accordingly.
---------------------------------------------------------------------------

    \304\ See note 291 and accompanying text.
---------------------------------------------------------------------------

    While we considered defining the term as a reporting unit \305\ as 
suggested by some commentators,\306\ we have decided against that 
approach. We appreciate the potential benefits to issuers from defining 
the term consistent with reporting unit and thereby allowing issuers to 
collect information on a basis with which they already are familiar and 
according to established financial reporting systems.\307\ We also 
appreciate the concerns some commentators expressed regarding the need 
to disaggregate and allocate payments in a potentially arbitrary 
manner, which could increase costs and not provide meaningful 
information to investors.\308\ Nonetheless, for the same reasons we 
declined to provide a definition of ``project'' based on materiality, 
we do not believe that requiring disclosure at the reporting unit level 
would be consistent with the use of the term ``project'' in Section 
13(q). We also do not believe that a plain reading of the statutory 
language and the common use of the term ``project'' would lead one to 
think that a reporting unit would be a project. Based on Congress' 
intention to promote international transparency efforts, we believe 
that Congress intended a greater level of transparency than would be 
achieved if we defined ``project'' as a reporting unit.
---------------------------------------------------------------------------

    \305\ Accounting Standards Code (``ASC'') 350-20-20 defines a 
reporting unit as an operating segment, or a segment that is one 
level below an operating segment.
    \306\ See note 283 and accompanying text.
    \307\ See note 284 and accompanying text.
    \308\ See, e.g., letters from API 1 and NMA 2.
---------------------------------------------------------------------------

    We also appreciate the concerns some commentators expressed 
regarding potential definitions of ``project'' and

[[Page 56386]]

the need to disaggregate and allocate payments made at the entity level 
in a potentially arbitrary manner, which could increase costs and would 
not provide meaningful information to investors.\309\ We do not believe 
that resource extraction issuers should be required to disaggregate and 
allocate payments to projects for payments that are made for 
obligations levied on the issuer at the entity level rather than the 
project level. Consistent with the suggestion of some 
commentators,\310\ the final rules we are adopting will permit a 
resource extraction issuer to disclose payments at the entity level if 
the payment is made for obligations levied on the issuer at the entity 
level rather than the project level.\311\ Thus, if an issuer has more 
than one project in a host country, and that country's government 
levies corporate income taxes on the issuer with respect to the 
issuer's income in the country as a whole, and not with respect to a 
particular project or operation within the country, the issuer would be 
permitted to disclose the resulting income tax payment or payments 
without specifying a particular project associated with the 
payment.\312\
---------------------------------------------------------------------------

    \309\ See, e.g., letters from API 1, Muris and Sayyed, and NMA 
2.
    \310\ See note 285 and accompanying text.
    \311\ See Instruction 2 to Item 2.01 of Form SD.
    \312\ One commentator provided, as an example, a situation where 
the payment of corporate income taxes is calculated on the basis of 
all projects in a given jurisdiction. See letter from Global Witness 
1.
---------------------------------------------------------------------------

    We believe the term ``project'' requires more granular disclosure 
than country-level reporting. Section 13(q) clearly requires project-
level reporting, and we believe the statutory requirement to provide 
interactive data tags identifying the government that received the 
payment and the country in which that government is located is further 
evidence that reference to ``project'' was intended to elicit 
disclosure at a more granular level than country-level reporting.\313\
---------------------------------------------------------------------------

    \313\ See 15 U.S.C. 78m(q)(2)(D)(ii)(V).
---------------------------------------------------------------------------

4. Payments by ``a Subsidiary * * * or an Entity Under the Control of * 
* *''
a. Proposed Rules
    Consistent with Section 13(q),\314\ the proposed rules would have 
required a resource extraction issuer to disclose payments made by the 
issuer, a subsidiary, or an entity under the control of the resource 
extraction issuer, to a foreign government or the U.S. Federal 
Government for the purpose of commercial development of oil, natural 
gas, or minerals. Under the proposal, and consistent with Section 
13(q), a resource extraction issuer would have been required to provide 
disclosure if control is present. Consistent with the definition of 
control under the federal securities laws,\315\ a resource extraction 
issuer would have been required to make a factual determination as to 
whether it has control of an entity based on a consideration of all 
relevant facts and circumstances. At a minimum, a resource extraction 
issuer would have been required to disclose payments made by a 
subsidiary or entity under the issuer's control if the issuer must 
provide consolidated financial information for the subsidiary or other 
entity in the issuer's financial statements included in its Exchange 
Act reports.
---------------------------------------------------------------------------

    \314\ See 15 U.S.C. 78m(q)(2)(A).
    \315\ 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'' (including the 
terms ``controlling,'' ``controlled by'' and ``under common control 
with'') 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.')'').
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Several commentators stated that we should rely on the current 
definitions of ``control'' and ``subsidiary'' under Exchange Act Rule 
12b-2,\316\ or as those terms are used under U.S. GAAP or IFRS, and we 
need not adopt new definitions of those terms for purposes of this 
rulemaking because the current definitions are well-understood by both 
extractive issuers and investors.\317\ When applying those definitions, 
however, commentators held a variety of views regarding the entities 
for which resource extraction issuers should be required to provide the 
required payment information.
---------------------------------------------------------------------------

    \316\ See id.
    \317\ See letters from API 1, AngloGold, BP 1, ERI 1, ExxonMobil 
1, PWC, and RDS 1.
---------------------------------------------------------------------------

    Some commentators believed that whether an issuer has control over 
an entity is consistent with whether it must consolidate that entity 
for purposes of the issuer's financial reporting. Those commentators 
suggested the rules should only require an issuer to report payments 
for an entity that it must either fully or proportionately consolidate 
for U.S. financial reporting purposes and not require disclosure of 
payments of equity investees for which no consolidation is 
required.\318\ Some commentators further stated that an issuer should 
not have to report payments corresponding to its proportional interest 
in a joint venture unless it makes such payments directly to the host 
government.\319\ The commentators noted that, under such an approach, 
proportional payments made to the joint venture operator would not be 
reported.\320\
---------------------------------------------------------------------------

    \318\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1. 
Other commentators agreed that the final rules should define control 
to mean consolidated entities only but opposed using the definition 
of control under Exchange Act Rule 12b-2 on the grounds that the 
existing definition could include companies that are not 
consolidated and regarding which an issuer would lack access to the 
underlying accounting data for the controlled entities' payments. 
See letters from Barrick Gold, Cleary, GE, NMA 2, NYSBA Committee, 
Petrobras, Rio Tinto, and Statoil. One commentator further observed 
that restricting the definition of control to consolidated entities 
would avoid the possible overstating of resource extraction payments 
that might occur if payments by equity investees are required to be 
disclosed. See letter from Rio Tinto.
    \319\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \320\ See id.
---------------------------------------------------------------------------

    One commentator supported requiring an issuer to disclose payments 
only for entities that it must consolidate because that approach would 
provide a bright-line test that is easy to administer and because it 
would be consistent with the EITI.\321\ The commentator further stated 
that an issuer should be required to disclose payments made on behalf 
of a joint venture, regardless of control, when the payments are 
disproportionate to the issuer's interest in the joint venture.\322\
---------------------------------------------------------------------------

    \321\ See letter from AngloGold.
    \322\ See letter from AngloGold. This commentator provided an 
example in which an issuer that is a 50% partner in a joint venture 
would have to disclose payments made on behalf of that joint venture 
if the payments include the share attributable to the other joint 
venture partner in circumstances where the other partner is 
unwilling or unable to make its share of the payments.
---------------------------------------------------------------------------

    Other commentators believed that, in addition to requiring 
disclosure of payments made by consolidated entities, the rules also 
should require disclosure of payments:
     Made by or on behalf of unconsolidated equity investees 
and joint venture partners on a proportionate share basis where a facts 
and circumstances test determines that the issuer possesses control; 
\323\
---------------------------------------------------------------------------

    \323\ See letters from Earthworks and PWYP 1.
---------------------------------------------------------------------------

     Made by the issuer's non-reporting parent or other related 
entity on behalf or for the benefit of the issuer when the issuer is 
the alter ego or instrumentality of the parent or related entity \324\ 
or when the issuer ``controls, is controlled by, or is under common 
control with'' the non-reporting parent or related entity, and the 
subsidiary would

[[Page 56387]]

otherwise be required to disclose those payments under Section 13(q); 
\325\
---------------------------------------------------------------------------

    \324\ See letter from Conflict Risk Network (February 28, 2011) 
(``Conflict Risk'').
    \325\ See letters from HURFOM 1, PWYP 1, and WRI.
---------------------------------------------------------------------------

     Made by an entity that is contractually obligated to 
collect funds and make payments to various parties, including the host 
government, on behalf of an issuer; \326\ and
---------------------------------------------------------------------------

    \326\ See letters from ERI pre-proposal and Le Billon.
---------------------------------------------------------------------------

     Made by one party to a joint venture that has guaranteed 
the debt of another joint venture party in an off-balance sheet 
transaction.\327\
---------------------------------------------------------------------------

    \327\ See id.
---------------------------------------------------------------------------

    Some commentators believed that a foreign government-owned or 
controlled entity should not have to report certain payments made to 
its parent government\328\ or to a subsidiary or other entity 
controlled by it.\329\ Another commentator stated that a wholly-owned 
subsidiary of an Exchange Act reporting parent should not have to 
disclose payments as long as the subsidiary's parent has included the 
subsidiary's payments in the parent's Exchange Act report.\330\
---------------------------------------------------------------------------

    \328\ See letter from Cleary.
    \329\ See letter from Statoil.
    \330\ See letter from API 1.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting this requirement as proposed, consistent with the 
statutory language of Section 13(q). The final rules require a resource 
extraction issuer to provide disclosure of payments made by the issuer, 
a subsidiary of the issuer, or an entity under the control of the 
issuer to a foreign government or the U.S. Federal Government for the 
purpose of the commercial development of oil, natural gas, or 
minerals.\331\ ``Control'' and ``subsidiary'' are terms defined as in 
Exchange Act Rule 12b-2.\332\ Therefore, a resource extraction issuer 
must disclose payments made by a subsidiary or entity under the control 
of the resource extraction issuer where the subsidiary or entity is 
consolidated in the resource extraction issuer's financial statements 
included in its Exchange Act reports,\333\ as well as payments by other 
entities it controls as determined in accordance with Rule 12b-2. A 
resource extraction issuer may be required to provide the disclosure 
for entities in which it provides proportionately consolidated 
information.\334\
---------------------------------------------------------------------------

    \331\ With respect to payments by an Exchange Act reporting 
company meeting the definition of resource extraction issuer that 
also is a wholly-owned subsidiary of an Exchange Act reporting 
parent that is a resource extraction issuer, consistent with some 
commentators' suggestions, the subsidiary will not be required to 
separately disclose payments to governments provided that the 
subsidiary's parent has included the subsidiary's payments in the 
parent's Form SD. The subsidiary must file its own Form SD 
indicating that the required disclosure was provided in the parent's 
Form SD. See Instruction 8 to Item 2.01 of Form SD.
    \332\ See note 315 above.
    \333\ This would be the case whether the resource extraction 
issuer provides consolidated financial information under U.S. 
Generally Accepted Accounting Principles (``GAAP''), International 
Financial Reporting Standards as issued by the International 
Accounting Standards Board (``IFRS''), or another comprehensive 
basis of accounting other than U.S. GAAP or IFRS.
    \334\ Proportionate consolidation may be used in a variety of 
circumstances in which an issuer may or may not have control, and 
therefore resource extraction issuers will need to make a facts-and-
circumstances determination, as discussed below.
---------------------------------------------------------------------------

    We understand that resource extraction issuers commonly engage in 
commercial development of oil, natural gas, or minerals through joint 
ventures, as an operator of a joint venture, or through an equity 
investment.\335\ In these situations a resource extraction issuer will 
be required to determine whether it has control of an entity based on a 
consideration of all relevant facts and circumstances.\336\ Following 
the definition of control under the federal securities laws, such as in 
Rule 12b-2, a resource extraction issuer will be required to determine 
whether it has control of an entity for purposes of Rule 13q-1 based on 
a consideration of all relevant facts and circumstances.\337\ We 
continue to believe that a facts-and-circumstances determination of 
control consistent with the federal securities laws is preferable to a 
bright-line rule limiting disclosure to payments made only by 
consolidated entities because it is consistent with the statutory 
language. Limiting the scope of the requirement to situations in which 
an issuer provides consolidated financial information for an entity may 
limit the rules more narrowly than the intended scope of the statute 
because a resource extraction issuer may have control over an 
unconsolidated entity that makes payments that would be covered by 
Section 13(q) and the final rules. Thus, an issuer that engages in 
joint ventures or contractual arrangements will need to consider 
whether it has control to determine whether it must disclose payments.
---------------------------------------------------------------------------

    \335\ See, e.g., letters from API 1, ERI pre-proposal, NMA 2, 
and PWYP 1. See also Ernst & Young, Navigating Joint Ventures in the 
Oil and Gas Industry (2011), available at http://www.ey.com/
Publication/vwLUAssets/Navigating_joint_ventures_in_oil_and_
gas_industry/$FILE/Navigating_joint_ventures_in_oil_and_gas_
industry.pdf.
    \336\ As we noted in the Proposing Release, if a resource 
extraction issuer makes a payment to a third party to be paid to the 
government on its behalf, the rules will require disclosure of that 
payment. Similarly, where an entity makes payments (that are 
otherwise covered by the definition of payment) to a foreign 
government as a paying agent for a resource extraction issuer, 
pursuant to a contractual obligation with the resource extraction 
issuer, the final rules require the resource extraction issuer to 
disclose these payments.
    \337\ We expect that a determination in accordance with 
consolidation guidance generally would be the same as under Rule 
12b-2.
---------------------------------------------------------------------------

    We disagree with commentators who suggested that the definition of 
``control'' not track Rule 12b-2 and instead be entirely consistent 
with the use of the term for purposes of financial reporting. While 
determinations made pursuant to the relevant accounting standards 
applicable for financial reporting may be indicative of whether control 
exists, we do not believe it is determinative in all cases. We note the 
suggestion by some commentators to adopt a definition of control that 
does not track Rule 12b-2 and specifically addresses unconsolidated 
equity investees.\338\ We are not adopting such a definition because we 
believe it is appropriate and consistent with the statute to use the 
same definition of control used for other purposes under the Exchange 
Act, and because issuers should already be familiar with applying that 
definition. A resource extraction issuer is required to make a facts-
and-circumstances determination as to whether the equity investee is an 
entity under the control of the resource extraction issuer under the 
final rules.
---------------------------------------------------------------------------

    \338\ See letters from Earthworks and PWYP 1.
---------------------------------------------------------------------------

E. Definition of ``Foreign Government''

1. Proposed Rules
    Consistent with Section 13(q), the proposed rules would have 
required a resource extraction issuer to disclose payments made to a 
foreign government or the Federal 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 
authority to determine the scope of the definition.\339\ The proposed 
rules would have defined the term consistent with the statute. In 
addition, the proposed definition of ``foreign government'' explicitly 
included both 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. The proposed rules would have clarified that the term 
``Federal Government'' means the United States Federal Government. The 
proposed rules would have further clarified that a company owned by a 
foreign government is a company that is at least

[[Page 56388]]

majority-owned by a foreign government.
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    \339\ See 15 U.S.C. 78m(q)(1)(B).
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2. Comments on the Proposed Rules
    Commentators generally supported the proposed definition of foreign 
government.\340\ Some of those commentators noted that inclusion of 
foreign subnational governments is appropriate because issuers 
frequently make payments to subnational governments and that including 
them would be consistent with the EITI.\341\ Some commentators also 
supported the proposed clarification regarding the meaning of ``Federal 
Government'' \342\ and agreed that the term did not include state 
governments.\343\ Those commentators believed that extending the 
disclosure requirement to states and other subnational governments in 
the United States would go beyond the scope of the statute. A few 
commentators explicitly supported the proposed clarification regarding 
the meaning of ``a company owned by a foreign government.'' \344\
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    \340\ See letters from API 1, AngloGold, Barrick Gold, BP 1, 
Calvert, CRS, Earthworks, EIWG, ExxonMobil 1, PWYP 1, RDS 1, and 
WRI.
    \341\ See letters from API 1, AngloGold, Barrick Gold, BP 1, 
Calvert, CRS, Earthworks, EIWG, ExxonMobil 1, PWYP 1, RDS 1, and 
WRI.
    \342\ See letters from API 1, BP 1, Calvert, ExxonMobil 1, NYSBA 
Committee, and RDS 1.
    \343\ See letters from API 1, BP 1, Calvert, ExxonMobil 1, NYSBA 
Committee, and RDS 1.
    \344\ See letters from API 1, ExxonMobil 1, and PetroChina.
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    Some commentators, however, suggested alternative approaches to the 
definition of foreign government.\345\ A few commentators supported 
adopting the statutory definition of ``foreign government'' and 
suggested limiting the rule to require resource extraction issuers to 
disclose only those payments made to foreign national governments. 
According to those commentators, it would be unfair to require 
disclosure of payments to foreign subnational governments because 
Section 13(q) does not require disclosure of payments to subnational 
governments in the United States. Thus, limiting the requirement to 
disclose payments only to foreign national governments would promote 
consistency and fairness.\346\ One commentator stated that defining 
``foreign government'' to mean only a foreign national government would 
be consistent with the plain meaning of Section 13(q). \347\ According 
to that commentator, the fact that the statute requires an issuer to 
include electronic tags identifying both the recipient government for 
each payment and the country in which that government is located does 
not mean that Congress intended to include foreign subnational 
governments within the definition of foreign government. Rather, 
according to that commentator, because the statutory definition of 
foreign government includes departments, agencies and instrumentalities 
of a foreign government, Congress intended only that an issuer would 
use the recipient government tag to identify the specific department, 
agency or instrumentality receiving the payment. In addition, one 
commentator noted that it has a substantial number of provincial 
government leases and that it would be overburdened by reporting 
payments on a subnational level.\348\ A few commentators supported 
adoption of the proposed definition of ``foreign government'' and also 
suggested requiring the disclosure of payments made to U.S. subnational 
governments because extractive companies may make substantial payments 
to U.S. subnational governments.\349\
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    \345\ See, e.g., letters from NMA 2, Statoil, and Talisman.
    \346\ See letters from NMA 2, Statoil, and Talisman.
    \347\ See letter from Statoil.
    \348\ See letter from Talisman.
    \349\ See letters from AngloGold, Barrick Gold, and Earthworks.
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    Some commentators requested the Commission clarify that whether an 
issuer will be required to disclose payments made to a foreign 
government-owned company would depend on whether the foreign government 
controls that company.\350\ One of those commentators suggested that 
whether control exists should be determined by a facts-and-
circumstances analysis, which could result in the conclusion that a 
non-majority owned company is controlled by a foreign government.\351\ 
The commentator believed the analysis should consider whether the 
government has provided working capital to the company, and whether the 
government has the ability to direct economic or policy decisions of 
the company, appoint or remove directors or management, restrict the 
composition of the board, or veto the decisions of the company.\352\ 
The other commentator suggested we also ``[should] look at the extent 
to which the government has control over the company and also the 
extent of advances and payments by the company to the government.'' 
\353\
---------------------------------------------------------------------------

    \350\ See letters from PetroChina and PWYP 1.
    \351\ See letter from PWYP 1.
    \352\ See letter from PWYP 1.
    \353\ See letter from PetroChina.
---------------------------------------------------------------------------

    Other commentators suggested that the Commission clarify whether an 
issuer will be required to disclose payments made to a foreign 
government-owned company would depend on the capacity in which the 
company is acting.\354\ According to the commentators, if the 
government-owned company is acting as the agent of the government, the 
issuer should have to disclose payments made to the government-owned 
company.\355\ If the government-owned company is acting in the capacity 
of a commercial partner with the issuer, and the government-owned 
company is the operator of the joint venture, the issuer should not 
have to disclose payments ``for capital or operating cash calls'' made 
to the government-owned company.\356\ Two commentators asserted that an 
issuer also should not have to disclose payments to a government-owned 
company acting in the capacity of a commercial vendor of goods and 
services.\357\ Other commentators believed that Section 13(q) requires 
the disclosure of all payments to a government or government-owned 
company whether for ``rent, security, food and water, use of roads and 
airports'' or for capital contributions.\358\
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    \354\ See letters from API 1, Cleary, ExxonMobil 1, and Vale.
    \355\ See letters from API 1 and ExxonMobil 1.
    \356\ See letters from API 1 and ExxonMobil 1.
    \357\ See letters from Cleary and Vale.
    \358\ See letters from PWYP 1 and Sen. Levin 1.
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3. Final Rules
    After considering the comments, we are adopting the definition of 
``foreign government'' consistent with the definition in Section 13(q), 
as proposed. A ``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.\359\ Although we 
acknowledge the concerns of commentators that sought to limit the 
definition of foreign government to foreign national governments,\360\ 
we continue to believe that the definition also should include foreign 
subnational governments. The adopted definition is not only consistent 
with 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,\361\ but it also is 
consistent with the EITI, which recognizes that payments to subnational 
governments may have to be included within the scope of an EITI 
program.\362\ As noted in the proposal, if a resource

[[Page 56389]]

extraction issuer makes a payment that meets the definition of payment 
to a third party to be paid to the government on its behalf, disclosure 
of that payment is covered under the rules.
---------------------------------------------------------------------------

    \359\ See Item 2.01(c)(2) of Form SD.
    \360\ See, e.g., letter from Statoil.
    \361\ See 15 U.S.C. 78m(q)(2)(D)(ii)(V).
    \362\ See Implementing the EITI, at 34.
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    In addition, as proposed, the final rules clarify that a company 
owned by a foreign government is a company that is at least majority-
owned by a foreign government.\363\ As noted above, some commentators 
requested that we clarify the circumstances in which an issuer will be 
required to disclose payments made to a foreign government-owned 
company. The final rules specify the types of payments that will be 
required to be disclosed, and resource extraction issuers will need to 
consider whether the payments being made to a foreign government-owned 
company fall within the categories of payments for which the final 
rules require disclosure.
---------------------------------------------------------------------------

    \363\ See Instruction 4 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    As proposed, the final rules clarify that ``Federal Government'' 
means the United States Federal Government.\364\ Although we 
acknowledge that there is a difference in the final rules between 
requiring disclosure of payments to foreign subnational governments and 
not requiring payments to state or local governments in the United 
States, we believe that Section 13(q) is clear in only requiring 
disclosure of payments made to the Federal Government in the United 
States and not to state and local governments. As we noted in the 
proposal, typically the term ``Federal Government'' refers only to the 
U.S. national government and not the states or other subnational 
governments in the United States.
---------------------------------------------------------------------------

    \364\ See Item 2.01(a) of Form SD.
---------------------------------------------------------------------------

F. Disclosure Required and Form of Disclosure

1. Annual Report Requirement
a. Proposed Rules
    As noted in the proposal, 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. The proposed rules would have 
required a resource extraction issuer to provide the payment disclosure 
in exhibits to its Exchange Act annual report filed on Form 10-K, Form 
20-F, or Form 40-F. In addition, the proposed rules would have required 
a resource extraction issuer to include a brief statement in the body 
of the annual report directing investors to detailed information about 
payments provided in the exhibits.
b. Comments on Proposed Rules
    Some commentators supported the proposed approach,\365\ while other 
commentators opposed requiring the disclosure in Exchange Act annual 
reports on Form 10-K, Form 20-F, and Form 40-F and suggested 
alternative approaches.\366\
---------------------------------------------------------------------------

    \365\ See letters from Calvert, Earthworks, HURFOM 1, ONE, PGGM, 
PWYP 1, RWI 1, and Soros 1.
    \366\ See, e.g., letters from API 1, AngloGold, Barrick Gold, BP 
1, Chevron, Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen, 
PetroChina, Petrobras, RDS 1, and Statoil.
---------------------------------------------------------------------------

    Commentators asserted that it would be difficult to provide the 
payment disclosure, which could be voluminous, within the same time 
period for Exchange Act annual reports. Those commentators maintained 
that additional time is necessary to provide the required 
information.\367\ Otherwise, according to commentators, due to resource 
constraints, issuers may be unable to file their Exchange Act annual 
reports on a timely basis if they are required to provide the new 
payment disclosure at the same time that they must meet their existing 
obligations with respect to Exchange Act annual reports.\368\ 
Commentators further maintained that the payment disclosures are 
largely cash-based, unaudited, of little relevance to most financial 
statement users, and should not be subject to certification 
requirements, whereas the financial statement information in an 
existing Exchange Act annual report is accrual-based, audited, of 
primary importance to most financial statement users, and subject to 
certification requirements.\369\ Those commentators believed that 
keeping the payment disclosure separate from the financial statements 
and corresponding disclosure would avoid confusion.
---------------------------------------------------------------------------

    \367\ See letters from API 1, AngloGold, Barrick Gold, BP 1, 
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen, Petrobras, and 
RDS 1.
    \368\ See letter from Cleary; see also letters from Barrick Gold 
and Petrobras.
    \369\ See letters from API 1, AngloGold, Barrick Gold, Cleary, 
ExxonMobil 1, NMA 2, and NYSBA Committee.
---------------------------------------------------------------------------

    Many commentators supported requiring a resource extraction issuer 
to make the payment disclosure in a new annual report form or under 
cover of a Form 8-K or Form 6-K, rather than in an existing Exchange 
Act annual report.\370\ Some commentators supported using only Forms 8-
K or 6-K,\371\ while other commentators favored using only a new annual 
report.\372\ One commentator opposed using Form 8-K for the Section 
13(q) disclosure because Form 8-K is the ``venue for time-sensitive 
disclosures of unique changes to a company'' whereas, according to that 
commentator, the Section 13(q) disclosure consists of ``standard, 
material financial disclosures that should be included in the primary 
documents filed in the Exchange Act annual report.'' -\373\
---------------------------------------------------------------------------

    \370\ See letters from API 1, Barrick Gold, Chevron, Cleary, 
ExxonMobil 1, NYSBA Committee, and RDS 1.
    \371\ See letters from AngloGold, Nexen, PetroChina, and 
Petrobras.
    \372\ See letters from NMA 2 and Statoil.
    \373\ Letter from Calvert.
---------------------------------------------------------------------------

    Some commentators supporting a new annual report form believed the 
potential benefits of providing the disclosure on a new form rather 
than in an Exchange Act annual report outweighed the potential costs 
associated with the new form.\374\ Commentators suggested that the 
required disclosure could be due 150 or 180 days or some other lengthy 
period following the end of the issuer's fiscal year.\375\ Two 
commentators believed that the reporting period for the resource 
extraction issuer disclosure should be the calendar year as opposed to 
the fiscal year as is the case for existing Exchange Act annual reports 
because the calendar year approach would facilitate review and 
compilation by the Commission and analysis by users.\376\ Other 
commentators, however, suggested that disclosure should be required for 
the issuer's fiscal year.\377\
---------------------------------------------------------------------------

    \374\ See letters from API 1 and Cleary.
    \375\ See letters from API 1, AngloGold, Barrick Gold, BP 1, 
Chevron, Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen 
(supporting 180 days), PetroChina, Petrobras, RDS 1 (supporting 150 
days), and Statoil.
    \376\ See letters from API 1 and ExxonMobil 1.
    \377\ See letters from AngloGold and RDS 1.
---------------------------------------------------------------------------

    Several commentators that supported a deadline for the disclosure 
separate from the due date for the Exchange Act annual report opposed 
allowing the disclosure to be provided in an amendment to the Form 10-
K, Form 20-F, and Form 40-F.\378\ According to those commentators, such 
an amendment could be misconstrued as a correction of an error or 
omission or as a restatement.\379\ Other commentators stated that if 
the Commission decides to require inclusion of the disclosure in an 
Exchange Act annual report, it would be reasonable to permit an issuer 
to

[[Page 56390]]

disclose the information in an amendment to the annual report.\380\
---------------------------------------------------------------------------

    \378\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2, 
and RDS 1.
    \379\ See id.
    \380\ See letters from Cleary, NMA 2, and NYSBA Committee. 
Cleary and NYSBA Committee supported this approach if the Commission 
decided not to require the disclosure in a new annual report form or 
under cover of Form 8-K or 6-K.
---------------------------------------------------------------------------

    Some commentators suggested permitting issuers to submit the 
payment disclosure on a confidential basis.\381\ These commentators 
stated that the Commission could then use the confidentially submitted 
information to prepare a public compilation, which would consist of 
information only at the country or other highly aggregated level. The 
commentators asserted that Section 13(q)(3), which is entitled ``Public 
Availability of Information,'' requires the Commission to make public a 
compilation of the information required to be submitted under Section 
13(q)(2). According to the commentators, the statute does not require 
the submitted information itself to be publicly available.\382\ 
Commentators argued that the payment information should be submitted 
confidentially at a disaggregated level and that the public compilation 
by the Commission could be presented on ``an aggregated, per-country or 
similarly high-level basis.'' \383\ According to those commentators, 
this approach would satisfy the specific text of the statute and 
fulfill the underlying goal of promoting the international transparency 
regime of the EITI.\384\
---------------------------------------------------------------------------

    \381\ See letters from API 1, Chevron, ExxonMobil 1, Nexen, and 
RDS 1.
    \382\ See letters from API 1, Chevron, ExxonMobil 1, Nexen, and 
RDS 1.
    \383\ See letters from API 1 and ExxonMobil 1. See also letters 
from Chevron, Nexen, and RDS 1.
    \384\ See letters from API 1 and ExxonMobil 1. See also letters 
from Chevron and RDS 1.
---------------------------------------------------------------------------

    In contrast, other commentators strongly disagreed with the 
interpretation that Section 13(q) should be read as to not require the 
public disclosure of the payment information submitted in annual 
reports and that the Commission may choose to make public only a 
compilation of the information.\385\ One commentator stated that the 
``compilation would be in addition to the public availability of the 
original company data and in no way is expected to replace the 
availability of that data.'' \386\ Two commentators supporting the 
proposed approach requested that the Commission clarify that the 
statutorily-required compilation would function both as an online 
database and summary report, which would allow users to download data 
in bulk, in addition to allowing users to search by country and 
company, as well as by year or multiple years of reporting.\387\
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    \385\ See letters from Calvert, PWYP 1, RWI 1, Sen. Cardin et 
al. 1, Sen. Cardin et al. 2, and Sen. Levin 1.
    \386\ Letter from Sen. Cardin et al. 1.
    \387\ See letters from PWYP 1 and USW.
---------------------------------------------------------------------------

    Two commentators stated that, to the extent the new rules require 
the payment disclosure to be in an existing Exchange Act annual report, 
the rules should provide that the officer certifications required by 
Exchange Act Rules 13a-14(a) and (b) and 15d-14(a) and (b) do not 
extend to exhibits or disclosures required pursuant to Section 
13(q).\388\
---------------------------------------------------------------------------

    \388\ See letters from Cleary and NYSBA Committee.
---------------------------------------------------------------------------

c. Final Rules
    After considering the comments, we have determined that resource 
extraction issuers should provide the required disclosure about 
payments in a new annual report, separate from the issuer's existing 
Exchange Act annual report. We are requiring the disclosure on new Form 
SD.\389\ As noted above, Section 13(q) does not specify a location for 
the disclosure. We believe requiring resource extraction issuers to 
provide the payment disclosure in new Form SD will facilitate 
interested parties' ability to locate the disclosure and address 
issuers' concerns about providing the disclosure in their Exchange Act 
annual reports on Forms 10-K, 20-F, or 40-F.\390\ Similar to the 
proposal, Form SD requires issuers to include a brief statement in the 
body of the form in an item entitled, ``Disclosure of Payments By 
Resource Extraction Issuers,'' directing investors to the detailed 
payment information provided in the exhibits to the form.
---------------------------------------------------------------------------

    \389\ Form SD is a new disclosure form to be used for 
specialized disclosure not included within an issuer's periodic or 
current reports. In addition to resource extraction issuer payment 
disclosure, Form SD also will be used to provide the disclosure 
required by the rules implementing Section 1502 of the Dodd-Frank 
Act. The Commission adopted Form SD at the same time as the final 
rules implementing that provision. See Conflict Minerals Adopting 
Release.
    \390\ See notes 366-370 and accompanying text. As noted, under 
the proposed rules, a resource extraction issuer would have been 
required to furnish the payment information in its annual report on 
Form 10-K, Form 20-F, or Form 40-F. As such, investment companies 
that are registered under the Investment Company Act of 1940 
(``registered investment companies'') would not have been subject to 
the disclosure requirement because those companies are not required 
to file Form 10-K, Form 20-F, or Form 40-F. Our decision to require 
this disclosure in a new form is not intended to change the scope of 
companies subject to the disclosure requirement. Therefore, 
consistent with the proposal, registered investment companies that 
are required to file reports on Form N-CSR or Form N-SAR pursuant to 
Rule 30d-1 under the Investment Company Act (17 CFR 270.30d-1) will 
not be subject to the final rules.
---------------------------------------------------------------------------

    We considered commentators' suggestions about requiring the 
disclosure in a Form 8-K or Form 6-K,\391\ and we determined not to 
require the disclosure in those forms because we continue to believe, 
and agree with commentators that noted, the resource extraction payment 
disclosure differs from the disclosure required by those forms.\392\ In 
this regard, we note that Section 13(q) requires us to issue final 
rules requiring the disclosure in an annual report rather than 
requiring the disclosure to be provided on a more rapid basis, such as 
disclosure of material corporate events that are required to be filed 
on a current basis on Form 8-K.\393\ In addition, we are persuaded by 
the comments asserting that it would be preferable to use a different 
form rather than to extend the deadline for the disclosure to be filed 
and require an amendment to Form 10-K, Form 20-F, or Form 40-F, which 
might suggest a change or correction had been made to a previous 
filing,\394\ and therefore we are not adopting that approach. We also 
believe that requiring the disclosure in a new form, rather than in 
issuers' Exchange Act annual reports, should alleviate some 
commentators' concerns about the disclosure being subject to the 
officer certifications required by Rules 13a-14 and 15d-14 under the 
Exchange Act \395\ and will allow us to adjust the timing of the 
submission.
---------------------------------------------------------------------------

    \391\ See note 371 and accompanying text.
    \392\ See, e.g., letter from Calvert.
    \393\ A Form 8-K report is required to be filed or furnished 
within four business days after the occurrence of one or more of the 
events required to be disclosed on the Form, unless the Form 
specifies a different deadline, e.g., for disclosures submitted to 
satisfy obligations under Regulation FD (17 CFR 243.100 et seq. See 
General Instruction B.1 of Form 8-K (17 CFR 249.308).
    \394\ See note 379 and accompanying text.
    \395\ See note 369.
---------------------------------------------------------------------------

    While Section 13(q) mandates that a resource extraction issuer 
include the payment disclosure required by that section in an annual 
report, it does not specifically mandate the time period in which a 
resource extraction issuer must provide the disclosure. Although two 
commentators believed that the reporting period for the resource 
extraction disclosure should be the calendar year, other commentators 
suggested that the fiscal year should be the reporting period for Form 
SD.\396\ We believe that the fiscal year is the more appropriate 
reporting period for the payment disclosure because, to the extent that 
resource extraction issuers are able to use part of the tracking and 
reporting systems that issuers already have established for their 
public reports

[[Page 56391]]

to track and report payments under Section 13(q), their compliance 
costs should be reduced.
---------------------------------------------------------------------------

    \396\ Compare note 376 with note 377.
---------------------------------------------------------------------------

    After considering the comments expressing concern about the 
difficulty of providing the payment disclosure within the current 
annual reporting cycle,\397\ we believe it is reasonable to provide a 
filing deadline for Form SD that is later than the deadline for an 
issuer's Exchange Act annual report. Therefore, consistent with some 
commentators' suggestions regarding timing,\398\ the final rules 
require resource extraction issuers to file Form SD on EDGAR no later 
than 150 days after the end of the issuer's most recent fiscal year.
---------------------------------------------------------------------------

    \397\ See note 367 and accompanying text.
    \398\ See notes 375-377 and accompanying text.
---------------------------------------------------------------------------

    We are not persuaded by commentators that the statute allows 
resource extraction issuers to submit, or that it mandates resource 
extraction issuers submit, the payment information confidentially to us 
and have the Commission make public only a compilation of the 
information.\399\ We believe that Section 13(q) contemplates that 
resource extraction issuers will provide the disclosure publicly. 
Section 13(q) refers to ``disclosure'' and specifies that the final 
rules require an issuer to include the information ``in an annual 
report.'' Our existing disclosure requirements under the Exchange Act 
require companies to publicly file annual, quarterly, and current 
reports; the requirements generally do not provide for non-public 
reports.\400\ We do not believe that Congress intended for a different 
approach with respect to the information required under Section 13(q). 
In this regard, we note that the disclosure required under Section 
13(q)(2) must be submitted in an interactive data format, which 
suggests that Congress intended for the information to be available for 
public analysis. Requiring resource extraction issuers to provide the 
payment information in interactive data format will enable users of the 
information to extract the information that is of the most interest to 
them and to compile and compare it in any manner they find useful. We 
also note that the provision regarding the public compilation does not 
require the Commission to publish a compilation; rather, it states that 
the Commission shall make a public compilation of the information 
available online ``to the extent practicable.'' \401\ Further, Section 
13(q)(3)(B) states that ``[n]othing in [Section 13(q)(3)] shall require 
the Commission to make available online information other than the 
information required to be submitted [under the provision requiring the 
Commission to issue rules to require resource extraction issuers to 
provide payment disclosure].'' We believe these provisions, when read 
together and with the statute's transparency goal, mean that the 
statutory intent is for the disclosure made by resource extraction 
issuers to be publicly available, and under the final rules, the 
disclosure will be available on Form SD on EDGAR. We note that, in this 
regard, the EITI approach is fundamentally different from Section 
13(q). Under the EITI, companies and the host country's government 
generally each submit payment information confidentially to an 
independent administrator selected by the country's multi-stakeholder 
group, frequently an independent auditor, who reconciles the 
information provided by the companies and the government, and then the 
administrator produces a report.\402\ In addition, it is not clear that 
having the information submitted confidentially to the Commission would 
necessarily address commentators' concerns about confidentiality 
because the information may well be subject to disclosure under the 
Freedom of Information Act.\403\
---------------------------------------------------------------------------

    \399\ See note 381 and accompanying text.
    \400\ We note that in certain limited instances, an issuer may 
request confidential treatment regarding information that otherwise 
would be required to be disclosed, such as commercial information 
obtained from a person and that is privileged or confidential. See, 
e.g., Exchange Act Rule 24b-2 (17 CFR 240.24b-2). For example, an 
issuer may be permitted to omit certain information from an exhibit 
filed with an Exchange Act report if that information is commercial 
and disclosure would likely result in substantial competitive harm. 
The Commission's staff is of the view that issuers generally are not 
permitted to omit information that is required by an applicable 
disclosure requirement. See Division of Corporation Finance Staff 
Legal Bulletins Nos. 1 (February 28, 1997) and 1A (July 11, 2001, as 
amended), available at http://www.sec.gov/interps/legal/slbcf1r.htm.
    \401\ Specifically, Section 13(q)(3)(A) provides that ``[t]o the 
extent practicable, the Commission shall make available online, to 
the public, a compilation of the information required to be 
submitted under the rules issued under paragraph (2)(A).''
    \402\ See EITI Source Book, at 23 (``It will be necessary to 
appoint an administrator to collect and evaluate the revenue data 
provided by companies and government. It is essential that there is 
stakeholder trust in the administrator's impartiality and 
competency. The administrator may be a private audit firm, an 
individual or an existing or specially created official body that is 
universally regarded as independent of, and immune to influence by, 
the government.'')
    \403\ 5 U.S.C. 552.
---------------------------------------------------------------------------

2. Exhibits and Interactive Data Format Requirements
a. Proposed Rules
    The proposed rules would have required a resource extraction issuer 
to submit the payment disclosure on an unaudited, cash basis. The 
disclosure would have been required to be presented in two exhibits to 
a Form 10-K, Form 20-F, or Form 40-F, as appropriate. One exhibit would 
be in HTML or ASCII format, which would have enabled investors to 
easily read the disclosure about payments without additional computer 
programs or software. The other exhibit would be in XBRL format, which 
would have satisfied the requirement in Section 13(q) that the payment 
information be submitted in an interactive data format. Consistent with 
the statute, the proposed rules would have required an 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:
     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.

In addition, a resource extraction issuer would have been 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 the 
XBRL format.
    As noted above, 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.\404\ The statute does not specify the content, form or 
frequency of the compilation. We solicited comment on the compilation 
without proposing any specific requirements for it.
---------------------------------------------------------------------------

    \404\ See Section 13(q)(3)(A). The information required under 
Section 13(q)(2)(A) 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.
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Numerous commentators supported the proposed submission of the 
payment information on an unaudited, cash

[[Page 56392]]

basis.\405\ After noting that Section 13(q) neither requires the 
payment information to be audited nor provided on an accrual basis, 
those commentators stated that such a requirement would significantly 
increase issuers' implementation and ongoing reporting costs without 
providing a benefit to investors. One commentator further noted that 
``auditors would have to develop specific additional procedures to be 
able to provide assurance regarding the completeness and accuracy of 
the information provided.'' \406\
---------------------------------------------------------------------------

    \405\ See letters from API 1, Anadarko Petroleum Corporation 
(March 2, 2011) (``Anadarko''), AngloGold, BP 1, Chevron, Ernst & 
Young (January 31, 2011) (``E&Y''), ExxonMobil 1, NMA 2, NYSBA 
Committee, Petrobras, PWC, and RDS 1.
    \406\ Letter from E&Y.
---------------------------------------------------------------------------

    Other commentators, however, suggested requiring the payment 
information to be audited, presented on both a cash and accrual basis, 
and filed as part of the issuer's audited financial statements.\407\ 
One of the commentators stated that an audit requirement would enhance 
investor protection and be consistent with the EITI because one of the 
basic criteria of EITI implementation is that the reported payment data 
be audited.\408\ Another commentator similarly believed that requiring 
the payment information to be audited and submitted on a cash basis 
would improve comparability with EITI-related data, which it noted is 
subject to audit and reported on a cash basis. That commentator further 
suggested that the payment information also be reported on an accrual 
basis to accommodate the needs of all potential users of the data.\409\
---------------------------------------------------------------------------

    \407\ See letters from PWYP 1 and RWI 1. Another commentator 
supported a requirement to submit the payment information solely on 
an accrual basis because that would be consistent with financial 
reporting requirements. See letter from Talisman.
    \408\ See letter from RWI 1.
    \409\ See letter from PWYP 1.
---------------------------------------------------------------------------

    Several commentators supported the proposed requirement to use XBRL 
to tag the payment disclosure because XBRL is currently used by many 
registrants when filing their financial statements in their Exchange 
Act annual reports.\410\ Some commentators further supported a 
requirement to prepare the payment disclosure in either ASCII or HTML 
in addition to XBRL.\411\ Those commentators noted that the requirement 
would provide the Commission with the ability to extract, analyze, and 
accumulate XBRL information while also providing investors and others 
the ability to view directly the information. Several commentators 
requested that the Commission delay implementation of the tagging 
requirement until an appropriate XBRL taxonomy for the payment 
information is available.\412\
---------------------------------------------------------------------------

    \410\ See letters from API 1, Anadarko, AngloGold, BP 1, 
CalPERS, ExxonMobil 1, PWYP 1, and RDS 1.
    \411\ See letters from API 1, ExxonMobil 1, and PWYP 1.
    \412\ See letters from API 1, AngloGold, and ExxonMobil 1.
---------------------------------------------------------------------------

    Other commentators suggested permitting an issuer to choose between 
XBRL, XML, or some other format that would enable the electronic 
tagging of all of the information specified in Section 13(q).\413\ 
According to those commentators, such a flexible approach would 
recognize that some issuers may prefer to use XBRL because that 
standard is already being implemented, while others may prefer to use 
XML or some other format because it is less expensive than XBRL and 
more consistent with a cash-based report.\414\ One of the commentators 
noted that ``XBRL conversion of data can be time consuming and result 
in delay'' and requested that the rules permit an issuer to ``use any 
format that would allow users to click through the information in a 
standard file type to reach data sorted by each of the electronic tags 
specified in the Act.'' \415\ One commentator opposed a requirement to 
provide the payment information in XBRL format.\416\ The commentator 
stated that the Commission has limited the implementation of XBRL to 
only financial statements and stated there was not ``any justifiable 
reason for a departure from this stated scope.'' \417\
---------------------------------------------------------------------------

    \413\ See letters from Barrick Gold and NMA 2.
    \414\ See letters from Barrick Gold and NMA 2.
    \415\ Letter from Barrick Gold.
    \416\ See letter from PetroChina.
    \417\ Letter from PetroChina.
---------------------------------------------------------------------------

    Some commentators expressed views about specific electronic tags. 
For example, commentators suggested various approaches regarding the 
requirement to electronically tag information about the currency used 
to make the payments. Some commentators opposed having to present 
payment information in dual currencies--in the local currency in which 
the payments were made and, if different, in the issuer's reporting 
currency--and further opposed having to electronically tag the dual 
currency presentations.\418\ Those commentators stated that an issuer 
should only have to present and electronically tag payment information 
in its reporting currency, which is typically the U.S. dollar.\419\ 
Other commentators opposed a requirement to reconcile payments made in 
the host country's currency to an issuer's reporting currency or U.S. 
dollars.\420\ Those commentators either supported a requirement to 
present payments in the currency in which they were made \421\ or to 
permit issuers to choose between presenting payments in either the 
local currency or its reporting currency as long as the issuer 
discloses the methodology for translation and exchange rates used.\422\ 
Commentators noted that the EITI does not require currency conversion 
and urged the Commission to maintain flexibility in the final rules so 
that issuers can produce the required information in as efficient a 
manner as possible, in light of their reporting systems and any local 
requirements.\423\ One commentator asserted that requiring disclosure 
of the host country currency and the reporting currency could unduly 
complicate the disclosure.\424\
---------------------------------------------------------------------------

    \418\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1.
    \419\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1. One 
commentator supported requiring only the use of U.S. dollars, 
regardless of the issuer's reporting currency. See letter from RDS 
1.
    \420\ See letters from Cleary, NMA 2, and Rio Tinto; see also 
letter from PWYP 1.
    \421\ See, e.g., letters from NMA 2 and PWYP 1.
    \422\ See letter from Rio Tinto.
    \423\ See letters from Cleary and NMA 2.
    \424\ See letter from NMA 2.
---------------------------------------------------------------------------

    Commentators also provided views on the proposed requirement to 
identify the business segment that made the payments. Some commentators 
suggested defining ``business segment'':
     According to how an issuer operates its business; \425\
---------------------------------------------------------------------------

    \425\ See letter from NMA 2.
---------------------------------------------------------------------------

     In a manner that is consistent with the definition used 
for financial reporting purposes; \426\ or
---------------------------------------------------------------------------

    \426\ See letters from Cleary and NYSBA Committee.
---------------------------------------------------------------------------

     As a subsidiary if the parent company is making payments 
on behalf of the subsidiary.\427\
---------------------------------------------------------------------------

    \427\ See letter from PWYP 1.
---------------------------------------------------------------------------

    Some commentators opposed requiring an issuer to electronically tag 
the information to identify the business segment that made the payments 
on a basis other than as defined under GAAP. According to those 
commentators, a ``definition that differs from GAAP would require 
companies to gather information in a manner that is not consistent with 
how the business is structured or how its accounting systems are 
designed.'' \428\ One commentator stated that the business segment 
disclosure should be consistent with the Commission's reserve 
disclosures, which are associated with upstream operations.\429\
---------------------------------------------------------------------------

    \428\ Letters from API 1 and ExxonMobil 1.
    \429\ See letter from RDS 1.
---------------------------------------------------------------------------

    Several commentators opposed requiring an issuer to electronically 
tag

[[Page 56393]]

each payment according to the project in which it relates because there 
are some types of payments that are made at the entity level or relate 
to numerous projects.\430\ Those commentators urged us to permit an 
issuer to identify the government receiving the payments rather than 
requiring allocation of payments to a particular project in a 
potentially arbitrary manner.\431\ Another commentator stated that an 
issuer should be allowed to omit the project tag for payments, such as 
taxes and dividends, which are levied at the entity level, as long as 
it provides all other required tags.\432\
---------------------------------------------------------------------------

    \430\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2, 
and RDS 1.
    \431\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2, 
and RDS 1.
    \432\ See letter from PWYP 1.
---------------------------------------------------------------------------

    As noted in Section II.F.1 above, some commentators were of the 
view that Section 13(q) only requires a compilation of resource 
extraction issuers' payment information, and not the annual reports 
containing the issuers' payment disclosures, to be made public, and 
suggested the compilation could present the payment disclosure only on 
an aggregated per country or similarly high-level basis.\433\ Other 
commentators, however, strongly disagreed with that view and stated 
that the plain language of Section 13(q) clearly reveals Congress' 
intent to require the disclosure to investors of disaggregated payment 
information through the inclusion of that information in an issuer's 
annual report.\434\ Towards that end, one commentator recommended that 
the compilation take the form of an online database and that a summary 
report be provided annually.\435\
---------------------------------------------------------------------------

    \433\ See letters from API 1, Anadarko, Chamber Energy 
Institute, Chevron, ExxonMobil 1, Nexen, and RDS 1.
    \434\ See letters from Calvert, PWYP 1, RWI 1, and Sen. Cardin 
et al. 1.
    \435\ See letter from PWYP 1.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting the requirement regarding the presentation of the 
mandated payment information substantially as proposed, except that a 
resource extraction issuer will be required to present the mandated 
payment information in only one exhibit to new Form SD instead of two 
exhibits, as proposed. Under the rule as proposed, an issuer would have 
been required to file one exhibit in HTML or ASCII and another exhibit 
in the XBRL interactive data format. In proposing the requirement, we 
noted our belief that requiring two exhibits would provide the 
information in an easily-readable format in addition to the 
electronically tagged data that would be readable through a viewer. 
After further consideration, we have decided to require only one 
exhibit formatted in XBRL because we believe that we can achieve the 
goal of the dual presentation with only one exhibit. Issuers will 
submit the information on EDGAR in XBRL format, thus enabling users of 
the information to extract the XBRL data, and at the same time the 
information will be presented in an easily-readable format by rendering 
the information received by the issuers.\436\ We believe that requiring 
the information to be provided in this way may reduce the compliance 
burden for issuers.
---------------------------------------------------------------------------

    \436\ Users of this information should be able to render the 
information by using software available free of charge on our Web 
site.
---------------------------------------------------------------------------

    Similar to the proposal, a resource extraction issuer also must 
include a brief statement in Item 2.01 of Form SD directing investors 
to the detailed information about payments provided in the exhibit. By 
requiring resource extraction issuers to provide the payment 
information in an exhibit, rather than in the form itself, anyone 
accessing EDGAR will be able to determine quickly whether an issuer 
filed a Form SD to satisfy the requirements of Section 13(q) and the 
related rules.
    As noted above, Section 13(q) requires the submission of certain 
information in interactive data format.\437\ Under the final rules, 
consistent with the proposal and tracking the statutory language, a 
resource extraction issuer must submit the payment information in XBRL 
using electronic tags that identify, for any payment required to be 
disclosed:
---------------------------------------------------------------------------

    \437\ 15 U.S.C. 78m(q)(2)(C) and 15 U.S.C. 78m(q)(2)(D)(ii).
---------------------------------------------------------------------------

     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.\438\
---------------------------------------------------------------------------

    \438\ See Item 2.01(a) of Form SD.

In addition, a resource extraction issuer must 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. 
In determining to require the use of XBRL as the interactive data 
format, we note that a majority of the commentators that addressed the 
issue supported the use of XBRL.\439\ While some commentators suggested 
allowing a flexible approach to use an interactive data format of their 
preference,\440\ we believe doing so may reduce the comparability of 
the information and may make it more difficult for interested parties 
to track payments made to a particular government or project; thus, we 
are not adopting such an approach.
---------------------------------------------------------------------------

    \439\ See note 410 and accompanying text.
    \440\ See note 413 and accompanying text.
---------------------------------------------------------------------------

    As mentioned above, several commentators requested that we delay 
implementation of the tagging requirement until an appropriate XBRL 
taxonomy for the payment information is available.\441\ We note that 
the staff is currently working to develop the taxonomy for the payment 
information, and we anticipate that the taxonomy will soon be published 
for comment. As such, and in light of the implementation period for the 
payment disclosure,\442\ we do not believe it is necessary to provide a 
delay for the interactive data tagging requirement.
---------------------------------------------------------------------------

    \441\ See letters from API 1, AngloGold, and ExxonMobil 1.
    \442\ See Section II.G.3. below.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules require a resource 
extraction issuer to include an electronic tag that identifies the 
currency used to make the payments. As previously noted, the statute 
requires a resource extraction issuer to present the type and total 
amount of payments made for each project and to each government, 
without specifying how the issuer should report the total amounts. 
Although some commentators suggested requiring the reporting of 
payments only in the currency in which they were made,\443\ we believe 
that the statutory requirements to provide a tag identifying the 
currency used to make the payment and the requirement to provide the 
total amount of payments by payment type for each project and to each 
government constrain us to require that issuers perform some currency 
conversion to the extent necessary.
---------------------------------------------------------------------------

    \443\ See note 421 and accompanying text.
---------------------------------------------------------------------------

    As noted in an instruction to Form SD, issuers will be required to 
report the amount of payments made for each payment type, and the total 
amount of payments made for each project and to each government in 
either U.S. dollars or the issuer's reporting currency.\444\

[[Page 56394]]

Thus, in order to provide total amounts, issuers that make payments in 
other currencies will have to convert those payments into either U.S. 
dollars or the issuer's reporting currency. We understand issuers' 
concerns regarding the compliance costs relating to making payments in 
multiple currencies and being required to report the information in 
another currency.\445\ To address these concerns, the final rules 
permit an issuer to choose between disclosing payments in either U.S. 
dollars or its reporting currency. In addition, an issuer may choose to 
calculate the currency conversion between the currency in which the 
payment was made and U.S. dollars or the issuer's reporting currency, 
as applicable, in one of three ways: (1) By translating the expenses at 
the exchange rate existing at the time the payment is made; (2) using a 
weighted average of the exchange rates during the period; or (3) based 
on the exchange rate as of the issuer's fiscal year end.\446\ A 
resource extraction issuer must disclose the method used to calculate 
the currency conversion.\447\
---------------------------------------------------------------------------

    \444\ See Instruction 3 to Item 2.01 of Form SD. Currently, 
foreign private issuers may present their financial statements in a 
currency other than U.S. dollars for purposes of Securities Act 
registration and Exchange Act registration and reporting. See Rule 
3-20 of Regulation S-X (17 CFR 210.3-20).
    \445\ See, e.g., letters from API 1, BP 1, ExxonMobil 1, NMA 2, 
and RDS 1. We note that the EITI recommends that oil and natural gas 
participants report in U.S. dollars, as the quoted market price is 
in U.S. dollars. It also recommends that mining companies be 
permitted to use the local currency because most benefit streams for 
those companies are paid in the local currency. The EITI also 
suggests that companies may decide to report in both U.S. dollars 
and the local currency. See the EITI Source Book, at 30.
    \446\ See Instruction 3 to Item 2.01 of Form SD.
    \447\ See id.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the proposal, the final rules do 
not require the resource extraction payment information to be audited 
or provided on an accrual basis. We note that, in this regard, the EITI 
approach is fundamentally different from Section 13(q). Under the EITI, 
companies and the host country's government generally each submit 
payment information confidentially to an independent administrator 
selected by the country's multi-stakeholder group, frequently an 
independent auditor, who reconciles the information provided by the 
companies and the government, and then the administrator produces a 
report.\448\ In contrast, Section 13(q) requires us to issue final 
rules for disclosure of payments by resource extraction issuers; it 
does not contemplate that an administrator will audit and reconcile the 
information, or produce a report as a result of the audit and 
reconciliation. In addition, we recognize the concerns raised by some 
commentators that an auditing requirement for the payment information 
would significantly increase implementation and ongoing reporting 
costs. We believe that not requiring the payment information to be 
audited or provided on an accrual basis is consistent with Section 
13(q) because the statute refers to ``payments'' and does not require 
the information to be included in the financial statements.\449\ In 
addition, not requiring the information to be audited or provided on an 
accrual basis may result in lower compliance costs than otherwise would 
be the case if resource extraction issuers were required to provide 
audited information.
---------------------------------------------------------------------------

    \448\ See EITI Source Book, at 23 (``It will be necessary to 
appoint an administrator to collect and evaluate the revenue data 
provided by companies and government. It is essential that there is 
stakeholder trust in the administrator's impartiality and 
competency. The administrator may be a private audit firm, an 
individual or an existing or specially created official body that is 
universally regarded as independent of, and immune to influence by, 
the government.'').
    \449\ See note 405 and accompanying text.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules require a resource 
extraction issuer to include an electronic tag that identifies the 
business segment of the resource extraction issuer that made the 
payments. As suggested by commentators,\450\ we are defining ``business 
segment'' to mean a business segment consistent with the reportable 
segments used by the resource extraction issuer for purposes of 
financial reporting.\451\ We believe that defining ``business segment'' 
in this way will enable issuers to report the information according to 
how they currently report their business operations, which should help 
to reduce compliance costs.
---------------------------------------------------------------------------

    \450\ See note 426 and accompanying text.
    \451\ See Item 2.01(c)(4) of Form SD. The term ``reportable 
segment'' is defined in FASB ASC Topic 280, Segment Reporting, and 
IFRS 8, Operating Segments.
---------------------------------------------------------------------------

    We note that some of the electronic tags, such as those pertaining 
to category, currency, country, and financial period will have fixed 
definitions and will enable interested persons to evaluate and compare 
the payment information across companies and governments. Other tags, 
such as those pertaining to business segment, government, and project, 
will be customizable to allow issuers to enter information specific to 
their business. To the extent that payments, such as corporate income 
taxes and dividends, are made for obligations levied at the entity 
level, issuers may omit certain tags that may be inapplicable (e.g., 
project tag, business segment tag) for those payment types as long as 
they provide all other electronic tags, including the tag identifying 
the recipient government.\452\
---------------------------------------------------------------------------

    \452\ See note 432 and accompanying text.
---------------------------------------------------------------------------

    As discussed in greater detail above, we agree with those 
commentators who stated that the public compilation was not intended to 
be a substitute for the payment disclosure required of resource 
extraction issuers under Section 13(q),\453\ and we have not yet 
determined the content, form, or frequency of any such 
compilation.\454\ We note that users of the information will be able to 
compile the information in a manner that is most useful to them by 
using the electronically-tagged data filed by resource extraction 
issuers.
---------------------------------------------------------------------------

    \453\ See note 434 and accompanying text.
    \454\ In this regard, we note that members of Congress, 
including one of the sponsors of the provision, submitted a comment 
letter stating ``Section 1504 requires companies to report the 
information in an interactive format so that the information is 
readily usable by investors and the public--the basic intent of the 
section. Section 1504 also suggests that if practicable, the SEC can 
make a compilation of all the data available to investors and the 
public for ease of use. This compilation would be in addition to the 
public availability of the original company data and in no way is 
expected to replace the public availability of that data.'' See 
letter from Sen. Cardin et al. 1.
---------------------------------------------------------------------------

3. Treatment for Purposes of Securities Act and Exchange Act
a. Proposed Rules
    As noted in the proposal, 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[.]'' \455\ As proposed, the 
rules would have required the disclosure of payment information to be 
``furnished'' rather than ``filed'' and not 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.
---------------------------------------------------------------------------

    \455\ 15 U.S.C. 78m(q)(2)(A).
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Numerous commentators stated their belief that the payment 
disclosure should be furnished rather than filed and, therefore, not 
subject to Exchange Act Section 18 liability.\456\ Such commentators 
expressed the view that the nature and purpose of the Section 13(q) 
disclosure requirements is not primarily for the protection of 
investors but, rather, to increase the accountability of governments 
for the proceeds they receive from their natural resources and, thus, 
to support the commitment of the Federal Government

[[Page 56395]]

to international transparency promotion efforts relating to the 
commercial development of oil, natural gas, or minerals.\457\ One 
commentator stated that ``requiring [the disclosure to be filed] could 
indirectly increase the costs of Securities Act disclosures that 
incorporate the filing by reference (raising underwriting, auditing, 
and perhaps even credit rating costs).'' \458\ Two commentators 
requested that if the final rules require an issuer to include the 
disclosure in an existing Exchange Act annual report, the rules should 
not extend the officer certifications required by Exchange Act Rules 
13a-14, 13a-15, 15d-14, and 15d-15 to that disclosure.\459\
---------------------------------------------------------------------------

    \456\ See letters from API 1, AngloGold, Barrick Gold, BP 1, 
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, PetroChina, PWC, and 
RDS 1.
    \457\ See, e.g., letters from API 1 and AngloGold.
    \458\ See letter from NMA 2.
    \459\ See letters from Cleary and NYSBA Committee.
---------------------------------------------------------------------------

    Numerous other commentators disagreed with the proposal and urged 
the Commission to require the payment disclosures to be filed rather 
than furnished and subject to Section 18 liability.\460\ Several 
commentators believed that the plain language of the statute requires 
filing of the disclosure.\461\ Commentators also asserted that one of 
the goals of Section 13(q) is to enhance investor protection from risks 
inherent in the extractive industries, and therefore the nature and 
purpose of Section 13(q) is not qualitatively different than other 
disclosure that has historically been required under Section 13.\462\ 
According to those commentators, the best way to enhance investor 
protection would be to require that resource extraction payment 
disclosures be filed rather than furnished; otherwise, investor 
confidence in the accuracy of the disclosures would be undermined.\463\ 
Some commentators stated that requiring the disclosure to be furnished 
rather than filed would deprive investors of causes of action in the 
event that the disclosure is false or misleading.\464\
---------------------------------------------------------------------------

    \460\ See letters from Bon Secours, Calvert, CRS, Earthworks, 
EIWG, ERI, ERI 2, Global Financial 2, Global Witness 1, Greenpeace, 
HII, HURFOM 1, HURFOM 2, Newground, ONE, Oxfam 1, PGGM, PWYP 1, RWI 
1, Sanborn, Sen. Cardin et al. 1, Sen. Cardin et al. 2, Sen. Levin 
1, Soros 1, TIAA, USAID, USW, and WRI.
    \461\ See letters from Calvert, Global Witness 1, PWYP 1, and 
Sen. Cardin et al. 1.
    \462\ See, e.g., letters from Global Witness 1, PWYP 1, Sen. 
Cardin et al. 1, and Sen. Levin 1; see also letter from Sen. Cardin 
et al. 2.
    \463\ See, e.g., letters from Global Witness 1, PWYP 1, and Sen. 
Levin 1.
    \464\ See letters from Global Witness 1, Oxfam 1, PWYP 1, Sen. 
Cardin et al. 1, and Sen. Levin 1; see also letter from Sen. Cardin 
et al. 2.
---------------------------------------------------------------------------

    In addition, several commentators opposed extending the disclosure 
requirements to registration statements under the Securities Act.\465\ 
In opposing such an extension of the requirements, one commentator 
stated that ``the purpose of these disclosures is not to inform 
investors * * * so there is no logical reason for such inclusion. Also, 
inclusion would raise nettlesome concerns relating to liability, and 
directors' and underwriters' due diligence obligations, for no good 
reason.'' \466\ Other commentators, however, believed that the 
Commission should require the inclusion of the payment information in 
Securities Act registration statements.\467\
---------------------------------------------------------------------------

    \465\ See letters from API 1, AngloGold, Cleary, ExxonMobil 1, 
NMA 2, NYBSA Committee, RDS 1 and Statoil.
    \466\ Letter from NYSBA Committee.
    \467\ See letters from Calvert, Earthworks, and PWYP 1.
---------------------------------------------------------------------------

c. Final Rules
    Although the proposed rules would have required the payment 
information to be furnished, after considering the comments, the final 
rules we are adopting require resource extraction issuers to file the 
payment information on new Form SD. As discussed above, commentators 
disagreed as to whether the required information should be furnished or 
filed,\468\ and Section 13(q) does not state how the information should 
be submitted. In reaching our conclusion that the information should be 
``filed'' instead of ``furnished'' we note that the statute defines 
``resource extraction issuer'' in part to mean an issuer that is 
required to file an annual report with the Commission,\469\ which, as 
commentators have noted, suggests that the annual report that includes 
the required payment information should be filed.\470\ Additionally, 
many commentators believed that investors would benefit from the 
payment information being ``filed'' and subject to Exchange Act Section 
18 liability.\471\ Some commentators asserted that allowing the 
information to be furnished would diminish the importance of the 
information.\472\ Some commentators believed that requiring the 
information to be filed would enhance the quality of the 
disclosure.\473\ In addition, some commentators argued that the 
information required by Section 13(q) differs from the information that 
the Commission permits issuers to furnish and that the information is 
qualitatively similar to disclosures that are required to be filed 
under Exchange Act Section 13.\474\
---------------------------------------------------------------------------

    \468\ Compare letters from API 1, AngloGold, Barrick Gold, BP 1, 
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, PetroChina, PWC, and 
RDS 1 (supporting a requirement to furnish the disclosure) with 
letters from Bon Secours, Calvert, Earthworks, EIWG, ERI, ERI 2, 
Global Financial 2, Global Witness 1, HII, HURFOM 1, HURFOM 2, 
Newground, ONE, Oxfam 1, PGGM, PWYP 1, RWI 1, Sanborn, Sen. Cardin 
et al. 1, Sen. Cardin et al. 2, Sen. Levin 1, Soros 1, TIAA, USAID, 
USW, and WRI (supporting a requirement to file the disclosure).
    \469\ 15 U.S.C. 78m(q)(1)(D)(i).
    \470\ See letters from Global Witness 1, PWYP 1, and Sen. Cardin 
et al.
    \472\ See letters from Calvert and Global Witness 1.
    \473\ See letters from HURFOM, Global Witness 1, and PWYP 1.
    \474\ See letters from ERI 1, HII, Oxfam 1, PGGM, PWYP 1, Sen. 
Cardin et al. 1, and Soros 1.
---------------------------------------------------------------------------

    Other commentators supporting the proposal that the disclosure be 
furnished argued that the information is not material to 
investors.\475\ We note, however, other commentators, including 
investors, argued that the information is material.\476\ Given the 
disagreement, and that materiality is a fact specific inquiry, we are 
not persuaded that this is a reason to provide that the information 
should be furnished. Additionally, while we appreciate the comments 
that the payment information should be furnished and not subject to 
Section 18 liability, we note that Section 18 does not create strict 
liability for filed information. Rather, it states that a person shall 
not be liable for misleading statements in a filed document if it can 
establish that it acted in good faith and had no knowledge that the 
statement was false or misleading.\477\ As noted

[[Page 56396]]

above, because the disclosure is in a new form, rather than in issuers' 
Exchange Act annual reports, the filed disclosure is not subject to the 
officer certifications required by Rules 13a-14 and 15d-14 under the 
Exchange Act.
---------------------------------------------------------------------------

    \475\ See letters from API 1, ExxonMobil 1, and RDS 1; see also 
letter from AngloGold.
    \476\ See letters from Calvert, ERI 1, Soros 1, Global Financial 
Integrity (January 28, 2011) (``Global Financial Integrity 1''), 
Global Witness 1, HII, Oxfam, Sanborn, PGGM, PWYP 1, Sen. Cardin et 
al. 1, and TIAA.
    \477\ Exchange Act Section 18(a) provides: ``Any person who 
shall make or cause to be made any statement in any application, 
report, or document filed pursuant to this title or any rule or 
regulation thereunder or any undertaking contained in a registration 
statement as provided in subsection (d) of section 15 of this title, 
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. A person seeking to enforce such liability may sue at 
law or in equity in any court of competent jurisdiction. In any such 
suit the court may, in its discretion, require an undertaking for 
the payment of the costs of such suit, and assess reasonable costs, 
including reasonable attorneys' fees, against either party 
litigant.'' A plaintiff asserting a claim under Section 18 would 
need to meet the elements of the statute to establish a claim, 
including reliance and damages. In addition, we note that issuers 
that fail to comply with the final rules could also be violating 
Exchange Act Sections 13(a) and (q) and 15(d), as applicable. 
Issuers also would be subject to potential liability under Exchange 
Act Section 10(b) [15 U.S.C. 78j] and Rule 10b-5 [17 CFR 240.10b-5], 
promulgated thereunder, for any false or misleading material 
statements in the information disclosed pursuant to the rule.
---------------------------------------------------------------------------

    We also note a commentator stated that filing the disclosure would 
require auditors to consider whether the resource extraction payment 
disclosures are materially inconsistent with the financial statements 
thereby increasing the cost.\478\ We note however, that unlike the 
proposal, the disclosure will not be required in the Form 10-K but 
instead will be required in new Form SD, which does not include audited 
financial statements, and therefore will not be subject to this 
potential increased cost.
---------------------------------------------------------------------------

    \478\ See letter from PWC.
---------------------------------------------------------------------------

G. Effective Date

1. Proposed Rules
    In the Proposing Release, we requested comment on whether we should 
provide a delayed effective date for the final rules and whether doing 
so would be consistent with the statute.
2. Comments on the Proposed Rules
    Some commentators believed that the final rules should be effective 
for fiscal years ending on or after April 15, 2012, without 
exception.\479\ One of those commentators believed that providing 
exceptions would go against the principle of equal treatment of 
issuers.\480\ Another commentator stated that implementation of the 
final rules should not be delayed because ``companies have known of the 
possibility of disclosure regulations for many years.'' \481\
---------------------------------------------------------------------------

    \479\ See letters from Earthworks and PWYP 1. A third 
commentator urged the Commission to follow the statutory effective 
date because of the current consideration by the EC of extractive 
industry disclosure rules in the EU, which could follow the U.S. 
standard. See letter from PWYP U.K.
    \480\ See letter from PWYP 1.
    \481\ See letter from Earthworks.
---------------------------------------------------------------------------

    Other commentators suggested delaying the effective date of the 
final rules because compliance with the final rules would necessitate 
significant changes to resource planning systems.\482\ Commentators 
maintained that we have the flexibility to delay the effective date 
because Section 13(q) states that the disclosure must be provided not 
earlier than for the fiscal year ending one year after issuance of the 
final rules.\483\ Some commentators stated that an effective date for 
2012 is feasible only if the scope of the required disclosure is 
limited.\484\ These commentators suggested further delaying the 
effective date if the final rules include, among other things, an audit 
requirement, downstream activities, a granular definition of project 
(e.g., a definition that precludes disclosure at the country or entity 
level), preparation of disclosures on a cash basis, or required 
reporting in multiple currencies.\485\ Some commentators urged the 
delay of the effective date due to the need to implement new accounting 
standards.\486\ Commentators suggested that we require compliance with 
the rule for 2013, 2014, or 2015.\487\
---------------------------------------------------------------------------

    \482\ See letters from API 1, ExxonMobil 1, Chevron, and RDS 1.
    \483\ See letters from Cleary and NMA 2.
    \484\ See letters from API 1, Chevron, ExxonMobil 1, and NMA 2.
    \485\ See letters from API 1, Chevron, ExxonMobil 1, and NMA 2.
    \486\ See letters from Nexen, PetroChina, PWC, and RDS 1.
    \487\ See letters from Barrick Gold (fiscal year 2013), 
PetroChina (fiscal years ending on or after December 31, 2015); PwC 
(annual periods beginning after December 31, 2012).
---------------------------------------------------------------------------

    Some commentators believed that all resource extraction issuers 
should be subject to the same effective date.\488\ One commentator 
suggested a phase-in approach requiring large accelerated filers to 
provide the disclosure for fiscal years ending on or after July 1, 2012 
and for all others to provide the disclosure for fiscal years ending on 
or after July 1, 2013.\489\ The commentator believed that a phase-in 
approach would reduce costs for smaller issuers because it would enable 
those issuers to observe how larger issuers comply with the new 
rules.\490\ Another commentator stated that a phase-in would be 
appropriate for smaller reporting companies.\491\
---------------------------------------------------------------------------

    \488\ See letters from API 1, Chevron, ExxonMobil 1, and RDS 1.
    \489\ See letter from AngloGold.
    \490\ See id.
    \491\ See letter from Cleary.
---------------------------------------------------------------------------

3. Final Rules
    Under the final rules, a resource extraction issuer will be 
required to comply with new Rule 13q-1 and Form SD for fiscal years 
ending after September 30, 2013. The final rules will require a 
resource extraction issuer to file with the Commission for the first 
time an annual report that discloses the payments it made to 
governments for the purpose of the commercial development of oil, 
natural gas, or minerals. Based on the comments we received, we 
understand that resource extraction issuers will need time to undertake 
significant changes to their reporting systems and processes to gather 
and report the payment information. Even for those issuers that provide 
some payment disclosure voluntarily or as part of an EITI program, 
compliance with the final rules will likely require changes in their 
reporting systems.\492\ In light of this, we believe it is appropriate 
to provide all issuers with a reasonable amount of time to make such 
changes and to allow a transition period for reporting. Therefore, the 
final rules provide that for the first report filed for fiscal years 
ending after September 30, 2013, a resource extraction issuer may 
provide a partial year report if the issuer's fiscal year began before 
September 30, 2013. The issuer will be required to provide a report for 
the period beginning October 1, 2013 through the end of its fiscal 
year. For example, a resource extraction issuer with a December 31, 
2013 fiscal year end will be required to file a report disclosing 
payments made from October 1, 2013-December 31, 2013. For any fiscal 
year beginning on or after September 30, 2013, a resource extraction 
issuer will be required to file a report disclosing payments for the 
full fiscal year.
---------------------------------------------------------------------------

    \492\ For example, issuers reporting under EITI programs that 
require material information to be reported at the country level 
will likely need to further develop their systems to gather and 
report information at the project level and meeting the ``not de 
minimis'' threshold.
---------------------------------------------------------------------------

    We believe that requiring compliance with the final rules for 
fiscal years ending after September 30, 2013 and providing a transition 
period in which partial year reports are permitted will provide time 
for issuers to effect the changes in their reporting systems necessary 
to gather and report the payment information required by the final 
rules.\493\ We recognize that adoption of this compliance date and 
transition period means that most companies will provide partial year 
reports for the first report required under the rules. We believe this 
result is required, however, to enable issuers to make the changes to 
their reporting systems necessary to achieve full compliance with the 
final rules.
---------------------------------------------------------------------------

    \493\ In this regard, we note changes required to internal 
tracking and reporting systems will likely be specific to the 
particular company and therefore we believe it is unlikely that 
smaller issuers would benefit from a phase-in that would allow them 
to observe how larger issuers comply with the new rules.
---------------------------------------------------------------------------

    If any provision of these rules, or the application thereof to any 
person or circumstance, is held to be invalid, such invalidity shall 
not affect other provisions or application of such provisions to other 
persons or circumstances that can be given effect without the invalid 
provision or

[[Page 56397]]

application. Moreover, if any portion of Form SD not related to 
resource extraction disclosure is held invalid, such invalidity shall 
not affect the use of the form for purposes of disclosure pursuant to 
Section 13(q).

III. Economic Analysis

A. Introduction

    As discussed in detail above, we are adopting the new rules and 
amendment to Form SD discussed in this release to implement Section 
13(q), which was added to the Exchange Act by Section 1504 of the Act. 
The new rules and revised form will require a resource extraction 
issuer to disclose in an annual report filed with the Commission on 
Form SD certain information relating to payments made by the issuer, a 
subsidiary of the issuer, or an entity under the control of the issuer 
to a foreign government or the U.S. Federal Government for the purpose 
of the commercial development of oil, natural gas, or minerals. The 
information will 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 
payments made to each government. We expect that the final rules will 
affect in substantially the same way both U.S. companies and foreign 
companies that meet the 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.
    Since Congress adopted Section 13(q) in July 2010, we have sought 
comment on our implementation of the provision and provided 
opportunities for commentators to provide input. Members of the public 
interested in making their views known were invited to submit comment 
letters in advance of when the official comment period for the proposed 
rules opened, and the public had the opportunity to submit comment on 
the proposal during the comment period. In addition, in response to the 
suggestion by some commentators that we extend the comment period to 
allow the public additional time to thoroughly consider the matters 
addressed in the Proposing Release and to submit comprehensive 
responses, we extended the comment period for an additional 30 days 
\494\ and have continued to receive comment letters after the extended 
deadline, all of which we have considered. We believe interested 
parties have had ample opportunity to review the proposed rules, as 
well as the comment letters, and to provide views on the proposal, 
other comment letters, and data to inform our consideration of the 
final rules. Accordingly, we do not believe that a re-proposal is 
necessary.
---------------------------------------------------------------------------

    \494\ See Exchange Act Release No. 34-67395 (January 28, 2011), 
76 FR 6111 (February 3, 2011), available at http://www.sec.gov/rules/proposed/2011/34-63795.pdf. This robust, public input has 
allowed us to more fully consider how to develop the final rules.
---------------------------------------------------------------------------

    The Proposing Release cited some pre-proposal letters we received 
from commentators indicating the potential impact of the proposed rules 
on competition and capital formation. In addition to requesting comment 
throughout the Proposing Release on the proposals and on potential 
alternatives to the proposals, the Commission also solicited comment in 
the Proposing Release on whether the proposals, if adopted, would 
promote efficiency, competition, or capital formation, or have an 
impact or burden on competition. We also requested comment on the 
potential effect on efficiency, competition, or capital formation 
should the Commission not adopt certain exceptions or accommodations. 
As discussed throughout this release, we received many comments 
addressing the potential economic and competitive impact of the 
proposed rules. Indeed, many commentators provided multiple comment 
letters to support, expand upon, or contest views expressed by other 
commentators.\495\
---------------------------------------------------------------------------

    \495\ See, e.g., letters from API 1, API 2, API 3, American 
Petroleum Institute (February 13, 2012), ExxonMobil 1, ExxonMobil 2, 
ExxonMobil 3, Global Witness 1, Global Witness 2, Global Witness 3, 
PWYP 1, PWYP 2, PWYP 3, PWYP 4, PWYP 5, ERI 1, ERI 2, ERI 3, ERI 4, 
Oxfam 1, Oxfam 2, RELUFA 1, RELUFA 2, RELUFA 3, RWI 1, RWI 2, RDS 1, 
RDS 2, RDS 3, RDS 4, Sen. Cardin et al. 1, Sen. Cardin et al. 2, 
Sen. Levin 1, Sen. Levin 2, Soros 1, and Soros 2. One commentator 
urged us to re-propose the rules in order to give the public an 
additional opportunity to comment on and inform the Commission's 
assessment of the economic impact of the proposed rules. See letter 
from API 3. As described above, we believe interested parties have 
had ample opportunity to review the proposed rules, as well as the 
comment letters, and to provide views and data to inform our 
consideration of the economic effects of the final rules.
---------------------------------------------------------------------------

    Section 13(q) of the Exchange Act requires us to issue rules to 
implement the disclosure requirement for certain payments made by 
resource extraction issuers to the Federal Government and foreign 
governments. Congress intended that the rules issued pursuant to 
Section 13(q) would increase the accountability of governments to their 
citizens in resource-rich countries for the wealth generated by those 
resources.\496\ This type of social benefit differs from the investor 
protection benefits that our rules typically strive to achieve. We 
understand that the statute is seeking to achieve this benefit by 
mandating a new disclosure requirement under the Exchange Act that 
requires resource extraction issuers to identify and report payments 
they make to governments and that supports international transparency 
promotion efforts relating to the commercial development of oil, 
natural gas, or minerals.\497\ In addition, some commentators stated 
that the information disclosed pursuant to Section 13(q) would benefit 
investors, by among other things, helping investors model project cash 
flows and assess political risk, acquisition costs, and management 
effectiveness.\498\ Moreover, investors and other market participants, 
as well as civil society in countries that are resource-rich, may 
benefit from any increased economic and political stability and 
improved investment climate that transparency promotes. Commentators 
and the sponsors of Section 13(q) also have noted that the United 
States has an interest in promoting accountability, stability, and good 
governance.\499\
---------------------------------------------------------------------------

    \496\ See note 7 and accompanying text.
    \497\ See note 8 and accompanying text.
    \498\ See, e.g., letters from Calvert, CALPERS, and Soros 1.
    \499\ See, e.g., letter from Sen. Cardin (February 28, 2012) 
(includes a transcript of testimony from Secretary of State Hilary 
Rodham Clinton before the Senate Foreign Relations Committee). See 
also statement from Senator Cardin regarding the provision (``* * * 
Transparency helps create more stable governments, which in turn 
allows U.S. companies to operate more freely--and on a level playing 
field--in markets that are otherwise too risky or unstable.''), 156 
Cong. Rec. S5870 (daily ed. Jul. 15, 2010) (statement of Sen. 
Cardin); and Senator Lugar regarding the provision (``* * * 
Transparency empowers citizens, investors, regulators, and other 
watchdogs and is a necessary ingredient of good governance for 
countries and companies alike * * *. Transparency also will benefit 
Americans at home. Improved governance of extractive industries will 
improve investment climates for our companies abroad, it will 
increase the reliability of commodity supplies upon which businesses 
and people in the United States rely, and it will promote greater 
energy security.'' 156 Cong. Rec. S3816 (daily ed. May 17, 2010) 
(statement of Sen. Lugar)).
---------------------------------------------------------------------------

    We are sensitive to the costs and benefits of the final rules, and 
Exchange Act Section 23(a)(2) requires us, when adopting rules, to 
consider the impact that any new rule would have on competition. In 
addition, Section 3(f) of the Exchange Act 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. We have 
considered the costs and benefits

[[Page 56398]]

imposed by the rule and form amendments we are adopting, as well as 
their effects on efficiency, competition, and capital formation. Many 
of the economic effects of the rules stem from the statutory mandate, 
while others are affected by the discretion we exercise in implementing 
the Congressional mandates. The discussion below addresses the costs 
and benefits resulting from both the statute and our exercise of 
discretion, and the comments we received about these matters. In 
addition, as discussed elsewhere in this release, we recognize that the 
rules will impose a burden on competition, but we believe that any such 
burden that may result is necessary in furtherance of the purposes of 
Exchange Act Section 13(q).
    After analyzing the comments and taking into account additional 
data and information, we believe it is likely that the total initial 
cost of compliance for all issuers is approximately $1 billion and the 
ongoing cost of compliance is between $200 million and $400 million. We 
reach these estimates by considering carefully all comments we received 
on potential costs. We relied particularly on those comment letters 
that provided quantification and were transparent about their 
methodologies. As discussed in more detail below, after thoroughly 
considering each comment letter, we determined that it was appropriate 
to modify and/or expand upon some of the submitted estimates and 
methodologies to reflect data and information submitted by other 
commentators, as well as our own judgment, experience, and expertise. 
Our considered estimate of the total costs thus reflects these 
synthesized data and analyses. We consider the full range of these 
costs in the following sections, although where it is possible to 
discuss separately the costs and benefits related to our discretionary 
choices in the rules, we attempt to do so.\500\
---------------------------------------------------------------------------

    \500\ As discussed above, our discretionary choices are informed 
by the statutory mandate and thus, discussion of the benefits and 
costs of those choices will necessarily involve the benefits and 
costs of the underlying statute.
---------------------------------------------------------------------------

    Given the specific language of the statute and our understanding of 
Congress' objectives, we believe it is appropriate for the final rules 
generally to track the statutory provision. Our discretionary authority 
to implement Section 13(q) is limited, and we are committed to 
executing the Congressional mandate. Throughout this release, and in 
the following economic analysis, we discuss the benefits and costs 
arising from both the new reporting requirement mandated by Congress 
and from those choices in which we have exercised our discretion. 
Sections III.B. and III.C. below provide a narrative discussion of the 
costs and benefits of resulting from the mandatory reporting 
requirement and our exercise of discretion, respectively. In Section 
III.D. below, based on commentators' estimates and our estimates, we 
provide a quantitative discussion of the costs associated with the 
final rules as adopted.\501\
---------------------------------------------------------------------------

    \501\ As noted below, Congress' goal of enhanced accountability 
through Section 13(q) is an intended social benefit that cannot be 
readily quantified with any precision, and therefore, our 
quantitative analysis focuses on the costs.
---------------------------------------------------------------------------

B. Benefits and Costs Resulting From the Mandatory Reporting 
Requirement

1. Benefits
    As noted above, Congress intended that the rules issued pursuant to 
Section 13(q) would increase the accountability of governments to their 
citizens in resource-rich countries for the wealth generated by those 
resources.\502\ In addition, commentators and the sponsors of Section 
13(q) also have noted that the United States has an interest in 
promoting accountability, stability, and good governance.\503\ 
Congress' goal of enhanced government accountability through Section 
13(q) may result in social benefits that cannot be readily quantified 
with any precision.\504\ We also note that while the objectives of 
Section 13(q) do not appear to be ones that will necessarily generate 
measurable, direct economic benefits to investors or issuers, investors 
have stated that the disclosures required by Section 13(q) have value 
to investors and can ``materially and substantially improve investment 
decision making.'' \505\
---------------------------------------------------------------------------

    \502\ See note 7 and accompanying text.
    \503\ See note 499 and accompanying text.
    \504\ These benefits could ultimately be quite significant given 
the per capita income of the potentially affected countries.
    \505\ Calvert (March 1, 2011). See note 498 and accompanying 
text.
---------------------------------------------------------------------------

    Many commentators stated that they support the concept of 
increasing transparency of resource extraction payments.\506\ While 
commentators stated that a benefit of increasing transparency is 
increased government accountability, some commentators also noted that 
the new disclosure requirements would help investors assess the risks 
faced by resource extraction issuers operating in resource-rich 
countries.\507\ To the extent that investors want information about 
payments to assess these risks, the rules may result in increased 
investment by those investors and thus may increase capital formation.
---------------------------------------------------------------------------

    \506\ See, e.g., letters from API 1, Calvert, Chamber Energy 
Institute, ExxonMobil 1, Global Witness 1, Oxfam 1, Petrobras, PWYP 
1, RDS 1, and Statoil.
    \507\ See, e.g., letters from Calvert, ERI 2, Global Witness 1, 
and Oxfam 1.
---------------------------------------------------------------------------

    Several commentators noted that the statutory requirement to 
provide project-level disclosure significantly enhances the benefits of 
the mandatory reporting required under Section 13(q).\508\ One 
commentator stated that the benefits to civil society of project-level 
reporting are significantly greater than those of country-level 
reporting.\509\ This commentator stated that project-level data will 
enable civil society groups, representing local communities, to know 
how much their governments earn from the resources that are removed 
from their respective territories and empower them to advocate for a 
fairer share of revenues, double-check government-published budget 
data, and better calibrate their expectations from the extractive 
companies.\510\ This commentator further stated that project-level 
reporting will enable both local government officials and civil society 
groups to monitor the revenue that flows back to the regions from the 
central government and ensure that they receive what is promised--a 
benefit that would be unavailable if revenue streams were not 
differentiated below the country level.\511\ Another commentator noted 
that project-level reporting would shine greater light on dealings 
between resource extraction issuers and governments, thereby providing 
companies with ``political cover to sidestep government requests to 
engage in potentially unethical activities.'' \512\
---------------------------------------------------------------------------

    \508\ See, e.g., letters from Global Witness 1, Oxfam 1, PWYP 1, 
RWI 1, and Syena.
    \509\ See letter from ERI 1; see also letter from Gates 
Foundation.
    \510\ See letter from ERI 1; see also letter from Gates 
Foundation (stating that it is important to seek disclosure below 
the country level, that project-level disclosure will give both 
citizens and investors valuable information, and that defining 
``project'' as a geologic basin or province would be of limited use 
to both citizens and investors).
    \511\ See letter from ERI 1.
    \512\ See letter from EG Justice.
---------------------------------------------------------------------------

    One commentator noted the benefits to investors of project-level 
reporting.\513\ One benefit cited by this commentator is that project-
level reporting will enable investors to better understand the risk 
profiles of individual projects within a given country, which may vary 
greatly depending on a number of factors such as regional unrest, 
personal interest by powerful government figures, degree of community 
oppression, and environmental sensitivity.\514\ This commentator 
indicated that project-level disclosures will enable investors to

[[Page 56399]]

better understand these risks, whereas country-level reporting would 
allow companies to mask particularly salient projects by aggregating 
payments with those from less risky projects.\515\ The commentator 
noted that unusually high signing bonus payments for a particular 
project may be a proxy for political influence, whereas unusually low 
tax or royalty payments may signal that a project is located in a zone 
vulnerable to attacks or community unrest.\516\ A further benefit of 
project-level disclosures is that it would assist investors in 
calculations of cost curves that determine whether and for how long a 
project may remain economical, using a model that takes into account 
political, social, and regulatory risks.\517\
---------------------------------------------------------------------------

    \513\ See letter from ERI 2.
    \514\ See id.
    \515\ See id.
    \516\ See id.
    \517\ See letter from Calvert Asset Management Company and SIF 
(November 15, 2010) (pre-proposal letter).
---------------------------------------------------------------------------

    There also may be a benefit to investors given the view expressed 
by some commentators that new disclosure requirements would help 
investors assess the risks faced by resource extraction issuers 
operating in resource-rich countries. To the extent that the required 
disclosure will help investors in pricing the securities of the issuers 
subject to the requirement mandated by Section 13(q), the rules could 
improve informational efficiency. One commentator indicated that 
project-level disclosures will promote capital formation by reducing 
information asymmetry and providing more security and certainty to 
investors as to extractive companies' levels of risk exposure.\518\ One 
commentator was of the view that improved transparency regarding 
company payments of royalties, taxes, and production entitlements on a 
country level would provide institutional investors, such as the 
commentator, with the necessary information to assess a company's 
relative exposure to country-specific risks including political and 
regulatory risks, and would contribute to good governance by host 
governments.\519\ Similarly, another commentator was of the view that 
in countries where governance is weak, the resulting corruption, 
bribery, and conflict could negatively affect the sustainability of a 
company's operations, so Section 13(q) would benefit companies' 
operations and investors' ability to more effectively make investment 
decisions.\520\ One commentator anticipated benefits of lower capital 
costs and risk premiums as a result of improved stability stemming from 
the statutory requirements and lessened degree of uncertainty promoted 
by greater transparency.\521\ This same commentator believed that the 
disclosure standardization imposed through Section 13(q) would be of 
particular benefit to long-term investors by providing a model for data 
disclosure as well as help to address some of the key challenges faced 
by EITI implementation.\522\ Another commentator maintained that 
transparency of payments is a better indicator of risk for extractive 
companies than the bond markets and is also a better indicator of 
financial performance.\523\
---------------------------------------------------------------------------

    \518\ See letter from ERI 2.
    \519\ See letter from PGGM. This commentator also noted that the 
disclosure required by Section 13(q) would provide in-country 
activists with information to hold their governments accountable.
    \520\ See letter from CalPERS.
    \521\ See letter from Hermes.
    \522\ See letter from Hermes.
    \523\ See letter from Vale Columbia Center (December 16, 2011).
---------------------------------------------------------------------------

2. Costs
    Many commentators stated that the reporting regime mandated by 
Section 13(q) would impose significant compliance costs on issuers. 
Several commentators addressed Paperwork Reduction Act (``PRA'')-
related costs specifically,\524\ while others discussed the costs and 
burdens to issuers generally as well as costs that could have an effect 
on the PRA analysis.\525\ As discussed further in Section III.D. below, 
in response to comments we received, we have provided our estimate of 
both initial and ongoing compliance costs. In addition, also in 
response to comments, we have made several changes to our PRA estimates 
that are designed to better reflect the burdens associated with the new 
collections of information.
---------------------------------------------------------------------------

    \524\ See letters from API 1, API 2, Barrick Gold, ERI 2, 
ExxonMobil 1, ExxonMobil (October 25, 2011) (``ExxonMobil 3''), NMA 
2, Rio Tinto, RDS 1, and RDS 4.
    \525\ See, e.g., letters from BP 1, Chamber Energy Institute, 
Chevron, Cleary, Hermes, and PWYP 1.
---------------------------------------------------------------------------

    Some commentators disagreed with our industry-wide estimate of the 
total annual increase in the collection of information burden and 
argued that it underestimated the actual costs that would be associated 
with the rules.\526\ Some commentators stated that, depending upon the 
final rules adopted, the compliance burdens and costs caused by 
implementation and ongoing compliance with the rules would be 
significantly greater than those estimated by the Commission.\527\ 
Significantly, however, in general these commentators did not provide 
any quantitative analysis to support their estimates.\528\
---------------------------------------------------------------------------

    \526\ See letters from API 1 and ExxonMobil 1.
    \527\ See letters from API 1, API 2, API 3, Barrick Gold, 
ExxonMobil 1, NMA 2, Rio Tinto, and RDS 1.
    \528\ See letters from API 1 and ExxonMobil 1. ExxonMobil 1 does 
provide estimated implementation costs of $50 million if the 
definition of ``project'' is narrow and the level of disaggregation 
is high across other reporting parameters. This estimate is used in 
our analysis of the expected implementation costs.
---------------------------------------------------------------------------

    Some commentators noted that modifications to issuers' core 
enterprise resource planning systems and financial reporting systems 
will be necessary to capture and report payment data at the project 
level, for each type of payment, government payee, and currency of 
payment.\529\ Commentators provided examples of such modifications 
including establishing additional granularity to existing coding 
structures (e.g., splitting accounts that contain both government and 
non-government payment amounts), developing a mechanism to 
appropriately capture data by ``project,'' building new collection 
tools within financial reporting systems, establishing a trading 
partner structure to identify and provide granularity around government 
entities, establishing transaction types to accommodate types of 
payment (e.g., royalties, taxes, bonuses, etc.), and developing a 
systematic approach to handle ``in-kind'' payments.\530\ These 
commentators estimated that the resulting initial implementation costs 
would be in the tens of millions of dollars for large issuers and 
millions of dollars for many small issuers.\531\ Two commentators also 
estimated that total industry costs for initial implementation of the 
final rules could amount to hundreds of millions of dollars.\532\
---------------------------------------------------------------------------

    \529\ See letters from API 1 and ExxonMobil 1. See also letter 
from RDS 1.
    \530\ See letters from API 1 and ExxonMobil 1.
    \531\ See letters from API 1, ExxonMobil 1, and RDS 1. These 
commentators did not describe how they defined small and large 
issuers.
    \532\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    These commentators also noted, however, that these costs could be 
increased significantly depending on the scope of the final rules.\533\ 
For example, commentators suggested that these cost estimates could be 
greater depending on the how the final rules define ``project,'' and 
whether the final rules require reporting of non-consolidated entities, 
require ``net'' and accrual reporting, or include an audit 
requirement.\534\ Another commentator

[[Page 56400]]

estimated that the initial set up time and costs associated with the 
rules implementing Section 13(q) would require 500 hours to effect 
changes to its internal books and records, and $100,000 in IT 
consulting, training, and travel costs.\535\ One commentator 
representing the mining industry estimated that start-up costs, 
including the burden of establishing new reporting and accounting 
systems, training local personnel on tracking and reporting, and 
developing guidance to ensure consistency across reporting units, would 
be at least 500 hours for a mid-to-large sized multinational 
company.\536\
---------------------------------------------------------------------------

    \533\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \534\ See letters from API 1, ExxonMobil 1, and RDS 1. As 
previously discussed, the final rules do not require the payment 
information to be audited or reported on an accrual basis, so 
commentators' concerns about possible costs associated with these 
items should be alleviated. See Section II.F.2.c. above.
    \535\ See letter from Barrick Gold.
    \536\ See letter from NMA 2.
---------------------------------------------------------------------------

    Two commentators stated that arriving at a reliable estimate for 
the ongoing annual costs of complying with the rules would be difficult 
because the rules were not yet fully defined, but suggested that a 
``more realistic'' estimate than the estimate included in the Proposing 
Release is hundreds of hours per year for each large issuer with many 
foreign locations.\537\ Commentators also indicated that costs related 
to external professional services would be significantly higher than 
the Commission's estimate, resulting primarily from XBRL tagging and 
higher printing costs, although these commentators noted that it is not 
possible to estimate these costs until the final rules are fully 
defined.\538\
---------------------------------------------------------------------------

    \537\ See letters from API 1 and ExxonMobil 1 (each noting that 
estimates would increase if the final rules contain an audit 
requirement, or if the final rules are such that issuers are not 
able to automate material parts of the collection and reporting 
process).
    \538\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    One commentator estimated that ongoing compliance with the rules 
implementing Section 13(q) would require 100-200 hours of work at the 
head office, an additional 100-200 hours of work providing support to 
its business units, and 40-80 hours of work each year by each of its 
120 business units, resulting in a total of approximately 4,800-9,600 
hours and costs approximating between $2,000,000 to $4,000,000.\539\ 
One commentator, a large multinational issuer, estimated an additional 
500 hours each year, including time spent to review each payment to 
determine if it is covered by the reporting requirements and ensure it 
is coded to the appropriate ledger accounts.\540\ Another commentator 
representing the mining industry estimated that the annual burden for a 
company with a hundred projects or reporting units, the burden could 
``easily reach nearly'' 10 times the estimate set out in the Proposing 
Release.\541\ This commentator noted that its estimate takes into 
account the task of collecting, cross-checking, and analyzing extensive 
and detailed data from multiple jurisdictions around the world, as well 
as the potential for protracted time investments (a) seeking 
information from certain non-consolidated entities that would be 
considered ``controlled'' by the issuer, (b) attempting to secure 
exceptions from foreign confidentiality restrictions, (c) obtaining 
compliance advice on the application of undefined terms such as ``not 
de minimis'' and ``project'' and implementing new systems based upon 
those definitions, (d) responding to auditor comments or queries 
concerning the disclosure, which, although not in the financial 
statements would, under the proposed rules, be a furnished exhibit to 
Form 10-K or equivalent report for foreign issuers, and (e) any 
necessary review of Section 13(q) disclosures in connection with 
periodic certifications under the Sarbanes-Oxley Act.\542\ This 
commentator also noted that the estimate in the Proposing Release did 
not adequately capture the burden to an international company with 
multiple operations where a wide range of personnel will need to be 
involved in capturing and reviewing the data for the required 
disclosures as well as for electronically tagging the information in 
XBRL format.\543\ A number of commentators submitted subsequent letters 
reiterating and emphasizing the potential of the proposed rules to 
impose substantial costs.\544\
---------------------------------------------------------------------------

    \539\ See letter from Rio Tinto. These estimates exclude initial 
set-up time required to design and implement the reporting process 
and develop policies to ensure consistency among business units. 
They also assume that an audit is not required.
    \540\ See letter from Barrick Gold.
    \541\ See letter from NMA 2. The estimate provided in the 
Proposing Release was for the PRA analysis.
    \542\ See letter from NMA 2.
    \543\ See letter from NMA 2.
    \544\ See letters from API 2, ExxonMobil 3, and RDS 4.
---------------------------------------------------------------------------

    Other commentators believed that concerns over compliance costs 
have been overstated.\545\ One commentator stated that most issuers 
already have internal systems in place for recording payments that 
would be required to be disclosed under Section 13(q) and that many 
issuers currently are subject to reporting requirements at a project 
level.\546\ Another commentator anticipated that while the rules will 
likely result in additional costs to resource extraction issuers, such 
costs would be marginal in scale because in the commentator's 
experience many issuers already have extensive systems in place to 
handle their current reporting requirements, and any adjustments needed 
as a result of Section 13(q) could be done in a timely and cost-
effective manner.\547\ Another commentator believed that issuers could 
adapt their current systems in a cost-effective manner because issuers 
should be able to adapt a practice undertaken in one operating 
environment to those in other countries without substantial changes to 
the existing systems and processes of an efficiently-run 
enterprise.\548\
---------------------------------------------------------------------------

    \545\ See letters from ERI 2, Oxfam 1, PWYP 1, and RWI 1.
    \546\ See letter from RWI 1. This commentator stated that 
issuers already have internal systems in place for reporting 
requirements at the project level ``as [RWI] believe[s] that term 
should be defined'' and provides examples (e.g., Indonesia requires 
reporting at the production sharing agreement level; companies in 
the U.S. report royalties by lease).
    \547\ See letter from Hermes.
    \548\ See letter from RWI 1.
---------------------------------------------------------------------------

    Another commentator stated that, in addition to issuers already 
collecting the majority of information required to be made public under 
Section 13(q) for internal record-keeping and audits, U.S. issuers 
already report such information to tax authorities at the lease and 
license level.\549\ This commentator added that efficiently-run 
companies should not have to make extensive changes to their existing 
systems and processes to export practices undertaken in one operating 
environment to another.\550\
---------------------------------------------------------------------------

    \549\ See letter from PWYP 1.
    \550\ See letter from PWYP 1 (citing statement made by Calvert 
Investments at a June 2010 IASB-sponsored roundtable).
---------------------------------------------------------------------------

    One commentator, while not providing competing estimates, 
questioned the accuracy of the assertions relating to costs from 
industry participants.\551\ This commentator cited the following 
factors which led it to question the cost assertions from industry 
participants: (i) Some issuers already report project-level payments in 
certain countries in one form or another and under a variety of 
regimes; (ii) some EITI countries are already moving toward project-
level disclosure; and (iii) it is unclear whether issuers can save much 
time or money by reporting government payments at the material project 
or country level.\552\ This commentator also explained that issuers 
must keep records of their subsidiaries' payments to governments as 
part of the books and records provisions of the

[[Page 56401]]

Foreign Corrupt Practices Act, so the primary costs of reporting these 
payments will be in the presentation of the data rather than any need 
to institute new tracking systems.\553\ This commentator indicated that 
to the extent that issuers may need to implement new accounting and 
reporting systems to keep track of government payments, then issuers 
presumably will need to develop mechanisms for receiving and 
attributing information on individual payments regardless of the form 
the final rules take.\554\ The commentator also observed that the 
proposed rules simply would require companies to provide the payment 
information in its raw form, rather than requiring them to process it 
and disclose only those payments from projects they deem to be 
``material,'' which could result in savings to issuers of time and 
money by allowing them to submit data without having to go through a 
sifting process.\555\ This commentator observed that none of the 
commentators who submitted cost estimates attempted to quantify the 
savings that would ``supposedly accrue'' if disclosure were limited to 
``material'' projects, as compared to disclosure of all projects, and 
noted that the Commission was not required to accept commentators' bare 
assertions that their ``marginal costs would be reduced very 
significantly.'' \556\
---------------------------------------------------------------------------

    \551\ See letter from ERI 2.
    \552\ See id.
    \553\ See id.
    \554\ See id.
    \555\ See id.
    \556\ See id.
---------------------------------------------------------------------------

    One commentator disagreed that issuers already report the payment 
information required by Section 13(q) for tax purposes.\557\ According 
to that commentator, ``[t]his is a simplistic view, and the problem is 
that tax payments for a specific year are not necessarily based on the 
actual accounting results for that year.'' \558\ This commentator also 
noted that tax reporting and payment periods may differ.\559\
---------------------------------------------------------------------------

    \557\ See letter from Rio Tinto.
    \558\ See id.
    \559\ See id.
---------------------------------------------------------------------------

    Some commentators suggested that the statutory language of Section 
13(q) gives the Commission discretion to hold individual company data 
in confidence and to use that data to prepare a public report 
consisting of aggregated payment information by country.\560\ Other 
commentators strongly disagreed with the interpretation that Section 
13(q) could be read not to require the public disclosure of the payment 
information submitted in annual reports and that the Commission may 
choose to make public only a compilation of the information.\561\ The 
commentators suggesting the Commission make public only a compilation 
of information submitted confidentially by resource extraction issuers 
argued such an approach would address many of their concerns regarding 
disclosure of commercially sensitive or legally prohibited information 
and would significantly mitigate the costs of the mandatory disclosure 
under Section 13(q). As noted above, we have not taken this approach in 
the final rules because we believe Section 13(q) requires resource 
extraction issuers to provide the payment disclosure publicly and does 
not contemplate confidential submissions of the required information. 
As a result, the final rules require public disclosure of the 
information. We note that in situations involving more than one 
payment, the information will be aggregated by payment type, 
government, and/or project, and therefore may limit the ability of 
competitors to use the information to their advantage.
---------------------------------------------------------------------------

    \560\ See note 381 and accompanying text.
    \561\ See letters from Calvert, PWYP 1, RWI 1, Sen. Cardin et 
al. 1, Sen. Cardin et al. 2, and Sen. Levin 1.
---------------------------------------------------------------------------

    To the extent public disclosure of this information could result in 
costs related to competitive concerns, we note that even if we 
permitted issuers to provide the information confidentially to us and 
we were to publish a compilation of the information, interested parties 
might still be able to obtain the information pursuant to the Freedom 
of Information Act (FOIA).\562\ Section 13(q) does not state that it 
provides any special protection from FOIA disclosure for information 
required to be submitted. Thus, the same competitive concerns could 
still exist.
---------------------------------------------------------------------------

    \562\ FOIA requires all federal agencies to make specified 
information available to the public, including the information 
required to be filed publicly under our rules. To the extent that 
the information required to be filed does not fall within one of the 
exemptions in FOIA (e.g., FOIA provides an exemption for ``trade 
secrets and commercial or financial information obtained from a 
person and privileged or confidential''; 5 U.S.C. 552(b)(4)) the 
information required to be filed would not be protected from FOIA 
disclosure.
---------------------------------------------------------------------------

    One commentator expressed concerns with the proposed requirement to 
prepare the payment disclosures on the cash-basis of accounting, and 
noted that because registrants' existing reporting processes and 
accounting systems are based on the accrual method of accounting (and 
require certain payments to be capitalized), the proposal would impose 
a burden on resource extraction issuers' accounting groups to develop 
new information system, processes, and controls.\563\
---------------------------------------------------------------------------

    \563\ See letter from PWC.
---------------------------------------------------------------------------

    Several commentators stated that the Commission should define ``not 
de minimis'' to mean material.\564\ According to those commentators, a 
definition based on materiality would be consistent with the EITI and 
the Commission's longstanding disclosure regime, and would encourage 
consistency of disclosure across issuers.\565\ Although a materiality-
based definition might result in reduced compliance costs for issuers, 
we continue to believe that given the use of the phrase ``not de 
minimis'' in Section 13(q) rather than use of a materiality standard, 
which is used elsewhere in the federal securities laws and in the 
EITI,\566\ ``not de minimis'' does not equate to a materiality 
standard.
---------------------------------------------------------------------------

    \564\ See note 224 and accompanying text.
    \565\ See notes 225 and 226 and accompanying text.
    \566\ See note 251 and accompanying text.
---------------------------------------------------------------------------

    Consistent with Section 13(q), the final rules require resource 
extraction issuers to disclose payments made by a subsidiary or entity 
under the control of the issuer. Some commentators suggested that we 
limit the requirement to disclose only those payments made by an issuer 
and its subsidiaries for which consolidated financial information is 
provided. Although limiting the requirement might result in reduced 
compliance costs for issuers, we do not believe it would be appropriate 
to do so because the statute specifically states that resource 
extraction issuers must disclose payments made by subsidiaries and 
entities under the control of the issuer.
    The final rules clarify that the term ``foreign government'' 
includes foreign subnational governments and define the term to 
explicitly include both 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. Thus, resource extraction issuers will be required 
to provide information about payments made to foreign subnational 
governments. This broad definition may increase disclosure costs 
compared to a less detailed definition, but we believe Section 13(q) 
requires this broader definition, because Section 13(q) defines the 
term ``foreign government'' and requires issuers to include an 
electronic tag identifying the government that received the payments, 
and the country in which the government is located. The statutory 
requirement to provide electronic tags for both the government that 
received the payments and the

[[Page 56402]]

country in which the government is located indicates that the intent of 
the statute is to include foreign subnational governments in the 
definition of ``foreign governments.'' This clarification should 
further the statutory goal of increasing transparency with regard to 
the payments made to foreign governments.
    In addition to direct compliance costs, we expect that the statute 
could result in significant economic effects. Issuers that have a 
reporting obligation under Section 13(q) could be put at a competitive 
disadvantage with respect to private companies and foreign companies 
that are not subject to the reporting requirements of the United States 
federal securities laws and therefore do not have such an obligation. 
For example, such competitive disadvantage could result from, among 
other things, any preference by the government of the host country to 
avoid disclosure of covered payment information, or any ability of 
market participants to use the information disclosed by reporting 
issuers to derive contract terms, reserve data, or other confidential 
information. With respect to the latter concern, the potential anti-
competitive effect of the required disclosures may be tempered because, 
under the statute, only the amount of covered payments needs to be 
disclosed, not the manner in which such payments are determined or 
other contract terms. Some commentators have stated that confidential 
production and reserve data can be derived by competitors or other 
interested persons with industry knowledge by extrapolating from the 
payment information required to be disclosed.\567\ Other commentators 
have argued, however, that such extrapolation is not possible, and that 
information of the type required to be disclosed by Section 13(q) would 
not confer a competitive advantage on industry participants not subject 
to such disclosure requirements.\568\ Any competitive impact of Section 
13(q) should be minimal in those jurisdictions in which payment 
information of the types covered by Section 13(q) is already publicly 
available.\569\ In addition, the competitive impact may be reduced to 
the extent that other jurisdictions, such as the EU, adopt laws to 
require disclosure similar to the disclosure required by Section 13(q) 
and the related rules.\570\ If the requirement to disclose payment 
information does impose a competitive disadvantage on an issuer, such 
issuer possibly may be incented to sell assets affected by such 
competitive disadvantage at a price that does not fully reflect the 
value of such assets, absent such competitive impact.\571\ 
Additionally, resource extraction issuers operating in countries which 
prohibit, or may in the future prohibit, the disclosure required under 
the final rules could bear substantial costs.\572\ Such costs could 
arise because issuers may have to choose between ceasing operations in 
certain countries or breaching local law, or the country's laws may 
have the effect of preventing them from participating in future 
projects. Some commentators asserted that four countries currently have 
such laws,\573\ although other commentators disputed the assertion that 
there are foreign laws that specifically prohibit disclosure of payment 
information.\574\ A foreign private issuer with operations in a country 
that prohibits disclosure of covered payments, or foreign issuer that 
is domiciled in such country, might face different types of costs--it 
might decide it is necessary to delist from an exchange in the United 
States, deregister, and cease reporting with the Commission,\575\ thus 
incurring a higher cost of capital and potentially limited access to 
capital in the future. In addition, it is possible that more countries 
will adopt laws prohibiting the disclosure required by the final rules. 
Shareholders, including U.S. shareholders, might suffer an economic and 
informational loss if an issuer decides it is necessary to deregister 
and cease reporting under the Exchange Act in the United States.
---------------------------------------------------------------------------

    \567\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \568\ See letters from PWYP 1 and Oxfam 1.
    \569\ PWYP provides examples of countries in which payments are 
publicly disclosed on a lease or concession level. See letter from 
PYWP 3.
    \570\ One commentator suggested that if both the US and EU 
implement disclosure requirements regarding payments to governments 
``around 90% of the world's extractive companies will be covered by 
the rules.'' See letter from Arlene McCarthy (August 10, 2012) 
(Arlene McCarthy is a member of the European Parliament and the 
parliamentary draftsperson on the EU transparency rules for the 
extractive sector).
    \571\ For example, a study on divestitures of assets finds that 
companies that undertake voluntary divestitures have positive stock 
price reactions but finds that companies forced to divest assets due 
to action undertaken by the antitrust authorities suffer a decrease 
in shareholder value. See Kenneth J. Boudreaux, ``Divestiture and 
Share Price.'' Journal of Financial and Quantitative Analysis 10 
(September 1975), 619-26. G. Hite and J. Owers. ``Security Price 
Reactions around Corporate Spin-Off Announcements.'' Journal of 
Financial Economics 12 (December 1983), 409-36 (finding that firms 
spinning off assets because of legal/regulatory difficulties 
experience negative stock returns).
    \572\ See notes 52 and 53 and accompanying text.
    \573\ See letters from API 1 and ExxonMobil 1. See also letter 
from RDS 1 (mentioning China, Cameroon, and Qatar).
    \574\ See, e.g., letters from ERI 3, Global Witness 1, PWYP 1, 
PWYP 3, and Rep. Frank et al.
    \575\ See letter from Berns.
---------------------------------------------------------------------------

    Addressing other potential costs, one commentator referred to a 
potential economic loss borne by shareholders, without quantifying such 
loss, which the commentator believed could result from highly 
disaggregated disclosures of competitively sensitive information 
causing competitive harm.\576\ The commentator also noted resource 
extraction issuers could suffer competitive harm because they could be 
excluded from many future projects altogether.\577\ Another commentator 
noted that tens of billions of dollars of capital investments would 
potentially be put at risk if issuers were required to disclose, 
pursuant to our rules, information prohibited by the host country's 
laws or regulations.\578\ One commentator also noted that because 
energy underlies every aspect of the economy, these negative impacts 
have repercussions well beyond resource extraction issuers.\579\
---------------------------------------------------------------------------

    \576\ See letter from API 1.
    \577\ See id.
    \578\ See letter from RDS 4.
    \579\ See letter from API 1.
---------------------------------------------------------------------------

    As discussed above, several commentators suggested that we adopt 
exemptions or modify the disclosure requirements to mitigate the 
adverse impact of the Section 13(q) reporting requirement.\580\ One 
commentator indicated that the final rules should be ``aligned and 
coordinated'' with the process being developed by the DOI to fulfill 
the United States' commitment to implementing the EITI.\581\ We 
considered alternatives to the approach we are adopting in the final 
rules, including providing certain exemptions from the disclosure 
requirements mandated by Section 13(q), but we believe that adopting 
any of the alternatives would be inconsistent with Section 13(q) and 
would undermine Congress' intent to promote international transparency 
efforts. In

[[Page 56403]]

Section 13(q) Congress mandated that we adopt rules with a specific 
scope and features (e.g., ``not de minimis'' threshold, project level 
reporting, and electronic tagging). To faithfully effectuate 
Congressional intent, we do not believe it would be appropriate to 
adopt provisions that would frustrate, or otherwise be inconsistent 
with, such intent. Consequently, we believe the competitive burdens 
arising from the need to make the required disclosures under the final 
rules are necessary by the terms of, and in furtherance of the purposes 
of, Section 13(q).
---------------------------------------------------------------------------

    \580\ See, e.g., notes 50, 60, and 66 and accompanying text.
    \581\ See letter from NMA 3. See also note 14. Referring to 
Executive Orders 13563 and 13610, the commentator suggested that we 
align the final rules with the process being developed by DOI so 
that ``extractive industries are not subject to contradictory or 
overlapping reporting processes.'' As we have described above, the 
final rules are generally consistent with the EITI, except where the 
language of Section 13(q) clearly deviates from the EITI. In these 
instances, the final rules generally track the statute because, on 
these specific points, we believe the statutory language 
demonstrates that Congress intended the final rules to go beyond 
what is required by the EITI. In this regard, we view the reporting 
regime mandated by Section 13(q) as being complementary to, rather 
than duplicative of, host country transparency initiatives 
implemented under the EITI.
---------------------------------------------------------------------------

    A number of factors may serve to mitigate the competitive burdens 
arising from the required disclosure. We note there were differences in 
opinion among commentators as to the applicability of host country 
laws.\582\ Moreover, the widening global influence of the EITI and the 
recent trend of other jurisdictions to promote transparency, including 
listing requirements adopted by the Hong Kong Stock Exchange and 
proposed directive of the European Commission, may discourage 
governments in resource-rich countries from adopting new prohibitions 
on payment disclosure.\583\ Reporting companies concerned that 
disclosure required by Section 13(q) may be prohibited in a given host 
country may also be able to seek authorization from the host country in 
order to disclose such information, reducing the cost to such reporting 
companies resulting from the failure of Section 13(q) to include an 
exemption for conflicts with host country laws.\584\ Commentators did 
not provide estimates of the cost that might be incurred to seek such 
an authorization.
---------------------------------------------------------------------------

    \582\ See note 84.
    \583\ See notes 15 and 48.
    \584\ The Angola Order indicates that the Minister of Petroleum 
may provide formal authorization for the disclosure of information 
regarding a reporting company's activities in Angola. See letter 
from ExxonMobil 2. See also letter from PWYP 2 (``Current corporate 
practice suggests that the Angolan government regularly provides 
this authorization. For instance, Statoil regularly reports payments 
made to the Angolan government.'' (internal citations omitted)). The 
legal opinions submitted by Royal Dutch Shell with its comment 
letter also indicate that disclosure of otherwise restricted 
information may be authorized by government authorities in Cameroon 
and China, respectively. See letter from RDS 2.
---------------------------------------------------------------------------

    Not providing any exemptions should improve the transparency of the 
payment information because users of the Section 13(q) disclosure can 
obtain more information about payments than would otherwise be the case 
if the final rules provided an exemption. To the extent that other 
jurisdictions are developing and planning to adopt similar initiatives 
(e.g., EU), the advantage to foreign companies not listed in the U.S. 
might diminish over time. Further, not providing any exemptions also 
improves the comparability of payment information among resource 
extraction issuers and across countries. As such, it may increase the 
benefit to users of the Section 13(q) disclosure. In addition, in light 
of the absence of an exemption from the disclosure requirement for 
foreign laws that prohibit the payment disclosure, countries may be 
less incentivized to enact laws prohibiting the disclosure.
    Unlike many of the Commission's rulemakings, the compliance costs 
imposed by disclosure requirement mandated by Section 13(q) are 
intended to achieve social benefits. As noted above, the cost of 
compliance for this provision will be borne by the shareholders of the 
company thus potentially diverting capital away from other productive 
opportunities which may result in a loss of allocative efficiency.\585\ 
Such effects may be partially offset if increased transparency of 
resource extraction payments reduces rent-seeking behavior by 
governments of resource-rich countries and leads to improved economic 
development and higher economic growth. A number of economic studies 
have shown that reducing corruption results in higher economic growth 
through more private investments, better deployment of human capital, 
and political stability.\586\
---------------------------------------------------------------------------

    \585\ See letter from Chevron; see also letter from Chairman 
Bachus and Chairman Miller.
    \586\ See Paolo Mauro, ``Corruption and Growth.'' Quarterly 
Journal of Economics. 110, 681-712 (1995); Pak Hung Mo, ``Corruption 
and Economic Growth.'' Journal of Comparative Economics 29, 66-79 
(2001); K. Gyimah-Brempong, ``Corruption, economic growth, and 
income inequality in Africa'', Economics of Governance 3, 183-209 
(2002); K. Blackburn, N. Bose, and E.M. Haque, ``The Incidence and 
Persistence of Corruption in Economic Development'', Journal of 
Economic Dynamics and Control 30, 2447-2467 (2006); Pierre-Guillaume 
M[eacute]on and Khalid Sekkat, ``Does corruption grease or sand the 
wheels of growth?'', Public Choice 122, 69-97 (2005).
---------------------------------------------------------------------------

C. Benefits and Costs Resulting From Commission's Exercise of 
Discretion

    As discussed in detail in Section II, we have revised the rules 
from the Proposing Release to address comments we received while 
remaining faithful to the language and intent of the statute as adopted 
by Congress. In addition to the statutory benefits and costs noted 
above, we believe that the use of our discretion in implementing the 
statutory requirements will result in a number of benefits and costs to 
issuers and users of the payment information. We discuss below the 
choices we made in implementing the statute and the associated benefits 
and costs. We are unable to quantify the impact of each of the 
decisions we discuss below with any precision because reliable, 
empirical evidence regarding the effects is not readily available to 
the Commission. Thus, in this section, our discussion on the costs and 
benefits of our individual discretionary choices is qualitative. In 
Section III.D. below, we present a quantified analysis on the overall 
costs of the final rules that include all aspects of the implementation 
of the statute.
1. Definition of ``Commercial Development of Oil, Natural Gas, or 
Minerals''
    Consistent with the proposal, the final rules define ``commercial 
development of oil, natural gas, or minerals'' to include exploration, 
extraction, processing, and export, or the acquisition of license for 
any such activity. As described above, the final rules we are adopting 
generally track the language in the statute, and except for where the 
language or approach of Section 13(q) clearly deviates from the EITI, 
the final rules are consistent with the EITI. In instances where the 
language or approach of Section 13(q) clearly deviates from the EITI, 
the final rules track the statute rather than the EITI. The definition 
of ``commercial development'' in Section 13(q) sets forth a clear list 
of activities that appears to include activities beyond what is 
currently contemplated by the EITI, and thus, clearly deviates from the 
EITI. Therefore, we believe the definition of the term in the final 
rules should be consistent with Section 13(q). The final rules we are 
adopting do not include additional activities, such as transportation 
or marketing, because those activities are not included in Section 
13(q) and because the EITI does not explicitly include those 
activities. We believe defining the term in this way is consistent with 
Congress' goal of promoting international transparency efforts. To the 
extent that the definition of ``commercial development'' is consistent 
with the activities typically included in EITI programs, the final 
rules may promote consistency and comparability of disclosure made 
pursuant to Section 13(q) and the related rules and EITI programs, 
which may further Congress' goal of supporting international 
transparency promotion efforts. We recognize that limiting the 
definition to this list of specified activities could result in costs 
to users of the payment information to the extent that disclosure about 
additional activities, such as refining, smelting, marketing, or stand-
alone transportation

[[Page 56404]]

services (that is, transportation that is not otherwise related to 
export), would be useful to users of the information.
    As noted above, to promote the goals of the provision, the final 
rules include an anti-evasion provision that requires disclosure with 
respect to an activity or payment that, although not in form or 
characterization one of the categories specified under the final rules, 
is part of a plan or scheme to evade the disclosure required under 
Section 13(q).\587\ Under this provision, a resource extraction issuer 
could not avoid disclosure, for example, by re-characterizing an 
activity that would otherwise be covered under the final rules as 
transportation. We recognize that adding this requirement may increase 
the compliance costs for some issuers; however, we believe this 
provision is appropriate in order to minimize evasion and improve the 
effectiveness of the disclosure, thereby furthering Congress' goal.
---------------------------------------------------------------------------

    \587\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We considered requiring disclosure about additional activities such 
as refining, smelting, marketing, or stand-alone transportation 
services, but determined not to include those activities in the 
definition of ``commercial development'' for the reasons described 
above and because it would unnecessarily increase compliance costs for 
issuers. We also considered adopting a definition of ``commercial 
development'' that omitted one or more of the statutorily-listed 
activities, such as ``export,'' as some commentators had 
suggested.\588\ We decided against that alternative because, although 
it might result in less costs for issuers, the plain language of 
Section 13(q) does not support that approach.
---------------------------------------------------------------------------

    \588\ See, e.g., letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    In response to commentators' request for clarification of the 
activities covered by the final rules, we also are providing guidance 
about the activities covered by the terms ``extraction,'' 
``processing,'' and ``export.'' The guidance should reduce uncertainty 
about the scope of the activities that give rise to disclosure 
obligations under Section 13(q) and the related rules, and therefore 
should facilitate compliance and help to lessen the costs associated 
with the disclosure requirements.
2. Types of Payments
    In the final rules we added two additional categories of payments 
to the list of payment types that must be disclosed--dividends and 
payments for infrastructure improvements. We included these payment 
types in the final rules because, based on the EITI and the comments we 
received on the proposal, we believe they are part of the commonly 
recognized revenue stream.\589\ Defining the term ``payment'' to 
include dividends \590\ and payments for infrastructure improvements 
(e.g., building a road) in the list of payment types required to be 
disclosed under the final rules should promote consistency with EITI 
reporting and improve the effectiveness of the disclosure, thereby 
furthering Congress' goal of supporting international transparency 
promotion efforts. Defining ``payment'' to include dividends and 
payments for infrastructure improvements also could help alleviate 
competitiveness concerns by imposing similar disclosure requirements on 
issuers that make such payments and issuers that make other types of 
payments, such as royalties, production entitlements, or fees, required 
to be disclosed under the final rules.
---------------------------------------------------------------------------

    \589\ See notes 164, 176, and 177 and accompanying text.
    \590\ The final rules generally do not require the disclosure of 
dividends paid to a government as a common or ordinary shareholder 
of the issuer as long as the dividend is paid to the government 
under the same terms as other shareholders. The issuer will be 
required to disclose dividends paid to a government in lieu of 
production entitlements or royalties. See Instruction 7 to Item 2.01 
of Form SD.
---------------------------------------------------------------------------

    As discussed earlier, resource extraction issuers will incur costs 
to provide the payment disclosure for the payment types identified in 
the statute, such as the costs associated with modifications to the 
issuers' core enterprise resource planning systems and financial 
reporting systems to capture and report the payment data at the project 
level, for each type of payment, government payee, and currency of 
payment.\591\ The addition of dividends and payments for infrastructure 
improvements to the list of payment types for which disclosure is 
required may increase some issuers' costs of complying with the final 
rules. For example, issuers may need to add these types of payments to 
their tracking and reporting systems. We understand that these types of 
payments are more typical for mineral extraction issuers than for oil 
firms,\592\ and therefore only a subset of the issuers subject to the 
final rules might be affected.
---------------------------------------------------------------------------

    \591\ See note 529 and accompanying text.
    \592\ See, e.g., letters from PWYP 1 and Global Witness 1; see 
also Chapter 19 ``Advancing the EITI in the Mining Sector: 
Implementation Issues'' by Sefton Darby and Kristian Lempa, in 
Advancing the EITI in the Mining Sector: A Consultation with 
Stakeholders (EITI 2009).
---------------------------------------------------------------------------

    The final rules do not require disclosure of certain other types of 
payments, such as social or community payments. We recognize that 
excluding those payments reduces the overall level of disclosure; 
however, we have not included those payments as required payment types 
under the final rules because commentators disagreed as to whether they 
are part of the commonly recognized revenue stream for the commercial 
development of oil, natural gas, or minerals and the EITI does not 
require the disclosure of social or community payments.\593\ In 
addition, by not including these types of payments, the final rules 
should benefit issuers by avoiding additional compliance costs for 
disclosure that does not clearly enhance the effectiveness of the 
disclosure required under Section 13(q).
---------------------------------------------------------------------------

    \593\ See note 185 and accompanying discussion, above (citing 
commentators suggesting that social or community payments constitute 
part of the commonly recognized revenue stream of resource 
extraction) and note 188 and accompanying discussion, above (citing 
commentators maintaining that social or community payments are not 
part of the commonly recognized revenue stream for the commercial 
development of oil, natural gas, or minerals).
---------------------------------------------------------------------------

    Resource extraction issuers that predominantly make payments that 
must be disclosed pursuant to the final rules may be at a competitive 
disadvantage as compared to resource extraction issuers that 
predominately make payments that are not identified in the final rules. 
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 the types of payments listed 
in the final rules. This could have the effect of reducing the 
transparency contemplated by the statute. For example, the exclusion of 
social or community payments might encourage issuers to mask other 
payments, such as infrastructure improvement payments, as social or 
community payments to avoid reporting under the rules, limiting the 
effectiveness of the disclosure. As noted above, to promote the goals 
of Section 13(q), the final rules include an anti-evasion provision 
that requires disclosure with respect to an activity or payment that, 
although not in form or characterization of one of the categories 
specified under the final rules, is part of a plan or scheme to evade 
the disclosure required under Section 13(q).\594\ Under this provision, 
a resource extraction issuer could not avoid disclosure, for example, 
by re-characterizing or re-configuring a payment as one that is not 
required to be disclosed. We considered, as an alternative to an anti-
evasion provision, defining terms broadly to cover a wider range of 
activities, but

[[Page 56405]]

determined that more expansive definitions could increase compliance 
costs for resource extraction issuers and that an anti-evasion 
provision should result in lower compliance costs and would accomplish 
the statute's transparency goals.
---------------------------------------------------------------------------

    \594\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    As discussed above, the final rules clarify that the term ``fees'' 
includes license fees, rental fees, entry fees, and other 
considerations for licenses or concessions, and the term ``bonuses'' 
includes signature, discovery, and production bonuses. In addition, the 
final rules clarify that a resource extraction issuer will be required 
to disclose payments for taxes levied on corporate profits, corporate 
income, and production, but will not be required to disclose payments 
for taxes levied on consumption, such as value added taxes, personal 
income taxes, or sales taxes. These clarifications are consistent with 
the EITI and, therefore, should help promote comparability and support 
international transparency promotion efforts. Moreover, these 
clarifications should benefit issuers by reducing uncertainty about the 
types of payments required to be disclosed under Section 13(q) and the 
related rules, and therefore should facilitate compliance and help 
mitigate costs. On the other hand, inclusion of these specific types of 
fees, taxes, and bonuses could increase compliance costs for issuers, 
particularly for issuers that have not participated in an EITI program 
and would not track or report these items except for our clarification.
    Under the final rules, issuers may disclose payments that are made 
for obligations levied at the entity level, such as corporate income 
taxes, at that level rather than the project level. This accommodation 
should help reduce compliance costs for issuers without interfering 
with the goal of achieving increased payment transparency.
    Under the final rules, issuers must disclose payments made in-kind. 
This requirement is consistent with the EITI and should help further 
the goal of supporting international transparency promotion efforts and 
enhance the effectiveness of the disclosure. We have provided issuers 
with some flexibility in reporting in-kind payments. Resource 
extraction issuers may report in-kind payments at cost, or if cost is 
not determinable, at fair market value, which we believe should 
facilitate compliance with Section 13(q) and potentially lower 
compliance costs. This requirement could impose costs to the extent 
that issuers have not previously had to value their in-kind payments, 
or they use a different method to value those payments.
3. Definition of ``Not De Minimis''
    Section 13(q) requires the disclosure of payments that are ``not de 
minimis,'' but leaves the term ``not de minimis'' undefined. In the 
final rules we define ``not de minimis'' to mean any payment, whether 
made as a single payment or a series of related payments, that equals 
or exceeds $100,000. Although we considered leaving ``not de minimis'' 
undefined, as we had proposed, we were convinced by commentators that 
defining this term should help to promote consistency in payment 
disclosures and reduce uncertainty about what payments must be 
disclosed under Section 13(q) and the related rules, and therefore 
should facilitate compliance.\595\ As noted above, because the primary 
purpose of Section 13(q) is to further international transparency 
efforts regarding payments to governments for the commercial 
development of oil, natural gas, or minerals, we believe that whether a 
payment is ``not de minimis'' should be considered in relation to a 
host country. We recognize that issuers may have difficulty assessing 
the significance of particular payments for particular countries or 
recipient governments; therefore, we are adopting a $100,000 threshold 
that we believe will provide clear guidance about payments that are 
``not de minimis'' and promote the transparency goals of the statute.
---------------------------------------------------------------------------

    \595\ See notes 223 and 231-233 and accompanying text.
---------------------------------------------------------------------------

    We considered adopting a definition of ``not de minimis'' that was 
based on a qualitative principle or a relative quantitative measure 
rather than an absolute quantitative standard.\596\ We chose the 
absolute quantitative approach for several reasons. An absolute 
quantitative approach will promote consistency of disclosure and, in 
addition, will be easier for issuers to apply than a definition based 
on either a qualitative principle or relative quantitative 
measure.\597\ Moreover, using an absolute dollar amount threshold for 
disclosure purposes should also reduce compliance costs by reducing the 
work necessary to determine what payments must be disclosed.
---------------------------------------------------------------------------

    \596\ As previously noted, we declined to adopt a ``not de 
minimis'' definition based on a materiality principle because that 
alternative is not supported by the language of Section 13(q). See 
note 566 and accompanying text.
    \597\ See note 252 and accompanying text.
---------------------------------------------------------------------------

    Therefore, in choosing the ``de minimis'' amount, we selected an 
amount that we believe strikes an appropriate balance in light of 
varied commentators' concerns and the purpose of the statute. Although 
some commentators suggested various thresholds,\598\ no commentator 
provided data to assist us in determining an appropriate threshold 
amount.
---------------------------------------------------------------------------

    \598\ See notes 235-243 and accompanying text.
---------------------------------------------------------------------------

    We considered other absolute amounts but chose $100,000 as the 
quantitative threshold in the definition of ``not de minimis.'' We 
decided not to adopt a lower threshold because we are concerned that 
such an amount could result in undue compliance burdens and raise 
competitive concerns for many issuers. As previously noted, we believe 
a $100,000 threshold is more appropriate than, and an acceptable 
compromise to, the amounts suggested by commentators because it 
furthers the purpose of Section 13(q) and may result in a lesser 
compliance burden than otherwise would be the case if a lower threshold 
was used.\599\ In addition, to prevent issuers from breaking down their 
payments into amounts smaller than $100,000 and thus avoiding 
disclosure, we provide an instruction in the final rules noting that in 
the case of any arrangement providing for periodic payments or 
installments of the same type, a resource extraction issuer must 
consider the aggregate amount of the related periodic payments or 
installments of the related payments in determining whether the payment 
threshold has been met for that series of payments, and accordingly, 
whether disclosure is required.
---------------------------------------------------------------------------

    \599\ See notes 257-267 and accompanying text.
---------------------------------------------------------------------------

    We also considered defining ``not de minimis'' in terms of a 
materiality standard, which would generally suggest, consistent with 
commentators views, a threshold larger than $100,000. Such an 
alternative would likely have resulted in lower compliance costs for 
issuers. We also could have chosen to use a larger number, such as 
$1,000,000, to define ``not de minimis,'' which again would have 
resulted in lower compliance costs. Although a ``not de minimis'' 
definition based on a materiality standard, or a much higher amount, 
such as $1,000,000, could lessen competitive concerns, setting the 
threshold too high could leave important payment streams undisclosed, 
reducing the potential benefits to be derived from Section 13(q). In 
addition, we believe that use of the term ``not de minimis'' in Section 
13(q) indicates that a threshold quite different from a materiality 
standard and significantly less than $1,000,000 is necessary to further 
the transparency goals of the statute. While the $100,000 threshold may 
result in some smaller payments not being reported, we believe this 
threshold strikes an appropriate

[[Page 56406]]

balance between concerns about the potential compliance burdens of a 
lower threshold and the need to fulfill the statutory directive for 
resource extraction issuers to disclose payments that are ``not de 
minimis.''
4. Definition of ``Project''
    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, but it 
does not define the term ``project.'' As noted above, the final rules 
leave the term undefined, but we have provided some guidance about the 
term. Leaving the term ``project'' undefined should provide issuers 
some flexibility in applying the term to different business contexts 
depending on factors such as the particular industry or business in 
which the issuer operates, or the issuer's size.
    As noted above, resource extraction issuers routinely enter into 
contractual arrangements with governments for the purpose of commercial 
development of oil, natural gas, or minerals. The contract defines the 
relationship and payment flows between the resource extraction issuer 
and the government, and therefore, it would serve as the basis for 
determining a ``project.'' We understand that the term ``project'' is 
used within the extractive industry in a variety of contexts, and that 
individual issuers routinely provide disclosure about their own 
projects in their Exchange Act reports and other public statements. To 
the extent that the meaning of ``project'' is generally understood by 
resource extraction issuers and investors, leaving the term undefined 
should not impose undue costs.
    Resource extraction issuers may incur costs in determining their 
``projects.'' Leaving the term undefined in the final rules may result 
in higher costs for some resource extraction issuers than others if an 
issuer's determination of what constitutes a ``project'' would result 
in more granular information being disclosed than another issuer's 
determination of what constitutes a ``project.'' We anticipate that 
these costs may diminish over time as resource extraction issuers 
become familiar with how other resource extraction issuers determine 
their ``projects.'' In addition, we recognize that leaving the term 
``project'' undefined may not result in the transparency benefits that 
the statute seeks to achieve as effectively as would be the case if we 
adopted a definition because resource extraction issuers' determination 
of what constitutes a ``project'' may differ, which could reduce the 
comparability of disclosure across issuers. Inconsistent disclosure may 
be mitigated to some extent by the guidance we are providing about the 
term.
    We considered defining ``project'' at the country level. A number 
of commentators asserted that this approach would further lower their 
compliance burdens.\600\ While we recognize that approach would reduce 
compliance burdens for issuers, we did not adopt it because we believe 
it would be inconsistent with Congress' intent to provide more detailed 
disclosure than at the country level and would not effectively result 
in the transparency benefits that the statute seeks to achieve.\601\ We 
believe the statutory requirement to provide interactive data tags 
identifying the government that received the payment and the country in 
which that government is located is further evidence that statutory 
reference to ``project'' was intended to elicit disclosure at a more 
granular level than country-level reporting.
---------------------------------------------------------------------------

    \600\ See letters from API 1, ExxonMobil 1, Petrobras, and RDS 
1.
    \601\ See note 313 and accompanying text.
---------------------------------------------------------------------------

    We also considered defining ``project'' as a reporting unit, as 
suggested by some commentators.\602\ We decided against that approach 
because we believe that requiring disclosure at the reporting unit 
level would be inconsistent with the use of the term ``project'' in 
Section 13(q). In this regard we note that it is not uncommon for an 
issuer to define a reporting unit as a geographic region (for example, 
as a country or continent), which would result in aggregated payment 
disclosure that is inconsistent with the transparency goal of the 
statute.
---------------------------------------------------------------------------

    \602\ See note 283 and accompanying text.
---------------------------------------------------------------------------

    As suggested by some commentators, we considered defining 
``project'' in relation to a particular geologic resource, such as a 
``geologic basin'' or ``mineral district.'' \603\ We decided not to 
adopt this approach because, as noted by some commentators,\604\ a 
geologic basin or mineral district may span more than one country, 
which would be counter to the country-by-country reporting required by 
Section 13(q). In addition, we understand that defining the term in 
this manner may not reflect how resource extraction issuers enter into 
contractual arrangements for the extraction of resources, which define 
the relationship and payment flows between the resource extraction 
issuer and the government. For these reasons, we believe that defining 
``project'' as a ``geologic basin'' may be inconsistent with the use of 
the term ``project'' in Section 13(q) and may not result in the 
transparency benefits that the statute seeks to achieve.
---------------------------------------------------------------------------

    \603\ See note 286 and accompanying text.
    \604\ See note 290 and accompanying text.
---------------------------------------------------------------------------

    In addition, we considered defining ``project'' by reference to a 
materiality standard as it is used under the federal securities laws, 
as suggested by some commentators.\605\ While such an approach could 
reduce compliance burdens for issuers, we did not adopt it because we 
believe it would be inconsistent with Congress' intent to provide more 
detailed disclosure than would be provided using such a materiality 
standard and would not result in the transparency benefits that the 
statute seeks to achieve.
---------------------------------------------------------------------------

    \605\ See note 291 and accompanying text.
---------------------------------------------------------------------------

    To comply with the final rules, a resource extraction issuer could 
be required to implement systems to track payments at a different level 
of granularity than what it currently tracks, which could result in 
added compliance and implementation costs. We expect, however, that to 
the extent resource extraction issuers' systems currently track 
``projects'' or information by reference to its contractual 
arrangements, such costs should be reduced. Not defining the term 
``project'' under the final rules could result in added compliance 
costs when compared to the alternative of adopting a definition 
suggested by some commentators. By not defining ``project'' as 
``country,'' ``reporting unit,'' ``geologic basin,'' or ``material 
project,'' as some commentators suggested,\606\ issuers could incur 
costs relating to implementation of systems to track payment 
information at a more granular level than what their current systems 
track. In addition, by leaving the term undefined rather than adopting 
one of the definitions suggested by commentators, the final rules may 
effectively require disclosure that may result in voluminous 
information and increase the costs to issuers to track and report.
---------------------------------------------------------------------------

    \606\ See notes 279, 283, 286, and 291 and accompanying text.
---------------------------------------------------------------------------

5. Annual Report Requirement
    Section 13(q) provides that the resource extraction payment 
disclosure must be ``include[d] in an annual report.'' The final rules 
require an issuer to file the payment disclosure in an annual report on 
new Form SD, rather than furnish it in one of the existing Exchange Act 
annual report forms as proposed. Form SD will be due no later

[[Page 56407]]

than 150 days after the end of the issuer's most recent fiscal year. 
This should lessen the burden of compliance with Section 13(q) and the 
related rules because issuers generally will not have to incur the 
burden and cost of providing the payment disclosure at the same time 
that it must fulfill its disclosure obligations with respect to an 
Exchange Act annual report.\607\ An additional benefit is that this 
requirement also would provide information to users in a standardized 
manner for all issuers rather than in different annual report forms 
depending on whether a resource extraction issuer is a domestic or 
foreign filer. In addition, requiring the disclosure in new Form SD, 
rather than in issuers' Exchange Act annual reports, should alleviate 
concerns about the disclosure being subject to the officer 
certifications required by Exchange Act Rules 13a-14 and 15d-14, thus 
potentially lowering compliance costs.
---------------------------------------------------------------------------

    \607\ For example, a resource extraction issuer may potentially 
be able to save resources to the extent that the timing of its 
obligations with respect to its Exchange Act annual report and its 
obligations to provide payment disclosure allow for it to allocate 
its resources, in particular personnel, more efficiently.
---------------------------------------------------------------------------

    Resource extraction issuers will incur costs associated with 
preparing and filing new Form SD; however, we do not believe the costs 
associated with filing a new form to provide the disclosure instead of 
furnishing the disclosure in an existing form will be significant.
    Requiring covered issuers to file, instead of furnish, the payment 
information in Form SD may increase the ability of investors to bring 
suit, for instance under Section 18 of the Exchange Act. This may 
improve the avenues of redress available to investors if issuers fail 
to comply with the new disclosure requirements. Because this could 
improve investors' ability to seek redress, it is possible that 
resource extraction issuers may be more accountable for and more likely 
to make the required disclosure. This, in turn, may provide benefits to 
investors to the extent they use the information to make investment 
decisions. On the other hand, our decision to require issuers to file, 
rather than furnish, the payment information will potentially subject 
issuers to litigation under Section 18 and may cause issuers to take 
greater care in preparing the disclosures, thereby increasing issuers' 
costs of complying with the rules.\608\
---------------------------------------------------------------------------

    \608\ While the potential for litigation may increase costs, we 
note that Section 18 claims have not been prevalent in recent years 
and a plaintiff asserting a claim under Section 18 would need to 
meet the elements of the statute, including materiality, reliance, 
and damages. See Louis Loss and Joel Seligman, Ch. 11 ``Civil 
Liability,'' Subsect. c ``False Filings [Sec.  18],'' Fundamentals 
of Securities Regulation (3rd Ed. 2005).
---------------------------------------------------------------------------

    Finally, some commentators noted the potential for their cost 
estimates to increase if the final rules required the payment 
information to be audited. Consistent with Section 13(q) and the 
proposal, the final rules do not require the resource extraction 
payment information to be audited or provided on an accrual basis. Not 
requiring the payment information to be audited or provided on an 
accrual basis is consistent with Section 13(q) because the statute 
requires the Commission to issue final rules for disclosure of payments 
by resource extraction issuers and, unlike the EITI, does not 
contemplate that an administrator will audit and reconcile the 
information, or produce a report as a result of the audit and 
reconciliation. In addition, not requiring the payment information to 
be audited or provided on an accrual basis may result in lower 
compliance costs than otherwise would be the case if resource 
extraction issuers were required to provide the information on an 
accrual basis or audited information.\609\ A potential cost associated 
with not requiring an audit is that users of the information may 
perceive non-audited information as less reliable than audited 
information.
---------------------------------------------------------------------------

    \609\ See note 405 and accompanying text.
---------------------------------------------------------------------------

6. Exhibit and Interactive Data Requirement
    Section 13(q) requires the payment disclosure to be electronically 
formatted using an interactive data standard. Under the proposed rules, 
a resource extraction issuer would have been required to provide the 
disclosure in two exhibits--one in HTML and one in XBRL. The final 
rules require a resource extraction issuer to provide the required 
payment disclosure in one exhibit to Form SD. The exhibit must be 
formatted in XBRL and provide all of the electronic tags required by 
Section 13(q) and the final rules. We have decided to require only one 
exhibit formatted in XBRL because we believe that we can achieve the 
goal of the dual presentation with only one exhibit. Issuers will 
submit the information on EDGAR in XBRL format, thus enabling users of 
the information to extract the XBRL data, and at the same time the 
information will be presented in an easily-readable format by rendering 
the information received by the issuers.\610\ We believe that requiring 
the information to be provided in this way may reduce the compliance 
burden for issuers as compared to requiring a second exhibit formatted 
in HTML. In addition, we believe that, to the extent requiring the 
specified information to be presented in XBRL format promotes 
consistency and standardization of the information, increases the 
usability of the payment disclosure, and reduces compliance costs, a 
benefit results to both issuers and users of the information.
---------------------------------------------------------------------------

    \610\ Users of this information should be able to render the 
information by using software available on our Web site at no cost.
---------------------------------------------------------------------------

    Our choice of XBRL as the required interactive data standard may 
increase compliance costs for some issuers; however, Congress expressly 
required interactive data tagging. The electronic formatting costs will 
vary depending upon a variety of factors, including the amount of 
payment data disclosed and an issuer's prior experience with XBRL. 
While most 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 (i.e. 
foreign private issuers that report pursuant to International Financial 
Reporting Standards (IFRS)) will incur some start-up costs associated 
with XBRL. We do not believe that the ongoing costs associated with 
this data tagging would be greater than filing the data in XML.
    Consistent with the statute, the final 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 
understand that resource extraction issuers may make payments in any 
number of currencies, and as a result, providing total amounts may be 
difficult. If multiple currencies are used to make payments for a 
specific project or to a government, a resource extraction issuer may 
choose to provide the total amount per project or per government in 
U.S. dollars or the issuer's reporting currency. A resource extraction 
issuer could incur costs associated with converting payments made in 
multiple currencies to U.S. dollars or its reporting currency. Given 
the statute's tagging requirements and requirements for disclosure of 
total amounts, we believe reporting in one currency is required. The 
final rules provide flexibility to issuers in how to perform the 
currency conversion, which may result in lower compliance costs because 
it enables issuers to choose the option that works best for them. To 
the extent issuers choose different options to perform the conversion, 
it may result in less comparability of the payment

[[Page 56408]]

information and, in turn, could result in costs to users of the 
information.

D. Quantified Assessment of Overall Economic Effects

    As noted above, Congress intended that the rules issued pursuant to 
Section 13(q) would increase the accountability of governments to their 
citizens in resource-rich countries for the wealth generated by those 
resources.\611\ In addition, commentators and the sponsors of Section 
13(q) also have noted that the United States has an interest in 
promoting accountability, stability, and good governance.\612\ 
Congress' goal of enhanced government accountability through Section 
13(q) is intended to result in social benefits that cannot be readily 
quantified with any precision. We also note that while the objectives 
of Section 13(q) do not appear to be ones that will necessarily 
generate measurable, direct economic benefits to investors or issuers, 
investors have stated that the disclosures required by Section 13(q) 
have value to investors and can ``materially and substantially improve 
investment decision making.'' \613\ As noted previously, the benefits 
are inherently difficult to quantify and thus our quantitative 
assessment of the overall economic effects focuses on the costs of 
complying with the rules.
---------------------------------------------------------------------------

    \611\ See note 7 and accompanying text.
    \612\ See note 499 and accompanying text.
    \613\ See letter from Calvert. See note 498 and accompanying 
text.
---------------------------------------------------------------------------

    To assess the economic impact of the final rules, we estimated the 
initial and ongoing costs of compliance using the quantitative 
information supplied by commentators using two different methods. In 
the first method, we estimate the cost of compliance for the average 
company and then multiply this number by the total number of affected 
issuers (1,101). In the second method, we separately estimate the costs 
of compliance for small issuers (issuers with less than $75 million in 
market capitalization) and for large issuers (issuers with $75 million 
or more in market capitalization). For initial compliance costs, we 
received estimates from Barrick Gold and ExxonMobil.\614\ We use these 
numbers to estimate a lower and an upper bound, respectively, on 
initial compliance costs.
---------------------------------------------------------------------------

    \614\ See letter from Barrick Gold and ExxonMobil 1. NMA also 
provided initial compliance hours that are similar to Barrick Gold. 
See letter from NMA 2.
---------------------------------------------------------------------------

    Our methodology to estimate both initial and ongoing compliance 
costs takes the specific company estimates from Barrick Gold and 
ExxonMobil and applies these costs, as a percentage of total assets, to 
the average issuer and small and large issuers. Both Barrick Gold and 
ExxonMobil are very large issuers and their compliance costs may not be 
representative of other types of issuers. Thus, we believe it is 
appropriate to scale these costs to the size of the issuer. While a 
portion of the compliance costs will most likely be fixed (i.e., they 
will not vary with the size of the issuer), we expect that a portion of 
those costs will be variable. For example, we expect larger, 
multinational issuers to have more complex payment tracking systems 
compared to smaller, single country based issuers. Thus, in our 
analysis we assume that compliance costs will tend to increase with 
firm size. Commentators did not provide any information regarding what 
fraction of compliance costs would be fixed versus variable.
    Barrick Gold estimated that it would require 500 hours for initial 
changes to internal books and records and processes, and 500 hours for 
ongoing compliance costs. At an hourly rate of $400,\615\ this amounts 
to $400,000 (1,000 hours x $400) for hourly compliance costs. Barrick 
Gold also estimated that it would cost $100,000 for initial IT/
consulting and travel costs for a total initial compliance cost of 
$500,000. As a measure of size, Barrick Gold's total assets as of the 
end of fiscal year 2009 were approximately $25 billion.\616\ As a 
percentage of Barrick Gold's total assets, initial compliance costs are 
estimated to be 0.002% ($500,000/$25,075,000,000).
---------------------------------------------------------------------------

    \615\ This is the rate we use to estimate outside professional 
costs for purposes of the PRA. Although we believe actual internal 
costs may be less in many instances, we are using this rate to 
arrive at a conservative estimate of hourly compliance costs.
    \616\ All data on total assets is obtained from Compustat, which 
is a product of Standard and Poor's. In addition to considering 
total assets as a measure of firm size, we also considered using 
market capitalization. Although both measures will fluctuate, we 
believe that market capitalization will fluctuate more and the 
resulting percentage would then be sensitive to the measurement date 
chosen. As a result, we believe that using total assets as a measure 
of size is more appropriate.
---------------------------------------------------------------------------

    A similar analysis for ExxonMobil estimated initial compliance 
costs using its estimate of $50 million. ExxonMobil's total assets as 
of the end of 2009 were approximately $233 billion and the percentage 
of initial compliance costs to total assets is 0.021% ($50,000,000/
$233,323,000,000). Therefore, the lower bound of initial compliance 
costs to total assets is 0.002% based upon estimates from Barrick Gold 
and the upper bound is 0.021% based upon estimates from ExxonMobil.
    Below is a summary of how we calculated the initial compliance 
costs as a percentage of total assets:

----------------------------------------------------------------------------------------------------------------
            Initial compliance cost estimates                                                Calculation
----------------------------------------------------------------------------------------------------------------
Total number of affected issuers........................                     1,101  ............................
Barrick Gold compliance costs (lower bound):
    Number of hours for initial changes to internal                            500  ............................
     books and records and processes....................
    Number of hours for annual compliance costs.........                       500  ............................
    Initial number of compliance hours..................                     1,000                     500 + 500
    Hourly cost.........................................                      $400  ............................
    Initial hourly compliance costs.....................                  $400,000                  1,000 * $400
    Initial IT/consulting/travel costs..................                  $100,000  ............................
    Total initial total compliance costs................                  $500,000           $400,000 + $100,000
Barrack Gold's 2009 total assets (Compustat)............           $25,075,000,000  ............................
Initial compliance costs as a percentage of total assets                    0.002%      $500,000/$25,075,000,000
 using Barrick Gold (lower bound).......................
ExxonMobil compliance costs (upper bound):
    Initial compliance costs............................               $50,000,000  ............................
    ExxonMobil's 2009 total assets (Compustat)..........          $233,323,000,000  ............................
Initial compliance costs as a percentage of total assets                    0.021%  $50,000,000/$233,323,000,000
 using ExxonMobil (upper bound).........................
----------------------------------------------------------------------------------------------------------------


[[Page 56409]]

     We apply these two ratios to the average issuer (Method 1) and to 
small and large issuers (Method 2). In Method 1, we calculate the 
average total assets of all affected issuers to be approximately $4.4 
billion.\617\ Applying the ratio of initial compliance costs to total 
assets (0.002%) from Barrick Gold, we estimate the lower bound of total 
initial compliance costs for all issuers to be $97 million (0.002% x 
$4,422,000,000 x 1,101). Applying the ratio of initial compliance costs 
to total assets (0.021%) from ExxonMobil, we estimate the upper bound 
of total initial compliance costs for all issuers to be $1 billion 
(0.021% x $4,422,000,000 x 1,101). The table below summarizes the upper 
and lower bound of total initial compliance costs using Method 1:
---------------------------------------------------------------------------

    \617\ We determined this average by identifying the SIC codes 
that will be affected by the rulemaking and then obtaining from 
Compustat the total assets for fiscal year 2009 of all affected 
issuers. We then calculated the average of those total assets.

----------------------------------------------------------------------------------------------------------------
       Method 1: Average company compliance costs                                            Calculation
----------------------------------------------------------------------------------------------------------------
Average total assets of all affected issuers (Compustat)            $4,422,000,000  ............................
Average initial compliance costs per issuer using                           88,440         $4,422,000,000*0.002%
 Barrick Gold percentage of total assets (lower bound)..
Total initial compliance costs using Barrick Gold (lower                97,372,440                 $88,440*1,101
 bound).................................................
Average initial compliance costs per issuer using Exxon                    928,620          4,422,000,000*0.021%
 Mobil's percentage of total assets (upper bound).......
Total initial compliance costs using ExxonMobil (upper               1,022,410,620               928,620 * 1,101
 bound).................................................
----------------------------------------------------------------------------------------------------------------

     In Method 2, we conduct a similar analysis for small and large 
issuers. We estimate the proportion of issuers that are small issuers 
(63%) and the proportion of issuers that are large issuers (37%).\618\ 
Next, we calculate the average total assets of small issuers in 2009 
($509 million) and large issuers ($4.5 billion) and apply the ratios of 
initial compliance costs to total assets estimated using the estimates 
from Barrick Gold (lower bound) and ExxonMobil (upper bound) for each 
type of issuer. In this analysis, we assume that the ratio of initial 
compliance costs to total assets does not vary by size. Therefore, 
small issuers have a lower bound estimate of initial compliance costs 
of $7 million (0.002% x $509,000,000 x 63% x 1,101) and an upper bound 
of $74 million (0.021% x $509,000,000 x 63% x 1,101). Large issuers 
have a lower bound estimate of initial compliance costs of $37 million 
(0.002% x $4,504,000,000 x 37% x 1,101) and an upper bound of $385 
million (0.021% x $4,504,000,000 x 37% x 1,101). The sum of these two 
numbers provides an estimate of $44 million ($7,061,153 + $36,704,037) 
for the lower bound and $460 million ($74,142,111 + $385,306,841) for 
the upper bound of initial compliance costs.
---------------------------------------------------------------------------

    \618\ For purposes of this analysis, we classify as small 
issuers those whose market capitalization is less than $75 million 
and we classify the rest of the affected issuers as large issuers.

----------------------------------------------------------------------------------------------------------------
          Method 2: By small and large issuers
----------------------------------------------------------------------------------------------------------------
Percentage of small issuers (market capitalization                             63%  ............................
 <$75m).................................................
Percentage of large issuers (market capitalization =                           37%  ............................
 >$75m).................................................
Average total assets of small issuers in 2009                         $509,000,000  ............................
 (Compustat)............................................
Average total assets of large issuers in 2009                       $4,504,000,000  ............................
 (Compustat)............................................
Initial compliance costs for average small issuer:
    Initial compliance costs for a small issuer using                      $10,180           0.002%*$509,000,000
     Barrick Gold (lower bound).........................
    Total initial compliance costs for small issuers                    $7,061,153             $10,180*1,101*63%
     using Barrick Gold (lower bound)...................
    Initial compliance costs for a small issuer using                     $106,890           0.021%*$509,000,000
     ExxonMobil (upper bound)...........................
    Total initial compliance costs for small issuers                   $74,142,111            $106,890*1,101*63%
     using ExxonMobil (upper bound).....................
Initial compliance costs for average large issuer:
    Initial compliance costs for a large issuer using                      $90,080         0.0020%*4,504,000,000
     Barrick Gold (lower bound).........................
    Total initial compliance costs for large issuers                   $36,695,890             $90,080*1,101*37%
     using Barrick Gold (lower bound)...................
    Initial compliance costs for a large issuer using                     $945,840          0.021%*4,504,000,000
     ExxonMobil (upper bound)...........................
    Total initial compliance costs for large issuers                  $385,306,841            $945,840*1,101*37%
     using ExxonMobil (upper bound).....................
Total initial compliance costs for small and large                     $43,757,043      $7,061,153 + $36,695,890
 issuers using Barrick Gold (lower bound)...............
Total initial compliance costs for small and large                    $459,448,952    $74,142,111 + $385,306,841
 issuers using ExxonMobil (upper bound).................
----------------------------------------------------------------------------------------------------------------

    In summary, using the two methods, the range of initial compliance 
costs is as follows: \619\
---------------------------------------------------------------------------

    \619\ The total estimated compliance cost for PRA purposes is 
$234,829,000 ([332,164 hrs * $400/hr] + $101,963,400). The 
compliance costs for PRA purposes would be encompassed in the total 
estimated compliance costs for issuers. As discussed in detail 
below, our PRA estimate includes costs related to tracking and 
collecting information about different types of payments across 
projects, governments, countries, subsidiaries, and other controlled 
entities. The estimated costs for PRA purposes are calculated by 
treating compliance costs as fixed costs, so despite using similar 
inputs for calculating compliance costs under Methods 1 and 2 above, 
the PRA estimate differs from the lower and upper bounds calculated 
above. The PRA estimate is, however, within the range of total 
compliance costs estimated using commentators' data.

[[Page 56410]]



----------------------------------------------------------------------------------------------------------------
                                                          Method 1: Average issuer    Method 2: Small and large
                Initial compliance costs                          analysis                 issuer analysis
----------------------------------------------------------------------------------------------------------------
Using Barrick Gold (lower bound)........................               $97,372,440                   $43,757,043
Using ExxonMobil (upper bound)..........................             1,022,410,620                   459,448,952
----------------------------------------------------------------------------------------------------------------

    We acknowledge limitations on our analysis. First, the analysis is 
limited to two large issuers' estimates from two different industries, 
mining and oil and gas, and the estimates may not accurately reflect 
the initial compliance costs of all affected issuers. Second, we assume 
that compliance costs are a constant fraction of total assets, but 
there may be substantial fixed costs to compliance that are 
underestimated by using a variable cost analysis. Third, commentators 
mentioned other potential compliance costs not necessarily captured in 
this discussion of compliance costs.\620\ Because of these limitations, 
we believe that total initial compliance costs for all issuers are 
likely to be near the upper bound of approximately $1 billion. This 
estimate is consistent with two commentators' qualitative estimates of 
initial implementation costs.\621\
---------------------------------------------------------------------------

    \620\ Those could include, for example, costs associated with 
the termination of existing agreements in countries with laws that 
prohibit the type of disclosure mandated by the rules, or costs of 
decreased ability to bid for projects in such countries in the 
future, or costs of decreased competitiveness with respect to non-
reporting entities. Commentators generally did not provide estimates 
of such costs. As discussed further below, we have attempted to 
estimate the costs associated with potential foreign law 
prohibitions on providing the required disclosure. See Section 
III.D.
    \621\ See letters from API 1 and ExxonMobil 1. ``Total industry 
costs just for the initial implementation could amount to hundreds 
of millions of dollars even assuming a favorable final decision on 
audit requirements and reasonable application of accepted 
materiality concepts.''
---------------------------------------------------------------------------

    We also estimated ongoing compliance costs using the same two 
methods. We received quantitative information from three commentators, 
Rio Tinto, National Mining Association, and Barrick Gold, that we used 
in the analysis. Rio Tinto estimated that it would take between 5,000 
and 10,000 hours per year to comply with the requirements, for a total 
ongoing compliance cost of between $2 million (5,000*$400) and $4 
million (10,000*$400). We use the midpoint of their estimate, $3 
million, as their expected ongoing compliance cost. The National Mining 
Association (NMA), which represents the mining industry, estimated that 
ongoing compliance costs would be 10 times our initial estimate, 
although it did not state specifically the number to which it referred. 
We believe NMA was referring to our proposed estimate of $30,000.\622\ 
Although this is the dollar figure for total costs, NMA referred to it 
when providing an estimate of ongoing costs, so we do the same here, 
which would result in $300,000 (10*$30,000). Finally, Barrick Gold 
estimated that it would take 500 hours per year to comply with the 
requirements, or $200,000 (500*$400) per year. As with the initial 
compliance costs, we calculate the ongoing compliance cost as a 
percentage of total assets. Rio Tinto's total assets as of the end of 
fiscal year 2009 were approximately $97 billion and their estimated 
ongoing compliance costs as a percentage of assets is 0.003% 
($3,000,000/$97,236,000,000). We calculated the average total assets of 
the mining industry to be $1.5 billion,\623\ and using NMA's estimated 
ongoing compliance costs, we estimate ongoing compliance costs as a 
percentage of assets of 0.02% ($300,000/$1,515,000,000). Barrick Gold's 
total assets as of the end of fiscal year 2009 were approximately $25 
billion and their estimated ongoing compliance costs as a percentage of 
assets is 0.0008% ($200,000/$25,075,000,000). We then average the 
percentage of ongoing compliance costs to get an estimate of 0.0079% of 
total assets.
---------------------------------------------------------------------------

    \622\ The $30,000 estimate was calculated as follows: 
[(52,931*$400) + $11,857,600]/1,101 = $30,000.
    \623\ We estimated this number by selecting only mining issuers, 
based on their SIC codes, obtaining their total assets as of the end 
of fiscal year 2009 from Compustat, and averaging the total assets 
of those issuers.

----------------------------------------------------------------------------------------------------------------
                Ongoing compliance costs                                                     Calculation
----------------------------------------------------------------------------------------------------------------
Rio Tinto estimate of yearly compliance costs...........     $2,000,000-$4,000,000           (5,000-10,000)*$400
Average Rio Tinto estimate..............................                $3,000,000  ............................
Rio Tinto's 2009 total assets (Compustat)...............           $97,236,000,000  ............................
Ongoing compliance costs as a percentage of Rio Tinto's                     0.003%    $3,000,000/$97,236,000,000
 total assets...........................................
NMA estimate of 10 times SEC estimate in proposing                        $300,000                    10*$30,000
 release................................................
Average total assets for all mining issuers (Compustat).            $1,515,000,000  ............................
Ongoing compliance costs as a percentage of all mining                       0.02%       $300,000/$1,515,000,000
 issuers total assets (NMA).............................
Barrick Gold estimate of 500 hours per year.............                  $200,000                      500*$400
Barrick Gold's 2009 total assets (Compustat)............           $25,075,000,000  ............................
Ongoing compliance costs as a percentage of Barrick                        0.0008%      $200,000/$25,075,000,000
 Gold's total assets....................................
Average ongoing compliance costs as a percentage of                        0.0079%  ............................
 total assets for all three estimates: Rio Tinto, NMA
 and Barrick Gold.......................................
----------------------------------------------------------------------------------------------------------------

    We use the same two methods used to estimate initial compliance 
costs to estimate ongoing compliance costs: Method 1 for the average 
affected issuer and Method 2 for small and large issuers separately. In 
Method 1, we take the average total assets for all affected issuers, 
$4,422,000,000, and multiply it by the average ongoing compliance costs 
as a percentage of total assets (0.0079%) to get total ongoing 
compliance costs of approximately $385 million.

----------------------------------------------------------------------------------------------------------------
   Method 1: Average company ongoing compliance costs                                        Calculation
----------------------------------------------------------------------------------------------------------------
Average 2009 total assets of all affected issuers                   $4,422,000,000  ............................
 (Compustat)............................................
Average ongoing compliance costs per issuer using                         $349,338        0.0079%*$4,422,000,000
 average percentage of total assets (lower bound).......
Total ongoing compliance costs..........................              $384,621,138                $349,338*1,101
----------------------------------------------------------------------------------------------------------------


[[Page 56411]]

    In Method 2, we estimate ongoing compliance costs separately for 
small and large issuers using the same proportion of issuers as in the 
analysis on initial compliance costs: small issuers (63%) and large 
issuers (37%). For small issuers, we take the average total assets in 
2009 ($509,000,000) \624\ and multiply it by the average ongoing 
compliance costs as a percentage of total assets (0.0079%) to get total 
ongoing compliance costs of approximately $28 million. For large 
issuers, we take the average total assets in 2009 ($4,504,000,000) 
\625\ and multiply it by the average ongoing compliance costs as a 
percentage of total assets (0.0079%) to get total ongoing compliance 
costs of approximately $145 million. The sum of these two numbers 
provides an estimate of $173 million ($27,891,556 + $144,948,764) for 
total ongoing compliance costs for affected issuers. Comparing these 
two methods suggests that the ongoing compliance costs are likely to be 
between $200 million and $400 million.
---------------------------------------------------------------------------

    \624\ We calculate this number by selecting all small issuers 
according to our classification scheme (market capitalization less 
than or equal to $75 million) and then averaging their total assets 
as of the end of fiscal year 2009.
    \625\ We calculate this number by selecting all large issuers 
according to our classification scheme (market capitalization $75 
million or more) and then averaging their total assets as of the end 
of fiscal year 2009.

----------------------------------------------------------------------------------------------------------------
          Method 2: By small and large issuers
----------------------------------------------------------------------------------------------------------------
Percentage of small issuers (market capitalization <                           63%  ............................
 $75m)..................................................
Percentage of large issuers (market capitalization = >                         37%  ............................
 $75m)..................................................
Average total assets of small issuers in 2009                         $509,000,000  ............................
 (Compustat)............................................
Average total assets of large issuers in 2009                       $4,504,000,000  ............................
 (Compustat)............................................
Yearly ongoing compliance costs for a small issuer......                   $40,211          0.0079%*$509,000,000
Total yearly ongoing compliance costs for small issuer..               $27,891,556             $40,211*1,101*63%
Yearly ongoing compliance costs for a large issuer......                  $355,816        0.0079%*$4,504,000,000
Total yearly ongoing compliance costs for large                       $144,948,764            $355,816*1,101*37%
 companies..............................................
Total yearly ongoing compliance costs for small and                   $172,840,320      $27,891,556+$144,948,764
 large issuers..........................................
----------------------------------------------------------------------------------------------------------------

    As discussed above in Section III.B., host country laws that 
prohibit the type of disclosure required under the final rules could 
lead to significant additional economic costs that are not captured by 
the compliance cost estimates above. We have attempted to assess the 
magnitude of these costs to the extent possible. We base our analysis 
on the four countries that, according to commentators, currently have 
some versions of such laws (although we do not know if such countries 
would, in fact, prohibit the required disclosure or whether there might 
be other countries).\626\ We searched (through a text search in the 
EDGAR system) the Forms 10-K and 20-F of affected issuers for years 
2009 and 2010 for any mention of Angola, Cameroon, China, or Qatar. An 
examination of many of the filings that mentioned one or more of these 
countries indicate that most filings did not provide detailed 
information on the extent of their operations in these countries.\627\ 
Thus, we are unable to determine the total amount of capital that may 
be lost in these countries if the information required to be disclosed 
under the final rules is, in fact, prohibited by laws or regulations.
---------------------------------------------------------------------------

    \626\ See letters from API 1 and ExxonMobil 1 (mentioning 
Angola, Cameroon, China, and Qatar); see also letter from RDS 1 
(mentioning Cameroon, China, and Qatar). Other commentators disputed 
the assertion that there are foreign laws that specifically prohibit 
disclosure of payment information. See, e.g., letters from ERI 3, 
Global Witness 1, PWYP 1, Publish What You Pay (December 20, 2011) 
(``PWYP 3''), and Rep. Frank et al.
    \627\ We note that some issuers do not operate in those four 
countries, and thus, would not have any such information to 
disclose. Other issuers may have determined that they were not 
required to provide detailed information in their filings regarding 
their operations in those countries.
---------------------------------------------------------------------------

    We can, however, assess if the costs of withdrawing from these four 
countries are in line with one commentator's estimate of tens of 
billions of dollars. We estimate the potential loss from terminating 
activities in a country with such laws by the present value of the cash 
flows that a firm would forgo. We assume that a firm would not suffer 
any substantial losses when redeploying or disposing of its assets in 
the host country under consideration. We then discuss how the presence 
of various opportunities for the use of those assets by the firm itself 
or another firm would affect the size of the firm's potential losses. 
We also discuss how these losses would be affected if a firm cannot 
redeploy the assets in question easily, or it has to sell them with a 
steep discount (a fire sale). In order to estimate the lost cash flows, 
we assume that the cash flows from the projects in one of these 
countries are a fraction of the firm's total cash flows, and this 
fraction is equal to the ratio of total project assets in the given 
country to the firm's total assets. Also, we assume that the estimated 
cash flows grow annually at the rate of inflation over the life of the 
project.
    We were able to identify a total of 51 issuers that mentioned that 
they have operations in these countries (some operate in more than one 
country). The table below provides information from 19 of the 51 
issuers with regard to projects disclosed in their Forms 10-K and 20-
F.\628\
---------------------------------------------------------------------------

    \628\ As we noted, we identified 51 issuers that disclosed 
operations in at least one of the four countries, but only 19 of the 
issuers provided information with regard to projects in those 
countries that was specific enough to use in our analysis.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Project assets   Project term   Investments ($    Revenues ($     Expenses ($
                  Issuer                       ($ mil)          (yrs)           mil)            mil)            mil)                  Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
Issuer 1.................................           7,320              25  ..............  ..............  ..............  Angola.
Issuer 2.................................  ..............              20            18.8  ..............  ..............  Angola.
Issuer 3.................................  ..............              21            1853  ..............  ..............  Angola.
Issuer 4.................................             724               4  ..............           322.3  ..............  Angola.
Issuer 5.................................            51.1  ..............  ..............              22  ..............  Cameroon.
Issuer 6.................................  ..............              16  ..............  ..............  ..............  Cameroon.
Issuer 7.................................  ..............  ..............            11.4  ..............  ..............  Angola.
Issuer 8.................................  ..............  ..............  ..............            66.2              14  Angola.
Issuer 9.................................            91.7  ..............  ..............            78.8  ..............  Qatar.

[[Page 56412]]

 
Issuer 10................................           364.7  ..............  ..............           158.1  ..............  Qatar.
Issuer 11................................             2.8  ..............  ..............             2.7  ..............  Qatar.
Issuer 12................................            86.1  ..............  ..............            27.1  ..............  Angola.
Issuer 13................................             722              25  ..............  ..............  ..............  Qatar.
Issuer 14................................  ..............  ..............            0.33  ..............  ..............  China.
Issuer 15................................  ..............              23  ..............  ..............  ..............  China.
Issuer 16................................             155  ..............              59              45  ..............  China.
Issuer 17................................           261.5  ..............  ..............  ..............  ..............  China.
Issuer 18................................  ..............  ..............  ..............             2.1            11.7  China.
Issuer 19................................           605.2  ..............  ..............           177.6  ..............  China.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    From the issuers with information on projects in Angola, Cameroon, 
China, or Qatar, we select Issuer 1's and Issuer 4's Angola projects 
and Issuer 13's Qatar project because they reported data on both the 
firm assets involved in the projects in these countries and the terms 
of these projects. Other issuers reported some relevant information, 
but not enough, in our opinion, to meaningfully evaluate the cash flows 
of their projects. We supplemented the Angola data for the two issuers 
with firm financial information for the 2008 and 2009 fiscal years from 
Compustat. In addition, we obtained Issuer 1's and Issuer 13's 
weighted-average cost of capital (WACC) from Bloomberg, although data 
was not available on Issuer 4's WACC.\629\ Instead, we assumed for 
these purposes it has a similar WACC as another issuer of a similar 
size for which WACC was available from Bloomberg. We assume that the 
purchasing power parity holds and thus use the U.S. inflation rate for 
2009 as a constant growth rate for the projects' cash flows.\630\
---------------------------------------------------------------------------

    \629\ In 2011, Issuer 4 was acquired by another issuer.
    \630\ Data on the U.S. inflation rate is obtained from the 
Bureau of Labor Statistics.
---------------------------------------------------------------------------

    In the table below we estimate the cash flows of Issuer 1's and 
Issuer 4's Angola projects and Issuer 13's Qatar project using a 
standard valuation methodology--the present value of discounted cash 
flows--and assuming a corporate tax rate of 30% for all three issuers. 
For Issuer 1, we estimate that a termination of its projects in Angola 
would result in lost cash flows of approximately $12 billion. For 
Issuer 4, the loss would be approximately $119 million. For Issuer 13, 
the loss would be approximately $392 million.

----------------------------------------------------------------------------------------------------------------
  Financial information FY2009  ($
                mil)                    Issuer 1        Issuer 4        Issuer 13            Calculation
----------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes           26,239             469           3,689  ...........................
 (EBIT).
Depreciation/Amortization..........          11,917             159             830  ...........................
Change in deferred taxes...........          -1,472             -59               0  ...........................
Capital expenditures...............          17,770             301           1,914  NetPP&E2009-Net PP&E2008
Change in working capital..........         -19,992            -188             277  Working capital = Current
                                                                                      assets - Current
                                                                                      liabilities.
Tax rate (%).......................             30%             30%             30%  ...........................
Company free cash flow (FCF).......          31,034             314           1,221  EBIT*(1 - tax rate) +
                                                                                      Depreciation/Amortization
                                                                                      + Change in Deferred taxes
                                                                                      - Capital Expenditures -
                                                                                      Change in Working Capital.
Firm total assets..................         233,323           6,143          19,393  ...........................
Angola/Qatar total assets..........           7,320             724             722  ...........................
Angola/Qatar FCF...................             974              37              45  Company FCF*(Angola or
                                                                                      Qatar TA/Firm TA).
Term of Angola/Qatar project                     25               4              25  ...........................
 (years).
Company cost of capital (WACC).....            0.09          0.1098          0.1329  ...........................
U.S. 2009 inflation rate (i).......           0.027           0.027           0.027  ...........................
Present value of Angola/Qatar FCFs.          11,966             119             392  Angola or Qatar FCF * [1/
                                                                                      (WACC - i) - (1+ i)
                                                                                      [supcaret] term of project/
                                                                                      (WACC - i)*(WACC + 1)
                                                                                      [supcaret] term of
                                                                                      project].
----------------------------------------------------------------------------------------------------------------

    Even though our analysis was limited to just three issuers, these 
estimates suggest commentators' concerns that the impact of such host 
country laws could add billions of dollars of costs to affected 
issuers, and hence have a significant impact on their profitability and 
competitive position, appear warranted. The assumption underlying these 
estimates is that each firm either sells its assets in that particular 
country at their accounting value or holds on to them but does not use 
them in other projects. The losses could be larger than the estimates 
in the table above if these firms are forced to sell their assets in 
the above-mentioned host countries at fire sale prices. In that case, 
the price discount will add to the loss of cash flows. While we do not 
have data on fire sale prices for the industries of the affected 
issuers, financial studies on other industries could provide some 
estimates. For example, a study on the airline industry \631\ finds 
that planes sold by financially distressed airlines bring 10 to 20 
percent lower prices than those sold by undistressed airlines. If we 
apply those percentages to the accounting value of the three issuers' 
assets in these host countries, this would add hundreds of millions of 
dollars to their potential losses. These costs also could be 
significantly higher than our estimates if we allow the cash

[[Page 56413]]

flows of the project to grow annually at a rate higher than the rate of 
inflation.
---------------------------------------------------------------------------

    \631\ See Todd Pulvino 1998. ``Do Fire-Sales Exist? An Empirical 
Study of Commercial Aircraft Transactions.'' Journal of Finance, 
53(3): 939-78.
---------------------------------------------------------------------------

    Alternatively, a firm could redeploy these assets to other projects 
that would generate cash flows. If a firm could redeploy these assets 
relatively quickly and without a significant cost to projects that 
generate similar rates of returns as those in the above-mentioned 
countries, then the firm's loss from the presence of such host country 
laws would be minimal. The more difficult and costly it is for a firm 
to do so, and the more difficult it is to find other projects with 
similar rates of return, the larger the losses of the firm would be. 
Unfortunately, we do not have enough data to quantify more precisely 
the potential losses of firms under those various circumstances. 
Likewise, if the firm could sell those assets to a buyer (e.g., a non-
reporting issuer) that would use them for similar projects in the host 
country or elsewhere, then the buyer would likely pay the fair market 
value for those assets, resulting in minimal to no loss for the firm.
    Overall, the results of our analysis concur with commentators that 
the presence of host country laws that prohibit the type of disclosure 
required under the final rules could be very costly. The size of the 
potential loss to issuers will depend on the presence of other similar 
opportunities, third parties willing to buy the assets at fair-market 
values in the above-mentioned host countries, and the ability of 
issuers to avoid fire sale of these assets.
    As noted above, we considered alternatives to the approach we are 
adopting in the final rules, including providing certain exemptions 
from the disclosure requirements mandated by Section 13(q), but we 
believe that adopting any of the alternatives would be inconsistent 
with Section 13(q) and would undermine Congress' intent to promote 
international transparency efforts. To faithfully effectuate 
Congressional intent, we do not believe it would be appropriate to 
adopt provisions that would frustrate, or otherwise be inconsistent 
with, such intent. Consequently, we believe the competitive burdens 
arising from the need to make the required disclosures under the final 
rules are necessary by the terms of, and in furtherance of the purposes 
of, Section 13(q).
    A number of factors may serve to mitigate the competitive burdens 
arising from the required disclosure. We note there were differences in 
opinion among commentators as to the applicability of host country 
laws.\632\ Moreover, the widening global influence of the EITI and the 
recent trend of other jurisdictions to promote transparency, including 
listing requirements adopted by the Hong Kong Stock Exchange and 
proposed directives of the European Commission, may discourage 
governments in resource-rich countries from adopting new prohibitions 
on payment disclosure.\633\ Reporting companies concerned that 
disclosure required by Section 13(q) may be prohibited in a given host 
country may also be able to seek authorization from the host country in 
order to disclose such information, reducing the cost to such reporting 
companies resulting from the failure of Section 13(q) to include an 
exemption for conflicts with host country laws.\634\
---------------------------------------------------------------------------

    \632\ See note 84 and accompanying text.
    \633\ See notes 15 and 48 and accompanying text.
    \634\ See note 584.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the final rules contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\635\ We published a notice requesting 
comment on the collection of information requirements in the Proposing 
Release for the rule amendments. An agency may not conduct or sponsor, 
and a person is not required to comply with, a collection of 
information unless it displays a currently valid control number. The 
title for the collection of information is:
---------------------------------------------------------------------------

    \635\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

     ``Form SD'' (a new collection of information).\636\
---------------------------------------------------------------------------

    \636\ As previously noted, in another release we are issuing 
today, we are adopting rules to implement the requirements of 
Section 1502 of the Dodd-Frank Act and requiring issuers subject to 
those requirements to file the disclosure on Form SD. See note 30 
and accompanying text (referencing the Conflict Minerals Adopting 
Release, Release 34-67716 (August 22, 2012).
---------------------------------------------------------------------------

    We are amending Form SD to contain disclosures required by Rule 
13q-1, which will require resource extraction issuers to disclose 
information about payments made by the issuer, a subsidiary of the 
issuer, or an entity under the control of the issuer to foreign 
governments or the U.S. Federal Government for the purpose of the 
commercial development of oil, natural gas, or minerals. Form SD will 
be filed on EDGAR with the Commission.\637\
---------------------------------------------------------------------------

    \637\ The information required by Rule 13q-1 and Form SD is 
similar to the information that would have been required under the 
proposal in Forms 10-K, 20-F, or 40-F and Item 105 of Regulation S-
K. We do not believe that requiring the information to be filed in a 
Form SD, rather than furnishing it in an issuer's Exchange Act 
annual reports, will affect the burden estimate.
---------------------------------------------------------------------------

    The new rules and amendment to the form 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.'' \638\ 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.\639\ 
We are adopting the requirement regarding the presentation of the 
mandated payment information substantially as proposed, except that a 
resource extraction issuer will be required to present the mandated 
payment information in only one exhibit to new Form SD instead of two 
exhibits, as proposed. We have decided to require only one exhibit 
formatted in XBRL because we believe that we can achieve the goal of 
the dual presentation with only one exhibit. The disclosure 
requirements apply equally to U.S. issuers and foreign issuers meeting 
the definition of a resource extraction issuer. As discussed in detail 
above, in adopting the final rules, we have made significant changes to 
the rules that were proposed.
---------------------------------------------------------------------------

    \638\ 15 U.S.C. 78m(q)(2)(A).
    \639\ 15 U.S.C. 78m(q)(2)(C) and (D).
---------------------------------------------------------------------------

    Compliance with the rules by affected issuers is mandatory. 
Responses to the information collections will not be kept confidential 
and there is no mandatory retention period for the collection of 
information.

B. Summary of the Comment Letters

    As proposed, the required disclosure would have been included in a 
resource extraction issuer's Form 10-K, Form 20-F, or Form 40-F, as 
appropriate. We estimated in the Proposing Release the number of 
issuers filing each of the forms that would likely be resource 
extraction issuers totaled 1,101

[[Page 56414]]

issuers.\640\ We estimated 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 approximately $11,857,200 for the 
services of outside professionals. We also estimated in the Proposing 
Release that the annual incremental paperwork burden for each of Form 
10-K, Form 20-F, and Form 40-F would be 75 burden hours per affected 
form.\641\
---------------------------------------------------------------------------

    \640\ For purposes of the PRA, we estimated that the number of 
resource extraction issuers that would annually file Form 10-K would 
be approximately 861, the number of such issuers that would annually 
file Form 20-F would be approximately 166, and the number of such 
issuers that would annually file Form 40-F would be approximately 
74. We derived these estimates by determining the number of issuers 
that fall under SIC codes that pertain to oil, natural gas, and 
mining companies and, thus, are most likely to be resource 
extraction issuers. The estimate for Form 10-K was derived by 
subtracting from the total number of resource extraction issuers the 
number of issuers that file annual reports on Form 20-F and Form 40-
F.
    \641\ 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.
---------------------------------------------------------------------------

    In the Proposing Release we requested comment on the PRA analysis. 
We received ten comment letters that addressed PRA-related costs 
specifically; \642\ we also received a number of comment letters that 
discussed the costs and burdens to issuers generally that we considered 
in connection with our PRA analysis.\643\ Section III.B.2 contains a 
detailed summary of these comments. As described above, some 
commentators disagreed with our industry-wide estimate of the total 
annual increase in the paperwork burden and argued that it 
underestimated the actual costs that would be associated with the 
rules.\644\ Some commentators also stated that, depending upon the 
final rules adopted, the compliance burdens and costs caused by 
implementation and ongoing compliance with the rules would be 
significantly greater than those estimated by the Commission.\645\
---------------------------------------------------------------------------

    \642\ See letters from API 1, API 2, Barrick Gold, ERI 2, 
ExxonMobil 1, ExxonMobil 3, NMA 2, Rio Tinto, RDS 1, and RDS 4.
    \643\ See letters from BP 1, Chamber Energy Institute, Chevron, 
Cleary, Hermes, and PWYP 1.
    \644\ See letters from API 1 and ExxonMobil 1.
    \645\ See letters from API 1, Barrick Gold, ExxonMobil 1, NMA 2, 
Rio Tinto, and RDS 1.
---------------------------------------------------------------------------

    We note that commentators did not object, or suggest alternatives, 
to our estimate of the number of issuers who would be subject to the 
proposed rules. As discussed below, we have made several changes to our 
estimates in response to comments on the estimates contained in the 
Proposing Release that are designed to better reflect the burdens 
associated with the new collection of information.

C. Revisions to PRA Reporting and Cost Burden Estimates

    After considering the comments, and the changes we are making from 
the proposal, we have revised our PRA estimates for the final rules. As 
discussed above, we are adopting new Rule 13q-1 and an amendment to new 
Form SD to require resource extraction issuers to disclose the required 
payment information in a new form rather than including the disclosure 
requirements in existing Exchange Act annual reports. As described 
above, Rule 13q-1 requires resource extraction issuers to file the 
payment information required in Form SD. The collection of information 
requirements are reflected in the burden hours estimated for Form SD. 
Therefore, Rule 13q-1 does not impose any separate burden.
    For purposes of the PRA, we continue to estimate that 1,101 issuers 
will be subject to Rule 13q-1. We have derived our burden estimates by 
estimating the average number of hours it would take an issuer to 
prepare and file the required disclosure. 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 rules, 
and some issuers may experience less than these average costs. When 
determining these estimates, we have assumed that 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.\646\ 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. As discussed above, we received estimates from some 
commentators expressed in burden hours and estimates from other 
commentators expressed in dollar costs. For purposes of this analysis 
and consistent with our approach with respect to the estimates provided 
in burden hours, we assume 25% of the dollar costs provided by 
commentators relate to costs for outside professionals.\647\ We expect 
that the rules' effect will be greatest during the first year of their 
effectiveness and diminish in subsequent years. To account for this 
expected diminishing burden, we believe a three-year average of the 
expected burden during the first year with the expected ongoing burden 
during the next two years is a reasonable estimate. After considering 
the comments we received, we are revising our estimate of the PRA 
compliance burden hours and costs associated with the disclosure 
requirements.\648\
---------------------------------------------------------------------------

    \646\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis we estimate that 
such costs would be an average of $400 per hour. This is the rate we 
typically estimate for outside legal services used in connection 
with public company reporting. We note that no commentators provided 
us with an alternative rate estimate for these purposes.
    \647\ The comment letters providing dollar estimates did not 
explain how they arrived at such estimates, or provide any 
calculations as to the cost per hour. As such, we have included 25% 
of the dollar cost estimate in our calculation of costs of outside 
professionals, but we were not provided with sufficient data to 
convert commentators' dollar cost estimates into burden hour 
estimates.
    \648\ Although the comments we received with respect to our PRA 
estimates related to the proposal to include the disclosure 
requirements in Forms 10-K, 20-F, and 40-F, we have considered these 
estimates in arriving at our estimate for Form SD because, although 
the disclosures will be provided pursuant to a new rule and in a new 
form, the disclosure requirements themselves are generally not 
impacted by moving the disclosure to a different form. In the 
Proposing Release we requested comment on whether the required 
disclosure should be provided in a new form. We believe that any 
additional burden created by the use of a new form, rather than 
existing annual reports, will be minimal. See also letters from API 
1 and Cleary.
---------------------------------------------------------------------------

    In arriving at our initial estimate in the Proposing Release we 
looked to the burden hours associated with the disclosure required by 
the oil and gas rules adopted in 2008, and estimated that the burden 
would be less based on our belief that the disclosure required by the 
proposed rules was less extensive than the oil and gas rules adopted in 
2008. As discussed above, some commentators believed that our initial 
estimates did not adequately reflect the actual burden associated with 
complying with the proposed disclosure requirements.\649\ Based on the 
comments we received, we have increased our estimate of the total 
annual compliance burden for all affected issuers to comply with the 
collection of information in our final rules to be approximately 
332,123 hours of company personnel time and approximately $144,967,250 
for the services of outside professionals, as discussed in detail 
below.
---------------------------------------------------------------------------

    \649\ See notes 526 and 527 and accompanying text.
---------------------------------------------------------------------------

    Some commentators estimated implementation costs of tens of 
millions

[[Page 56415]]

of dollars for large filers, and millions of dollars for smaller 
filers.\650\ These commentators did not describe how they defined 
``small'' and ``large'' filers. One commentator provided an estimate of 
$50 million in implementation costs if the definition of ``project'' is 
narrow and the level of disaggregation is high across other reporting 
parameters, though it did not provide alternate estimates for different 
definitions of ``project,'' leaving project undefined, or different 
levels of disaggregation.\651\ We note that the commentator that 
provided this estimate is among the largest 20 oil and gas companies in 
the world,\652\ and we believe that the estimate it provided may be 
representative of the costs to companies of similar large size, though 
it is likely not a representative estimate of the burden for resource 
extraction issuers that are smaller than this commentator. While we 
received estimates for smaller filers and an estimate for one of the 
largest filers, we did not receive data on companies of varying sizes 
in between the two extremes.
---------------------------------------------------------------------------

    \650\ See letters from API 1 and ExxonMobil 1.
    \651\ See letter from ExxonMobil 1. Although the rules we are 
adopting differ from the assumptions made by the commentator, we do 
not believe we have a basis for deriving a different estimate.
    \652\ See letter from API (October 12, 2010) (pre-proposal 
letter) (ranking the 75 largest oil and gas companies by reserves 
and production).
---------------------------------------------------------------------------

    Similar to our economic analysis above, to account for the range of 
issuers who will be subject to the final rules, for purposes of this 
analysis, we have used the cost estimates provided by these issuers to 
calculate different cost estimates for issuers of different sizes based 
on either assets or market capitalization. We have estimated costs for 
small issuers (issuers with less than $75 million in market 
capitalization) and larger issuers (issuers with $75 million or more in 
market capitalization). We believe that initial implementation costs 
will be lowest for the smallest issuers and incrementally greater for 
larger issuers. Based on a review of market capitalization data of 
Exchange Act registrants filing under certain Standard Industry 
Classification codes, we estimate that there are approximately 699 
small issuers and 402 large issuers.
    We use Method 2 from our Economic Analysis above \653\ for our 
estimate of total compliance burden. Barrick Gold's estimate \654\ of 
1,000 hours for compliance (500 hours for initial changes to internal 
books and records and 500 hours for initial compliance) is the starting 
point of the analysis.\655\ Barrick Gold is a large accelerated filer, 
so we use 1,000 hours as the burden estimate for large issuers. In 
order to determine the number of hours for a small issuer, we scale 
Barrick Gold's estimate of the number of hours by the relative size of 
a small issuer. In the Economic Analysis above, the ratio of all small 
issuer total assets, $353 billion ($509,000,000 x 63% x 1,101), to all 
large issuer total assets, $1,835 billion ($4,504,000,000 x 37% x 
1,101), is 19%. In order to be conservative, rather than using 19%, we 
estimate that the number of burden hours for small issuers will be 25% 
of the burden hours of large issuers, resulting in 250 hours.
---------------------------------------------------------------------------

    \653\ Method 2 estimates compliance costs separately for small 
and large issuers. See Section III.D. above. Because 63% of the 
issuers estimated to be subject to the final rules are small 
issuers, we believe that, for PRA purposes, Method 2 provides for a 
more accurate assessment of Form SD's compliance costs than Method 
1, which is based on deriving an average of costs.
    \654\ We use Barrick Gold's estimate because it is the only 
commentator that provided a number of hours and dollar value 
estimates for initial and ongoing compliance costs. Although in the 
Economic Analysis section we used ExxonMobil's dollar value estimate 
to calculate an upper bound of compliance costs, we are unable to 
calculate the number of burden hours for purposes of the PRA 
analysis using ExxonMobil's inputs.
    \655\ As noted above, the costs for PRA purposes are only a 
portion of the costs associated with complying with the final rules.
---------------------------------------------------------------------------

    We received comments and estimates on the PRA analysis both in 
hours necessary to comply with the rules and dollar costs of 
compliance, as discussed above. In the Economic Analysis above, we 
assume that the commentators' estimates represent total implementation 
costs, including both internal costs and outside professional costs. 
For purposes of this PRA analysis, we assume, as we have throughout the 
analysis, that 25% of this burden of preparation represents the cost of 
outside professionals.
    We believe that the burden associated with this collection of 
information will be greatest during the implementation period to 
account for initial set up costs, but that ongoing compliance costs 
will be less than during the initial implementation period once 
companies have made any necessary modifications to their systems to 
capture and report the information required by the rules. Two 
commentators provided estimates of ongoing compliance costs: Rio Tinto 
provided an estimate of 5,000-10,000 burden hours for ongoing 
compliance,\656\ while Barrick Gold provided an estimate of 500 burden 
hours for ongoing compliance. Based on market capitalization data, Rio 
Tinto is among the top five percent of resource extraction issuers that 
are Exchange Act reporting companies. We believe that, because of the 
size of this commentator, the estimate it provided may be 
representative of the burden for resource extraction issuers of a 
similar size, but may not be a representative estimate for resource 
extraction issuers that are smaller than this commentator. We believe 
that Barrick Gold is more similar to the average large issuer than Rio 
Tinto, and as such, we believe that Barrick Gold's estimate is a 
conservative estimate of the ongoing compliance burden hours because a 
comparison of the average total assets of a large issuer to Barrick 
Gold's total assets is 18% ($4,504,000,000/$25,075,000,000).\657\ As 
discussed above, commentators' estimates on the burdens associated with 
initial implementation and ongoing compliance varied widely, with 
commentators noting that the estimates varied based on the size of 
issuer.\658\ We note that some estimates may reflect the burden to a 
particular commentator, and, as such, may not be a representative 
estimate of the burden for resource extraction issuers that are smaller 
or larger than the particular commentator.\659\ Accordingly, we have 
revised our estimate using an average of the figures provided to 
produce a reasonable estimate of the potential burden associated with 
the rules, recognizing they would apply to resource extraction issuers 
of different sizes. We are using 500 burden hours (Barrick Gold's 
estimate) for our estimate of ongoing compliance costs for large 
issuers and 125 (25% x 500) for small issuers. Thus, we estimate that 
the incremental collection of information burden associated with the 
final rules and form amendment will be 667 burden hours per large 
respondent [(1,000 + 500 + 500)/3 years] and 250 per small respondent 
[(500 + 125 +125)/3 years]. We estimate the final rules and form 
amendment will result in an internal burden to small resource 
extraction issuers of 131,063 hours (699 forms x 250 hours/form x .75) 
and to large resource extraction issuers of

[[Page 56416]]

201,101 hours (402 forms x 667 hours/form x .75) for a total 
incremental company burden of 332,164 hours. Outside professional costs 
will be $17,475,000 (699 forms x 250 hours/form x .25 x $400) for small 
resource extraction issuers and $26,813,400 (402 forms x 667 hours/form 
x .25 x $400). As discussed above, one commentator, Barrick Gold, 
indicated that its initial compliance costs also would include $100,000 
for IT consulting, training, and travel costs. To account for these 
costs, we have used Barrick Gold's estimate and applied the same 25% 
factor to derive estimated IT costs of $100,000 for large issuers and 
$25,000 for small issuers. Thus, we estimate total IT compliance costs 
for small issuers to be $17,475,000 (699 issuers x $25,000) and for 
large issuers to be $40,200,000 (402 issuers x $100,000). We have added 
the estimated IT compliance costs to the cost estimates for other 
professional costs discussed above to derive total professional costs 
of $34,950,000 for small issuers and $67,013,400 for large issuers. The 
estimated overall professional cost for PRA purposes is $101,963,400.
---------------------------------------------------------------------------

    \656\ See letter from Rio Tinto. This commentator estimated 100-
200 hours of work at the head office, an additional 100-200 hours of 
work providing support to its business units, and a total of 4,800-
9,600 hours by its business units. We arrived at the estimated range 
of 5,000-10,000 hours by adding the estimates provided by this 
commentator (100 + 100 + 4,800 = 5,000, and 200 + 200 + 9,600 = 
10,000).
    \657\ The average large issuer's total assets compared to Rio 
Tinto's total assets ($97 billion) is 4.5%. See note 625 for an 
explanation of the average large issuer's total assets.
    \658\ See letter from API 1 (estimating implementation costs in 
the tens of millions of dollars for large filers and millions of 
dollars for many smaller filers). This commentator did not explain 
how it defined small and large filers.
    \659\ We note, for example, one commentator's letter indicating 
that it had approximately 120 operating entities. See letter from 
Rio Tinto.
---------------------------------------------------------------------------

D. Revised PRA Estimate

    The table below illustrates the annual compliance burden of the 
Form SD collection of information.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Increase in                          Total increase
              Issuer size                Annual responses     Incremental        Increase in        professional      Increase in IT    professional and
                                                           burden hours/form     burden hours          costs           costs/issuer         IT costs
                                                      (A)                (B)   (C) = (A*B)*0.75                (D)                (E)    (F) = (D) + (E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small.................................                699                250            131,063        $17,475,000        $17,475,000        $34,950,000
Large.................................                402                667            201,101         26,813,400         40,200,000         67,013,400
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................              1,101  .................            332,164  .................  .................        101,963,400
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Our PRA estimate is within the range of our estimates in the 
Economic Analysis section above.\660\
---------------------------------------------------------------------------

    \660\ Despite using Barrick Gold's estimate, our revised 
estimate of PRA professional costs of $101,963,400 is higher than 
the lower bound of compliance costs ($43,757,043) estimated under 
Method 2 in the Economic Analysis section, which is also based on 
Barrick Gold's estimate. This is mainly because we estimate the PRA 
costs as fixed costs for smaller and larger issuers, whereas in the 
Economic Analysis section, because of the nature of the data 
provided by commentators, we estimate the total compliance costs as 
variable costs.
---------------------------------------------------------------------------

V. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act Analysis (``FRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act.\661\ This 
FRFA relates to the final rules we are adopting 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.
---------------------------------------------------------------------------

    \661\ 5 U.S.C. 601.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Final Rules

    The final rules are designed to implement the requirements of 
Section 13(q) of the Exchange Act, which was added by Section 1504 of 
the Dodd-Frank Act. Specifically, the new rule and form amendment will 
require a resource extraction issuer to disclose in an annual report 
certain information relating to payments made by the issuer, a 
subsidiary of the issuer, or an entity under the control of the issuer 
to a foreign government or the United States Federal Government for the 
purpose of the commercial development of oil, natural gas, or minerals. 
A resource extraction issuer will have to disclose the required payment 
information annually in new Form SD and include an exhibit with the 
required payment information formatted in XBRL.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on any aspect of the 
Initial Regulatory Flexibility Act Analysis (``IRFA''), including the 
number of small entities that would be affected by the proposed rules, 
the nature of the impact, how to quantify the number of small entities 
that would be affected, and how to quantify the impact of the proposed 
rules. We did not receive comments specifically addressing the IRFA; 
however, several commentators addressed aspects of the proposed rules 
that could potentially affect small entities. Some commentators 
supported an exemption for a ``small entity'' or ``small business'' 
having $5 million or less in assets on the last day of its most 
recently completed fiscal year.\662\ Other commentators opposed an 
exemption for small entities and other smaller companies. Those 
commentators noted that, while smaller companies have more limited 
operations and projects, and therefore fewer payments to disclose as 
compared to larger companies, they generally take on greater risks due 
to the nature of their operations.\663\
---------------------------------------------------------------------------

    \662\ See letters from API 1, Chevron, ExxonMobil 1, and RDS 1.
    \663\ See letters from Calvert, Global Witness 1, Oxfam 1, PWYP 
1, Sen. Cardin et al. 1, and Soros 1.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Rules

    The final rules will 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) 
\664\ 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 final rules will affect some 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 Standard Industry Classification 
codes, we estimate that approximately 196 oil, natural gas, and mining 
companies are resource extraction issuers and that may be considered 
small entities.
---------------------------------------------------------------------------

    \664\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The final rules will add to the annual disclosure requirements of 
companies meeting the definition of resource extraction issuer, 
including small entities, by requiring them to file the payment 
disclosure mandated by Section 13(q) and the rules issued thereunder in 
new Form SD. The disclosure must include:

[[Page 56417]]

     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.
    A resource extraction issuer must provide the required disclosure 
in Form SD and in an exhibit formatted in XBRL. Consistent with the 
statute, the rules require an 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:
     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.

In addition, a resource extraction issuer will 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 XBRL 
format. The disclosure requirements will apply equally to U.S. and 
foreign resource extraction issuers.

E. Agency Action To Minimize Effect on Small Entities

    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 adopting the final rules, we considered, as 
alternatives, establishing different compliance or reporting 
requirements that take into account the resources available to smaller 
entities, exempting smaller entities from coverage of the disclosure 
requirements, and clarifying, consolidating, or simplifying disclosure 
for small entities.
    The final rules are designed to implement the payment disclosure 
requirements of Section 13(q), which applies to resource extraction 
issuers regardless of size. While a few commentators supported an 
exemption from the disclosure requirements for small entities,\665\ 
numerous other commentators opposed exempting small entities because 
that would be inconsistent with the statute and would contravene 
Congress' intent of creating a level playing field for all affected 
issuers.\666\ We do not believe that exempting resource extraction 
issuers that are small entities, many of which are mining companies 
engaged in exploration activities that require payments to 
governments,\667\ or adopting different disclosure requirements or 
additional delayed compliance for small entities, would be consistent 
with the statutory purpose of Section 13(q). For example, we do not 
believe that adopting rules permitting small entities to disclose 
payments at the country level would be consistent with the statutory 
purpose of Section 13(q). The statute is designed to enhance the 
transparency of payments by resource extraction issuers to governments. 
Adoption of different disclosure requirements for small entities would 
impede the transparency and comparability of the disclosure mandated by 
Section 13(q). In addition, it is not clear that adopting different 
standards or a delayed compliance date would provide small entities 
with a significant benefit. For example, small entities may have a 
limited number of projects in a limited number of countries and in some 
cases small entities may have only one project in a country.
---------------------------------------------------------------------------

    \665\ See note 42 and accompanying text.
    \666\ See note 34 and accompanying text.
    \667\ See letters from Calvert and PWYP 1.
---------------------------------------------------------------------------

    We also have considered the alternative of using performance 
standards rather than design standards. We generally have used design 
rather than performance standards in connection with the final rules 
because we believe the statutory language, which requires the 
electronic tagging of specific items, contemplates the adoption of 
specific disclosure requirements. We further believe the final rules 
will be more useful to users of the information if there are specific 
disclosure requirements. Such requirements will help to promote 
transparent and comparable disclosure among all resource extraction 
issuers, which should help further the statutory goal of promoting 
international transparency of payments to governments. At the same 
time, we have determined to leave the term ``project'' undefined to 
give issuers flexibility in applying the term to different business 
contexts depending on factors such as the particular industry or 
business in which the issuer operates, or the issuer's size.

VI. Statutory Authority and Text of Final Rule and Form Amendments

    We are adopting the rule and form amendments contained in this 
document under the authority set forth in Sections 3(b), 12, 13, 15, 
23(a), and 36 the Exchange Act.

List of Subjects in 17 CFR Parts 240 and 249b

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, we are amending Title 17, Chapter 
II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 is amended by adding an 
authority for Sec.  240.13q-1 in numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q, 
78s, 78u-5, 78w, 78x, 78dd(b), 78dd(c), 78ll, 78mm, 80a-20, 80a-23, 
80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq. and 8302; 18 
U.S.C. 1350; 12 U.S.C. 5221(e)(3); and Pub. L. 111-203, Sec. 712, 
124 Stat. 1376, (2010) unless otherwise noted.
* * * * *
    Section 240.13q-1 is also issued under sec. 1504, Pub. L. 111-
203, 124 Stat. 2220.
* * * * *

0
2. Add Sec.  240.13q-1 to read as follows:


Sec.  240.13q-1  Disclosure of payments made by resource extraction 
issuers.

    (a) A resource extraction issuer, as defined by paragraph (b) of 
this section, shall file a report on Form SD (17 CFR 249b.400) within 
the period specified in that Form disclosing the information required 
by the applicable items of Form SD as specified in that Form.
    (b) Definitions. For the purpose of this section:
    (1) 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.
    (2) Commercial development of oil, natural gas, or minerals 
includes exploration, extraction, processing, and export of oil, 
natural gas, or minerals, or the acquisition of a license for any such 
activity.

[[Page 56418]]

PART 249b--FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

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3. The authority citation for part 249b is amended by adding an 
authority for Sec.  249b.400 to read as follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.
* * * * *
    Section 249b.400 is also issued under secs. 1502 and 1504, Pub. 
L. No. 111-203, 124 Stat. 2213 and 2220.
* * * * *

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4. Amend Sec.  249b.400 by:
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a. Designating the existing text as paragraph (a); and
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b. Adding paragraph (b).
    The addition reads as follows:


Sec.  249b.400  Form SD, Specialized Disclosure Report

    (a) * * *
    (b) This Form shall be filed pursuant to Rule 13q-1 (Sec.  240.13q-
1) of this chapter by resource extraction issuers that are required to 
disclose the information required by Section 13(q) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(q)) and Rule 13q-1 of this chapter.

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5. Amend Form SD (as referenced in Sec.  249b.400) by:
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a. Adding a check box for Rule 13q-1;
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c. Revising instruction A. under ``General Instructions'';
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d. Redesignating instruction B.2. as B.3 and adding new instructions 
B.2. and B.4. under the ``General Instructions''; and
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e. Redesignating Section 2 as Section 3, adding new Section 2, and 
revising newly redesignated Section 3 under the ``Information to be 
Included in the Report''.
    The addition and revision read as follows:

    Note: The text of Form SD does not, and this amendment will not, 
appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM SD
Specialized Disclosure Report
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(Exact name of the registrant as specified in its charter)
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(State or other jurisdiction of incorporation)
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(Commission file number)
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(Address of principle executive offices)
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(Zip code)
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(Name and telephone number, including area code, of the person to 
contact in connection with this report.)
    Check the appropriate box to indicate the rule pursuant to which 
this form is being filed:
    ---- Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-
1) for the reporting period from January 1 to December 31,--------.
    ---- Rule 13q-1 under the Securities Exchange Act (17 CFR 240.13q-
1) for the fiscal year ended--------.

GENERAL INSTRUCTIONS

A. Rule as to Use of Form SD.

    This form shall be used for a report pursuant to Rule 13p-1 (17 CFR 
240.13p-1) and Rule 13q-1 (17 CFR 240.13q-1) under the Exchange Act.

B. Information to be Reported and Time for Filing of Reports.

    1. * * *
    2. Form filed under Rule 13q-1. File the information required by 
Section 2 of this Form on EDGAR no later than 150 days after the end of 
the issuer's most recent fiscal year.
    3. If the deadline for filing this form occurs on a Saturday, 
Sunday or holiday on which the Commission is not open for business, 
then the deadline shall be the next business day.
    4. The information and documents filed in this report shall not be 
deemed to be incorporated by reference into any filing under the 
Securities Act or the Exchange Act, unless the registrant specifically 
incorporates it by reference into a filing under the Securities Act or 
the Exchange Act.
* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

* * * * *

Section 2--Resource Extraction Issuer Disclosure

Item 2.01 Disclosure requirements regarding payments to governments

    (a) A resource extraction issuer shall file an annual report on 
Form SD with the Commission, and include as an exhibit to this Form SD, 
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, a resource 
extraction issuer must file the following information in an exhibit to 
this Form SD electronically formatted using the eXtensible Business 
Reporting Language (XBRL) interactive data standard:
    (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 listed in 
(c)(6)(iii);
    (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.
    (b) Provide a statement in the body of the Form SD that the 
specified payment disclosure required by this form is included in an 
exhibit to this form.
    (c) For purposes of this item:
    (1) The term commercial development of oil, natural gas, or 
minerals includes exploration, extraction, processing, and export of 
oil, natural gas, or minerals, or the acquisition of a license for any 
such activity.
    (2) The term 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 Item 2.01, 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) The term financial period means the fiscal year in which the 
payment was made.
    (4) The term business segment means a business segment consistent 
with the reportable segments used by the resource extraction issuer for 
purposes of financial reporting.
    (5) The terms ``subsidiary'' and ``control'' are defined as 
provided under Sec.  240.12b-2 of this chapter.
    (6) The term payment means an amount paid that:
    (i) Is made to further the commercial development of oil, natural 
gas, or minerals;

[[Page 56419]]

    (ii) Is not de minimis; and
    (iii) Includes:
    (A) Taxes;
    (B) Royalties;
    (C) Fees;
    (D) Production entitlements;
    (E) Bonuses;
    (F) Dividends; and
    (G) Payments for infrastructure improvements.
    (7) The term not de minimis means any payment, whether made as a 
single payment or a series of related payments, that equals or exceeds 
$100,000. In the case of any arrangement providing for periodic 
payments or installments, a resource extraction issuer must consider 
the aggregate amount of the related periodic payments or installments 
of the related payments in determining whether the payment threshold 
has been met for that series of payments, and accordingly, whether 
disclosure is required.

Instructions

    1. If a resource extraction issuer makes an in-kind payment of the 
types of payments required to be disclosed, the issuer must disclose 
the payment. When reporting an in-kind payment, an issuer must 
determine the monetary value of the in-kind payment and tag the 
information as ``in-kind'' for purposes of the currency. For purposes 
of the disclosure, an issuer may report the payment at cost, or if cost 
is not determinable, fair market value and should provide a brief 
description of how the monetary value was calculated.
    2. If a government levies a payment, such as a tax or dividend, at 
the entity level rather than on a particular project, a resource 
extraction issuer may disclose that payment at the entity level. To the 
extent that payments, such as corporate income taxes and dividends, are 
made for obligations levied at the entity level, an issuer may omit 
certain tags that may be inapplicable (e.g., project tag, business 
segment tag) for those payment types as long as it provides all other 
electronic tags, including the tag identifying the recipient 
government.
    3. An issuer must report the amount of payments made for each 
payment type, and the total amount of payments made for each project 
and to each government, during the reporting period in either U.S. 
dollars or the issuer's reporting currency. If an issuer has made 
payments in currencies other than U.S. dollars or its reporting 
currency, it may choose to calculate the currency conversion between 
the currency in which the payment was made and U.S. dollars or the 
issuer's reporting currency, as applicable, in one of three ways: (a) 
by translating the expenses at the exchange rate existing at the time 
the payment is made; (b) using a weighted average of the exchange rates 
during the period; or (c) based on the exchange rate as of the issuer's 
fiscal year end. A resource extraction issuer must disclose the method 
used to calculate the currency conversion.
    4. A company owned by a foreign government is a company that is at 
least majority-owned by a foreign government.
    5. A resource extraction issuer must disclose payments made for 
taxes on corporate profits, corporate income, and production. 
Disclosure of payments made for taxes levied on consumption, such as 
value added taxes, personal income taxes, or sales taxes, is not 
required.
    6. As used in Item 2.01(c)(6), fees include license fees, rental 
fees, entry fees, and other considerations for licenses or concessions. 
Bonuses include signature, discovery, and production bonuses.
    7. A resource extraction issuer generally need not disclose 
dividends paid to a government as a common or ordinary shareholder of 
the issuer as long as the dividend is paid to the government under the 
same terms as other shareholders; however, the issuer will be required 
to disclose any dividends paid in lieu of production entitlements or 
royalties.
    8. If an issuer meeting the definition of ``resource extraction 
issuer'' in Rule 13q-1(b)(1) is a wholly-owned subsidiary of a resource 
extraction issuer that has filed a Form SD disclosing the information 
required by Item 2.01 for the wholly-owned subsidiary, then such 
subsidiary shall not be required to separately file the disclosure 
required by Item 2.01. In such circumstances, the wholly-owned 
subsidiary would be required to file a notice on Form SD providing an 
explanatory note that the required disclosure was filed on Form SD by 
the parent and the date the parent filed the disclosure. The reporting 
parent company must note that it is filing the required disclosure for 
a wholly-owned subsidiary and must identify the subsidiary on Form SD. 
For purposes of this instruction, all of the subsidiary's equity 
securities must be owned, either directly or indirectly, by a single 
person that is a reporting company under the Act that meets the 
definition of ``resource extraction issuer.''
    9. Disclosure is required under this paragraph in circumstances in 
which an activity related to the commercial development of oil, natural 
gas, or minerals, or a payment or series of payments made by a resource 
extraction issuer to a foreign government or the U.S. Federal 
Government for the purpose of commercial development of oil, natural 
gas, or minerals are not, in form or characterization, one of the 
categories of activities or payments specified in this section but are 
part of a plan or scheme to evade the disclosure required under Section 
13(q).

Section 3--Exhibits

Item 3.01 Exhibits

    List below the following exhibits filed as part of this report.
    Exhibit 1.01--Conflict Minerals Report as required by Items 1.01 
and 1.02 of this Form.
    Exhibit 2.01--Resource Extraction Issuer Disclosure Report as 
required by Item 2.01 of this Form.

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 
1934, the registrant has duly caused this report to be signed on its 
behalf by the duly authorized undersigned.
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(Registrant)

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By (Signature and Title)*

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(Date)

    *Print name and title of the registrant's signing executive officer 
under his or her signature.
* * * * *

    By the Commission.
     Dated: August 22, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-21155 Filed 9-11-12; 8:45 am]
BILLING CODE P