The Cardin-Lugar Amendment (Dodd-Frank 1504)

Background
What exactly does Dodd-Frank 1504 entail?
Which companies are covered?
What type of information will the companies have to provide?
When is it coming into force?
Should we make exceptions? What if a host country doesn’t allow a company to divulge information?
What about EITI?
Does Dodd-Frank infringe on national sovereignty?
Won’t this put American companies at a disadvantage?

Background
In 2010 Congress Senators Cardin and Lugar submitted an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. This amendment – based on the Energy Security through Transparency Act (S. 1700) of 2009 – requires all listed extractive companies to publish their payments in all the countries where they operate. It was added to the Dodd-Frank Act during the conference process. Although this is a rare channel for amendments to go through, the bill was debated publicly and regularly, went through due process and companies had ample opportunity to make comments on bill. The amendment became provision 1504 of the Dodd-Frank Act which passed in July 2010.

What exactly does Dodd-Frank 1504 entail?
Dodd-Frank 1504 adds to existing stock listing requirements in the US by obliging all extractive companies to publish the payments they make to the US and foreign governments in the countries where they operate. This information is to be disclosed in an annual document to the US Securities and Exchange Commission.

Which companies are covered?

All companies that are listed in the US and engage in the commercial development of oil, gas and other minerals (defined in Dodd-Frank 1504 as exploration, extraction, processing, export and other significant actions) will be covered. This includes eight of the ten largest mining companies and 29 of the 32 largest internationally active oil companies.

What type of information will the companies have to provide?

Companies that engage in the commercial development of oil, natural gas or minerals will have to report – The type and total amount of payments made for each project, and, – The type and total amounts of payments made to each government.
These payments cover report taxes, royalties, fees (including license fees), production entitlements and bonuses.

When is it coming into force?

Following a lawsuit from the American Petroleum Institute, the Securities and Exchange Commission has been requested to re-issue rules originally issued in 2012 that govern Dodd-Frank 1504 before the law can come into effect.

In March 2014 PWYP USA submitted a position statement to the SEC, calling for the swift re-issuing of strong rules.

Should we make exceptions? What if a host country doesn’t allow a company to divulge information?

Companies have argued that some countries would prohibit them from publishing payment information, thus forcing companies to choose between following US law or the law set by host countries. However, evidence for such cases is not forthcoming.

Angola has been cited as an example. Yet Angola allows companies to publish payment information as long as they ask permission from the government beforehand. Statoil-Hydro has been publishing the payments it makes to the Angolan government in its annual reports. Revenue Watch Institute and Columbia University Law School conducted research into this and concluded that ‘it is standard for industry contracts to allow for disclosures as mandated by securities regulators.’

Furthermore the SEC requires diverse information from listed companies and as such already has mechanisms to safeguard companies in cases of contradictory laws or confidentiality clauses. There is no need to for specific exceptions.

Aside from the factual inaccuracy of this argument, there is little logic in allowing countries with opaque practices to dictate the terms of a law designed to improve financial transparency. To make exceptions would ‘go against the intent and spirit of the bill’.

What about EITI?

The Cardin-Lugar amendment is not intended to replace EITI but to complement it. Far from threatening the EITI process, Dodd-Frank can encourage more countries to join in. Since payment data will be made available for countries not yet signed up to the EITI, this can bolster the efforts of EITI advocates who are pushing for their governments to sign on. The availability of this data may allow them to demonstrate that part of the process is already underway, and that the government must match those efforts with the remaining components of national EITI implementation. In these cases Dodd-Frank will create a precedent and provide the necessary first step toward transparency.

Dodd-Frank will create a flow of high-quality financial data for inclusion in EITI reports. It will ensure that data is available from each extractive company. A representative from an EITI implementing country pointed out that he sometimes encountered difficulty with obtaining payment information from companies operating in his country. With Dodd-Frank companies will find it harder to shirk these requirements.

The relationship between EITI and Dodd-Frank was a main thread throughout the global EITI conference of March 2011, which gathered 1000 representatives from the private sector, governments and civil society. Aside from a few oil sector voices, the consensus – be it from chair of the EITI board Peter Eigen or Chris Anderson of Newmont mining – was that Dodd-Frank would support and strengthen the EITI process rather than detract from it.

Does Dodd-Frank infringe on national sovereignty?

While Shell has argued that Dodd-Frank will infringe on the national sovereignty of producer countries, no representative from producer country have yet come out in agreement. On the contrary citizens have actively come out in support of Dodd-Frank 1504 and have asked for similar legislation from other countries.
200 Ugandan activists wrote an open letter to British Prime Minister David Cameron asking him to enact similar legislation for the London Stock Exchange, which hosts companies active in Uganda. Ugandan MP Henry Banyenzaki, in a letter to Shell Representative Peter Voser stated that mandatory financial reporting such as Dodd-Frank was ‘in keeping with the facilitation of the necessary checks and balances essential to ensuring respect for the sovereignty of producer countries’.

Won’t this put American companies at a disadvantage?

Dodd-Frank 1504 applies to all extractive companies listed in the US, both international and American, and it covers a huge portion of extractive companies over the world. The EU is taking steps towards enacting similar legislation which would cover all extractive companies throughout Europe, including those on the London Stock Exchange which has 3 trillion pounds worth of extractive activity.

Research by Revenue Watch and Colombia Law School has shown that fiscal terms in a bidding process are generally known among industry players. Moreover as Revenue Watch Director Karin Lissakers points out in her article, companies have yet to explain how ‘after-the-fact taxes and other payments…reveal the bidding terms for a new oil block.’