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American Petroleum Institute v. Securities & Exchange Commission

ELR Citation: 43 ELR 20146
Nos. 12-1668, (D.D.C., 07/02/2013) (Bates, J.)

A district court vacated an SEC rule that requires certain companies to disclose payments made to foreign governments in connection with the commercial development of oil, natural gas, or minerals. The rule was promulgated in response to §13(q) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which addresses a phenomenon whereby “oil money intended for a nation’s poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments.” Section 13(q) directs SEC to issue rules requiring companies listed on a U.S. stock exchange that engage in the commercial development of oil, natural gas, or minerals to include in an annual report "information relating to any payment made" to a foreign government or the U.S. government for that development. Oil, natural gas, and mining associations challenged the rule, arguing that it violated the APA as well as the First Amendment. But the court did not reach the associations' First Amendment challenge or most of their APA arguments because SEC committed two substantial errors in promulgating the rule. First, SEC misread the Act to mandate public disclosure of the reports. Section 13(q) requires disclosure of annual reports but says nothing about whether the disclosure must be public or may be made to the SEC alone. Second, SEC's decision to deny any exemption for countries that prohibit payment disclosure was arbitrary and capricious. Although a broadly written exemption could eviscerate §13(q) by allowing any country to avoid disclosure by enacting a disclosure-barring law, a fuller analysis was warranted given the proportion of the burdens on competition and investors associated with this single decision.