Common sense should be applied to a federal transparency proposal – the U.S. Securities and Exchange Commission’s pending Section 1504 rule that would make U.S. energy companies disclose what they pay foreign governments and the U.S. government for projects in those countries. The rule also should be consistent with administration policy … as in a directive from the president himself.

The president’s May 1, 2012, executive order, promoting international regulatory harmony and reducing unnecessary business costs by aligning U.S. regulations with those in other nations, appears applicable to Section 1504 – which looks like a harmony wrecker and more.

In written comments to the commission, API Vice President and General Counsel Harry Ng argues Section 1504 could bring U.S. companies into conflict in countries where the reporting of payments to the host government would violate that country’s laws – while also putting companies at a disadvantage in the marketplace. Ng: 

“If the (SEC) were to issue a final rule that requires reporting even when it conflicts with foreign laws, such a rule would cause exactly the type of unnecessary competitive harm that the Executive Order seeks to avoid. The rule as currently proposed would create inconsistencies with the existing international disclosure standard promoted by the Extractive Industries Transparency Initiative. The proposed rule would also require some American companies operating abroad to make the Hobson's choice between violating foreign laws (and subjecting themselves to civil or criminal penalties) or abandoning operations in foreign countries that prohibit disclosure.”

Section 1504’s good intentions – to help citizens in other countries know what their governments are doing with their natural resources – unfortunately could have unintended negative results.

While the oil and natural gas industry supports transparency, Section 1504 as written could harm some U.S. companies’ ability to compete with larger, state-owned rivals who are not subject to the provision. The disclosure of detailed information, possibly proprietary in nature, would give an obvious edge to competitors.

The administration should follow the president’s own policy directive and fix this problem. Ng:

“To avoid such conflicts and their costly consequences, API and other commenters have suggested that the Commission use its definitional authority, and, if necessary, its exemptive authority to exempt the reporting requirement where reporting would cause a company to violate foreign law. Tailoring the rule in this manner would further the Administration's goals of harmonizing regulatory approaches among nations and facilitating economic growth and job creation.”