Yesterday I traveled from Point A to Point B. The route included country roads, state highways, and an interstate. Each road had the speed limit displayed and along the route police cars were monitoring traffic and an few motorists were in fact pulled over. During the trip, I stayed below the speed limit, but nevertheless when I arrived home last night I logged my trip (route, speed limit, purpose of trip, etc.). In fact, I do this every day so that at the end of the year I can report my speed to a federal agency.
Sound a bit foolish to you?
If you answered yes, you should likewise conclude that Section 1504 of Dodd-Frank is foolish. As detailed in this prior post, Section 1504 was the “Miscellaneous Provisions” titled “Disclosure of Payments by Resource Extraction Issuers” tucked into Dodd-Frank at the last minute (even though the original bill languished in Congress).
Once the SEC issues final rules as to Section 1504, the rules are likely to substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments. As noted in the prior post and in this submission I made to the SEC, Section 1504 is akin to “swatting a fly with a bazooka” and it attempts to legislate an issue that was sensibly put to rest in the mid-1970′s when Congress held extensive hearings on what would become the FCPA. In short, bribery and corruption are bad, but that does not mean that every attempt to curtail bribery and corruption is good.
I was reminded of Section 1504 last week when reading Joe Palazzolo’s article in the Wall Street Journal Corruption Currents page about how Royal Dutch Shell “is trying to curb” the reach of Section 1504’s disclosure requirements. The article links to an August 1st letter from Shell to the SEC (here) in which Shell “provide[d] greater clarity regarding [its] expected costs associated with the Commission’s proposed rules in its release titled Disclosure of Payments by Resource Extraction Issuers. (See here for the proposed rules). In the letter, Martin ten Brink (Executive Vice President Controller) focuses on material vs. immaterial projects and states as follows. “… [W]e wish to inform the Commission that if it were to adopt rules requiring disclosure for immaterial projects, disclosure that by definition is not important to reasonable investors, our marginal costs for this additional disclosure, with the required changes to our financial systems, needed to gather, assure and disclose the proposed information, would be in the tens of millions of dollars. However, by revising its proposed rules to limit disclosure to material projects, those projects that a reasonable investor considers important, we have estimated that the increase in our marginal costs would be reduced very significantly.”
As noted by Palazzolo, the Shell letter specifically references the recent decision by the U.S. Court of Appeals (D.C. Circuit) in Business Roundtable and Chamber of Commerce vs. SEC. In the opinion (here) a three-judge panel unanimously struck down the SEC’s so-called proxy access rule (Rule 14a-11) because “the Commission acted arbitrarily and capriciously for having failed once again […] adequately to assess the economic effects of a new rule.” As noted by Palazzolo, the SEC was supposed to have Section 1504’s rules finalized by April, but the agency pushed the deadline to the end of the year.
The SEC is not to blame for Section 1504. Congress put this issue on the SEC’s plate and said you write the rules. With the SEC struggling mightily to write the rules implementing Section 1504, the remedy should be for Congress to revisit Section 1504 and for it to reach the sensible conclusion (a conclusion a prior Congress reached in considering legislation to address the foreign payments issues in the mid-1970’s) that disclosure of perfectly legal and legitimate payments to foreign governments is not necessary.
Many NGO’s and civil society organizations support Section 1504 and have been known to say that companies who do not bribe should not be bothered by Section 1504’s disclosure requirements. That is like saying motorists who do not speed should not be bothered by the speed disclosures referenced at the beginning of this post.