Top Menu

SEC Commissioners Acknowledge That Anti-Corruption Policy Is Outside The SEC’s Area Of Expertise


Even though the Securities and Exchange Commission has a specialized Foreign Corrupt Practices Act unit, the FCPA’s legislative history is clear that the SEC never wanted any role in enforcing the FCPA’s anti-bribery provisions. (See here for the article “The Story of the Foreign Corrupt Practices Act).

However, congressional leaders at the time of the FCPA’s enactment had a high level of distrust with the Justice Department and insisted, against the SEC’s objections both when the FCPA was enacted in 1977 and when it was first amended in 1988, that it play a role in enforcing the FCPA’s anti-bribery provisions.

During Congressional hearings in the mid-1970’s, an SEC Commissioner stated:

“[O]ur basic mandate in this matter is one of full disclosure rather than of passing judgment on corporate morality or of imposing our own views as to what is “proper” or “improper.” . . . . . . .

[O]ur purpose and mission is not to eliminate sin, but to enforce the statutes entrusted to us, which, in general, require disclosure of facts material to investors. Companies with foreign payments present some questions in turn in that connection. . . . . . . .

[O]ur obligation . . . is to obtain disclosure of information which is material to investors in the buying and selling of securities in the company. We are not here to police the morality of American industry as such, but the responsibilities of disclosures to investors.”

Likewise, during Congressional hearings, the SEC Chair stated:

“The Commission does not oppose direct prohibitions against these payments, but we have previously stated that, as a matter of principle, we would prefer not to be involved even in the civil enforcement of such prohibitions.


[The SEC] would prefer not to be involved in civil enforcement of such prohibitions since they embody separate and distinct policies from those underlying the federal securities laws. The securities laws are designed primarily to insure disclosure to investors of all of the relevant facts concerning corporations which seek to raise their capital from the public at large. The [criminal payment provisions of proposed legislation], on the other hand, would impose substantive regulation on a particular aspect of corporate behavior. The Commission recognizes the congressional interest in enacting these prohibitions, but the enforcement of such provisions does not easily fit within the Commission’s mandate.”

An SEC Report – part of the FCPA’s legislative history –  stated:

“The Commission believes that the question whether there should be a general statutory prohibition against the making of certain kinds of foreign payments presents a broad issue of national policy with important implications for international trade and commerce, the appropriateness of application of United States law to transactions by United States citizens in foreign countries, and the possible impact of such legislation upon the foreign relations of the United States. In this context the purposes of the federal securities laws, while important, are not the only or even the overriding consideration, and we believe that the issue should be considered separately from the federal securities laws.”

Fast forward 40+ years and earlier this week various SEC Commissioners raised the same concerns regarding its forced implementation of rules to implement Section 1504 of Dodd-Frank titled “Disclosure of Payments by Resource Extraction Issuers” – a statutory provision billed as an anti-corruption measure that has been highlighted on these pages literally since 2009 when first proposed. (See here).

In terms of the long, tortured history of Section 1504’s implementing rules, as stated by SEC Chair Jay Clayton:

“[W]e take another step in a winding, resource-consuming, decade-long journey to implement Section 1504 of the Dodd-Frank Act.  In 2010, Section 1504 added Section 13(q) to the Securities Exchange Act of 1934, which directed the Commission to issue rules, commonly known as the “resource extraction rules,” requiring resource extraction issuers – in essence, certain companies publicly traded on U.S. exchanges – to disclose information about payments made to a foreign government or the Federal government for the purpose of the commercial development of oil, natural gas, or minerals.

The Commission has finalized these rules twice already.  Yes, that’s correct.  Two prior Commissions have gone through the Administrative Procedure Act, or APA, process of developing proposals, publishing those proposals for comment, and then adopting final rules implementing Section 13(q).  The first time the Commission went through the APA process and promulgated final rules in 2012, those final rules were vacated by the U.S. District Court for the District of Columbia.  The second time the Commission went through the APA process and promulgated final rules in 2016 (the “2016 Rules”), those final rules were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act, or the CRA, in 2017.”

Earlier this week, the SEC yet again approved final rules implementing Section 1504 (because Congress demanded it do so), but what is interesting is that various SEC Commissioners raised the same policy issues articulated over four decades ago by their prior colleagues and that is: anti-corruption policy is simply beyond the expertise and mission of the SEC.

In this statement, SEC Commissioner Elad Roisman stated in pertinent part:

“I want to be quite clear: in my personal capacity, I have very strong views on the utter destructiveness and evil of foreign government corruption.  As an SEC Commissioner, however, I am not best equipped nor should I be empowered to make rules to act on these views. Global anticorruption policy, like many policy issues, is complex.  It touches on foreign relations, trade policy, and international human rights, among other areas.  There are many people, both within our government and outside it, who have focused on mastering the nuances of these issues.  But as an SEC Commissioner, I am not one of them.  This rulemaking task is simply not within my expertise nor does it further our mission.

Let me say that again: this rulemaking does not advance our mission.  As we all well know, the SEC has a tripartite mission: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.  The rule we are adopting today has none of these goals.  It does not add to investor protection.  As the adopting release notes, our existing rules require disclosure of all material information. While some investors may choose to invest based on certain idiosyncratic interests and values, our mandate has never been understood to include requiring disclosures of all information that any investor might want to know, particularly for making an investment decision.  And for good reason.  It would burden companies, investors, and other market participants with immense disclosure and review obligations and enmesh the Commission in all manner of social policy judgments and disputes.  Again, while the desire to reduce international government corruption is laudable, public disclosures by companies to governments of all manner of project-related fees has never been deemed “material” to their investment decisions.   The rule fails on that prong of the SEC mission.

Does this rule help to maintain fair, orderly, and efficient markets?  I see no nexus to our securities markets or trading venues.

Does it facilitate capital formation?  Not in any way that I can see.


However, I will vote in favor of adopting this rule.  My vote does not reflect any enthusiasm I have for the policy mandate we received from Congress to write such rules in the first place.  Rather, I will support this rule because I believe we have a duty to implement the mandates handed to us by Congress, and because I believe this is a reasonable implementation of the mandate set forth in Section 13(q).

After Congress disapproved the last rule pursuant to the CRA, we were required to promulgate a rule that would implement Section 13(q) but that is “not substantially the same” as the rule we adopted in 2016. The key difference between our 2016 rule and the one we are considering today is the new definition of “project” as well as number of additional, smaller changes.  I believe the rule before us will elicit the disclosure of government payments that the statute requires while minimizing the potential competitive harm or other burdens on public issuers. Therefore, I believe this is a reasonable implementation of this provision that appropriately balances the relevant concerns.  I also believe it is not substantially the same as the 2016 rule, and therefore will satisfy the CRA.

I hope, however, that Congress will cease using our disclosure regime to effect social policy outside of this agency’s tripartite mission.  Yes, the Commission has broad authority to require disclosures from thousands of companies in the U.S. and abroad.  But the sheer breadth of this reach is the strongest argument in favor of exercising restraint in its use.  We were granted this authority to carry out our mission, not to indirectly advance a myriad of foreign policy, energy policy, environmental policy, and extraterritorial social policy causes that are not material to investors’ investing decisions.  When we use the disclosure system to effect policy in areas where the Commission has no expertise, the risk of unintended consequences is even greater than usual.  In short, we may very well do more harm than good. I hope that the next time Congress wants to fix a non-financial problem, it will take on the task itself through legislation targeted at the problems it wants to address or delegate to the agencies that have direct authority over and expertise in its root cause.  In this case, the Department of State, Organization for Economic Cooperation and Development, and Department of Energy seem more suited to focusing on the problem at hand.”

In this statement, SEC Chair Jay Clayton stated in pertinent part:

“The purpose of Section 13(q), while laudable and one that I support without hesitation or reservation, simply is not one that the Commission is well-positioned to pursue.  It is outside of our area of expertise – note that of our 4,500 personnel, none are stationed outside of the United States.  In many cases, using the information generated by the rule to further its purposes will be outside of our jurisdictional authority.  Said another way, we are promulgating a disclosure rule that we are counting on others — others not at the table, others who have demonstrated little effectiveness in pursuing anti-corruption efforts — to use as an information tool.

Finally, this rule is employing our world-leading, highly effective, investor-oriented, rigorous disclosure regime to address the interests of non-investors or parties for whom investing is not their primary interest.  This posture runs the risk of our disclosure framework subordinating the interests of investors to other interests.  That is a risk of which we should all be wary regardless of the nature of the non-investment oriented issue.  Due to the focus of the women and men of the SEC on investors and investment decisions, we are the world’s most effective securities regulators.  We should maintain that focus and be wary of using our effectiveness for purposes beyond our remit.”

In this statement, SEC Commissioner Hester Peirce stated in pertinent part:

“I support today’s rulemaking for one simple reason: the law requires us to act, and we are taking a reasonable approach to fulfilling our Congressional mandate to issue rules requiring resource extraction issuers to disclose information relating to payments made to governments for the purpose of the commercial development of oil, natural gas, or minerals.

The Commission’s failure to chart a viable course forward until today, while lamentable, is not altogether surprising considering that the subject matter is unrelated to our tripartite mission.  We maintain a corporate disclosure framework rooted in the concept of materiality. It elicits information that a reasonable investor would consider important in deciding how to vote or to make an investment decision.  Yet today’s release unequivocally states, “we do not believe that the purpose of the required disclosures is to provide material information to investors.” These are chilling words to read in a rulemaking issued by the Commission.  New Rule 13q-1 will lead to the publication of payment information of interest to individuals and organizations focused on holding governments accountable in connection with the commercial development of oil, natural gas, and minerals.  As important as that job is, most of those people are not investors.

Crafting disclosures for non-investors is not our forte.  It takes a lot of staff time and resources that otherwise would be spent doing things that are in our standard portfolio.  Working on rules that are not about investor protection, market function, or capital formation inevitably brings division.  Hence, our history of considering this rule is littered with divided votes.  Aside from the initial proposal from which two commissioners recused themselves, every substantive vote on this rule has been divided.  I hope that our decade-long struggle to implement these rules will serve as a cautionary tale for those that would lead us down similar paths to regulate issues of societal, but not investor, import in the years to come.  An issue that is important to society is not necessarily material from a securities law perspective.”

Save Money With FCPA Connect

Keep it simple. Not all FCPA issues warrant a team of lawyers or other professional advisers. Achieve client and business objectives in a more efficient manner through FCPA Connect. Candid, Comprehensive, and Cost-Effective.




Powered by WordPress. Designed by WooThemes