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Corruption or bribery
SEC's new rule could make some of this go away by
forcing more transparency in the oil and mining industries.
After a two-year delay and fierce opposition by some industry groups, the Securities and Exchange Commission this week adopted two natural-resource transparency rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act. One requires U.S. mining and oil companies to disclose taxes, royalties and fees they pay foreign governments in an effort to stem corruption common in some nations.

The second rule requires companies to make "reasonable" attempts to determine whether the tin, tantalum, tungsten and gold they use in their manufactures came from Democratic Republic of Congo mines that support armed groups in that African country where warfare has taken as many at five million lives. In the SEC's original "conflict-metals" rule proposed in 2010, companies would have had to prove the metals used in their goods didn’t come from the mines. Although the final rule was supposed to be imposed by April 2011, the SEC is giving companies two to four years to comply, something which has made human rights groups unhappy since the blood is being spilled now.

The SEC estimates compliance with the conflict-metals rule could cost $4 billion, which was one reason for the 3-2 vote. One of those opposed was Republican Commissioner Daniel Gallagher who said, “I do not like to see social or foreign policy provisions engrafted onto the securities laws.” He also noted that the rule might not work to curtail the war that the conflict metals are, in part, funding.

Gallagher was also the lone vote against the transparency rule imposed on extractive industries, making the same argument about foreign policy and security laws. (Two commissioners recused themselves in that vote for conflict-of-interest reasons.)

The rule is required under Section 1504 of Dodd-Frank. SEC diluted it by limiting disclosures to projects under $100,000. The rule takes effect in 2014. The commission estimates it will cost around $1 billion for companies to comply.

Part of the delay in getting the rule passed came as a result of companies lobbying the commissioners for changes. Although some companies, mining operations in particular, support transparency rules, the foes argue that they will be put at a disadvantage against foreign companies, many of which are state-owned, that are not required to make the same disclosures and that they may be excluded from operating in countries, such as China, which explicitly prohibit the kind of disclosures the rule requires.

The American Petroleum Institute’s chief economist, John Felmy, told reporters that the S.E.C. rule would force oil and gas companies to reveal secret, proprietary information about their expenditures and bidding strategies. “With a few clicks of a mouse, state-owned foreign firms — companies like China National Petroleum Company and Russia’s Gazprom — would plunder that information, which could help them determine their rivals’ strategies and resource levels,” he said.
Advocates of the rule include the editorial boards at The Economist and The Financial Times, both of which view the objections as overblown.

Both the extractive industry and conflict-metals rules are likely to generate lawsuits to stop their imposition. API had hinted that it might sue even before the rule was passed, perhaps in hopes that just the threat would cause the SEC to weaken it. A lawsuit now would further delay implementation of the rule and possibly gain a court-ordered weakening of it.

The Brookings Institution, which has been labeled liberal, centrist, center-left, and conservative, depending on who is doing the naming, posted an opinion brief on the rule Tuesday in which it stated:

But how costly to the corporate sector would disclosure be? It would be naïve to suggest that every corporation would gain (or have no costs) from full disclosure, at least in the short term. This has little to do with the actual administrative expenses of data collection for disclosure, because the incremental cost for new data collection over what data the companies already collect for tax and internal purposes would be small.

Instead, the real reason that disclosure may be costly to some companies in the short term relates to a different strand of our research: there are two types of companies, those that focus on efficiency and innovation and can thrive in a competitive level-playing field, and those that derive gains from rent-seeking (and outright bribery), monopolistic behavior or tax avoidance. The latter group would have an interest in maintaining an opaque status quo and stand to lose from a more equitable environment resulting from effective transparency, while the former group would stand to gain, since the playing field would be leveled across all companies, benefitting the entrepreneurial and competitive firms.

Making it harder for companies to keep bribes, tax avoidance schemes and other shenanigans under wraps is exactly what the drafters of Dodd-Frank had in mind. It is no surprise that some of the richest companies on the planet are not eager for that to happen.

Originally posted to Meteor Blades on Thu Aug 23, 2012 at 09:32 AM PDT.

Also republished by Daily Kos.

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Comment Preferences

  •  For once, just once (7+ / 0-)

    I'd like to see "the Street" take a deep breath, shut the fuck up, and do what they are told to do. Just once.
    Right now it's like watching a five year old have a tantrum in a grocery store. Pathetic.

  •  American enterprise has always relied on (3+ / 0-)
    Recommended by:
    Meteor Blades, JML9999, Iron Spider

    legislation to support monopoly positions and territorial protection.  The whole "free enterprise" schtick has been an exercise in denial and deception.  The free market ideal actually refers to getting resources for free and taking them to market for a profit.

    Willard's forte = "catch 'n' cage". He's not into "catch and release."

    by hannah on Thu Aug 23, 2012 at 10:29:59 AM PDT

  •  This Gallagher sounds as wacked out as the guy (0+ / 0-)

    Who Crushes fruits and Vegetables for a living

     

    The 1st Amendment gives you the right to say stupid things, the 1st Amendment doesn't guarantee a paycheck to say stupid things.

    by JML9999 on Thu Aug 23, 2012 at 07:34:07 PM PDT

  •  "... and those that derive gains (0+ / 0-)

    from rent-seeking (and outright bribery), monopolistic behavior or tax avoidance."

    OK, some quick free-association -- when you read this line, did anyone come immediately to mind?

    "And now we know that government by organized money is just as dangerous as government by organized mob." -- FDR

    by Mogolori on Thu Aug 23, 2012 at 07:45:11 PM PDT

  •  Daniel Gallagher, apologist for less competition (4+ / 0-)

    I mean, how else can you construe his stance?  Why would any true believing capitalist be against innovation and efficiency in corporate cultures, and in favor of more bribery and graft?

    Seriously conservatives, if you want to make the case that business competition is a good thing, then stop objecting every time we try to make that whole compete-and-innovate thing work in actual practice.  Companies should be rewarded for creativity in the lab, not in their legal papers.

    All your vote are belong to us.

    by Harkov311 on Thu Aug 23, 2012 at 08:01:52 PM PDT

  •  Not all news from the SEC today was good (0+ / 0-)

    http://sec.gov/...

    Mary loves financial regulation, too bad her professional life fell during these decades. Perhaps they can do a work around via Dod Frank.

    How big is your personal carbon footprint?

    by ban nock on Thu Aug 23, 2012 at 08:16:27 PM PDT

  •  Good (0+ / 0-)

    I read about this a few days ago.

    NYT, Libyan on SEC ruling

    Not often you see a country do the right thing.

  •  Source says... (0+ / 0-)

    It's required on extractive project payments over $100k. Whew, that's not quite as worthless as I thought it would be.

  •  One should never trust the Selective Enforce (0+ / 0-)

    Agency to suddlenly grow a pair.

    Claims of the SEC to do the right thing
    don't sit well with me


    Mitt Romney was CEO of Bain until Aug 2001. Proof of Bain & Romney Fraud

    by laserhaas on Thu Aug 23, 2012 at 11:03:10 PM PDT

  •  China has 5/6 of world tungsten supply (0+ / 0-)

    I saw the comment about China potentially using conflict tungsten and I had to say bullshit:

    Part of the delay in getting the rule passed came as a result of companies lobbying the commissioners for changes. Although some companies, mining operations in particular, support transparency rules, the foes argue that they will be put at a disadvantage against foreign companies, many of which are state-owned, that are not required to make the same disclosures and that they may be excluded from operating in countries, such as China, which explicitly prohibit the kind of disclosures the rule requires.
    My family used to own a small company that used tungsten powder and baked it and manufactured mostly machined parts for the aerospace industry so I know a little about it. Per wikipedia:
    Tungsten is found in the minerals wolframite (iron-manganese tungstate, (Fe,Mn)WO4), scheelite (calcium tungstate, (CaWO4), ferberite (FeWO4) and hübnerite (MnWO4). China produced 51,000 tonnes of tungsten concentrate in 2009, which was 83% of the world output. In the prelude to WWII China's production of tungsten played a role as China could use this leverage to demand material assistance from the US government.[28] Most of the remaining production originated from Russia (2,500 t), Canada (1,964 t), Bolivia (1,023 t), Austria (900 t), Portugal (900 t), Thailand (600 t), Brazil (500 t), Peru (500 t) and Rwanda (500 t).[29] Tungsten is also considered to be a conflict mineral due to the unethical mining practices observed in the Democratic Republic of the Congo.[30][31]

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