U.S. Business Groups Oppose 'Congo' Rule

 

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U.S. Business Groups Oppose 'Congo' Rule

August 21, 2012
Wall Street Journal
JESSICA HOLZER

WASHINGTON—U.S. market regulators are targeting violence in central Africa and corruption in oil-rich nations, moving ahead with a vote on rules that businesses say could cost U.S.-listed companies billions of dollars annually.

The Securities and Exchange Commission on Wednesday is set to approve a pair of rules, mandated by the 2010 Dodd-Frank financial-overhaul law, that would require U.S.-listed companies to disclose their oil-related payments to foreign governments and to report whether goods such as mobile phones and aircraft contain minerals from war-torn Congo.

Business groups say that even if both rules pass, they may sue to block them, arguing the SEC failed to include a proper economic analysis of the proposals it issued in December 2010.

The five-member SEC is expected to pass the "conflict minerals" rule along party lines, with the commission's two Republicans opposing. SEC Chairman Mary Schapiro, an independent, and Republican commissioner Troy Paredes have recused themselves from the oil-payments vote because of ties to the industry.

The Congo minerals rule aims to pressure U.S. companies to shun gold, tin, tantalum or tungsten from the Democratic Republic of Congo and surrounding countries. Trade in those minerals is blamed for financing armed groups committing atrocities in the region.

Under the rule, U.S. public companies would have to report whether their goods contain any of the African minerals, and the companies would have to say what steps they took to verify whether the minerals were taxed or controlled by rebel groups.

People familiar with the matter said Monday that commissioners were still negotiating the precise length of a phase-in period during which companies wouldn't have to fully comply with the rule, as well as whether companies' minerals reports would be subject to the same level of liability that applies to annual reports and other important filings to the SEC.

In its 2010 proposal, the SEC said the rule would cost businesses $71 million. But the National Association of Manufacturers said it would cost between $9 billion and $16 billion, since some companies would have to scour supply chains comprising hundreds or even thousands of vendors.

In a letter last month, the U.S. Chamber of Commerce asked the SEC to repropose the rule, saying the regulator hadn't analyzed the costs to the small suppliers to companies that are subject to the rule.

SEC spokesman John Nester said the agency received extensive public comment ahead of the vote representing a wide range of views.

The SEC didn't provide a cost estimate for the rule forcing companies to report their payments for developing oil and gas fields abroad.

The American Petroleum Institute, the oil and gas industry's major trade group, said costs could run into the tens of billions of dollars if the SEC doesn't allow exceptions for companies when a host country's laws prohibit disclosure of the payments.

Without the exception, companies could be forced to wind down their operations in Qatar, Angola and other countries in order to comply with SEC rules as well as foreign law, the group said.

The disclosure rule would force U.S.-listed oil companies to hand over valuable competitive information to foreign and government-run competitors who won't have to comply with the rule, the API said.The group asked the SEC to allow companies to disclose their foreign payments for developing oil and gas fields at the country level or another broad geographic level as opposed to the lease-level.

Peter Tolsdorf, counsel at API, said the SEC proposal "would impose unnecessary competitive disadvantages on U.S. companies" since foreign oil companies, including those run by the government, wouldn't have to disclose their payments.

Also Wednesday, the SEC is set to propose rules allowing hedge fund and other businesses selling certain unregistered shares to advertise and solicit investors more broadly.