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A resolution on President Donald Trump’s desk would kill a regulation the oil lobby has opposed for six years. The rule by the Securities and Exchange Commission requires oil, gas and mining companies to report pretty much everything they pay to governments for the right to extract resources. The rule’s goal was to prevent corruption in developing countries where top officials might feather their nests and leave their people destitute.
House Republicans, joined by a handful of Democrats, voted to nullify the rule on Feb. 1, and two days later on a straight party-line vote, the Senate followed suit.
During the debate on the Senate floor, Sen. Sherrod Brown, D-Ohio, said the transparency under the regulation was an "essential tool" against fraud and abuse, but it had powerful enemies.
"Since the rule’s creation, ExxonMobil, led by Mr. Tillerson -- now the secretary of state -- and Big Oil allies, such as the American Petroleum Institute, the U.S. Chamber of Commerce, and the Heritage Foundation, have fought to kill it," Brown said.
We decided to explore whether ExxonMobil fought to kill the rule.
It did, and Tillerson played a direct role.
The action began in 2008.
That year, then Sen. Richard Lugar, R-Ind., spearheaded a report on corruption in developing nations rooted in their natural resources. In the most extreme cases, money from oil or other resources set off a scramble for personal wealth that left nations in Africa, South America and Asia less stable and deeper in poverty. Transparency, Lugar wrote, was crucial to beating the "resource curse."
"When oil revenue in a producing country can be easily tracked, that nation’s elite are more likely to use revenues for the vital needs of their citizens and less likely to squander newfound wealth for self-aggrandizing projects," he wrote.
Lugar wanted a law that would tell the SEC to craft a rule for companies to follow. He co-sponsored an amendment with Sen. Ben Cardin, D-Md., that became part of the Dodd-Frank financial overhaul bill in 2010. Under the measure, any oil, gas or mining company listed on the U.S. stock exchange had to report "taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits," paid to any government. The reporting had to be done country by country and project by project.
ExxonMobil and the American Petroleum Institute, the oil industry trade group, opposed the proposal every step of the way.
In 2010, Jay Branegan worked for Lugar as a staffer on the Senate Foreign Relations Committee. Now at the Lugar Center, a policy group in Washington, D.C., Branegan told us that in 2010, before Dodd-Frank passed, Tillerson himself came to Lugar’s office to argue against the amendment.
"He listed a number of his and the industry’s objections to the bill, including that it would harm Exxon’s relations with Russia," Branegan said. "He was the only CEO to come in to lobby personally."
We asked ExxonMobil spokesman William Holbrook for the company’s take on the accuracy of Branegan’s account. Holbrook said, "The SEC rule has been a concern for the industry at large, not ExxonMobil exclusively."
Holbrook argued that the rule put ExxonMobil at a competitive disadvantage with state-owned companies and that "ExxonMobil is committed to being a good corporate citizen, and part of that commitment includes transparency in reporting payments to foreign governments."
"The SEC largely ignored industry’s comments and recommendations in finalizing its rule," Holbrook said.
ExxonMobil and the American Petroleum Institute had several changes in mind but a key one had to do with the details the SEC reported to the public. Ideally, they wanted the SEC to lump all payments a government received together, rather than show what each company paid. They certainly didn’t want to report for each project.
The SEC actually went through two cycles in writing the rules. After the SEC came up with version one, a lawsuit sent the commission back to the drawing board. The second try wrapped up June 27, 2016. As recently as March 2016, ExxonMobil raised objections to the revised approach, saying the SEC plan would increase costs, harm shareholders and "sow confusion."
Not all major oil companies objected so vigorously to the rule.
Royal Dutch Shell wrote, "While we believe the American Petroleum Institute proposal is superior to the Commission’s re-proposal, we would support the Commission re-proposal with certain minor changes." BP took the same line.
A key factor for Shell and BP was that all 28 European Union countries, plus Canada and Norway, had already adopted disclosure rules modeled on the original SEC version. The two companies wanted to be able to give the SEC the same reports they were filing in the EU. The SEC adopted that.
Jana Morgan, director of Publish What You Pay, an advocacy group that supports mandatory reporting, told us the nullification of the American rule would put the country in an odd position.
"Canada and countries in Europe adopted similar legislation to the United States because the United States passed it first," Morgan said. "Assuming the regulation is pulled back, the United States will be out of sync with the global transparency standard."
Brown said ExxonMobil fought to kill a rule requiring oil and mining companies to disclose payments made to governments. Former ExxonMobil CEO Tillerson personally lobbied against the measure before it became law, and the company continued to oppose it as recently as March 2016. ExxonMobil preferred a different reporting regime, rather than no reporting at all, but its opposition was steadfast.
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U.S. Securities and Exchange Commission, Enhancing the Transparency of Resource Extraction Revenue Payments, Dec. 11, 2015
U.S. Securities and Exchange Commission, SEC Adopts Rules for Resource Extraction Issuers Under Dodd-Frank Act, June 27, 2016
U.S. Securities and Exchange Commission, Comments on Proposed Rule: Disclosure of Payments by Resource Extraction Issuers, accessed Feb. 7, 2017
U.S. Securities and Exchange Commission,Comments on Proposed Rule: Disclosure of Payments by Resource Extraction Issuers, accessed Feb. 7, 2017
U.S. Extractive Industry Transparency Initiative, 2015 report: Executive summary, 2015
British Petroleum, Rulemaking comment, Feb. 16, 2016
Royal Dutch Shell, Rulemaking comment, Feb. 5, 2016
Lugar Center, Will Tillerson and Trump reverse U.S. leadership on global anti-corruption?, Jan. 13, 2016
U.S. Senate Foreign Relations Committee, The Petroleum and Poverty Paradox: Assessing U.S. and International Community Efforts to Fight the Resource Curse., Oct. 16, 2008
Revenue Watch Institute, The Case for Company‐by‐Company Reporting of Data in the Extractive Industries Transparency Initiative, June 2009
Politico, Rex Tillerson Tried to Get This Rule Killed. Now Congress Is About to Do It for Him, Feb. 1, 2017
Atlantic, The House Kills an Anti-Corruption Measure, Feb. 1, 2017
Interview, Greg Vadala, spokesman, Sen. Sherrod Brown, Feb. 7, 2017
Email interview, Jay Branegan, senior fellow, Lugar Center, Feb. 7. 2017
Email interview, William Holbrook, spokesman, ExxonMobil Corporation, Feb. 7, 2017
Interview, Jana Morgan, director, Publish What You Pay, Feb. 7, 2017
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