July 10, 2013

U.S. Senator Benjamin L. Cardin On The District Court Ruling On The Cardin –Lugar, Section 1504 Transparency Law

Mr. President, I take this time to speak on the floor of the United States Senate to express my disappointment in last week’s District Court decision on the Cardin-Lugar SEC rule. An amendment offered by Senator Lugar and I on the Dodd-Frank legislation imposed certain transparencies on extractive industries. It was a pretty simple provision—it said that those companies that are registered with the SEC that are involved in the extraction of minerals would be required to disclose on a project-by-project basis the details of those contracts. We did that for many reasons: we did it because we thought transparency is right, we did it in order to deal with energy security so that we know the type of contracts that are being entered into, and we did it so investors would have information in order to decide whether they wanted to invest in the stock. The United States has been on the forefront of transparency, and this decision will delay implementation of a vital transparency rule that will shine much-needed sunlight on information designed to protect investors and to promote U.S. energy security.

The Cardin-Lugar amendment is critical to achieving important U.S. policy objectives. These objectives include protecting United States interests in both national and energy security. Why do I say that? Well, by having transparency on what the extractive industries are doing, it makes it more likely that we'll have stable energy sources globally. Stable energy sources are critically important to our national security interests. Thus, these provisions are important for our national security. It also ensures investors' awareness and protection. If you're going to invest in a stock of an oil company, you have the right to know where they're doing business, you have the right to know what countries they're doing business with, and the specific contracts that they have entered so you can make the right decision as an investor. That's why the SEC rules make sense. And lastly, it promotes American core principles of transparency, integrity, and good governance worldwide.  It's interesting, we sometimes talk about the mineral wealth of a country as being a resource curse because although they have wealth, that wealth is taken by the elite of the country and used to finance corruption, adding to the misery of the people. So, some of the wealthiest nations that exist as far as minerals are concerned have some of the greatest poverty in the world. Well, the provision that Senator Lugar and I coauthored was an attempt to deal with that and to deal with good governance. If we can trace the money, we have a better chance to end corruption, develop good governance and more stable regimes.

The district court ruling of API versus SEC that sends the rule back to the SEC is disappointing. The rule is flawed because the court completely misread not only the statute but the clear congressional desire of the statute. The statute provision was for transparency; and yet, the court's ruling strikes down the SEC rule that implements that transparency. The court spent a tremendous amount of time addressing public disclosure of the company’s reports. The whole purpose of section 1404 is to provide transparency about payments made to the government. Why would congress write a law to increase transparency for investors and allow the SEC to keep these reports secret? Congress was clear that in the letter and the spirit of the law, this information should be in the public domain. And the issue of the host country exception over the lengthy comment period for the rule of the SEC was not presented with one concrete example from industry about a specific law or contract that would prohibit these types of disclosures. In fact, examples are to the contrary, including the fact that companies such as Norwegian oil giant Statoil regularly reports to Angola and China where industry prohibits such disclosure; yet, that company had no negative repercussions. The API is trying to muddy the waters by having the SEC address problems that the industry has failed to prove exist. The United States has been a leader on transparency in the extractive industries. And it's the district court that has now put a hurdle on that transparency.

The decision is not only contrary to the law, it's contrary to what is happening globally today. The E.U. has already enacted a law requiring the same payment disclosure that section 1504 requires on a project and company level without exceptions. And at a summit last month, the G-8 issued a communique unequivocally backing mandatory disclosures. Canada has said it will develop mandatory disclosures in two years and the Canadian mining industry endorsed that provision. Despite the oil industry’s fight in the U.S. courts, the overwhelming momentum is on the side of mandatory disclosures. Why? Because of national security, because investors have the right to know, and because it's the right thing for good governance.

Despite this setback, we will not give up. This law still stands and the SEC has many options to appeal the decision or revise the rule. The SEC must make sure it finishes the job. As Senator Levin, Senator Lugar and I stated in our amicus brief in this case, “Resource companies can believe whatever they wish and make communications they wish about their payments to foreign governments, the ‘resource curse,’ or the benefits or costs of transparency; they have done so throughout this process. What resource companies may not do is impede the power of the legislative branch to require disclosure of objective information to fulfill compelling public policy objectives, including the strengthening of American national and energy security and investor protections.” Madam President, it's exactly what that provision did. Congress exercised its right as the legislative branch to require transparency for good public reasons. Members of congress and the Administration, on a bipartisan basis, have long supported transparency through comprehensive disclosure of payments made by resource companies. That support will continue as we work with the SEC to implement this important law.