the type of resource and governmental payee. See letter from API 6.
    \285\ See proposed Item 2.01(a)(9)-(10) of Form SD.
---------------------------------------------------------------------------

    For purposes of identifying the subnational geographic location of
the project, an instruction to the disclosure item would specify that
issuers must provide information regarding the location of the project
that is sufficiently detailed to permit a reasonable user of the
information to identify the project's specific, subnational
location.\286\ Depending on the facts and circumstances, this could
include the name of the subnational governmental jurisdiction(s) (e.g.,
state, province, county, district, municipality, territory, etc.) or
the commonly recognized subnational geographic or geologic location
(e.g., oil field, basin, canyon, delta, desert, mountain, etc.) where
the project is located, or both. We anticipate that more than one
descriptive term would likely be necessary when there are multiple
projects in close proximity to each other or when a project does not
reasonably fit within a commonly recognized, subnational geographic
location. In considering the appropriate level of detail, issuers may
need to consider how the relevant contract identifies the location of
the project.\287\
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    \286\ See proposed Instruction 3 to Item 2.01 of Form SD.
    \287\ See id.
---------------------------------------------------------------------------

    In proposing to require the use of XBRL as the interactive data
format, we note that a number of the commenters who addressed the issue
prior to the 2012 Rules supported the use of XBRL.\288\ While some
commenters suggested allowing the flexibility to use an interactive
data format of their preference,\289\ that approach could reduce the
comparability of the information and make it more difficult for
interested parties to track payments made to a particular government or
project.
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    \288\ See letters from API 1; Anadarko Petroleum Corporation
(Mar. 2, 2011) (``Anadarko''); AngloGold; BP 1; California Public
Employees Retirement System (Feb. 28, 2011) (``CalPERS'');
ExxonMobil 1; PWYP 1; and RDS 2. See also 2012 Adopting Release,
n.410 and accompanying text.
    \289\ See letters from Barrick Gold and NMA 2. See also 2012
Adopting Release, n.413 and accompanying text.
---------------------------------------------------------------------------

    Consistent with the statute, the proposed rules would require a
resource extraction issuer to include an electronic tag that identifies
the currency used to make the payments. The statute also requires a
resource extraction issuer to present the type and total amount of
payments made for each project and to each government, but does not
specify how the issuer should report the total amounts. Although some
commenters suggested requiring the reporting of payments only in the
currency in which they were made,\290\ we believe that the statutory
requirement to provide a tag identifying the currency used to make the
payment coupled with the requirement to disclose the total amount of
payments by payment type for each project and to each government
requires issuers to perform currency conversion when payments are made
in multiple currencies.
---------------------------------------------------------------------------

    \290\ See letters from NMA 2 and PWYP 1. See also 2012 Adopting
Release, n.421 and accompanying text.
---------------------------------------------------------------------------

    We are proposing an instruction to Form SD clarifying that issuers
would have to report the amount of payments made for each payment type,
and the total amount of payments made for each project and to each
government in U.S. dollars or in the issuer's reporting currency if not
U.S. dollars.\291\ We

understand issuers' concerns regarding the compliance costs relating to
making payments in multiple currencies and being required to report the
information in another currency.\292\ A resource extraction issuer
would be able to choose to calculate the currency conversion between
the currency in which the payment was made and U.S. dollars or the
issuer's reporting currency, as applicable, in one of three ways: (1)
By translating the expenses at the exchange rate existing at the time
the payment is made; (2) by using a weighted average of the exchange
rates during the period; or (3) based on the exchange rate as of the
issuer's fiscal year end.\293\ A resource extraction issuer would have
to disclose the method used to calculate the currency conversion.\294\
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    \291\ See proposed Instruction 2 to Item 2.01 of Form SD.
Currently, foreign private issuers may present their financial
statements in a currency other than U.S. dollars for purposes of
Securities Act registration and Exchange Act registration and
reporting. See Rule 3-20 of Regulation S-X [17 CFR 210.3-20].
    \292\ See, e.g., letters from API 1; BP 1; ExxonMobil 1; NMA 2;
and RDS 2. We note that the EITI recommends that oil and natural gas
participants report in U.S. dollars, as the quoted market price of
these resources is in U.S. dollars. It also recommends that mining
companies be permitted to use the local currency because most
benefit streams for those companies are paid in the local currency.
The EITI also suggests that companies may decide to report in both
U.S. dollars and the local currency. See the EITI Handbook, at 30.
    \293\ See proposed Instruction 2 to Item 2.01 of Form SD.
    \294\ See id.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the 2012 Rules, the proposed
rules would not require the resource extraction payment information to
be audited or provided on an accrual basis. We note that, in this
regard, the EITI approach is different from Section 13(q). Under the
EITI, companies and the host country's government generally each submit
payment information confidentially to an independent administrator
selected by the country's multi-stakeholder group, frequently an
independent auditor, who reconciles the information provided by the
companies and the government, and then the administrator produces a
report.\295\ In contrast, Section 13(q) requires us to issue rules for
disclosure of payments by resource extraction issuers; it does not
contemplate that an administrator would audit and reconcile the
information, or produce a report as a result of the audit and
reconciliation. Moreover, while Section 13(q) refers to ``payments,''
it does not require the information to be included in the financial
statements.\296\ In addition, we recognize the concerns raised by some
commenters that an auditing requirement for the payment information
would significantly increase implementation and ongoing reporting
costs.\297\
---------------------------------------------------------------------------

    \295\ See EITI Standard, at 30-31.
    \296\ See 2012 Adopting Release, n.405 and accompanying text.
    \297\ See, e.g., letters from Anadarko, AngloGold, API 1, BP 1,
Chevron 1, Ernst & Young (Jan. 31, 2011), ExxonMobil 1, NYSBA
Committee, Petrobras, and PWC.
---------------------------------------------------------------------------

    Consistent with the statute and the 2012 Rules, the proposed rules
would require a resource extraction issuer to include an electronic tag
that identifies the business segment of the resource extraction issuer
that made the payments. As suggested by commenters,\298\ we are
proposing to define ``business segment'' as a business segment
consistent with the reportable segments used by the resource extraction
issuer for purposes of financial reporting.\299\ Defining ``business
segment'' in this way would enable issuers to report the information
according to how they currently report their business operations, which
should help to reduce compliance costs.
---------------------------------------------------------------------------

    \298\ See 2012 Adopting Release, n.426 and accompanying text.
    \299\ See proposed Item 2.01(c)(1) of Form SD. The term
``reportable segment'' is defined in FASB ASC Topic 280, Segment
Reporting, and IFRS 8, Operating Segments.
---------------------------------------------------------------------------

    We note that some of the electronic tags, such as those pertaining
to category, currency, country, and financial period would have fixed
definitions and would enable interested persons to evaluate and compare
the payment information across companies and governments. Other tags,
such as those pertaining to business segment, government, and project,
would be customizable to allow issuers to enter information specific to
their business. To the extent that payments, such as corporate income
taxes and dividends, are made for obligations levied at the entity
level, issuers could omit certain tags that may be inapplicable (e.g.,
project tag, business segment tag) for those payment types as long as
they provide all other electronic tags, including the tag identifying
the recipient government.\300\
---------------------------------------------------------------------------

    \300\ See 2012 Adopting Release, n.432 and accompanying text.
---------------------------------------------------------------------------

    Finally, we note that Section 13(q)(3) directs the Commission, to
the extent practicable, to provide a compilation of the disclosure made
by resource extraction issuers. The proposed rules would require that
the disclosures only be made available on EDGAR in an XBRL exhibit. The
Commission does not anticipate making an additional or different
compilation of information available to the public. Information
provided on Form SD using the XBRL standard can be electronically
searched and extracted and therefore, in our view, would function as an
effective and efficient compilation for public use by allowing data
users to create their own compilations and analyses. Moreover, the
functionality provided by EDGAR would allow a user to create an up-to-
date compilation in real time (rather than looking to a potentially
dated, periodically released Commission compilation) and to create a
compilation that is tailored to the specific parameters that the user
may direct EDGAR to compile.\301\
---------------------------------------------------------------------------

    \301\ Our review of the legislative history leading up to the
adoption of Section 13(q) persuades us that the public compilation
requirement was not intended to be a substitute for the public
disclosure of an issuer's annual reports. Rather, the public
compilation requirement, added to an earlier version of the
legislation that became Section 13(q), was intended for the
convenience of the users of that data--many of whom were not seeking
the information for purposes of investment activity and thus would
potentially be unfamiliar with locating information in the extensive
annual reports that issuers file. In the earlier versions of the
draft legislation, the resource extraction payment disclosures were
required to be made in the annual report that each issuer was
already required to file under the securities laws. See, e.g.,
Extractive Industries Transparency Disclosure Bill (H.R. 6066) (May
2008) (``requir[ing] that each issuer required [to] file an annual
report with the Commission shall disclose in such report'' the
resource extraction payments that the issuer makes) (emphasis
added). For the convenience of non-investor users of the data, the
provision included a separate section entitled ``Public Availability
of Information'' that provided in pertinent part: ``The Securities
and Exchange Commission shall, by rule or regulation, provide that
the information filed by all issuers . . . be compiled so that it is
accessible by the public directly, and in a compiled format, from
the Web site of the Commission without separately accessing . . .
the annual reports of each issuer filing such information.'' Id.
(emphasis added). As the proposed legislative language was later
being incorporated into the Act, the Commission's staff gave
technical advice that led to the modification of the legislative
text to provide the Commission with additional flexibility to permit
the disclosures in an annual report other than ``the annual report''
that issuers already file so as to avoid unnecessarily burdening
issuers. See 156 CONG. REC. 3815 (May 17, 2010 (Statement of Senator
Cardin) (``We have been working with a lot of groups on perfecting
this amendment, and we have made some changes that will give the SEC
the utmost flexibility in defining how these reports will be made so
that we not get the transparency we need without burdening the
companies.''). Our decision to propose a Form SD rather than to
require the disclosures in an issuer's annual report, when coupled
with the functionality that the EDGAR system provides, in our view
sufficiently addresses the Congressional concern that originally led
to the separate requirement of a publicly available compilation.
---------------------------------------------------------------------------

Request for Comment

    58. Should we require a resource extraction issuer to present
some or all of the required payment information in the body of the
annual report on Form SD instead of, or in addition to, presenting
the information in the exhibits? If we should require disclosure of
some or all the payment information in the body of the annual
report, please explain what information should be required and why.
For example, should we require a

resource extraction issuer to provide a summary of the payment
information in the body of the annual report? If so, what items of
information should be disclosed in the summary?
    59. How should the total amount of payments be reported when
payments are made in multiple currencies? Do the three proposed
methods for calculating the currency conversion described above
provide issuers with sufficient options to address any possible
concerns about compliance costs, the comparability of the disclosure
among issuers, or other factors? Why or why not?
    60. Should we require the resource extraction payment disclosure
to be electronically formatted in XBRL and provided in a new
exhibit, as proposed? Is XBRL the most suitable interactive data
standard for purposes of this rule?
    61. Section 13(q) and our proposed rules require an issuer to
include an electronic tag that identifies the issuer's business
segment that made the payments. Should we define ``business
segment'' differently than we have proposed? If so, what definition
should we use?
    62. As proposed, should we require resource extraction issuers
to tag the particular resource that is the subject of commercial
development and the subnational geographic location of the project?
Why or why not? Would these additional tags further enhance the
usefulness of the data without significantly increasing compliance
costs?
    63. As we have noted, we believe that it is important that the
project-level disclosures enable local communities to identify the
revenue streams associated with particular extractive projects. When
combined with the other tagged information, would our proposed
approach to describing the geographic location of the project
provide sufficient detail to users of the disclosure? Would users be
able to identify the location of the project and distinguish that
project from other projects in the same area? Would allowing
resource extraction issuers flexibility in describing the location
of their projects reduce comparability and the usefulness of the
disclosure? Should we prescribe a different method for describing
the location of a project? If so, what should that method be?
    64. Proposed Instruction 3 to Item 2.01 states that the
``geographic location of the project'' must be sufficiently detailed
to permit a ``reasonable user of the information'' to identify
specific, subnational geographic locations. Should we provide more
guidance as to what is a sufficient level of detail or how such
instruction should be applied?
    65. Is there additional or other information that should be
required to be electronically tagged to make the disclosure more
useful to local communities and other users of the information? If
so, what additional information should be required and why?
    66. Section 13(q)(3) directs the Commission, to the extent
practicable, to provide a compilation of the disclosure made by
resource extraction issuers. We believe that we satisfy the
statutory requirement by making each resource extraction issuer's
disclosures available on EDGAR in XBRL format. Is a different
compilation necessary? If so, what information should this
compilation include and how often should it be provided? Should a
compilation be provided on a calendar year basis, or would some
other time period be more appropriate?

6. Treatment for Purposes of Securities Act and Exchange Act
    Consistent with the 2012 Rules, the proposed rules would require
resource extraction issuers to file the payment information on Form SD.
Commenters on the 2010 Proposing Release had divergent views as to
whether the required information should be furnished or filed,\302\ and
Section 13(q) does not state how the information should be submitted.
In reaching the conclusion that the information should be ``filed''
instead of ``furnished,'' the Commission noted that the statute defines
``resource extraction issuer'' in part to mean an issuer that is
required to file an annual report with the Commission,\303\ which, as
commenters have stated, suggests that the annual report that includes
the required payment information should be filed.\304\ We believe the
same logic still applies.
---------------------------------------------------------------------------

    \302\ Compare letters from API 1; AngloGold; Barrick Gold; BP 1;
Cleary; ExxonMobil 1; NMA 2; NYSBA Committee; PetroChina; PWC; and
RDS 2 (supporting a requirement to furnish the disclosure) with
letters from Bon Secours Health System (Mar. 1, 2011) (``Bon
Secours''); Calvert 1; Earthworks; Extractive Industries Working
Group (Mar. 2, 2011) (``EIWG''); ERI 1; EarthRights International
(Sept. 20, 2011) (``ERI 2''); Global Financial Integrity (Mar. 1,
2011) (``Global Financial 2''); Global Witness 1; Harrington
Investments, Inc. (Jan. 19, 2011) (``HII''); HURFOM 1; HURFOM 2;
Newground Social Investment (Mar. 1, 2011) (``Newground''); ONE;
Oxfam 1; PGGM Investments (Mar. 1, 2011) (``PGGM''); PWYP 1; RWI 1;
Peter Sanborn (Mar. 12, 2011) (``Sanborn''); Sen. Cardin et al. 1;
Sen. Cardin et al. 2; Sen. Levin 1; Soros; TIAA-CREF (March 2, 2011)
(``TIAA''); USAID; United Steelworkers (Mar. 29, 2011) (``USW'');
and WRI (supporting a requirement to file the disclosure).
    \303\ 15 U.S.C. 78m(q)(1)(D)(i).
    \304\ See letters from Global Witness 1; PWYP 1; and Sen. Cardin
et al. 1.
---------------------------------------------------------------------------

    Additionally, many commenters on the 2010 Proposing Release
believed that investors would benefit from the payment information
being ``filed'' and subject to Exchange Act Section 18 liability.\305\
Some commenters asserted that allowing the information to be furnished
would diminish the importance of the information.\306\ Some commenters
believed that requiring the information to be filed would enhance the
quality of the disclosure.\307\ In addition, some commenters argued
that the information required by Section 13(q) differs from the
information that the Commission typically permits issuers to furnish
and that the information is qualitatively similar to disclosures that
are required to be filed under Exchange Act Section 13.\308\
---------------------------------------------------------------------------

    \305\ See letters from Bon Secours; Calvert 1; CRS; Earthworks;
EIWG; ERI 1; ERI 2; Global Financial 2; Global Witness 1; Greenpeace
(Mar. 8, 2012) (``Greenpeace''); HII; HURFOM 1; HURFOM 2; Newground;
ONE; Oxfam 1; PGGM; PWYP 1; RWI 1; Sanborn; Sen. Cardin et al. 1;
Sen. Cardin et al. 2; Sen. Levin 1; Soros; TIAA; USAID; USW; and
WRI.
    \306\ See letters from Calvert 1 and Global Witness 1.
    \307\ See letters from HURFOM 1; Global Witness 1; and PWYP 1.
    \308\ See letters from ERI 1; HII; Oxfam 1; PGGM; PWYP 1; Sen.
Cardin et al. 1; and Soros.
---------------------------------------------------------------------------

    Some commenters argued that the disclosure should be furnished
because the information is not material to investors.\309\ Others,
including some investors, stated that the information is material.\310\
Given this disagreement, and that materiality is a fact specific
inquiry, we are not persuaded that this is a reason to provide that the
information should be furnished. After considering the comments and the
statutory language, we continue to believe that the information should
be required to be filed. We note that Section 18 does not create strict
liability for filed information. Rather, it states that a person shall
not be liable for misleading statements in a filed document if such
person can establish that he or she acted in good faith and had no
knowledge that the statement was false or misleading.\311\ As noted

above, although we are proposing that the information would be filed,
because the disclosure would be in a new form, rather than in issuers'
Exchange Act annual reports, the filed disclosure would not be subject
to the officer certifications required by Rules 13a-14 and 15d-14 under
the Exchange Act.
---------------------------------------------------------------------------

    \309\ See letters from API 1; ExxonMobil 1; and RDS 2. See also
letter from AngloGold.
    \310\ See, e.g., letters from Calvert 1; ERI 1; Soros; Global
Financial Integrity (Jan. 28, 2011) (``Global Financial 1''); Global
Witness 1; HII; Oxfam 1; Sanborn; PGGM; PWYP 1; Sen. Cardin et al.
1; and TIAA.
    \311\ Exchange Act Section 18(a) provides: ``Any person who
shall make or cause to be made any statement in any application,
report, or document filed pursuant to this title or any rule or
regulation thereunder or any undertaking contained in a registration
statement as provided in subsection (d) of section 15 of this title,
which statement was at the time and in the light of the
circumstances under which it was made false or misleading with
respect to any material fact, shall be liable to any person (not
knowing that such statement was false or misleading) who, in
reliance upon such statement shall have purchased or sold a security
at a price which was affected by such statement, for damages caused
by such reliance, unless the person sued shall prove that he acted
in good faith and had no knowledge that such statement was false or
misleading. A person seeking to enforce such liability may sue at
law or in equity in any court of competent jurisdiction. In any such
suit the court may, in its discretion, require an undertaking for
the payment of the costs of such suit, and assess reasonable costs,
including reasonable attorneys' fees, against either party
litigant.'' A plaintiff asserting a claim under Section 18 would
need to meet the elements of the statute to establish a claim,
including reliance and damages. In addition, we note that issuers
that fail to comply with the proposed rules could also be violating
Exchange Act Sections 13(a) and (q) and 15(d), as applicable.
Issuers also would be subject to potential liability under Exchange
Act Section 10(b) [15 U.S.C. 78j] and Rule 10b-5 [17 CFR 240.10b-5],
promulgated thereunder, for any false or misleading material
statements in the information disclosed pursuant to the rule.
---------------------------------------------------------------------------

Request for Comment
    67. Should we, as proposed, require the resource extraction
payment disclosure to be filed, rather than furnished? If not, why
not? Are there compelling reasons why the disclosures should not be
subject to Section 18 liability?
    68. Should we require that certain officers, such as the
resource extraction issuer's principal executive officer, principal
financial officer, or principal accounting officer, certify the Form
SD filing's compliance with the requirements of Section 13(q) of the
Exchange Act or that the filing fairly presents the information
required to be disclosed under Rule 13q-1? Are there any other
certifications we should require officers of resource extraction
issuers to make?

H. Effective Date

    Section 13(q) provides that, with respect to each resource
extraction issuer, the final rules issued under that section shall take
effect on the date on which the resource extraction issuer is required
to submit an annual report relating to the issuer's fiscal year that
ends not earlier than one year after the date on which the Commission
issues the final rules under Section 13(q).\312\ Similar to the
approach in the 2012 Rules, we are proposing that resource extraction
issuers would be required to comply with Rule 13q-1 and Form SD for
fiscal years ending no earlier than one year after the effective date
of the adopted rules.\313\ Also, as with the 2012 Rules, we intend to
select a specific compliance date that corresponds to the end of the
nearest calendar quarter, such as March 31, June 30, September 30, or
December 31.\314\ For example, if June 17, 2017 was one year after the
effective date of the rules, a resource extraction issuer with a fiscal
year end of June 30, 2017 (our selected compliance date) or later would
be required to file its first resource extraction payment report no
later than 150 days after its fiscal year end.
---------------------------------------------------------------------------

    \312\ 15 U.S.C. 78m(q)(2)(F).
    \313\ Adopted rules typically go into effect 60 days after they
are published in the Federal Register.
    \314\ See 2012 Adopting Release at 2 [77 FR 56365].
---------------------------------------------------------------------------

    Upon adoption, if any provision of these proposed rules, or the
application thereof to any person or circumstance, is held to be
invalid, such invalidity shall not affect other provisions or
application of such provisions to other persons or circumstances that
can be given effect without the invalid provision or application.
Request for Comment
    69. Should we provide a compliance date linked to the end of the
nearest commonly used quarterly period following the effective date,
as proposed? Should we adopt a shorter or longer transition period?
    70. Should our rules provide for a longer transition period for
certain categories of resource extraction issuers, such as smaller
reporting companies or emerging growth companies? Should the rules
provide for a longer transition period for smaller reporting
companies or emerging growth companies to allow for data to be
collected on the impact the EU Directives or ESTMA would have on
companies of similar size? Why or why not?

I. General Request for Comment

    We request and encourage any interested person to submit comments
regarding:
     The proposed amendments that are the subject of this
release;
     additional or different changes; or
     other matters that may have an effect on the proposals
contained in this release, particularly any developments since the
rules adopted in 2012 were vacated.
    We request comment on whether we have properly identified the
objectives of Section 13(q) and the governmental interests that the
statute and our rules are designed to advance. We also are interested
in comments that provide evidence of whether public disclosure
(particularly company specific, project-level, public disclosure)
supports the commitment of the Federal Government to international
transparency promotion efforts, helps to combat corruption, or promotes
governmental accountability.\315\
---------------------------------------------------------------------------

    \315\ Some commenters have also expressed the view that this
information is important to investors. See, e.g., note 310 above and
accompanying text.
---------------------------------------------------------------------------

    We request comment from the point of view of companies, investors,
other market participants, and civil society actors. We also request
comment from the U.S. Department of State, the U.S. Agency for
International Development, the U.S. Department of the Interior and any
other relevant department or agency on the implications of this
rulemaking for international transparency promotion efforts. With
regard to any comments, we note that such comments are of great
assistance to our rulemaking initiative if accompanied by supporting
data and analysis of the issues addressed in those comments.

III. Economic Analysis

A. Introduction and Baseline

    As discussed in detail above, we are proposing Rule 13q-1 and an
amendment to Form SD to implement Section 13(q), which was added to the
Exchange Act by Section 1504 of the Act. Section 13(q) directs the
Commission to issue rules that require a resource extraction issuer to
disclose in an annual report filed with the Commission certain
information relating to payments made by the issuer (including a
subsidiary of the issuer or an entity under the issuer's control) to a
foreign government or the U.S. Federal Government for the purpose of
the commercial development of oil, natural gas, or minerals. The
proposed rule and form amendments implement Section 13(q).
    As discussed above, Congress intended that the rules issued
pursuant to Section 13(q) would help advance the important U.S. foreign
policy objective of combatting global corruption and, in so doing, to
potentially improve accountability and governance in resource-rich
countries around the world.\316\ The statute seeks to achieve this
objective by mandating a new disclosure provision under the Exchange
Act that requires resource extraction issuers to identify and report
payments they make to governments relating to the commercial
development of oil, natural gas, or minerals. While these objectives
and benefits differ from the investor protection benefits that our
rules typically strive to achieve, investors and other market
participants, as well as civil society in countries that are resource-
rich, may benefit from any increased economic and political stability
and improved investment climate that such transparency promotes.\317\
In addition, some commenters stated that the information disclosed
pursuant to Section 13(q) would benefit investors by, among other
things, helping them model project cash

flows and assess political risk, acquisition costs, and management
effectiveness.\318\
---------------------------------------------------------------------------

    \316\ See Section I.E.
    \317\ See also 156 CONG. REC. S5873 (2010) (Statement from
Senator Cardin) (``Transparency helps create more stable
governments, which in turn allows U.S. companies to operate more
freely--and on a level playing field--in markets that are otherwise
too risky or unstable.''); and 156 CONG. REC. S3816 (May 17, 2010)
(Statement of Senator Lugar) (``Transparency empowers citizens,
investors, regulators, and other watchdogs and is a necessary
ingredient of good governance for countries and companies alike. . .
. Transparency also will benefit Americans at home. Improved
governance of extractive industries will improve investment climates
for our companies abroad, it will increase the reliability of
commodity supplies upon which businesses and people in the United
States rely, and it will promote greater energy security.'')
    \318\ See, e.g., letters from Calvert 1; CalPERS; and Soros.
---------------------------------------------------------------------------

    We are sensitive to the costs and benefits of the proposed rules,
and Exchange Act Section 23(a)(2) requires us, when adopting rules, to
consider the impact that any new rule would have on competition. In
addition, Section 3(f) of the Exchange Act directs us, when engaging in
rulemaking that requires us to consider or determine whether an action
is necessary or appropriate in the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation. We have
considered the costs and benefits that would result from the proposed
rule and form amendments, as well as the potential effects on
efficiency, competition, and capital formation. Many of the potential
economic effects of the proposed rules would stem from the statutory
mandate, while others would be a result of the discretion we are
proposing to exercise in implementing the Congressional mandate. The
discussion below addresses the costs and benefits that might result
from both the statute and our proposed discretionary choices, and the
comments we received about these matters.\319\ In addition, as
discussed elsewhere in this release, we recognize that the proposed
rule could impose a burden on competition, but we believe that any such
burden that might result would be necessary in furtherance of the
purposes of Exchange Act Section 13(q).
---------------------------------------------------------------------------

    \319\ As discussed above, our discretionary choices are informed
by the statutory mandate, and thus, discussion of the benefits and
costs of those choices will necessarily involve the benefits and
costs of the underlying statute.
---------------------------------------------------------------------------

    As part of our analysis, we have quantified the potential economic
effects wherever possible. Given both the nature of the statute's
intended benefits and the lack of data regarding the benefits and the
costs, in some cases we have been unable to provide a quantified
estimate. Nevertheless, as described more fully below, we provide both
a qualitative assessment of the potential effects and a quantified
estimate of the potential aggregate initial and aggregate ongoing
compliance costs. We reach our estimates by carefully considering
comments we previously received on potential costs and taking into
account additional data and information, including recent global
developments in connection with resource extraction payment
transparency. We rely particularly on those comment letters that
provided quantified estimates and were transparent about their
methodologies. As discussed in more detail below, after considering the
comment letters, we determined that it was appropriate to modify and/or
expand upon some of the submitted estimates and methodologies to
reflect data and information submitted by other commenters, as well as
our own judgment and experience.
    The baseline the Commission uses to analyze the potential effects
of the proposed rules is the current set of regulations and market
practices.\320\ To the extent not already encompassed by existing
regulations and current market practices, the proposed rules likely
would have a substantial impact on the disclosure practices of, and
costs faced by, resource extraction issuers. The magnitude of the
potential effects on costs of the proposed disclosure requirements
would depend on the number of affected issuers and individual issuers'
costs of compliance. We expect that the proposed rules would affect
both U.S. issuers and foreign issuers that meet the definition of
``resource extraction issuer'' in substantially the same way, except
for those issuers already subject to similar rules adopted in the EEA
member countries or Canada as discussed below in Section III.C.1. The
discussion below describes the Commission's understanding of the
markets that are affected by the proposed rules. We estimate the number
of affected issuers in this section and quantify their costs in Section
III.B.2 below.
---------------------------------------------------------------------------

    \320\ See Section I.
---------------------------------------------------------------------------

    To estimate the number of potentially affected issuers, we use data
from Exchange Act annual reports for 2014, the latest full calendar
year. We consider all Forms 10-K, 20-F, and 40-F filed in 2014 by
issuers with oil, natural gas, and mining Standard Industrial
Classification (``SIC'') codes \321\ and, thus, are most likely to be
resource extraction issuers. We also considered filings by issuers that
do not have the above mentioned oil, natural gas, and mining SIC codes
and added them to the list of potentially affected issuers if we
determined that they might be affected by the proposed rules.\322\ In
addition, we have attempted to remove issuers that use oil, natural
gas, and mining SIC codes but appear to be more accurately classified
under other SIC codes based on the disclosed nature of their business.
Finally, we have excluded royalty trusts from our analysis, because we
believe it is uncommon for such companies to make the types of payments
that would be covered by the proposed rules. From these filings, we
estimate that the number of potentially affected issuers is 877. We
note that this number does not reflect the number of issuers that
actually made resource extraction payments to governments in 2014, but
represents the estimated number of issuers that might make such
payments.
---------------------------------------------------------------------------

    \321\ Specifically, the oil, natural gas, and mining SIC codes
considered are 1000, 1011, 1021, 1031, 1040, 1041, 1044, 1061, 1081,
1090, 1094, 1099, 1220, 1221, 1222, 1231, 1311, 1321, 1381, 1382,
1389, 1400, 2911, 3330, 3331, 3334, and 3339.
    \322\ These are issuers whose primary business is not
necessarily resource extraction but which have some resource
extraction operations, such as ownership of mines.
---------------------------------------------------------------------------

    In the following economic analysis, we discuss the potential
benefits and costs and likely effects on efficiency, competition, and
capital formation that might result from both the new reporting
requirement mandated by Congress and from the specific implementation
choices that we have made in formulating these proposed rules.\323\ We
analyze these potential economic effects in Sections III.B and III.C
and provide qualitative and, wherever possible, quantitative
discussions of the potential costs and benefits that might result from
the payment reporting requirement and specific implementation choices,
respectively.
---------------------------------------------------------------------------

    \323\ Our consideration of potential benefits and costs and
likely effects on efficiency, competition, and capital formation
also is reflected in Section II.
---------------------------------------------------------------------------

B. Potential Effects Resulting From the Payment Reporting Requirement

1. Benefits
    As noted above, we understand that Section 13(q) and the rules
required thereunder are intended to advance the important U.S. foreign
policy objective of combatting global corruption and, in so doing, to
potentially improve accountability and governance in resource-rich
countries around the world.\324\ The statute seeks to realize these
goals by improving transparency about payments extractive industries
make to national and subnational governments, including local
governmental entities.\325\ While these statutory goals and intended
benefits are of global significance, the potential positive economic
effects that may result cannot be readily quantified with any
precision. The current empirical evidence on the direct causal effect
of increased transparency in the resource extraction sector on societal
outcomes is inconclusive,\326\ and several academic

papers noted an inherent difficulty in empirically validating a causal
link between transparency interventions and governance
improvements.\327\ Further, we note that no commenter provided us with
data that would allow us to quantify the potential benefits nor did any
commenter suggest a source of data or a methodology that we could
readily look to in quantifying the rule's potential benefits.
---------------------------------------------------------------------------

    \324\ See Section I.E above.
    \325\ See id.
    \326\ For positive findings, see Caitlin C. Corrigan, ``Breaking
the resource curse: Transparency in the natural resource sector and
the extractive industries transparency initiative'', Resources
Policy, 40 (2014), 17-30 (finding that the negative effect of
resource abundance on GDP per capita, the capacity of the government
to formulate and implement sound policies and the level of rule of
law is mitigated in EITI countries but noting that the EITI has
little effect on level of democracy, political stability and
corruption) and Liz David-Barrett and Ken Okamura, ``The
Transparency Paradox: Why Do Corrupt Countries Join EITI?'', Working
Paper No. 38, European Research Centre for Anti-Corruption and
State-Building (Nov. 2013) (finding that EITI compliant countries
gain access to increased aid the further they progress through the
EITI implementation process and that EITI achieves results in terms
of reducing corruption) available at https://eiti.org/document/transparency-paradox-why-do-corrupt-countries-join-eiti. For
negative empirical evidence, see [Ouml]lcer, Dilan (2009):
Extracting the Maximum from the EITI (Development Centre Working
Papers No. 276): Organisation for Economic Cooperation and
Development (finding that the EITI has not been able to
significantly lower corruption levels). However, all these papers
discuss the earlier version of the EITI which did not require
project-level disclosure and rely on data generated prior to the
implementation of the 2013 EITI Standard.
    \327\ See Andr[eacute]s Mej[iacute]a Acosta, ``The Impact and
Effectiveness of Accountability and Transparency Initiatives: The
Governance of Natural Resources'', Development Policy Review, 31-S1
(2013), s89-s105; and Alexandra Gillies and Antoine Heuty, ``Does
Transparency Work? The Challenges of Measurement and Effectiveness
in Resource-Rich Countries'', Yale Journal of International Affairs,
Spring/Summer 2011, 25-42.
---------------------------------------------------------------------------

    We also think it is important to observe that, despite our
inability to quantify the benefits, Congress has directed us to
promulgate this disclosure rule. Thus, we believe it reasonable to rely
on Congress's determination that the rule will produce the foreign
policy and other benefits that Congress sought in imposing this
mandate. Because Congress expressly directed us to undertake this
rulemaking and because it implicates important foreign policy
objectives, we decline to second-guess its apparent conclusion that the
benefits from this rule justify its adoption.
    Moreover, as noted above, we concur with Congress' judgment that
the disclosures could help to achieve a critical foreign policy
objective of the U.S. Government. In reaching this conclusion, we are
particularly mindful that a broad international consensus has developed
regarding the potential benefits of revenue transparency. Not only have
the Canadian government \328\ and the European Union \329\ acknowledged
the potential social benefits by adopting disclosure requirements
similar to what we are proposing, but even members of industry through
their participation as stakeholders in EITI have acknowledged the
social benefits that revenue transparency can produce.\330\ Perhaps
most significantly, industry stakeholders in the EITI process (which
notably includes a number of industry organizations) \331\ have
expressly adopted the position that the EITI disclosures (which, as
noted above, now include project-level disclosures) produce
``[b]enefits for implementing countries'' by ``strengthening
accountability and good governance, as well as promoting greater
economic and political stability.'' \332\ Industry stakeholders in EITI
have similarly accepted the view that ``[b]enefits to civil society
come from increasing the amount of information in the public domain
about those revenues that governments manage on behalf of citizens,
thereby making governments more accountable.'' \333\
---------------------------------------------------------------------------

    \328\ See, e.g., ESTMA, Section 6 (``The purpose of this Act is
to implement Canada's international commitments to participate in
the fight against corruption through the implementation of measures
applicable to the extractive sector, including measures that enhance
transparency and measures that impose reporting obligations with
respect to payments made by entities.''). See also ESTMA Guidance,
at 2 (``Canadians will benefit from increased efforts to strengthen
transparency in the extractive sector, both at home and abroad.
Alongside Canada, the United States and European Union countries
have put in place similar public disclosure requirements for their
respective extractive industries. Together these reporting systems
will contribute to raising global transparency standards in the
extractive sector.'').
    \329\ See, e.g., European Commission Memo, ``New disclosure
requirements for the extractive industry and loggers of primary
forests in the Accounting (and Transparency) Directives (Country by
Country Reporting)--frequently asked questions'' (June 12, 2013)
(``The new disclosure requirement will improve the transparency of
payments made to governments all over the world by the extractive
and logging industries. Such disclosure will provide civil society
in resource-rich countries with the information needed to hold
governments to account for any income made through the exploitation
of natural resources, and also to promote the adoption of the
Extractive Industries Transparency Initiative (EITI) in these same
countries. . . . The reporting of payments to government by the
extractive and logging industries will provide civil society with
significantly more information on what specifically is paid by EU
companies to host governments in exchange for the right to extract
the relevant countries' natural resources. By requiring disclosure
of payments at a project level, where those payments had been
attributed to a specific project and were material, local
communities will have insight into what governments were being paid
by EU multinationals for exploiting local oil/gas fields, mineral
deposits and forests. This will also allow these communities to
better demand that government accounts for how the money had been
spent locally. Civil society will be in a position to question
whether the contracts entered into between the government and
extractive and logging companies had delivered adequate value to
society and government.'').
    \330\ For example, in describing its involvement with EITI,
ExxonMobil states that these ``efforts to promote revenue
transparency have helped fight corruption, improve government
accountability and promote greater economic stability around the
world.'' See http://corporate.exxonmobil.com/en/current-issues/accountability/transparency/overview. Similarly, when discussing its
role in EITI, Chevron has acknowledged that revenue transparency is
``an important pathway to improved governance.'' See http://chevron.com/news/speeches/release/?id=2009-02-16-robertson. Royal
Dutch Shell has also expressed the position that ``[r]evenue
transparency provides citizens with an important tool to hold their
government representatives accountable and to advance good
governance.'' See http://www.shell.com/global/environment-society/society/business/payments-to-governments.html.
    \331\ https://eiti.org/supporters/partnerorganizations.
    \332\ https://eiti.org/eiti/benefits.
    \333\ Id.
---------------------------------------------------------------------------

    While the objectives of Section 13(q) do not appear to be ones that
would necessarily generate measurable, direct economic benefits to
investors or issuers, investors and issuers might benefit from the
proposed rule's indirect effects. In the following paragraphs, we
discuss existing theoretical arguments and empirical evidence that
reduced corruption and better governance could have longer term
positive impacts on economic growth and investment in certain countries
where the affected issuers operate, which could in turn benefit issuers
and their shareholders.
    There are several theoretical causal explanations for why reducing
corruption might increase economic growth and political stability,
which in turn might reduce investment risk.\334\ High levels of
corruption could introduce inefficiencies in market prices as a result
of increased political risks and the potential awarding of projects to
companies for reasons other than the merit of their bids. This, in
turn, would prop up inefficient companies and limit investment
opportunities for others. These potential distortions could have a
negative impact on the economies of countries with high corruption,
particularly to the extent that potential revenue streams are
diminished or diverted. Additionally, the cost of corrupt expenditures,
direct or indirect, impacts profitability, and, if the cost is
sufficiently high, some potentially economically efficient or
productive investments may not be made. Thus, reducing corruption could
increase the

number of productive investments and the level of profitability of each
investment and could lead to improved efficiency in the allocation of
talent, technology, and capital. Insofar as these effects are realized,
each of them could benefit issuers operating in countries with reduced
corruption levels. These and other considerations form a basis for
several dynamic general equilibrium models predicting a negative
relationship between corruption and economic development.\335\
---------------------------------------------------------------------------

    \334\ See, e.g., reviews by P. Bardhan, ``Corruption and
Development: A Review of Issues,'' Journal of Economic Literature,
35, no. 3, 1320-1346 (1997) and J. Svensson, ``Eight Questions about
Corruption'', Journal of Economic Perspectives, 19, no. 3, 19-42
(2005).
    \335\ See, e.g., I. Ehrlich and F. Lui ``Bureaucratic Corruption
and Endogenous Economic Growth,'' Journal of Political Economy, 107
(6), 270-293 (1999); K. Blackburn, N. Bose, and E.M. Haque, ``The
Incidence and Persistence of Corruption in Economic Development'',
Journal of Economic Dynamics and Control 30, 2447-2467 (2006); and
C. Leite and J. Weidmann, ``Does Mother Nature Corrupt? Natural
Resources, Corruption, and Economic Growth'', International Monetary
Fund Working Paper No. 99/85 (July 1999).
---------------------------------------------------------------------------

    A number of empirical studies have also shown that reducing
corruption might result in an increase in the level of GDP and higher
rate of economic growth through more private investments, better
deployment of human capital, and political stability.\336\ Other
studies find that corruption reduces economic growth both directly and
indirectly, through lower investments.\337\ To the extent that
increased transparency could lead to a reduction in corruption and, in
turn, improved political stability and investment climate, some
investors may consider such improvements in their investment decisions,
including when pricing resource extraction assets of affected issuers
operating in these countries.\338\ We note that some commenters
supported this view.\339\ There could also be positive externalities
from increased investor confidence to the extent that improved economic
growth and investment climate could benefit other issuers working in
those countries. Although we cannot state with certainty that such a
result might occur, we note that there is some empirical evidence
suggesting that lower corruption might reduce the cost of capital and
improve valuation for some issuers.\340\
---------------------------------------------------------------------------

    \336\ See, e.g., P. Mauro, ``The effects of corruption on
growth, investment and government expenditure: A cross country
analysis,'' in K.A. Elliot (ed.) Corruption and the Global Economy,
Washington DC: Institute for International Economics, 83-107 (1997);
H. Poirson, ``Economic Security, Private Investment, and Growth in
Developing Countries'' International Monetary Fund Working Paper No.
98/4 (Jan. 1998); Institute for Economics and Peace, Peace and
Corruption Report (2015).
    \337\ See Pak Hung Mo, ``Corruption and Economic Growth.''
Journal of Comparative Economics 29, 66-79 (2001); K. Gyimah-
Brempong, ``Corruption, economic growth, and income inequality in
Africa'', Economics of Governance 3, 183-209 (2002); and Pierre-
Guillaume M[eacute]on and Khalid Sekkat, ``Does corruption grease or
sand the wheels of growth?'', Public Choice 122, 69-97 (2005).
    \338\ Several studies present evidence that reduction in
corruption increases foreign direct investments. See, e.g., S.-J.
Wei, ``How Taxing is Corruption on International Investors?'' NBER
Working Paper 6030 (1997) and G. Abed and H. Davoodi, ``Corruption,
Structural Reforms, and Economic Performance in the Transition
Economies,'' International Monetary Fund Working Paper No. 00/132
(July 2000).
    \339\ See letter from Hermes Equity Ownership Services Ltd.
(Mar. 2, 2011) (``Hermes'') (anticipating benefits of lower capital
costs and risk premiums as a result of improved stability stemming
from the statutory requirements and lessened degree of uncertainty
promoted by greater transparency).
    \340\ See D. Kaufmann and S. J. Wei ``Does ``Grease Money''
Speed Up the Wheels of Commerce?'' NBER Working Paper 7093 (1999)
(finding, using survey evidence, that firms that pay fewer bribes
have lower, not higher, cost of capital) and C. Lee and D. Ng,
``Corruption and International Valuation: Does Virtue Pay?'' Journal
of Investing, 18, no. 4, 23-41 (2009) (finding that firms from more
corrupt countries trade at significantly lower market multiples).
---------------------------------------------------------------------------

    Although there is no conclusive empirical evidence that would
confirm whether the project-level, public disclosure that we are
proposing will in fact reduce corruption, we note that many commenters
emphasized the potential benefits to civil society of such public
disclosure.\341\ Indeed, many of these commenters stated that the
benefits to civil society of project-level reporting in terms of
helping to reduce corruption and enhance accountability are
significantly greater than those of country-level reporting.\342\ As
discussed in Section I.E above, many of these commenters stated that
public availability of project-level data would enable civil society
groups and local communities to know how much their governments earn
from the resources that are removed from their respective territories.
This information would help empower them to advocate for a fairer share
of revenues, double-check government-published budget data, and better
calibrate their expectations from the extractive issuers.\343\ One
commenter further stated that project-level reporting would enable both
local government officials and civil society groups to monitor the
revenue that flows back to the regions from the central government and
ensure that they receive what is promised--a benefit that would be
unavailable if revenue streams were not differentiated below the
country level.\344\ Another commenter noted that project-level
reporting would shine greater light on dealings between resource
extraction issuers and governments, thereby providing companies with
``political cover to sidestep government requests to engage in
potentially unethical activities.'' \345\
---------------------------------------------------------------------------

    \341\ See, e.g., letters from Global Witness 1; NACE; Oxfam 1;
PWYP 1; PWYP-CAM; PWYP-IND; PWYP-ZIM; RWI 1; and Syena.
    \342\ See letter from ERI 1; see also letter from Bill and
Melinda Gates Foundation (Feb. 9, 2012) (``Gates Foundation'') and
note 341 above.
    \343\ See, e.g., letter from ERI 1; see also letter from Gates
Foundation (stating that it is important to seek disclosure below
the country level, that project-level disclosure will give both
citizens and investors valuable information, and that defining
``project'' as a geologic basin or province would be of limited use
to both citizens and investors).
    \344\ See letter from ERI 1.
    \345\ See letter from EG Justice 1.
---------------------------------------------------------------------------

    We also note that some commenters (including a number of large
investors) have stated that the disclosures required by Section 13(q)
could provide useful information to them in making investment
decisions.\346\ Although we do not believe this is the primary
objective of the required disclosures, we acknowledge the possibility
that the disclosures could provide potentially useful information to
certain investors. Some commenters, for example, noted that the new
disclosures could help investors better assess the risks faced by
resource extraction issuers operating in resource-rich countries.\347\
Other commenters compared the benefits of project-level and country-
level reporting. One commenter noted that project-level reporting would
enable investors to better understand the risk profiles of individual
projects within a given country, which could vary greatly depending on
a number of factors such as regional unrest, personal interest by
powerful government figures, degree of community oppression, and
environmental sensitivity.\348\ This commenter indicated that project-
level disclosures would enable investors to better understand these
risks, whereas country-level reporting would allow issuers to mask
particularly salient projects by aggregating payments with those from
less risky projects. Some commenters noted that a further benefit of
project-level disclosures is that it would assist investors in
calculations of

cost curves that determine whether and for how long a project may
remain economical, using a model that takes into account political,
social, and regulatory risks.\349\ While we acknowledge these comments,
we note that the incremental benefit to investors from this information
may be limited given that a significant number of the impacted issuers,
in particular all issuers that are not smaller reporting companies, are
already required to disclose their most significant risks in their
Exchange Act annual reports.\350\
---------------------------------------------------------------------------

    \346\ See letter from Calvert 1 (stating that payment
information could ``materially and substantially improve investment
decision making''). See also note 318 above and accompanying text.
    \347\ See, e.g., letters from Calvert 1; ERI 2; Global Witness
1; PGGM; and Oxfam 1. Social, political, reputational, regulatory,
and tax risks were mentioned in the letters. Another commenter
maintained that transparency of payments is a better indicator of
risk for extractive issuers than the bond markets and is also a
better indicator of financial performance. See letter from Vale
Columbia Center (Dec. 16, 2011). The commenter did not provide
empirical evidence that compares transparency to bond market
indicators directly.
    \348\ See letter from ERI 2. This commenter also noted that
unusually high signing bonus payments for a particular project may
be a proxy for political influence, whereas unusually low tax or
royalty payments may signal that a project is located in a zone
vulnerable to attacks or community unrest.
    \349\ See letter from Calvert Asset Management Company and SIF
(Nov. 15, 2010). But see note 350 above and accompanying text.
    \350\ See Item 1A of Form 10-K and Item 3.D of Form 20-F. About
50 percent of affected issuers are smaller reporting companies and
they are not obligated to disclose in their Exchange Act annual
reports significant risk factors they face. For such companies, the
resource extraction projects payments disclosure could provide
incremental information that might benefit some investors, to the
extent that they would not otherwise have a requirement to disclose
the political or economic risks related to operating in resource-
rich countries. We do not, however, have data on whether such
companies have material operations in politically volatile regions
and whether they have exposure to risks described by commenters.
---------------------------------------------------------------------------

2. Costs
a. Commenters' Views of Compliance Costs
    Many commenters stated that the reporting regime mandated by
Section 13(q) would impose significant compliance costs on issuers.
Several commenters specifically addressed the cost estimates presented
in the Paperwork Reduction Act (``PRA'') section of the 2010 Proposing
Release.\351\ Other commenters discussed the costs and burdens to
issuers generally as well as costs that could have an effect on the PRA
analysis.\352\ As discussed below, in response to comments we received,
we have provided our estimate of both initial and ongoing compliance
costs. In addition, also in response to comments, we have made several
changes to our PRA estimates that are designed to better reflect the
burdens associated with the new collections of information.
---------------------------------------------------------------------------

    \351\ See letters from API 1; API 2; Barrick Gold; ERI 2;
ExxonMobil 1; ExxonMobil (Oct. 25, 2011) (``ExxonMobil 3''); NMA 2;
Rio Tinto; RDS 2; and RDS 4.
    \352\ See, e.g., letters from BP 1; Chamber Energy Institute;
Chevron; Cleary; Hermes; and PWYP 1.
---------------------------------------------------------------------------

    Some commenters on the 2010 Proposing Release disagreed with our
industry-wide estimate of the total annual increase in the collection
of information burden and argued that it underestimated the actual
costs that would be associated with the rules.\353\ These and other
commenters stated that, depending upon the final rules adopted, the
compliance burdens and costs arising from implementation and ongoing
compliance with the rules would be significantly higher than those
estimated by the Commission.\354\ However, these commenters generally
did not provide any quantitative analysis to support their
estimates.\355\
---------------------------------------------------------------------------

    \353\ See letters from API 1 and ExxonMobil 1.
    \354\ See letters from API 1; API 2; API 3; Barrick Gold;
ExxonMobil 1; NMA 2; Rio Tinto; and RDS 2.
    \355\ See letters from API 1 and ExxonMobil 1. ExxonMobil 1 did
provide estimated implementation costs of $50 million if the
definition of ``project'' is narrow and the level of disaggregation
is high across other reporting parameters. This estimate is used in
our analysis below of the expected implementation costs.
---------------------------------------------------------------------------

    Commenters also noted that modifications to issuers' core
enterprise resource planning systems and financial reporting systems
would be necessary to capture and report payment data at the project
level, for each type of payment, government payee, and currency of
payment.\356\ These commenters estimated that the resulting initial
implementation costs of the 2010 Proposing Release would be in the tens
of millions of dollars for large issuers and millions of dollars for
many small issuers.\357\ Two of these commenters provided examples of
the modifications that would be necessary, including establishing
additional granularity to existing coding structures (e.g., splitting
accounts that contain both government and non-government payment
amounts), developing a mechanism to appropriately capture data by
``project,'' building new collection tools within financial reporting
systems, establishing a trading partner structure to identify and
provide granularity around government entities, establishing
transaction types to accommodate types of payment (e.g., royalties,
taxes, or bonuses), and developing a systematic approach to handle
``in-kind'' payments.\358\ These two commenters estimated that total
industry costs for initial implementation of the final rules could
amount to hundreds of millions of dollars.\359\
---------------------------------------------------------------------------

    \356\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \357\ See letters from API 1; ExxonMobil 1; and RDS 2. These
commenters did not describe how they defined small and large
issuers.
    \358\ See letters from API 1 and ExxonMobil 1.
    \359\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    These commenters added that these estimated costs could be
significantly greater depending on the scope of the final rules.\360\
They suggested, for example, that costs could increase depending on how
the final rules define ``project'' and whether the final rules require
reporting of non-consolidated entities, require ``net'' and accrual
reporting, or require an audit.\361\ Another commenter estimated that
the initial set up time and costs associated with the rules
implementing Section 13(q) would require 500 hours for the issuer to
change its internal books and records and $100,000 in information
technology consulting, training, and travel costs.\362\ One commenter
representing the mining industry estimated that start-up costs,
including the burden of establishing new reporting and accounting
systems, training local personnel on tracking and reporting, and
developing guidance to ensure consistency across reporting units, would
be at least 500 hours for a mid-to-large sized multinational
issuer.\363\
---------------------------------------------------------------------------

    \360\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \361\ See letters from API 1; ExxonMobil 1; and RDS 2. As
previously discussed, the proposed rules do not require the payment
information to be audited or reported on an accrual basis, so
commenters' concerns about possible costs associated with these
items should be alleviated. See Section II.G.5 above.
    \362\ See letter from Barrick Gold.
    \363\ See letter from NMA 2.
---------------------------------------------------------------------------

    Two commenters stated that arriving at a reliable estimate for the
ongoing annual costs of complying with the rules would be difficult
because the rules were not yet fully defined but suggested that a
``more realistic'' estimate than the estimate included in the 2010
Proposing Release is hundreds of hours per year for each large issuer
that has many foreign locations.\364\ Commenters also indicated that
costs related to external professional services would be significantly
higher than the Commission's estimate, resulting primarily from XBRL
tagging and higher printing costs, although these commenters noted that
it is not possible to estimate these costs until the specific
requirements of the final rules are determined.\365\
---------------------------------------------------------------------------

    \364\ See letters from API 1 and ExxonMobil 1 (each noting that
estimates would increase if the final rules contain an audit
requirement or if the final rules are such that issuers are not able
to automate material parts of the collection and reporting process).
    \365\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    One commenter estimated that ongoing compliance with the rules
implementing Section 13(q) would require 100-200 hours of work at the
head office, an additional 100-200 hours of work providing support to
its business units, and 40-80 hours of work each year by each of its
120 business units, resulting in an approximate yearly total of 4,800-
9,600 hours and $2,000,000-$4,000,000.\366\ One large

multinational issuer estimated an additional 500 hours each year,
including time spent to review each payment to determine if it is
covered by the reporting requirements and ensure it is coded to the
appropriate ledger accounts.\367\ Another commenter representing the
mining industry estimated that, for an issuer with a hundred projects
or reporting units, the annual burden could be nearly 10 times the
estimated PRA burden set out in the 2010 Proposing Release.\368\ This
commenter noted that its estimate takes into account the task of
collecting, cross-checking, and analyzing extensive and detailed data
from multiple jurisdictions around the world, as well as the potential
for protracted time investments to comply with several aspects of the
rules proposed in 2010 that are not included in the current proposed
rules.\369\ This commenter also noted that the estimate in the 2010
Proposing Release did not adequately capture the burden to an
international company with multiple operations where a wide range of
personnel would need to be involved in capturing and reviewing the data
for the required disclosures as well as for electronically tagging the
information in XBRL format.\370\ A number of commenters submitted
subsequent letters reiterating and emphasizing the potential of the
proposed rules to impose substantial costs.\371\
---------------------------------------------------------------------------

    \366\ See letter from Rio Tinto. These estimates exclude initial
set-up time required to design and implement the reporting process
and develop policies to ensure consistency among business units.
They also assume that an audit is not required.
    \367\ See letter from Barrick Gold.
    \368\ See letter from NMA 2.
    \369\ See letter from NMA 2. Many of the time investments
outlined by this commenter would no longer apply to the proposed
rules or would be significantly reduced from when this commenter's
letter was submitted, such as the cost of seeking information from
non-consolidated ``controlled'' entities, obtaining compliance
advice on the application of undefined terms such as ``project,''
and reviews of the disclosure in connection with periodic
certifications under the Sarbanes Oxley Act. Certain potential costs
outlined in this letter, however, would still apply, such as those
associated with implementing new systems based on our proposed
definition of ``project'' and other definitions and costs associated
with attempting to secure an exemption from the Commission when
foreign law prohibitions on disclosure apply.
    \370\ See letter from NMA 2.
    \371\ See letters from API 2; ExxonMobil 3; and RDS 4.
---------------------------------------------------------------------------

    Other commenters believed that concerns over compliance costs have
been overstated.\372\ One commenter stated that most issuers already
have internal systems in place for recording payments that would be
required to be disclosed under Section 13(q) and that many issuers
currently are subject to reporting requirements at a project
level.\373\ Another commenter anticipated that while the rules would
likely result in additional costs to resource extraction issuers, such
costs would be marginal in scale because, in the commenter's
experience, many issuers already have extensive systems in place to
handle their current reporting requirements and any adjustments needed
as a result of Section 13(q) could be done in a timely and cost-
effective manner.\374\ Another commenter believed that issuers could
adapt their current systems in a cost-effective manner because they
should be able to adapt a practice undertaken in one operating
environment to those in other countries without substantial changes to
the existing systems and processes of an efficiently-run
enterprise.\375\
---------------------------------------------------------------------------

    \372\ See letters from ERI 2; Oxfam 1; PWYP 1; and RWI 1.
    \373\ See letter from RWI 1 (noting that Indonesia requires
reporting at the production sharing agreement level and that
companies operating on U.S. federal lands report royalties paid by
lease).
    \374\ See letter from Hermes.
    \375\ See letter from RWI 1.
---------------------------------------------------------------------------

    Another commenter stated that, in addition to issuers already
collecting the majority of information required to be made public under
Section 13(q) for internal record-keeping and audits, U.S. issuers
already report such information to tax authorities at the lease and
license level.\376\ This commenter added that efficiently-run issuers
should not have to make extensive changes to their existing systems and
processes to export practices undertaken in one operating environment
to another.\377\ However, another commenter disagreed that issuers
already report the payment information required by Section 13(q) for
tax purposes.\378\ This commenter also noted that tax reporting and
payment periods may differ.
---------------------------------------------------------------------------

    \376\ See letter from PWYP 1.
    \377\ See id. (citing statement made by Calvert Investments at a
June 2010 IASB-sponsored roundtable).
    \378\ See letter from Rio Tinto (``[t]his is a simplistic view,
and the problem is that tax payments for a specific year are not
necessarily based on the actual accounting results for that
year.'').
---------------------------------------------------------------------------

    One commenter, while not providing competing estimates, questioned
the accuracy of the assertions relating to costs from industry
participants.\379\ This commenter cited the following factors that led
it to question the cost assertions from industry participants: (i) Some
issuers already report project-level payments in certain countries in
one form or another and under a variety of regimes; (ii) some EITI
countries are already moving toward project-level disclosure; and (iii)
it is unclear whether issuers can save much time or money by reporting
government payments at the material project or country level. This
commenter also explained that issuers must keep records of their
subsidiaries' payments to governments as part of the books and records
provisions of the Foreign Corrupt Practices Act, so the primary costs
of reporting these payments would be in the presentation of the data
rather than any need to institute new tracking systems. This commenter
indicated that to the extent that issuers may need to implement new
accounting and reporting systems to keep track of government payments,
issuers presumably would need to develop mechanisms for receiving and
attributing information on individual payments regardless of the form
the final rules take. The commenter also observed that the 2010
proposed rules would require companies to provide the payment
information in its raw form, rather than requiring them to process it
and disclose only those payments from projects they deem to be
``material,'' which could result in savings to issuers of time and
money by allowing them to submit data without having to go through a
sifting process. This commenter observed that none of the commenters
who submitted cost estimates attempted to quantify the savings that
would ``supposedly accrue'' if disclosure were limited to ``material''
projects, as compared to disclosure of all projects, and noted that the
Commission was not required to accept commenters' bare assertions that
their ``marginal costs would be reduced very significantly.''
---------------------------------------------------------------------------

    \379\ See letter from ERI 2.
---------------------------------------------------------------------------

b. Quantitative Estimates of Compliance Costs
    To assess the potential initial and ongoing costs of compliance
with the proposed rules, we use the quantitative information supplied
by commenters in response to the 2010 Proposing Release.\380\ Our
general approach is to estimate the upper and lower bounds of the
compliance costs for each potentially affected issuer and then to sum
up these estimates to estimate the aggregate impact.\381\ As discussed
in Section III.A above, we estimate that, as of the end of 2014, 877
issuers would

be potentially affected by the proposed rules.\382\ However, in
determining which issuers are likely to bear the full costs of
compliance with the proposed rules, we make two adjustments to the list
of affected issuers. First, we exclude those issuers that would be
subject to foreign jurisdictions' rules substantially similar to our
proposed rules and therefore would likely already be bearing compliance
costs. Second, we exclude small issuers that likely could not have made
any payment above the proposed de minimis amount of $100,000 to any
government entity in 2014.
---------------------------------------------------------------------------

    \380\ See letters from Barrick Gold, ExxonMobil 1, and Rio Tinto
discussed above in Section III.B.2.a. NMA also provided initial
compliance hours that are similar to Barrick Gold. See letter from
NMA 2. We do not have comment letters with more up-to-date
quantitative estimates of compliance costs.
    \381\ We acknowledge that there may be some uncertainty
surrounding who will ultimately bear the compliance costs. Depending
on market conditions and the degree of competition, issuers may
attempt to pass some or all of their costs on to other market
participants. This consideration, however, does not change our
estimates.
    \382\ We acknowledge that, as one commenter suggested, some of
these issuers are affiliated and thus are likely to share compliance
systems and fixed costs of creating such systems. See letter from
Publish What You Pay United States (Nov. 12, 2015) (``PWYP-US 2'').
Due to difficulties in determining affiliation status, however, we
have not attempted to eliminate these issuers from our estimates,
and therefore our estimates may overstate the potential costs.
Nevertheless, this potential overstatement of costs would not apply
in one of the cases we consider below, the case of no fixed costs,
because the costs would depend only on the total assets of affected
issuers, not on the number of them.
---------------------------------------------------------------------------

    To address the first consideration, we searched the filed annual
forms and forms' metadata for issuers that have a business address, are
incorporated, or are listed on markets in the EEA or Canada. For
purposes of our analysis, we assume that those issuers may already be
subject to similar resource extraction payment disclosure rules in
those jurisdictions by the time the proposed rules are adopted and,
thus, that the additional costs to comply with our proposed rules would
be much lower than costs for other issuers. We identified 268 such
issuers.\383\
---------------------------------------------------------------------------

    \383\ If we adopt an alternative reporting option as part of the
final rules, and the disclosure requirements of those jurisdictions
are subsequently deemed to be substantially similar to our rules,
then the additional cost would be negligible compared to compliance
costs we consider in this section.
---------------------------------------------------------------------------

    Second, among the remaining 609 issuers (i.e., 877 minus 268) we
searched for issuers that, in the most recent fiscal year as of the
date of their annual report filing, have both revenues and absolute
value net cash flows from investing activities of less than the
proposed de minimis payment threshold of $100,000. Under those
financial constraints, such issuers are unlikely to have made any non-
de minimis and otherwise reportable payments to governments and would
be unlikely to be subject to the proposed reporting requirements. We
identified 138 such issuers.
    Taking these estimates of the number of excluded issuers together,
we estimate that approximately 471 issuers (i.e., 877 minus 268 minus
138) would bear the full costs of compliance with the proposed
rules.\384\
---------------------------------------------------------------------------

    \384\ Because it may be uncertain at the beginning of a
financial period as to whether payments from an issuer will exceed
the de minimis threshold by the end of such period, an excluded
issuer may incur costs to collect the information that would need to
be reported under the proposed rules even if that issuer is not
subsequently required to file an annual report on Form SD. To the
extent that excluded issuers incur such costs, our estimate may
understate the aggregate compliance costs associated with the
proposed rules.
---------------------------------------------------------------------------

    To establish an upper and lower bound for the initial compliance
costs estimates, we use the initial compliance cost estimates from
Barrick Gold and ExxonMobil referenced above. We note, however, that
these cost estimates were provided by the commenters during the comment
period after the 2010 Proposing Release and were based on policy
choices made in that proposal and reflected the other international
regulatory regimes in place at that time. Since then we have changed
our approach (e.g., we have proposed to define the term ``control''
based on accounting principles, which we believe would be easier and
less costly for issuers to apply) \385\ and the international reporting
regimes have changed significantly.\386\ These developments are likely
to significantly lower the compliance costs associated with the
currently proposed rules. However, we do not have any reliable
quantitative assessment of the extent to which these changes would
reduce commenters' cost estimates and, thus, we use the original
commenters' estimates without adjustment.
---------------------------------------------------------------------------

    \385\ See Section II.D above.
    \386\ In this regard, we note that some affected issuers, even
if they are not subject to foreign disclosure rules, might have
subsidiaries or other entities under their control that are subject
to such rules. These issuers thus would face lower compliance costs
because they would already have incurred some of these costs through
such subsidiaries and other controlled entities.
---------------------------------------------------------------------------

    In our methodology to estimate the initial compliance costs, we
take the specific issuer estimates from Barrick Gold and ExxonMobil,
$500,000 and $50,000,000, respectively,\387\ apply these costs to the
average issuer, and then multiply the costs by the number of affected
issuers. However, because Barrick Gold and ExxonMobil are very large
issuers and their compliance costs may not be representative of other
types of issuers, we apply these costs to all potentially affected
issuers as a percentage of total assets. This allows for the compliance
cost estimate for each potentially affected issuer to vary by their
size, consistent with our expectation that larger issuers will face
higher compliance costs. For example, we expect larger, multinational
issuers to need more complex payment tracking systems compared to
smaller, single country based issuers. This approach is consistent with
the method used in the 2012 Adopting Release, where we estimated the
initial compliance costs to be between 0.002% and 0.021% of total
assets.\388\
---------------------------------------------------------------------------

    \387\ Barrick Gold estimated that it would require 500 hours for
initial changes to internal books and records and processes, and 500
hours for ongoing compliance costs. At an hourly rate of $400, this
amounts to $400,000 (1,000 hours * $400) for hourly compliance
costs. Barrick Gold also estimated that it would cost $100,000 for
initial IT/consulting and travel costs, for a total initial
compliance cost of $500,000. A similar analysis for ExxonMobil
estimated their initial compliance costs to be $50 million. See 2012
Adopting Release, Section III.D for details.
    \388\ See 2012 Adopting Release at Section III.D for details
(the approach we use here is referred to as Method 1 in that
release). In the 2012 Adopting Release we also used another method
(referred to as Method 2) to estimate compliance costs. With Method
2, we first estimated the compliance costs for small and large
issuers (as determined by market capitalization) using the same
assumptions as in Method 1 that compliance costs are a constant
fraction of issuer's total assets (i.e., that all costs are variable
and there is no fixed component to the costs), and then aggregated
the compliance costs for all issuers. Although this approach was
intended to provide limited insight into any differential cost
impacts on small versus large issuers, it did not separate fixed and
variable cost components of the total compliance costs. Therefore,
it did not allow us to apply a differential cost structure to small
and large issuers. In addition, because of poor data availability
and data quality on market capitalization for small and foreign
issuers, the Method 2 approach may yield less accurate estimates
than the approach we use in this release (on the other hand, Method
1 could be properly applied because we collected total assets data
for all affected issuers). As a consequence, we now believe that the
disaggregation and subsequent aggregation of small and large issuer
cost estimates does not provide additional insights into the
difference in cost structure for small versus large issuers and any
effects of this difference on the aggregate costs. Consequently, we
have used only one estimation approach in this proposal. As
discussed below, however, we do believe that there is a fixed
component to the compliance costs which could potentially have a
differential impact on small issuers, and we have expanded the
Method 1 approach to allow for a fixed costs component in the cost
structure. We also request comments on both the fixed and variable
components of compliance costs to enable us to better quantitatively
estimate such impact.
---------------------------------------------------------------------------

    We calculate the average total assets of the 471 potentially
affected issuers to be approximately $5.8 billion.\389\ Applying the
ratio of initial compliance costs to total assets (0.002%) from Barrick
Gold, we estimate the lower

bound of total initial compliance costs for all issuers to be $54.96
million (0.002% * $5,834,361,000 * 471). Applying the ratio of initial
compliance costs to total assets (0.021%) from ExxonMobil, we estimate
the upper bound of total initial compliance costs for all issuers to be
$577.1 million (0.021% * $5,834,361,000 * 471). The table below
summarizes the upper and lower bound of total initial compliance costs
under the assumption that compliance costs vary according to the
issuer's size.
---------------------------------------------------------------------------

    \389\ For the 471 potentially affected issuers, we collected
their total assets for the fiscal year that corresponds to their
Exchange Act annual reports for 2014 from XBRL filings that
accompany issuers' annual reports on EDGAR and from Compustat; if
these two data sources varied on an issuer's total assets, we used
the higher of the two values. For the remaining issuers that do not
have total assets data from either of these two data sources, we
manually collected the data on total assets from their filings. We
then calculated the average of those total assets across all issuers
that have the data.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Average issuer initial compliance costs assuming no fixed costs  Calculation
----------------------------------------------------------------------------------------------------------------
Average 2014 total assets of all affected        $5,834,361,000
 issuers.
Average initial compliance costs per issuer             116,687  $5,834,361,000*0.002%
 using Barrick Gold percentage of total
 assets (lower bound).
                                              ------------------------------------------------------------------
  Total initial compliance costs using               54,959,577  $116,687*471
   Barrick Gold (lower bound).
                                              ------------------------------------------------------------------
Average initial compliance costs per issuer           1,225,216  $5,834,361,000*0.021%
 using Exxon Mobil's percentage of total
 assets (upper bound).
                                              ------------------------------------------------------------------
    Total initial compliance costs using            577,076,736  $1,225,216*471
     ExxonMobil (upper bound).
----------------------------------------------------------------------------------------------------------------

    We also recognize that it is possible that some compliance costs
may not scale by issuer size and that smaller issuers in particular may
be subject to certain fixed costs that do not vary with the size of the
issuers' operations. While commenters did not provide any information
on what fraction of the initial compliance costs would be fixed versus
variable, we assume that fixed costs are equal to $500,000--the lower
of the two compliance cost estimates provided by commenters. To find
the lower and upper bound estimates of compliance costs in this case,
we assume that each issuer's costs are the maximum between the fixed
costs of $500,000 and, respectively, the lower bound (0.002% of total
assets) or the upper bound (0.021% of total assets) of the variable
costs. Applying these lower and upper bounds to each issuer and summing
across all issuers, we find that the lower bound estimate is $262
million (or, on average, $0.56 million per issuer) and the upper bound
estimate is $726 million (or, on average, $1.54 million per issuer).
    The table below summarizes the upper and lower bound of total
initial compliance costs under two fixed costs assumptions.\390\ We
note that our upper bound estimates are consistent with two commenters'
qualitative estimates of initial implementation costs.\391\ We also
note that, if the actual fixed costs component is between $0 and
$500,000, the lower and upper bounds of compliance costs estimates
would be between our estimates for the two opposite cases.
---------------------------------------------------------------------------

    \390\ The total estimated compliance cost for PRA purposes is
$79,302,480. See Section IV below. The compliance costs for PRA
purposes would be encompassed in the total estimated compliance
costs for issuers. As discussed in detail below, our PRA estimate
includes costs related to tracking and collecting information about
different types of payments across projects, governments, countries,
subsidiaries, and other controlled entities. The estimated costs for
PRA purposes are calculated by treating compliance costs as fixed
costs and by only monetizing costs associated with outside
professional services. Therefore, despite using similar inputs for
calculating these costs, the PRA estimate differs from the lower and
upper bounds calculated above.
    \391\ See letters from API 1 (``Total industry costs just for
the initial implementation could amount to hundreds of millions of
dollars even assuming a favorable final decision on audit
requirements and reasonable application of accepted materiality
concepts.'') and ExxonMobil 1.

----------------------------------------------------------------------------------------------------------------
                                      Initial compliance costs assuming no    Initial compliance costs assuming
                                                   fixed costs                     fixed costs of $500,000
                                     ---------------------------------------------------------------------------
                                         Costs for an                          Costs for an
                                        average issuer      Total costs       average issuer      Total costs
----------------------------------------------------------------------------------------------------------------
Lower bound.........................           $116,687        $54,959,680           $557,092       $262,390,300
Upper bound.........................          1,225,216        577,076,700          1,540,969        725,796,600
----------------------------------------------------------------------------------------------------------------

    We acknowledge significant limitations on our analysis that may
result in the actual costs being significantly lower. First, the
analysis is limited to two large issuers' estimates from two different
industries, mining and oil and gas, and the estimates may not
accurately reflect the initial compliance costs of all affected
issuers. Second, the commenters' estimates were generated based on our
initial proposal and they do not reflect the current proposed rules or
the international transparency regimes that subsequently have been
adopted by other jurisdictions.\392\
---------------------------------------------------------------------------

    \392\ See, e.g., notes 179 and 386 and accompanying text.
---------------------------------------------------------------------------

    We also acknowledge certain limitations on our analysis that could
potentially cause the cost to be higher than our estimates. First, we
assume that the variable part of the compliance costs is a constant
fraction of total assets, but the dependence of costs on issuer size
might not be linear (e.g., costs could grow disproportionally faster
than issuer assets). Second, commenters mentioned other potential
compliance costs not necessarily captured in this discussion of
compliance costs.\393\
---------------------------------------------------------------------------

    \393\ Those could include, for example, costs associated with
the termination of existing agreements in countries with laws that
prohibit the type of disclosure mandated by the rules, costs of
decreased ability to bid for projects in such countries in the
future, or costs of decreased competitiveness with respect to non-
reporting entities. Commenters generally did not provide estimates
of such costs. As discussed further below, we have attempted to
estimate the costs associated with potential foreign law
prohibitions on providing the required disclosure.
---------------------------------------------------------------------------

    We estimate ongoing compliance costs using the same method under
the assumptions of no fixed costs and fixed costs of $200,000 per year
(as explained below). After the 2010 Proposing Release, we received
quantitative information from three commenters--Rio Tinto, National
Mining Association, and Barrick Gold--that we used in the

analysis.\394\ As in the 2012 Adopting Release, we use these three
comments to estimate the ongoing compliance costs as a percentage of
total assets to be 0.003%, 0.02%, and 0.0008%, respectively, and the
average ongoing compliance costs to be 0.0079% of total assets.\395\
For the no fixed costs case, we take the average total assets for all
affected issuers, $5,834,361,000, and multiply it by a constant
fraction (either the lower bound of 0.0008%, the average of 0.0079%, or
the upper bound of 0.02%) of total assets and the number of affected
companies (471) to get the total lower bound, the average, and the
upper bound of the annual ongoing compliance costs estimates.
---------------------------------------------------------------------------

    \394\ See letters from Barrick Gold, Rio Tinto, and NMA 2. We
apply the same caveat as in the initial compliance cost estimates
above, namely, that these cost estimates were provided by the
commenters during the comment period after the 2010 Proposing
Release and were based on policy choices made in that proposal.
Changes made to the current proposal and recent international
developments could significantly lower the cost estimates.
    \395\ We estimate the cost percentages the following way. Rio
Tinto estimated that it would take between 5,000 and 10,000 hours
per year to comply with the requirements, for a total ongoing
compliance cost of between $2 million (5,000*$400) and $4 million
(10,000*$400). We use the midpoint of their estimate, $3 million, as
their expected ongoing compliance cost. The National Mining
Association (NMA), which represents the mining industry, estimated
that ongoing compliance costs would be 10 times our initial estimate
from the 2010 Proposing Release, although it did not state
specifically the number to which it referred. We believe NMA was
referring to our proposed estimate of $30,000. Although this is the
dollar figure for total costs, NMA referred to it when providing an
estimate of ongoing costs, so we do the same here, which would
result in $300,000 (10*$30,000). Finally, Barrick Gold estimated
that it would take 500 hours per year to comply with the
requirements, or $200,000 (500*$400) per year. As with the initial
compliance costs, we calculate the ongoing compliance cost as a
percentage of total assets. Rio Tinto's total assets as of the end
of fiscal year 2009 were approximately $97 billion and their
estimated ongoing compliance costs as a percentage of assets is
0.003% ($3,000,000/$97,236,000,000). We calculated the average total
assets of the mining industry to be $1.5 billion, and using NMA's
estimated ongoing compliance costs, we estimate ongoing compliance
costs as a percentage of assets of 0.02% ($300,000/$1,515,000,000).
Barrick Gold's total assets as of the end of fiscal year 2009 were
approximately $25 billion and their estimated ongoing compliance
costs as a percentage of assets is 0.0008% ($200,000/
$25,075,000,000). See 2012 Adopting Release at Section III.D for
details.
---------------------------------------------------------------------------

    Similarly to our estimates of the initial costs, we then consider
fixed costs equal to the lowest of three estimates given by the
commenters, the Barrick Gold's estimate of $200,000 per year. To find
the lower and upper bound estimates, we assume that each issuer's costs
are the maximum between the fixed costs of $200,000 and either the
lower bound (0.0008% of total assets) or the upper bound (0.02% of
total assets) of the variable costs, respectively. Applying these lower
and upper bounds to each issuer and summing across all issuers, we find
that the lower bound estimate is $105 million per year (or, on average,
$0.22 million per issuer per year) and the upper bound estimate is $601
million per year (or, on average, $1.28 million per issuer per year).
Our estimates are summarized in the following table. Finally, we note
that, if the actual fixed costs component is between $0 and $200,000,
the lower and upper bounds of compliance costs estimates would be
between our lower and upper bounds estimates for the two opposite fixed
costs cases.

----------------------------------------------------------------------------------------------------------------
                                         Annual ongoing compliance costs       Annual ongoing compliance costs
                                        under the assumption of no fixed     under the assumption of fixed costs
                                                      costs                              of $200,000
                                     ---------------------------------------------------------------------------
                                         Costs for an                          Costs for an
                                        average issuer      Total costs       average issuer      Total costs
----------------------------------------------------------------------------------------------------------------
Lower bound.........................            $46,675        $21,983,870           $222,837       $104,956,100
Average.............................            460,915        217,090,700            588,790        277,320,000
Upper bound.........................          1,166,872        549,596,800          1,275,390        600,708,700
----------------------------------------------------------------------------------------------------------------

    As noted above, we expect that the initial and ongoing compliance
costs associated with the proposed rule are likely to be greater for
larger, multinational issuers as compared to smaller, single country
based issuers, as larger issuers would likely need more complex systems
to track and report the required information. However, to the extent
there is a significant fixed component to the proposed rules' overall
compliance costs, such costs could be disproportionately burdensome for
smaller reporting companies and emerging growth companies. In this
case, the proposed rules could give rise to competitive disadvantages
for these smaller issuers and could provide incentive for these issuers
to consider exiting public capital markets to avoid reporting
requirements (possibly incurring a higher cost of capital and
potentially limited access to capital in the future). We estimate that
approximately 50% of affected issuers are smaller reporting companies
and approximately 6% of affected issuers are emerging growth
companies.\396\ Given the transparency goals of the statute and the
fact that smaller issuers constitute a significant portion of the
public reporting companies making resource extraction payments,
exempting these issuers from the proposed rules could significantly
diminish the expected benefits of the required disclosure. To help us
better understand the potential impact of the proposed rules on smaller
issuers, we are soliciting comment on the degree to which compliance
costs are likely to vary by issuer size and complexity of operations
and our overall approach to estimating these costs, as outlined above.
---------------------------------------------------------------------------

    \396\ As discussed in this section above, our estimate of the
number of affected issuers already excludes 138 issuers whose
reported revenues and net cash flows from investing activities
suggest that they are unlikely to make payments above the proposed
de minimis threshold. If we apply a significantly higher threshold
($250,000, $500,000, $750,000, or $1,000,000) to revenues and cash
flows from investing to estimate the number of such issuers, we
would exclude a slightly higher number of issuers from our cost
estimates (169, 201, 214, or 227, respectively). Nonetheless, for
the reasons described above, we believe that we have proposed to set
the de minimis threshold at an appropriate level. See Section II.C.2
above.
---------------------------------------------------------------------------

c. Indirect Costs and Competitive Effects
    In addition to direct compliance costs, we anticipate that the
statute could result in significant indirect effects. Issuers that have
a reporting obligation under Section 13(q) could have a competitive
disadvantage compared to private companies and foreign companies that
are not subject to the reporting requirements of the United States
federal securities laws and therefore do not have such an obligation.
For example, such competitive disadvantage could result from, among
other things, any preference by the government of the host country to
avoid disclosure of covered payment information, or any ability of
market participants to use the information disclosed by reporting
issuers to derive contract terms, reserve data, or other confidential
information.

    Industry commenters have stated that confidential production and
reserve data can be derived by competitors or other interested persons
with industry knowledge by extrapolating from the payment information
required to be disclosed.\397\ Other commenters have argued, however,
that such extrapolation is not possible, and that information of the
type required to be disclosed by Section 13(q) would not confer a
competitive advantage on industry participants not subject to such
disclosure requirements.\398\ In either event, any competitive impact
of Section 13(q) should be minimal in those jurisdictions in which
payment information of the types covered by Section 13(q) is already
publicly available.\399\ In addition, any competitive impact should be
substantially reduced to the extent that other jurisdictions, such as
the European Union and Canada, have adopted laws that require
disclosure similar to the disclosure required by Section 13(q) and the
proposed rules.\400\ We note, however, that to the extent that
commenters are accurate in their assessment of competitive effects
arising from such disclosure requirements, some U.S. issuers that would
not be subject to the EU Directives or other international disclosure
regimes might lose some of their competitive advantage from not being
obligated to disclose their resource extraction payments.
---------------------------------------------------------------------------

    \397\ See letters from API 1; ExxonMobil 1; and RDS 2.
    \398\ See letters from PWYP 1 and Oxfam 1.
    \399\ In this regard, we note that one commenter provided
several examples of countries in which payments are publicly
disclosed on a lease or concession level. See letter from PWYP 3.
    \400\ One commenter suggested that if both the United States and
European Union implement disclosure requirements regarding payments
to governments ``around 90% of the world's extractive companies will
be covered by the rules.'' See letter from Arlene McCarthy (Aug. 10,
2012) (Ms. McCarthy is a member of the European Parliament and the
parliamentary draftsperson on the EU transparency rules for the
extractive sector).
---------------------------------------------------------------------------

    To the extent that the requirement to disclose payment information
does impose a competitive disadvantage on an issuer, such issuer
possibly could be motivated to sell assets affected by such competitive
disadvantage at a price that does not fully reflect the value of such
assets absent such competitive impact.\401\ Additionally, resource
extraction issuers operating in countries which prohibit, or could in
the future prohibit, the disclosure required under the proposed rules
could bear substantial costs.\402\ One commenter noted that tens of
billions of dollars of capital investments could potentially be put at
risk if issuers were required to disclose, pursuant to our proposed
rules, information prohibited by the host country's laws or
regulations.\403\ As explained above, pursuant to our existing Exchange
Act authority, the Commission will consider requests for exemptive
relief on a case-by-case basis and may grant such relief, if and when
warranted. The economic implications of providing such relief are
discussed below in Section III.C.1.
---------------------------------------------------------------------------

    \401\ For example, a study on divestitures of assets find that
issuers that undertake voluntary divestitures have positive stock
price reactions, but also finds that issuers forced to divest assets
due to action undertaken by the antitrust authorities suffer a
decrease in shareholder value. See Kenneth J. Boudreaux,
``Divestiture and Share Price.'' Journal of Financial and
Quantitative Analysis 10 (Sept. 1975), 619-26. See also, G. Hite and
J. Owers. ``Security Price Reactions around Corporate Spin-Off
Announcements.'' Journal of Financial Economics 12 (Dec. 1983), 409-
36 (finding that issuers spinning off assets because of legal/
regulatory difficulties experience negative stock returns).
    \402\ See 2012 Adopting Release, nn.52-53 and accompanying text.
    \403\ See letter from RDS 4.
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    Addressing other potential costs, one commenter referred to a
potential economic loss borne by shareholders, without quantifying such
loss, which the commenter believed could result from highly
disaggregated public disclosure of competitively sensitive information
causing competitive harm.\404\ The commenter also noted resource
extraction issuers could suffer competitive harm because they could be
excluded from many future projects altogether. One commenter also noted
that because energy underlies every aspect of the economy, these
negative impacts could potentially have repercussions well beyond
resource extraction issuers.\405\
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    \404\ See letter from API 1.
    \405\ See letter from API 1.
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    Some commenters suggested that we permit issuers to submit payment
data confidentially to the Commission and make public only an
aggregated compilation of the information.\406\ The commenters
suggesting that the Commission make public only a compilation of
information stated that such an approach would address many of their
concerns about the disclosure of commercially sensitive or legally
prohibited information and would significantly mitigate the costs of
the mandatory disclosure under Section 13(q). As noted above, we did
not permit confidential submissions in the 2012 Rules, and the current
proposed rules are generally consistent with that approach. As a
result, the proposed rules require public disclosure of the
information. We note that in situations involving more than one
payment, the information would be aggregated by payment type,
government, and/or project, which may limit the ability of competitors
to use the publicly disclosed information to their advantage. In
addition, as discussed above, the Commission will consider applications
for exemptive relief from the proposed disclosure requirements on a
case-by-case basis and may grant such relief, if and when
warranted.\407\
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    \406\ See note 242 above and accompanying text.
    \407\ See Section II.G.3 above.
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    As noted above, the cost of compliance for this provision would be
primarily borne by the issuer thus potentially diverting capital away
from other productive opportunities which may result in a loss of
allocative efficiency.\408\ Such effects may be partially offset over
time if increased transparency of resource extraction payments reduces
corrupt practices by governments of resource-rich countries and in turn
helps promote improved economic development and higher economic growth
in those countries. In this regard, as we noted above in Section
III.B.1, a number of economic studies have shown that reducing
corruption can help promote higher economic growth through more private
investments, better deployment of human capital, and political
stability.\409\
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    \408\ See letter from Chevron. See also letter from Chairman
Bachus and Chairman Miller. As discussed above in note 381, there is
some uncertainty regarding who would bear the ultimate costs of
compliance. Regardless of who bears the majority of the compliance
costs, we believe that the effects on allocative efficiency and
capital flows would likely be similar.
    \409\ See note 336 above and accompanying text.
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C. Potential Effects Resulting From Specific Implementation Choices

    As discussed in detail in Section II, we have revised the rules
from the 2010 Proposing Release and the 2012 Adopting Release to
address matters identified in the U.S. District Court for the District
of Columbia's decision in the API Lawsuit. In developing the proposed
rules, we have also considered relevant international developments,
input from staff consultations with other U.S. Government agencies, and
the public comments that we have received. We discuss below the
significant choices that we are proposing to implement the statute and
the associated benefits and costs of those choices. We are unable to
quantify the impact of each of the proposals we discuss below with any
precision because reliable, empirical evidence about the effects is not
readily available to the Commission. We do, however,

request that commenters provide us with any empirical evidence relating
to these various choices to the extent that they can.
1. Exemption From Compliance
    Absent potential exemptive relief, resource extraction issuers
operating in countries which prohibit, or may in the future prohibit,
the disclosure required under Section 13(q) could bear substantial
costs.\410\ Such costs could arise if issuers have to choose between
ceasing operations in certain countries or violating local law, or if
the country's laws have the effect of preventing them from
participating in future projects. Some commenters asserted that four
countries currently have such laws.\411\ Other commenters disputed the
assertion that there are foreign laws that specifically prohibit
disclosure of payment information.\412\
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    \410\ See 2012 Adopting Release, nn.52-53 and accompanying text.
    \411\ See letters from API 1 and ExxonMobil 1 (mentioning
Angola, Cameroon, China, and Qatar). See also letter from RDS 2
(mentioning Cameroon, China, and Qatar).
    \412\ See, e.g., letters from ERI 3; Global Witness 1; OpenOil;
PWYP 1; PWYP 3; and Rep. Frank et al.
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    A foreign private issuer with operations in a country that
prohibits disclosure of covered payments, or a foreign issuer that is
domiciled in such country, might face different types of costs. For
example, it might decide it is necessary to delist from an exchange in
the United States, deregister, and cease reporting with the
Commission,\413\ thus incurring a higher cost of capital and
potentially limited access to capital in the future. Shareholders,
including U.S. shareholders, might in turn suffer an economic and
informational loss if an issuer decides it is necessary to deregister
and cease reporting under the Exchange Act in the United States as a
result of the proposed rules.
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    \413\ See letter from Berns.
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    Affected issuers also could suffer substantial losses if they have
to terminate their operations and redeploy or dispose of their assets
in the host country under consideration. These losses would be
magnified if an issuer cannot redeploy the assets in question easily,
or it has to sell them at a steep discount (a fire sale). Even if the
assets could be easily redeployed, an issuer could suffer opportunity
costs if they are redeployed to projects with inferior rates of return.
In the 2012 Adopting Release we estimated that such losses could amount
to billions of dollars.
    A number of factors may serve to mitigate the costs and competitive
burdens arising from the impact of foreign laws on the required
disclosure. For example, the widening global influence of the EITI and
the recent trend of other jurisdictions to promote transparency,
including listing requirements adopted by the Hong Kong Stock Exchange
and the requirements adopted pursuant to the EU Directives and ESTMA,
may discourage governments in resource-rich countries from rigorously
enforcing any such prohibitions or from adopting new prohibitions on
payment disclosure.\414\ Resource extraction issuers concerned that
disclosure required by Section 13(q) may be prohibited in a given host
country may also be able to seek authorization from the host country to
disclose such information.\415\ Commenters did not provide estimates of
the cost that might be incurred to seek such an authorization.
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    \414\ See 2012 Adopting Release, n.15 and n.48, and the
discussion in Section I above.
    \415\ For example, according to some commenters, the Minister of
Petroleum may provide formal authorization for the disclosure of
information about a reporting issuer's activities in Angola. See
letter from ExxonMobil 2. See also letter from PWYP 2 (``Current
corporate practice suggests that the Angolan government regularly
provides this authorization. For instance, Statoil regularly reports
payments made to the Angolan government.'' (internal citations
omitted)). The legal opinions submitted by Royal Dutch Shell with
its comment letter also indicate that disclosure of otherwise
restricted information may be authorized by government authorities
in Cameroon and China, respectively. See letter from RDS 2.
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    In addition, these potential costs could be substantially mitigated
under our proposed rules. We intend to consider using our existing
authority under the Exchange Act to provide exemptive relief on a case-
by-case basis, if and when warranted, upon the request of a resource
extraction issuer.\416\ As mentioned above, we believe that a case-by-
case approach to exemptive relief using our existing authority is
preferable to either including within the final rules a blanket
exemption for a foreign law prohibition (or for any other reason) or
providing no exemptions and no avenue for exemptive relief under this
or other circumstances. The proposed approach should significantly
decrease compliance and economic costs to the extent that issuers are
able to demonstrate that an exemption where host country laws prohibit
disclosure is warranted. Indeed, assuming such laws exist and are
enforced and that issuers are able to make the required demonstration
for an exemption to our proposed rules, this approach could potentially
save affected issuers billions of dollars in compliance and economic
costs.\417\
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    \416\ For example, an issuer would be able to request exemptive
relief in situations where the required payment disclosure is
prohibited under the host country's laws. See discussion in Section
II.G.3 above.
    \417\ We note, however, that in addition to reducing costs,
granting an exemption might diminish some of the benefits of
enhanced transparency as well.
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    An alternative to using our exemptive authority on a case-by-case
basis would be to provide a blanket or per se exemption where specific
countries have a law prohibiting the required disclosure. Although a
blanket exemption would reduce potential economic costs (e.g., costs of
relocating assets) and compliance costs (e.g., costs associated with
applying for the exemption) for affected issuers, it could create a
stronger incentive for host countries that want to prevent transparency
to pass laws that prohibit such disclosure, potentially undermining the
purpose of Section 13(q) to compel disclosure in foreign countries that
have failed to voluntarily do so.\418\ It also would remove any
incentive for issuers to diligently negotiate with host countries for
permission to make the required disclosures. Furthermore, it would make
it more difficult to address any material changes over time in the laws
of the relevant foreign countries, thereby resulting in an outdated
blanket exemption. By contrast, the tailored case-by-case exemptive
approach we are contemplating would provide a more flexible and
targeted mechanism for the Commission to address potential cost
concerns without creating incentives for host countries to enact laws
prohibiting disclosure to the extent that the exemptive relief is not
universally granted.
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    \418\ See, e.g., 156 Cong. Rec. S3815 (May 17, 2010) (Statement
of Senator Cardin) (``We currently have a voluntary international
standard for promoting transparency. . . . But too many countries
and too many companies remain outside this voluntary system.''). We
also note that a blanket exemption would incentivize host countries
that want to prevent transparency to enact laws prohibiting the
disclosure without suffering the cost of decreasing the number of
potential bidders on--and competition for--projects within their
jurisdictions, and thus without the cost of decreasing the potential
value realized to the host country from awarding a contract.
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    Finally, we believe that the more tailored case-by-case exemptive
approach that we are proposing could improve the comparability of
payment information among resource extraction issuers and across
countries. As such, it may increase the benefit to users of the Section
13(q) disclosure. Also, although not providing a blanket exemption
could encourage issuers to not list on U.S. markets, to the extent that
other jurisdictions are developing and adopting similar initiatives
(e.g., the EU and Canada), the advantage to those

issuers from not being subject to the proposed rules will diminish.
    As discussed above, host country laws that prohibit the type of
disclosure required under the proposed rules could lead to significant
additional economic costs that are not captured by the compliance cost
estimates in Section III.B.2.b. We believe that affording exemptive
relief from the proposed disclosure requirements on a case-by-case
basis, as circumstances warrant, should substantially mitigate such
costs. However, we acknowledge that, if this relief were not provided,
issuers could potentially incur costs associated with the conflict
between our requirements and those foreign law prohibitions. Below, we
have attempted, to the extent possible, to assess the magnitude of
those potential costs if exemptive relief were not granted.
    We base our analysis on the four countries that some commenters
claimed have versions of such laws.\419\ We searched (through a text
search in the EDGAR system) the Forms 10-K, 40-F, and 20-F of affected
issuers for year 2014 for any mention of Angola, Cameroon, China, or
Qatar. We found that, out of 471 potentially affected issuers, 163
mentioned one of these four countries. However, only 49 of them
described any activity in one of these four countries and 114 mentioned
these countries for other, unrelated reasons. An examination of these
49 filings indicates that most filings did not provide detailed
information on the extent of issuers' operations in these
countries.\420\ Thus, we are unable to determine the total amount of
capital that could be lost in these countries if the information
required to be disclosed under the proposed rules is, in fact,
prohibited by laws or regulations and exemptive relief is not provided.
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    \419\ See letters from API 1 and ExxonMobil 1 (mentioning
Angola, Cameroon, China, and Qatar); see also letter from RDS 2
(mentioning Cameroon, China, and Qatar). Other commenters disputed
the assertion that there are foreign laws that specifically prohibit
disclosure of payment information. See, e.g., letters from ERI 3;
Global Witness 1; PWYP 1; PWYP 3; and Rep. Frank et al.
    \420\ We note that some resource extraction issuers do not
operate in those four countries and thus would not have any such
information to disclose. Other issuers may have determined that they
were not required to provide detailed information in their filings
regarding their operations in those countries.
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    We can, however, assess if the costs of withdrawing from these four
countries are in line with one commenter's estimate of tens of billions
of dollars.\421\ To do this, we first estimate the market value of
assets that an issuer currently owns in a country with such laws. We
then discuss how the presence of various opportunities for the use of
those assets by the issuer or another entity would affect the size of
the issuer's potential losses. We also discuss how these losses would
be affected if an issuer cannot redeploy the assets in question easily,
or it has to sell them with a steep discount (a fire sale). In order to
estimate the market value of assets located in one of these countries,
we use Compustat geographic segments data extracted from annual reports
to find the fraction of book value of such assets in the issuer's total
assets and assume that the market value of such assets is the same
fraction of the issuer's total market value.\422\
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    \421\ See letter from RDS 4.
    \422\ This approach assumes that valuation of assets of a firm
is the same regardless of where these assets are geographically