reporting issuer consolidates the entity making the eligible payment,
this approach also should have the benefit of limiting the potential
overlap of the disclosed payments because generally, under applicable
financial reporting principles, only one party can control, and
therefore consolidate, that entity.

Further, this approach could enhance the quality of the reported data
since each resource extraction issuer is required to provide audited
financial statement disclosure of its significant consolidation
accounting policies in the notes to the audited financial statements
included in its existing Exchange Act annual reports.\165\ The
disclosure of these accounting policies should provide greater
transparency about how the issuer determined which entities and
payments should be included within the scope of the required
disclosures. Finally, a resource extraction issuer's determination of
control under the proposed rules would be subject to the audit process
as well as to the internal accounting controls that issuers are
required to have in place with respect to reporting audited financial
statements filed with the Commission.\166\
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    \165\ See ASC 235-10-50; IFRS 8. See also Rules 1-01, 3-01, and
4-01 of Regulation S-X [17 CFR 210.1-01, 2-01 and 4-01].
    \166\ See Exchange Act Section 13(b)(2)(B) [15 U.S.C.
78m(b)(2)(B)]. See also Rules 13a-15 [17 CFR 240.13a-15] and 15d-15
[17 CFR 240.15d-15]. We note, however, that the proposed rules would
not create a new auditing requirement.
---------------------------------------------------------------------------

    The proposed rules would not require disclosure of the
proportionate amount of the payments made by a resource extraction
issuer's proportionately consolidated entities or operations.\167\
After reconsidering the comments raising concern about the definition
of control and the potential compliance costs associated with using a
broader definition of control, the definition we are proposing would
exclude entities or operations in which an issuer has only a
proportionate interest.\168\ Compared to an issuer that consolidates an
entity, an issuer with a proportionate interest in an entity or
operations may not have the same level of ability to direct the entity
or operations making the payments. For example, as commenters have
noted, an issuer that holds a proportionate interest in a joint venture
typically does not have ready access to detailed payment information
when it is not the operator of that venture.\169\ Requiring such a non-
operator issuer to provide the payment disclosure based on its
proportionate interest in the venture could compel that issuer to
renegotiate its joint venture agreement or make other arrangements to
obtain sufficiently detailed payment information to comply with the
Section 13(q) rules, which could significantly increase its compliance
burden. Excluding proportionate interest entities or operations from
the proposed definition of control would result in less payment
information about joint ventures becoming public,\170\ as compared to
the 2016 Rules; however, we believe that this potential reduction in
transparency is an appropriate tradeoff to help reduce the compliance
burden of the proposed rules.
---------------------------------------------------------------------------

    \167\ Proportionately consolidated entities or operations
include those entities or operations that are proportionately
consolidated in accordance with ASC 810-10-45-14 and ``joint
operations'' as defined in IFRS 11, Joint Arrangements.
    \168\ See, e.g., Letters from API (Feb. 16, 2016); BP (Feb. 16,
2016); Chevron (Feb. 16, 2016); ExxonMobil (Feb. 16, 2016); Petro1eo
Brasileiro S.A-Petrobras (``Petrobras'') (Feb. 16, 2016); and RDS
(Feb. 5, 2016).
    \169\ See, e.g., Letters from API (Feb. 16, 2016); and
ExxonMobil (Feb. 16, 2016).
    \170\ See, e.g., Letters from PWYP-US (Feb. 16, 2016); and
Global Witness (Mar. 8, 2016).
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    We also reconsidered the recommendation of commenters on the 2016
Rules Proposing Release to include a ``significant influence'' test for
determining control in addition to the accounting consolidation
principles we are proposing.\171\ We do not believe, however, that we
should define control such that significant influence by itself would
constitute control.\172\ The concept of significant influence does not
reflect the same level of ability to direct or control the actions of
an entity that is generally reflected in the concept of consolidation.
As such, we believe that the consolidation principles are better
aligned with the purposes underlying Section 13(q) than a significant
influence test. Moreover, unlike a potential significant influence
test, the consolidation principles used to define control for the
purposes of Section 13(q) more closely capture the situations where the
resource extraction issuer has access to the information that is
required to be reported.
---------------------------------------------------------------------------

    \171\ See, e.g., Letter from PWYP-US (Feb. 16, 2016).
    \172\ In this regard, we note that under U.S. GAAP and IFRS,
significant influence alone does not represent a level of control
that would result in consolidation. See ASC 323-10-15, paragraphs 6
through 11 and IAS 28, paragraph 3.
---------------------------------------------------------------------------

Request for Comment
    31. Should we define the term ``control'' based on applicable
accounting principles, as proposed? Should we alter our approach based
on any developments since the adoption of the 2016 Rules or in light of
our other proposals in this release?
    32. Should we exclude from the definition of control entities or
operations in which an issuer has only a proportionate interest, as
proposed? Should we instead require an issuer to disclose its
proportionate share of the payments made by a joint venture based on
its proportionate interest in the venture even when it is not the
operator of the venture? Should we require such a non-operator joint
venture participant to disclose its proportionate share of the joint
venture payments if it knows or is able to obtain the information
necessary to comply with the proposed rules without undue difficulty or
expense?
    33. Are there alternatives to the proposed definition of control
that would better balance transparency for users of the payment
information and the compliance burden on issuers? For example, should
we require only the operator of a joint venture to disclose all of the
payments it makes to governments, including those made on behalf of
non-operator joint venture participants? Should we require the operator
of a joint venture to disclose its proportionate share of the payments
made? When the operator is not an Exchange Act reporting company, and
therefore not subject to the Section 13(q) rules, should each non-
operator participant that is subject to the Section 13(q) rules be
required to disclose the payments made by itself and entities or
operations that it fully or proportionately consolidates or accounts
for as a joint operation? In the event that none of the joint venture
participants is a consolidated entity, should we require a registrant
that owns a proportionate interest in the operator of the venture to
disclose the payments made either on behalf of all the participants or
based on the registrant's proportionate share of the venture? In these
circumstances, should we require a registrant that owns a proportionate
interest in a non-operator venture participant to disclose its
proportionate share of the payments if it is able to obtain the
necessary payment information without undue burden or expense?
    34. Alternatively, should we adopt a definition of control that
includes more than just consolidated entities (e.g., entities over
which an issuer has significant influence)?

F. Definition of ``Project''

    Consistent with Section 13(q), the proposed rules would require a
resource extraction issuer to disclose payments made to governments
relating to the commercial development of oil, natural gas, or minerals
by type and total amount per project. The proposed rules would define
``project'' using the following three criteria: (1) The type of
resource being commercially developed; (2) the method of extraction;
and (3) the major subnational political jurisdiction where the
commercial development of

the resource is taking place.\173\ The proposed definition (``Modified
Project Definition'') differs from the definition included in the 2016
Rules, which defined ``project'' as the operational activities governed
by a single contract, license, lease, concession, or similar agreement,
which form the basis for payment liabilities with a government
(``Contract-Level Project Definition'').\174\
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    \173\ This proposed definition is similar to the definition of
``project'' suggested by one industry commenter. See Letters from
the API (Nov. 7, 2013) and (Feb. 16, 2016). The term ``project'' as
used in this release would only apply to disclosure provided
pursuant to Rule 13q-1 and not, for example, the disclosure required
by Article 4-10 of Regulation S-X (17 CFR 210.4-10) or subpart 1200
of Regulation S-K (17 CFR 229.1200).
    \174\ 2016 Rules Adopting Release, Section II.E.3.
---------------------------------------------------------------------------

1. Considerations for Modified ``Project'' Definition
    In adopting the 2016 Rules, the Commission expressly considered the
Modified Project Definition as an alternative to the Contract-Level
Project Definition that it ultimately adopted. In considering the
Modified Project Definition, the Commission acknowledged that such a
definition ``could lower the potential for competitive harm when
compared to [the Contract-Level Project Definition].'' \175\ However,
the Commission stated that, in its view, the Contract-Level Project
Definition was ``on balance, necessary and appropriate notwithstanding
the potential competitive concerns that may result in some instances.''
\176\ In doing so, the Commission acknowledged that both approaches
would provide the public with information concerning ``the overall
revenue that national governments receive from natural resources, so
that the public can seek to hold the government accountable for how
much it is receiving and how it spends that money.'' \177\
Nevertheless, the Commission determined that the more granular
transparency provided by the Contract-Level Project Definition could
potentially go further in combating corruption. Specifically, the
Commission found that the Contract-Level Project Definition, by
providing transparency about the revenues generated from each contract,
license, and concession, could serve to reduce the potential for
corruption in connection with the negotiation and implementation of a
resource-extraction contract.\178\ In this way, the Contract-Level
Project Definition could minimize instances of corruption that may
occur before resource-extraction revenue is paid to the government.
---------------------------------------------------------------------------

    \175\ Id.
    \176\ Id.
    \177\ Id.
    \178\ Among other things, the Commission found that the
Contract-Level Project Definition had the advantage that, in some
instances, it could combat corruption by: (1) ``help[ing] assist
citizens, civil society groups, and others to monitor individual
companies' contributions to the public finances and ensur[ing] firms
are meeting their payment obligations,'' at least ``[t]o the extent
that a company's contractual or legal obligations are known''; (2)
deterring ``companies from either entering into agreements that
contain suspect payment provisions or following government
officials' suspect payment instructions''; (3) ``help[ing] local
communities and civil society groups to weigh the costs and benefits
of an individual project''; and (4) ``allow[ing] for comparisons of
revenue flow among different projects . . . to identify payment
discrepancies[.]'' Id.
---------------------------------------------------------------------------

    In advancing a contract-level definition of ``project,'' the
Commission acknowledged that such an approach increases the potential
that resource-extraction issuers might be required to disclose
sensitive competitive information about the underlying contracts,
licenses, or concessions.\179\ The Commission nevertheless concluded
that the additional benefits of this more granular disclosure justified
any attendant competitive effects.\180\
---------------------------------------------------------------------------

    \179\ See 2016 Rules Adopting Release, Section II.E.3.
    \180\ See id.
---------------------------------------------------------------------------

    In light of the concerns expressed by prior commenters and members
of Congress that the 2016 Rules imposed undue competitive harm, we have
reconsidered the balance that the Commission previously struck. In
proposing the Modified Project Definition, we acknowledge that we may
be narrowing the scope of the transparency benefits that the
disclosures under Section 13(q) were intended to produce. Although we
believe that the proposed definition would continue to provide
substantial transparency about the overall revenue flows to foreign
governments and the U.S. Federal Government, under the Modified Project
Definition, these disclosures would no longer provide the additional
transparency benefits associated with contract-level information. For
the reasons discussed below, we believe that forgoing these additional
transparency benefits is an appropriate trade-off to address
commenters' and Congress's concerns about the potentially adverse
impacts on resource extraction issuers arising from the 2016 Rules.
    The proposed change to the definition of ``project'' directly
addresses the primary concerns expressed about the 2016 Rules. Those
concerns included the costs, burdens, and risks of competitive harm
related to tracking, recording, and disclosing the payment information
on a per contract basis using the contract-based definition of
``project'' in the 2016 Rules.\181\ The Modified Project Definition
should alleviate those concerns by reducing the likelihood of
competitively harmful information being released. As one industry
commenter noted in connection with the 2016 Rules Proposing Release,
disclosure that is less detailed and not as closely linked to
individual contracts would assuage concerns that competitors could
reverse-engineer proprietary commercial information.\182\
---------------------------------------------------------------------------

    \181\ See supra n. 54 through 56. In addition, one congressman
noted that extractive companies ``are already publicly disclosing
the work they do in foreign countries and will continue to do so''
but ``at a level that does not cause competitive harms.'' 163 Cong.
Rec. at H854 (statement of Rep. Williams). See also Letters from API
(Nov. 7, 2013) and (Feb. 16, 2016); Letter from ExxonMobil (Feb. 16,
2016); and Letter from Chevron (Feb. 16, 2016).
    \182\ See letter from ExxonMobil (Feb. 16, 2016).
---------------------------------------------------------------------------

    A broader project definition should also reduce the compliance
burden of the proposed rules compared to the 2016 Rules. Because the
Modified Project Definition would allow an issuer to make the payment
disclosure at a greater level of aggregation than under the Contract-
Level Project Definition, there would be fewer individual data points
that have to be electronically tagged and reported, which should make
it easier to disclose the payment information on an ongoing basis. An
issuer's costs could be further reduced to the extent that it has
already aggregated the payment information for its own internal
accounting or financial reporting purposes. In that event, it may be
less costly for an issuer to modify its internal accounting/financial
reporting system to collect the required payment information than it
would be to build from scratch a system to collect the payment
information on a contract-by-contract basis.\183\
---------------------------------------------------------------------------

    \183\ See infra Section III.C.2.
---------------------------------------------------------------------------

    Moreover, we believe that this change is consistent with the CRA's
instruction that an agency may not reissue ``a new rule that is
substantially the same as'' the rule that Congress disapproved.\184\ As
is evident from the discussions in

the Commission's previous releases and the comments received in
response, the definition of ``project'' is a critical element of the
disclosure regime contemplated by Section 13(q).\185\ We therefore
believe that the Modified Project Definition would help to satisfy the
CRA's requirement that the new rule that we are proposing not be
substantially the same as the 2016 Rules.\186\
---------------------------------------------------------------------------

    \184\ 5 U.S.C. 801(b)(1). The CRA instructs that the ``new
rule'' cannot be ``substantially the same'' or in ``substantially
the same form'' as the disapproved rule. Id. (emphasis added). We
believe that this language clearly reflects Congress' intent that,
in issuing a new rule, an agency must do more than substantially
revise the rationales supporting the prior rule or the economic
analysis underlying the prior rule. Rather, the CRA instructs that
the ``new rule'' itself must be substantially different. As such, we
do not believe that readopting the 2016 rule with modifications only
to the rationales or economic analysis in the release will satisfy
the substantially different requirement mandated by the plain
language of the CRA.
    \185\ See 2012 Rules Adopting Release, Section III.D.3; 2016
Rules Adopting Release, Section III.E.3.
    \186\ In the 2016 Rules Adopting Release, the Commission
expressed the view that the Contract-Level Project Definition
embodied a more natural understanding of what constitutes a
``project.'' See 2016 Rules Adopting Release, Section III.E.3.
However, the Commission did not foreclose the Modified Project
Definition as a plausible alternative. In light of Congress's
disapproval of the 2016 Rules, we believe that it is appropriate to
utilize the Modified Project Definition.
---------------------------------------------------------------------------

    Finally, we note that some prior commenters maintained that a
Contract-Level Project Definition would provide material benefits to
investors by, for example, assisting in the assessment of financial,
political, social, and market risks regarding a particular issuer's
projects,\187\ or helping to mitigate systemic financial market risk
generally in the extractive industries sector.\188\ However, we believe
that Commission rules requiring disclosure of the most significant
risks affecting a company or the securities being offered \189\ and
disclosure of known trends or uncertainties that have had or are
reasonably likely to have a material impact on the registrant's
liquidity, capital resources, or results of operations,\190\ should
elicit all appropriate risk-related disclosure.
---------------------------------------------------------------------------

    \187\ See, e.g., Letter from Calvert Investments and Social
Investment Forum (Nov. 15, 2010); Letter from Calvert Investments
(Feb. 16, 2016); and Columbia Center on Sustainable Investment (Oct.
30, 2015).
    \188\ See, e.g., Letter from ACTIAM NV et al. (Mar. 8, 2016);
Allianz Global Investors et al. (April 28, 2014); and the First
Swedish National Pension Fund et al. (May 9, 2014).
    \189\ See Item 503(c) of Regulation S-K (17 CFR 229.503(c)).
    \190\ See Item 303 of Regulation S-K (17 CFR 229.303).
---------------------------------------------------------------------------

2. Discussion of the Modified ``Project'' Definition
    In the following three subsections, we discuss the disclosure
required by each of the three prongs of the proposed Modified Project
Definition in greater detail. In each instance, we have striven to
achieve an appropriate balance between the policy goal of promoting
transparency about a resource extraction issuer's payments to
governments and the concerns expressed by commenters and members of
Congress about the compliance costs and burdens of the proposed rules,
including the risk of competitive harm by requiring the disclosure of
proprietary commercial information.
a. Type of Resource
    Under the Modified Project Definition, the first prong for
determining the parameters of a project is the type of resource that is
being commercially developed. As proposed, a resource extraction issuer
would have to disclose whether the project relates to the commercial
development of oil, natural gas, or a specified type of mineral. Thus,
an issuer would not be required to describe the specific type or
quality of oil or natural gas or distinguish between subcategories of
the same mineral type. For example, an issuer disclosing payments
relating to an oil project would not be required to describe whether it
is extracting light or heavy crude oil. Similarly, an issuer disclosing
payments relating to a mining project would be required to disclose
whether the mineral is gold, copper, coal, sand, gravel, or some other
generic mineral class, but not whether it is, for example, bituminous
coal or anthracite coal. For clarity and consistency, a proposed
instruction to Form SD would require synthetic oil or gas obtained
through processing of coal to be classified as ``coal.'' \191\
---------------------------------------------------------------------------

    \191\ See proposed Instruction 5 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We believe that a requirement to provide greater detail regarding
the type of resource that is the subject of extractive activities,
although perhaps useful in some instances for tracking specific
payments, is not necessary for citizens of resource rich countries to
determine whether those activities have given rise to government
revenues in which they may have an interest. On the other hand, such a
requirement could unnecessarily increase an issuer's compliance costs
and burdens, including the risk that such additional detail may reveal
proprietary information that could cause competitive harm.
b. Method of Extraction
    The second prong for determining the parameters of a project is the
method of extraction. This prong would require a resource extraction
issuer to identify whether the resource is being extracted through the
use of a well, an open pit, or underground mining. Additional detail
about the method of extraction would not be required. For example, a
resource extraction issuer would not be required to disclose whether it
is using horizontal or vertical drilling, hydraulic fracturing, or
strip, sublevel stope, or block cave mining. Similar to the type of
resource prong, we preliminarily believe that such a level of
specificity regarding the particular method of extraction is not
necessary for citizens of resource rich countries to determine
generally if extractive activities in their region have given rise to
government revenues in which they may have an interest. Thus, a
requirement to provide more specificity regarding the particular method
of extraction could unnecessarily increase an issuer's regulatory costs
and burdens, including the risk of having to disclose proprietary
information that could potentially result in competitive harm.
c. Major Subnational Political Jurisdiction
    The third prong for determining the parameters of a project is the
major subnational political jurisdiction where the commercial
development of the resource is taking place. This prong would require
an issuer to disclose only two levels of jurisdiction: (1) The country;
and (2) the state, province, territory or other major subnational
jurisdiction in which the resource extraction activities are
occurring.\192\ For example, extractive activities in the city of
Timika in the province of Papua, Indonesia could be disclosed as
occurring in Papua, Indonesia without identifying Timika. In addition,
an issuer could treat its activities in the counties of Elko, Nevada
and White Pine, Nevada, as part one project because Nevada would be the
major subnational political jurisdiction. If the extractive activity is
offshore, the proposed rules would require an issuer to disclose that
it is offshore and the nearest major subnational political
jurisdiction.
---------------------------------------------------------------------------

    \192\ As proposed, an issuer would have to provide an electronic
tag for both the country and the major subnational political
jurisdiction in which the extractive activities are occurring that
is consistent with the International Organization for
Standardization (``ISO'') code pertaining to countries and their
major subdivisions. See infra Section II.K.
---------------------------------------------------------------------------

    We believe that defining project with regard to the major
subnational jurisdiction in which a project is located would alleviate
one of the most significant concerns (and related harms) expressed by
commenters in the 2016 rulemaking about the Contract-Level Project
Definition, including that contract-level disclosure would:
     Allow competitors to derive important information about
new areas under exploration for potential resource development, the
value the company

places on such resources, and the costs associated with acquiring the
right to develop these new resources;
     Enable competitors to evaluate the new resources more
precisely, and as a result, structure their bids for additional
opportunities in the areas with new resources more effectively; and
     Allow competitors to reverse-engineer proprietary
commercial information: For example, to determine the commercial and
fiscal terms of the agreements, get a better understanding of an
issuer's strategic approach to bidding and contracting, and identify
rate of return criteria.\193\
---------------------------------------------------------------------------

    \193\ See, e.g., Letters from the API (Feb. 16, 2016) and
ExxonMobil (Feb. 16, 2016). In particular, we understand that
exploratory activities, particularly in a subnational jurisdiction
that is small, may pose a significant risk of competitive harm to a
resource extraction issuer. We discuss that risk and our proposed
targeted exemption to mitigate that risk in Section II.J.4 below.
---------------------------------------------------------------------------

    We also note that the proposed use of ISO codes \194\ to identify
subnational jurisdictions would provide a standardized data format that
may be more easily analyzed than the data produced under the Contract-
Level Project Definition.
---------------------------------------------------------------------------

    \194\ The International Organization for Standardization (ISO)
created and maintains codes for the representation of names of
countries and their subdivisions. See infra Section II.L (discussing
the proposed requirement to use ISO codes to describe the country in
which the project is located and the subnational geographic location
of a project).
---------------------------------------------------------------------------

d. Special Situations
    The proposed definition of project would include commercial
development activities using multiple resource types or extraction
methods if such activities are located in the same major subnational
political jurisdiction. The issuer would be required to describe each
type of resource that is being commercially developed and each method
of extraction used for that project. For example, an open pit and
underground zinc mining project in Erongo, Namibia would be described
as ``NA-ER/Zinc/Open Pit/Underground'' and a drilling project off the
shore of Nigeria that produced oil and natural gas would be described
as ``NG-BY/Offshore/Oil/Natural Gas/Well.''
    We recognize that such an approach could result in broad
aggregation of projects within a major subnational political
jurisdiction, which could make it more difficult for end-users of the
disclosure to identify the specific commercial development activities
associated with the disclosed payments. Nevertheless, we believe this
approach to be appropriate because issuers often develop more than one
type of resource at a particular location and use more than one method
of extraction. Limiting the definition of project to only commercial
development activities comprising the same type of resource, method of
extraction, and major subnational political jurisdiction may result in
artificial distinctions. For example, an issuer would be required to
treat oil and natural gas extraction from the same well as separate
projects, and similarly, open pit and underground mining in the same
location as separate projects. Requiring that these types of related
activities be treated as separate projects could also lead to confusion
about how reportable payments should be allocated between such
projects. In addition, we note that greater aggregation could result in
additional payments being disclosed on a per project basis because it
would be less likely that such a payment would be de minimis than if
project was defined more granularly.
    In some situations the site where a resource is being commercially
developed could cross the borders between multiple major subnational
political jurisdictions. In such a case, the proposed rules would
require the issuer to treat the activities in each major subnational
political jurisdiction as separate projects. This approach reflects the
fact that, although the cross-border extractive activities are related,
they likely would give rise to a separate set of payments to different
subnational payees in each jurisdiction.
Request for Comment
    35. Should we define ``project'' by the type of resource being
commercially developed, the method of extraction, and the major
subnational political jurisdiction where the commercial development of
the resource is taking place, as proposed?
    36. Would the Modified Project Definition achieve an appropriate
balance between promoting transparency regarding a resource extraction
issuer's payments to governments and reducing regulatory costs and
burdens, including the risk of harming the issuer's competitive
position by requiring disclosure of proprietary commercial information?
Are there any specific changes that we could make to the Modified
Project Definition that would improve transparency and/or help limit
compliance costs and burdens consistent with the Section 13(q) mandate
and the CRA's restrictions on subsequent rulemaking?
    37. Have companies experienced compliance problems or burdens with
reporting contract-based payments under the EU Directives and Canada's
ESTMA? Does that experience confirm that our proposed approach to the
definition of ``project'' is appropriate, or does it suggest that we
should adopt a different approach? If the latter, describe that
approach and whether it would also help limit compliance costs and
burdens for resource extraction issuers.
    38. Is there an alternative to using either the Modified Project
Definition or the Contract-level Project Definition that would support
the commitment of the Federal Government to promote international
transparency promotion efforts relating to the commercial development
of oil, natural gas or minerals while limiting compliance costs and
mitigating competitive concerns for resource extraction issuers? To
what extent is comparability among Section 13(q) disclosures important
for transparency purposes? To the extent it is important, would
requiring more or less granular project information impact
comparability?
    39. Are the proposed requirements for describing the type of
resource appropriate? If not, please explain how the type of resource
should be described and why.
    40. Should we require issuers to provide greater detail on the type
of resource than proposed? If so, what level of detail should we
require? What benefits would such additional detail provide to end-
users? What costs would an issuer incur to provide such additional
detail?
    41. Are the proposed requirements for describing the method of
extraction appropriate? If not, please explain how the method of
extraction should be described and why.
    42. Should we require issuers to provide greater detail on the
method of extraction being used? If so, what level of detail should we
require? What benefits would such additional detail provide to end-
users? What costs would an issuer incur to provide such additional
detail?
    43. Does the proposed requirement to describe the major subnational
political jurisdiction where the commercial development of the resource
is taking place provide the appropriate balance between promoting
payment transparency and limiting an issuer's compliance costs and
burdens? If not, how should we alter the requirement and why? Does the
reference to ``the state, province, territory or other major
subnational jurisdiction'' provide adequate guidance concerning how to
identify the political jurisdiction where the commercial development of
the resource is taking place?
    44. The proposed rules would permit an issuer to combine separate
resources

and different extraction methods into one project if they occur in the
same major subnational political jurisdiction. Would this result in too
much aggregation even if, as proposed, issuers would be required to
describe each resource and each method of extraction?
    45. If we do not allow for multiple resource types or methods of
extraction to be aggregated, would it result in confusion for issuers
or end-users? Would requiring issuers to treat each resource type or
method of extraction as a separate project result in more payments
being considered de minimis and thus reduce the overall amount of
disclosure?
    46. Is our proposed approach to disclosing activities that cross
the borders of major subnational political jurisdictions appropriate?
Are there specific cross-border situations that we should address?
Should we instead allow issuers to include all the major subnational
political jurisdictions in the description of the project in such a
cross-border situation? Would such an approach make it more difficult
to identify the location of the project?

G. Definition of ``Foreign Government'' and ``Federal Government''

    As with the 2016 Rules, we are proposing definitions of ``foreign
government'' and ``Federal Government'' that are consistent with
Section 13(q).\195\ Under the proposed rules, a ``foreign government''
would be defined as a foreign government, a department, agency, or
instrumentality of a foreign government, or a company at least majority
owned by a foreign government. The term ``foreign government'' would
include a foreign national government as well as a foreign subnational
government, such as the government of a state, province, county,
district, municipality, or territory under a foreign national
government.\196\ ``Federal Government'' would be defined as the Federal
Government of the United States and would not include subnational
governments within the United States.
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    \195\ See 2016 Adopting Release, Section II.F.3. We also adopted
the same definitions in the 2012 rulemaking. See 2012 Adopting
Release, Section II.E.3.
    \196\ To the extent that aboriginal, indigenous, or tribal
governments are subnational governments in foreign countries,
payments to those government entities would be covered by the
proposed rules.
---------------------------------------------------------------------------

    For purposes of identifying the foreign governments that received
payments at a level below the major subnational government level, the
proposed rules would permit an issuer to aggregate all of its payments
of a particular payment type without having to identify the particular
subnational government payee. The issuer would only be required to
identify the type of administrative or political level of subnational
government that received the payments. For example, an issuer could
aggregate payments by payment type made to multiple counties and
municipalities (the level below major subnational government level) and
disclose the aggregate amount without having to identify the particular
subnational government payee. The issuer would instead generically
identify the subnational government payee (e.g., as ``county,''
``municipality'' or some combination of subnational governments).\197\
---------------------------------------------------------------------------

    \197\ See proposed Instruction (14) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    In contrast, for payments made at the major subnational government
level, the issuer would have to disclose the particular major
subnational payee. Under the proposed Modified Project Definition,
however, the issuer could aggregate payments of a particular payment
type made to that particular payee.\198\ For example, an issuer with
extractive operations in the three oil sands regions of Alberta, Canada
\199\ would be able to aggregate all of its fees paid for environmental
and other permits to the Regional Municipality of Wood Buffalo,
Northern Sunrise County and the Municipality of Cold Lake, but would
not have to identify any of those subnational governments. Instead,
when disclosing the aggregate amount, the issuer would identify the
payment type as ``fees'' and the government as ``county and
municipality.''
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    \198\ See supra Section II.F.
    \199\ The three major oil sands regions in Alberta are the
Athabasca, Peace River, and Cold Lake regions. See, e.g., Regional
Aquatics Monitoring Program, ``The Oil Sands Described,'' available
at http://www.ramp-alberta.org/resources/development/distribution.aspx.
---------------------------------------------------------------------------

    For royalties paid to the Alberta Department of Energy, at the
major subnational government level, however, the issuer would have to
identify the payee as ``Alberta Department of Energy.'' It could
aggregate all of the royalties arising from its operations in the three
oil sands areas, when disclosing the aggregate amount and identifying
the payment type as ``royalties.''
    We are proposing this option for aggregated disclosure of
subnational government payments to reduce the potential for competitive
harm that could result from implementation of the Section 13(q) rules.
Some prior commenters stated that overly granular disclosure
requirements could permit the reverse-engineering of an issuer's
proprietary commercial information or otherwise cause the issuer
competitive harm.\200\ Moreover, in disapproving the 2016 Rules,
members of Congress were particularly concerned about the rules'
potential for causing competitive harm.\201\ In light of these
concerns, we are proposing to permit an issuer to aggregate payments
made to entities below the major subnational level without having to
identify the particular subnational government payee to mitigate the
risk that an issuer could be exposed to potential competitive harm from
the disclosure.
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    \200\ See, e.g., Letter from ExxonMobil (Feb. 16, 2016); and
Letter from API (Feb. 16, 2016).
    \201\ See supra Section I.C.2.
---------------------------------------------------------------------------

    Separately, under the proposed rules, a company owned by a foreign
government would be defined as a company that is at least majority-
owned by a foreign government.\202\ Although we acknowledge the
concerns of the commenters on the 2016 Rules Proposing Release that
argued for a more expansive definition,\203\ we believe it would be
difficult for issuers to determine when the government has control over
a particular entity outside of a majority-ownership context. In this
regard, we note that the statute refers to a company ``owned'' by a
foreign government, not ``controlled'' by a foreign government.
Moreover, the ``control'' concept is explicitly included in Section
13(q) in other contexts.\204\
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    \202\ See proposed Item 2.01(d)(7) of Form SD.
    \203\ See, e.g., Letters from Global Witness (Mar. 8, 2016) and
PWYP-US (Feb. 16, 2016).
    \204\ Compare Section 13(q)(1)(B) with Section 13(q)(2(A).
---------------------------------------------------------------------------

    With respect to the definition of ``Federal Government,'' we
believe that Section 13(q) is clear in only requiring disclosure of
payments made to the Federal Government in the United States and not to
state and local governments. In this regard, we believe that typically
the term ``Federal Government'' refers only to the U.S. national
government and not the states or other subnational governments in the
United States.
Request for Comment
    47. Should the definition of ``foreign government'' include a
foreign government, a department, agency, or instrumentality of a
foreign government, or a company owned by a foreign government, as
proposed?
    48. Should we permit an issuer to aggregate payments made to
subnational governments below the major subnational level without
having to identify any particular subnational government payee, as
proposed? If we should instead require the disclosure of

each subnational government payee, please explain why that approach
would be more appropriate and address whether such a requirement could
increase the potential for competitive harm.
    49. Should we include an instruction in the rules clarifying that a
company owned by a foreign government is a company that is at least
majority-owned by a foreign government, as proposed? Should we instead
provide that a company owned by a foreign government is a company in
which the foreign government is the controlling shareholder?
    50. Should the definition of ``foreign government'' include
federally recognized American Indian or Alaska Native tribal entities?
    51. Should we alter our approach to the terms ``foreign
government'' or ``Federal Government'' based on any developments since
the adoption of the 2016 Rules or in light of our other proposals in
this release?

H. Annual Report Requirement

    Section 13(q) mandates that a resource extraction issuer provide
the payment disclosure required by that section in an annual report but
otherwise does not specify the location of the disclosure, either in
terms of a specific form or in terms of location within a form. We
believe that resource extraction issuers should provide the required
disclosure about payments on Form SD.
    Form SD is already used for specialized disclosure not included
within an issuer's periodic or current reports, specifically, the
disclosure required by the rule implementing Section 1502 of the
Act.\205\ As such, we believe that using Form SD would facilitate
interested parties' ability to locate the disclosure. We also believe
that using Form SD would address issuers' concerns about providing the
disclosure in their Exchange Act annual reports on Forms 10-K, 20-F or
40-F.\206\ For example, it should alleviate the concern that the
disclosure will be subject to the officer certifications required by
Exchange Act Rules 13a-14 and 15d-14. It would also allow the
Commission, as discussed below, to adjust the timing of the submission
without directly affecting the broader Exchange Act disclosure
framework.\207\ As proposed, Form SD would require an issuer to include
a brief statement in the body of the form in an item entitled,
``Disclosure of Payments by Resource Extraction Issuers,'' directing
readers to the detailed payment information provided in the exhibits to
the form.\208\
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    \205\ Rule 13p-1 [17 CFR 240.13p-1]. See also Exchange Act
Release No. 34-67716 (Aug. 22, 2012) [77 FR 56273 (Sept. 12, 2012)]
(``Conflict Minerals Release'').
    \206\ See 2012 Rules Adopting Release, n.366-370 and
accompanying text. Under the rules proposed in the 2012 Rules
Proposing Release, a resource extraction issuer would have been
required to furnish the payment information in its annual report on
Form 10-K, Form 20-F, or Form 40-F. One commenter continued to
support this approach after the 2012 Rules Adopting Release. See
Letter from Susan Rose-Ackerman (Mar. 28, 2014) (``[t]here is no
need for the cost of a separate report.'').
    \207\ In this regard, we considered permitting the resource
extraction payment disclosure to be submitted as an amendment to
Form 10-K, 20-F, or 40-F, as applicable, but we are concerned that
this might give the false impression that a correction had been made
to a previous filing. See also 2012 Rules Adopting Release, n.379
and accompanying text.
    \208\ See proposed Item 2.01(a)(3).
---------------------------------------------------------------------------

    While Section 13(q) mandates that a resource extraction issuer
include the relevant payment disclosure in an ``annual report,'' it
does not specifically mandate the time period in which a resource
extraction issuer must provide the disclosure. We believe fiscal year
reporting would limit resource extraction issuers' compliance costs by
allowing them to use their existing tracking and reporting systems for
their public reports to also track and report payments under Section
13(q).
    The 2016 Rules required resource extraction issuers to submit Form
SD on EDGAR no later than 150 days after the end of the issuer's most
recent fiscal year. We based this deadline in part on the need to avoid
a conflict with the deadline for an issuer's annual report on Form 10-
K, 20-F, or 40-F under the Exchange Act.\209\ While we continue to
believe that it is reasonable to provide a deadline that would be later
than an issuer's Exchange Act annual report deadline, in light of the
concerns about excessive compliance costs and burdens and potential
competitive harm under the 2016 Rules,\210\ we are proposing a
submission deadline for Form SD that is longer than the 150 day
deadline. The proposed rules would require an issuer with a fiscal year
ending on or before June 30 to submit Form SD no later than March 31 in
the calendar year following its most recent fiscal year. For an issuer
with a fiscal year ending after June 30, the Form SD submission
deadline would be no later than March 31 in the second calendar year
following its most recent fiscal year.\211\
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    \209\ See 2016 Adopting Release, Section II.G.3.
    \210\ See, e.g., supra note 54 and accompanying text.
    \211\ See proposed General Instruction B.2. of Form SD.
---------------------------------------------------------------------------

    We believe that the proposed submission deadlines would be
sufficient to enable all resource extraction issuers to prepare timely
disclosure regarding payments to governments made in their most recent
fiscal year, no matter when their fiscal year-end may be, and therefore
mitigate the compliance burdens under Section 13(q). We also believe
that the lengthened submission deadlines would also address the
concerns that the public disclosure of the payment information could
cause competitive harm.
    We also considered the possibility that certain resource extraction
issuers may be required to submit two reports on Form SD every year if
we use a reporting period based on the fiscal year and they are subject
to the May 31st conflict minerals disclosure deadline.\212\
Nevertheless, we continue to believe that the fiscal year is the more
appropriate reporting period for the payment disclosure. We believe it
would reduce resource extraction issuers' compliance costs when
compared to a fixed, annual reporting requirement by allowing them to
use their existing tracking and reporting systems for their public
reports to also track and report payments under Section 13(q). In
addition, although minimizing the number of Forms SD an issuer would
need to submit if it was also subject to the conflict minerals
disclosure rules could have benefits, we do not believe that those
benefits outweigh those arising from a reporting regime tailored to a
resource extraction issuer's fiscal year.\213\
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    \212\ General Instruction B.1 of Form SD. See also Exchange Act
Rule 13p-1.
    \213\ Of the 236 companies that we estimate would be subject to
the proposed rules, only 39 filed a Form SD pursuant to Rule 13p-1
in 2018. In addition, we note that the conflict minerals reporting
regime adopted a uniform reporting period, in part, because such a
period allows component suppliers that are part of a manufacturer's
supply chain to provide reports to their upstream purchasers only
once a year. See Conflict Minerals Release, n.352 and accompanying
text. The same reasoning does not apply to the issuer-driven
disclosure under the proposed rules.
---------------------------------------------------------------------------

Request for Comment
    52. Should we require resource extraction issuers to provide the
payment disclosure mandated under Section 13(q) on Form SD, as
proposed? Should we alter our approach based on any developments since
the adoption of the 2016 Rules or in light of our other proposals in
this release? Would extending the submission deadline in this way help
to mitigate potential competitive harm from the payment disclosures?
    53. What would be a suitable submission deadline? Should we base
the furnishing deadline on an issuer's

calendar year-end rather than fiscal year-end?

I. Public Reporting

1. Public Disclosure of the Issuer's Payment Information, Including the
Company Name
    Section 13(q) provides the Commission with the discretion to
require public disclosure of payments by resource extraction issuers,
including their names, or to permit nonpublic filings.\214\ For the
reasons set forth below, we preliminarily believe that exercising our
discretion to require public disclosure, including the issuer's name,
might better accomplish the objectives of Section 13(q). We are
therefore proposing that resource extraction issuers provide the
required payment disclosure publicly through the searchable, online
EDGAR system.
---------------------------------------------------------------------------

    \214\ See API v. SEC, 953 F. Supp. 2d at 11 (finding that the
Commission ``misread the statute to mandate public disclosure of the
reports'').
---------------------------------------------------------------------------

    Section 13(q) requires us to adopt rules that, to the extent
practicable, support the commitment of the Federal Government to
international transparency promotion efforts relating to the commercial
development of oil, natural gas or minerals.\215\ We understand that
existing transparency regimes require public disclosure of each
reporting company's annual report, including the identity of the
company.\216\ A public disclosure requirement of the payment
information under Section 13(q), including the resource extraction
issuer's name, would further the statutory directive to support the
commitment of the Federal Government to international transparency
promotion efforts relating to the commercial development of oil,
natural gas or minerals by increasing the total number of companies
that provide public, project-level disclosure. In addition, companies
that could be subject to the proposed rules may already be publicly
reporting under the Canadian or EU regimes, using a more granular
contract-level definition of project. For these companies, there would
likely be only minimal burden or harm due to public reporting under the
proposed rules.
---------------------------------------------------------------------------

    \215\ Section 13(q)(2)(E).
    \216\ See, e.g., ESTMA Specifications, Section 2.4 (``Reporting
Entities are required to publish their reports on the internet so
they are available to the public''); EITI Standard (2013) at 6
(requiring all EITI reports to show payments by individual company
rather than aggregated data) and EITI Standard (2016) at Section
2.5(c) (in addition to individual company disclosure, requiring
disclosure of the company's beneficial owners in EITI reports by
2020); and EU Accounting Directive Arts. 42(1) and 45(1) (requiring
disclosure of payments to governments in a report made public on an
annual basis and published pursuant to the laws of each member
state). We are not aware of any existing transparency regimes that
do not require public disclosure.
---------------------------------------------------------------------------

    We recognize that some previous commenters suggested that we permit
issuers to submit their annual reports to the Commission non-publicly
and have the Commission use those nonpublic submissions to produce an
aggregated, anonymized compilation that would be made available to the
public.\217\ Rather than follow this approach, the proposed rules seek
to preserve the public disclosure of payment information while
incorporating other changes that we believe would significantly
alleviate, and in some cases eliminate, the concerns of commenters and
certain members of Congress about the rules' potential adverse
competitive effects. These changes from the 2016 Rules include (1) the
Modified Project Definition--which would permit aggregation of project
data at the major subnational level,\218\ (2) the proposal to permit
aggregation of subnational government payments,\219\ (3) the proposed
exemptions for conflicts with foreign law and pre-existing
contracts,\220\ (4) the proposed targeted exemption allowing delayed
reporting for exploratory activities,\221\ and (5) the extended filing
deadline.\222\
---------------------------------------------------------------------------

    \217\ See, e.g., Letters from API (Feb. 16, 2016) and (Jan. 28,
2011); BP (Feb. 16, 2016); Chevron (Feb. 16, 2016); and Royal Dutch
Shell (Feb. 5, 2016); see also 2016 Rules Proposing Release, Section
II.G.2 and 2016 Adopting Release, n.345.
    \218\ See supra Section II.F. Disclosure that is less granular
and not as closely linked to individual contracts should also
assuage concerns that competitors could reverse-engineer proprietary
commercial information.
    \219\ See supra Section II.G. In this regard, one industry
commenter on the 2016 Rules Proposing Release stated that its
concerns about company-specific public disclosure causing
competitive harm would be ``substantially mitigated'' if the
Commission adopted a definition of ``project'' similar to the one we
have proposed. See Letter from ExxonMobil (Feb. 16, 2016).
    \220\ See infra Sections II.J.1. and 2.
    \221\ See infra Section II.J.4.
    \222\ See infra Section II.H.
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    While we preliminarily believe that the proposed rules strike an
appropriate balance, we are also considering the alternative approach
of permitting resource extraction issuers to submit their annual
reports on Form SD to the Commission non-publicly and the Commission
using those nonpublic submissions to produce an aggregated, anonymized
public compilation. In this regard, we note that some commenters have
indicated that public disclosure of each issuer's specific payments
would increase the risk of competitive harm and that such public
disclosure would force issuers to reveal highly confidential,
commercially-sensitive information, which could also endanger the
safety of an issuer's employees.\223\ Similarly, as discussed above,
several members of Congress who voted to disapprove the 2016 Rules
expressed anti-competitive concerns.\224\ We also note the view
expressed by commenters that the disclosure of issuer-specific
information is not necessary to achieve the statutory goal of
transparency.\225\ These commenters have expressed the view that the
information that is necessary to achieve the statute's purposes is the
type and amount of payments to governments, which would be provided in
an anonymized compilation. We acknowledge our statutory duty in a
public rulemaking to consider whether a proposed action would promote
competition in addition to protect investors.\226\
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    \223\ One of these commenters also stated that these harms would
not be mitigated by the European Union or Canadian disclosure
regimes because 46 of the top 100 oil and gas companies are listed
only in the United States, with many having no reportable operations
in Europe or Canada, or only limited operations in those
jurisdictions conducted through subsidiaries. See Letter from API
(Feb. 16, 2016).
    \224\ See supra n.56.
    \225\ See, e.g., Letter from API (Feb. 16, 2016).
    \226\ See Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)],
which requires that, whenever the Commission is engaged in
rulemaking under the Exchange Act and is required to consider or
determine whether an action is necessary or appropriate in the
public interest, the Commission shall also consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition and capital formation.
---------------------------------------------------------------------------

    We are interested in commenters' views on whether the rules, as
proposed, would sufficiently alleviate concerns about adverse
competitive effects or whether we should go further and permit
nonpublic submission of the required payment information. If commenters
feel that nonpublic submission is necessary or appropriate, it would be
helpful if commenters could provide specific explanations for why
nonpublic submission is warranted (i.e., what incremental benefits
would it provide as compared to the proposed rules) and how aggregated,
anonymized payment information would impact the statute's transparency
goals. We welcome feedback from all interested parties on these points.
2. Public Compilation
    Consistent with Section 13(q), the proposed rules would provide
that the Commission's staff will periodically make a separate public
compilation of the payment information submitted on Forms SD available
online, to the extent practicable.\227\ The staff may determine the
form, manner, and timing of each

compilation.\228\ As proposed, the staff would not anonymize or change
the information included in the compilation.\229\
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    \227\ See proposed Rule 13q-1(e).
    \228\ See id. We do not anticipate that the staff would produce
such a compilation more frequently than once a year.
    \229\ As noted above, we also are considering an alternative
approach whereby resource extraction issuers would submit their
annual reports on Form SD to the Commission non-publicly. Under this
alternative approach, the Commission would use those nonpublic
submissions to produce an aggregated, anonymized public compilation
of the required payment information.
---------------------------------------------------------------------------

    However, as discussed above, the Commission is also considering the
alternative of making available a public aggregated, anonymized
compilation instead of making public individual Forms SD. If we choose
this alternative, we are considering including information relating to
the aggregate payments that flowed to a particular jurisdiction by
resource and extraction method.
Request for Comment
    54. Should the rules require public disclosure of payment
information, as proposed? Would the proposed definition of ``project''
together with the proposed exemptions (discussed in Section II.J.
below) and other provisions of the proposed rules sufficiently mitigate
the risk of competitive harm that may arise from public disclosure?
    55. Should we instead permit issuers to submit the required payment
information non-publicly and then provide an anonymized compilation?
What are the incremental benefits and costs of permitting non-public
submission and providing an anonymized compilation as compared to the
proposed rules? Please be as specific as possible in your response.
    56. If we permit non-public submission of Form SD information and
provide an anonymized compilation, what information should we include
in the compilation? Should it include all information other than the
identity of the issuer and identify payments by specific project, or
should other information be omitted? Would the disclosure of the
project raise similar competitive concerns as providing the issuer's
identity? When and how often should the compilation be provided? Please
be as specific as possible in your response.

J. Exemptions From Compliance

    The proposed rules include two new exemptions from reporting under
Section 13(q) where disclosure is prohibited by foreign law or pre-
existing contracts. As the 2013 District Court opinion found, the
Commission has the authority to grant exemptions with respect to
Section 13(q).\230\ Several industry commenters specifically
recommended these two exemptions in connection with prior rulemakings
in order to reduce the risk of competitive harm that could result from
the required Section 13(q) payment disclosure.\231\ According to these
commenters, without these exemptions, a resource extraction issuer that
faced a legal or contractual conflict would have to choose between
complying with Section 13(q) or the host country law or contract.
---------------------------------------------------------------------------

    \230\ See API v. SEC, 953 F. Supp. 2d at 21-23.
    \231\ See, e.g., Letters from the API (Feb. 16, 2016) and (Nov.
7, 2013); Letter from Chevron (Feb. 16, 2016); and Letter from
ExxonMobil (Feb. 16, 2016); see also Letter from Nouveau (Feb. 16,
2016).
---------------------------------------------------------------------------

    For example, if an issuer chose to provide the payment disclosure
in violation of the host country law, the issuer could face the shut
down and, in the extreme case, expropriation of its facilities in the
host country, the imposition of fines or the withholding of
permits.\232\ Similarly, an issuer whose contract prohibits the
disclosure of payment information without the host government's
permission, and who fails to obtain such permission, could also face
adverse financial consequences. For example, the issuer would have to
incur costs associated with having to renegotiate its contract with the
host government in order to provide the payment disclosure required
under Section 13(q).\233\
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    \232\ See, e.g., Letter from API (Feb. 16, 2016).
    \233\ See id. (stating that ``many companies' contracts with
host governments contain clauses requiring the government's
permission before a company publicly reveals payment information''
and noting that ``[a]lthough some of these contracts allow an issuer
to disclose payment information to comply with securities laws, many
do not, particularly older contracts.'').
---------------------------------------------------------------------------

    These two new exemptions would be in addition to the targeted
exemption for exploratory activities and transitional relief for
recently acquired companies that were included in the 2016 Rules \234\
and that are being retained in the proposed rules.\235\ We are also
proposing similar transitional relief for a resource extraction issuer
that has recently conducted its initial public offering.\236\ Together,
we believe that these provisions, as well as our continued willingness
to consider additional exemptive relief on a case-by-case basis, would
significantly mitigate the concerns of commenters and members of
Congress about the burdens of Section 13(q) disclosure and the
potential for competitive harm. As a result, we believe these
provisions, when considered together with the other proposed changes to
the 2016 Rules discussed in this release, should serve to satisfy the
CRA's restriction on adopting rules that are in substantially the same
form as the disapproved rules. We discuss each of these provisions in
more detail below.
---------------------------------------------------------------------------

    \234\ See 2016 Adopting Release, Section II.G.3. Some commenters
on the 2016 rulemaking also sought an exemption for disclosure that
could jeopardize the safety of an issuer's personnel. See the 2016
Adopting Release, Section II.I.3. The Commission decided not to
adopt such an exemption primarily because of its belief that issues
involving safety concerns are inherently fact specific and require
an analysis of the underlying facts and circumstances. Accordingly,
the Commission reasoned that, rather than adopting an exemption
regarding safety concerns that issuers might apply in an overly
broad way, the better approach would be to permit issuers to raise
such concerns by applying for exemptive relief on a case-by-case
basis. See id. We continue to believe that a case-by-case exemptive
process, which would be available under the proposed rules, is the
more appropriate approach for addressing issuers' safety concerns.
See proposed Rule 13q-1(d)(4). We also believe that other proposed
provisions, such as the proposed exemptions for conflicts with
foreign law or pre-existing contracts as well as the proposed
definition of project, should help to alleviate concerns about
employee safety that could potentially result from the proposed
payment disclosure.
    \235\ See infra Sections II.J.3. and II.J.4.
    \236\ See infra Section II.J.5.
---------------------------------------------------------------------------

1. Exemption for Conflicts of Law
    We are proposing an exemption for when an issuer is unable to
provide the required disclosure without violating the laws of the
jurisdiction where the project is located.\237\ Unlike the exemption
provided in the 2016 Rules, the proposed exemption would not require
issuers to apply to the Commission for exemptive relief. Although the
Commission stated in the 2016 rulemaking that a case-by-case exemptive
approach for handling situations involving conflicts of law or contract
prohibitions was preferable, after reconsidering the comments and with
a view to limiting compliance costs and burdens, we are proposing to
permit issuers to avail themselves of the exemptions without seeking
individual relief on a case-by-case basis.
---------------------------------------------------------------------------

    \237\ See proposed Rule 13q-1(d)(1).
---------------------------------------------------------------------------

    We believe that the proposed approach would facilitate an issuer's
timely submission of Form SD and the timely resolution of any conflict
of laws situations with the host government. It also would alleviate
some of the uncertainties of handling conflict of laws situations and
the potential competitive harm that could result. In this respect, we
note that one commenter in the 2016 rulemaking stated that, with a
case-by-case approach, ``there would be substantial practical and
administrative difficulties associated with obtaining timely exemptive
relief'' from the Section 13(q)

rules.\238\ Another commenter expressed concern about a case-by-case
approach for handling conflicts of law situations for a company
threatened with the potential total loss of its operations in the host
country.\239\ We anticipate that the proposed rule-based exemption for
foreign law conflicts would substantially address these administrative
difficulties and concerns about potential losses.
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    \238\ See Letter from API (Feb. 16, 2016).
    \239\ See Letter from ExxonMobil (Feb. 16, 2016).(stating that
``we do not believe the mere possibility of an exemption--which may
or may not be granted and even if granted could be revoked or
challenged at any time--provides adequate comfort to companies and
investors against the potential for being forced to halt operations
in a country because of a conflict of laws situation, especially
given that any such action by a company would likely represent a
breach of the company's contractual obligation to the country and
force the company potentially to suffer a total loss of its local
operations--operations which could be worth tens of billions of
dollars as previously indicated . . .'')
---------------------------------------------------------------------------

    Further, to the extent that the requirement to obtain a case-by-
case exemption (and the attendant uncertainties surrounding whether
such relief might be granted) could inhibit companies from bidding on
or initiating resource extraction projects in particular countries or
otherwise impair the ability of companies to compete effectively for
such projects, we anticipate that our revised approach would
substantially eliminate these potential barriers.
    Although issuers could avail themselves of the exemption without
further Commission action, an issuer seeking to rely on the exemption
would be required to take certain steps to qualify for the exemption,
including providing specified disclosures about its eligibility for
relief. We believe that these proposed conditions would help ensure
that issuers forgo disclosure only when there is a legitimate conflict
of law, so that the exemption does not unreasonably frustrate the
statutory goal of increasing transparency regarding resource extraction
payments. Moreover, as is the case with all filings, the issuer's
disclosure and reliance on this exemption would be subject to
Commission staff review, which should discourage potentially
inappropriate uses of the exemption.
    As proposed, the issuer would first have to take reasonable steps
to seek and use exemptions or other relief under the applicable law of
the foreign jurisdiction. After taking such steps and failing to obtain
an exemption or other relief, the issuer would have to disclose the
foreign jurisdiction for which it has excluded disclosure, the law
preventing disclosure, its efforts to seek and use exemptions or other
relief under such law, and the results of those efforts. This
disclosure would be required in the body of Form SD. The issuer would
also be required to furnish as an exhibit to Form SD a legal opinion
from counsel that opines on the inability of the issuer to provide the
required disclosure without violating the foreign jurisdiction's law.
    The proposed exemption would not be limited to pre-existing foreign
laws. We acknowledge that this may provide an incentive for foreign
jurisdictions to enact such laws. Although not eliminating this
incentive, the absence of a similar exemption under the EU Directives
or ESTMA, which generally require disclosure at a more granular level,
should serve to limit the likelihood that jurisdictions will pass such
laws. In this regard, one previous commenter observed that no country
has adopted a rule or law prohibiting payment disclosures since the
initial adoption of Section 13(q) in July 2010.\240\
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    \240\ Letter from API (Nov. 7, 2013) (``Despite their broad
potential application, these exemptions are only invoked in limited
cases and have not led to a notable spread of non-disclosure laws''
[referring to other Commission provisions that similarly permit a
registrant to limit its disclosure, and in particular, mentioning
Rule 1202 of Regulation S-K, which allows registrants to omit
disclosure of proved reserves if that country's government prohibits
such disclosure, and General Instruction E to Form 10-K, which
allows registrants to omit any item or other requirement of Form 10-
K with respect to any foreign subsidiary to the extent that the
required disclosure would be detrimental to the registrant.] See
also Letter from API (Feb. 16, 2016) (noting that currently ``two
countries--Qatar and China--continue to prohibit the required
disclosures.'').
---------------------------------------------------------------------------

Request for Comment
    57. Should we provide an exemption from disclosing payments when an
issuer is unable to provide such disclosure without violating the laws
of the jurisdiction where the project is located, as proposed? If we
should adopt such an exemption, should issuers be permitted to rely on
it without first seeking relief from the Commission, as proposed?
    58. Should we include qualifying conditions to the exemption, as
proposed? Would these proposed conditions provide adequate protection
against potentially inappropriate uses of the exemption? Are the
proposed required disclosures appropriate? For example, should we
require an issuer to disclose the steps taken to seek and use
exemptions or other relief under foreign law as a condition to claiming
the conflicts of law exemption? Would requiring such disclosure
exacerbate any conflict the issuer may have with foreign law? Should we
include additional or different disclosures?
    59. Should we require a legal opinion to be furnished in support of
the exemption, as proposed? If so, are the requirements for the legal
opinion appropriate?
    60. An issuer would be required to take reasonable steps to seek
and use exemptions or other relief under the applicable law of the
foreign jurisdiction in which there is a conflict in order to qualify
for the proposed exemption. Should we provide guidance about what would
constitute reasonable steps to satisfy this condition of the exemption?
If so, what should we include in the guidance?
    61. Are there other conditions to the proposed exemption that we
should adopt instead of, or in addition to, the proposed conditions?
For example, should we limit the exemption to foreign laws that pre-
date the effective date of the new rules or some earlier date, such as
the date of this release? Should we limit the exemption to situations
involving a conflict with a foreign national law and preclude its
availability when the conflict arises with the law of a foreign
subnational jurisdiction, such as a province? If so, please explain why
any additional limitation would be appropriate.
2. Exemption for Conflicts With Pre-Existing Contracts
    We are proposing an exemption from disclosing payments when the
terms of an existing contract prohibit disclosure.\241\ The exemption
would only apply to contracts in which such terms are expressly
included in writing prior to the effective date of the Section 13(q)
rules. Similar to the exemption for conflicts of law, and for the same
reasons, issuers would not need to seek the exemption on an individual,
case-by-case basis. The issuer would, however, have to meet certain
conditions to qualify for relief, and its disclosure and reliance on
the exemption would be subject to staff review, which should help to
discourage potentially inappropriate uses of the exemption.
---------------------------------------------------------------------------

    \241\ See proposed Rule 13q-1(d)(2).
---------------------------------------------------------------------------

    As proposed, an issuer would first have to take reasonable steps to
seek and use any contractual exceptions or other contractual relief
(e.g., attempting to obtain the consent of the relevant contractual
parties) to disclose the payment information. This obligation to take
reasonable steps would not include an obligation to renegotiate an
existing contract or to compensate the other contractual parties in
exchange for their

consent to disclose the payments. If the issuer fails to obtain
consent, the issuer would have to disclose the jurisdiction where it
has excluded such disclosure, the particular contract terms preventing
the issuer from providing disclosure, its efforts to seek consent or
other contractual relief, and the results of those efforts. This
disclosure would be required in the body of Form SD. The issuer would
also be required to furnish as an exhibit to Form SD a legal opinion
from counsel that opines on the inability of the issuer to provide the
required disclosure without violating the applicable contractual terms.
    This exemption would differ from the conflicts of law exemption in
that it would only apply to written terms of contracts that were
entered into prior to the date the Section 13(q) rules take effect. We
believe that this limitation is justified because issuers have control
over the terms of their contracts and would be in a position to modify
future contract terms accordingly. By contrast, issuers would not have
similar control over the laws of the jurisdiction where they are
engaged in the commercial development of natural resources.
Request for Comment
    62. Should we provide an exemption from disclosing payments when
the written terms of a pre-existing contract restrict such disclosure,
as proposed?
    63. Should we include qualifying conditions to the exemption, as
proposed? Would these proposed conditions provide adequate protection
against potentially inappropriate uses of the exemption? In particular,
should we require an issuer to disclose the reasonable steps taken to
seek and use any contractual exceptions or other contractual relief to
disclose the payment information? Would requiring such disclosure
exacerbate any conflict the issuer may have with a pre-existing
contract term?
    64. Should we require a legal opinion to be furnished in support of
the exemption, as proposed? If so, are the proposed requirements for
the legal opinion appropriate?
    65. As proposed, the exemption would apply only to contracts that
were entered into prior to the effective date of the Section 13(q)
rules. Should it instead apply to contracts entered into by an earlier
or later date? If so, please identify the different date and explain
why it would be more appropriate.
    66. Should we provide further guidance on the scope of the proposed
exemption for pre-existing contracts? For example, how should we treat
amendments or extensions of pre-existing contracts that occur after the
effective date of the Section 13(q) rules? Should the proposed
exemption apply to such amendments or extensions?
3. Exemption for Smaller Reporting Companies and Emerging Growth
Companies
    We propose to exempt smaller reporting companies \242\ and emerging
growth companies \243\ from the scope of Rule 13q-1.\244\ As proposed,
neither a smaller reporting company nor an emerging growth company
would be required to provide any of the payment disclosure mandated by
Section 13(q) and proposed Rule 13q-1. Given the potentially
significant fixed cost component of the proposed rules,\245\ we believe
that this proposed change from the 2016 Rules, eliminating the
compliance burden for those companies that are less able to afford it,
would reduce the overall cost of the proposed rules and address the
related Congressional concerns.\246\
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    \242\ The Commission recently amended the definition of
``smaller reporting company'' to expand the number of registrants
that qualify as smaller reporting companies, and to reduce
compliance costs for these registrants and promote capital
formation, while maintaining appropriate investor protections. The
amended definition of ``smaller reporting company'' includes
registrants with a public float of less than $250 million (compared
to $75 million in the earlier rule), as well as registrants with
annual revenues of less than $100 million for the previous year and
either no public float or a public float of less than $700 million.
See Release No. 33-10513 (Jun. 28, 2018) [83 FR 31992 (Jul. 10,
2018)].
    \243\ The term ``emerging growth company'' means an issuer that
had total annual gross revenues of less than $1,070,000,000 during
its most recently completed fiscal year. See the definition of
emerging growth company in Securities Act Rule 405 and Exchange Act
Rule 12b-2.
    \244\ See proposed Rule 13q-1(d)(3).
    \245\ See infra Section III.C.
    \246\ See supra n. 54 and accompanying text. This change would
also help to fulfill Congress' mandate that the proposed rules are
not substantially the same as the 2016 Rules.
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    This proposed exemption is consistent with our statutory duty in a
public rulemaking to consider, in addition to investor protection
concerns, whether an action will promote efficiency, competition, and
capital formation.\247\ It also is consistent with our treatment of
smaller reporting companies and emerging growth companies in other
rulemakings \248\ undertaken since the enactment of the Jumpstart Our
Business Startups Act (``JOBS Act'').\249\
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    \247\ See supra n. 226.
    \248\ See, e.g., Pay Ratio Disclosure, Release No. 33-9877 (Aug.
5, 2015) [80 FR 50103 (Aug. 18, 2015)] (exempting smaller reporting
companies and emerging growth companies, among others, from the
scope of the required pay ratio disclosure).
    \249\ Public Law 112-106, 126 Stat. 306 (2012).
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Request for Comment
    67. Should we exempt smaller reporting companies or emerging growth
companies from the scope of Rule 13q-1, as proposed?
    68. Should we instead provide a longer transition period for
smaller reporting companies or emerging growth companies to comply with
Rule 13q-1? If so, what should be the compliance date for those
companies?
    69. Should we instead adopt scaled disclosure requirements for
smaller reporting companies or emerging growth companies under Rule
13q-1? If so, what should those scaled disclosure requirements entail?
4. Targeted Exemption for Payments Related to Exploratory Activities
    We are proposing a targeted exemption for payments related to
exploratory activities. We adopted such an exemption in the 2016 Rules
after considering the concerns raised by industry commenters that the
disclosure of payment information regarding exploratory activities
could result in competitive harm to a resource extraction issuer.\250\
We have considered whether such an exemption would continue to be
necessary in light of the proposed Modified Project Definition, which
would provide the geographic location of a project at the national and
major subnational political jurisdiction--rather than contract--level.
We believe the exemption is necessary, given the inherently
commercially sensitive nature of exploratory activities. We also have
considered whether this targeted exemption is necessary in light of the
proposed extended deadline for furnishing the payment information.
Again, we believe it is, because of the difficulty of determining the
precise point at which exploratory activities cease being commercially
sensitive.
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    \250\ See 2016 Adopting Release, Section II.I.3. (citing Letter
from API (Feb. 16, 2016), which explained the competitive harm that
could result from the disclosure of bonus and other payments to the
host government regarding high-potential exploratory territory and
stating that a case-by-case exemptive approach would be insufficient
to protect against competitive harm in those situations). See also
Letter from ExxonMobil (Feb. 16, 2016) (discussing the competitive
harm from the forced disclosure of payments that may allow
competitors to identify new areas of potential resource development
an issuer has identified, and to determine the value the issuer
places on such resources).
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    Although the Modified Project Definition should help alleviate
competitive harm, we remain concerned that such harm could still occur.
For example, harm could occur if the major subnational political
jurisdiction is

small or if other indicators, such as disclosure of a particular
payment type that is associated with the commencement of exploratory
activities, would provide enough information to reveal an issuer's
exploratory activities. Thus, we continue to believe that a targeted
exemption for disclosure of payments related to exploratory activities
would mitigate the potential competitive harm that issuers might
experience in these circumstances. Importantly, we do not believe it
would substantially reduce the overall benefits of the disclosure to
its users.\251\
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    \251\ See 2016 Rules Adopting Release, Section II.I.3.
---------------------------------------------------------------------------

    Under this proposed targeted exemption, issuers would not be
required to report payments related to exploratory activities in the
Form SD for the fiscal year in which payments are made. Instead, an
issuer could delay reporting such payments until it submits a Form SD
for the fiscal year following the fiscal year in which the payments
were made.\252\ We are proposing a limited, delayed approach because we
believe that the likelihood of competitive harm from the disclosure of
payment information related to exploratory activities diminishes over
time.
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    \252\ In the Form SD for the fiscal year following the fiscal
year in which the exploratory payments were made, the issuer would
be required to report those exploratory payments as well as all
applicable non-exploratory payments, if any, made during the fiscal
year following the fiscal year in which the issuer made the
exploratory payments.
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    For purposes of this proposed exemption, we would consider payments
to be related to exploratory activities if they are made as part of the
process of identifying areas that may warrant examination or examining
specific areas that are considered to have prospects of containing oil
and gas reserves, or as part of a mineral exploration program. In all
cases, exploratory activities would be limited to activities conducted
prior to the commercial development (other than exploration) of the
oil, natural gas, or minerals that are the subject of the exploratory
activities.\253\
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    \253\ See proposed Item 2.01(b)(1) of Form SD.
---------------------------------------------------------------------------

    In proposing this exemption, we considered the fact that the total
payment streams from the first year of exploration that would be
covered by the exemption should often be relatively small compared to,
for example, the annual payment streams that would likely occur once an
issuer commences development and production. Given this likelihood, we
believe that any diminished transparency as a result of the one-year
delay in reporting of such payments is justified by the potential
competitive harms that we anticipate may be avoided as a result of this
exemptive relief. Nevertheless, we are proposing to limit the exemption
to one year because we believe that the likelihood of competitive harm
from disclosing the payment information diminishes over time once
exploratory activities have begun.\254\
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    \254\ We appreciate that the exploratory phase may vary from
project to project, and that this variance can depend on such
considerations as the geographic area in which the exploration is
being undertaken and the type of resource being sought. In proposing
to provide a one-year reporting delay, we looked to considerations
in the oil and gas industry in particular as oil and gas industry
commenters asserted a specific need for the exemptive relief. We
understand that the exploratory period for oil and gas generally
involves a seismic survey/analysis phase followed by an exploratory
drilling phase. We further understand that, while the time periods
for those activities can vary considerably, conducting seismic
surveys and analyzing the data can take six months or more, while
(at least for conventional onshore hydrocarbons) exploratory
drilling and site clearance can potentially take a similar length of
time. These considerations lead us to believe that one year is an
appropriate period for the proposed delay in reporting exploratory
payments, although we solicit comment below on other potential
timeframes for relief. We further note that an issuer would be able
to apply for an exemption on a case-by-case basis, as discussed
below in Section II.J.6., if it believes that its individual
circumstances warranted a longer exemptive period than the proposed
one-year exemption.
---------------------------------------------------------------------------

Request for Comment
    70. Should we provide a targeted exemption for payments related to
exploratory activities, as proposed? If so, should it be for longer or
shorter than the proposed one-year delay in reporting? For example,
should an issuer be permitted to wait until the second fiscal year
following the fiscal year in which the exploratory activities occurred
before having to provide the Section 13(q) disclosure?
    71. Should we alter our approach based on any developments since
the adoption of the 2016 Rules or in light of our other proposals in
this release? For example, does the proposed definition of project,
which is non-contract based, mitigate the need for, or support a
modification to, the targeted exemption regarding exploratory
activities?
5. Transitional Relief for Recently Acquired Companies
    We are proposing transitional relief with respect to recently
acquired companies where such companies were not previously subject to
Section 13(q) or an alternative reporting regime deemed by the
Commission to satisfy the transparency objectives of Section
13(q).\255\ The Commission provided this relief under the 2016 Rules
based on the recommendations of commenters who asserted that such
relief was necessary to reduce the compliance costs associated with
recently acquired companies that may experience difficulty timely
complying with the payment disclosure requirements.\256\ As noted by
those commenters, the Commission adopted a similar provision under Rule
13p-1,\257\ which also requires disclosure on Form SD.\258\
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    \255\ See proposed Item 2.01(b)(2) of Form SD. For purposes of
this provision, an issuer that has recently acquired a company that
has not been subject to an alternative reporting regime pursuant to
proposed Item 2.01(c) of Form SD would be eligible for the
transitional relief. Under that provision, a resource extraction
issuer that is subject to the resource extraction payment disclosure
requirements of an alternative reporting regime that has been deemed
by the Commission to require disclosure that satisfies the
transparency objectives of Section 13(q) may satisfy its Section
13(q) disclosure obligations by including, as an exhibit to the Form
SD, a report complying with the reporting requirements of the
alternative jurisdiction. See infra Section K.
    \256\ See 2016 Adopting Release, Section II.G.3. (citing Letter
from Cleary, Gottlieb, Steen and Hamilton (``Cleary'') (Feb. 17,
2016) and Letter from Ropes & Gray (Feb. 16, 2016)).
    \257\ 17 CFR 240.13p-1.
    \258\ See Instruction (3) to Item 1.01 of Form SD. The proposed
rules differ, however, from what is provided for under Rule 13p-1
because disclosure under Rule 13p-1 occurs on a calendar year basis
rather than a fiscal year basis.
---------------------------------------------------------------------------

    Under proposed Rule 13q-1 and Form SD, an issuer would be required
to disclose resource extraction payment information for every entity it
controls. Therefore, absent an exemption, an issuer would be required
to include the acquired company's resource extraction payment
information in its first annual submission after obtaining control. We
are concerned that implementing the appropriate reporting mechanisms in
a timely manner for a company that was not previously subject to
reporting under Section 13(q) or an alternative reporting regime might
remain a significant undertaking, notwithstanding our belief that the
Modified Project Definition would reduce compliance costs and burdens
compared to the 2016 Rules. As such, we are providing transitional
relief with respect to such companies.\259\
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    \259\ As explained in the 2016 rulemaking, the proposed
transitional relief would not apply to companies that have been
subject to Section 13(q)'s disclosure requirements or to those of an
alternative reporting regime prior to their acquisition because such
companies should already be generally familiar with the Section
13(q) requirements or have sufficient notice of them to establish
reporting systems and prepare the appropriate disclosure during the
fiscal year of their acquisition. See 2016 Adopting Release, Section
II.G.3.
---------------------------------------------------------------------------

    Under the proposed rules, issuers would not need to report payment
information for a company that it

acquired or over which it otherwise obtained control, if the acquired
company, in its last full fiscal year, was not obligated to disclose
resource extraction payment information pursuant to Rule 13q-1 or an
alternative reporting regime's requirements deemed by the Commission to
satisfy Section 13(q)'s transparency objectives. In these
circumstances, the resource extraction issuer would begin reporting
payment information for the acquired company starting with the Form SD
submission for the first full fiscal year immediately following the
effective date of the acquisition. As under the 2016 Rules, and in
contrast to the targeted exemption for exploratory activities, an
issuer would not be required to provide the (excluded) payment
disclosure for the year in which it acquired the company in a future
Form SD.\260\
---------------------------------------------------------------------------

    \260\ See id.
---------------------------------------------------------------------------

Request for Comment
    72. Should we provide transitional relief for an issuer that has
acquired or obtained control over a company whose resource extraction
payments are required to be disclosed and was not previously obligated
to provide such disclosure, as proposed? Should we alter our approach
based on any developments since the adoption of the 2016 Rules or in
light of our other proposals in this release?
    73. Should the transitional relief be for a longer or shorter
period than as proposed? For example, should an issuer that has
acquired a recently acquired company, which is eligible for the
proposed transitional relief, be permitted to wait until its second
fiscal year following the fiscal year in which the acquisition occurred
before having to comply with the Section 13(q) rules?
6. Transitional Relief for Initial Public Offerings
    We are proposing similar transitional relief for a resource
extraction issuer that has completed its initial public offering in the
United States in its last full fiscal year. Such an issuer would not
have to comply with the Section 13(q) rules until the first fiscal year
following the fiscal year in which it completed its initial public
offering.\261\
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    \261\ See proposed Item 2.01(b)(3) of Form SD.
---------------------------------------------------------------------------

    This proposed transitional relief for companies that have recently
completed their U.S. initial public offerings is a change from the 2016
Rules. At that time, the Commission stated its belief that such
companies would have sufficient notice of the payment reporting
requirements to establish reporting systems and prepare the appropriate
disclosure prior to undertaking the initial public offering.\262\
---------------------------------------------------------------------------

    \262\ See 2016 Adopting Release, Section II.G.
---------------------------------------------------------------------------

    An issuer that is preparing to conduct its U.S. initial public
offering would have notice of the Section 13(q) rules. Thus, such an
issuer would likely need to incur costs to establish a payment
reporting system to comply with the Section 13(q) rules in advance of
the public offering despite not knowing whether it will successfully
conduct that initial public offering. The company would then incur
these costs unnecessarily if it chose not to move forward with a
planned initial public offering. We believe that the proposed
transitional relief would prevent the situation where an issuer
contemplating a U.S. initial public offering would need to postpone or,
in the extreme case, refrain from conducting its U.S. initial public
offering to avoid the Section 13(q) compliance costs. These outcomes
would be contrary to the stated goals of Section 13(q) as they would
delay or reduce the disclosure provided under that section.
Request for Comment
    74. Should we provide transitional relief for an issuer that has
completed its U.S. initial public offering in its last full fiscal
year, as proposed?
    75. Should we limit the transitional relief only to those issuers
that, prior to completion of their initial public offering, have not
been subject to an alternative reporting regime deemed by the
Commission to require disclosure that satisfies the transparency
objectives of Section 13(q)?
    76. Should the transitional relief be for a longer or shorter
period than as proposed? For example, should an issuer that has
recently completed its U.S. initial public offering be permitted to
wait until its second fiscal year following the fiscal year in which
the initial public offering occurred before having to comply with the
Section 13(q) rules?
7. Case-by-Case Exemption
    To address any other potential bases for exemptive relief, beyond
the rule-based exemptions and transitional relief described above, the
proposed rules would provide that issuers may apply for exemptions on a
case-by-case basis using the procedures set forth in 17 CFR 240.0-12
(Rule 0-12 of the Exchange Act).\263\ Issuers seeking an exemption
would be required to submit a written request for exemptive relief to
the Commission. The request should describe the particular payment
disclosures it seeks to omit (e.g., signature bonuses in Country X or
production entitlement payments in Country Y) and the specific facts
and circumstances that warrant an exemption, including the particular
costs and burdens it faces if it discloses the information. The
Commission would be able to consider all appropriate factors in making
a determination whether to grant requests, including whether the
disclosure is already publicly available and whether (and how
frequently) similar information has been disclosed by other companies,
under the same or similar circumstances. If the proposed rules are
adopted, we would anticipate relying on Section 36(a) of the Exchange
Act to provide exemptive relief under this framework. In situations
where exigent circumstances exist, the Commission staff, acting
pursuant to delegated authority from the Commission, could rely on
Exchange Act Section 12(h) \264\ for the limited purpose of providing
interim relief while the Commission considered the Section 36(a)
exemptive application.\265\
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    \263\ See proposed Rule 13q-1(d)(4).
    \264\ 15 U.S.C. 78l(h).
    \265\ See Section 36(a) of the Exchange Act [15 U.S.C. 78mm(a)]
(providing the Commission with broad authority to provide exemptions
when it is necessary or appropriate in the public interest, and it
is consistent with the protection of investors).
---------------------------------------------------------------------------

    This approach would allow the Commission to determine if and when
exemptive relief may be warranted and how broadly it should apply,
based on the specific facts and circumstances presented in the
application. For example, an issuer could apply for an exemption in
situations where disclosure would have a substantial likelihood of
jeopardizing the safety of an issuer's personnel, or in other
situations posing a significant threat of commercial harm that fall
outside the scope of the proposed rule-based exemptions and
transitional relief described above. The Commission could then
determine the best approach to take based on the facts and
circumstances, including denying an exemption, providing an individual
exemption, providing a broader exemption for all issuers operating in a
particular country, or providing some other appropriately tailored
exemption.
Request for Comment
    77. In light of the other proposed exemptions and transitional
relief, should the Section 13(q) rules provide that issuers may apply
for exemptions on a case-by-case basis using the procedures set forth
in Rule 0-12 of the Exchange Act, as proposed?

K. Exhibits and Interactive Data Format Requirements

    As required by Section 13(q), the proposed rules would require a
resource extraction issuer to submit the required disclosure on EDGAR
in an XBRL exhibit to Form SD.\266\ Providing the required disclosure
elements in a machine readable (electronically tagged) format would
enable users easily to extract, aggregate, and analyze the information
in a manner that is most useful to them. For example, it would allow
the information received from the issuers to be converted by EDGAR and
other commonly used software and services into an easily readable
tabular format.
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    \266\ 15 U.S.C. 78m(q)(2)(C) and 15 U.S.C. 78m(q)(2)(D)(ii). The
Commission has defined an ``interactive data file'' to be the
interactive data submitted in a machine-readable format. See 17 CFR
232.11; Release No. 33-9002 (Jan. 14, 2009) [74 FR 6776 (Feb. 10,
2009)], 6778, n.50.
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    In proposing to require the use of XBRL as the interactive data
format, we note that most commenters on the 2016 Rules Proposing
Release who addressed the issue supported the use of XBRL.\267\
Commenters, however, did not similarly support the use of Inline XBRL,
which is a particular form of XBRL that allows filers to embed XBRL
data directly into an HTML document, eliminating the need to tag a copy
of the information in a separate XBRL exhibit.
---------------------------------------------------------------------------

    \267\ See 2016 Rules Adopting Release, Section II.K.3.
---------------------------------------------------------------------------

    The Commission recently proposed to require the use of the Inline
XBRL format for the submission of operating company financial statement
information and mutual fund risk/return summaries.\268\ We are not
proposing to require a resource extraction issuer to use Inline XBRL
when submitting the Section 13(q) payment information. Given the nature
of the disclosure required by the proposed rules, which is primarily an
exhibit with tabular data, we do not believe that Inline XBRL would
improve the usefulness or presentation of the required disclosure.
---------------------------------------------------------------------------

    \268\ See Release No. 33-10323 (Mar. 1, 2017) [82 FR 13928 (Mar.
15, 2017)].
---------------------------------------------------------------------------

    Under the proposed rules, and consistent with the statute, a
resource extraction issuer would be required to submit the payment
information in XBRL using electronic tags--a taxonomy of defined
reporting elements--that identify, for any payment required to be
disclosed:
     The total amounts of the payments, by category; \269\
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    \269\ For example, categories of payments could be royalties,
bonuses, taxes, fees, or production entitlements.
---------------------------------------------------------------------------

     The currency used to make the payments;
     The financial period in which the payments were made;
     The business segment of the resource extraction issuer
that made the payments;
     The government that received the payments, and the country
in which the government is located; and
     The project of the resource extraction issuer to which the
payments relate.\270\
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    \270\ See proposed Item 2.01(a)(5) of Form SD.
---------------------------------------------------------------------------

    In addition to the electronic tags specifically required by the
statute, a resource extraction issuer would also be required to provide
and tag the type and total amount of payments, by payment type, made
for each project and the type and total amount of payments, by payment
type, for all projects made to each government.\271\ These additional
tags relate to information that is specifically required to be included
in the resource extraction issuer's annual report by Section
13(q).\272\
---------------------------------------------------------------------------

    \271\ See proposed Item 2.01(a)(5)(i) through (ii).
    \272\ See Section 13(q)(2)(A)(i) through (ii).
---------------------------------------------------------------------------

    The proposed rules would also require resource extraction issuers
to tag the particular resource that is the subject of commercial
development, the method of extraction, and the country and major
subnational political jurisdiction of the project. While these three
items of information also would be included in the project description,
we believe that having separate tags for these items would further
enhance the usefulness of the data with an insignificant corresponding
increase in compliance costs.
    For the country in which the government and project is located and
the major subnational geographic location of a project, we are
proposing that the issuer use a tag that is consistent with the
appropriate ISO code.\273\ As some previous commenters pointed out,
such use would standardize references to those geographic locations and
thereby help to reduce confusion caused by a particular project
description.\274\
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    \273\ ISO 3166-1 pertains to countries whereas ISO 3166-2
pertains to major subdivisions in the listed countries.
    \274\ See 2016 Rules Adopting Release, Section II.K.3.
---------------------------------------------------------------------------

    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. 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 conversions when
payments are made in multiple currencies.
    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.\275\ We understand that issuers may have concerns
regarding the compliance costs related to making payments in multiple
currencies and being required to report the information in another
currency.\276\ As we did in the 2016 Rules,\277\ in order to address
those concerns, we are proposing that 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:
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    \275\ See proposed Instruction 2 to Item 2.01 of Form SD.
Foreign private issuers may currently 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].
    \276\ See 2012 Rules Adopting Release, n.485 and accompanying
text.
    \277\ See 2016 Adopting Release, Section II.K.1. Only one
commenter addressed the Commission's currency conversion approach in
the 2016 rulemaking. That commenter stated that ``the three proposed
methods for calculating the currency conversion when payments are
made in multiple currencies provide issuers with sufficient options
to address any possible concerns about compliance costs and
comparability of the disclosure among issuers.'' Letter from
Petrobras (Feb. 16, 2016).
---------------------------------------------------------------------------

     By translating the expenses at the exchange rate existing
at the time the payment is made;
     By using a weighted average of the exchange rates during
the period; or
     Based on the exchange rate as of the issuer's fiscal year
end.\278\
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    \278\ See proposed Instruction 2 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    Under the proposed rules, a resource extraction issuer would have
to disclose the method used to calculate the currency conversion. In
addition, in order to avoid confusion, we are proposing to require that
an issuer choose a consistent method for all such currency conversions
within a particular Form SD.\279\
---------------------------------------------------------------------------

    \279\ See id.
---------------------------------------------------------------------------

    Consistent with the statute, 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. 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.\280\ 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 limit
compliance costs.
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    \280\ See proposed Item 2.01(d)(1) of Form SD. The term
``reportable segment'' is defined in FASB ASC Topic 280, Segment
Reporting, and IFRS 8, Operating Segments.
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    Finally, 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. Issuers
would, however, have to provide all other electronic tags, including
the tag identifying the recipient government.\281\
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    \281\ See proposed Instruction 4 to Item 2.01 of Form SD.
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Request for Comment
    78. Should we require the resource extraction payment disclosure to
be electronically formatted in XBRL and provided in a new exhibit, as
proposed? We are mindful of concerns about mandating technology that
may one day become outdated. Is there anything we can do to address
this problem in these rules?
    79. Should we alter our approach to the exhibit and interactive
data format requirements described above based on any developments
since the adoption of the 2016 Rules or in light of our other proposals
in this release?
    80. In addition to the statutorily required tags, should we require
electronic tagging to identify the type of resource, the method of
extraction and the country and major subnational jurisdiction in which
the project is located, as proposed? Would separate tags for these
items be useful even if the information is required to be disclosed in
the project description tag?

L. Alternative Reporting

    As noted above, several countries have implemented resource
extraction payment disclosure laws.\282\ In light of these
developments, and with a view towards limiting compliance costs, we are
proposing a provision that would allow issuers to meet the requirements
of the proposed rules, in certain circumstances, by providing
disclosures that comply with a foreign jurisdiction's reporting regime.
Specifically, this provision would apply if the Commission has
determined that the alternate reporting regime requires disclosure that
satisfies the transparency objectives of Section 13(q).\283\ The
Commission proposed a similar approach to alternative reporting in
connection with the 2016 Rules and all of the commenters who addressed
the issue supported this approach.\284\
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    \282\ See supra Section I.B.
    \283\ See Proposed Item 2.01(c) of Form SD.
    \284\ See, e.g., Letter from Africa Centre for Energy Policy
(Feb. 16, 2016); Letter from API (Feb. 16, 2016); Letter from BHP
Billiton (Jan. 25, 2016); Letter from BP (Feb. 16, 2016); Letter
from Calvert Investments (Feb. 16, 2016); Letter from Cleary (Feb.
17, 2016); Letter from Encana Corporation (Jan. 25, 2016); Letter
from Global Witness (Feb. 16, 2016); Letter from PWYP-US (Feb. 16,
2016); Letter from RDS (Feb. 5, 2016); Letter from Ropes & Gray
(Feb. 16, 2017); and Letter from Total (Jan. 13, 2016).
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    The proposed provision would allow an issuer subject to resource
extraction payment disclosure requirements in a foreign jurisdiction to
submit the report it prepared under those foreign requirements in lieu
of the report that would otherwise be required by our disclosure rules,
subject to certain conditions. The proposed rules would permit
compliance under this framework only after the Commission has
determined that the foreign reporting regime requires disclosure that
satisfies the transparency objectives of Section 13(q). This framework
for alternative reporting would, at least in part, allow a resource
extraction issuer to avoid the costs of having to prepare a separate
report meeting the requirements of our proposed disclosure rules when
it already submits a report pursuant to another jurisdiction's
requirements deemed by the Commission to satisfy Section 13(q)'s
transparency objectives.
    An issuer would only be permitted to use an alternative report for
an approved foreign jurisdiction or regime if the issuer was subject to
the resource extraction payment disclosure requirements of that
jurisdiction or regime and had made the report prepared in accordance
with that jurisdiction's requirements publicly available prior to
submitting it to the Commission.\285\ An issuer choosing to avail
itself of this accommodation must submit as an exhibit to Form SD the
same report that it previously made publicly available in accordance
with the approved alternative jurisdiction's requirements.\286\ The
issuer also would be required to state in the body of its Form SD that
it is relying on this accommodation and identify the alternative
reporting regime for which the report was prepared.\287\
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    \285\ See proposed Item 2.01(c)(1) through (2) of Form SD.
    \286\ See proposed Item 2.01(c)(2) of Form SD. The format of the
report could differ to the extent necessary to comply with the
conditions placed by the Commission on the alternative reporting
accommodation. See id. For example, the report may not have been
originally submitted in the home jurisdiction in XBRL or may not
have been in English.
    \287\ See proposed Item 2.01(c)(3) of Form SD.
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    In addition, under the proposed rules, the alternative reports must
be tagged using XBRL.\288\ We believe that requiring a consistent data
format for all reports submitted to the Commission would enhance the
ability of users to access the data and create their own compilations
in a manner most useful to them. We also believe that requiring a
consistent data format would better enable the Commission's staff to
provide any additional compilations of Section 13(q) information.\289\
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    \288\ See proposed Item 2.01(c)(4) of Form SD.
    \289\ We believe that these considerations justify not following
the recommendation of a commenter on the 2016 Rules Proposing
Release that we not require issuers to convert data into a different
interactive data format to qualify for alternative reporting. See
letter from BHP Billiton (Jan. 25, 2016).
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    An issuer relying on the proposed alternative reporting
accommodation must also provide a fair and accurate English translation
of the entire report if prepared in a foreign language.\290\ Given the
specificity of the disclosure and the electronic tagging required under
Rule 13q-1 and Form SD, we do not believe it would be appropriate to
permit an English summary of a foreign language document that is being
provided as an alternative report.\291\
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    \290\ See proposed Item 2.01(c)(5) of Form SD.
    \291\ Rule 306 of Regulation S-T (17 CFR 232.306) requires that
all electronic filings and submissions be in the English language.
If a filing or submission requires the inclusion of a foreign
language document, Rule 306 requires that the document be translated
into English in accordance with Securities Act Rule 403(c) (17 CFR
230.403(c)) or Exchange Act Rule 12b-12(d) (17 CFR 240.12b-12(d)).
Both of these rules require the submission of a fair and accurate
English translation of an entire foreign language document that is
being submitted as an exhibit or attachment if the document consists
of certain specified material. If the foreign language document does
not consist of such material, and the form permits it, a fair and
accurate English language summary could be provided in lieu of an
English translation.
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    Other than the XBRL and English translation requirements, an issuer
that elects to use the alternative reporting option would not be
required to meet a requirement under the proposed rules to the extent
that the alternative reporting regime imposes a different requirement.
    Similar to the 2016 Rules, a resource extraction issuer would be
able to follow the submission deadline of an approved alternative
jurisdiction if it

submits a notice on or before the due date of its Form SD indicating
its intent to submit the alternative report using the alternative
jurisdiction's deadline.\292\ If a resource extraction issuer fails to
submit such notice on a timely basis, or submits such a notice but
fails to submit the alternative report within four business days of the
alternative jurisdiction's deadline, as proposed, it would not be able
to rely on the alternative reporting accommodation for the following
fiscal year.\293\
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    \292\ See proposed Item 2.01(c)(6) of Form SD.
    \293\ See id.
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    We anticipate making determinations about whether a foreign
jurisdiction's disclosure requirements satisfy Section 13(q)'s
transparency objectives either on our own initiative or pursuant to an
application submitted by an issuer or a jurisdiction. We would then
publish the determinations in the form of a Commission order.\294\
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    \294\ Concurrently with the 2016 Rules Adopting Release, the
Commission issued an order stating that a resource extraction issuer
that files a report complying with the reporting requirements of the
EU Directives, ESTMA, and the USEITI would satisfy its disclosure
obligations under Rule 13q-1. See Release No. 34-78169 (Jun. 16,
2016) [81 FR 49163] (July 27, 2016) (placing certain additional
conditions on the use of USEITI reports because they are limited to
disclosure of payments to the Federal Government and follow a
different reporting schedule). See also 2016 Rules Adopting Release,
Section II.J.3.b.
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    We anticipate considering, among others, the following criteria in
determining whether a foreign jurisdiction's reporting regime requires
disclosure that satisfies Section 13(q)'s transparency objectives: (1)
The types of activities that trigger disclosure; (2) the types of
payments that are required to be disclosed; and (3) whether project-
level disclosure is required and how ``project'' is defined. We also
anticipate considering other factors as appropriate or necessary under
the circumstances.
    Applications could be submitted by issuers, governments, industry
groups, and trade associations.\295\ Applicants would follow the
procedures set forth in Rule 0-13 of the Exchange Act to request
recognition of other jurisdictions' reporting regimes as satisfying
Section 13(q)'s transparency objectives.\296\ Under the proposed rules,
the application would have to include supporting documents, and it
would be referred to the Commission's staff for review.\297\ The
Commission would publish a notice in the Federal Register that a
complete application has been submitted and allow for public comment.
The Commission could also, in its sole discretion, schedule a hearing
before the Commission on the matter addressed by the application.
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    \295\ See proposed Rule 13q-1(c).
    \296\ Rule 0-13 (17 CFR 240.0-13) permits an application to be
filed with the Commission to request a ``substituted compliance
order'' under the Exchange Act.
    \297\ Id.
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Request for Comment
    81. Should we include a provision in the rules that would allow for
issuers subject to reporting requirements in certain foreign
jurisdictions to submit those reports in satisfaction of our
requirements, as proposed? Are the conditions we have proposed for the
use of the alternative reports, such as providing a fair and accurate
English translation and requiring the information to be tagged using
XBRL, appropriate? For example, should a resource extraction issuer be
precluded from relying on the alternative reporting accommodation for
the following fiscal year if it fails to submit notice on a timely
basis that it intends to submit an alternative report using the
alternative jurisdiction's deadline, as proposed? Should it be
precluded from relying on the alternative reporting accommodation for
the following fiscal year if it submits such notice but fails to submit
the alternative report within four business days of the alternative
jurisdiction's deadline, as proposed? Should we provide more than four
days after the submission deadline of the approved alternative
jurisdiction for a resource extraction issuer to submit the alternative
report? If so, what should that time period be? Should we alter our
approach based on any developments since the adoption of the 2016 Rules
or in light of our other proposals in this release?
    82. Are the criteria that we have proposed to determine whether
another foreign jurisdiction's reporting regime requires disclosure
that satisfies the transparency objectives of Section 13(q)
appropriate? Are there certain criteria that we should eliminate or
substitute for any of the criteria discussed in this proposing release?
If so, which criteria and why?