As we noted in the Proposing Release and above, we interpret
Section 13(q) to provide that the types of payments that are included
in the statutory language should be subject to disclosure under our
rules to the extent that the Commission determines that the types of
payments and any ``other material benefits'' are part of the commonly
recognized revenue stream for the commercial development of oil,
natural gas, or minerals. As noted, the statute provides that our
determination should be consistent with the EITI's guidelines, to the
extent practicable. Therefore, we are including all the payments listed
above in the final rules because they are part of the commonly
recognized revenue stream. We do not believe the final rules should
include a broad, non-exhaustive list of payment types or category of
``other material benefits,'' as was suggested by some
commentators,\191\ because we do not believe including a broad, non-
exclusive category would be consistent with our interpretation that the
Commission must determine the ``material benefits'' that are part of
the commonly recognized revenue stream. Thus, under the final rules,
resource extraction issuers will be required to disclose only those
payments that fall within the specified list of payment types in the
rules, which include payment types that we have determined to be
material benefits that are part of the commonly recognized revenue
stream, and that otherwise meet the definition of ``payment.''
---------------------------------------------------------------------------

    \191\ See note 175 and accompanying text.
---------------------------------------------------------------------------

    We agree generally with those commentators who stated that it would
be appropriate to add the types of payments included under the EITI but
not explicitly mentioned under Section 13(q) to the list of payment
types required to be disclosed because their inclusion under the EITI
is evidence that they are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, or
minerals.\192\ Accordingly, the final rules add dividends to the list
of payment types required to be disclosed.\193\ The final rules clarify
in an instruction that a resource extraction issuer generally need not
disclose dividends paid to a government as a common or ordinary
shareholder of the issuer as long as the dividend is paid to the
government under the same terms as other shareholders. The issuer will
however be required to disclose any dividends paid to a government in
lieu of production entitlements or royalties.\194\ We agree with the
commentators that stated ordinary dividends would not comprise part of
the commonly recognized revenue stream because such dividend payments
are not made to further the commercial development of oil, natural gas,
or minerals,\195\ except in cases where the dividend is paid to a
government in lieu of production entitlements or royalties.
---------------------------------------------------------------------------

    \192\ See, e.g., letter from AngloGold.
    \193\ The EITI describes dividends as ``dividends paid to the
host government as shareholder of the national state-owned company
in respect of shares and any profit distributions in respect of any
form of capital other than debt or loan capital.'' EITI Source Book,
at 27-28.
    \194\ See Instruction 7 to Item 2.01.
    \195\ See letters from Cleary and Statoil.
---------------------------------------------------------------------------

    The final rules also include, in the list of payment types subject
to disclosure, payments for infrastructure improvements, such as
building a road or railway. Several commentators stated that, because
resource extraction issuers often make payments for infrastructure
improvements either as required by contract or voluntarily, those
payments constitute other material benefits that are part of the
commonly recognized revenue stream for the commercial development of
oil, natural gas, or minerals.\196\ We further note that some EITI
participants have included infrastructure improvements within the scope
of their EITI program, even though those payments were not required
under the EITI until recently.\197\ In February 2011 the EITI Board
issued revised EITI rules \198\ that require participants to develop a
process to disclose infrastructure payments under an EITI program.\199\
Thus, including infrastructure payments within the list of payment
types required to be disclosed under the final rules will make the
rules more consistent with the EITI, as directed by the statute.
---------------------------------------------------------------------------

    \196\ See letters from AngloGold, Barrick Gold, ERI 1,
Earthworks, EG Justice, Global Witness 1, ONE, and PWYP 1.
    \197\ See the 2009 EITI report for Ghana (reported under Mineral
Development Fund contributions), the 2008 EITI report for the Kyrgyz
Republic (reported under social and industrial infrastructure
payments), the 2008-2009 EITI report for Liberia (reported under
county and community contributions), and the 2008 EITI report for
Mongolia (reported under donations to government organizations).
    \198\ See EITI Rules 2011, available at http://eiti.org/document/rules.
    \199\ See EITI Requirement 9(f) in EITI Rules 2011, at 24
(``Where agreements based on in-kind payments, infrastructure
provision or other barter-type arrangements play a significant role
in the oil, gas or mining sectors, the multi-stakeholder group is
required to agree [to] a mechanism for incorporating benefit streams
under these agreements in to its EITI reporting process * * *.'').
The EITI Board has established a procedure to implement the new
rules. According to the procedure, any country admitted as an EITI
candidate on or after July 1, 2011 must comply with the new rules.
Compliant countries are encouraged to make the transition to the new
rules as soon as possible. The procedure also establishes a
transition schedule for countries that are implementing the EITI but
are not yet compliant. See the EITI newsletter, available at http://eiti.org/news-events/eiti-board-agrees-transition-procedures-2011-edition-eiti-rules.
---------------------------------------------------------------------------

    Under the final rules, consistent with the recommendation of some
commentators,\200\ a resource extraction issuer must disclose payments
that are not de minimis that it has made to a foreign government or the
U.S. Federal Government for infrastructure improvements if it has
incurred those payments, whether by contract or otherwise, to further
the commercial development of oil, natural gas, or minerals. For
example, payments required to build roads to gain access to resources
for extraction would be covered by the final rules. If an issuer is
obligated to build a road rather than paying the host country
government to build the road, the issuer would be required to disclose
the cost of building the road as a payment to the government to the
extent that the payment was not de minimis.\201\
---------------------------------------------------------------------------

    \200\ See note 176 and accompanying text.
    \201\ For a discussion of the treatment of in-kind payments
under the final rules, see the text accompanying note 212. We note
some commentators suggested infrastructure payments are usually not
material compared to the other types of payments required to be
disclosed under Section 13(q) and that infrastructure payments are
of a de minimis nature compared to the overall costs of commercial
development. See API 1, ExxonMobil 1, RDS 1, and Statoil. As
discussed further below, the not de minimis requirement applies to
all payment types, not just infrastructure payments.
---------------------------------------------------------------------------

    The final rules do not require a resource extraction issuer to
disclose social or community payments, such as payments to build a
hospital or school, because it is not clear that these types of
payments are part of the commonly recognized revenue stream. We note
commentators' views on whether social or community payments should be
included varied more than their views on whether payments for
infrastructure improvements should be included. Further, this treatment
of social or community payments is consistent with the EITI, which
encourages, but does not require, EITI participants to include social
payments and transfers in EITI

programs if the participants deem the payments to be material.\202\
---------------------------------------------------------------------------

    \202\ See EITI Requirement 9(g) in EITI Rules 2011, at 24.
Resource extraction issuers could, of course, voluntarily include
information about these types of payments in their disclosure on
Form SD.
---------------------------------------------------------------------------

    Consistent with the proposal and Section 13(q), the final rules
will require a resource extraction issuer to disclose fees, including
license fees, and bonuses paid to further the commercial development of
oil, natural gas, or minerals. In response to requests by some
commentators,\203\ we are adding an instruction to clarify that fees
include rental fees, entry fees, and concession fees, and bonuses
include signature, discovery, and production bonuses.\204\ As
commentators noted,\205\ the EITI Source Book specifically mentions
these types of fees and bonuses as payments that are typically
disclosed by EITI participants.\206\ We believe this demonstrates that
these types of fees and bonuses are part of the commonly recognized
revenue stream, and therefore the final rules include an instruction
clarifying that disclosure of these payments is required. The fees and
bonuses identified are not an exclusive list, and there may be other
fees and bonuses a resource extraction issuer would be required to
disclose. A resource extraction issuer will need to consider whether
payments it makes fall within the payment types covered by the rules.
---------------------------------------------------------------------------

    \203\ See note 160 and accompanying text.
    \204\ See Instruction 6 to Item 2.01 of Form SD.
    \205\ See, e.g., letters from API 1 and ExxonMobil 1.
    \206\ See the EITI Source Book, at 28.
---------------------------------------------------------------------------

    Consistent with the proposal and Section 13(q), the final rules
will require a resource extraction issuer to disclose taxes. In
addition, the final rules include an instruction, as proposed, to
clarify that a resource extraction issuer will be required to disclose
payments for taxes levied on corporate profits, corporate income, and
production, but will not be required to disclose payments for taxes
levied on consumption, such as value added taxes, personal income
taxes, or sales taxes.\207\ This approach is consistent with the
statute, which includes taxes in the list of payment types required to
be disclosed, and with the EITI.\208\ In response to concerns expressed
about the difficulty of allocating certain payments that are made for
obligations levied at the entity level, such as corporate taxes, to the
project level,\209\ the final rules provide that issuers may disclose
those payments at the entity level rather than the project level.\210\
---------------------------------------------------------------------------

    \207\ See Instruction 5 to Item 2.01 of Form SD.
    \208\ The EITI Source Book specifically mentions the inclusion
of taxes levied on income, production or profits and the exclusion
of taxes levied on consumption, such as value-added taxes, personal
income taxes or sales taxes. See the EITI Source Book, at 28.
    \209\ See note 155 and accompanying text.
    \210\ See discussion in Section II.F.2.c below.
---------------------------------------------------------------------------

    We are not persuaded that there are other types of payments that
currently constitute material benefits that are part of the commonly
recognized revenue stream. Therefore, the final rules do not include
any additional payment types in the list of payment types resource
extraction issuers must disclose.
    As previously noted, many commentators supported the inclusion of
in-kind payments, particularly in connection with production
entitlements.\211\ Under the final rules, resource extraction issuers
must disclose payments of the types identified in the rules that are
made in kind.\212\ Because Section 13(q) specifies that the final rules
require the disclosure of the type and total amount of payments made
for each project and to each government, issuers will need to determine
the monetary value of in-kind payments.\213\ Consistent with
suggestions we received on disclosing these types of payments,\214\ the
final rules specify that issuers may report in-kind payments at cost,
or if cost is not determinable, fair market value, and provide a brief
description of how the monetary value was calculated.\215\
---------------------------------------------------------------------------

    \211\ See note 170 and accompanying text. In-kind payments
include, for example, making a payment to a government in oil rather
than a monetary payment.
    \212\ We note that this is consistent with the reporting of
production entitlements under the EITI. See the EITI Source Book, at
27.
    \213\ Although a couple of commentators suggested that issuers
be permitted to report payments in cash or in kind, we note that
Section 13(q) requires the type and total amount of payments made
for each project and to each government, and total amount of
payments by category. In order for issuers to provide a these total
amounts, we believe it is necessary to provide a monetary value for
any in-kind payments. Thus, the final rules require that issuers
provide a monetary value for payments made in kind. In addition, in
light of the requirement in Section 13(q) to tag the information to
identify the currency in which the payments were made, the final
rules instruct issuers providing a monetary value for in-kind
payments to tag the information as ``in kind'' for purposes of the
currency tag.
    \214\ See note 173 and accompanying text.
    \215\ See Instruction 1 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    Finally, a resource extraction issuer may not conceal the true
nature of payments or activities that otherwise would fall within the
scope of the final rules, or create a false impression of the manner in
which it makes payments, in order to circumvent the disclosure
requirements. As suggested by one commentator,\216\ to address the
potential for circumvention of the disclosure requirements, the final
rules include an anti-evasion provision. This provision is intended to
emphasize the substance over the form or characterization of an
activity or payment. For example, a resource extraction issuer that
typically engages in a particular activity that otherwise would be
covered under the definition of commercial development of oil, natural
gas, or minerals, and that changes the way it categorizes the same
activity after the issuance of final rules to avoid disclosing payments
related to the activity may be viewed as seeking to evade the
disclosure requirements. Similarly, a resource extraction issuer that
typically makes payments of the type that would otherwise be covered
under the final rules and that changes the way it categorizes or makes
payments after issuance of the final rules so that the payments are not
technically required to be disclosed may be viewed as seeking to evade
the disclosure requirements. The final rules will require disclosure
with respect to activities or payments that, although not in form or
characterization of one of the categories specified under the final
rules, are part of a plan or scheme to evade the disclosure
requirements under Section 13(q).\217\
---------------------------------------------------------------------------

    \216\ See letter from Sen. Levin (February 17, 2012) (``Sen.
Levin 2'').
    \217\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

2. The ``Not De Minimis'' Requirement
a. Proposed Rules
    Section 13(q) and the proposal define payment, in part, to be a
payment that is ``not de minimis.'' Neither the statute nor the
proposed rules define ``not de minimis.'' Under Section 13(q) and the
proposal, if the other standards for disclosure are met, resource
extraction issuers would be required to disclose payments made that are
``not de minimis.''
    Under the EITI, countries are free to establish a materiality level
for disclosure.\218\ Section 13(q) established

the threshold for payment disclosure as ``not de minimis'' rather than
requiring disclosure of ``material'' payments. Given the use of the
phrase ``not de minimis,'' we stated in the Proposing Release our
preliminary belief that ``not de minimis'' does not equate with a
materiality standard. In doing so, we noted that that the term ``de
minimis'' is generally defined as something that is ``lacking
significance or importance'' or ``so minor as to merit disregard.''
\219\ We also noted that we preliminarily believed that the term is
sufficiently clear and that further explication was unnecessary.
---------------------------------------------------------------------------

    \218\ For example, countries may establish a materiality level
based on the size of payments or the size of companies subject to
disclosure. See Implementing the EITI, at 30. The EITI Source Book
notes that a benefit stream is material ``if its omission or
misstatement could distort the final EITI report'' for the country.
EITI Source Book, at 26. Because there is no pre-determined
materiality level prescribed for all countries implementing the
EITI, the multi-stakeholder group in each EITI-implementing country
determines the threshold for disclosure that is appropriate for that
country. See Implementing the EITI, at 31. The EITI recommends the
following alternatives for considering a benefit stream to be
material:
    ``Alternative 1: [if it is] more than A% of the host
government's estimated total production value for the reporting
period;
    Alternative 2: [if it is] more than B% of the company's
estimated total production value in the host country for the
reporting period; or
    Alternative 3: [if it is] more than USD C million [or local
currency D million].''
    EITI Source Book, at 27.
    \219\ See the definition of ``de minimis'' in Merriam-Webster
Dictionary, available at http://www.merriam-webster.com/dictionary/deminimis. We note, in contrast, that Rule 12b-2 under the Exchange
Act [17 CFR 240.12b-2] defines ``material'' when used to qualify a
requirement for the furnishing of information as to any subject, as
limited to information required to those matters to which there is a
substantial likelihood that a reasonable investor would attach
importance in determining whether to buy or sell the securities
registered. See also Rule 405 under the Securities Act [17 CFR
230.405]. In addition, the U.S. Supreme Court has held that, in a
securities fraud suit, an omitted fact is material if there is a
substantial likelihood that its disclosure would have been
considered significant by a reasonable investor. See Basic Inc. v.
Levinson, 485 U.S. 224 (1988) and TSC Industries. Inc., et al. v.
Northway, Inc., 426 U.S. 438 (1976).
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    We received significant comment on this aspect of the proposal.
Some commentators agreed that it is not necessary to define ``not de
minimis.'' \220\ Two of those commentators suggested that an issuer
should be required to disclose the methodology used to determine what
is ``not de minimis.'' \221\ One commentator noted that ``not de
minimis'' is a commonly-understood term.\222\
---------------------------------------------------------------------------

    \220\ See letters from Cleary, Global Witness 1, NMA 2,
PetroChina, and Rio Tinto.
    \221\ See letters from NMA 2 and Rio Tinto.
    \222\ See letter from Global Witness 1. This commentator
suggested that, in the alternative, we should define the term as an
amount that meets or exceeds the lesser of (1) $1,000 for an
individual payment or $15,000 in the aggregate over a period, or (2)
a particular percentage of the issuer's per project expenditures. It
also noted that it believes ``not de minimis'' should be assessed
relative to the total expenditures on a project and not relative to
the size or valuation of the entity making the payments.
---------------------------------------------------------------------------

    Most commentators that addressed the issue urged the Commission to
define ``not de minimis.'' \223\ Several commentators stated that the
Commission should avoid adopting a definition that uses one or more
quantitative measures and, instead, should define ``not de minimis'' to
mean material.\224\ According to those commentators, a definition based
on materiality would be consistent with the EITI and the Commission's
longstanding disclosure regime.\225\ One commentator stated that
adopting a definition of ``not de minimis'' based on materiality would
encourage ``reasonable consistency of disclosure across all issuers''
and result ``in the disclosure of all material facts necessary for
investors'' without the Commission having to provide further guidance
on how to determine materiality.\226\
---------------------------------------------------------------------------

    \223\ See, e.g., letters from AngloGold, Barrick Gold, BP 1,
CalSTRS, Calvert, CRS, Earthworks, Harrington Investments, Inc.
(January 19, 2011) (``HII), RDS 1, Sen. Levin 1, and SIF.
    \224\ See letters from API 1, BP 1, Chevron, ExxonMobil 1, RDS
1, and Statoil.
    \225\ See, e.g., letters from API 1 and Chevron. According to
one commentator, adopting a definition based on specific
quantitative measures rather than existing materiality guidance
would ``substantially increase the likelihood of overburdening
issuers and users with large volumes of unnecessary and immaterial
detail * * * and significantly increase the regulatory burden and
cost of compliance.'' See letter from Chevron. See also letters from
API 1 and ExxonMobil 1. Other commentators believed that an issuer
should be able to rely on materiality principles for guidance when
determining whether a payment is ``not de minimis,'' but did not
think that a definition of ``not de minimis'' was necessary. See
letters from Cleary, NMA 2, PetroChina, and Rio Tinto.
    \226\ See letter from API 1.
---------------------------------------------------------------------------

    Other commentators, however, agreed with our belief that ``not de
minimis'' does not equate with material.\227\ Several commentators
noted that a provision of the U.S. federal tax code includes the
following definition of ``de minimis'': ``[a] property or service the
value of which is * * * so small as to make accounting for it
unreasonable or administratively impracticable.'' \228\ One commentator
stated that if we were to adopt a qualitative, principle-based standard
when defining de minimis, it should be based on ``the relevance of a
payment in relation to a country's size'' rather than with regard to a
company's overall payments, assets or similar metric.\229\ A few
commentators requested ``that a reasonable minimum threshold for
payments to be reported should be set'' without suggesting a particular
minimum threshold.\230\
---------------------------------------------------------------------------

    \227\ See, e.g., letters from Barrick Gold, Calvert, ERI 1,
Global Witness 1, HURFOM 1, PWYP 1, and TIAA.
    \228\ Letter from Calvert (quoting 26 U.S.C. Sec.  132(e)(1));
see also letters from Global Witness 1, PWYP 1, and TIAA.
    \229\ See letter from PWYP 1.
    \230\ See letters from Derecho, Greenpeace, and Guatemalan
Forest Communities.
---------------------------------------------------------------------------

    Several commentators urged us to adopt a definition of ``not de
minimis'' based on one or more quantitative measures.\231\ Commentators
stated that such a definition was necessary to provide clarity
regarding the disclosure requirements.\232\ Two commentators suggested
using an absolute dollar amount in the definition because they believed
that such a standard would be easier to apply than a percentage, would
reduce compliance costs, and would help ensure consistent disclosure
and comparability.\233\ Another commentator similarly believed that the
use of an absolute dollar amount would help level the playing field
among issuers.\234\
---------------------------------------------------------------------------

    \231\ See letters from AngloGold, Barrick Gold, CalSTRS, CRS,
Earthworks, HII, PWYP 1 (suggesting both qualitative and
quantitative standards), RWI 1, Sen. Levin 1, and SIF. Another
commentator noted that we have adopted objective standards in other
contexts and requested that we do so for the definition of ``not de
minimis.'' That commentator further suggested that we may need to
adopt different quantitative standards for large-cap and small-cap
companies, but it did not recommend particular standards. See letter
from AXPC.
    \232\ See letters from Barrick Gold and Talisman.
    \233\ See letters from AngloGold (recommending defining ``de
minimis'' to mean ``any payment or series of related payments made
at the tax-paying entity level which in the aggregate is less than
U.S.$1,000,000'') and CRS (recommending an amount ``significantly
less than $100,000'' and as an aggregate of payments of the same
type during the reporting period covered).
    \234\ See letter from Talisman (noting that it currently reports
payments in excess of one million dollars and supporting a minimum
level of reporting of one million dollars).
---------------------------------------------------------------------------

    Commentators offered various suggestions for a quantitative
threshold. Some commentators suggested requiring the reporting of
payments above $10,000.\235\ In addition, numerous commentators signed
a petition supporting a de minimis threshold ``in the low thousands
(U.S. dollars) to prevent millions of dollars from going unreported.''
\236\ Several commentators suggested that we should define ``not de
minimis'' using a standard similar to a listing standard of the London
Stock Exchange's Alternative Investment Market (``AIM''), which
requires disclosure of any payment made to any government or regulatory
authority by an oil, gas, or mining company registrant that, alone or
as a whole, is over [pound]10,000, or approximately $15,000.\237\ One
commentator suggested a reporting threshold ``in the tens of

thousands.'' \238\ Another commentator believed that we should provide
a specific threshold and that it should be significantly less than
$100,000.\239\ The commentator further stated that the threshold should
be defined as an aggregate of payments of the same type during the
reporting period covered. Another commentator suggested using an
absolute dollar amount that would vary depending on the size of an
issuer's market capitalization.\240\
---------------------------------------------------------------------------

    \235\ See letters designated ``Type B'' (suggesting $10,000
threshold without elaboration) and letter from Le Billon (stating
that a ``minimal value of $10,000 would be consistent with many
legislations seeking to track financial flows, e.g. for the purpose
of money laundering'').
    \236\ ONE Petition.
    \237\ See letters from CalSTRS, HII, RWI 1, Sen. Levin 1, SIF,
and WACAM. Several commentators suggested defining the term further
to require disclosure of any individual payment that exceeded $1,000
as well as payments of the same type that in the aggregate exceeded
$15,000. See letters from Earthworks, Global Witness 1, Global
Witness 3, and PWYP 1.
    \238\ See letter from Global Movement for Budget Transparency,
Accountability and Participation (March 30, 2012) (``BTAP'').
    \239\ See letter from CRS. See also letter from PWYP 1 (stating
that $100,000 would not be an appropriate de minimis threshold
because $100,000 could exceed the annual payments, such as lease
rents or license fees, in some projects).
    \240\ See letter from AXPC. That commentator, however, did not
specify any particular dollar amount or corresponding size of market
capitalization.
---------------------------------------------------------------------------

    One commentator suggested defining ``de minimis'' to mean ``any
payment or series of related payments made at the tax-paying entity
level which in the aggregate is less than U.S.$1,000,000.'' \241\
Another commentator similarly suggested using an absolute dollar amount
threshold of $1,000,000 while noting that it currently reports payments
in excess of that amount. According to that commentator, its
``experience supports [$1,000,000] as the minimum level of reporting to
ensure that the objectives of revenue transparency are met while not
clouding the data with largely irrelevant information.'' \242\ One
commentator, however, opposed a ``not de minimis'' threshold of
$1,000,000 because it believed such a threshold would exclude many
payments made in the extractive industry.\243\ Another commentator
similarly cautioned against setting the ``not de minimis'' threshold
too high because it would leave important payment streams undisclosed
and could encourage companies and governments to structure payments in
future contracts in a way that would avoid the disclosure
requirement.\244\
---------------------------------------------------------------------------

    \241\ See letter from AngloGold.
    \242\ Letter from Talisman.
    \243\ See letter from ERI 3 (referring to disclosure in Sierra
Leone's 2010 EITI Report and noting that a $1,000,000 threshold
would exclude payments for half of the companies reporting in Sierra
Leone). See also ONE Petition (urging the Commission to adopt a
final rule that ``sets the de minimis threshold in the low thousands
(U.S. dollars) to prevent millions of dollars from going
unreported'').
    \244\ See letter from Rep. Frank et al.
---------------------------------------------------------------------------

    Other commentators suggested adopting a quantitative definition of
``not de minimis'' that uses a relative measure, either alone or with
an absolute dollar amount.\245\ One commentator suggested defining
``not de minimis'' to mean five percent or more of an issuer's upstream
expenses or revenues.\246\ Another commentator suggested defining ``not
de minimis'' as the lesser of two percent of the issuer's consolidated
expenditures and $1,000,000.\247\ According to that commentator, using
a standard based on the lesser of a dollar amount or a percentage of
expenses would reflect the size of a company but still ensure the
disclosure of significant payments by a larger company.\248\
---------------------------------------------------------------------------

    \245\ See letters from Barrick Gold and RDS 1 (RDS suggested a
quantitative definition if the Commission determines not to define
the term as ``material'').
    \246\ See letter from RDS 1.
    \247\ See letter from Barrick Gold (suggested ``consolidated
expenditures'' but did not provide an explanation of the term).
    \248\ See letter of Barrick Gold.
---------------------------------------------------------------------------

c. Final Rules
    We have determined to adopt a definition of ``not de minimis'' to
provide clear guidance regarding when a resource extraction issuer must
disclose a payment.\249\ We have considered whether to define the term
using a materiality standard, as some commentators have
recommended.\250\ We continue to believe that given the use of the
phrase ``not de minimis'' in Section 13(q) rather than use of a
materiality standard, which is used elsewhere in the federal securities
laws and in the EITI,\251\ ``not de minimis'' was not intended to
equate to a materiality standard.
---------------------------------------------------------------------------

    \249\ See, e.g., letters from Barrick Gold and Talisman.
    \250\ See note 224 and accompanying text.
    \251\ See note 218 and accompanying text.
---------------------------------------------------------------------------

    More fundamentally, for purposes of Section 13(q), we do not
believe the relevant point of reference for assessing whether a payment
is ``not de minimis'' is the particular issuer. Rather, because the
disclosure is designed to further international transparency
initiatives regarding payments to governments for the commercial
development of oil, natural gas, or minerals, we think the better way
to consider whether a payment is ``not de minimis'' is in relation to
host countries. We recognize that issuers may have difficulty assessing
the significance of particular payments for particular countries or
recipient governments and, as explained below, are adopting a $100,000
threshold that, we believe, will facilitate compliance with the statute
by providing clear guidance regarding the payments that resource
extraction issuers will need to track and report and will promote the
transparency goals of the statute. In addition, we believe the
threshold we are adopting will result in a lesser compliance burden
than would otherwise be associated with the final rules if a lower
threshold were used because issuers may track and report fewer payments
than they would be required to report if a lower threshold was adopted.
    Of the suggested approaches for defining ``not de minimis,'' we
believe that a standard based on an absolute dollar amount is the most
appropriate because it will be easier to apply than a qualitative
standard or a relative quantitative standard based on a percentage of
expenses or revenues of the issuer,\252\ or some other fluctuating
measure, such as a percentage of the host government's or issuer's
estimated total production value in the host country for the reporting
period. Using an absolute dollar amount threshold for disclosure
purposes should help reduce compliance costs and may also promote
consistency and comparability.\253\
---------------------------------------------------------------------------

    \252\ See notes 231-233 and accompanying text.
    \253\ See note 233 and accompanying text. Furthermore, some
commentators who suggested a relative standard did not provide
definitions, or suggested a standard based on upstream payments only
even though the required disclosure includes additional payments.
---------------------------------------------------------------------------

    The final rules define ``not de minimis'' \254\ to mean any
payment, whether made as a single payment or series of related
payments, that equals or exceeds $100,000 during the most recent fiscal
year.\255\ The final rules provide that in the case of any arrangement
providing for periodic payments or installments (e.g., rental fees), a
resource extraction issuer must consider the aggregate amount of the
related periodic payments or installments of the related payments in
determining whether the payment threshold has been met for that series
of payments, and accordingly, whether disclosure is required.\256\ As
discussed further below, we considered a variety of alternatives when
considering what, if any, definition would be appropriate for ``not de
minimis.''
---------------------------------------------------------------------------

    \254\ See Item 2.01(c)(7) of Form SD.
    \255\ For example, a resource extraction issuer that paid a
$150,000 signature bonus would be required to disclose that payment.
As another example, a resource extraction issuer obligated to pay
royalties to a government annually and that paid $10,000 in
royalties on a monthly basis to satisfy its obligation would be
required to disclose $120,000 in royalties.
    \256\ See Item 2.01(c)(7) of Form SD. This is similar to other
instructions in our rules requiring disclosure of a series of
payments. See, e.g., Instructions 2 and 3 to Item 404(a) of
Regulation S-K (17 CFR 229.404(a)).
---------------------------------------------------------------------------

    We believe that a $100,000 threshold is more appropriate than, and
an acceptable compromise to, the amounts

suggested by commentators.\257\ Commentators supporting an absolute
dollar amount differed widely on the amount best suited for the
threshold, with commentators suggesting an amount in the ``low
thousands'' of U.S. dollars,\258\ $10,000,\259\ $15,000,\260\ an amount
less than $100,000,\261\ and $1,000,000.\262\ We are not adopting a
threshold in the low thousands of U.S. dollars, $10,000, or $15,000
threshold. In light of the comments received, we are concerned that
those amounts could result in undue compliance burdens and raise
competitive concerns for many issuers. While supporters of a $15,000
threshold noted its similarity to the AIM listing requirement, we do
not believe that applying the threshold used in that listing
requirement is appropriate for purposes of Section 13(q) because that
threshold was designed to apply to the smaller companies that comprise
the AIM market.\263\
---------------------------------------------------------------------------

    \257\ The Proposing Release solicited comment on a wide range of
absolute dollar amounts for the ``de minimis'' threshold, and
requested data to support the definitions suggested by commentators.
See Part II.D.2. of the Proposing Release. We received little data
that was helpful. Although one commentator submitted data regarding
payments made by some oil companies for tuition, rent, and living
expenses for the students and relatives of officials in Equatorial
Guinea, those payments are not within the list of payments types
specified by Section 13(q). See letter from Sen. Levin 2. Another
commentator noted that, based on Sierra Leone's 2007 EITI
Reconciliation Report (published in 2010), a $1 million threshold
would result in non-disclosure of over 40% of payments made by
mining companies and all payments made by half of EITI reporting
companies in that country. See letter from ERI 3. Although the
letter provides information about payments made to Sierra Leone, it
appears that the companies for which data is provided would not be
subject to the reporting requirements under Section 13(q) and the
related rules.
    \258\ See ONE Petition.
    \259\ See letters designated Type B and letter from Le Billon.
    \260\ See letters from CalSTRS, ERI 3, HII, RWI 1, Sen. Levin 1,
SIF, and WACAM.
    \261\ See letters from CRS and PWYP 1.
    \262\ See letters from AngloGold and Talisman; see also letter
from Barrick Gold.
    \263\ We also note that the AIM requirement differs from the
disclosure required by Section 13(q) and the final rules in that the
AIM only requires disclosure of payments by extractive issuers as an
initial listing requirement and does not impose an ongoing reporting
requirement related to those payments.
---------------------------------------------------------------------------

    Although a few commentators suggested we use $1,000,000 as the
threshold,\264\ including one commentator that stated it reports
payments to governments in excess of $1,000,000,\265\ we do not believe
that $1,000,000 would be an appropriate threshold. While many EITI-
reporting companies have reported payments in excess of
$1,000,000,\266\ we note that the EITI provides that countries may
establish a ``materiality'' level for disclosure, which, as noted, is
different from the ``not de minimis'' standard in Section 13(q). We
agree with those commentators that cautioned against setting the
threshold too high so as to leave important payment streams
undisclosed.\267\ Adopting $100,000 as the ``not de minimis'' threshold
furthers the purpose of Section 13(q) and will result in a lesser
compliance burden than would otherwise be associated with the final
rules if a lower threshold were used.
---------------------------------------------------------------------------

    \264\ See letters from AngloGold, Barrick Gold, and Talisman.
    \265\ See letter from Talisman.
    \266\ See, e.g., the 2009 EITI Report for Ghana (regarding
payment of royalties, corporate taxes, and dividends); the 2006-2008
EITI Report for Nigeria (regarding payment of petroleum taxes,
royalties and signature bonuses); the 2004-2007 EITI Report for Peru
(regarding payment of corporate income taxes and royalties); and the
2009 EITI Report for Timor Leste (regarding payment of petroleum
taxes).
    \267\ See letters from ERI 3 and Rep. Frank et al.
---------------------------------------------------------------------------

    Although adoption of a $100,000 threshold may be viewed as somewhat
high by some commentators \268\ and may result in some smaller payments
not being reported, we believe this threshold strikes an appropriate
balance between concerns about the potential compliance burdens of a
lower threshold and the need to fulfill the statutory directive that
payments greater than a ``de minimis'' amount be covered. We
acknowledge that a ``not de minimis'' definition based on a materiality
standard, or a much higher amount, such as $1,000,000, would lessen
commentators' concerns about the compliance burden and potential for
competitive harm.\269\ We believe, however, that use of the term ``not
de minimis'' in Section 13(q) indicates that a threshold quite
different from a materiality standard, and significantly less than
$1,000,000, is necessary to further the transparency goals of the
statute.
---------------------------------------------------------------------------

    \268\ See, e.g., letters from CRS (supporting a ``not de
minimis'' threshold that is significantly less than $100,000) and
PWYP 1 (supporting a ``not de minimis'' threshold of $1,000 for
individual payments and $15,000 for payments in the aggregate); see
also letter from ERI 3.
    \269\ See notes 224, 241, and 242 and accompanying text.
---------------------------------------------------------------------------

    In adopting the final rules, we believe an absolute, rather than
relative, threshold may make the requirement easier for issuers to
comply with and allow for increased comparability of payment
disclosures. We considered adopting a threshold that would have
required disclosure of the lesser of a specific dollar amount or a
percentage of expenses, as suggested by commentators.\270\ We
determined not to adopt such an approach because we agree with other
commentators that noted such an approach would be more difficult for
issuers to comply with, could raise the compliance costs associated
with tracking and reporting the information, and would make
comparability of disclosure more difficult.\271\ For similar reasons,
we decided not to adopt a threshold that exclusively used a percentage
threshold based on an issuer's expenses or revenues, or some other
fluctuating measure. We note that exclusively using a percentage
threshold based on an issuer's expenses or revenues could result in
larger companies having a higher payment threshold for disclosure than
contemplated by the ``de minimis'' language in the statute.
---------------------------------------------------------------------------

    \270\ See note 247 and accompanying text.
    \271\ See note 233 and accompanying text.
---------------------------------------------------------------------------

3. The Requirement To Provide Disclosure for ``Each Project''
a. Proposed Rules
    As noted in the proposal, Section 13(q) requires a resource
extraction issuer to disclose information regarding the type and total
amount of payments made to a foreign government or the Federal
Government for each project relating to the commercial development of
oil, natural gas, or minerals, but it does not define the term
``project.'' \272\ Consistent with Section 13(q), the proposed rules
would have required a resource extraction issuer to disclose payments
made to governments by type and total amount per project. The proposed
rules did not define ``project'' in light of the fact that neither
Section 13(q) nor our current disclosure rules include a definition of
the term. In addition, the EITI does not define the term or provide
guidance on how it should be defined.
---------------------------------------------------------------------------

    \272\ The legislative history does not provide an indication as
to how we should define the term.
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Two commentators supported the proposed approach of leaving the
term ``project'' undefined to allow flexibility for different types and
sizes of businesses.\273\ Most commentators that addressed the issue
supported defining the term ``project,'' \274\ but they disagreed as to
the appropriate definition, with recommendations ranging from defining
a ``project'' as each individual lease or license to defining it as a
country. One commentator stated that leaving the term undefined ``would
create significant uncertainty for issuers and

result in disclosures that are not comparable from issuer to issuer.''
\275\ Several commentators urged us to adopt a definition of project
that would not impede the ability of companies to compete for
extractive industry contracts, but did not provide a particular
definition.\276\ One of those commentators recommended broadly defining
``project'' so that issuers would not have to disclose disaggregated
price and cost information that could have anti-competitive
effects.\277\ Another of those commentators stated that we must adopt a
definition of ``project,'' among other definitions, that is ``narrowly
tailored to prevent a competitive imbalance for those SEC-registered
companies which make payments to governments for the privilege of
extracting natural resources.'' \278\
---------------------------------------------------------------------------

    \273\ See letters from Cleary and NMA 2.
    \274\ See, e.g., letters from API 1, Calvert, Chevron, PWYP 1,
RDS 1, and Sen. Levin 1.
    \275\ Letter from API 1.
    \276\ See letters from Chairman Bachus and Chairman Miller,
Timothy J. Muris and Bilal Sayyed (March 2, 2011) (``Muris and
Sayyed''), and Split Rock.
    \277\ See letter from Muris and Sayyed.
    \278\ Letter from Chairman Bachus and Chairman Miller.
---------------------------------------------------------------------------

    Some commentators suggested that we permit a resource extraction
issuer to treat all of its operations in a single country as a
project.\279\ Commentators asserted that doing so would be consistent
with the EITI and would prevent issuers from incurring tens of millions
of dollars in compliance costs.\280\ One commentator stated that
defining ``project'' to require country-level disclosure would be
consistent with Item 1200 of Regulation S-K, which treats an individual
country as the lowest geographic level at which comprehensive oil and
gas disclosures must be provided.\281\ Commentators that opposed
defining ``project'' as a country stated that such a definition would
be inconsistent with the statute and Congressional intent.\282\
---------------------------------------------------------------------------

    \279\ See letters from AXPC, AngloGold, Barrick Gold, bcIMC, BHP
Billiton, BP 1, Hispanic Leadership Fund (February 27, 2012),
Petrobras, PWC, RDS 1, Sen. Murkowski and Sen. Cornyn, and Statoil.
See also letters from API 1 and ExxonMobil 1 (stating that under
certain circumstances, an issuer should be permitted to treat
operations in a country as a project, for example, when all of an
issuer's operations in a country relate to a single geologic basin
or province).
    \280\ See letters from API 1, ExxonMobil 1, Petrobras, and RDS
1.
    \281\ See letter from PWC.
    \282\ See, e.g., letters from Calvert, Earthworks, Global
Financial 2, Global Witness 1, HURFOM 2, ONE, Oxfam 1, PWYP 1, Rep.
Frank et al., and Sen. Cardin et al 1. See also letter from Gates
Foundation and Le Billon.
---------------------------------------------------------------------------

    Other commentators supported defining ``project'' consistent with
the definition of ``reporting unit.'' \283\ According to one of those
commentators, using a definition consistent with reporting unit ``would
allow issuers to collect information on a basis with which they already
are familiar, and draw upon established internal controls over
financial reporting (``ICFR''), instead of having to reallocate and
assign payments arbitrarily at a lower or different level than which
they manage their operations, and incurring cost and burden beyond
their existing ICFR systems.'' \284\
---------------------------------------------------------------------------

    \283\ See letters from API 1, Chevron, ExxonMobil 1, NMA 2, Rio
Tinto, and Talisman. Generally, the commentators did not specify
what they meant by reporting unit, but we assume that they were
referring to a reporting unit as used for financial reporting
purposes. See also note 305.
    \284\ Letter from NMA 2. In this regard, we note that the
European Commission proposed disclosure requirements that would
require companies that are registered or listed in the European
Union to report payments to governments on a country and project
basis where those payments had been attributed to a specific
project. The reporting on a project basis would be made on the basis
of companies' current reporting structures. See Proposal for
Directive on transparency requirements for listed companies and
proposals on country by country reporting--frequently asked
questions, COM (2011) MEMO/11/734 (October 25, 2011), available at
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/734&format=HTML&aged=0. As noted above, the proposals are currently
pending.
---------------------------------------------------------------------------

    Other commentators stated that there are relatively limited
instances in which resource extraction issuers make payments to
governments at the entity level (for example, the payment of corporate
income taxes), and that fact should have no bearing on the definition
of ``project.'' \285\ Those commentators noted that issuers could be
permitted to report at the entity level those payments that are levied
at the entity level that are not associated with a specific project.
---------------------------------------------------------------------------

    \285\ See letters from Global Witness 1 and PWYP 1 (stating that
a limited disclosure accommodation could be given in the relatively
few instances that payments are made at the entity level). See also
letter from Calvert (define ``project'' at the lease or license
level except where payments originate at the entity level).
---------------------------------------------------------------------------

    Several commentators suggested defining the term in relation to a
particular geologic resource. For example, ``project'' could be defined
to mean technical and commercial activities carried out within a
particular geologic basin or province to explore for, develop, and
produce oil, natural gas, or minerals.\286\ Two commentators further
suggested that the definition could specify the covered activities to
include acreage acquisition, exploration studies, seismic data
acquisition, exploration drilling, reservoir engineering studies,
facilities engineering design studies, commercial evaluation studies,
development drilling, facilities construction, production operations,
and abandonment.\287\ The definition could further state that a project
may consist of multiple phases or stages.\288\
---------------------------------------------------------------------------

    \286\ See letters from API 1, API 3, Chairman Bachus, BP 1,
Chamber Energy Institute, Chevron, ExxonMobil 1, IAOGP, Sen.
Murkowski and Sen. Cornyn, Statoil, and USCIB.
    \287\ See letters from API 1 and ExxonMobil 1.
    \288\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    Other commentators, however, opposed a definition of ``project''
based on a particular geologic basin or province.\289\ Those
commentators maintained that, because multiple companies often conduct
activities in a single geologic basin, and because a basin may span
more than one country, such a definition would be counter to the
``company-by-company'' and ``country-by-country'' reporting
requirements of Section 13(q) and would be of limited use to citizens
and investors. Commentators further stated that a definition of
``project'' based on a particular geologic basin would have no relation
to the level at which royalty rates, tax payments, and other rights and
fiscal obligations are assigned.\290\
---------------------------------------------------------------------------

    \289\ See, e.g., letters from ERI 3, Gates Foundation, Oxfam
(February 6, 2012) (``Oxfam 2''), Petition from Angolan citizens and
Angolan civil society organizations (March 13, 2012) (``Angolan
citizens''), Rep. Frank et al., and Soros 2.
    \290\ See, e.g., letters from Gates Foundation, Oxfam 2, and
Rep. Frank et al.
---------------------------------------------------------------------------

    Some commentators supported defining ``project'' to mean a material
project,\291\ while others opposed such a definition.\292\ The
commentators that supported defining the term to be a material project
asserted that doing so would enable issuers to rely on traditional
principles of materiality when determining what constitutes a
project.\293\ One commentator stated that materiality ``should be
determined with reference to the issuer's total worldwide government
payments and other qualitative factors.'' \294\ Commentators that
opposed defining ``project'' as a material project stated that such a
definition is not supported by the plain

language of Section 13(q) and would result in inconsistent
disclosures.\295\
---------------------------------------------------------------------------

    \291\ See letters from API 1, API 2, API 3, Chamber Energy
Institute, Chevron, Cravath et al. pre-proposal, ExxonMobil 1,
IAOGP, PetroChina, RDS 1, Sen. Murkowski and Sen. Cornyn, and
Statoil.
    \292\ See letters from Global Witness 1, Oxfam 1, PWYP 1, and
ERI 2. Oxfam and PWYP stated that should the Commission define
``project'' as a material project, it should clarify that, when
determining the materiality of a project, consideration should be
given to the significance of a project to a country and its citizens
in addition to its significance to an issuer. According to PWYP,
``[t]he disclosure of projects that are material to the country
would allow comparability across projects and meet the intent of the
statute to provide information of use to hold governments
accountable.''
    \293\ See letters from API 1, Chamber Energy Institute, Chevron,
ExxonMobil 1, IAOGP, PetroChina, RDS 1, and Statoil.
    \294\ Letter from API 1.
    \295\ See letters from Global Witness 1, Oxfam 1, and PWYP 1.
---------------------------------------------------------------------------

    Several commentators urged the Commission to adopt a definition of
``project'' in relation to each lease, license, or other concession-
level arrangement entered into by a resource extraction issuer.\296\ In
particular, one commentator urged us to adopt a definition of
``project'' as ``any oil, natural gas or mineral exploration,
development, production, transport, refining or marketing activity from
which payments above the de minimis threshold originate at the lease or
license level, except where these payments originate from the entity
level.'' \297\ The commentators supporting a definition of ``project''
in relation to a lease or license asserted that such an approach would
be appropriate because they believed the intent of Section 13(q) was to
go beyond the EITI standards, and it would enable investors and others
to evaluate the risks faced by issuers operating in resource-rich
countries.\298\
---------------------------------------------------------------------------

    \296\ See letters from Angolan citizens, BTAP, California Public
Employees Retirement System (February 28, 2011) (``CalPERS''),
Calvert, Cambodians, Derecho, Earthworks, ERI 2, Gates Foundation,
Global Financial 2, Global Witness 1, Global Witness 2, Global
Witness 3, Greenpeace, Grupo Faro, Guatemalan Forest Communities,
Libyan Transparency, Arlene McCarthy, Member of the European
Parliament (March 13, 2012) (``McCarthy''), NUPENG, Office of
Natural Resources Revenue, US Department of the Interior (August 4,
2011) (``ONRR''), ONE, ONE Petition, Oxfam 1, Oxfam 2, PENGASSAN,
PWYP pre-proposal, PWYP 1, PWYP (December 20, 2011) (nine page
letter plus appendix) (``PWYP 4''), PWYP (February 23, 2012) (``PWYP
5''), Rep. Frank et al., RWI 1, Revenue Watch Institute (February
27, 2012) (``RWI 2''), Sen. Cardin et al. 1, Soros 2, Syena, TIAA,
and WACAM. See also letters designated as Type B (stating that a
project should be ``defined as our Interior Department does it'').
But see the letter from King & Spalding LLP (September 8, 2011)
(``King & Spalding'') (objecting to ONRR's request for lease by
lease payment disclosure because such a disclosure requirement would
conflict with ONRR's duty under the Outer Continental Shelf Lands
Act to protect the confidentiality of lease-level oil and gas
exploration and production information submitted to the agency by a
company operating under a federal lease or permit).
    \297\ Letter from Calvert.
    \298\ See, e.g., letters from CRS, Global Witness 1, Oxfam 1,
PWYP 1, and RWI 1.
---------------------------------------------------------------------------

    According to some commentators, concerns expressed about compliance
costs associated with project-level reporting ``inflate their likely
impact'' because most issuers already have internal systems in place
for recording payments that would be required to be disclosed under
Section 13(q) and many issuers already report payments at the project
level or are moving towards project-level disclosure.\299\ Another
commentator stated that project-level disclosure ``would have an
extremely beneficial impact on improving investment risk assessment and
would provide further levels of corporate and sovereign
accountability.'' \300\ That commentator further suggested that
consistently applying the rules to all resource extraction issuers
would diminish anti-competitive concerns.\301\
---------------------------------------------------------------------------

    \299\ Letter from RWI 1; see also letters from PWYP 1 and ERI 2.
    \300\ Letter from Syena.
    \301\ See id.
---------------------------------------------------------------------------

c. Final Rules
    After carefully considering the comments, we have determined,
consistent with the proposal, to leave the term ``project'' undefined
in the final rules. We continue to believe that not adopting a
definition of ``project'' has the benefit of giving issuers flexibility
in applying the term to different business contexts depending on
factors such as the particular industry or business in which the issuer
operates, or the issuer's size. As noted above, neither Section 13(q)
nor our rules include a definition of ``project,'' and the EITI does
not define the term. In view of concerns expressed by some commentators
with regard to leaving the term undefined,\302\ we are providing some
guidance about the meaning of the term.
---------------------------------------------------------------------------

    \302\ See note 275 and accompanying text.
---------------------------------------------------------------------------

    We understand that the term ``project'' is used within the
extractive industry in a variety of contexts. While there does not
appear to be a single agreed-upon application in the industry, we note
that individual issuers routinely provide disclosure about their own
projects in their Exchange Act reports and other public statements, and
as such, we believe ``project'' is a commonly used term whose meaning
is generally understood by resource extraction issuers and investors.
In this regard, we note that resource extraction issuers routinely
enter into contractual arrangements with governments for the purpose of
commercial development of oil, natural gas, or minerals. The contract
defines the relationship and payment flows between the resource
extraction issuer and the government,\303\ and therefore, we believe it
generally provides a basis for determining the payments, and required
payment disclosure, that would be associated with a particular
``project.''
---------------------------------------------------------------------------

    \303\ See letter from TIAA (stating that ``disclosure
requirements should shed light on the financial relationship between
companies and host governments by linking the definition of
``project'' to the individual contracts between the issuer and host
country'').
---------------------------------------------------------------------------

    We considered defining ``project'' by reference to a materiality
standard as it is used under the federal securities laws, as suggested
by some commentators.\304\ We recognize that such an approach may
reduce compliance burdens for issuers; however, we believe that
approach would be inconsistent with Congress' intent to provide more
detailed disclosure than would be provided using such a materiality
standard and would not result in the transparency benefits that the
statute seeks to achieve. In addition, based on Congress' use of the
terms ``de minimis'' and ``material'' in other provisions of Section
13(q), we believe that if it intended to limit the disclosure
requirement to ``material projects'' it would have drafted the
statutory language accordingly.
---------------------------------------------------------------------------

    \304\ See note 291 and accompanying text.
---------------------------------------------------------------------------

    While we considered defining the term as a reporting unit \305\ as
suggested by some commentators,\306\ we have decided against that
approach. We appreciate the potential benefits to issuers from defining
the term consistent with reporting unit and thereby allowing issuers to
collect information on a basis with which they already are familiar and
according to established financial reporting systems.\307\ We also
appreciate the concerns some commentators expressed regarding the need
to disaggregate and allocate payments in a potentially arbitrary
manner, which could increase costs and not provide meaningful
information to investors.\308\ Nonetheless, for the same reasons we
declined to provide a definition of ``project'' based on materiality,
we do not believe that requiring disclosure at the reporting unit level
would be consistent with the use of the term ``project'' in Section
13(q). We also do not believe that a plain reading of the statutory
language and the common use of the term ``project'' would lead one to
think that a reporting unit would be a project. Based on Congress'
intention to promote international transparency efforts, we believe
that Congress intended a greater level of transparency than would be
achieved if we defined ``project'' as a reporting unit.
---------------------------------------------------------------------------

    \305\ Accounting Standards Code (``ASC'') 350-20-20 defines a
reporting unit as an operating segment, or a segment that is one
level below an operating segment.
    \306\ See note 283 and accompanying text.
    \307\ See note 284 and accompanying text.
    \308\ See, e.g., letters from API 1 and NMA 2.
---------------------------------------------------------------------------

    We also appreciate the concerns some commentators expressed
regarding potential definitions of ``project'' and

the need to disaggregate and allocate payments made at the entity level
in a potentially arbitrary manner, which could increase costs and would
not provide meaningful information to investors.\309\ We do not believe
that resource extraction issuers should be required to disaggregate and
allocate payments to projects for payments that are made for
obligations levied on the issuer at the entity level rather than the
project level. Consistent with the suggestion of some
commentators,\310\ the final rules we are adopting will permit a
resource extraction issuer to disclose payments at the entity level if
the payment is made for obligations levied on the issuer at the entity
level rather than the project level.\311\ Thus, if an issuer has more
than one project in a host country, and that country's government
levies corporate income taxes on the issuer with respect to the
issuer's income in the country as a whole, and not with respect to a
particular project or operation within the country, the issuer would be
permitted to disclose the resulting income tax payment or payments
without specifying a particular project associated with the
payment.\312\
---------------------------------------------------------------------------

    \309\ See, e.g., letters from API 1, Muris and Sayyed, and NMA
2.
    \310\ See note 285 and accompanying text.
    \311\ See Instruction 2 to Item 2.01 of Form SD.
    \312\ One commentator provided, as an example, a situation where
the payment of corporate income taxes is calculated on the basis of
all projects in a given jurisdiction. See letter from Global Witness
1.
---------------------------------------------------------------------------

    We believe the term ``project'' requires more granular disclosure
than country-level reporting. Section 13(q) clearly requires project-
level reporting, and we believe the statutory requirement to provide
interactive data tags identifying the government that received the
payment and the country in which that government is located is further
evidence that reference to ``project'' was intended to elicit
disclosure at a more granular level than country-level reporting.\313\
---------------------------------------------------------------------------

    \313\ See 15 U.S.C. 78m(q)(2)(D)(ii)(V).
---------------------------------------------------------------------------

4. Payments by ``a Subsidiary * * * or an Entity Under the Control of *
* *''
a. Proposed Rules
    Consistent with Section 13(q),\314\ the proposed rules would have
required a resource extraction issuer to disclose payments made by the
issuer, a subsidiary, or an entity under the control of the resource
extraction issuer, to a foreign government or the U.S. Federal
Government for the purpose of commercial development of oil, natural
gas, or minerals. Under the proposal, and consistent with Section
13(q), a resource extraction issuer would have been required to provide
disclosure if control is present. Consistent with the definition of
control under the federal securities laws,\315\ a resource extraction
issuer would have been required to make a factual determination as to
whether it has control of an entity based on a consideration of all
relevant facts and circumstances. At a minimum, a resource extraction
issuer would have been required to disclose payments made by a
subsidiary or entity under the issuer's control if the issuer must
provide consolidated financial information for the subsidiary or other
entity in the issuer's financial statements included in its Exchange
Act reports.
---------------------------------------------------------------------------

    \314\ See 15 U.S.C. 78m(q)(2)(A).
    \315\ Under Exchange Act Rule 12b-2 [17 CFR 240.12b-2] and Rule
1.02 of Regulation S-X [17 CFR 210.1.02], ``control'' (including the
terms ``controlling,'' ``controlled by'' and ``under common control
with'') is defined to mean ``the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.'' The rules also define
``subsidiary'' (``A `subsidiary' of a specified person is an
affiliate controlled by such person directly, or indirectly through
one or more intermediaries. (See also `majority-owned subsidiary,'
`significant subsidiary,' and `totally-held subsidiary.')'').
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Several commentators stated that we should rely on the current
definitions of ``control'' and ``subsidiary'' under Exchange Act Rule
12b-2,\316\ or as those terms are used under U.S. GAAP or IFRS, and we
need not adopt new definitions of those terms for purposes of this
rulemaking because the current definitions are well-understood by both
extractive issuers and investors.\317\ When applying those definitions,
however, commentators held a variety of views regarding the entities
for which resource extraction issuers should be required to provide the
required payment information.
---------------------------------------------------------------------------

    \316\ See id.
    \317\ See letters from API 1, AngloGold, BP 1, ERI 1, ExxonMobil
1, PWC, and RDS 1.
---------------------------------------------------------------------------

    Some commentators believed that whether an issuer has control over
an entity is consistent with whether it must consolidate that entity
for purposes of the issuer's financial reporting. Those commentators
suggested the rules should only require an issuer to report payments
for an entity that it must either fully or proportionately consolidate
for U.S. financial reporting purposes and not require disclosure of
payments of equity investees for which no consolidation is
required.\318\ Some commentators further stated that an issuer should
not have to report payments corresponding to its proportional interest
in a joint venture unless it makes such payments directly to the host
government.\319\ The commentators noted that, under such an approach,
proportional payments made to the joint venture operator would not be
reported.\320\
---------------------------------------------------------------------------

    \318\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1.
Other commentators agreed that the final rules should define control
to mean consolidated entities only but opposed using the definition
of control under Exchange Act Rule 12b-2 on the grounds that the
existing definition could include companies that are not
consolidated and regarding which an issuer would lack access to the
underlying accounting data for the controlled entities' payments.
See letters from Barrick Gold, Cleary, GE, NMA 2, NYSBA Committee,
Petrobras, Rio Tinto, and Statoil. One commentator further observed
that restricting the definition of control to consolidated entities
would avoid the possible overstating of resource extraction payments
that might occur if payments by equity investees are required to be
disclosed. See letter from Rio Tinto.
    \319\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \320\ See id.
---------------------------------------------------------------------------

    One commentator supported requiring an issuer to disclose payments
only for entities that it must consolidate because that approach would
provide a bright-line test that is easy to administer and because it
would be consistent with the EITI.\321\ The commentator further stated
that an issuer should be required to disclose payments made on behalf
of a joint venture, regardless of control, when the payments are
disproportionate to the issuer's interest in the joint venture.\322\
---------------------------------------------------------------------------

    \321\ See letter from AngloGold.
    \322\ See letter from AngloGold. This commentator provided an
example in which an issuer that is a 50% partner in a joint venture
would have to disclose payments made on behalf of that joint venture
if the payments include the share attributable to the other joint
venture partner in circumstances where the other partner is
unwilling or unable to make its share of the payments.
---------------------------------------------------------------------------

    Other commentators believed that, in addition to requiring
disclosure of payments made by consolidated entities, the rules also
should require disclosure of payments:
     Made by or on behalf of unconsolidated equity investees
and joint venture partners on a proportionate share basis where a facts
and circumstances test determines that the issuer possesses control;
\323\
---------------------------------------------------------------------------

    \323\ See letters from Earthworks and PWYP 1.
---------------------------------------------------------------------------

     Made by the issuer's non-reporting parent or other related
entity on behalf or for the benefit of the issuer when the issuer is
the alter ego or instrumentality of the parent or related entity \324\
or when the issuer ``controls, is controlled by, or is under common
control with'' the non-reporting parent or related entity, and the
subsidiary would

otherwise be required to disclose those payments under Section 13(q);
\325\
---------------------------------------------------------------------------

    \324\ See letter from Conflict Risk Network (February 28, 2011)
(``Conflict Risk'').
    \325\ See letters from HURFOM 1, PWYP 1, and WRI.
---------------------------------------------------------------------------

     Made by an entity that is contractually obligated to
collect funds and make payments to various parties, including the host
government, on behalf of an issuer; \326\ and
---------------------------------------------------------------------------

    \326\ See letters from ERI pre-proposal and Le Billon.
---------------------------------------------------------------------------

     Made by one party to a joint venture that has guaranteed
the debt of another joint venture party in an off-balance sheet
transaction.\327\
---------------------------------------------------------------------------

    \327\ See id.
---------------------------------------------------------------------------

    Some commentators believed that a foreign government-owned or
controlled entity should not have to report certain payments made to
its parent government\328\ or to a subsidiary or other entity
controlled by it.\329\ Another commentator stated that a wholly-owned
subsidiary of an Exchange Act reporting parent should not have to
disclose payments as long as the subsidiary's parent has included the
subsidiary's payments in the parent's Exchange Act report.\330\
---------------------------------------------------------------------------

    \328\ See letter from Cleary.
    \329\ See letter from Statoil.
    \330\ See letter from API 1.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting this requirement as proposed, consistent with the
statutory language of Section 13(q). The final rules require a resource
extraction issuer to provide disclosure of payments made by the issuer,
a subsidiary of the issuer, or an entity under the control of the
issuer to a foreign government or the U.S. Federal Government for the
purpose of the commercial development of oil, natural gas, or
minerals.\331\ ``Control'' and ``subsidiary'' are terms defined as in
Exchange Act Rule 12b-2.\332\ Therefore, a resource extraction issuer
must disclose payments made by a subsidiary or entity under the control
of the resource extraction issuer where the subsidiary or entity is
consolidated in the resource extraction issuer's financial statements
included in its Exchange Act reports,\333\ as well as payments by other
entities it controls as determined in accordance with Rule 12b-2. A
resource extraction issuer may be required to provide the disclosure
for entities in which it provides proportionately consolidated
information.\334\
---------------------------------------------------------------------------

    \331\ With respect to payments by an Exchange Act reporting
company meeting the definition of resource extraction issuer that
also is a wholly-owned subsidiary of an Exchange Act reporting
parent that is a resource extraction issuer, consistent with some
commentators' suggestions, the subsidiary will not be required to
separately disclose payments to governments provided that the
subsidiary's parent has included the subsidiary's payments in the
parent's Form SD. The subsidiary must file its own Form SD
indicating that the required disclosure was provided in the parent's
Form SD. See Instruction 8 to Item 2.01 of Form SD.
    \332\ See note 315 above.
    \333\ This would be the case whether the resource extraction
issuer provides consolidated financial information under U.S.
Generally Accepted Accounting Principles (``GAAP''), International
Financial Reporting Standards as issued by the International
Accounting Standards Board (``IFRS''), or another comprehensive
basis of accounting other than U.S. GAAP or IFRS.
    \334\ Proportionate consolidation may be used in a variety of
circumstances in which an issuer may or may not have control, and
therefore resource extraction issuers will need to make a facts-and-
circumstances determination, as discussed below.
---------------------------------------------------------------------------

    We understand that resource extraction issuers commonly engage in
commercial development of oil, natural gas, or minerals through joint
ventures, as an operator of a joint venture, or through an equity
investment.\335\ In these situations a resource extraction issuer will
be required to determine whether it has control of an entity based on a
consideration of all relevant facts and circumstances.\336\ Following
the definition of control under the federal securities laws, such as in
Rule 12b-2, a resource extraction issuer will be required to determine
whether it has control of an entity for purposes of Rule 13q-1 based on
a consideration of all relevant facts and circumstances.\337\ We
continue to believe that a facts-and-circumstances determination of
control consistent with the federal securities laws is preferable to a
bright-line rule limiting disclosure to payments made only by
consolidated entities because it is consistent with the statutory
language. Limiting the scope of the requirement to situations in which
an issuer provides consolidated financial information for an entity may
limit the rules more narrowly than the intended scope of the statute
because a resource extraction issuer may have control over an
unconsolidated entity that makes payments that would be covered by
Section 13(q) and the final rules. Thus, an issuer that engages in
joint ventures or contractual arrangements will need to consider
whether it has control to determine whether it must disclose payments.
---------------------------------------------------------------------------

    \335\ See, e.g., letters from API 1, ERI pre-proposal, NMA 2,
and PWYP 1. See also Ernst & Young, Navigating Joint Ventures in the
Oil and Gas Industry (2011), available at http://www.ey.com/
Publication/vwLUAssets/Navigating_joint_ventures_in_oil_and_
gas_industry/$FILE/Navigating_joint_ventures_in_oil_and_gas_
industry.pdf.
    \336\ As we noted in the Proposing Release, if a resource
extraction issuer makes a payment to a third party to be paid to the
government on its behalf, the rules will require disclosure of that
payment. Similarly, where an entity makes payments (that are
otherwise covered by the definition of payment) to a foreign
government as a paying agent for a resource extraction issuer,
pursuant to a contractual obligation with the resource extraction
issuer, the final rules require the resource extraction issuer to
disclose these payments.
    \337\ We expect that a determination in accordance with
consolidation guidance generally would be the same as under Rule
12b-2.
---------------------------------------------------------------------------

    We disagree with commentators who suggested that the definition of
``control'' not track Rule 12b-2 and instead be entirely consistent
with the use of the term for purposes of financial reporting. While
determinations made pursuant to the relevant accounting standards
applicable for financial reporting may be indicative of whether control
exists, we do not believe it is determinative in all cases. We note the
suggestion by some commentators to adopt a definition of control that
does not track Rule 12b-2 and specifically addresses unconsolidated
equity investees.\338\ We are not adopting such a definition because we
believe it is appropriate and consistent with the statute to use the
same definition of control used for other purposes under the Exchange
Act, and because issuers should already be familiar with applying that
definition. A resource extraction issuer is required to make a facts-
and-circumstances determination as to whether the equity investee is an
entity under the control of the resource extraction issuer under the
final rules.
---------------------------------------------------------------------------

    \338\ See letters from Earthworks and PWYP 1.
---------------------------------------------------------------------------

E. Definition of ``Foreign Government''

1. Proposed Rules
    Consistent with Section 13(q), the proposed rules would have
required a resource extraction issuer to disclose payments made to a
foreign government or the Federal Government. Under Section 13(q),
Congress defined ``foreign government'' to mean a foreign government, a
department, agency, or instrumentality of a foreign government, or a
company owned by a foreign government, while granting the Commission
authority to determine the scope of the definition.\339\ The proposed
rules would have defined the term consistent with the statute. In
addition, the proposed definition of ``foreign government'' explicitly
included both 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. The proposed rules would have clarified that the term
``Federal Government'' means the United States Federal Government. The
proposed rules would have further clarified that a company owned by a
foreign government is a company that is at least

majority-owned by a foreign government.
---------------------------------------------------------------------------

    \339\ See 15 U.S.C. 78m(q)(1)(B).
---------------------------------------------------------------------------

2. Comments on the Proposed Rules
    Commentators generally supported the proposed definition of foreign
government.\340\ Some of those commentators noted that inclusion of
foreign subnational governments is appropriate because issuers
frequently make payments to subnational governments and that including
them would be consistent with the EITI.\341\ Some commentators also
supported the proposed clarification regarding the meaning of ``Federal
Government'' \342\ and agreed that the term did not include state
governments.\343\ Those commentators believed that extending the
disclosure requirement to states and other subnational governments in
the United States would go beyond the scope of the statute. A few
commentators explicitly supported the proposed clarification regarding
the meaning of ``a company owned by a foreign government.'' \344\
---------------------------------------------------------------------------

    \340\ See letters from API 1, AngloGold, Barrick Gold, BP 1,
Calvert, CRS, Earthworks, EIWG, ExxonMobil 1, PWYP 1, RDS 1, and
WRI.
    \341\ See letters from API 1, AngloGold, Barrick Gold, BP 1,
Calvert, CRS, Earthworks, EIWG, ExxonMobil 1, PWYP 1, RDS 1, and
WRI.
    \342\ See letters from API 1, BP 1, Calvert, ExxonMobil 1, NYSBA
Committee, and RDS 1.
    \343\ See letters from API 1, BP 1, Calvert, ExxonMobil 1, NYSBA
Committee, and RDS 1.
    \344\ See letters from API 1, ExxonMobil 1, and PetroChina.
---------------------------------------------------------------------------

    Some commentators, however, suggested alternative approaches to the
definition of foreign government.\345\ A few commentators supported
adopting the statutory definition of ``foreign government'' and
suggested limiting the rule to require resource extraction issuers to
disclose only those payments made to foreign national governments.
According to those commentators, it would be unfair to require
disclosure of payments to foreign subnational governments because
Section 13(q) does not require disclosure of payments to subnational
governments in the United States. Thus, limiting the requirement to
disclose payments only to foreign national governments would promote
consistency and fairness.\346\ One commentator stated that defining
``foreign government'' to mean only a foreign national government would
be consistent with the plain meaning of Section 13(q). \347\ According
to that commentator, the fact that the statute requires an issuer to
include electronic tags identifying both the recipient government for
each payment and the country in which that government is located does
not mean that Congress intended to include foreign subnational
governments within the definition of foreign government. Rather,
according to that commentator, because the statutory definition of
foreign government includes departments, agencies and instrumentalities
of a foreign government, Congress intended only that an issuer would
use the recipient government tag to identify the specific department,
agency or instrumentality receiving the payment. In addition, one
commentator noted that it has a substantial number of provincial
government leases and that it would be overburdened by reporting
payments on a subnational level.\348\ A few commentators supported
adoption of the proposed definition of ``foreign government'' and also
suggested requiring the disclosure of payments made to U.S. subnational
governments because extractive companies may make substantial payments
to U.S. subnational governments.\349\
---------------------------------------------------------------------------

    \345\ See, e.g., letters from NMA 2, Statoil, and Talisman.
    \346\ See letters from NMA 2, Statoil, and Talisman.
    \347\ See letter from Statoil.
    \348\ See letter from Talisman.
    \349\ See letters from AngloGold, Barrick Gold, and Earthworks.
---------------------------------------------------------------------------

    Some commentators requested the Commission clarify that whether an
issuer will be required to disclose payments made to a foreign
government-owned company would depend on whether the foreign government
controls that company.\350\ One of those commentators suggested that
whether control exists should be determined by a facts-and-
circumstances analysis, which could result in the conclusion that a
non-majority owned company is controlled by a foreign government.\351\
The commentator believed the analysis should consider whether the
government has provided working capital to the company, and whether the
government has the ability to direct economic or policy decisions of
the company, appoint or remove directors or management, restrict the
composition of the board, or veto the decisions of the company.\352\
The other commentator suggested we also ``[should] look at the extent
to which the government has control over the company and also the
extent of advances and payments by the company to the government.''
\353\
---------------------------------------------------------------------------

    \350\ See letters from PetroChina and PWYP 1.
    \351\ See letter from PWYP 1.
    \352\ See letter from PWYP 1.
    \353\ See letter from PetroChina.
---------------------------------------------------------------------------

    Other commentators suggested that the Commission clarify whether an
issuer will be required to disclose payments made to a foreign
government-owned company would depend on the capacity in which the
company is acting.\354\ According to the commentators, if the
government-owned company is acting as the agent of the government, the
issuer should have to disclose payments made to the government-owned
company.\355\ If the government-owned company is acting in the capacity
of a commercial partner with the issuer, and the government-owned
company is the operator of the joint venture, the issuer should not
have to disclose payments ``for capital or operating cash calls'' made
to the government-owned company.\356\ Two commentators asserted that an
issuer also should not have to disclose payments to a government-owned
company acting in the capacity of a commercial vendor of goods and
services.\357\ Other commentators believed that Section 13(q) requires
the disclosure of all payments to a government or government-owned
company whether for ``rent, security, food and water, use of roads and
airports'' or for capital contributions.\358\
---------------------------------------------------------------------------

    \354\ See letters from API 1, Cleary, ExxonMobil 1, and Vale.
    \355\ See letters from API 1 and ExxonMobil 1.
    \356\ See letters from API 1 and ExxonMobil 1.
    \357\ See letters from Cleary and Vale.
    \358\ See letters from PWYP 1 and Sen. Levin 1.
---------------------------------------------------------------------------

3. Final Rules
    After considering the comments, we are adopting the definition of
``foreign government'' consistent with the definition in Section 13(q),
as proposed. A ``foreign government'' includes 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.\359\ Although we
acknowledge the concerns of commentators that sought to limit the
definition of foreign government to foreign national governments,\360\
we continue to believe that the definition also should include foreign
subnational governments. The adopted definition is not only consistent
with Section 13(q), which requires an issuer to identify, for each
disclosed payment, the government that received the payment, and the
country in which the government is located,\361\ but it also is
consistent with the EITI, which recognizes that payments to subnational
governments may have to be included within the scope of an EITI
program.\362\ As noted in the proposal, if a resource

extraction issuer makes a payment that meets the definition of payment
to a third party to be paid to the government on its behalf, disclosure
of that payment is covered under the rules.
---------------------------------------------------------------------------

    \359\ See Item 2.01(c)(2) of Form SD.
    \360\ See, e.g., letter from Statoil.
    \361\ See 15 U.S.C. 78m(q)(2)(D)(ii)(V).
    \362\ See Implementing the EITI, at 34.
---------------------------------------------------------------------------

    In addition, as proposed, the final rules clarify that a company
owned by a foreign government is a company that is at least majority-
owned by a foreign government.\363\ As noted above, some commentators
requested that we clarify the circumstances in which an issuer will be
required to disclose payments made to a foreign government-owned
company. The final rules specify the types of payments that will be
required to be disclosed, and resource extraction issuers will need to
consider whether the payments being made to a foreign government-owned
company fall within the categories of payments for which the final
rules require disclosure.
---------------------------------------------------------------------------

    \363\ See Instruction 4 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    As proposed, the final rules clarify that ``Federal Government''
means the United States Federal Government.\364\ Although we
acknowledge that there is a difference in the final rules between
requiring disclosure of payments to foreign subnational governments and
not requiring payments to state or local governments in the United
States, 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. As we noted in the
proposal, 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.
---------------------------------------------------------------------------

    \364\ See Item 2.01(a) of Form SD.
---------------------------------------------------------------------------

F. Disclosure Required and Form of Disclosure

1. Annual Report Requirement
a. Proposed Rules
    As noted in the proposal, 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 specific form. The proposed rules would have
required a resource extraction issuer to provide the payment disclosure
in exhibits to its Exchange Act annual report filed on Form 10-K, Form
20-F, or Form 40-F. In addition, the proposed rules would have required
a resource extraction issuer to include a brief statement in the body
of the annual report directing investors to detailed information about
payments provided in the exhibits.
b. Comments on Proposed Rules
    Some commentators supported the proposed approach,\365\ while other
commentators opposed requiring the disclosure in Exchange Act annual
reports on Form 10-K, Form 20-F, and Form 40-F and suggested
alternative approaches.\366\
---------------------------------------------------------------------------

    \365\ See letters from Calvert, Earthworks, HURFOM 1, ONE, PGGM,
PWYP 1, RWI 1, and Soros 1.
    \366\ See, e.g., letters from API 1, AngloGold, Barrick Gold, BP
1, Chevron, Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen,
PetroChina, Petrobras, RDS 1, and Statoil.
---------------------------------------------------------------------------

    Commentators asserted that it would be difficult to provide the
payment disclosure, which could be voluminous, within the same time
period for Exchange Act annual reports. Those commentators maintained
that additional time is necessary to provide the required
information.\367\ Otherwise, according to commentators, due to resource
constraints, issuers may be unable to file their Exchange Act annual
reports on a timely basis if they are required to provide the new
payment disclosure at the same time that they must meet their existing
obligations with respect to Exchange Act annual reports.\368\
Commentators further maintained that the payment disclosures are
largely cash-based, unaudited, of little relevance to most financial
statement users, and should not be subject to certification
requirements, whereas the financial statement information in an
existing Exchange Act annual report is accrual-based, audited, of
primary importance to most financial statement users, and subject to
certification requirements.\369\ Those commentators believed that
keeping the payment disclosure separate from the financial statements
and corresponding disclosure would avoid confusion.
---------------------------------------------------------------------------

    \367\ See letters from API 1, AngloGold, Barrick Gold, BP 1,
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen, Petrobras, and
RDS 1.
    \368\ See letter from Cleary; see also letters from Barrick Gold
and Petrobras.
    \369\ See letters from API 1, AngloGold, Barrick Gold, Cleary,
ExxonMobil 1, NMA 2, and NYSBA Committee.
---------------------------------------------------------------------------

    Many commentators supported requiring a resource extraction issuer
to make the payment disclosure in a new annual report form or under
cover of a Form 8-K or Form 6-K, rather than in an existing Exchange
Act annual report.\370\ Some commentators supported using only Forms 8-
K or 6-K,\371\ while other commentators favored using only a new annual
report.\372\ One commentator opposed using Form 8-K for the Section
13(q) disclosure because Form 8-K is the ``venue for time-sensitive
disclosures of unique changes to a company'' whereas, according to that
commentator, the Section 13(q) disclosure consists of ``standard,
material financial disclosures that should be included in the primary
documents filed in the Exchange Act annual report.'' -\373\
---------------------------------------------------------------------------

    \370\ See letters from API 1, Barrick Gold, Chevron, Cleary,
ExxonMobil 1, NYSBA Committee, and RDS 1.
    \371\ See letters from AngloGold, Nexen, PetroChina, and
Petrobras.
    \372\ See letters from NMA 2 and Statoil.
    \373\ Letter from Calvert.
---------------------------------------------------------------------------

    Some commentators supporting a new annual report form believed the
potential benefits of providing the disclosure on a new form rather
than in an Exchange Act annual report outweighed the potential costs
associated with the new form.\374\ Commentators suggested that the
required disclosure could be due 150 or 180 days or some other lengthy
period following the end of the issuer's fiscal year.\375\ Two
commentators believed that the reporting period for the resource
extraction issuer disclosure should be the calendar year as opposed to
the fiscal year as is the case for existing Exchange Act annual reports
because the calendar year approach would facilitate review and
compilation by the Commission and analysis by users.\376\ Other
commentators, however, suggested that disclosure should be required for
the issuer's fiscal year.\377\
---------------------------------------------------------------------------

    \374\ See letters from API 1 and Cleary.
    \375\ See letters from API 1, AngloGold, Barrick Gold, BP 1,
Chevron, Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, Nexen
(supporting 180 days), PetroChina, Petrobras, RDS 1 (supporting 150
days), and Statoil.
    \376\ See letters from API 1 and ExxonMobil 1.
    \377\ See letters from AngloGold and RDS 1.
---------------------------------------------------------------------------

    Several commentators that supported a deadline for the disclosure
separate from the due date for the Exchange Act annual report opposed
allowing the disclosure to be provided in an amendment to the Form 10-
K, Form 20-F, and Form 40-F.\378\ According to those commentators, such
an amendment could be misconstrued as a correction of an error or
omission or as a restatement.\379\ Other commentators stated that if
the Commission decides to require inclusion of the disclosure in an
Exchange Act annual report, it would be reasonable to permit an issuer
to

disclose the information in an amendment to the annual report.\380\
---------------------------------------------------------------------------

    \378\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2,
and RDS 1.
    \379\ See id.
    \380\ See letters from Cleary, NMA 2, and NYSBA Committee.
Cleary and NYSBA Committee supported this approach if the Commission
decided not to require the disclosure in a new annual report form or
under cover of Form 8-K or 6-K.
---------------------------------------------------------------------------

    Some commentators suggested permitting issuers to submit the
payment disclosure on a confidential basis.\381\ These commentators
stated that the Commission could then use the confidentially submitted
information to prepare a public compilation, which would consist of
information only at the country or other highly aggregated level. The
commentators asserted that Section 13(q)(3), which is entitled ``Public
Availability of Information,'' requires the Commission to make public a
compilation of the information required to be submitted under Section
13(q)(2). According to the commentators, the statute does not require
the submitted information itself to be publicly available.\382\
Commentators argued that the payment information should be submitted
confidentially at a disaggregated level and that the public compilation
by the Commission could be presented on ``an aggregated, per-country or
similarly high-level basis.'' \383\ According to those commentators,
this approach would satisfy the specific text of the statute and
fulfill the underlying goal of promoting the international transparency
regime of the EITI.\384\
---------------------------------------------------------------------------

    \381\ See letters from API 1, Chevron, ExxonMobil 1, Nexen, and
RDS 1.
    \382\ See letters from API 1, Chevron, ExxonMobil 1, Nexen, and
RDS 1.
    \383\ See letters from API 1 and ExxonMobil 1. See also letters
from Chevron, Nexen, and RDS 1.
    \384\ See letters from API 1 and ExxonMobil 1. See also letters
from Chevron and RDS 1.
---------------------------------------------------------------------------

    In contrast, other commentators strongly disagreed with the
interpretation that Section 13(q) should be read as to not require the
public disclosure of the payment information submitted in annual
reports and that the Commission may choose to make public only a
compilation of the information.\385\ One commentator stated that the
``compilation would be in addition to the public availability of the
original company data and in no way is expected to replace the
availability of that data.'' \386\ Two commentators supporting the
proposed approach requested that the Commission clarify that the
statutorily-required compilation would function both as an online
database and summary report, which would allow users to download data
in bulk, in addition to allowing users to search by country and
company, as well as by year or multiple years of reporting.\387\
---------------------------------------------------------------------------

    \385\ See letters from Calvert, PWYP 1, RWI 1, Sen. Cardin et
al. 1, Sen. Cardin et al. 2, and Sen. Levin 1.
    \386\ Letter from Sen. Cardin et al. 1.
    \387\ See letters from PWYP 1 and USW.
---------------------------------------------------------------------------

    Two commentators stated that, to the extent the new rules require
the payment disclosure to be in an existing Exchange Act annual report,
the rules should provide that the officer certifications required by
Exchange Act Rules 13a-14(a) and (b) and 15d-14(a) and (b) do not
extend to exhibits or disclosures required pursuant to Section
13(q).\388\
---------------------------------------------------------------------------

    \388\ See letters from Cleary and NYSBA Committee.
---------------------------------------------------------------------------

c. Final Rules
    After considering the comments, we have determined that resource
extraction issuers should provide the required disclosure about
payments in a new annual report, separate from the issuer's existing
Exchange Act annual report. We are requiring the disclosure on new Form
SD.\389\ As noted above, Section 13(q) does not specify a location for
the disclosure. We believe requiring resource extraction issuers to
provide the payment disclosure in new Form SD will facilitate
interested parties' ability to locate the disclosure and address
issuers' concerns about providing the disclosure in their Exchange Act
annual reports on Forms 10-K, 20-F, or 40-F.\390\ Similar to the
proposal, Form SD requires issuers to include a brief statement in the
body of the form in an item entitled, ``Disclosure of Payments By
Resource Extraction Issuers,'' directing investors to the detailed
payment information provided in the exhibits to the form.
---------------------------------------------------------------------------

    \389\ Form SD is a new disclosure form to be used for
specialized disclosure not included within an issuer's periodic or
current reports. In addition to resource extraction issuer payment
disclosure, Form SD also will be used to provide the disclosure
required by the rules implementing Section 1502 of the Dodd-Frank
Act. The Commission adopted Form SD at the same time as the final
rules implementing that provision. See Conflict Minerals Adopting
Release.
    \390\ See notes 366-370 and accompanying text. As noted, under
the proposed rules, 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. As such, investment companies
that are registered under the Investment Company Act of 1940
(``registered investment companies'') would not have been subject to
the disclosure requirement because those companies are not required
to file Form 10-K, Form 20-F, or Form 40-F. Our decision to require
this disclosure in a new form is not intended to change the scope of
companies subject to the disclosure requirement. Therefore,
consistent with the proposal, registered investment companies that
are required to file reports on Form N-CSR or Form N-SAR pursuant to
Rule 30d-1 under the Investment Company Act (17 CFR 270.30d-1) will
not be subject to the final rules.
---------------------------------------------------------------------------

    We considered commentators' suggestions about requiring the
disclosure in a Form 8-K or Form 6-K,\391\ and we determined not to
require the disclosure in those forms because we continue to believe,
and agree with commentators that noted, the resource extraction payment
disclosure differs from the disclosure required by those forms.\392\ In
this regard, we note that Section 13(q) requires us to issue final
rules requiring the disclosure in an annual report rather than
requiring the disclosure to be provided on a more rapid basis, such as
disclosure of material corporate events that are required to be filed
on a current basis on Form 8-K.\393\ In addition, we are persuaded by
the comments asserting that it would be preferable to use a different
form rather than to extend the deadline for the disclosure to be filed
and require an amendment to Form 10-K, Form 20-F, or Form 40-F, which
might suggest a change or correction had been made to a previous
filing,\394\ and therefore we are not adopting that approach. We also
believe that requiring the disclosure in a new form, rather than in
issuers' Exchange Act annual reports, should alleviate some
commentators' concerns about the disclosure being subject to the
officer certifications required by Rules 13a-14 and 15d-14 under the
Exchange Act \395\ and will allow us to adjust the timing of the
submission.
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    \391\ See note 371 and accompanying text.
    \392\ See, e.g., letter from Calvert.
    \393\ A Form 8-K report is required to be filed or furnished
within four business days after the occurrence of one or more of the
events required to be disclosed on the Form, unless the Form
specifies a different deadline, e.g., for disclosures submitted to
satisfy obligations under Regulation FD (17 CFR 243.100 et seq. See
General Instruction B.1 of Form 8-K (17 CFR 249.308).
    \394\ See note 379 and accompanying text.
    \395\ See note 369.
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    While Section 13(q) mandates that a resource extraction issuer
include the payment disclosure required by that section in an annual
report, it does not specifically mandate the time period in which a
resource extraction issuer must provide the disclosure. Although two
commentators believed that the reporting period for the resource
extraction disclosure should be the calendar year, other commentators
suggested that the fiscal year should be the reporting period for Form
SD.\396\ We believe that the fiscal year is the more appropriate
reporting period for the payment disclosure because, to the extent that
resource extraction issuers are able to use part of the tracking and
reporting systems that issuers already have established for their
public reports

to track and report payments under Section 13(q), their compliance
costs should be reduced.
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    \396\ Compare note 376 with note 377.
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    After considering the comments expressing concern about the
difficulty of providing the payment disclosure within the current
annual reporting cycle,\397\ we believe it is reasonable to provide a
filing deadline for Form SD that is later than the deadline for an
issuer's Exchange Act annual report. Therefore, consistent with some
commentators' suggestions regarding timing,\398\ the final rules
require resource extraction issuers to file Form SD on EDGAR no later
than 150 days after the end of the issuer's most recent fiscal year.
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    \397\ See note 367 and accompanying text.
    \398\ See notes 375-377 and accompanying text.
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    We are not persuaded by commentators that the statute allows
resource extraction issuers to submit, or that it mandates resource
extraction issuers submit, the payment information confidentially to us
and have the Commission make public only a compilation of the
information.\399\ We believe that Section 13(q) contemplates that
resource extraction issuers will provide the disclosure publicly.
Section 13(q) refers to ``disclosure'' and specifies that the final
rules require an issuer to include the information ``in an annual
report.'' Our existing disclosure requirements under the Exchange Act
require companies to publicly file annual, quarterly, and current
reports; the requirements generally do not provide for non-public
reports.\400\ We do not believe that Congress intended for a different
approach with respect to the information required under Section 13(q).
In this regard, we note that the disclosure required under Section
13(q)(2) must be submitted in an interactive data format, which
suggests that Congress intended for the information to be available for
public analysis. Requiring resource extraction issuers to provide the
payment information in interactive data format will enable users of the
information to extract the information that is of the most interest to
them and to compile and compare it in any manner they find useful. We
also note that the provision regarding the public compilation does not
require the Commission to publish a compilation; rather, it states that
the Commission shall make a public compilation of the information
available online ``to the extent practicable.'' \401\ Further, Section
13(q)(3)(B) states that ``[n]othing in [Section 13(q)(3)] shall require
the Commission to make available online information other than the
information required to be submitted [under the provision requiring the
Commission to issue rules to require resource extraction issuers to
provide payment disclosure].'' We believe these provisions, when read
together and with the statute's transparency goal, mean that the
statutory intent is for the disclosure made by resource extraction
issuers to be publicly available, and under the final rules, the
disclosure will be available on Form SD on EDGAR. We note that, in this
regard, the EITI approach is fundamentally different from Section
13(q). Under the EITI, companies and the host country's government
generally each submit payment information confidentially to an
independent administrator selected by the country's multi-stakeholder
group, frequently an independent auditor, who reconciles the
information provided by the companies and the government, and then the
administrator produces a report.\402\ In addition, it is not clear that
having the information submitted confidentially to the Commission would
necessarily address commentators' concerns about confidentiality
because the information may well be subject to disclosure under the
Freedom of Information Act.\403\
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    \399\ See note 381 and accompanying text.
    \400\ We note that in certain limited instances, an issuer may
request confidential treatment regarding information that otherwise
would be required to be disclosed, such as commercial information
obtained from a person and that is privileged or confidential. See,
e.g., Exchange Act Rule 24b-2 (17 CFR 240.24b-2). For example, an
issuer may be permitted to omit certain information from an exhibit
filed with an Exchange Act report if that information is commercial
and disclosure would likely result in substantial competitive harm.
The Commission's staff is of the view that issuers generally are not
permitted to omit information that is required by an applicable
disclosure requirement. See Division of Corporation Finance Staff
Legal Bulletins Nos. 1 (February 28, 1997) and 1A (July 11, 2001, as
amended), available at http://www.sec.gov/interps/legal/slbcf1r.htm.
    \401\ Specifically, Section 13(q)(3)(A) provides that ``[t]o the
extent practicable, the Commission shall make available online, to
the public, a compilation of the information required to be
submitted under the rules issued under paragraph (2)(A).''
    \402\ See EITI Source Book, at 23 (``It will be necessary to
appoint an administrator to collect and evaluate the revenue data
provided by companies and government. It is essential that there is
stakeholder trust in the administrator's impartiality and
competency. The administrator may be a private audit firm, an
individual or an existing or specially created official body that is
universally regarded as independent of, and immune to influence by,
the government.'')
    \403\ 5 U.S.C. 552.
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2. Exhibits and Interactive Data Format Requirements
a. Proposed Rules
    The proposed rules would have required a resource extraction issuer
to submit the payment disclosure on an unaudited, cash basis. The
disclosure would have been required to be presented in two exhibits to
a Form 10-K, Form 20-F, or Form 40-F, as appropriate. One exhibit would
be in HTML or ASCII format, which would have enabled investors to
easily read the disclosure about payments without additional computer
programs or software. The other exhibit would be in XBRL format, which
would have satisfied the requirement in Section 13(q) that the payment
information be submitted in an interactive data format. Consistent with
the statute, the proposed rules would have required an issuer to submit
the payment information using electronic tags that identify, for any
payments made by a resource extraction issuer to a foreign government
or the U.S. Federal Government:
     The total amounts of the payments, by category;
     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.

In addition, a resource extraction issuer would have been required to
provide the type and total amount of payments made for each project and
the type and total amount of payments made to each government in the
XBRL format.
    As noted above, Section 13(q) requires the Commission, to the
extent practicable, to make available online, to the public, a
compilation of the information required under paragraph (2)(A) of that
section.\404\ The statute does not specify the content, form or
frequency of the compilation. We solicited comment on the compilation
without proposing any specific requirements for it.
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    \404\ See Section 13(q)(3)(A). The information required under
Section 13(q)(2)(A) includes the type and total amount of payments
made by resource extraction issuers to foreign governments or the
U.S. Federal Government for the purpose of the commercial
development of oil, natural gas, or minerals on a per project and
per government basis.
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b. Comments on the Proposed Rules
    Numerous commentators supported the proposed submission of the
payment information on an unaudited, cash

basis.\405\ After noting that Section 13(q) neither requires the
payment information to be audited nor provided on an accrual basis,
those commentators stated that such a requirement would significantly
increase issuers' implementation and ongoing reporting costs without
providing a benefit to investors. One commentator further noted that
``auditors would have to develop specific additional procedures to be
able to provide assurance regarding the completeness and accuracy of
the information provided.'' \406\
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    \405\ See letters from API 1, Anadarko Petroleum Corporation
(March 2, 2011) (``Anadarko''), AngloGold, BP 1, Chevron, Ernst &
Young (January 31, 2011) (``E&Y''), ExxonMobil 1, NMA 2, NYSBA
Committee, Petrobras, PWC, and RDS 1.
    \406\ Letter from E&Y.
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    Other commentators, however, suggested requiring the payment
information to be audited, presented on both a cash and accrual basis,
and filed as part of the issuer's audited financial statements.\407\
One of the commentators stated that an audit requirement would enhance
investor protection and be consistent with the EITI because one of the
basic criteria of EITI implementation is that the reported payment data
be audited.\408\ Another commentator similarly believed that requiring
the payment information to be audited and submitted on a cash basis
would improve comparability with EITI-related data, which it noted is
subject to audit and reported on a cash basis. That commentator further
suggested that the payment information also be reported on an accrual
basis to accommodate the needs of all potential users of the data.\409\
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    \407\ See letters from PWYP 1 and RWI 1. Another commentator
supported a requirement to submit the payment information solely on
an accrual basis because that would be consistent with financial
reporting requirements. See letter from Talisman.
    \408\ See letter from RWI 1.
    \409\ See letter from PWYP 1.
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    Several commentators supported the proposed requirement to use XBRL
to tag the payment disclosure because XBRL is currently used by many
registrants when filing their financial statements in their Exchange
Act annual reports.\410\ Some commentators further supported a
requirement to prepare the payment disclosure in either ASCII or HTML
in addition to XBRL.\411\ Those commentators noted that the requirement
would provide the Commission with the ability to extract, analyze, and
accumulate XBRL information while also providing investors and others
the ability to view directly the information. Several commentators
requested that the Commission delay implementation of the tagging
requirement until an appropriate XBRL taxonomy for the payment
information is available.\412\
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    \410\ See letters from API 1, Anadarko, AngloGold, BP 1,
CalPERS, ExxonMobil 1, PWYP 1, and RDS 1.
    \411\ See letters from API 1, ExxonMobil 1, and PWYP 1.
    \412\ See letters from API 1, AngloGold, and ExxonMobil 1.
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    Other commentators suggested permitting an issuer to choose between
XBRL, XML, or some other format that would enable the electronic
tagging of all of the information specified in Section 13(q).\413\
According to those commentators, such a flexible approach would
recognize that some issuers may prefer to use XBRL because that
standard is already being implemented, while others may prefer to use
XML or some other format because it is less expensive than XBRL and
more consistent with a cash-based report.\414\ One of the commentators
noted that ``XBRL conversion of data can be time consuming and result
in delay'' and requested that the rules permit an issuer to ``use any
format that would allow users to click through the information in a
standard file type to reach data sorted by each of the electronic tags
specified in the Act.'' \415\ One commentator opposed a requirement to
provide the payment information in XBRL format.\416\ The commentator
stated that the Commission has limited the implementation of XBRL to
only financial statements and stated there was not ``any justifiable
reason for a departure from this stated scope.'' \417\
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    \413\ See letters from Barrick Gold and NMA 2.
    \414\ See letters from Barrick Gold and NMA 2.
    \415\ Letter from Barrick Gold.
    \416\ See letter from PetroChina.
    \417\ Letter from PetroChina.
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    Some commentators expressed views about specific electronic tags.
For example, commentators suggested various approaches regarding the
requirement to electronically tag information about the currency used
to make the payments. Some commentators opposed having to present
payment information in dual currencies--in the local currency in which
the payments were made and, if different, in the issuer's reporting
currency--and further opposed having to electronically tag the dual
currency presentations.\418\ Those commentators stated that an issuer
should only have to present and electronically tag payment information
in its reporting currency, which is typically the U.S. dollar.\419\
Other commentators opposed a requirement to reconcile payments made in
the host country's currency to an issuer's reporting currency or U.S.
dollars.\420\ Those commentators either supported a requirement to
present payments in the currency in which they were made \421\ or to
permit issuers to choose between presenting payments in either the
local currency or its reporting currency as long as the issuer
discloses the methodology for translation and exchange rates used.\422\
Commentators noted that the EITI does not require currency conversion
and urged the Commission to maintain flexibility in the final rules so
that issuers can produce the required information in as efficient a
manner as possible, in light of their reporting systems and any local
requirements.\423\ One commentator asserted that requiring disclosure
of the host country currency and the reporting currency could unduly
complicate the disclosure.\424\
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    \418\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1.
    \419\ See letters from API 1, BP 1, ExxonMobil 1, and RDS 1. One
commentator supported requiring only the use of U.S. dollars,
regardless of the issuer's reporting currency. See letter from RDS
1.
    \420\ See letters from Cleary, NMA 2, and Rio Tinto; see also
letter from PWYP 1.
    \421\ See, e.g., letters from NMA 2 and PWYP 1.
    \422\ See letter from Rio Tinto.
    \423\ See letters from Cleary and NMA 2.
    \424\ See letter from NMA 2.
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    Commentators also provided views on the proposed requirement to
identify the business segment that made the payments. Some commentators
suggested defining ``business segment'':
     According to how an issuer operates its business; \425\
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    \425\ See letter from NMA 2.
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     In a manner that is consistent with the definition used
for financial reporting purposes; \426\ or
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    \426\ See letters from Cleary and NYSBA Committee.
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     As a subsidiary if the parent company is making payments
on behalf of the subsidiary.\427\
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    \427\ See letter from PWYP 1.
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    Some commentators opposed requiring an issuer to electronically tag
the information to identify the business segment that made the payments
on a basis other than as defined under GAAP. According to those
commentators, a ``definition that differs from GAAP would require
companies to gather information in a manner that is not consistent with
how the business is structured or how its accounting systems are
designed.'' \428\ One commentator stated that the business segment