disclosure should be consistent with the Commission's reserve
disclosures, which are associated with upstream operations.\429\
---------------------------------------------------------------------------

    \428\ Letters from API 1 and ExxonMobil 1.
    \429\ See letter from RDS 1.
---------------------------------------------------------------------------

    Several commentators opposed requiring an issuer to electronically
tag

each payment according to the project in which it relates because there
are some types of payments that are made at the entity level or relate
to numerous projects.\430\ Those commentators urged us to permit an
issuer to identify the government receiving the payments rather than
requiring allocation of payments to a particular project in a
potentially arbitrary manner.\431\ Another commentator stated that an
issuer should be allowed to omit the project tag for payments, such as
taxes and dividends, which are levied at the entity level, as long as
it provides all other required tags.\432\
---------------------------------------------------------------------------

    \430\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2,
and RDS 1.
    \431\ See letters from API 1, AngloGold, ExxonMobil 1, NMA 2,
and RDS 1.
    \432\ See letter from PWYP 1.
---------------------------------------------------------------------------

    As noted in Section II.F.1 above, some commentators were of the
view that Section 13(q) only requires a compilation of resource
extraction issuers' payment information, and not the annual reports
containing the issuers' payment disclosures, to be made public, and
suggested the compilation could present the payment disclosure only on
an aggregated per country or similarly high-level basis.\433\ Other
commentators, however, strongly disagreed with that view and stated
that the plain language of Section 13(q) clearly reveals Congress'
intent to require the disclosure to investors of disaggregated payment
information through the inclusion of that information in an issuer's
annual report.\434\ Towards that end, one commentator recommended that
the compilation take the form of an online database and that a summary
report be provided annually.\435\
---------------------------------------------------------------------------

    \433\ See letters from API 1, Anadarko, Chamber Energy
Institute, Chevron, ExxonMobil 1, Nexen, and RDS 1.
    \434\ See letters from Calvert, PWYP 1, RWI 1, and Sen. Cardin
et al. 1.
    \435\ See letter from PWYP 1.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting the requirement regarding the presentation of the
mandated payment information substantially as proposed, except that a
resource extraction issuer will be required to present the mandated
payment information in only one exhibit to new Form SD instead of two
exhibits, as proposed. Under the rule as proposed, an issuer would have
been required to file one exhibit in HTML or ASCII and another exhibit
in the XBRL interactive data format. In proposing the requirement, we
noted our belief that requiring two exhibits would provide the
information in an easily-readable format in addition to the
electronically tagged data that would be readable through a viewer.
After further consideration, we have decided to require only one
exhibit formatted in XBRL because we believe that we can achieve the
goal of the dual presentation with only one exhibit. Issuers will
submit the information on EDGAR in XBRL format, thus enabling users of
the information to extract the XBRL data, and at the same time the
information will be presented in an easily-readable format by rendering
the information received by the issuers.\436\ We believe that requiring
the information to be provided in this way may reduce the compliance
burden for issuers.
---------------------------------------------------------------------------

    \436\ Users of this information should be able to render the
information by using software available free of charge on our Web
site.
---------------------------------------------------------------------------

    Similar to the proposal, a resource extraction issuer also must
include a brief statement in Item 2.01 of Form SD directing investors
to the detailed information about payments provided in the exhibit. By
requiring resource extraction issuers to provide the payment
information in an exhibit, rather than in the form itself, anyone
accessing EDGAR will be able to determine quickly whether an issuer
filed a Form SD to satisfy the requirements of Section 13(q) and the
related rules.
    As noted above, Section 13(q) requires the submission of certain
information in interactive data format.\437\ Under the final rules,
consistent with the proposal and tracking the statutory language, a
resource extraction issuer must submit the payment information in XBRL
using electronic tags that identify, for any payment required to be
disclosed:
---------------------------------------------------------------------------

    \437\ 15 U.S.C. 78m(q)(2)(C) and 15 U.S.C. 78m(q)(2)(D)(ii).
---------------------------------------------------------------------------

     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.\438\
---------------------------------------------------------------------------

    \438\ See Item 2.01(a) of Form SD.

In addition, a resource extraction issuer must 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 interactive data format.
In determining to require the use of XBRL as the interactive data
format, we note that a majority of the commentators that addressed the
issue supported the use of XBRL.\439\ While some commentators suggested
allowing a flexible approach to use an interactive data format of their
preference,\440\ we believe doing so may reduce the comparability of
the information and may make it more difficult for interested parties
to track payments made to a particular government or project; thus, we
are not adopting such an approach.
---------------------------------------------------------------------------

    \439\ See note 410 and accompanying text.
    \440\ See note 413 and accompanying text.
---------------------------------------------------------------------------

    As mentioned above, several commentators requested that we delay
implementation of the tagging requirement until an appropriate XBRL
taxonomy for the payment information is available.\441\ We note that
the staff is currently working to develop the taxonomy for the payment
information, and we anticipate that the taxonomy will soon be published
for comment. As such, and in light of the implementation period for the
payment disclosure,\442\ we do not believe it is necessary to provide a
delay for the interactive data tagging requirement.
---------------------------------------------------------------------------

    \441\ See letters from API 1, AngloGold, and ExxonMobil 1.
    \442\ See Section II.G.3. below.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules require a resource
extraction issuer to include an electronic tag that identifies the
currency used to make the payments. As previously noted, the statute
requires a resource extraction issuer to present the type and total
amount of payments made for each project and to each government,
without specifying how the issuer should report the total amounts.
Although some commentators suggested requiring the reporting of
payments only in the currency in which they were made,\443\ we believe
that the statutory requirements to provide a tag identifying the
currency used to make the payment and the requirement to provide the
total amount of payments by payment type for each project and to each
government constrain us to require that issuers perform some currency
conversion to the extent necessary.
---------------------------------------------------------------------------

    \443\ See note 421 and accompanying text.
---------------------------------------------------------------------------

    As noted in an instruction to Form SD, issuers will be required to
report the amount of payments made for each payment type, and the total
amount of payments made for each project and to each government in
either U.S. dollars or the issuer's reporting currency.\444\

Thus, in order to provide total amounts, issuers that make payments in
other currencies will have to convert those payments into either U.S.
dollars or the issuer's reporting currency. We understand issuers'
concerns regarding the compliance costs relating to making payments in
multiple currencies and being required to report the information in
another currency.\445\ To address these concerns, the final rules
permit an issuer to choose between disclosing payments in either U.S.
dollars or its reporting currency. In addition, an issuer may choose to
calculate the currency conversion between the currency in which the
payment was made and U.S. dollars or the issuer's reporting currency,
as applicable, in one of three ways: (1) By translating the expenses at
the exchange rate existing at the time the payment is made; (2) using a
weighted average of the exchange rates during the period; or (3) based
on the exchange rate as of the issuer's fiscal year end.\446\ A
resource extraction issuer must disclose the method used to calculate
the currency conversion.\447\
---------------------------------------------------------------------------

    \444\ See Instruction 3 to Item 2.01 of Form SD. Currently,
foreign private issuers may present their financial statements in a
currency other than U.S. dollars for purposes of Securities Act
registration and Exchange Act registration and reporting. See Rule
3-20 of Regulation S-X (17 CFR 210.3-20).
    \445\ See, e.g., letters from API 1, BP 1, ExxonMobil 1, NMA 2,
and RDS 1. We note that the EITI recommends that oil and natural gas
participants report in U.S. dollars, as the quoted market price is
in U.S. dollars. It also recommends that mining companies be
permitted to use the local currency because most benefit streams for
those companies are paid in the local currency. The EITI also
suggests that companies may decide to report in both U.S. dollars
and the local currency. See the EITI Source Book, at 30.
    \446\ See Instruction 3 to Item 2.01 of Form SD.
    \447\ See id.
---------------------------------------------------------------------------

    Consistent with Section 13(q) and the proposal, the final rules do
not require the resource extraction payment information to be audited
or provided on an accrual basis. We note that, in this regard, the EITI
approach is 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.\448\ In contrast, Section 13(q) requires us to issue final
rules for disclosure of payments by resource extraction issuers; it
does not contemplate that an administrator will audit and reconcile the
information, or produce a report as a result of the audit and
reconciliation. In addition, we recognize the concerns raised by some
commentators that an auditing requirement for the payment information
would significantly increase implementation and ongoing reporting
costs. We believe that not requiring the payment information to be
audited or provided on an accrual basis is consistent with Section
13(q) because the statute refers to ``payments'' and does not require
the information to be included in the financial statements.\449\ In
addition, not requiring the information to be audited or provided on an
accrual basis may result in lower compliance costs than otherwise would
be the case if resource extraction issuers were required to provide
audited information.
---------------------------------------------------------------------------

    \448\ 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.'').
    \449\ See note 405 and accompanying text.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules require a resource
extraction issuer to include an electronic tag that identifies the
business segment of the resource extraction issuer that made the
payments. As suggested by commentators,\450\ we are defining ``business
segment'' to mean a business segment consistent with the reportable
segments used by the resource extraction issuer for purposes of
financial reporting.\451\ We believe that defining ``business segment''
in this way will enable issuers to report the information according to
how they currently report their business operations, which should help
to reduce compliance costs.
---------------------------------------------------------------------------

    \450\ See note 426 and accompanying text.
    \451\ See Item 2.01(c)(4) of Form SD. The term ``reportable
segment'' is defined in FASB ASC Topic 280, Segment Reporting, and
IFRS 8, Operating Segments.
---------------------------------------------------------------------------

    We note that some of the electronic tags, such as those pertaining
to category, currency, country, and financial period will have fixed
definitions and will enable interested persons to evaluate and compare
the payment information across companies and governments. Other tags,
such as those pertaining to business segment, government, and project,
will be customizable to allow issuers to enter information specific to
their business. To the extent that payments, such as corporate income
taxes and dividends, are made for obligations levied at the entity
level, issuers may omit certain tags that may be inapplicable (e.g.,
project tag, business segment tag) for those payment types as long as
they provide all other electronic tags, including the tag identifying
the recipient government.\452\
---------------------------------------------------------------------------

    \452\ See note 432 and accompanying text.
---------------------------------------------------------------------------

    As discussed in greater detail above, we agree with those
commentators who stated that the public compilation was not intended to
be a substitute for the payment disclosure required of resource
extraction issuers under Section 13(q),\453\ and we have not yet
determined the content, form, or frequency of any such
compilation.\454\ We note that users of the information will be able to
compile the information in a manner that is most useful to them by
using the electronically-tagged data filed by resource extraction
issuers.
---------------------------------------------------------------------------

    \453\ See note 434 and accompanying text.
    \454\ In this regard, we note that members of Congress,
including one of the sponsors of the provision, submitted a comment
letter stating ``Section 1504 requires companies to report the
information in an interactive format so that the information is
readily usable by investors and the public--the basic intent of the
section. Section 1504 also suggests that if practicable, the SEC can
make a compilation of all the data available to investors and the
public for ease of use. This compilation would be in addition to the
public availability of the original company data and in no way is
expected to replace the public availability of that data.'' See
letter from Sen. Cardin et al. 1.
---------------------------------------------------------------------------

3. Treatment for Purposes of Securities Act and Exchange Act
a. Proposed Rules
    As noted in the proposal, the statutory language of Section 13(q)
does not specify that the information about resource extraction
payments must be ``filed,'' rather, it states that the information
should be ``include[d] in an annual report[.]'' \455\ As proposed, the
rules would have required the disclosure of payment information to be
``furnished'' rather than ``filed'' and not subject to liability under
Section 18 of the Exchange Act, unless the issuer explicitly states
that the resource extraction disclosure is filed under the Exchange
Act.
---------------------------------------------------------------------------

    \455\ 15 U.S.C. 78m(q)(2)(A).
---------------------------------------------------------------------------

b. Comments on the Proposed Rules
    Numerous commentators stated their belief that the payment
disclosure should be furnished rather than filed and, therefore, not
subject to Exchange Act Section 18 liability.\456\ Such commentators
expressed the view that the nature and purpose of the Section 13(q)
disclosure requirements is not primarily for the protection of
investors but, rather, to increase the accountability of governments
for the proceeds they receive from their natural resources and, thus,
to support the commitment of the Federal Government

to international transparency promotion efforts relating to the
commercial development of oil, natural gas, or minerals.\457\ One
commentator stated that ``requiring [the disclosure to be filed] could
indirectly increase the costs of Securities Act disclosures that
incorporate the filing by reference (raising underwriting, auditing,
and perhaps even credit rating costs).'' \458\ Two commentators
requested that if the final rules require an issuer to include the
disclosure in an existing Exchange Act annual report, the rules should
not extend the officer certifications required by Exchange Act Rules
13a-14, 13a-15, 15d-14, and 15d-15 to that disclosure.\459\
---------------------------------------------------------------------------

    \456\ See letters from API 1, AngloGold, Barrick Gold, BP 1,
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, PetroChina, PWC, and
RDS 1.
    \457\ See, e.g., letters from API 1 and AngloGold.
    \458\ See letter from NMA 2.
    \459\ See letters from Cleary and NYSBA Committee.
---------------------------------------------------------------------------

    Numerous other commentators disagreed with the proposal and urged
the Commission to require the payment disclosures to be filed rather
than furnished and subject to Section 18 liability.\460\ Several
commentators believed that the plain language of the statute requires
filing of the disclosure.\461\ Commentators also asserted that one of
the goals of Section 13(q) is to enhance investor protection from risks
inherent in the extractive industries, and therefore the nature and
purpose of Section 13(q) is not qualitatively different than other
disclosure that has historically been required under Section 13.\462\
According to those commentators, the best way to enhance investor
protection would be to require that resource extraction payment
disclosures be filed rather than furnished; otherwise, investor
confidence in the accuracy of the disclosures would be undermined.\463\
Some commentators stated that requiring the disclosure to be furnished
rather than filed would deprive investors of causes of action in the
event that the disclosure is false or misleading.\464\
---------------------------------------------------------------------------

    \460\ See letters from Bon Secours, Calvert, CRS, Earthworks,
EIWG, ERI, ERI 2, Global Financial 2, Global Witness 1, Greenpeace,
HII, HURFOM 1, HURFOM 2, Newground, ONE, Oxfam 1, PGGM, PWYP 1, RWI
1, Sanborn, Sen. Cardin et al. 1, Sen. Cardin et al. 2, Sen. Levin
1, Soros 1, TIAA, USAID, USW, and WRI.
    \461\ See letters from Calvert, Global Witness 1, PWYP 1, and
Sen. Cardin et al. 1.
    \462\ See, e.g., letters from Global Witness 1, PWYP 1, Sen.
Cardin et al. 1, and Sen. Levin 1; see also letter from Sen. Cardin
et al. 2.
    \463\ See, e.g., letters from Global Witness 1, PWYP 1, and Sen.
Levin 1.
    \464\ See letters from Global Witness 1, Oxfam 1, PWYP 1, Sen.
Cardin et al. 1, and Sen. Levin 1; see also letter from Sen. Cardin
et al. 2.
---------------------------------------------------------------------------

    In addition, several commentators opposed extending the disclosure
requirements to registration statements under the Securities Act.\465\
In opposing such an extension of the requirements, one commentator
stated that ``the purpose of these disclosures is not to inform
investors * * * so there is no logical reason for such inclusion. Also,
inclusion would raise nettlesome concerns relating to liability, and
directors' and underwriters' due diligence obligations, for no good
reason.'' \466\ Other commentators, however, believed that the
Commission should require the inclusion of the payment information in
Securities Act registration statements.\467\
---------------------------------------------------------------------------

    \465\ See letters from API 1, AngloGold, Cleary, ExxonMobil 1,
NMA 2, NYBSA Committee, RDS 1 and Statoil.
    \466\ Letter from NYSBA Committee.
    \467\ See letters from Calvert, Earthworks, and PWYP 1.
---------------------------------------------------------------------------

c. Final Rules
    Although the proposed rules would have required the payment
information to be furnished, after considering the comments, the final
rules we are adopting require resource extraction issuers to file the
payment information on new Form SD. As discussed above, commentators
disagreed as to whether the required information should be furnished or
filed,\468\ and Section 13(q) does not state how the information should
be submitted. In reaching our conclusion that the information should be
``filed'' instead of ``furnished'' we note that the statute defines
``resource extraction issuer'' in part to mean an issuer that is
required to file an annual report with the Commission,\469\ which, as
commentators have noted, suggests that the annual report that includes
the required payment information should be filed.\470\ Additionally,
many commentators believed that investors would benefit from the
payment information being ``filed'' and subject to Exchange Act Section
18 liability.\471\ Some commentators asserted that allowing the
information to be furnished would diminish the importance of the
information.\472\ Some commentators believed that requiring the
information to be filed would enhance the quality of the
disclosure.\473\ In addition, some commentators argued that the
information required by Section 13(q) differs from the information that
the Commission permits issuers to furnish and that the information is
qualitatively similar to disclosures that are required to be filed
under Exchange Act Section 13.\474\
---------------------------------------------------------------------------

    \468\ Compare letters from API 1, AngloGold, Barrick Gold, BP 1,
Cleary, ExxonMobil 1, NMA 2, NYSBA Committee, PetroChina, PWC, and
RDS 1 (supporting a requirement to furnish the disclosure) with
letters from Bon Secours, Calvert, Earthworks, EIWG, ERI, ERI 2,
Global Financial 2, Global Witness 1, HII, HURFOM 1, HURFOM 2,
Newground, ONE, Oxfam 1, PGGM, PWYP 1, RWI 1, Sanborn, Sen. Cardin
et al. 1, Sen. Cardin et al. 2, Sen. Levin 1, Soros 1, TIAA, USAID,
USW, and WRI (supporting a requirement to file the disclosure).
    \469\ 15 U.S.C. 78m(q)(1)(D)(i).
    \470\ See letters from Global Witness 1, PWYP 1, and Sen. Cardin
et al.
    \472\ See letters from Calvert and Global Witness 1.
    \473\ See letters from HURFOM, Global Witness 1, and PWYP 1.
    \474\ See letters from ERI 1, HII, Oxfam 1, PGGM, PWYP 1, Sen.
Cardin et al. 1, and Soros 1.
---------------------------------------------------------------------------

    Other commentators supporting the proposal that the disclosure be
furnished argued that the information is not material to
investors.\475\ We note, however, other commentators, including
investors, argued that the information is material.\476\ Given the
disagreement, and that materiality is a fact specific inquiry, we are
not persuaded that this is a reason to provide that the information
should be furnished. Additionally, while we appreciate the comments
that the payment information should be furnished and not subject to
Section 18 liability, we note that Section 18 does not create strict
liability for filed information. Rather, it states that a person shall
not be liable for misleading statements in a filed document if it can
establish that it acted in good faith and had no knowledge that the
statement was false or misleading.\477\ As noted

above, because the disclosure is in a new form, rather than in issuers'
Exchange Act annual reports, the filed disclosure is not subject to the
officer certifications required by Rules 13a-14 and 15d-14 under the
Exchange Act.
---------------------------------------------------------------------------

    \475\ See letters from API 1, ExxonMobil 1, and RDS 1; see also
letter from AngloGold.
    \476\ See letters from Calvert, ERI 1, Soros 1, Global Financial
Integrity (January 28, 2011) (``Global Financial Integrity 1''),
Global Witness 1, HII, Oxfam, Sanborn, PGGM, PWYP 1, Sen. Cardin et
al. 1, and TIAA.
    \477\ Exchange Act Section 18(a) provides: ``Any person who
shall make or cause to be made any statement in any application,
report, or document filed pursuant to this title or any rule or
regulation thereunder or any undertaking contained in a registration
statement as provided in subsection (d) of section 15 of this title,
which statement was at the time and in the light of the
circumstances under which it was made false or misleading with
respect to any material fact, shall be liable to any person (not
knowing that such statement was false or misleading) who, in
reliance upon such statement shall have purchased or sold a security
at a price which was affected by such statement, for damages caused
by such reliance, unless the person sued shall prove that he acted
in good faith and had no knowledge that such statement was false or
misleading. A person seeking to enforce such liability may sue at
law or in equity in any court of competent jurisdiction. In any such
suit the court may, in its discretion, require an undertaking for
the payment of the costs of such suit, and assess reasonable costs,
including reasonable attorneys' fees, against either party
litigant.'' A plaintiff asserting a claim under Section 18 would
need to meet the elements of the statute to establish a claim,
including reliance and damages. In addition, we note that issuers
that fail to comply with the final rules could also be violating
Exchange Act Sections 13(a) and (q) and 15(d), as applicable.
Issuers also would be subject to potential liability under Exchange
Act Section 10(b) [15 U.S.C. 78j] and Rule 10b-5 [17 CFR 240.10b-5],
promulgated thereunder, for any false or misleading material
statements in the information disclosed pursuant to the rule.
---------------------------------------------------------------------------

    We also note a commentator stated that filing the disclosure would
require auditors to consider whether the resource extraction payment
disclosures are materially inconsistent with the financial statements
thereby increasing the cost.\478\ We note however, that unlike the
proposal, the disclosure will not be required in the Form 10-K but
instead will be required in new Form SD, which does not include audited
financial statements, and therefore will not be subject to this
potential increased cost.
---------------------------------------------------------------------------

    \478\ See letter from PWC.
---------------------------------------------------------------------------

G. Effective Date

1. Proposed Rules
    In the Proposing Release, we requested comment on whether we should
provide a delayed effective date for the final rules and whether doing
so would be consistent with the statute.
2. Comments on the Proposed Rules
    Some commentators believed that the final rules should be effective
for fiscal years ending on or after April 15, 2012, without
exception.\479\ One of those commentators believed that providing
exceptions would go against the principle of equal treatment of
issuers.\480\ Another commentator stated that implementation of the
final rules should not be delayed because ``companies have known of the
possibility of disclosure regulations for many years.'' \481\
---------------------------------------------------------------------------

    \479\ See letters from Earthworks and PWYP 1. A third
commentator urged the Commission to follow the statutory effective
date because of the current consideration by the EC of extractive
industry disclosure rules in the EU, which could follow the U.S.
standard. See letter from PWYP U.K.
    \480\ See letter from PWYP 1.
    \481\ See letter from Earthworks.
---------------------------------------------------------------------------

    Other commentators suggested delaying the effective date of the
final rules because compliance with the final rules would necessitate
significant changes to resource planning systems.\482\ Commentators
maintained that we have the flexibility to delay the effective date
because Section 13(q) states that the disclosure must be provided not
earlier than for the fiscal year ending one year after issuance of the
final rules.\483\ Some commentators stated that an effective date for
2012 is feasible only if the scope of the required disclosure is
limited.\484\ These commentators suggested further delaying the
effective date if the final rules include, among other things, an audit
requirement, downstream activities, a granular definition of project
(e.g., a definition that precludes disclosure at the country or entity
level), preparation of disclosures on a cash basis, or required
reporting in multiple currencies.\485\ Some commentators urged the
delay of the effective date due to the need to implement new accounting
standards.\486\ Commentators suggested that we require compliance with
the rule for 2013, 2014, or 2015.\487\
---------------------------------------------------------------------------

    \482\ See letters from API 1, ExxonMobil 1, Chevron, and RDS 1.
    \483\ See letters from Cleary and NMA 2.
    \484\ See letters from API 1, Chevron, ExxonMobil 1, and NMA 2.
    \485\ See letters from API 1, Chevron, ExxonMobil 1, and NMA 2.
    \486\ See letters from Nexen, PetroChina, PWC, and RDS 1.
    \487\ See letters from Barrick Gold (fiscal year 2013),
PetroChina (fiscal years ending on or after December 31, 2015); PwC
(annual periods beginning after December 31, 2012).
---------------------------------------------------------------------------

    Some commentators believed that all resource extraction issuers
should be subject to the same effective date.\488\ One commentator
suggested a phase-in approach requiring large accelerated filers to
provide the disclosure for fiscal years ending on or after July 1, 2012
and for all others to provide the disclosure for fiscal years ending on
or after July 1, 2013.\489\ The commentator believed that a phase-in
approach would reduce costs for smaller issuers because it would enable
those issuers to observe how larger issuers comply with the new
rules.\490\ Another commentator stated that a phase-in would be
appropriate for smaller reporting companies.\491\
---------------------------------------------------------------------------

    \488\ See letters from API 1, Chevron, ExxonMobil 1, and RDS 1.
    \489\ See letter from AngloGold.
    \490\ See id.
    \491\ See letter from Cleary.
---------------------------------------------------------------------------

3. Final Rules
    Under the final rules, a resource extraction issuer will be
required to comply with new Rule 13q-1 and Form SD for fiscal years
ending after September 30, 2013. The final rules will require a
resource extraction issuer to file with the Commission for the first
time an annual report that discloses the payments it made to
governments for the purpose of the commercial development of oil,
natural gas, or minerals. Based on the comments we received, we
understand that resource extraction issuers will need time to undertake
significant changes to their reporting systems and processes to gather
and report the payment information. Even for those issuers that provide
some payment disclosure voluntarily or as part of an EITI program,
compliance with the final rules will likely require changes in their
reporting systems.\492\ In light of this, we believe it is appropriate
to provide all issuers with a reasonable amount of time to make such
changes and to allow a transition period for reporting. Therefore, the
final rules provide that for the first report filed for fiscal years
ending after September 30, 2013, a resource extraction issuer may
provide a partial year report if the issuer's fiscal year began before
September 30, 2013. The issuer will be required to provide a report for
the period beginning October 1, 2013 through the end of its fiscal
year. For example, a resource extraction issuer with a December 31,
2013 fiscal year end will be required to file a report disclosing
payments made from October 1, 2013-December 31, 2013. For any fiscal
year beginning on or after September 30, 2013, a resource extraction
issuer will be required to file a report disclosing payments for the
full fiscal year.
---------------------------------------------------------------------------

    \492\ For example, issuers reporting under EITI programs that
require material information to be reported at the country level
will likely need to further develop their systems to gather and
report information at the project level and meeting the ``not de
minimis'' threshold.
---------------------------------------------------------------------------

    We believe that requiring compliance with the final rules for
fiscal years ending after September 30, 2013 and providing a transition
period in which partial year reports are permitted will provide time
for issuers to effect the changes in their reporting systems necessary
to gather and report the payment information required by the final
rules.\493\ We recognize that adoption of this compliance date and
transition period means that most companies will provide partial year
reports for the first report required under the rules. We believe this
result is required, however, to enable issuers to make the changes to
their reporting systems necessary to achieve full compliance with the
final rules.
---------------------------------------------------------------------------

    \493\ In this regard, we note changes required to internal
tracking and reporting systems will likely be specific to the
particular company and therefore we believe it is unlikely that
smaller issuers would benefit from a phase-in that would allow them
to observe how larger issuers comply with the new rules.
---------------------------------------------------------------------------

    If any provision of these rules, or the application thereof to any
person or circumstance, is held to be invalid, such invalidity shall
not affect other provisions or application of such provisions to other
persons or circumstances that can be given effect without the invalid
provision or

application. Moreover, if any portion of Form SD not related to
resource extraction disclosure is held invalid, such invalidity shall
not affect the use of the form for purposes of disclosure pursuant to
Section 13(q).

III. Economic Analysis

A. Introduction

    As discussed in detail above, we are adopting the new rules and
amendment to Form SD discussed in this release to implement Section
13(q), which was added to the Exchange Act by Section 1504 of the Act.
The new rules and revised form will require a resource extraction
issuer to disclose in an annual report filed with the Commission on
Form SD certain information relating to 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. The
information will include the type and total amount of payments made for
each project of the issuer relating to the commercial development of
oil, natural gas, or minerals as well as the type and total amount of
payments made to each government. We expect that the final rules will
affect in substantially the same way both U.S. companies and foreign
companies that meet the definition of ``resource extraction issuer,''
which is an issuer that is required to file an annual report with the
Commission and engages in the commercial development of oil, natural
gas, or minerals.
    Since Congress adopted Section 13(q) in July 2010, we have sought
comment on our implementation of the provision and provided
opportunities for commentators to provide input. Members of the public
interested in making their views known were invited to submit comment
letters in advance of when the official comment period for the proposed
rules opened, and the public had the opportunity to submit comment on
the proposal during the comment period. In addition, in response to the
suggestion by some commentators that we extend the comment period to
allow the public additional time to thoroughly consider the matters
addressed in the Proposing Release and to submit comprehensive
responses, we extended the comment period for an additional 30 days
\494\ and have continued to receive comment letters after the extended
deadline, all of which we have considered. We believe interested
parties have had ample opportunity to review the proposed rules, as
well as the comment letters, and to provide views on the proposal,
other comment letters, and data to inform our consideration of the
final rules. Accordingly, we do not believe that a re-proposal is
necessary.
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    \494\ See Exchange Act Release No. 34-67395 (January 28, 2011),
76 FR 6111 (February 3, 2011), available at http://www.sec.gov/rules/proposed/2011/34-63795.pdf. This robust, public input has
allowed us to more fully consider how to develop the final rules.
---------------------------------------------------------------------------

    The Proposing Release cited some pre-proposal letters we received
from commentators indicating the potential impact of the proposed rules
on competition and capital formation. In addition to requesting comment
throughout the Proposing Release on the proposals and on potential
alternatives to the proposals, the Commission also solicited comment in
the Proposing Release on whether the proposals, if adopted, would
promote efficiency, competition, or capital formation, or have an
impact or burden on competition. We also requested comment on the
potential effect on efficiency, competition, or capital formation
should the Commission not adopt certain exceptions or accommodations.
As discussed throughout this release, we received many comments
addressing the potential economic and competitive impact of the
proposed rules. Indeed, many commentators provided multiple comment
letters to support, expand upon, or contest views expressed by other
commentators.\495\
---------------------------------------------------------------------------

    \495\ See, e.g., letters from API 1, API 2, API 3, American
Petroleum Institute (February 13, 2012), ExxonMobil 1, ExxonMobil 2,
ExxonMobil 3, Global Witness 1, Global Witness 2, Global Witness 3,
PWYP 1, PWYP 2, PWYP 3, PWYP 4, PWYP 5, ERI 1, ERI 2, ERI 3, ERI 4,
Oxfam 1, Oxfam 2, RELUFA 1, RELUFA 2, RELUFA 3, RWI 1, RWI 2, RDS 1,
RDS 2, RDS 3, RDS 4, Sen. Cardin et al. 1, Sen. Cardin et al. 2,
Sen. Levin 1, Sen. Levin 2, Soros 1, and Soros 2. One commentator
urged us to re-propose the rules in order to give the public an
additional opportunity to comment on and inform the Commission's
assessment of the economic impact of the proposed rules. See letter
from API 3. As described above, we believe interested parties have
had ample opportunity to review the proposed rules, as well as the
comment letters, and to provide views and data to inform our
consideration of the economic effects of the final rules.
---------------------------------------------------------------------------

    Section 13(q) of the Exchange Act requires us to issue rules to
implement the disclosure requirement for certain payments made by
resource extraction issuers to the Federal Government and foreign
governments. Congress intended that the rules issued pursuant to
Section 13(q) would increase the accountability of governments to their
citizens in resource-rich countries for the wealth generated by those
resources.\496\ This type of social benefit differs from the investor
protection benefits that our rules typically strive to achieve. We
understand that the statute is seeking to achieve this benefit by
mandating a new disclosure requirement under the Exchange Act that
requires resource extraction issuers to identify and report payments
they make to governments and that supports international transparency
promotion efforts relating to the commercial development of oil,
natural gas, or minerals.\497\ In addition, some commentators stated
that the information disclosed pursuant to Section 13(q) would benefit
investors, by among other things, helping investors model project cash
flows and assess political risk, acquisition costs, and management
effectiveness.\498\ Moreover, investors and other market participants,
as well as civil society in countries that are resource-rich, may
benefit from any increased economic and political stability and
improved investment climate that transparency promotes. Commentators
and the sponsors of Section 13(q) also have noted that the United
States has an interest in promoting accountability, stability, and good
governance.\499\
---------------------------------------------------------------------------

    \496\ See note 7 and accompanying text.
    \497\ See note 8 and accompanying text.
    \498\ See, e.g., letters from Calvert, CALPERS, and Soros 1.
    \499\ See, e.g., letter from Sen. Cardin (February 28, 2012)
(includes a transcript of testimony from Secretary of State Hilary
Rodham Clinton before the Senate Foreign Relations Committee). See
also statement from Senator Cardin regarding the provision (``* * *
Transparency helps create more stable governments, which in turn
allows U.S. companies to operate more freely--and on a level playing
field--in markets that are otherwise too risky or unstable.''), 156
Cong. Rec. S5870 (daily ed. Jul. 15, 2010) (statement of Sen.
Cardin); and Senator Lugar regarding the provision (``* * *
Transparency empowers citizens, investors, regulators, and other
watchdogs and is a necessary ingredient of good governance for
countries and companies alike * * *. Transparency also will benefit
Americans at home. Improved governance of extractive industries will
improve investment climates for our companies abroad, it will
increase the reliability of commodity supplies upon which businesses
and people in the United States rely, and it will promote greater
energy security.'' 156 Cong. Rec. S3816 (daily ed. May 17, 2010)
(statement of Sen. Lugar)).
---------------------------------------------------------------------------

    We are sensitive to the costs and benefits of the final rules, and
Exchange Act Section 23(a)(2) requires us, when adopting rules, to
consider the impact that any new rule would have on competition. In
addition, Section 3(f) of the Exchange Act requires us, when engaging
in rulemaking that requires us to consider or determine whether an
action is necessary or appropriate in the public interest, to consider,
in addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation. We have
considered the costs and benefits

imposed by the rule and form amendments we are adopting, as well as
their effects on efficiency, competition, and capital formation. Many
of the economic effects of the rules stem from the statutory mandate,
while others are affected by the discretion we exercise in implementing
the Congressional mandates. The discussion below addresses the costs
and benefits resulting from both the statute and our exercise of
discretion, and the comments we received about these matters. In
addition, as discussed elsewhere in this release, we recognize that the
rules will impose a burden on competition, but we believe that any such
burden that may result is necessary in furtherance of the purposes of
Exchange Act Section 13(q).
    After analyzing the comments and taking into account additional
data and information, we believe it is likely that the total initial
cost of compliance for all issuers is approximately $1 billion and the
ongoing cost of compliance is between $200 million and $400 million. We
reach these estimates by considering carefully all comments we received
on potential costs. We relied particularly on those comment letters
that provided quantification and were transparent about their
methodologies. As discussed in more detail below, after thoroughly
considering each comment letter, we determined that it was appropriate
to modify and/or expand upon some of the submitted estimates and
methodologies to reflect data and information submitted by other
commentators, as well as our own judgment, experience, and expertise.
Our considered estimate of the total costs thus reflects these
synthesized data and analyses. We consider the full range of these
costs in the following sections, although where it is possible to
discuss separately the costs and benefits related to our discretionary
choices in the rules, we attempt to do so.\500\
---------------------------------------------------------------------------

    \500\ As discussed above, our discretionary choices are informed
by the statutory mandate and thus, discussion of the benefits and
costs of those choices will necessarily involve the benefits and
costs of the underlying statute.
---------------------------------------------------------------------------

    Given the specific language of the statute and our understanding of
Congress' objectives, we believe it is appropriate for the final rules
generally to track the statutory provision. Our discretionary authority
to implement Section 13(q) is limited, and we are committed to
executing the Congressional mandate. Throughout this release, and in
the following economic analysis, we discuss the benefits and costs
arising from both the new reporting requirement mandated by Congress
and from those choices in which we have exercised our discretion.
Sections III.B. and III.C. below provide a narrative discussion of the
costs and benefits of resulting from the mandatory reporting
requirement and our exercise of discretion, respectively. In Section
III.D. below, based on commentators' estimates and our estimates, we
provide a quantitative discussion of the costs associated with the
final rules as adopted.\501\
---------------------------------------------------------------------------

    \501\ As noted below, Congress' goal of enhanced accountability
through Section 13(q) is an intended social benefit that cannot be
readily quantified with any precision, and therefore, our
quantitative analysis focuses on the costs.
---------------------------------------------------------------------------

B. Benefits and Costs Resulting From the Mandatory Reporting
Requirement

1. Benefits
    As noted above, Congress intended that the rules issued pursuant to
Section 13(q) would increase the accountability of governments to their
citizens in resource-rich countries for the wealth generated by those
resources.\502\ In addition, commentators and the sponsors of Section
13(q) also have noted that the United States has an interest in
promoting accountability, stability, and good governance.\503\
Congress' goal of enhanced government accountability through Section
13(q) may result in social benefits that cannot be readily quantified
with any precision.\504\ We also note that while the objectives of
Section 13(q) do not appear to be ones that will necessarily generate
measurable, direct economic benefits to investors or issuers, investors
have stated that the disclosures required by Section 13(q) have value
to investors and can ``materially and substantially improve investment
decision making.'' \505\
---------------------------------------------------------------------------

    \502\ See note 7 and accompanying text.
    \503\ See note 499 and accompanying text.
    \504\ These benefits could ultimately be quite significant given
the per capita income of the potentially affected countries.
    \505\ Calvert (March 1, 2011). See note 498 and accompanying
text.
---------------------------------------------------------------------------

    Many commentators stated that they support the concept of
increasing transparency of resource extraction payments.\506\ While
commentators stated that a benefit of increasing transparency is
increased government accountability, some commentators also noted that
the new disclosure requirements would help investors assess the risks
faced by resource extraction issuers operating in resource-rich
countries.\507\ To the extent that investors want information about
payments to assess these risks, the rules may result in increased
investment by those investors and thus may increase capital formation.
---------------------------------------------------------------------------

    \506\ See, e.g., letters from API 1, Calvert, Chamber Energy
Institute, ExxonMobil 1, Global Witness 1, Oxfam 1, Petrobras, PWYP
1, RDS 1, and Statoil.
    \507\ See, e.g., letters from Calvert, ERI 2, Global Witness 1,
and Oxfam 1.
---------------------------------------------------------------------------

    Several commentators noted that the statutory requirement to
provide project-level disclosure significantly enhances the benefits of
the mandatory reporting required under Section 13(q).\508\ One
commentator stated that the benefits to civil society of project-level
reporting are significantly greater than those of country-level
reporting.\509\ This commentator stated that project-level data will
enable civil society groups, representing local communities, to know
how much their governments earn from the resources that are removed
from their respective territories and empower them to advocate for a
fairer share of revenues, double-check government-published budget
data, and better calibrate their expectations from the extractive
companies.\510\ This commentator further stated that project-level
reporting will enable both local government officials and civil society
groups to monitor the revenue that flows back to the regions from the
central government and ensure that they receive what is promised--a
benefit that would be unavailable if revenue streams were not
differentiated below the country level.\511\ Another commentator noted
that project-level reporting would shine greater light on dealings
between resource extraction issuers and governments, thereby providing
companies with ``political cover to sidestep government requests to
engage in potentially unethical activities.'' \512\
---------------------------------------------------------------------------

    \508\ See, e.g., letters from Global Witness 1, Oxfam 1, PWYP 1,
RWI 1, and Syena.
    \509\ See letter from ERI 1; see also letter from Gates
Foundation.
    \510\ See letter from ERI 1; see also letter from Gates
Foundation (stating that it is important to seek disclosure below
the country level, that project-level disclosure will give both
citizens and investors valuable information, and that defining
``project'' as a geologic basin or province would be of limited use
to both citizens and investors).
    \511\ See letter from ERI 1.
    \512\ See letter from EG Justice.
---------------------------------------------------------------------------

    One commentator noted the benefits to investors of project-level
reporting.\513\ One benefit cited by this commentator is that project-
level reporting will enable investors to better understand the risk
profiles of individual projects within a given country, which may vary
greatly depending on a number of factors such as regional unrest,
personal interest by powerful government figures, degree of community
oppression, and environmental sensitivity.\514\ This commentator
indicated that project-level disclosures will enable investors to

better understand these risks, whereas country-level reporting would
allow companies to mask particularly salient projects by aggregating
payments with those from less risky projects.\515\ The commentator
noted that unusually high signing bonus payments for a particular
project may be a proxy for political influence, whereas unusually low
tax or royalty payments may signal that a project is located in a zone
vulnerable to attacks or community unrest.\516\ A further benefit of
project-level disclosures is that it would assist investors in
calculations of cost curves that determine whether and for how long a
project may remain economical, using a model that takes into account
political, social, and regulatory risks.\517\
---------------------------------------------------------------------------

    \513\ See letter from ERI 2.
    \514\ See id.
    \515\ See id.
    \516\ See id.
    \517\ See letter from Calvert Asset Management Company and SIF
(November 15, 2010) (pre-proposal letter).
---------------------------------------------------------------------------

    There also may be a benefit to investors given the view expressed
by some commentators that new disclosure requirements would help
investors assess the risks faced by resource extraction issuers
operating in resource-rich countries. To the extent that the required
disclosure will help investors in pricing the securities of the issuers
subject to the requirement mandated by Section 13(q), the rules could
improve informational efficiency. One commentator indicated that
project-level disclosures will promote capital formation by reducing
information asymmetry and providing more security and certainty to
investors as to extractive companies' levels of risk exposure.\518\ One
commentator was of the view that improved transparency regarding
company payments of royalties, taxes, and production entitlements on a
country level would provide institutional investors, such as the
commentator, with the necessary information to assess a company's
relative exposure to country-specific risks including political and
regulatory risks, and would contribute to good governance by host
governments.\519\ Similarly, another commentator was of the view that
in countries where governance is weak, the resulting corruption,
bribery, and conflict could negatively affect the sustainability of a
company's operations, so Section 13(q) would benefit companies'
operations and investors' ability to more effectively make investment
decisions.\520\ One commentator anticipated benefits of lower capital
costs and risk premiums as a result of improved stability stemming from
the statutory requirements and lessened degree of uncertainty promoted
by greater transparency.\521\ This same commentator believed that the
disclosure standardization imposed through Section 13(q) would be of
particular benefit to long-term investors by providing a model for data
disclosure as well as help to address some of the key challenges faced
by EITI implementation.\522\ Another commentator maintained that
transparency of payments is a better indicator of risk for extractive
companies than the bond markets and is also a better indicator of
financial performance.\523\
---------------------------------------------------------------------------

    \518\ See letter from ERI 2.
    \519\ See letter from PGGM. This commentator also noted that the
disclosure required by Section 13(q) would provide in-country
activists with information to hold their governments accountable.
    \520\ See letter from CalPERS.
    \521\ See letter from Hermes.
    \522\ See letter from Hermes.
    \523\ See letter from Vale Columbia Center (December 16, 2011).
---------------------------------------------------------------------------

2. Costs
    Many commentators stated that the reporting regime mandated by
Section 13(q) would impose significant compliance costs on issuers.
Several commentators addressed Paperwork Reduction Act (``PRA'')-
related costs specifically,\524\ while others discussed the costs and
burdens to issuers generally as well as costs that could have an effect
on the PRA analysis.\525\ As discussed further in Section III.D. below,
in response to comments we received, we have provided our estimate of
both initial and ongoing compliance costs. In addition, also in
response to comments, we have made several changes to our PRA estimates
that are designed to better reflect the burdens associated with the new
collections of information.
---------------------------------------------------------------------------

    \524\ See letters from API 1, API 2, Barrick Gold, ERI 2,
ExxonMobil 1, ExxonMobil (October 25, 2011) (``ExxonMobil 3''), NMA
2, Rio Tinto, RDS 1, and RDS 4.
    \525\ See, e.g., letters from BP 1, Chamber Energy Institute,
Chevron, Cleary, Hermes, and PWYP 1.
---------------------------------------------------------------------------

    Some commentators disagreed with our industry-wide estimate of the
total annual increase in the collection of information burden and
argued that it underestimated the actual costs that would be associated
with the rules.\526\ Some commentators stated that, depending upon the
final rules adopted, the compliance burdens and costs caused by
implementation and ongoing compliance with the rules would be
significantly greater than those estimated by the Commission.\527\
Significantly, however, in general these commentators did not provide
any quantitative analysis to support their estimates.\528\
---------------------------------------------------------------------------

    \526\ See letters from API 1 and ExxonMobil 1.
    \527\ See letters from API 1, API 2, API 3, Barrick Gold,
ExxonMobil 1, NMA 2, Rio Tinto, and RDS 1.
    \528\ See letters from API 1 and ExxonMobil 1. ExxonMobil 1 does
provide estimated implementation costs of $50 million if the
definition of ``project'' is narrow and the level of disaggregation
is high across other reporting parameters. This estimate is used in
our analysis of the expected implementation costs.
---------------------------------------------------------------------------

    Some commentators noted that modifications to issuers' core
enterprise resource planning systems and financial reporting systems
will be necessary to capture and report payment data at the project
level, for each type of payment, government payee, and currency of
payment.\529\ Commentators provided examples of such modifications
including establishing additional granularity to existing coding
structures (e.g., splitting accounts that contain both government and
non-government payment amounts), developing a mechanism to
appropriately capture data by ``project,'' building new collection
tools within financial reporting systems, establishing a trading
partner structure to identify and provide granularity around government
entities, establishing transaction types to accommodate types of
payment (e.g., royalties, taxes, bonuses, etc.), and developing a
systematic approach to handle ``in-kind'' payments.\530\ These
commentators estimated that the resulting initial implementation costs
would be in the tens of millions of dollars for large issuers and
millions of dollars for many small issuers.\531\ Two commentators also
estimated that total industry costs for initial implementation of the
final rules could amount to hundreds of millions of dollars.\532\
---------------------------------------------------------------------------

    \529\ See letters from API 1 and ExxonMobil 1. See also letter
from RDS 1.
    \530\ See letters from API 1 and ExxonMobil 1.
    \531\ See letters from API 1, ExxonMobil 1, and RDS 1. These
commentators did not describe how they defined small and large
issuers.
    \532\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    These commentators also noted, however, that these costs could be
increased significantly depending on the scope of the final rules.\533\
For example, commentators suggested that these cost estimates could be
greater depending on the how the final rules define ``project,'' and
whether the final rules require reporting of non-consolidated entities,
require ``net'' and accrual reporting, or include an audit
requirement.\534\ Another commentator

estimated that the initial set up time and costs associated with the
rules implementing Section 13(q) would require 500 hours to effect
changes to its internal books and records, and $100,000 in IT
consulting, training, and travel costs.\535\ One commentator
representing the mining industry estimated that start-up costs,
including the burden of establishing new reporting and accounting
systems, training local personnel on tracking and reporting, and
developing guidance to ensure consistency across reporting units, would
be at least 500 hours for a mid-to-large sized multinational
company.\536\
---------------------------------------------------------------------------

    \533\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \534\ See letters from API 1, ExxonMobil 1, and RDS 1. As
previously discussed, the final rules do not require the payment
information to be audited or reported on an accrual basis, so
commentators' concerns about possible costs associated with these
items should be alleviated. See Section II.F.2.c. above.
    \535\ See letter from Barrick Gold.
    \536\ See letter from NMA 2.
---------------------------------------------------------------------------

    Two commentators stated that arriving at a reliable estimate for
the ongoing annual costs of complying with the rules would be difficult
because the rules were not yet fully defined, but suggested that a
``more realistic'' estimate than the estimate included in the Proposing
Release is hundreds of hours per year for each large issuer with many
foreign locations.\537\ Commentators also indicated that costs related
to external professional services would be significantly higher than
the Commission's estimate, resulting primarily from XBRL tagging and
higher printing costs, although these commentators noted that it is not
possible to estimate these costs until the final rules are fully
defined.\538\
---------------------------------------------------------------------------

    \537\ See letters from API 1 and ExxonMobil 1 (each noting that
estimates would increase if the final rules contain an audit
requirement, or if the final rules are such that issuers are not
able to automate material parts of the collection and reporting
process).
    \538\ See letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    One commentator estimated that ongoing compliance with the rules
implementing Section 13(q) would require 100-200 hours of work at the
head office, an additional 100-200 hours of work providing support to
its business units, and 40-80 hours of work each year by each of its
120 business units, resulting in a total of approximately 4,800-9,600
hours and costs approximating between $2,000,000 to $4,000,000.\539\
One commentator, a large multinational issuer, estimated an additional
500 hours each year, including time spent to review each payment to
determine if it is covered by the reporting requirements and ensure it
is coded to the appropriate ledger accounts.\540\ Another commentator
representing the mining industry estimated that the annual burden for a
company with a hundred projects or reporting units, the burden could
``easily reach nearly'' 10 times the estimate set out in the Proposing
Release.\541\ This commentator noted that its estimate takes into
account the task of collecting, cross-checking, and analyzing extensive
and detailed data from multiple jurisdictions around the world, as well
as the potential for protracted time investments (a) seeking
information from certain non-consolidated entities that would be
considered ``controlled'' by the issuer, (b) attempting to secure
exceptions from foreign confidentiality restrictions, (c) obtaining
compliance advice on the application of undefined terms such as ``not
de minimis'' and ``project'' and implementing new systems based upon
those definitions, (d) responding to auditor comments or queries
concerning the disclosure, which, although not in the financial
statements would, under the proposed rules, be a furnished exhibit to
Form 10-K or equivalent report for foreign issuers, and (e) any
necessary review of Section 13(q) disclosures in connection with
periodic certifications under the Sarbanes-Oxley Act.\542\ This
commentator also noted that the estimate in the Proposing Release did
not adequately capture the burden to an international company with
multiple operations where a wide range of personnel will need to be
involved in capturing and reviewing the data for the required
disclosures as well as for electronically tagging the information in
XBRL format.\543\ A number of commentators submitted subsequent letters
reiterating and emphasizing the potential of the proposed rules to
impose substantial costs.\544\
---------------------------------------------------------------------------

    \539\ See letter from Rio Tinto. These estimates exclude initial
set-up time required to design and implement the reporting process
and develop policies to ensure consistency among business units.
They also assume that an audit is not required.
    \540\ See letter from Barrick Gold.
    \541\ See letter from NMA 2. The estimate provided in the
Proposing Release was for the PRA analysis.
    \542\ See letter from NMA 2.
    \543\ See letter from NMA 2.
    \544\ See letters from API 2, ExxonMobil 3, and RDS 4.
---------------------------------------------------------------------------

    Other commentators believed that concerns over compliance costs
have been overstated.\545\ One commentator stated that most issuers
already have internal systems in place for recording payments that
would be required to be disclosed under Section 13(q) and that many
issuers currently are subject to reporting requirements at a project
level.\546\ Another commentator anticipated that while the rules will
likely result in additional costs to resource extraction issuers, such
costs would be marginal in scale because in the commentator's
experience many issuers already have extensive systems in place to
handle their current reporting requirements, and any adjustments needed
as a result of Section 13(q) could be done in a timely and cost-
effective manner.\547\ Another commentator believed that issuers could
adapt their current systems in a cost-effective manner because issuers
should be able to adapt a practice undertaken in one operating
environment to those in other countries without substantial changes to
the existing systems and processes of an efficiently-run
enterprise.\548\
---------------------------------------------------------------------------

    \545\ See letters from ERI 2, Oxfam 1, PWYP 1, and RWI 1.
    \546\ See letter from RWI 1. This commentator stated that
issuers already have internal systems in place for reporting
requirements at the project level ``as [RWI] believe[s] that term
should be defined'' and provides examples (e.g., Indonesia requires
reporting at the production sharing agreement level; companies in
the U.S. report royalties by lease).
    \547\ See letter from Hermes.
    \548\ See letter from RWI 1.
---------------------------------------------------------------------------

    Another commentator stated that, in addition to issuers already
collecting the majority of information required to be made public under
Section 13(q) for internal record-keeping and audits, U.S. issuers
already report such information to tax authorities at the lease and
license level.\549\ This commentator added that efficiently-run
companies should not have to make extensive changes to their existing
systems and processes to export practices undertaken in one operating
environment to another.\550\
---------------------------------------------------------------------------

    \549\ See letter from PWYP 1.
    \550\ See letter from PWYP 1 (citing statement made by Calvert
Investments at a June 2010 IASB-sponsored roundtable).
---------------------------------------------------------------------------

    One commentator, while not providing competing estimates,
questioned the accuracy of the assertions relating to costs from
industry participants.\551\ This commentator cited the following
factors which led it to question the cost assertions from industry
participants: (i) Some issuers already report project-level payments in
certain countries in one form or another and under a variety of
regimes; (ii) some EITI countries are already moving toward project-
level disclosure; and (iii) it is unclear whether issuers can save much
time or money by reporting government payments at the material project
or country level.\552\ This commentator also explained that issuers
must keep records of their subsidiaries' payments to governments as
part of the books and records provisions of the

Foreign Corrupt Practices Act, so the primary costs of reporting these
payments will be in the presentation of the data rather than any need
to institute new tracking systems.\553\ This commentator indicated that
to the extent that issuers may need to implement new accounting and
reporting systems to keep track of government payments, then issuers
presumably will need to develop mechanisms for receiving and
attributing information on individual payments regardless of the form
the final rules take.\554\ The commentator also observed that the
proposed rules simply would require companies to provide the payment
information in its raw form, rather than requiring them to process it
and disclose only those payments from projects they deem to be
``material,'' which could result in savings to issuers of time and
money by allowing them to submit data without having to go through a
sifting process.\555\ This commentator observed that none of the
commentators who submitted cost estimates attempted to quantify the
savings that would ``supposedly accrue'' if disclosure were limited to
``material'' projects, as compared to disclosure of all projects, and
noted that the Commission was not required to accept commentators' bare
assertions that their ``marginal costs would be reduced very
significantly.'' \556\
---------------------------------------------------------------------------

    \551\ See letter from ERI 2.
    \552\ See id.
    \553\ See id.
    \554\ See id.
    \555\ See id.
    \556\ See id.
---------------------------------------------------------------------------

    One commentator disagreed that issuers already report the payment
information required by Section 13(q) for tax purposes.\557\ According
to that commentator, ``[t]his is a simplistic view, and the problem is
that tax payments for a specific year are not necessarily based on the
actual accounting results for that year.'' \558\ This commentator also
noted that tax reporting and payment periods may differ.\559\
---------------------------------------------------------------------------

    \557\ See letter from Rio Tinto.
    \558\ See id.
    \559\ See id.
---------------------------------------------------------------------------

    Some commentators suggested that the statutory language of Section
13(q) gives the Commission discretion to hold individual company data
in confidence and to use that data to prepare a public report
consisting of aggregated payment information by country.\560\ Other
commentators strongly disagreed with the interpretation that Section
13(q) could be read not to 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.\561\ The
commentators suggesting the Commission make public only a compilation
of information submitted confidentially by resource extraction issuers
argued such an approach would address many of their concerns regarding
disclosure of commercially sensitive or legally prohibited information
and would significantly mitigate the costs of the mandatory disclosure
under Section 13(q). As noted above, we have not taken this approach in
the final rules because we believe Section 13(q) requires resource
extraction issuers to provide the payment disclosure publicly and does
not contemplate confidential submissions of the required information.
As a result, the final rules require public disclosure of the
information. We note that in situations involving more than one
payment, the information will be aggregated by payment type,
government, and/or project, and therefore may limit the ability of
competitors to use the information to their advantage.
---------------------------------------------------------------------------

    \560\ See note 381 and accompanying text.
    \561\ See letters from Calvert, PWYP 1, RWI 1, Sen. Cardin et
al. 1, Sen. Cardin et al. 2, and Sen. Levin 1.
---------------------------------------------------------------------------

    To the extent public disclosure of this information could result in
costs related to competitive concerns, we note that even if we
permitted issuers to provide the information confidentially to us and
we were to publish a compilation of the information, interested parties
might still be able to obtain the information pursuant to the Freedom
of Information Act (FOIA).\562\ Section 13(q) does not state that it
provides any special protection from FOIA disclosure for information
required to be submitted. Thus, the same competitive concerns could
still exist.
---------------------------------------------------------------------------

    \562\ FOIA requires all federal agencies to make specified
information available to the public, including the information
required to be filed publicly under our rules. To the extent that
the information required to be filed does not fall within one of the
exemptions in FOIA (e.g., FOIA provides an exemption for ``trade
secrets and commercial or financial information obtained from a
person and privileged or confidential''; 5 U.S.C. 552(b)(4)) the
information required to be filed would not be protected from FOIA
disclosure.
---------------------------------------------------------------------------

    One commentator expressed concerns with the proposed requirement to
prepare the payment disclosures on the cash-basis of accounting, and
noted that because registrants' existing reporting processes and
accounting systems are based on the accrual method of accounting (and
require certain payments to be capitalized), the proposal would impose
a burden on resource extraction issuers' accounting groups to develop
new information system, processes, and controls.\563\
---------------------------------------------------------------------------

    \563\ See letter from PWC.
---------------------------------------------------------------------------

    Several commentators stated that the Commission should define ``not
de minimis'' to mean material.\564\ According to those commentators, a
definition based on materiality would be consistent with the EITI and
the Commission's longstanding disclosure regime, and would encourage
consistency of disclosure across issuers.\565\ Although a materiality-
based definition might result in reduced compliance costs for issuers,
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,\566\ ``not de minimis'' does not equate to a materiality
standard.
---------------------------------------------------------------------------

    \564\ See note 224 and accompanying text.
    \565\ See notes 225 and 226 and accompanying text.
    \566\ See note 251 and accompanying text.
---------------------------------------------------------------------------

    Consistent with Section 13(q), the final rules require resource
extraction issuers to disclose payments made by a subsidiary or entity
under the control of the issuer. Some commentators suggested that we
limit the requirement to disclose only those payments made by an issuer
and its subsidiaries for which consolidated financial information is
provided. Although limiting the requirement might result in reduced
compliance costs for issuers, we do not believe it would be appropriate
to do so because the statute specifically states that resource
extraction issuers must disclose payments made by subsidiaries and
entities under the control of the issuer.
    The final rules clarify that the term ``foreign government''
includes foreign subnational governments and define the term to
explicitly include 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. Thus, resource extraction issuers will be required
to provide information about payments made to foreign subnational
governments. This broad definition may increase disclosure costs
compared to a less detailed definition, but we believe Section 13(q)
requires this broader definition, because Section 13(q) defines the
term ``foreign government'' and requires issuers to include an
electronic tag identifying the government that received the payments,
and the country in which the government is located. The statutory
requirement to provide electronic tags for both the government that
received the payments and the

country in which the government is located indicates that the intent of
the statute is to include foreign subnational governments in the
definition of ``foreign governments.'' This clarification should
further the statutory goal of increasing transparency with regard to
the payments made to foreign governments.
    In addition to direct compliance costs, we expect that the statute
could result in significant economic effects. Issuers that have a
reporting obligation under Section 13(q) could be put at a competitive
disadvantage with respect to private companies and foreign companies
that are not subject to the reporting requirements of the United States
federal securities laws and therefore do not have such an obligation.
For example, such competitive disadvantage could result from, among
other things, any preference by the government of the host country to
avoid disclosure of covered payment information, or any ability of
market participants to use the information disclosed by reporting
issuers to derive contract terms, reserve data, or other confidential
information. With respect to the latter concern, the potential anti-
competitive effect of the required disclosures may be tempered because,
under the statute, only the amount of covered payments needs to be
disclosed, not the manner in which such payments are determined or
other contract terms. Some commentators have stated that confidential
production and reserve data can be derived by competitors or other
interested persons with industry knowledge by extrapolating from the
payment information required to be disclosed.\567\ Other commentators
have argued, however, that such extrapolation is not possible, and that
information of the type required to be disclosed by Section 13(q) would
not confer a competitive advantage on industry participants not subject
to such disclosure requirements.\568\ Any competitive impact of Section
13(q) should be minimal in those jurisdictions in which payment
information of the types covered by Section 13(q) is already publicly
available.\569\ In addition, the competitive impact may be reduced to
the extent that other jurisdictions, such as the EU, adopt laws to
require disclosure similar to the disclosure required by Section 13(q)
and the related rules.\570\ If the requirement to disclose payment
information does impose a competitive disadvantage on an issuer, such
issuer possibly may be incented to sell assets affected by such
competitive disadvantage at a price that does not fully reflect the
value of such assets, absent such competitive impact.\571\
Additionally, resource extraction issuers operating in countries which
prohibit, or may in the future prohibit, the disclosure required under
the final rules could bear substantial costs.\572\ Such costs could
arise because issuers may have to choose between ceasing operations in
certain countries or breaching local law, or the country's laws may
have the effect of preventing them from participating in future
projects. Some commentators asserted that four countries currently have
such laws,\573\ although other commentators disputed the assertion that
there are foreign laws that specifically prohibit disclosure of payment
information.\574\ A foreign private issuer with operations in a country
that prohibits disclosure of covered payments, or foreign issuer that
is domiciled in such country, might face different types of costs--it
might decide it is necessary to delist from an exchange in the United
States, deregister, and cease reporting with the Commission,\575\ thus
incurring a higher cost of capital and potentially limited access to
capital in the future. In addition, it is possible that more countries
will adopt laws prohibiting the disclosure required by the final rules.
Shareholders, including U.S. shareholders, might suffer an economic and
informational loss if an issuer decides it is necessary to deregister
and cease reporting under the Exchange Act in the United States.
---------------------------------------------------------------------------

    \567\ See letters from API 1, ExxonMobil 1, and RDS 1.
    \568\ See letters from PWYP 1 and Oxfam 1.
    \569\ PWYP provides examples of countries in which payments are
publicly disclosed on a lease or concession level. See letter from
PYWP 3.
    \570\ One commentator suggested that if both the US and EU
implement disclosure requirements regarding payments to governments
``around 90% of the world's extractive companies will be covered by
the rules.'' See letter from Arlene McCarthy (August 10, 2012)
(Arlene McCarthy is a member of the European Parliament and the
parliamentary draftsperson on the EU transparency rules for the
extractive sector).
    \571\ For example, a study on divestitures of assets finds that
companies that undertake voluntary divestitures have positive stock
price reactions but finds that companies forced to divest assets due
to action undertaken by the antitrust authorities suffer a decrease
in shareholder value. See Kenneth J. Boudreaux, ``Divestiture and
Share Price.'' Journal of Financial and Quantitative Analysis 10
(September 1975), 619-26. G. Hite and J. Owers. ``Security Price
Reactions around Corporate Spin-Off Announcements.'' Journal of
Financial Economics 12 (December 1983), 409-36 (finding that firms
spinning off assets because of legal/regulatory difficulties
experience negative stock returns).
    \572\ See notes 52 and 53 and accompanying text.
    \573\ See letters from API 1 and ExxonMobil 1. See also letter
from RDS 1 (mentioning China, Cameroon, and Qatar).
    \574\ See, e.g., letters from ERI 3, Global Witness 1, PWYP 1,
PWYP 3, and Rep. Frank et al.
    \575\ See letter from Berns.
---------------------------------------------------------------------------

    Addressing other potential costs, one commentator referred to a
potential economic loss borne by shareholders, without quantifying such
loss, which the commentator believed could result from highly
disaggregated disclosures of competitively sensitive information
causing competitive harm.\576\ The commentator also noted resource
extraction issuers could suffer competitive harm because they could be
excluded from many future projects altogether.\577\ Another commentator
noted that tens of billions of dollars of capital investments would
potentially be put at risk if issuers were required to disclose,
pursuant to our rules, information prohibited by the host country's
laws or regulations.\578\ One commentator also noted that because
energy underlies every aspect of the economy, these negative impacts
have repercussions well beyond resource extraction issuers.\579\
---------------------------------------------------------------------------

    \576\ See letter from API 1.
    \577\ See id.
    \578\ See letter from RDS 4.
    \579\ See letter from API 1.
---------------------------------------------------------------------------

    As discussed above, several commentators suggested that we adopt
exemptions or modify the disclosure requirements to mitigate the
adverse impact of the Section 13(q) reporting requirement.\580\ One
commentator indicated that the final rules should be ``aligned and
coordinated'' with the process being developed by the DOI to fulfill
the United States' commitment to implementing the EITI.\581\ We
considered alternatives to the approach we are adopting in the final
rules, including providing certain exemptions from the disclosure
requirements mandated by Section 13(q), but we believe that adopting
any of the alternatives would be inconsistent with Section 13(q) and
would undermine Congress' intent to promote international transparency
efforts. In

Section 13(q) Congress mandated that we adopt rules with a specific
scope and features (e.g., ``not de minimis'' threshold, project level
reporting, and electronic tagging). To faithfully effectuate
Congressional intent, we do not believe it would be appropriate to
adopt provisions that would frustrate, or otherwise be inconsistent
with, such intent. Consequently, we believe the competitive burdens
arising from the need to make the required disclosures under the final
rules are necessary by the terms of, and in furtherance of the purposes
of, Section 13(q).
---------------------------------------------------------------------------

    \580\ See, e.g., notes 50, 60, and 66 and accompanying text.
    \581\ See letter from NMA 3. See also note 14. Referring to
Executive Orders 13563 and 13610, the commentator suggested that we
align the final rules with the process being developed by DOI so
that ``extractive industries are not subject to contradictory or
overlapping reporting processes.'' As we have described above, the
final rules are generally consistent with the EITI, except where the
language of Section 13(q) clearly deviates from the EITI. In these
instances, the final rules generally track the statute because, on
these specific points, we believe the statutory language
demonstrates that Congress intended the final rules to go beyond
what is required by the EITI. In this regard, we view the reporting
regime mandated by Section 13(q) as being complementary to, rather
than duplicative of, host country transparency initiatives
implemented under the EITI.
---------------------------------------------------------------------------

    A number of factors may serve to mitigate the competitive burdens
arising from the required disclosure. We note there were differences in
opinion among commentators as to the applicability of host country
laws.\582\ Moreover, the widening global influence of the EITI and the
recent trend of other jurisdictions to promote transparency, including
listing requirements adopted by the Hong Kong Stock Exchange and
proposed directive of the European Commission, may discourage
governments in resource-rich countries from adopting new prohibitions
on payment disclosure.\583\ Reporting companies concerned that
disclosure required by Section 13(q) may be prohibited in a given host
country may also be able to seek authorization from the host country in
order to disclose such information, reducing the cost to such reporting
companies resulting from the failure of Section 13(q) to include an
exemption for conflicts with host country laws.\584\ Commentators did
not provide estimates of the cost that might be incurred to seek such
an authorization.
---------------------------------------------------------------------------

    \582\ See note 84.
    \583\ See notes 15 and 48.
    \584\ The Angola Order indicates that the Minister of Petroleum
may provide formal authorization for the disclosure of information
regarding a reporting company's activities in Angola. See letter
from ExxonMobil 2. See also letter from PWYP 2 (``Current corporate
practice suggests that the Angolan government regularly provides
this authorization. For instance, Statoil regularly reports payments
made to the Angolan government.'' (internal citations omitted)). The
legal opinions submitted by Royal Dutch Shell with its comment
letter also indicate that disclosure of otherwise restricted
information may be authorized by government authorities in Cameroon
and China, respectively. See letter from RDS 2.
---------------------------------------------------------------------------

    Not providing any exemptions should improve the transparency of the
payment information because users of the Section 13(q) disclosure can
obtain more information about payments than would otherwise be the case
if the final rules provided an exemption. To the extent that other
jurisdictions are developing and planning to adopt similar initiatives
(e.g., EU), the advantage to foreign companies not listed in the U.S.
might diminish over time. Further, not providing any exemptions also
improves the comparability of payment information among resource
extraction issuers and across countries. As such, it may increase the
benefit to users of the Section 13(q) disclosure. In addition, in light
of the absence of an exemption from the disclosure requirement for
foreign laws that prohibit the payment disclosure, countries may be
less incentivized to enact laws prohibiting the disclosure.
    Unlike many of the Commission's rulemakings, the compliance costs
imposed by disclosure requirement mandated by Section 13(q) are
intended to achieve social benefits. As noted above, the cost of
compliance for this provision will be borne by the shareholders of the
company thus potentially diverting capital away from other productive
opportunities which may result in a loss of allocative efficiency.\585\
Such effects may be partially offset if increased transparency of
resource extraction payments reduces rent-seeking behavior by
governments of resource-rich countries and leads to improved economic
development and higher economic growth. A number of economic studies
have shown that reducing corruption results in higher economic growth
through more private investments, better deployment of human capital,
and political stability.\586\
---------------------------------------------------------------------------

    \585\ See letter from Chevron; see also letter from Chairman
Bachus and Chairman Miller.
    \586\ See Paolo Mauro, ``Corruption and Growth.'' Quarterly
Journal of Economics. 110, 681-712 (1995); Pak Hung Mo, ``Corruption
and Economic Growth.'' Journal of Comparative Economics 29, 66-79
(2001); K. Gyimah-Brempong, ``Corruption, economic growth, and
income inequality in Africa'', Economics of Governance 3, 183-209
(2002); K. Blackburn, N. Bose, and E.M. Haque, ``The Incidence and
Persistence of Corruption in Economic Development'', Journal of
Economic Dynamics and Control 30, 2447-2467 (2006); Pierre-Guillaume
M[eacute]on and Khalid Sekkat, ``Does corruption grease or sand the
wheels of growth?'', Public Choice 122, 69-97 (2005).
---------------------------------------------------------------------------

C. Benefits and Costs Resulting From Commission's Exercise of
Discretion

    As discussed in detail in Section II, we have revised the rules
from the Proposing Release to address comments we received while
remaining faithful to the language and intent of the statute as adopted
by Congress. In addition to the statutory benefits and costs noted
above, we believe that the use of our discretion in implementing the
statutory requirements will result in a number of benefits and costs to
issuers and users of the payment information. We discuss below the
choices we made in implementing the statute and the associated benefits
and costs. We are unable to quantify the impact of each of the
decisions we discuss below with any precision because reliable,
empirical evidence regarding the effects is not readily available to
the Commission. Thus, in this section, our discussion on the costs and
benefits of our individual discretionary choices is qualitative. In
Section III.D. below, we present a quantified analysis on the overall
costs of the final rules that include all aspects of the implementation
of the statute.
1. Definition of ``Commercial Development of Oil, Natural Gas, or
Minerals''
    Consistent with the proposal, the final rules define ``commercial
development of oil, natural gas, or minerals'' to include exploration,
extraction, processing, and export, or the acquisition of license for
any such activity. As described above, the final rules we are adopting
generally track the language in the statute, and except for where the
language or approach of Section 13(q) clearly deviates from the EITI,
the final rules are consistent with the EITI. In instances where the
language or approach of Section 13(q) clearly deviates from the EITI,
the final rules track the statute rather than the EITI. The definition
of ``commercial development'' in Section 13(q) sets forth a clear list
of activities that appears to include activities beyond what is
currently contemplated by the EITI, and thus, clearly deviates from the
EITI. Therefore, we believe the definition of the term in the final
rules should be consistent with Section 13(q). The final rules we are
adopting do not include additional activities, such as transportation
or marketing, because those activities are not included in Section
13(q) and because the EITI does not explicitly include those
activities. We believe defining the term in this way is consistent with
Congress' goal of promoting international transparency efforts. To the
extent that the definition of ``commercial development'' is consistent
with the activities typically included in EITI programs, the final
rules may promote consistency and comparability of disclosure made
pursuant to Section 13(q) and the related rules and EITI programs,
which may further Congress' goal of supporting international
transparency promotion efforts. We recognize that limiting the
definition to this list of specified activities could result in costs
to users of the payment information to the extent that disclosure about
additional activities, such as refining, smelting, marketing, or stand-
alone transportation

services (that is, transportation that is not otherwise related to
export), would be useful to users of the information.
    As noted above, to promote the goals of the provision, the final
rules include an anti-evasion provision that requires disclosure with
respect to an activity or payment that, although not in form or
characterization one of the categories specified under the final rules,
is part of a plan or scheme to evade the disclosure required under
Section 13(q).\587\ Under this provision, a resource extraction issuer
could not avoid disclosure, for example, by re-characterizing an
activity that would otherwise be covered under the final rules as
transportation. We recognize that adding this requirement may increase
the compliance costs for some issuers; however, we believe this
provision is appropriate in order to minimize evasion and improve the
effectiveness of the disclosure, thereby furthering Congress' goal.
---------------------------------------------------------------------------

    \587\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We considered requiring disclosure about additional activities such
as refining, smelting, marketing, or stand-alone transportation
services, but determined not to include those activities in the
definition of ``commercial development'' for the reasons described
above and because it would unnecessarily increase compliance costs for
issuers. We also considered adopting a definition of ``commercial
development'' that omitted one or more of the statutorily-listed
activities, such as ``export,'' as some commentators had
suggested.\588\ We decided against that alternative because, although
it might result in less costs for issuers, the plain language of
Section 13(q) does not support that approach.
---------------------------------------------------------------------------

    \588\ See, e.g., letters from API 1 and ExxonMobil 1.
---------------------------------------------------------------------------

    In response to commentators' request for clarification of the
activities covered by the final rules, we also are providing guidance
about the activities covered by the terms ``extraction,''
``processing,'' and ``export.'' The guidance should reduce uncertainty
about the scope of the activities that give rise to disclosure
obligations under Section 13(q) and the related rules, and therefore
should facilitate compliance and help to lessen the costs associated
with the disclosure requirements.
2. Types of Payments
    In the final rules we added two additional categories of payments
to the list of payment types that must be disclosed--dividends and
payments for infrastructure improvements. We included these payment
types in the final rules because, based on the EITI and the comments we
received on the proposal, we believe they are part of the commonly
recognized revenue stream.\589\ Defining the term ``payment'' to
include dividends \590\ and payments for infrastructure improvements
(e.g., building a road) in the list of payment types required to be
disclosed under the final rules should promote consistency with EITI
reporting and improve the effectiveness of the disclosure, thereby
furthering Congress' goal of supporting international transparency
promotion efforts. Defining ``payment'' to include dividends and
payments for infrastructure improvements also could help alleviate
competitiveness concerns by imposing similar disclosure requirements on
issuers that make such payments and issuers that make other types of
payments, such as royalties, production entitlements, or fees, required
to be disclosed under the final rules.
---------------------------------------------------------------------------

    \589\ See notes 164, 176, and 177 and accompanying text.
    \590\ The final rules generally do not require the disclosure of
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 be
required to disclose dividends paid to a government in lieu of
production entitlements or royalties. See Instruction 7 to Item 2.01
of Form SD.
---------------------------------------------------------------------------

    As discussed earlier, resource extraction issuers will incur costs
to provide the payment disclosure for the payment types identified in
the statute, such as the costs associated with modifications to the
issuers' core enterprise resource planning systems and financial
reporting systems to capture and report the payment data at the project
level, for each type of payment, government payee, and currency of
payment.\591\ The addition of dividends and payments for infrastructure
improvements to the list of payment types for which disclosure is
required may increase some issuers' costs of complying with the final
rules. For example, issuers may need to add these types of payments to
their tracking and reporting systems. We understand that these types of
payments are more typical for mineral extraction issuers than for oil
firms,\592\ and therefore only a subset of the issuers subject to the
final rules might be affected.
---------------------------------------------------------------------------

    \591\ See note 529 and accompanying text.
    \592\ See, e.g., letters from PWYP 1 and Global Witness 1; see
also Chapter 19 ``Advancing the EITI in the Mining Sector:
Implementation Issues'' by Sefton Darby and Kristian Lempa, in
Advancing the EITI in the Mining Sector: A Consultation with
Stakeholders (EITI 2009).
---------------------------------------------------------------------------

    The final rules do not require disclosure of certain other types of
payments, such as social or community payments. We recognize that
excluding those payments reduces the overall level of disclosure;
however, we have not included those payments as required payment types
under the final rules because commentators disagreed as to whether they
are part of the commonly recognized revenue stream for the commercial
development of oil, natural gas, or minerals and the EITI does not
require the disclosure of social or community payments.\593\ In
addition, by not including these types of payments, the final rules
should benefit issuers by avoiding additional compliance costs for
disclosure that does not clearly enhance the effectiveness of the
disclosure required under Section 13(q).
---------------------------------------------------------------------------

    \593\ See note 185 and accompanying discussion, above (citing
commentators suggesting that social or community payments constitute
part of the commonly recognized revenue stream of resource
extraction) and note 188 and accompanying discussion, above (citing
commentators maintaining that social or community payments are not
part of the commonly recognized revenue stream for the commercial
development of oil, natural gas, or minerals).
---------------------------------------------------------------------------

    Resource extraction issuers that predominantly make payments that
must be disclosed pursuant to the final rules may be at a competitive
disadvantage as compared to resource extraction issuers that
predominately make payments that are not identified in the final rules.
To the extent that other types of payments could be used to substitute
for explicitly defined payments, resource extraction issuers may try to
circumvent the required disclosures by shifting to other, not
explicitly defined payments, and away from the types of payments listed
in the final rules. This could have the effect of reducing the
transparency contemplated by the statute. For example, the exclusion of
social or community payments might encourage issuers to mask other
payments, such as infrastructure improvement payments, as social or
community payments to avoid reporting under the rules, limiting the
effectiveness of the disclosure. As noted above, to promote the goals
of Section 13(q), the final rules include an anti-evasion provision
that requires disclosure with respect to an activity or payment that,
although not in form or characterization of one of the categories
specified under the final rules, is part of a plan or scheme to evade
the disclosure required under Section 13(q).\594\ Under this provision,
a resource extraction issuer could not avoid disclosure, for example,
by re-characterizing or re-configuring a payment as one that is not
required to be disclosed. We considered, as an alternative to an anti-
evasion provision, defining terms broadly to cover a wider range of
activities, but

determined that more expansive definitions could increase compliance
costs for resource extraction issuers and that an anti-evasion
provision should result in lower compliance costs and would accomplish
the statute's transparency goals.
---------------------------------------------------------------------------

    \594\ See Instruction 9 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    As discussed above, the final rules clarify that the term ``fees''
includes license fees, rental fees, entry fees, and other
considerations for licenses or concessions, and the term ``bonuses''
includes signature, discovery, and production bonuses. In addition, the
final rules 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. These clarifications are consistent with
the EITI and, therefore, should help promote comparability and support
international transparency promotion efforts. Moreover, these
clarifications should benefit issuers by reducing uncertainty about the
types of payments required to be disclosed under Section 13(q) and the
related rules, and therefore should facilitate compliance and help
mitigate costs. On the other hand, inclusion of these specific types of
fees, taxes, and bonuses could increase compliance costs for issuers,
particularly for issuers that have not participated in an EITI program
and would not track or report these items except for our clarification.
    Under the final rules, issuers may disclose payments that are made
for obligations levied at the entity level, such as corporate income
taxes, at that level rather than the project level. This accommodation
should help reduce compliance costs for issuers without interfering
with the goal of achieving increased payment transparency.
    Under the final rules, issuers must disclose payments made in-kind.
This requirement is consistent with the EITI and should help further
the goal of supporting international transparency promotion efforts and
enhance the effectiveness of the disclosure. We have provided issuers
with some flexibility in reporting in-kind payments. Resource
extraction issuers may report in-kind payments at cost, or if cost is
not determinable, at fair market value, which we believe should
facilitate compliance with Section 13(q) and potentially lower
compliance costs. This requirement could impose costs to the extent
that issuers have not previously had to value their in-kind payments,
or they use a different method to value those payments.
3. Definition of ``Not De Minimis''
    Section 13(q) requires the disclosure of payments that are ``not de
minimis,'' but leaves the term ``not de minimis'' undefined. In the
final rules we define ``not de minimis'' to mean any payment, whether
made as a single payment or a series of related payments, that equals
or exceeds $100,000. Although we considered leaving ``not de minimis''
undefined, as we had proposed, we were convinced by commentators that
defining this term should help to promote consistency in payment
disclosures and reduce uncertainty about what payments must be
disclosed under Section 13(q) and the related rules, and therefore
should facilitate compliance.\595\ As noted above, because the primary
purpose of Section 13(q) is to further international transparency
efforts regarding payments to governments for the commercial
development of oil, natural gas, or minerals, we believe that whether a
payment is ``not de minimis'' should be considered in relation to a
host country. We recognize that issuers may have difficulty assessing
the significance of particular payments for particular countries or
recipient governments; therefore, we are adopting a $100,000 threshold
that we believe will provide clear guidance about payments that are
``not de minimis'' and promote the transparency goals of the statute.
---------------------------------------------------------------------------

    \595\ See notes 223 and 231-233 and accompanying text.
---------------------------------------------------------------------------

    We considered adopting a definition of ``not de minimis'' that was
based on a qualitative principle or a relative quantitative measure
rather than an absolute quantitative standard.\596\ We chose the
absolute quantitative approach for several reasons. An absolute
quantitative approach will promote consistency of disclosure and, in
addition, will be easier for issuers to apply than a definition based
on either a qualitative principle or relative quantitative
measure.\597\ Moreover, using an absolute dollar amount threshold for
disclosure purposes should also reduce compliance costs by reducing the
work necessary to determine what payments must be disclosed.
---------------------------------------------------------------------------

    \596\ As previously noted, we declined to adopt a ``not de
minimis'' definition based on a materiality principle because that
alternative is not supported by the language of Section 13(q). See
note 566 and accompanying text.
    \597\ See note 252 and accompanying text.
---------------------------------------------------------------------------

    Therefore, in choosing the ``de minimis'' amount, we selected an
amount that we believe strikes an appropriate balance in light of
varied commentators' concerns and the purpose of the statute. Although
some commentators suggested various thresholds,\598\ no commentator
provided data to assist us in determining an appropriate threshold
amount.
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    \598\ See notes 235-243 and accompanying text.
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    We considered other absolute amounts but chose $100,000 as the
quantitative threshold in the definition of ``not de minimis.'' We
decided not to adopt a lower threshold because we are concerned that
such an amount could result in undue compliance burdens and raise
competitive concerns for many issuers. As previously noted, we believe
a $100,000 threshold is more appropriate than, and an acceptable
compromise to, the amounts suggested by commentators because it
furthers the purpose of Section 13(q) and may result in a lesser
compliance burden than otherwise would be the case if a lower threshold
was used.\599\ In addition, to prevent issuers from breaking down their
payments into amounts smaller than $100,000 and thus avoiding
disclosure, we provide an instruction in the final rules noting that in
the case of any arrangement providing for periodic payments or
installments of the same type, 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.
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    \599\ See notes 257-267 and accompanying text.
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    We also considered defining ``not de minimis'' in terms of a
materiality standard, which would generally suggest, consistent with
commentators views, a threshold larger than $100,000. Such an
alternative would likely have resulted in lower compliance costs for
issuers. We also could have chosen to use a larger number, such as
$1,000,000, to define ``not de minimis,'' which again would have
resulted in lower compliance costs. Although a ``not de minimis''
definition based on a materiality standard, or a much higher amount,
such as $1,000,000, could lessen competitive concerns, setting the
threshold too high could leave important payment streams undisclosed,
reducing the potential benefits to be derived from Section 13(q). In
addition, we believe 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. While the $100,000 threshold 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 for
resource extraction issuers to disclose payments that are ``not de
minimis.''
4. Definition of ``Project''
    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.'' As noted above, the final rules
leave the term undefined, but we have provided some guidance about the
term. Leaving the term ``project'' undefined should provide issuers
some 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, 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, and therefore, it would serve as the basis for
determining a ``project.'' We understand that the term ``project'' is
used within the extractive industry in a variety of contexts, and that
individual issuers routinely provide disclosure about their own
projects in their Exchange Act reports and other public statements. To
the extent that the meaning of ``project'' is generally understood by
resource extraction issuers and investors, leaving the term undefined
should not impose undue costs.
    Resource extraction issuers may incur costs in determining their
``projects.'' Leaving the term undefined in the final rules may result
in higher costs for some resource extraction issuers than others if an
issuer's determination of what constitutes a ``project'' would result
in more granular information being disclosed than another issuer's
determination of what constitutes a ``project.'' We anticipate that
these costs may diminish over time as resource extraction issuers
become familiar with how other resource extraction issuers determine
their ``projects.'' In addition, we recognize that leaving the term
``project'' undefined may not result in the transparency benefits that
the statute seeks to achieve as effectively as would be the case if we
adopted a definition because resource extraction issuers' determination
of what constitutes a ``project'' may differ, which could reduce the
comparability of disclosure across issuers. Inconsistent disclosure may
be mitigated to some extent by the guidance we are providing about the
term.
    We considered defining ``project'' at the country level. A number
of commentators asserted that this approach would further lower their
compliance burdens.\600\ While we recognize that approach would reduce
compliance burdens for issuers, we did not adopt it because we believe
it would be inconsistent with Congress' intent to provide more detailed
disclosure than at the country level and would not effectively result
in the transparency benefits that the statute seeks to achieve.\601\ 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 statutory
reference to ``project'' was intended to elicit disclosure at a more
granular level than country-level reporting.
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    \600\ See letters from API 1, ExxonMobil 1, Petrobras, and RDS
1.
    \601\ See note 313 and accompanying text.
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    We also considered defining ``project'' as a reporting unit, as
suggested by some commentators.\602\ We decided against that approach
because we believe that requiring disclosure at the reporting unit
level would be inconsistent with the use of the term ``project'' in
Section 13(q). In this regard we note that it is not uncommon for an
issuer to define a reporting unit as a geographic region (for example,
as a country or continent), which would result in aggregated payment
disclosure that is inconsistent with the transparency goal of the
statute.
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    \602\ See note 283 and accompanying text.
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    As suggested by some commentators, we considered defining
``project'' in relation to a particular geologic resource, such as a
``geologic basin'' or ``mineral district.'' \603\ We decided not to
adopt this approach because, as noted by some commentators,\604\ a
geologic basin or mineral district may span more than one country,
which would be counter to the country-by-country reporting required by
Section 13(q). In addition, we understand that defining the term in
this manner may not reflect how resource extraction issuers enter into
contractual arrangements for the extraction of resources, which define
the relationship and payment flows between the resource extraction
issuer and the government. For these reasons, we believe that defining
``project'' as a ``geologic basin'' may be inconsistent with the use of
the term ``project'' in Section 13(q) and may not result in the
transparency benefits that the statute seeks to achieve.
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    \603\ See note 286 and accompanying text.
    \604\ See note 290 and accompanying text.
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    In addition, we considered defining ``project'' by reference to a
materiality standard as it is used under the federal securities laws,
as suggested by some commentators.\605\ While such an approach could
reduce compliance burdens for issuers, we did not adopt it because we
believe it 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.
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    \605\ See note 291 and accompanying text.
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    To comply with the final rules, a resource extraction issuer could
be required to implement systems to track payments at a different level
of granularity than what it currently tracks, which could result in
added compliance and implementation costs. We expect, however, that to
the extent resource extraction issuers' systems currently track
``projects'' or information by reference to its contractual
arrangements, such costs should be reduced. Not defining the term
``project'' under the final rules could result in added compliance
costs when compared to the alternative of adopting a definition
suggested by some commentators. By not defining ``project'' as
``country,'' ``reporting unit,'' ``geologic basin,'' or ``material
project,'' as some commentators suggested,\606\ issuers could incur
costs relating to implementation of systems to track payment
information at a more granular level than what their current systems
track. In addition, by leaving the term undefined rather than adopting
one of the definitions suggested by commentators, the final rules may
effectively require disclosure that may result in voluminous
information and increase the costs to issuers to track and report.
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    \606\ See notes 279, 283, 286, and 291 and accompanying text.
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5. Annual Report Requirement
    Section 13(q) provides that the resource extraction payment
disclosure must be ``include[d] in an annual report.'' The final rules
require an issuer to file the payment disclosure in an annual report on
new Form SD, rather than furnish it in one of the existing Exchange Act
annual report forms as proposed. Form SD will be due no later

than 150 days after the end of the issuer's most recent fiscal year.
This should lessen the burden of compliance with Section 13(q) and the
related rules because issuers generally will not have to incur the
burden and cost of providing the payment disclosure at the same time
that it must fulfill its disclosure obligations with respect to an
Exchange Act annual report.\607\ An additional benefit is that this
requirement also would provide information to users in a standardized
manner for all issuers rather than in different annual report forms
depending on whether a resource extraction issuer is a domestic or
foreign filer. In addition, requiring the disclosure in new Form SD,
rather than in issuers' Exchange Act annual reports, should alleviate
concerns about the disclosure being subject to the officer
certifications required by Exchange Act Rules 13a-14 and 15d-14, thus
potentially lowering compliance costs.
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    \607\ For example, a resource extraction issuer may potentially
be able to save resources to the extent that the timing of its
obligations with respect to its Exchange Act annual report and its
obligations to provide payment disclosure allow for it to allocate
its resources, in particular personnel, more efficiently.
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    Resource extraction issuers will incur costs associated with
preparing and filing new Form SD; however, we do not believe the costs
associated with filing a new form to provide the disclosure instead of
furnishing the disclosure in an existing form will be significant.
    Requiring covered issuers to file, instead of furnish, the payment
information in Form SD may increase the ability of investors to bring
suit, for instance under Section 18 of the Exchange Act. This may
improve the avenues of redress available to investors if issuers fail
to comply with the new disclosure requirements. Because this could
improve investors' ability to seek redress, it is possible that
resource extraction issuers may be more accountable for and more likely
to make the required disclosure. This, in turn, may provide benefits to
investors to the extent they use the information to make investment
decisions. On the other hand, our decision to require issuers to file,
rather than furnish, the payment information will potentially subject
issuers to litigation under Section 18 and may cause issuers to take
greater care in preparing the disclosures, thereby increasing issuers'
costs of complying with the rules.\608\
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    \608\ While the potential for litigation may increase costs, we
note that Section 18 claims have not been prevalent in recent years
and a plaintiff asserting a claim under Section 18 would need to
meet the elements of the statute, including materiality, reliance,
and damages. See Louis Loss and Joel Seligman, Ch. 11 ``Civil
Liability,'' Subsect. c ``False Filings [Sec.  18],'' Fundamentals
of Securities Regulation (3rd Ed. 2005).
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    Finally, some commentators noted the potential for their cost
estimates to increase if the final rules required the payment
information to be audited. Consistent with Section 13(q) and the
proposal, the final rules do not require the resource extraction
payment information to be audited or provided on an accrual basis. Not
requiring the payment information to be audited or provided on an
accrual basis is consistent with Section 13(q) because the statute
requires the Commission to issue final rules for disclosure of payments
by resource extraction issuers and, unlike the EITI, does not
contemplate that an administrator will audit and reconcile the
information, or produce a report as a result of the audit and
reconciliation. In addition, not requiring the payment information to
be audited or provided on an accrual basis may result in lower
compliance costs than otherwise would be the case if resource
extraction issuers were required to provide the information on an
accrual basis or audited information.\609\ A potential cost associated