For those reasons, this commenter believed that the non-public
submission and anonymized compilation approach would best balance the
goals of achieving the objectives of Section 13(q) and preventing
unnecessary harm to resource extraction issuers.
---------------------------------------------------------------------------

    \148\ See letters from API (Mar. 16, 2020); Chamber; and NAM.
    \149\ See letter from API (Mar. 16, 2020).
    \150\ See id.
---------------------------------------------------------------------------

    We acknowledge the concerns raised about potential competitive
harm, but do not believe that adoption of the non-public submission and
anonymized compilation is necessary to avoid any such potential
competitive harm. Rather, as discussed above, we believe that adopting
the Modified Project Definition, under which issuers will not be
required to disclose overly descriptive disclosures potentially
revealing competitively sensitive information, is sufficient to address
any such risks.
    Moreover, we do not believe that adoption of the non-public
submission and anonymized compilation would achieve the same level of
transparency as our approach in the final rules. We acknowledge that
the anonymized compilation would reveal the payments to foreign
governments at all levels, including the specific agency and department
within the government. As such, it would provide some level of
transparency in foreign nations that currently do not disclose such
information, or do not do so accurately. Importantly, however, the
reduced transparency provided by an anonymized compilation would
significantly limit the usefulness of the disclosure because all
similar activities in the same subnational jurisdiction, regardless of
issuer, would be indistinguishable. Thus, we believe that this would be
much less effective in achieving Section 13(q)'s transparency goals as
compared to our approach.
    In this regard, we note that if Congress had simply been focused on
the disclosure of revenues into foreign governments, it would have been
sufficient to require only the disclosure of payments to foreign
governments required by Section 13(q)(2)(A)(ii), which requires
information about the payments to each government. Yet Congress also
included Section 13(q)(2)(A)(i), which mandates that the Commission's
rules must require the disclosure of the type and total amount of such
payments made ``for each project of the resource extraction issuer.''
Thus, we believe that the Modified Project Definition, which provides
for public disclosure of the issuer, is the more effective choice for
satisfying the CRA mandate and achieving the transparency goals of
Section 13(q).
    We also do not believe that it is necessary to adopt the non-public
submission and anonymized compilation approach to fulfill the CRA's
mandate that the new rule not be substantially the same as the
disapproved rule. Rather, as discussed above, we believe that adoption
of the Modified Project Definition will largely accomplish this
objective. We also believe that the other changes to the 2016 Rules
that we are adopting will further distinguish the final rules from the
disapproved rules and, in addition, help address concerns about the
rules' burdens. In addition to the Modified Project Definition,\151\
these changes include the rule-based exemptions for conflicts with
foreign law and pre-existing contracts; \152\ the exemptions for
smaller reporting companies and emerging growth companies; \153\
transitional relief for a resource extraction issuer that has completed
its initial public offering in its last full fiscal year; \154\ and an
extended

submission deadline.\155\ Adoption of the proposed delayed reporting
for exploratory activities, which we first adopted in 2016, should also
help to mitigate the potential for competitive harm.\156\
---------------------------------------------------------------------------

    \151\ See supra Section II.A.
    \152\ See infra Sections II.D.1. and 2.
    \153\ See infra Section II.D.3.
    \154\ See infra Section II.D.6
    \155\ See infra Section II.L.2.
    \156\ See infra Section II.D.4.
---------------------------------------------------------------------------

    Moreover, like the 2016 Rules, the final rules will include
contractually required social and community payments among the required
disclosures,\157\ and issuers will be required to disclose those
payments made to subnational governments while identifying each
subnational government payee.\158\ As such, the users of the
information may be able to assess whether the local communities are in
fact receiving the promised payments and whether those payments are
being used by the governments for their intended purpose.\159\
---------------------------------------------------------------------------

    \157\ See infra Section II.J.5.
    \158\ See infra Section II.G.
    \159\ Social or community payments are frequently made as
accommodations by resource extraction issuers to local communities
impacted by extractive activities. For example, when filing its
Exchange Act annual report, a mining registrant is required to
attach a technical report summary prepared by its mining expert (its
``qualified person''), which must include a description of
``accommodations the registrant commits or plans to provide to local
individuals or groups in connection with its mine plans.'' See 17
CFR 229.601(b)(96)(iii)(B)(17)[Item 601(b)(96)(iii)(B)(17) of
Regulation S-K.
---------------------------------------------------------------------------

    Finally, although not a primary goal of Section 13(q), we note that
adoption of the requirement for issuer-specific, public disclosure may
nevertheless help to further Section 13(q)'s directive to support the
commitment of the Federal Government to international transparency
promotion efforts relating to the commercial development of oil,
natural gas, or minerals.\160\ As commenters noted, all other existing
reporting regimes require public disclosure of the payment information,
including the identity of the issuer.\161\ Adoption of a similar
requirement under Section 13(q) would be consistent with the statutory
directive to support the commitment of the Federal Government to
international transparency efforts by increasing the total number of
companies that provide public, issuer-specific disclosure.
---------------------------------------------------------------------------

    \160\ 15 U.S.C. 78m(q)(2)(E).
    \161\ See supra note 147. See also ESTMA Specifications, Section
2.4 (``Reporting Entities are required to publish their reports on
the internet so they are available to the public''); and EU
Accounting Directive Arts. 42(1) and 45(1) (requiring disclosure of
payments to governments in a report made public on an annual basis
and published pursuant to the laws of each member state). We are not
aware of any existing transparency regimes that do not require
public disclosure.
---------------------------------------------------------------------------

2. Public Compilation
    Consistent with Section 13(q),\162\ and as proposed, the final
rules provide that, to the extent practicable, the staff will
periodically make a compilation of the information that issuers are
required to submit under Section 13(q) publicly available online.\163\
The staff may determine the form, manner, and timing of the
compilation,\164\ except that no information included in the
compilation may be anonymized, whether by redacting the names of the
resource extraction issuers or otherwise. Since we are requiring the
public disclosure of the payment information on Form SD, we do not
believe it would be appropriate or useful to anonymize any of the
information in the compilation.\165\
---------------------------------------------------------------------------

    \162\ See 15 U.S.C. 78m(q)(3).
    \163\ See 17 CFR 240.13q-1(e).
    \164\ See id. We do not anticipate that the staff would produce
such a compilation more frequently than once a year.
    \165\ Except for comments that addressed the anonymized
compilation approach, see supra Section II.B.1., we did not receive
any comments that addressed the proposed compilation provision.
---------------------------------------------------------------------------

C. Definition of a ``Not De Minimis'' Payment

    Section 13(q) defines ``payment'' in part to mean a payment that is
made to further the commercial development of oil, natural gas, or
minerals and that is not de minimis.\166\ Section 13(q), however, does
not define ``not de minimis.'' \167\ We proposed to define ``not de
minimis'' to mean any payment made to each foreign government in a host
country or the Federal Government that equals or exceeds $150,000, or
its equivalent in the issuer's reporting currency, whether made as a
single payment or series of related payments, subject to the condition
that single payment (or a series of related payments) disclosure for a
project is only required if the total payments for a project equal or
exceed $750,000.\168\ This proposed definition differed from the
definition of ``not de minimis'' in the 2016 Rules, which defined a
``not de minimis'' payment in relevant part as one that equals or
exceeds $100,000, whether made as a single payment or series of related
payments.\169\ We proposed this change in light of previously expressed
concerns from commenters that the threshold was unreasonably low and
costly to calculate \170\ and the likely impact of the proposed revised
definition of project, which would allow aggregation of payments at a
higher level and likely increase the value of the individual types of
payments.\171\
---------------------------------------------------------------------------

    \166\ See 15 U.S.C. 78m(q)(1)(C).
    \167\ Consistent with the 2012 and 2016 Rules, we continue to
believe that it is appropriate to adopt a definition of ``not de
minimis'' to provide clear guidance regarding when a resource
extraction issuer must disclose a payment.
    \168\ See 2019 Rules Proposing Release at Section II.C.9.
    \169\ See 2016 Adopting Release, Section II.C.3.c. The 2012
Rules also defined a ``not de minimis'' payment using the $100,000
threshold. See 2012 Adopting Release, Section II.D.2.c.
    \170\ See 2019 Rules Proposing Release at Section II.C.9 (citing
letter from Nouveau Inc. (Feb. 16, 2016) (stating that the $100,000
reporting threshold would be unreasonably low for companies working
on massive scale projects and would require parties to engage in the
costly collection, compilation, and standardization of potentially
thousands of different data points).
    \171\ See id.
---------------------------------------------------------------------------

    Several commenters supported the proposed definition of ``not de
minimis'' as any payment that equals or exceeds $150,000 made in
connection with a project that equals or exceeds $750,000 in total
payments. For example, one commenter stated that the proposed
definition would reduce compliance costs by allowing companies to forgo
reporting on payments that are insignificant to the project and to
their investors.\172\ Another commenter stated that the proposed not de
minimis thresholds would help preserve shareholder resources and enable
long-term growth within the resource extraction industry.\173\
---------------------------------------------------------------------------

    \172\ See letter from NAM.
    \173\ See letter from SAF.
---------------------------------------------------------------------------

    Numerous commenters opposed the proposed definition of a ``not de
minimis'' payment.\174\ Several commenters stated that the proposed
definition would undermine Congressional intent underlying Section
13(q) by eliminating a significant amount of project and payment
disclosures.\175\ In support of this statement, some commenters
referred to a study of 4,018 projects conducted by 731 companies that
have published reports pursuant to the payments-to-governments laws of
the EU, United Kingdom, Canada, and Norway.\176\

Utilizing the most recent payments-to-governments reports submitted by
these companies, the study indicated that 49% of the reported projects,
when using the Modified Project Definition, would fall below the
$750,000 threshold and, therefore, go unreported. This study led
commenters to assert that the proposed definition would severely
undermine the utility of the rule in carrying out Section 13(q)'s pro-
transparency mandate.\177\
---------------------------------------------------------------------------

    \174\ See letters from Africa Center for Energy Policy (Mar. 16,
2020); Elise J. Bean; Better Markets (Mar. 16, 2020); Sens. Cardin
et al.; the Carter Center; Derecho Ambiente y Recursos Naturales
(Mar. 15, 2020) (DAR); Financial Accountability and Corporate
Transparency Coalition (Mar. 18, 2020) (FACT Coalition); Shannon
Gough (Mar. 16, 2020); KCSPOG; S. Kaimal, CEO of Natural Resource
Governance Institute (Mar. 16, 2020) (S. Kaimal, CEO of NRGI);
Daniel Kaufmann; ONE.org; Oxfam America and Earthrights
International; Eric Postel; Public Citizen (Mar. 16, 2020); PWYP-US
(Mar. 16, 2020); F. Samama et al., Sierra Club (Mar. 14, 2020);
Forum for Sustainable and Responsible Investment (Jun. 17, 2020)
(SIF), Total (Feb. 10, 2020); and Congr. Waters et al.
    \175\ See, e.g., letters from Elise J. Bean; Shannon Gough;
ONE.org; Oxfam America and Earthrights International; and PWYP-US
(Mar. 16, 2020).
    \176\ See, e.g., letters from Elise J. Bean; Oxfam America and
Earthrights International; and PWYP-US (Mar. 16, 2020). The study
was conducted by the Natural Resource Governance Institute and is
described in the letter from S. Kaimal, CEO of NRGI (Mar. 16, 2020).
    \177\ See letters from letters from Elise J. Bean; Oxfam America
and Earthrights International; and PWYP-US (Mar. 16, 2020); see also
letter from Kaufmann.
---------------------------------------------------------------------------

    One commenter opposing the proposed ``not de minimis'' payment
definition stated that the proposed $750,000 threshold would operate as
a de facto ``materiality'' requirement for the definition of project,
which the commenter argued has no support in the statutory
language.\178\ Several commenters contended that both the $750,000 and
$150,000 thresholds appear to be arbitrary and unsupported by anything
in the record.\179\ Some commenters also stated that the proposed
definition is inconsistent with the payment threshold adopted in over
30 countries under the laws of the other payments-to-governments
reporting regimes, each of which approximates $100,000.\180\ Other
commenters maintained that the proposed ``not de minimis'' payment
definition would lessen the comparability of the payment data for users
interested in analyzing the data on a global basis \181\ and could
result in a competitive disadvantage to companies operating and
reporting in the other non-U.S. jurisdictions.\182\ Finally, some
commenters believed that the proposed ``not de minimis'' payment
definition could encourage corruption, or at least be inconsistent with
the anti-corruption objective of Section 13(q), by facilitating the
manipulation of payments to below one or both thresholds and thereby
keeping them non-reportable.\183\ For the above reasons, many
commenters requested that, consistent with the 2016 Rules, we define
``not de minimis'' as a payment that equals or exceeds $100,000,
whether made as a single payment or series of related payments.\184\
---------------------------------------------------------------------------

    \178\ See letter from PWYP-US (Mar. 16, 2020).
    \179\ See id.; see also letters from Elise J. Bean; Oxfam
America and Earthrights International; Eric Postel; Sierra Club; and
Congr. Waters et al.
    \180\ See letters from Elise J. Bean; Oxfam America and
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \181\ See, e.g., letters from Sens. Cardin et al.; FACT
Coalition; and F. Samama et al.
    \182\ See letter from Total (stating that, together with the
proposed project definition, the different ``not de minimis''
threshold may result in a competitive disadvantage detrimental to EU
issuers).
    \183\ See, e.g., letters from Better Markets; Oxfam America and
Earthrights International; and Public Citizen.
    \184\ See supra note 174.
---------------------------------------------------------------------------

    We believe that these commenters have raised a number of valid
concerns, the most significant of which is that the proposed definition
could result in a high percentage of projects going unreported, thereby
unduly reducing transparency. We also believe that adopting the
$100,000 threshold will mitigate against the potential loss of
information that may arise as a result of our adoption of the Modified
Project Definition, which, as we have discussed, we believe is the most
appropriate way to comply with the CRA.
    Under the adopted definition, a ``not de minimis'' payment means
any payment, whether made as a single payment or a series of related
payments, that equals or exceeds $100,000, or its equivalent in the
resource extraction issuer's reporting currency.\185\ We are adopting
the remainder of the proposed definition, which provides that, in the
case of any arrangement providing for periodic payments or
installments, a resource extraction issuer must use 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. We did not receive any comments on this part of the
definition, which is similar to the definition adopted under the 2016
Rules.
---------------------------------------------------------------------------

    \185\ See Item 2.01(d)(8) of Form SD.
---------------------------------------------------------------------------

    We are also adopting the proposed instruction that allows an issuer
to choose several methods to calculate currency conversions for
payments not made in U.S. dollars or the issuer's reporting currency.
That instruction also provides that the same methods are available to
issuers when calculating whether a payment not made in U.S. dollars
meets or exceeds the ``not de minimis'' threshold.\186\ We did not
receive any comments on this instruction. We continue to believe that
providing alternative methods for calculating currency conversions
would help limit compliance costs under Section 13(q). As under the
2016 Rules, an issuer would be required to use a consistent method for
its payment currency conversions, including when determining if a
payment is not de minimis, and would be required to disclose which
method it used.\187\
---------------------------------------------------------------------------

    \186\ See Instruction 2 to Item 2.01 of Form SD.
    \187\ See id. (stating that ``[i]n all cases, a resource
extraction issuer must disclose the method used to calculate the
currency conversion and must choose a consistent method for all such
currency conversions within a particular Form SD submission'').
---------------------------------------------------------------------------

D. Exemptions From Compliance

    The 2013 District Court opinion found that the Commission has the
authority to grant exemptions with respect to Section 13(q).\188\ We
proposed three new exemptions from reporting under Section 13(q),\189\
as follows:
---------------------------------------------------------------------------

    \188\ See API v. SEC, 953 F. Supp. 2d at 21-23.
    \189\ See 2019 Rules Proposing Release at Section II.J.
---------------------------------------------------------------------------

     If the Section 13(q) disclosure is prohibited by foreign
law;
     If the required disclosure would violate one or more pre-
existing contract terms; and
     If the resource extraction issuer is a smaller reporting
company \190\ or an emerging growth company.\191\
---------------------------------------------------------------------------

    \190\ The Commission recently amended the definition of
``smaller reporting company'' to expand the number of registrants
that qualify as smaller reporting companies, and to reduce
compliance costs for these registrants and promote capital
formation, while maintaining appropriate investor protections. The
amended definition of ``smaller reporting company'' includes
registrants with a public float of less than $250 million (compared
to $75 million in the earlier rule), as well as registrants with
annual revenues of less than $100 million for the previous year and
either no public float or a public float of less than $700 million.
See Release No. 33-10513 (Jun. 28, 2018) [83 FR 31992 (Jul. 10,
2018)].
    \191\ The term ``emerging growth company'' means an issuer that
had total annual gross revenues of less than $1,070,000,000 during
its most recently completed fiscal year. See the definition of
emerging growth company in Securities Act Rule 405 and Exchange Act
Rule 12b-2.
---------------------------------------------------------------------------

    We also proposed delayed reporting for exploratory activities and
transitional relief for recently acquired companies, both of which were
included in the 2016 Rules.\192\ In addition, we proposed similar
transitional relief for a resource extraction issuer that has recently
conducted its initial public offering.\193\ Finally, we proposed to
retain the 2016 Rules' provision allowing an issuer to file an
application for exemptive relief on a case-by-case basis.\194\
---------------------------------------------------------------------------

    \192\ See 2016 Adopting Release, Section II.G.3.
    \193\ See 2019 Rules Proposing Release at Section II.J.6.
    \194\ See 2019 Rules Proposing Release at Section II.J.7.
---------------------------------------------------------------------------

    When proposing the exemptions for situations involving conflicts
with foreign laws or pre-existing contract terms, we noted that several
industry commenters had specifically recommended these two exemptions
in connection with prior rulemakings to reduce the risk of competitive
harm that

could result from the required Section 13(q) payment disclosure.
According to these commenters, without these exemptions, a resource
extraction issuer that faced a legal or contractual conflict would have
to choose between complying with Section 13(q) or the host country law
or contract.\195\ We believe that these exemptions and the proposed
transitional relief would address the previously expressed concerns
about the burdens and potential risks of Section 13(q) disclosure.
---------------------------------------------------------------------------

    \195\ See 2019 Rules Proposing Release at Section II.J. (citing
letters from API (Feb. 16, 2016) and (Nov. 7, 2013); Chevron (Feb.
16, 2016); ExxonMobil (Feb. 16, 2016); and Nouveau (Feb. 16, 2016)).
---------------------------------------------------------------------------

    We also believe that the proposed exemptions are consistent with
the CRA's prohibition on adopting rules that are in substantially the
same form as the disapproved rules. Accordingly, we are adopting these
provisions largely as proposed, except that we have added a condition
to the exemption for emerging growth companies and smaller reporting
companies to address specific concerns raised by commenters. We discuss
each of these provisions in more detail below.
1. Exemption for Conflicts of Law
    We are adopting, as proposed, a conditional exemption for when an
issuer is unable to provide the required disclosure without violating
the laws of the jurisdiction where the project is located.\196\ We
proposed this exemption after reconsidering comments in the 2016
rulemaking concerning the potential harm that could occur from a
situation involving a conflict with foreign law.\197\ Congressional
members who voted to disapprove the 2016 Rules also expressed concern
about the lack of exemptions under the 2016 Rules.\198\
---------------------------------------------------------------------------

    \196\ See 17 CFR 240.13q-1(d)(1).
    \197\ See, e.g., 2019 Rules Proposing Release at Section II.J.;
see also letters from API (Feb. 16, 2016); and ExxonMobil (Feb. 16,
2016). (Indicating that if an issuer chose to provide the payment
disclosure in violation of the host country law, the issuer could
face the shut down and, in the extreme case, expropriation of its
facilities in the host country, the imposition of fines, or the
withholding of permits.)
    \198\ See, e.g., 163 Cong. Rec. H. 848, 853 (February 1, 2017)
(Statement of Rep. Rothfus) (``I am also concerned that this rule
could force companies to withdraw from certain countries. Among
other things, some foreign countries have laws to prohibit the sort
of disclosures called for in this rule. Since the rule provides no
exemptions, American firms may be forced to abandon business
ventures that provide jobs and opportunities for Americans.''); see
also letter from Sen. Corker et al.
---------------------------------------------------------------------------

    Several commenters in the current rulemaking continued to express
concerns about a conflict of law situation in the host country and
supported an exemption to address the potential competitive harm and
administrative difficulties resulting from such a situation.\199\ Some
industry commenters also stated their belief that a case-by-case
exemptive approach for handling situations involving conflicts of law
(or contract prohibitions) is problematic. These commenters stated that
the substantial practical and administrative difficulties associated
with obtaining timely exemptive relief, particularly for an issuer
threatened with the potential total loss of its operations in the host
country, render this option unworkable.\200\
---------------------------------------------------------------------------

    \199\ See letters from API (Mar. 16, 2020); Chamber; Davis Polk
& Wardwell (Mar. 6, 2020) (Davis Polk); NAM; Petrobras (Mar. 16,
2020); and SAF.
    \200\ See letters from API (Mar. 16, 2020); NAM; and SAF. Some
commenters articulated this concern about a case-by-case exemptive
approach for handling conflict of laws situations in the 2016
rulemaking. See letters from API (Feb. 16, 2016); and ExxonMobil
(Feb. 16, 2016).
---------------------------------------------------------------------------

    Other commenters objected to any exemption to the Section 13(q)
rules, including one for conflicts of law situations.\201\ These
objections were largely based on (1) the absence of exemptions under
the EU and Canadian transparency regimes and the comparative gap in
coverage that would occur; \202\ (2) a concern that the Section 13(q)
exemptions, particularly the conflicts of law exemption, could create
an incentive for countries to enact similar provisions that would
undermine international transparency promotion efforts; \203\ and (3)
the lack of demonstrated need for the exemptions, which some commenters
viewed as overly broad.\204\
---------------------------------------------------------------------------

    \201\ See, e.g., letters from Africa Center for Energy Policy;
Elise J. Bean; Sens. Cardin et al.; DAR; EG Justice (Mar. 11, 2020);
FACT Coalition; Friends of the Nation (Mar. 16, 2020); Shannon
Gough; KCSPOG; Eric Postel; Robert Rutkowski (Mar. 16, 2020);
Transparency International (U.S.) (Mar. 13, 2020); and Congr. Waters
et al.
    \202\ See, e.g., letters from Elise J. Bean; and Congr. Waters
et al. In this regard, we acknowledge that the conflicts of law
exemption may lessen comparability with the EU and Canadian
transparency regimes to a certain extent.
    \203\ See, e.g., letters from Elise J. Bean; FACT Coalition; and
Robert Rutkowski.
    \204\ See, e.g., letters from Elise J. Bean; Eric Postel; and
Congr. Waters et al.
---------------------------------------------------------------------------

    After considering the comments, and with a view to limiting delay
and burdens, the final rules will permit issuers, as proposed, to avail
themselves of the exemptions for situations involving conflicts with
foreign laws (or pre-existing contract terms) without seeking
individual relief on a case-by-case basis. This approach will help
facilitate an issuer's timely submission of Form SD and alleviate some
of the uncertainties of handling conflicts of law situations. Further,
to the extent that the requirement to obtain a case-by-case exemption
(and the attendant uncertainties surrounding whether such relief might
be granted) could inhibit companies from bidding on or initiating
resource extraction projects in particular countries or otherwise
impair the ability of companies to compete effectively for such
projects, we anticipate that our revised approach will substantially
eliminate these potential barriers.
    Although commenters differed regarding whether there is a
demonstrated need for a conflicts of law exemption, in order to address
concerns about the potentially significant consequences of such a
conflict, on balance we think it is appropriate to provide such an
exemption. One commenter has identified at least two countries--China
and Qatar--that have laws that may prohibit the Section 13(q)
disclosure.\205\ Although publicly available information reveals that
some resource extraction issuers have disclosed payments to governments
in those countries,\206\ the possibility remains that those countries,
or others, could elect in the future to enforce or enact laws that
conflict with the Section 13(q) requirements. We agree with those
commenters who indicated that, to the extent that such a conflict
exists, resource extraction issuers should not have to choose between
complying with the Section 13(q) rules and violating host country
laws.\207\
---------------------------------------------------------------------------

    \205\ See, e.g., letter from API (Mar. 16, 2020). In addition,
commenters on the 2016 Rules discussed how such conflicts could
ultimately force a resource extraction issuer to abandon or sell its
assets in the host country. See, e.g., letter from API (Feb. 16,
2016).
    \206\ See, e.g., the data cited in letter from PWYP-US (Mar. 16,
2020).
    \207\ See, e.g., letters from NAM; and API (Feb. 16, 2016).
---------------------------------------------------------------------------

    We also do not believe that the conflicts of law exemption is
overly broad. The mere existence of a foreign law that may prohibit the
Section 13(q) disclosure will not be sufficient to justify use of the
exemption. We proposed, and are now adopting, several conditions that
limit the availability of the exemption. These conditions are expressly
designed to help ensure that issuers forgo disclosure only when there
is a legitimate conflict of law, so that the exemption does not
unreasonably frustrate the statutory goal of increasing transparency
regarding resource extraction payments. Specifically, an issuer seeking
to rely on the exemption will be required to take certain steps to
qualify for the exemption, including providing specified disclosures
about its eligibility for relief. Although issuers can avail themselves
of the exemption

without further Commission action, they can only do so in the
prescribed manner and under the prescribed circumstances. Moreover, as
is the case with all filings, the issuer's disclosure and reliance on
this exemption will be subject to Commission staff review, which should
discourage potentially inappropriate uses of the exemption.
    To be eligible to claim the conflicts of law exemption, an issuer
will first have to take reasonable steps to seek and use exemptions or
other relief under the applicable law of the foreign jurisdiction.\208\
After taking such steps and failing to obtain an exemption or other
relief, the issuer will have to disclose the foreign jurisdiction for
which it has excluded disclosure, the law preventing disclosure, its
efforts to seek and use exemptions or other relief under such law, and
the results of those efforts.\209\ This disclosure will be required in
the body of Form SD. The issuer will also be required to furnish as an
exhibit to Form SD a legal opinion from counsel that opines on the
inability of the issuer to provide the required disclosure without
violating the foreign jurisdiction's law.\210\
---------------------------------------------------------------------------

    \208\ See 17 CFR 240.13q-1(d)(1)(i).
    \209\ See 17 CFR 240.13q-1(d)(1)(ii).
    \210\ See 17 CFR 240.13q-1(d)(1)(iii).
---------------------------------------------------------------------------

    These conditions are similar to some of the suggested conditions
recommended by some commenters. Those commenters indicated that,
although they did not believe a conflicts of law exemption was
necessary, they acknowledged that such an exemption would address
specific concerns of some members of Congress who disapproved the 2016
Rules, would significantly contribute to the final rules' being not
substantially the same as the disapproved rules, as required by the
CRA, and would be a permissible change as long as accompanied by
sufficient safeguards.\211\
---------------------------------------------------------------------------

    \211\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International.
---------------------------------------------------------------------------

    Several commenters recommended that we include an additional
condition that limits the exemption to foreign laws in existence before
the enactment of Section 13(q) in July 2010, or at least before
adoption of the final rules.\212\ After considering all of the
comments, we have determined not to limit the conflicts of law
exemption to pre-existing foreign laws. Unlike the situation involving
a conflict with pre-existing contract terms, where an issuer has
control over the contract terms and would be in a position to negotiate
or modify terms so that they do not conflict with the Section 13(q)
requirements following adoption of the final rules, a resource
extraction issuer has no control over a foreign government's enactment
of laws, including those that may prohibit the Section 13(q)
disclosure.
---------------------------------------------------------------------------

    \212\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International.
---------------------------------------------------------------------------

    We acknowledge that adoption of the conflicts of law exemption
could incentivize a foreign government to adopt a law that prohibits
the Section 13(q) disclosure. We further note that commenters on both
sides of this issue indicated in support of their respective positions
that no government has adopted a law or rule prohibiting the payment
disclosures since the adoption of Section 13(q).\213\ While this may be
correct, it is not determinative of what countries may do in the
future. In light of the potential harm that could result to a resource
extraction issuer from a future conflicts of law situation, we are not
limiting this exemption to pre-existing foreign laws.
---------------------------------------------------------------------------

    \213\ Compare letter from PWYP-US (Mar. 16, 2020) with letter
from API (Mar. 16, 2020).
---------------------------------------------------------------------------

2. Exemption for Conflicts With Pre-Existing Contracts
    We are adopting a conditional exemption, as proposed, from Section
13(q)'s disclosure requirements when the terms of an existing contract
prohibit the disclosure.\214\ The exemption will only apply to
contracts in which such terms are expressly included in writing prior
to the effective date of the final rules. As previously noted, we
believe this limitation is justified because issuers have control over
the terms of their contracts and have the ability to modify future
contract terms. Similar to the exemption for conflicts of law, and for
the same reasons, issuers will not need to seek the exemption on an
individual, case-by-case basis. The issuer will, however, be required
to meet certain conditions to qualify for relief,\215\ and its
disclosure and reliance on the exemption will be subject to staff
review, which should help to discourage potentially inappropriate uses
of the exemption. In addition, since multiple contracts may constitute
a project under the Modified Project Definition, the exemption would
only be available to exempt the specific payment information in the
applicable contract that the issuer is expressly prohibited from
disclosing by the relevant contract provision.
---------------------------------------------------------------------------

    \214\ See 17 CFR 240.13q-1(d)(2).
    \215\ Id.
---------------------------------------------------------------------------

    Several commenters supported the proposed exemption for conflicts
with pre-existing contract terms for reasons similar to those expressed
in support of the exemption for conflicts of law.\216\ For example, one
commenter stated that the proposed exemption would allow companies to
avoid being forced into a choice between complying with the new
disclosure requirements and complying with agreements entered into with
foreign governmental partners.\217\ Other commenters indicated that the
proposed exemption would minimize the harm and ease the administrative
difficulties caused by conflicts with pre-existing contract terms.\218\
---------------------------------------------------------------------------

    \216\ See letters from API (Mar. 16, 2020); Chamber; Davis Polk;
NAM; and Petrobras.
    \217\ See letter from NAM.
    \218\ See letters from API (Mar. 16, 2020); and Chamber.
---------------------------------------------------------------------------

    Other commenters opposed the proposed exemption for conflicts with
pre-existing contract terms for reasons similar to those expressed in
opposition to the exemption for conflicts with foreign law. These
commenters stated that the proposed exemption was overly broad, was not
needed, would reduce comparability with the non-U.S. payments-to-
governments reporting regimes, which lack such an exemption, and would
not further international transparency promotion efforts.\219\ Other
commenters that did not believe the proposed exemption for conflicts
with pre-existing contracts was warranted nevertheless stated that such
an exemption would be a permissible change to help make the new rule
not substantially the same as the disapproved 2016 Rules as long as
there are sufficient safeguards to protect against abuse.\220\
---------------------------------------------------------------------------

    \219\ See, e.g., letters from Elise J. Bean; Eric Postel; and
Congr. Waters et al.
    \220\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International.
---------------------------------------------------------------------------

    After reviewing all of the comments, we are adopting the proposed
exemption for conflicts with pre-existing contract terms. As one
commenter noted, without such an exemption, an issuer whose contract
prohibits the disclosure of payment information without the host
government's permission, and who fails to obtain such permission, could
face adverse financial consequences.\221\ The adopted exemption for
conflicts with pre-existing contract terms will help to mitigate the
potential burdens of the Section 13(q) rules in this regard. We also
believe that the exemption is not overly broad or susceptible to misuse

because of the several conditions proposed for use of the exemption,
which we are now adopting.
---------------------------------------------------------------------------

    \221\ See letter from API (Feb. 16, 2016) (stating that ``many
companies' contracts with host governments contain clauses requiring
the government's permission before a company publicly reveals
payment information'' and noting that ``[a]lthough some of these
contracts allow an issuer to disclose payment information to comply
with securities laws, many do not, particularly older contracts.'').
---------------------------------------------------------------------------

    An issuer will first be required to take reasonable steps to seek
and use any contractual exceptions or other contractual relief (e.g.,
attempting to obtain the consent of the relevant contractual parties)
to disclose the payment information.\222\ This obligation to take
reasonable steps would not include an obligation to renegotiate an
existing contract or to compensate the other contractual parties in
exchange for their consent to disclose the payments. If the issuer
fails to obtain consent, the issuer will have to disclose the
jurisdiction where it has excluded such disclosure, the particular
contract terms preventing the issuer from providing disclosure, its
efforts to seek consent or other contractual relief, and the results of
those efforts.\223\ This disclosure will be required in the body of
Form SD. The issuer will also be required to furnish as an exhibit to
Form SD a legal opinion from counsel that opines on the inability of
the issuer to provide the required disclosure without violating the
applicable contractual terms.\224\ The opinion should confirm that
counsel has reviewed all of the contracts underlying or related to a
project under the Modified Project Definition, that the applicable
contractual provision prohibits the disclosure of the payment
information that the issuer would otherwise be required to provide
under Section 13(q), and that the exemption is only being applied to
exempt that specific disclosure.
---------------------------------------------------------------------------

    \222\ See 17 CFR 240.13q-1(d)(2)(i).
    \223\ See 17 CFR 240.13q-1(d)(2)(ii).
    \224\ See 17 CFR 240.13q-1(d)(2)(iii).
---------------------------------------------------------------------------

    Some commenters recommended adding other conditions in order to
prevent abuse of the exemption. For example, commenters recommended
limiting the exemption to contracts that existed prior to the enactment
of Section 13(q) in July 2010 in order to exclude issuers that have
engaged in ``10 years of gamesmanship and sub-standard contracting
practice meant to avoid transparency.'' \225\ We do not believe such a
limitation is appropriate as we are not aware of any evidence
demonstrating that issuers have drafted contract terms during the last
decade to preclude reporting of payments to governments in this
context.
---------------------------------------------------------------------------

    \225\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
American and Earthrights International.
---------------------------------------------------------------------------

    Some commenters also indicated that it is common practice to
include a non-confidentiality provision in oil, gas, and mining
contracts that allows for the disclosure of information when required
by an issuer's home government or its securities exchange.\226\ These
commenters stated that we should prohibit an issuer from using the
exemption if such a standard confidentiality exclusion provision
exists. We do not believe that adding such a provision is necessary
because an issuer will be required to submit a legal opinion that
explains why it is contractually precluded from providing the Section
13(q) disclosure. In such situations, the opinion would necessarily
have to address why the issuer is contractually precluded from
providing the Section 13(q) disclosure in light of the presence of a
contractual provision that expressly permits such disclosure when
required by home government laws or securities exchange regulations.
---------------------------------------------------------------------------

    \226\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
American and Earthrights International.
---------------------------------------------------------------------------

    One commenter requested that we modify the exemption for conflicts
with pre-existing contracts by providing that the exemption applies to
contracts signed prior to an issuer's initial public offering, but
after the effective date of the final rules.\227\ We decline to make
this modification because we believe that such an issuer will have
received ample notice of the Section 13(q) rules and will have the
opportunity to negotiate or modify the contract terms to remedy any
conflict. Moreover, as discussed below, we are providing transitional
relief for issuers that have recently completed their initial public
offering, which should mitigate any resulting hardship.\228\
---------------------------------------------------------------------------

    \227\ See letter from Davis Polk.
    \228\ See infra Section II.D.6.
---------------------------------------------------------------------------

3. Exemption for Smaller Reporting Companies and Emerging Growth
Companies
    When proposing to exempt smaller reporting companies \229\ and
emerging growth companies \230\ from the scope of Rule 13q-1,\231\ we
explained that the proposed exemption would be consistent with our
statutory duty in a public rulemaking to consider, in addition to
investor protection concerns, whether an action will promote
efficiency, competition, and capital formation.\232\ The proposed
exemption also would be consistent with our treatment of smaller
reporting companies and emerging growth companies in other rulemakings
\233\ undertaken since the enactment of the Jumpstart Our Business
Startups Act (``JOBS Act'').\234\
---------------------------------------------------------------------------

    \229\ See supra note 190 for the definition of ``smaller
reporting company,'' as amended.
    \230\ See supra note 191 for the definition of ``emerging growth
company.''
    \231\ See 2019 Rules Proposing Release at Section II.J.3. In
particular, we expressed concern about the impact of the fixed cost
component of the proposed rules on smaller reporting companies and
emerging growth companies.
    \232\ See Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)].
    \233\ See, e.g., Pay Ratio Disclosure, Release No. 33-9877 (Aug.
5, 2015) [80 FR 50103 (Aug. 18, 2015)] (exempting smaller reporting
companies and emerging growth companies, among others, from the
scope of the required pay ratio disclosure). Prior to the JOBS Act,
the Commission provided a number of accommodations to smaller
reporting companies, such as not requiring risk factor disclosure
from smaller reporting companies in their Exchange Act registration
statements and annual and periodic reports, which continue today.
See, e.g., Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct.
8, 2020)], note 197.
    \234\ Public Law 112-106, 126 Stat. 306 (2012).
---------------------------------------------------------------------------

    Some commenters supported the proposed exemption for smaller
reporting companies and emerging growth companies.\235\ For example,
one commenter stated that the proposed exemption would provide
important cost savings for growing companies.\236\ Another commenter
indicated that the proposed exemption aligned with the streamlined
disclosure requirements typically afforded to smaller and newer
reporting issuers.\237\
---------------------------------------------------------------------------

    \235\ See letters from Chambers and NAM.
    \236\ See letter from NAM.
    \237\ See letter from Chamber.
---------------------------------------------------------------------------

    Several other commenters opposed the proposed exemption for smaller
reporting companies and emerging growth companies.\238\ Most of those
commenters opposed the proposed exemption primarily because it would
exclude a significant percentage of the issuers that currently report
under the EU Directives and Canada's ESTMA and that would have been
included under the 2016 Rules.\239\ Some commenters also asserted that
smaller reporting companies and emerging growth companies are equally
susceptible to corruption as larger issuers while posing a greater
risk.\240\
---------------------------------------------------------------------------

    \238\ See, e.g., letters from Africa Center for Energy Policy;
Sens. Cardin et al.; the Carter Center; DAR; Shannon Gough; KCSPOG;
Oxfam America and Earthrights International; Eric Postel; Public
Citizen; PWYP-US (Mar. 16, 2020), F. Samama et al.; and Congr.
Waters et al.
    \239\ See, e.g., letters from Sens. Cardin et al.; Oxfam America
and Earthrights International; PWYP-US (Mar. 16, 2020); F. Samama et
al.; and Eric Postel.
    \240\ See, e.g., letters from Public Citizen (stating that
smaller reporting companies and emerging growth companies have been
involved in the same industry practices that have enabled corruption
and misappropriation in the past, and indicating that smaller
issuers are generally more susceptible to equity risks than larger
issuers because they take more operational risks); see also letter
from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    We continue to be concerned that the fixed cost component of the
Section 13(q) rules would have a greater relative impact on smaller
reporting companies

and emerging growth companies and thus could impede their growth and
access to capital markets.\241\ We also understand commenters' concerns
about the potentially large number of resource extraction issuers that
would be excluded under the proposed exemption and the gap in coverage
that would result. Therefore, while we are adopting an exemption for
smaller reporting companies and emerging growth companies, we are
removing from the scope of the exemption any company that is subject to
the resource extraction payment disclosure requirements of an
alternative reporting regime that has been deemed by the Commission to
require disclosure that satisfies the transparency objectives of
Section 13(q).\242\ There will be only limited additional costs as such
issuers will be able to submit a report complying with the reporting
requirements of the alternative jurisdiction to satisfy its Section
13(q) disclosure obligations.\243\
---------------------------------------------------------------------------

    \241\ See infra Section III.D.2.
    \242\ See 17 CFR 240.13q-1(c).
    \243\ See 17 CFR 240.13q-1(d)(3). We discuss the alternative
reporting provision in Section II.N and its associated costs in
Section III.D.1.
---------------------------------------------------------------------------

    Those companies eligible for alternative reporting will have a
significantly reduced compliance burden under Section 13(q) and
therefore will not need the exemption from Section 13(q) reporting as
much as those smaller reporting companies and emerging growth companies
that are not subject to an alternative reporting regime. We believe
that this added limitation will reduce the scope of the exemption while
retaining the exemption for companies that otherwise would bear the
full burden of the Section 13(q) rules. For these latter companies,
neither a smaller reporting company nor an emerging growth company will
be required to provide any of the payment disclosure mandated by
Section 13(q) and Rule 13q-1.
    By tailoring the exemption in this way, we believe that the
exemption for smaller reporting companies and emerging growth companies
is consistent with the Commission's authority under Section 36(a) of
the Exchange Act to adopt an exemption that is necessary or appropriate
in the public interest, and consistent with the protection of
investors.\244\ The added limitation is in the public interest because
it promotes the transparency objective of Section 13(q) while
permitting smaller reporting companies and emerging growth companies
not subject to foreign reporting regimes to reduce their regulatory
burdens to the ultimate benefit of their investors.\245\
---------------------------------------------------------------------------

    \244\ See 15 U.S.C. 78mm(a).
    \245\ See supra note 241.
---------------------------------------------------------------------------

4. Delayed Reporting for Payments Related to Exploratory Activities
    We are adopting a provision permitting delayed reporting of
payments related to exploratory activities, as proposed.\246\ Pursuant
to this provision, issuers will not be required to report payments
related to exploratory activities in the Form SD for the fiscal year in
which payments are made. Instead, an issuer may delay reporting such
payments until it submits a Form SD for the fiscal year following the
fiscal year in which the payments were made.\247\ We are proposing a
limited, delayed approach because we believe that the likelihood of
competitive harm from the disclosure of payment information related to
exploratory activities diminishes over time. For example, once
exploratory activities end and development activities begin, the
likelihood of competitive harm from payments terms related to the
exploratory activities (e.g., payment information that might reveal the
scope or significance of the project) is greatly diminished.
---------------------------------------------------------------------------

    \246\ See Item 2.01(b)(1) of Form SD.
    \247\ In the Form SD for the fiscal year following the fiscal
year in which the exploratory payments were made, the issuer would
be required to report those exploratory payments as well as all
applicable non-exploratory payments, if any, made during the fiscal
year following the fiscal year in which the issuer made the
exploratory payments.
---------------------------------------------------------------------------

    We adopted a similar delayed reporting provision in the 2016 Rules
after considering the concerns raised by industry commenters that the
disclosure of payment information regarding exploratory activities
could result in competitive harm to a resource extraction issuer.\248\
Industry commenters have continued to support a delayed reporting
provision for payments related to exploratory activities. For example,
one commenter stated that exploration activity represents some of the
most commercially sensitive investments by issuers and that reporting
needs should be balanced to protect such information.\249\ Another
commenter described the proposed delayed reporting provision as
critical to protecting commercially sensitive information about
resource extraction issuers' exploratory activities.\250\
---------------------------------------------------------------------------

    \248\ See 2016 Adopting Release, Section II.I.3. (citing letter
from API (Feb. 16, 2016), which explained the competitive harm that
could result from the disclosure of bonus and other payments to the
host government regarding high-potential exploratory territory and
stating that a case-by-case exemptive approach would be insufficient
to protect against competitive harm in those situations). See also
letter from ExxonMobil (Feb. 16, 2016) (discussing the competitive
harm from the forced disclosure of payments that may allow
competitors to identify new areas of potential resource development
an issuer has identified, and to determine the value the issuer
places on such resources).
    \249\ See letter from API (Mar. 16, 2020).
    \250\ See letter from NAM.
---------------------------------------------------------------------------

    Other commenters, however, opposed the proposed delayed reporting
of payments related to exploratory activities. One commenter stated
that exploratory activities can pose a high risk of corruption.\251\
Another commenter indicated that, in the EU and Canadian transparency
regimes, no issuer appears to have raised concerns about disclosures
during the exploratory phase.\252\
---------------------------------------------------------------------------

    \251\ See letter from PWYP-US (Mar. 16, 2020).
    \252\ See letter from Oxfam America and Earthrights
International.
---------------------------------------------------------------------------

    We continue to believe that a provision permitting delayed
reporting for payments related to exploratory activities is appropriate
because of the commercially sensitive nature of exploratory activities.
In reaching this conclusion, we have considered whether such a
provision continues to be appropriate in light of the Modified Project
Definition, which will provide the geographic location of a project at
the national and major subnational political jurisdiction and therefore
should mitigate the potential competitive harm that could result from
disclosing a project at the contract level.
    Although the Modified Project Definition should help alleviate
competitive harm, and despite the absence of a similar exemption under
the foreign reporting regimes,\253\ we remain concerned that such harm
could still occur. For example, harm could occur to the extent that the
disclosure of a particular type or amount of a payment associated with
the issuer's exploratory activities could reveal competitively
sensitive information about the nature, significance, or specific
details of such activities.\254\ Thus, we continue to believe that a
delayed reporting provision for disclosure of payments related to
exploratory activities would mitigate the potential competitive harm
that issuers might experience in these circumstances. Importantly, we
do not believe it would substantially reduce the overall benefits of
the disclosure to its users. Although one commenter

indicated that exploratory activities can pose a high risk of
corruption, we believe that any such risk is mitigated because the
exemption is of limited duration. Specifically, the payments related to
the exploratory activities must be reported in the fiscal year
following the fiscal year in which the issuer made the payments.
---------------------------------------------------------------------------

    \253\ We reject the commenter's suggestion that the absence of a
similar exemption under the foreign reporting regimes means that the
concern for potential competitive harm resulting from the premature
disclosure of payments related to exploratory activities does not
exist or does not need to be addressed.
    \254\ See supra note 248.
---------------------------------------------------------------------------

    We also have considered whether this delayed reporting provision is
appropriate in light of the extended deadline for furnishing the
payment information compared to the deadline under the 2016 Rules.
Again, we believe it is appropriate because of the difficulty of
determining the precise point at which exploratory activities cease
being commercially sensitive.
    For purposes of this provision, we will consider payments to be
related to exploratory activities if they are made as part of the
process of: (1) Identifying areas that may warrant examination; (2)
examining specific areas that are considered to have prospects of
containing oil and gas reserves; or (3) conducting a mineral
exploration program. In all cases, exploratory activities will be
limited to activities conducted prior to the commercial development of
the oil, natural gas, or minerals that are the subject of the
exploratory activities.\255\
---------------------------------------------------------------------------

    \255\ See Item 2.01(b)(1) of Form SD.
---------------------------------------------------------------------------

    When proposing this provision, we also considered that the total
payment streams from the first year of exploration that would be
covered by the exemption would typically be relatively small compared
to, for example, the annual payment streams that would likely occur
once an issuer commences development and production. Given this, we
continue to believe that any diminished transparency as a result of the
one-year delay in reporting of such payments is justified by the
potential competitive harm that we anticipate may be avoided as a
result of this exemptive relief. Nevertheless, we are limiting the
delay to one year because we believe that the likelihood of competitive
harm from disclosing the payment information diminishes over time once
exploratory activities have begun.\256\
---------------------------------------------------------------------------

    \256\ We appreciate that the exploratory phase may vary from
project to project, and that this variance can depend on such
considerations as the geographic area in which the exploration is
being undertaken and the type of resource being sought. In adopting
a one-year reporting delay, we note that commenters in the oil and
gas industry asserted a specific need for the exemptive relief. We
understand that the exploratory period for oil and gas generally
involves a seismic survey/analysis phase followed by an exploratory
drilling phase. We further understand that, while the time periods
for those activities can vary considerably, conducting seismic
surveys and analyzing the data can take six months or more, while
(at least for conventional onshore hydrocarbons) exploratory
drilling and site clearance can potentially take a similar length of
time. These considerations lead us to believe that one year is an
appropriate period for the delay in reporting exploratory payments.
Although we solicited comment on other potential timeframes for
relief, no commenters suggested other timeframes. We further note
that an issuer would be able to apply for an exemption on a case-by-
case basis, as discussed below in Section II.D.6., if it believes
that its individual circumstances warranted a longer exemptive
period than the proposed one-year exemption.
---------------------------------------------------------------------------

5. Transitional Relief for Recently Acquired Companies
    We are adopting, as proposed, transitional relief with respect to
recently acquired companies where such companies were not previously
subject to Section 13(q) or an alternative reporting regime deemed by
the Commission to satisfy the transparency objectives of Section
13(q).\257\ The Commission provided this relief under the 2016 Rules
based on the recommendations of commenters who asserted that such
relief was necessary to reduce the compliance costs associated with
recently acquired companies that may experience difficulty timely
complying with the payment disclosure requirements.\258\ As noted by
those commenters, the Commission adopted a similar provision under Rule
13p-1,\259\ which also requires disclosure on Form SD.\260\
---------------------------------------------------------------------------

    \257\ See Item 2.01(b)(2) of Form SD.
    \258\ See 2016 Adopting Release, Section II.G.3. (citing letters
from Cleary, Gottlieb, Steen and Hamilton (Feb. 17, 2016); and Ropes
& Gray (Feb. 16, 2016)).
    \259\ 17 CFR 240.13p-1.
    \260\ See Instruction (3) to Item 1.01 of Form SD. The final
rules differ, however, from what is provided for under Rule 13p-1
because disclosure under Rule 13p-1 occurs on a calendar year basis
rather than a fiscal year basis.
---------------------------------------------------------------------------

    We received little comment on the proposed transitional relief for
recently acquired companies. One commenter did not believe that the
proposed relief was necessary and noted that this issue never arose
during adoption of the EU and Canadian transparency regimes.\261\ This
commenter also stated that since the relief is temporary, and of short
duration, the commenter would not object if the Commission finds that
this transitional relief for recently acquired companies provides
necessary compliance cost reductions.
---------------------------------------------------------------------------

    \261\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    Under Section 13(q) and the final rules, an issuer is required to
disclose resource extraction payment information for every entity it
controls. Therefore, absent an exemption, an issuer would be required
to include the acquired issuer's resource extraction payment
information in its first annual submission after obtaining control. We
continue to be concerned that implementing the appropriate reporting
mechanisms in a timely manner for an issuer that was not previously
subject to reporting under Section 13(q) or an alternative reporting
regime might remain a significant undertaking. As such, we are adopting
the proposed transitional relief with respect to such issuers.
    Under the final rules, issuers will not need to report payment
information for an issuer that it acquired or over which it otherwise
obtained control, if the acquired issuer, in its last full fiscal year,
was not obligated to disclose resource extraction payment information
pursuant to Rule 13q-1 or an alternative reporting regime's
requirements deemed by the Commission to satisfy Section 13(q)'s
transparency objectives. In these circumstances, the resource
extraction issuer will begin reporting payment information for the
acquired issuer starting with the Form SD submission for the first full
fiscal year immediately following the effective date of the
acquisition. As under the 2016 Rules, and in contrast to the delayed
reporting provision for exploratory activities, an issuer will not be
required to provide the (excluded) payment disclosure for the year in
which it acquired the issuer in a future Form SD.\262\
---------------------------------------------------------------------------

    \262\ See 2016 Adopting Release at Section II.G.3.
---------------------------------------------------------------------------

    As explained in the 2016 rulemaking, the transitional relief will
not apply to companies that have been subject to Section 13(q)'s
disclosure requirements or to those of an alternative reporting regime
in their last full fiscal year prior to their acquisition.\263\ Those
companies should already be generally familiar with the Section 13(q)
requirements or have sufficient notice of them to establish reporting
systems and prepare the appropriate disclosure during the fiscal year
of their acquisition.
---------------------------------------------------------------------------

    \263\ See id.
---------------------------------------------------------------------------

6. Transitional Relief for Initial Public Offerings
    We are adopting, as proposed, similar transitional relief for a
resource extraction issuer that has completed its initial public
offering in the United States in its last full fiscal year.\264\ Such
an issuer will not have to comply with the Section 13(q) rules until
the first fiscal year following the fiscal year in which it completed
its initial public offering.
---------------------------------------------------------------------------

    \264\ See Item 2.01(b)(3) of Form SD.
---------------------------------------------------------------------------

    We received a small number of comments on the proposed transitional
relief for initial public offerings. Those

commenters stated that, although the proposed measure would result in
some loss of transparency, because the relief would be temporary, it
was an appropriate modification of the 2016 Rules that would help meet
the CRA mandate that the new rule not be substantially the same as the
disapproved rule.\265\
---------------------------------------------------------------------------

    \265\ See letters from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International.
---------------------------------------------------------------------------

    This transitional relief for companies that have recently completed
their U.S. initial public offerings is a change from the 2016 Rules. At
that time, the Commission stated its belief that such companies would
have sufficient notice of the payment reporting requirements to
establish reporting systems and prepare the appropriate disclosure
prior to undertaking the initial public offering.\266\
---------------------------------------------------------------------------

    \266\ See 2016 Adopting Release, Section II.G.
---------------------------------------------------------------------------

    In reconsidering the 2016 Rules, however, we believe that the
Section 13(q) rules could impose a compliance burden on a non-reporting
resource extraction issuer that could impede its ability to become a
public company and fully gain access to U.S. capital markets. We
further believe that providing transitional relief for issuers
conducting initial public offerings is consistent with our statutory
duty in a public rulemaking to consider whether an action will promote
efficiency, competition, and capital formation.\267\ Reducing
regulatory burdens in connection with initial public offerings not only
helps issuers conducting those offerings but provides investors with
expanded investment opportunities.\268\ For the foregoing reasons, we
believe that providing transitional relief to resource extraction
issuers conducting initial public offerings is also consistent with our
authority under Section 36(a) of the Exchange Act to provide an
exemption to the extent that such exemption is appropriate in the
public interest and is consistent with the protection of
investors.\269\
---------------------------------------------------------------------------

    \267\ See supra note 232.
    \268\ See, e.g., Remarks of Chairman Jay Clayton on Capital
Formation at the 36/86 Entrepreneurship Festival (Aug. 29, 2018),
which is available at https://www.sec.gov/news/speech/speech-clayton-082918.
    \269\ See 15 U.S.C. 78mm(a).
---------------------------------------------------------------------------

    As we explained when proposing this transitional relief for initial
public offerings, an issuer that is preparing to conduct its U.S.
initial public offering would have notice of the Section 13(q) rules.
Thus, such an issuer would likely need to incur costs to establish a
payment reporting system to comply with the Section 13(q) rules in
advance of the public offering despite not knowing whether it will
successfully conduct that initial public offering. The issuer would
then incur these costs unnecessarily if it chose not to move forward
with a planned initial public offering.\270\ We also continue to
believe that the adopted transitional relief is an appropriate measure
to prevent the situation where an issuer contemplating a U.S. initial
public offering would need to postpone or, in the extreme case, refrain
from conducting its U.S. initial public offering to avoid the Section
13(q) compliance costs. These outcomes would be inconsistent with our
statutory duty to adopt rules that promote capital formation and would
result in lost investment opportunities to the detriment of investors.
They also would be contrary to the stated goals of Section 13(q) as
they would delay the disclosure provided under that section.
---------------------------------------------------------------------------

    \270\ See 2019 Rules Proposing Release at II.J.6.
---------------------------------------------------------------------------

7. Case-by-Case Exemption
    We are adopting the proposed rule provision that will permit
issuers to apply for exemptions on a case-by-case basis using the
procedures set forth in 17 CFR 240.0-12 (Rule 0-12 of the Exchange
Act).\271\ This provision will enable issuers to address any other
potential bases for exemptive relief, beyond the rule-based exemptions
and transitional relief described above. We adopted a similar provision
in the 2016 Rules.\272\
---------------------------------------------------------------------------

    \271\ See 17 CFR 240.13q-1(d)(4).
    \272\ See 2016 Rules Adopting Release at Section II.I.3.
---------------------------------------------------------------------------

    We received a limited number of comments on the proposed case-by-
case exemption.\273\ One commenter opposed the proposed exemption
because it did not believe that any other exemptions are warranted, and
noted that no such exemptions exist in the other markets where
companies are already regularly reporting their payments to
governments.\274\ Other commenters suggested that the case-by-case
exemptive approach in the 2016 Rules was preferable to the proposed
exemptions for conflicts of law and pre-existing contracts and the
proposed exemption for smaller reporting companies and emerging growth
companies, which they believed to be overly broad.\275\
---------------------------------------------------------------------------

    \273\ See, e.g., letters from Elise J. Bean; and PWYP-US (Mar.
16, 2020).
    \274\ See letter from PWYP-US (Mar. 16, 2020).
    \275\ See, e.g., letter from Elise J. Bean.
---------------------------------------------------------------------------

    Under the final rules, issuers seeking a case-by-case exemption
will be required to submit a written request for exemptive relief to
the Commission.\276\ The request should describe the particular payment
disclosures it seeks to omit (e.g., signature bonuses in Country X or
production entitlement payments in Country Y) and the specific facts
and circumstances that warrant an exemption, including the particular
costs and burdens it faces if it discloses the information. The
Commission will be able to consider all appropriate factors in deciding
whether to grant requests, including whether the disclosure is already
publicly available and whether (and how frequently) similar information
has been disclosed by other companies, under the same or similar
circumstances. We anticipate relying on Section 36(a) of the Exchange
Act \277\ to provide exemptive relief under this framework. In
situations where exigent circumstances exist, the Commission staff,
acting pursuant to delegated authority from the Commission, could rely
on 15 U.S.C. 78l(h) (Exchange Act Section 12(h)) for the limited
purpose of providing interim relief while the Commission considered the
Section 36(a) exemptive application.
---------------------------------------------------------------------------

    \276\ See 17 CFR 240.13q-1(d)(4) (requiring an issuer that files
an application for a case-by-case exemption to follow the procedures
of 17 CFR 240.0-12, which, pursuant to 17 CFR 240.0-12(a), requires
the request for exemptive relief to be in writing).
    \277\ See 15 U.S.C. 78mm(a)(providing the Commission with broad
authority to provide exemptions when it is necessary or appropriate
in the public interest, and it is consistent with the protection of
investors).
---------------------------------------------------------------------------

    This approach will allow the Commission to determine if and when
exemptive relief may be warranted and how broadly it should apply,
based on the specific facts and circumstances presented in the
application. For example, an issuer could apply for an exemption in
situations where disclosure would have a substantial likelihood of
jeopardizing the safety of an issuer's personnel, or in other
situations posing a significant threat of commercial harm that fall
outside the scope of the proposed rule-based exemptions and
transitional relief described above. The Commission could then
determine the best approach to take based on the facts and
circumstances, including denying an exemption, providing an individual
exemption, providing a broader exemption for all issuers operating in a
particular country, or providing some other appropriately tailored
exemption.

E. Definition of ``Subsidiary'' and ``Control''

    Section 13(q) requires a resource extraction issuer to disclose
payments by a subsidiary or an entity under the control of the
issuer.\278\ We are adopting

the proposed definition of ``subsidiary'' to mean an entity controlled
directly or indirectly through one or more intermediaries.'' \279\ We
also are adopting the proposed definition of ``control'' based on
accounting principles rather than using the definition of that term
provided in 17 CFR 240.12b-2 (``Exchange Act Rule 12b-2''),\280\ which
was the case under the 2012 Rules.\281\
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    \278\ See 15 U.S.C. 78m(q)(2)(A).
    \279\ See Item 2.01(d)(12) of Form SD.
    \280\ Under Exchange Act Rule 12b-2, ``control'' (including the
terms ``controlling,'' ``controlled by'' and ``under common control
with'') is defined to mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.
    \281\ See 2012 Adopting Release at Section II.D.4.c.
---------------------------------------------------------------------------

    Under the final rules, a resource extraction issuer will have
``control'' of another entity when the issuer consolidates that entity
under the accounting principles applicable to its financial statements
included in the periodic reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act. Thus, for purposes of determining control,
the resource extraction issuer should follow the consolidation
requirements under generally accepted accounting principles in the
United States (``U.S. GAAP'') or under the International Financial
Reporting Standards (``IFRS'') as issued by the International
Accounting Standards Board, as applicable.\282\ A foreign private
issuer that prepares financial statements according to a comprehensive
set of accounting principles, other than U.S. GAAP, and files with the
Commission a reconciliation to U.S. GAAP should consider determining
control using U.S. GAAP.\283\
---------------------------------------------------------------------------

    \282\ See Item 2.01(d)(3) of Form SD.; see also Accounting
Standards Codification (``ASC'') 810, Consolidation; and IFRS 10,
Consolidated Financial Statements.
    \283\ See Item 2.01(d)(3) of Form SD.
---------------------------------------------------------------------------

    We continue to believe that this definition of control, compared to
the definition of ``control'' in Rule 12b-2, would better balance
transparency for users of the payment disclosure and the burden on
issuers. Issuers already apply this concept of control for financial
reporting purposes, which should facilitate compliance. Assuming a
reporting issuer consolidates the entity making the eligible payment,
this approach also should have the benefit of limiting the potential
overlap of the disclosed payments because generally, under applicable
financial reporting principles, only one party can control, and
therefore consolidate, that entity. Further, this approach could
enhance the quality of the reported data since each resource extraction
issuer is required to provide audited financial statement disclosure of
its significant consolidation accounting policies in the notes to the
audited financial statements included in its existing Exchange Act
annual reports.\284\ The disclosure of these accounting policies should
provide greater transparency about how the issuer determined which
entities and payments should be included within the scope of the
required disclosures. Finally, a resource extraction issuer's
determination of control under the Section 13(q) rules will be subject
to the audit process as well as to the internal accounting controls
that issuers are required to have in place with respect to reporting
audited financial statements filed with the Commission.\285\
---------------------------------------------------------------------------

    \284\ See ASC 235-10-50; IFRS 8. See also 17 CFR 210.1-01, 2-01
and 4-01 (Rules 1-01, 3-01, and 4-01 of Regulation S-X).
    \285\ See Exchange Act Section 13(b)(2)(B) [15 U.S.C.
78m(b)(2)(B)]. See also 17 CFR 240.13a-15 and 17 CFR 240.15d-15. We
note, however, that the final rules will not create a new auditing
requirement.
---------------------------------------------------------------------------

    The 2016 Rules included the same definition of ``subsidiary'' and a
similar definition of ``control.'' \286\ Unlike the 2016 Rules, the
definition of control we are adopting excludes entities or operations
in which an issuer has only a proportionate interest, so that a
resource extraction issuer will not be required to disclose the
proportionate amount of the payments made by its proportionately
consolidated entities or operations.\287\ We proposed to exclude such
entities after reconsidering some of the comments in the 2016
rulemaking that raised concern about the definition of control and the
potential compliance burden and impracticalities associated with using
a broader definition of control.\288\ Compared to an issuer that
consolidates an entity, an issuer with a proportionate interest in an
entity or operations may not have the same level of ability to direct
the entity or operations making the payments. For example, as
commenters in the 2016 rulemaking noted, an issuer that holds a
proportionate interest in a joint venture typically does not have ready
access to detailed payment information when it is not the operator of
that venture.\289\ Requiring such a non-operator issuer to provide the
payment disclosure based on its proportionate interest in the venture
could compel that issuer to renegotiate its joint venture agreement or
make other arrangements to obtain sufficiently detailed payment
information to comply with the Section 13(q) rules, which could
significantly increase its compliance burden.
---------------------------------------------------------------------------

    \286\ See 2016 Rules Adopting Release at Section II.D.3.
    \287\ See Item 2.01(d)(3) of Form SD. Proportionately
consolidated entities or operations include those entities or
operations that are proportionately consolidated in accordance with
ASC 810-10-45-14 and ``joint operations'' as defined in IFRS 11,
Joint Arrangements.
    \288\ See 2019 Rules Proposing Release at Section II.E (citing
letters from API (Feb. 16, 2016); BP (Feb. 16, 2016); Chevron (Feb.
16, 2016); ExxonMobil (Feb. 16, 2016); Petrobras (Feb. 16, 2016);
and Royal Dutch Shell (Feb. 5, 2016)).
    \289\ See, e.g., letters from API (Feb. 16, 2016); and
ExxonMobil (Feb. 16, 2016).
---------------------------------------------------------------------------

    Most commenters that addressed the issue supported the proposed
definition of control based on applicable accounting principles.\290\
For example, one commenter stated that the proposed approach will
reduce compliance costs for issuers since the definition of control is
consistent with the entities that are included in financial filings,
will align with internal controls, and lead to greater consistency in
interpretation of Section 13(q) obligations across resource extraction
issuers.\291\
---------------------------------------------------------------------------

    \290\ See letters from API (Mar. 16, 2020); Ovintiv; Petrobras;
and SAF.
    \291\ See letter from API (Mar. 16, 2020).
---------------------------------------------------------------------------

    A number of commenters also supported the proposed treatment of
proportionate interests.\292\ One commenter stated that proportionate
reporting would require a significant number of issuers subject to
Section 13(q) to modify their internal accounting/financial reporting
systems and processes.\293\ Several commenters also reiterated their
concern that requiring the reporting of payments by proportionate
interests would conflict with the typical operating model in the oil
and natural gas industry for joint ventures or similar arrangements. In
those arrangements, a single company typically explores, develops, and
operates a field, including making the necessary disbursements to
governments for the entire joint venture or arrangement. The other
(non-operator) members then reimburse the operator for their respective
share of the payments. The non-operator members typically do not have
access to the level of information required to report the payments and
may be forced to renegotiate the joint venture agreement or make other
arrangements to obtain sufficiently detailed payment information, or
may not be able to obtain that information from the operator. In
addition, the resource extraction issuer that is the operator of the
joint venture or arrangement would

then be required to provide its non-operating partners with the amount
and type of each payments remitted to each governmental entity, the
timing of the remittance and their corresponding share of the
remittance.\294\ Thus, not requiring proportionate reporting should
reduce the compliance burden on all members of the joint venture or
arrangement.\295\
---------------------------------------------------------------------------

    \292\ See letters from API (Mar. 16, 2020); Ovintiv; Petrobras;
and SAF.
    \293\ See letter from API (Mar. 16, 2020).
    \294\ See letter from API (Mar. 16, 2020).
    \295\ See, e.g., letters from API (Mar. 16, 2020); and Ovintiv.
---------------------------------------------------------------------------

    In addition, according to one commenter, not requiring
proportionate reporting would reduce the risks of double counting
payments, uncertainties relating to the proportionate amount that
should be included in each member's report and inconsistent approaches
being taken between different joint ventures.\296\
---------------------------------------------------------------------------

    \296\ See letter from Ovintiv.
---------------------------------------------------------------------------

    Other commenters stated that, while they were not in favor of
eliminating the requirement to report the payments of proportionate
interests because of the significant loss of data that would result,
this change would be an acceptable way to cause the new rule to be not
substantially the same as the 2016 Rules, because it would reduce
compliance costs without undermining consistency with the non-U.S.
payment-to-governments reporting regimes. According to these
commenters, the question of joint venture reporting is neither squarely
addressed in Section 13(q) nor has it been settled globally, as the
reporting of joint venture payments has been inconsistent.\297\ A small
number of commenters opposed the proposed definition of control because
of its potential detrimental effect on the reporting of payments by
joint ventures.\298\
---------------------------------------------------------------------------

    \297\ See letter from PWYP-US (Mar. 16, 2020); see also letter
from Oxfam America and Earthrights International.
    \298\ See letter from Public Citizen; see also letter from
KCSPOG.
---------------------------------------------------------------------------

    We recognize that excluding proportionate interest entities or
operations from the proposed definition of control could potentially
result in less payment information about joint ventures or arrangements
becoming public, as compared to the 2016 Rules. The most recent
comments on this issue, which are mostly in favor of excluding such
entities, have nevertheless reinforced our belief that this potential
reduction in transparency is justified as a means to help reduce the
compliance burden of the Section 13(q) rules.
    Some commenters requested that we clarify the payment disclosure
obligations of members in a joint venture or other joint arrangement
where no one party has control.\299\ We agree that additional
clarification would be useful and have added an appropriate
instruction. That instruction provides that in a joint venture or
arrangement, where no single party has control, a resource extraction
issuer that is the operator of the venture or arrangement and makes
payments to governments for the entire venture or arrangement, on
behalf of its non-operator members, must report all of the payments.
The non-operator members are not required to report payments that they
make to reimburse the operator for their share of the payments to
governments. Such non-operator members are only required to report
payments that, as resource extraction issuers, they make directly to
governments.\300\
---------------------------------------------------------------------------

    \299\ See letters from API (Mar. 16, 2020); and Ovintiv.
    \300\ See Instruction 6 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

F. Treatment for Purposes of the Exchange Act and Securities Act

    We are adopting the proposed treatment of the disclosure provided
pursuant to Section 13q-1 on Form SD as being furnished to, but not
filed with, the Commission.\301\ The Commission originally proposed a
similar approach in the 2012 Rules Proposing Release,\302\ but chose to
require the disclosure to be filed in both the 2012 and the 2016
Rules.\303\ When most recently proposing the Section 13(q) rules, after
reviewing the various reasons articulated for treating the Section
13(q) disclosure as filed or furnished,\304\ the Commission stated that
compelling arguments could be made on both sides of this policy
choice.\305\
---------------------------------------------------------------------------

    \301\ The final rules use the term ``furnished'' when referring
to the requirement to submit Form SD to provide Section 13(q)
payment information to the Commission. See, e.g., 17 CFR 240.13q-
1(a); see also General Instruction B.4 to Form SD (stating that, for
purposes of Rule 13q-1, the information and documents furnished on
Form SD shall not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, unless a
registrant specifically incorporates them by reference into such
filing).
    \302\ See 2012 Rules Proposing Release at Section II.F.3 (noting
that Section 13(q) neither specifically states how the information
should be submitted nor states that the disclosure be included in
the annual reports that are customarily filed with the Commission,
such as Form 10-K, Form 20-F, or Form 40-F.)
    \303\ See 2012 Rules Adopting Release at Section II.F.3; and
2016 Rules Adopting Release at Section II.L.3.
    \304\ For example, in the prior rulemakings, commenters that
indicated the Section 13(q) information should be deemed ``filed''
maintained that investors would benefit from the payment information
being subject to Exchange Act Section 18 liability. Other commenters
asserted that allowing the information to be furnished would
diminish the importance of the information while requiring it to be
filed would enhance the quality of the disclosure and ensure that it
could be used reliably for investment analysis and other purposes.
Commenters who favored treating the Section 13(q) disclosure as
``furnished'' emphasized that, in contrast to disclosure that is
typically required to be filed under Section 13, the nature and
purpose of the Section 13(q) disclosure requirements are not for the
protection of investors but, rather, to increase the accountability
of governments for the proceeds they receive from their natural
resources and to support international transparency promotion
efforts relating to the commercial development of oil, natural gas,
or minerals, and that users of the payment information did not need
the level of protection associated with Section 18 liability. See
2012 Adopting Release at Section II.F.3.b.; and 2016 Adopting
Release at Section II.L.2.
    \305\ See 2019 Rules Proposing Release at Section II.M.
---------------------------------------------------------------------------

    Several commenters supported the proposed treatment of the Section
13(q) disclosure on Form SD as furnished.\306\ One commenter favored
the proposed treatment because it viewed the purpose of the Section
13(q) disclosure as different from the type of information normally
filed with the Commission by issuers. This commenter also indicated
that, in its view, the proposed treatment strikes an appropriate
balance between addressing the need for transparency with the costs and
liabilities associated with filing it with the Commission.\307\ Other
commenters supported treating the payment disclosure as furnished
because, in addition to not resulting in Section 18 liability, such
treatment would not subject the disclosure to incorporation by
reference in a Securities Act filing.\308\
---------------------------------------------------------------------------

    \306\ See letters from API (Mar. 16, 2020); Chamber; Equinor;
Ovintiv; and Royal Dutch Shell (Mar. 30, 2020).
    \307\ See letter from API (Mar. 16, 2020).
    \308\ See letters from Chamber; and Equinor.
---------------------------------------------------------------------------

    Some commenters, however, opposed the proposed treatment of the
Section 13(q) reports as being furnished.\309\ For example, one
commenter stated that the objectives of Section 13(q) are identical in
nature and purpose to other disclosures required under the Exchange Act
that are designed to benefit investors.\310\ Another commenter stated
that subjecting the payment disclosure to Section 18 liability would be
appropriate because Section 18 imposes liability on any person who
makes false and misleading statements of material fact on any report
filed under the Exchange Act.\311\ Other commenters stated that the
proposed treatment would diminish the rules' effectiveness and ease the
level of accountability to which resource

extraction issuers are held when reporting payments.\312\
---------------------------------------------------------------------------

    \309\ See letters from Chris Barnard (Mar. 19, 2020); KCSPOG;
Public Citizen; and PWYP-US (Mar. 16, 2020).
    \310\ See letter from PWYP-US (Mar. 16, 2020).
    \311\ See letter from Chris Barnard.
    \312\ See letters from KCSPOG; and Public Citizen.
---------------------------------------------------------------------------

    After reviewing all of the comments, we are persuaded to treat the
Section 13(q) reports as furnished to, and not filed with, the
Commission. We believe this is a reasonable and appropriate policy
choice because of the different nature and purpose of the Section 13(q)
disclosures compared to other disclosures required under Section 13.
Specifically, in contrast to disclosure that is typically required to
be filed under Section 13, the Section 13(q) disclosure requirements
are not for the protection of investors. Rather, they are to increase
the accountability of governments for the proceeds they receive from
their natural resources and to support the commitment of the Federal
Government to international transparency promotion efforts relating to
the commercial development of oil, natural gas, or minerals.\313\ While
such disclosures may be considered by some investors, as noted above,
the disclosure is not for investor protection purposes. Since Section
18 is designed to protect investors, we do not believe it is necessary
or appropriate to apply it to the Section 13(q) disclosures.
Additionally, we believe that this treatment will not significantly
undermine the transparency objectives of Section 13(q), as it will
limit the Section 18 liability for the required disclosures but will
not affect the content of those disclosures. Moreover, we note that the
Section 13(q) disclosures will continue to be subject to the Exchange
Act's general antifraud provisions.\314\
---------------------------------------------------------------------------

    \313\ See, e.g., letter from API (Mar. 16, 2020).
    \314\ See, e.g., Section 10(b) of the Exchange Act [15 U.S.C.
78j(b)] and 17 CFR 240.10b-5.
---------------------------------------------------------------------------

    This treatment will eliminate the possibility of Section 18
liability for the Section 13(q) disclosure. It will also eliminate the
risk that the disclosure would be incorporated by reference into a
filing under the Securities Act of 1933 (the ``Securities Act'') and be
potentially subject to strict liability under Section 11 of the
Securities Act, unless the issuer expressly incorporates such
information.\315\
---------------------------------------------------------------------------

    \315\ See General Instruction B.4 of Form SD. Form S-3 requires
reports ``filed'' pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act prior to the termination of the offering to be
incorporated by reference into the prospectus. Although Form SD will
be the form used for disclosures under Section 13(q), Section 15(d)
of the Exchange Act refers generally to periodic information,
documents, and reports required by Section 13 reports with respect
to securities registered under Section 12, not simply Section 13(a)
reports. Thus, if Form SD were deemed ``filed,'' it could raise
concerns that the payment disclosure would be incorporated by
reference into a Securities Act filing.
---------------------------------------------------------------------------

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

    We are adopting the proposed definitions of ``foreign government''
and ``Federal Government'' with a slight modification. Consistent with
Section 13(q),\316\ we proposed to define ``foreign government'' to
mean a foreign government, a department, agency, or instrumentality of
a foreign government, or a company at least majority-owned by a foreign
government. In order to eliminate the circularity of the first part of
the proposed definition, we are clarifying that, under the final rules,
a ``foreign government'' means the national government of a foreign
country, as well as any department, agency, or instrumentality of the
national government, or a company at least majority owned by the
national government of a foreign country.\317\ Similar to the proposed
definition, the adopted definition also provides that the term
``foreign government'' also includes any subnational governments of a
foreign country, such as the government of a state, province, county,
district, municipality, or territory under a foreign national
government.\318\ As proposed, ``Federal Government'' is defined as the
Federal government of the United States and does not include
subnational governments within the United States.\319\
---------------------------------------------------------------------------

    \316\ See 15 U.S.C. 78m(q)(1)(B).
    \317\ See Item 2.01(d)(7) of Form SD.
    \318\ See id. To the extent that aboriginal, indigenous, or
tribal governments are subnational governments in foreign countries,
payments to those government entities will be covered by the Section
13(q) rules.
    \319\ See Item 2.01(d)(6) of Form SD.
---------------------------------------------------------------------------

    These definitions are essentially the same definitions of ``foreign
government'' and ``Federal Government'' adopted in the 2016 and 2012
rulemakings.\320\ We included all subnational governments within the
definition of ``foreign government'' in both the 2012 and 2016
rulemakings.\321\ We believe this is a reasonable and appropriate way
to define the term ``foreign government.'' For example, we note that
this approach is consistent with the inclusion of subnational
governments under the foreign reporting regimes and the EITI.\322\
Although we received little comment on the proposed definitions in the
current rulemaking, many prior commenters supported the inclusion of
subnational governments in the definition of foreign government because
resource extraction issuers frequently make payments to subnational
governments.\323\
---------------------------------------------------------------------------

    \320\ See 2016 Rules Adopting Release at Section II.F.3; and
2012 Rules Adopting Release at Section II.E.3.
    \321\ See id.
    \322\ See, e.g., Article 41(3) of the EU Accounting Directive,
which defines ``government'' to mean ``any national, regional or
local authority of a Member State or of a third country'' and which
``includes a department, agency or undertaking controlled by that
authority. . .''; see also Article 2 of Canada's ESTMA, which
defines ``payee'' to mean ``(a) any government in Canada or in a
foreign state; (b) a body that is established by two or more
governments; (c) any trust, board, commission, corporation or body
or authority that is established to exercise or perform, or that
exercises or performs, a power, duty or function of government for a
government . . . or (d) any other prescribed payee;'' and
Requirement 4.6 of the EITI Standard (2019), which requires the
multi-stakeholder group to ensure that company payments to
subnational government entities and the receipt of these payments
are disclosed, if material.
    \323\ See 2012 Rules Adopting Release at Section II.E.2., note
341 and accompanying text.
---------------------------------------------------------------------------

    In the current rulemaking, one commenter supported both of the
proposed definitions but recommended that we include under the
definition of ``foreign government'' a company that is controlled by a
foreign government.\324\ We decline to follow this recommendation
because, as we explained when proposing the definition of ``foreign
government'' to include a company that is at least majority-owned by a
foreign government,\325\ we believe it would be difficult for issuers
to determine when the government has control over a particular entity
outside of a majority-ownership context. In this regard, we note that
Section 13(q) refers to a company ``owned'' by a foreign government,
not ``controlled'' by a foreign government. Moreover, the ``control''
concept is explicitly included in Section 13(q) in other contexts.\326\
---------------------------------------------------------------------------

    \324\ See letter from PWYP-US (Mar. 16, 2020).
    \325\ See 2019 Rules Proposing Release at Section II.G.
    \326\ Compare Section 13(q)(1)(B) with Section 13(q)(2(A).
---------------------------------------------------------------------------

    For purposes of identifying the foreign governments that received
payments at a level below the major subnational government level, we
proposed to permit an issuer to aggregate all of its payments of a
particular payment type without having to identify the particular
subnational government payee. The proposed instruction to Form SD would
have permitted an issuer to aggregate payments by payment type made to
multiple counties and municipalities (the level below major subnational
government level), disclose the aggregate amount without having to
identify the particular subnational government payee, and instead
generically identify the subnational government payee (e.g., as
``county,'' ``municipality'' or some combination of

subnational governments).\327\ We proposed this option for aggregated
disclosure of subnational government payments to reduce the potential
for competitive harm that could result from implementation of the
Section 13(q) rules.\328\
---------------------------------------------------------------------------

    \327\ See 2019 Rules Proposing Release at Section II.G
(discussing proposed Instruction (14) to Item 2.01 of Form SD).
    \328\ See id.
---------------------------------------------------------------------------

    A few commenters supported the proposed approach permitting the
generic description and aggregated disclosure of subnational government
payments.\329\ One commenter indicated that because payments below the
major subnational jurisdictional level tend to be relatively minimal,
it did not believe that more granular reporting below that level would
provide meaningful transparency benefits.\330\ Another commenter stated
that the proposed approach would reduce compliance costs.\331\
---------------------------------------------------------------------------

    \329\ See letters of API (Mar. 16, 2020); Chamber; and NAM.
    \330\ See letter from API (Mar. 16, 2020).
    \331\ See letter from NAM.
---------------------------------------------------------------------------

    In contrast, several commenters opposed the proposed approach
regarding the aggregated and generic disclosure of subnational
government payments.\332\ For example, several of these commenters
stated that the disclosure of each subnational payee is critical to
fulfill the transparency and anti-corruption objectives of Section
13(q).\333\ One commenter indicated that the proposed approach would
equate to anonymity for local government entities, which would deprive
citizens of the information needed to hold local government entities
accountable for receipt and management of payments to them and which,
in the absence of such information, could fuel suspicion that payments
were not made in accordance with fiscal obligations.\334\ This
commenter further maintained that transparent disclosure of payments
made at the subnational government level would not increase the
potential for competitive harm because many issuers are already
disclosing such payments and identifying the subnational government
payee pursuant to the requirements of non-U.S. reporting regimes.\335\
---------------------------------------------------------------------------

    \332\ See letters from Oxfam America and Earthrights
International; POGO; PWYP-US (Mar. 16, 2020); and Congr. Waters et
al.
    \333\ See letters from PWYP-US (Mar. 16, 2020); and Congr.
Waters et al. (stating that full public reporting--including of the
company making the payment and the entity receiving it--is a basic
requirement of an effective transparency regime).
    \334\ See letter from PWYP-US (Mar. 16, 2020).
    \335\ See id. (stating that, under Canada's ESTMA, issuers must
disclose payments to governments at any level, including national,
regional, state, provincial, territorial, or local/municipal levels;
under UK payments-to-governments regulations, ``government'' is
defined as any national, regional, or local authority of a country;
and under the EITI Standard, payment data must be disaggregated by
each government entity).
---------------------------------------------------------------------------

    Another commenter stated that the proposed generic approach to
subnational government payments is inconsistent with the statutory
language, which dictates that the payment disclosure include electronic
tags that identify the government that received the payment, in
addition to the country in which the government is located.\336\ This
commenter, along with others, also indicated that the proposed generic
approach would undermine the anti-corruption objective of Section
13(q).\337\
---------------------------------------------------------------------------

    \336\ See Oxfam America and Earthrights International (citing 15
U.S.C. 78m(q)(2)(D)(ii)(V)).
    \337\ See id.; see also letter from POGO.
---------------------------------------------------------------------------

    After considering all of the comments, we have reconsidered our
proposed generic approach to the disclosure of payments to subnational
governments. Under the final rules, an issuer will still be able to
aggregate payments by payment type when disclosing payments made at a
level below the major subnational government level. It will, however,
now be required to disclose the aggregated amount paid to, and
identify, each subnational political jurisdiction. For example, an
issuer with extractive operations in the three oil sands regions of
Alberta, Canada \338\ (the Regional Municipality of Wood Buffalo,
Northern Sunrise County, and the Municipality of Cold Lake), would be
required to identify each such subnational government entity, as well
as aggregate and report all of its fees paid for environmental and
other permits to each such entity.
---------------------------------------------------------------------------

    \338\ The three major oil sands regions in Alberta are the
Athabasca, Peace River, and Cold Lake regions. See, e.g., Regional
Aquatics Monitoring Program, ``The Oil Sands Described,'' available
at http://www.ramp-alberta.org/resources/development/distribution.aspx.
---------------------------------------------------------------------------

    In this regard, an issuer's reporting obligations at the level
below major subnational government will be the same as its reporting
obligations at the major subnational government level. For example, an
issuer could aggregate all of the royalties arising from its operations
in the three oil sands areas paid at the provincial level but will be
required to disclose the particular agency payee, e.g., the Alberta
Department of Energy.
    We find persuasive commenters' concerns that Section 13(q)'s
transparency objective will be better served by this approach. Further,
we believe that adoption of the Modified Project Definition is
sufficient to render the final rules not substantially the same as the
2016 Rules for the purpose of satisfying the CRA. Thus, while the
proposed approach could help distinguish the final rules from the
disapproved rules, we do not believe it is necessary or appropriate in
light of the changes described above and its likely adverse impact on
Section 13(q)'s transparency objective.
    Moreover, as one industry commenter indicated in the 2016
rulemaking, the disclosure of payments at the subnational government
level and the identification of the subnational government payee would
work in tandem with a definition of ``project'' that permits the
aggregation of payments at the major subnational jurisdiction level.
According to this commenter, this information would provide citizens
with the payment data necessary to hold their leaders accountable at
all levels of government.\339\ We note that this industry commenter,
who consistently argued that a less granular project definition was
necessary to minimize the potential for competitive harm, also
supported the required identification of subnational government payees.
Upon reconsideration, we similarly believe that the proposed generic
approach to subnational government payments is a discretionary choice
that is not necessary to minimize the potential for competitive harm.
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    \339\ See letter from ExxonMobil (Feb. 16, 2016) (``. . . some
commenters appear to overlook the fact that project tagging is only
one aspect of the multiple data points to be included in 1504
reports. In addition to tagging payments by project, companies would
also report each payment outside the U.S. by specific government
payee, including national, sub-national, and local and community-
level government payees. Thus, the API project definition combined
with reporting of payments at all levels of government will enable
host country citizens easily to determine the amounts received by
their local, state and federal government agencies from resource
extraction activities occurring in their state or province. Citizens
would know how much money is coming directly from the industry at
each level of government and be able to lobby the applicable level
of government for greater accountability for the use of such
revenues, such as by advocating for changes in revenue sharing or
allocations to local needs.'')
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    With respect to the definition of ``Federal Government,'' we
believe that Section 13(q) is clear in only requiring disclosure of
payments made to the Federal government in the United States and not to
state, local, or tribal governments. In this regard, we believe that
typically the term ``Federal Government'' refers only to the U.S.
national government and not the states or other subnational governments
in the United States.

H. Definition of ``Resource Extraction Issuer''

    We are adopting the proposed definition of ``resource extraction

issuer'' to mean an issuer that is required to file an annual report
with the Commission on Form 10-K,\340\ Form 20-F,\341\ or Form 40-F
\342\ pursuant to Section 13 or 15(d) of the Exchange Act \343\ and
engages in the commercial development of oil, natural gas, or
minerals.\344\ Section 13(q) defines a resource extraction issuer in
part as an issuer that is ``required to file an annual report with the
Commission.'' \345\ As we explained when proposing this definition, we
believe this language could reasonably be read to include or to exclude
issuers that file annual reports on forms other than Forms 10-K, 20-F,
or 40-F.\346\ We are therefore exercising our discretion and covering
only issuers that file annual reports on Forms 10-K, 20-F, or 40-F. As
with the 2016 Rules, we believe that covering issuers that provide
disclosure outside of the Exchange Act reporting framework would do
little to reasonably likely achieve the transparency objectives of
Section 13(q) but would add costs and burdens to the existing
disclosure regime governing those categories of issuers. The adopted
definition therefore excludes issuers subject to Tier 2 reporting
obligations under Regulation A and issuers filing annual reports
pursuant to Regulation Crowdfunding.\347\ In addition, investment
companies registered under the Investment Company Act of 1940
(``Investment Company Act'') \348\ will not be subject to the final
rules.\349\
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    \340\ 17 CFR 249.310.
    \341\ 17 CFR 249.220f.
    \342\ 17 CFR 249.240f.
    \343\ 15 U.S.C. 78m or 78o(d).
    \344\ See 17 CFR 240.13q-1(d)(11).
    \345\ 15 U.S.C. 78m(q)(1)(D).
    \346\ See 2019 Rules Proposing Release at Section II.A.
    \347\ In prior releases, the Commission noted that, in the
staff's experience, resource extraction issuers rarely use
Regulation A. This continues to be the case. Between June 2015
through December 2019, we estimate that only 5 of the 343 Regulation
A issuers with a qualified offering statement appears to have been a
resource extraction issuer at the time of filing based on a review
of assigned Standard Industrial Classification (SIC) codes listed in
Part 1 of Form 1-A. Similarly, between May 2016 through December
2019, we estimate that only 1 of the 1,975 Regulation Crowdfunding
issuers appears to have been a resource extraction issuer.
    \348\ 15 U.S.C. 80a-1 et seq.
    \349\ It seems unlikely that an entity that fits within the
definition of ``investment company'' would be one that is
``engag[ing] in the commercial development of oil, natural gas, or
minerals.'' See Section 3(a)(1) of the Investment Company Act (15
U.S.C. 80a-3(a)(1)).
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    Although almost all of the commenters on the 2016 Rules Proposing
Release supported a definition similar to the one we are adopting in
this release,\350\ we received little comment on the more recently
proposed definition of ``resource extraction issuer.'' \351\ One
commenter supported the proposed definition because, in the commenter's
view, it aligns with the statutory definition of resource extraction
issuer.\352\ This commenter also agreed that foreign private issuers
\353\ that file annual reports on Forms 20-F or 40-F should be included
within the scope of the definition. The commenter stated that to
exclude such foreign private issuers would be inconsistent with
Congressional intent underlying Section 13(q) and the international
transparency promotion laws, none of which exclude foreign
companies.\354\
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    \350\ See 2016 Rules Adopting Release at Section II.A.2.
    \351\ We did receive related comments objecting to broad
exemptions from the scope of the Section 13(q) rules for classes of
companies, such as emerging growth companies and smaller reporting
companies, which would have been covered resource extraction issuers
under the 2016 Rules. See, e.g., letters from KCSPOG; PWYP-US (Mar.
16, 2020); and Oxfam America and Earthrights International. As
previously explained, we are exempting emerging growth companies and
smaller reporting companies from the scope of Rule 13q-1 because we
believe that this change from the 2016 Rules will reduce the overall
cost of the Section 13(q) rules. See supra Section II.D.3.
    \352\ See letter from PWYP-US (Mar. 16, 2020).
    \353\ See the definition of ``foreign private issuer'' in 17 CFR
230.405 and 17 CFR 240.3b-4.
    \354\ See letter from PWYP-US (Mar. 16, 2020).
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    Although the final rules will apply to reporting foreign private
issuers, as proposed, consistent with the 2016 Rules, the final rules
will not apply to foreign private issuers that are exempt from Exchange
Act registration and reporting obligations pursuant to 17 CFR 240.12g3-
2(b) (``Rule 12g3-2(b)''). As discussed in prior releases, we continue
to believe that expanding the statutory definition of ``resource
extraction issuer'' to include foreign private issuers that are relying
on Rule 12g3-2(b) would discourage reliance on the Rule 12g3-2(b)
exemption and would be inconsistent with the effect and purpose of that
rule.\355\
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    \355\ See 2016 Rules Adopting Release at Section II.A.3; and
2016 Rules Proposing Release at Section II.A.
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I. Definition of ``Commercial Development of Oil, Natural Gas, or
Minerals''

    We are adopting the proposed definition of ``commercial development
of oil, natural gas, or minerals'' to mean exploration, extraction,
processing, and export of oil, natural gas, or minerals, or the
acquisition of a license for any such activity.\356\ This definition is
consistent with the statutory definition.\357\ Although we have
discretionary authority to include other significant activities
relating to oil, natural gas, or minerals,\358\ we have elected not to
expand the list of covered activities beyond the explicit terms of
Section 13(q). As we noted when proposing this definition, we adopted
the same approach when defining ``commercial development of oil,
natural gas, or minerals'' in the 2016 rulemaking, and most commenters
that addressed this aspect of the prior rules supported this
approach.\359\ As was the case with the 2016 Rules, we have not sought
to impose disclosure obligations that extend beyond Congress' required
disclosures in Section 13(q) and the disclosure standards developed in
connection with international transparency promotion efforts relating
to the commercial development of oil, natural gas, or minerals. This
approach should limit the compliance costs of the Section 13(q) rules.
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    \356\ See Item 2.01(d)(2) of Form SD.
    \357\ See 15 U.S.C. 78m(q)(1)(A).
    \358\ See id.
    \359\ See 2019 Rules Proposing Release at Section II.B; and 2016
Rules Adopting Release at Section II.B.2.a.
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    The proposed definition of ``commercial development of oil, natural
gas, or minerals'' received little comment. One commenter supported the
proposed definition because it is consistent with the statutory
language of Section 13(q) and is in line with established international
transparency standards.\360\
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    \360\ See letter from PWYP-US (Mar. 16, 2020).
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    As proposed, the adopted definition of ``commercial development''
will capture only those activities that are directly related to the
commercial development of oil, natural gas, or minerals, and not
activities ancillary or preparatory to such commercial development.
Accordingly, an issuer that is only providing products or services that
support the exploration, extraction, processing, or export of such
resources will not be a ``resource extraction issuer'' under the final
rules.\361\ For example, an issuer that manufactures drill bits or
provides hardware to help issuers explore and extract will not be
considered a resource extraction issuer. Similarly, an issuer engaged
by an operator to provide hydraulic fracturing or drilling services, to
enable the operator to extract resources, will not be a resource

extraction issuer.\362\ We believe this approach is consistent with
Section 13(q) and the approach adopted in the 2016 rulemaking, which
most commenters that addressed the issue supported.\363\ We also note
that no commenter opposed this approach when commenting on the 2019
Rules Proposing Release.
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    \361\ Marketing and security-related activities are not included
within the final rules because those activities are not specifically
included in the list of activities covered by the definition of
``commercial development'' under Section 13(q). In addition,
including marketing and security-related activities within the final
rules under Section 13(q) would go beyond what is covered by the
non-U.S. payments-to-governments reporting regimes. See 2019 Rules
Proposing Release at note 96.
    \362\ As under the 2016 Rules, and as proposed, a resource
extraction issuer will be required to disclose payments when a
service provider makes a payment to a government on its behalf that
meets the definition of ``payment.'' See 2019 Rules Proposing
Release at note 97. However, at the request of commenters, and
consistent with our treatment of proportionate interests, see supra
Section II.E., we have clarified that this disclosure obligation
does not apply to a non-operator partner of a joint venture or
arrangement that reimburses the operator for its share of the
payments to governments made by the operator. See Instruction 7 to
Item 2.01 of Form SD.
    \363\ See the 2016 Rules Adopting Release at Section II.B.2.a.
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    Because, in response to commenters' requests, we provided guidance
to clarify certain activities covered by the definition of ``commercial
development'' in prior rulemakings,\364\ we proposed to define or
provide similar guidance on several terms contained within the
definition.\365\ We discuss these definitions and guidance and our
reasons for adopting them in the subsections that follow.
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    \364\ See 2016 Rules Adopting Release at Section II.B.2; and
2012 Rules Adopting Release at Section II.C.2.
    \365\ See 2019 Rules Proposing Release at Section II.B.1-3.
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1. ``Extraction'' and ``Processing''
    The final rules define ``extraction'' to mean the production of oil
or natural gas or the extraction of minerals.\366\ This definition
largely tracks the proposed definition \367\ and is consistent with the
definition adopted in the 2016 rulemaking.\368\
    We received few comments on the proposed definition of extraction.
One commenter supported the proposed definition because it is
consistent with the statutory language of Section 13(q) and is in line
with the established international transparency standards.\369\ No
commenter opposed the proposed definition on substantive grounds.
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    \366\ See Item 2.01(d)(5) of Form SD.
    \367\ We proposed to define ``extraction'' to mean the
production of oil and natural gas as well as the extraction of
minerals. See 2019 Rules Proposing Release at Section II.B.1. In
response to a suggestion by one commenter, the final rules use the
disjunctive ``or'' in the definition of extraction. See letter from
Keith P. Bishop (Jan. 1, 2020).
    \368\ See 2016 Rules Adopting Release at Section II.B.3.
    \369\ See letter from PWYP-US (Mar. 16, 2020).
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    We are also adopting the proposed instruction regarding
``processing.'' \370\ Like the definition of extraction, the
instruction regarding processing largely tracks the one adopted in the
2016 rulemaking. Pursuant to that instruction, ``processing'' includes,
but is not limited to, midstream activities such as removing liquid
hydrocarbons from gas, removing impurities from natural gas prior to
its transport through a pipeline, and the upgrading of bitumen and
heavy oil, through the earlier of the point at which oil, gas, or gas
liquids (natural or synthetic) are either sold to an unrelated third
party or delivered to a main pipeline, a common carrier, or a marine
terminal. ``Processing'' also includes the crushing or preparing of raw
ore prior to the smelting or refining phase.
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    \370\ The proposed rules included an instruction on the meaning
of the term ``processing'' but did not provide a defined term. See
Instruction (8) to Item 2.01 of Form SD.
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    The instruction regarding ``processing'' also provides, as
proposed, that ``processing'' does not include downstream activities,