[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Proposed Rules]
[Pages 80057-80111]
[FR Doc No: 2015-31702]

Vol. 80

Wednesday,

No. 246

December 23, 2015

Part III

Securities and Exchange Commission

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17 CFR Parts 240 and 249b

Disclosure of Payments by Resource Extraction Issuers; Proposed Rule

Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

[Release No. 34-76620; File No. S7-25-15]
RIN 3235-AL53

Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing Rule 13q-1 and an amendment to Form SD to
implement Section 1504 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act relating to disclosure of payments by resource
extraction issuers. Rule 13q-1 was initially adopted by the Commission
on August 22, 2012, but it was subsequently vacated by the U.S.
District Court for the District of Columbia. Section 1504 of the Dodd-
Frank Act added Section 13(q) to the Securities Exchange Act of 1934,
which directs the Commission to issue rules requiring resource
extraction issuers to include in an annual report information relating
to any payment made by the issuer, a subsidiary of the issuer, or an
entity under the control of the issuer, to a foreign government or the
Federal Government for the purpose of the commercial development of
oil, natural gas, or minerals. Section 13(q) requires a resource
extraction issuer to provide information about the type and total
amount of such payments made for each project related to the commercial
development of oil, natural gas, or minerals, and the type and total
amount of payments made to each government. In addition, Section 13(q)
requires a resource extraction issuer to provide information about
those payments in an interactive data format.

DATES: We are providing two comment periods for this proposal. Initial
comments are due on January 25, 2016. Reply comments, which may respond
only to issues raised in the initial comment period, are due on
February 16, 2016. In developing the final rules, the Commission may
rely on both new comments and comments that have been received to date,
including those that were provided in connection with the prior rules
that the Commission issued under Section 13(q).

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment forms (http://www.sec.gov/rules/proposed.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-25-15 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-25-15. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
also are available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street NE., Room 1580,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. All comments received will be posted without
change; we do not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.
    Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the SEC's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Shehzad K. Niazi, Special Counsel;
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430; or Elliot Staffin, Special Counsel; Office of International
Corporate Finance, Division of Corporation Finance, at<PHONE_NUMBER>,
U.S. Securities and Exchange Commission, 100 F Street NE., Washington,
DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing Rule 13q-1 \1\ and an
amendment to Form SD \2\ under the Securities Exchange Act of 1934
(``Exchange Act'').\3\
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    \1\ 17 CFR 240.13q-1.
    \2\ 17 CFR 249.448.
    \3\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction and Background
    A. Section 13(q) of the Exchange Act
    B. The 2012 Rules and Litigation
    C. Developments Subsequent to the 2013 Court Decision
    D. Summary of Proposed Rules
    E. Objectives of Section 13(q)'s Required Disclosures and the
Proposed Rules
    1. The U.S. Government's Foreign Policy Interest in Reducing
Corruption in Resource-Rich Countries
    2. Reasons for Proposing Issuer-Specific, Project-Level, Public
Disclosures of Resource Extraction Payments
II. Proposed Rules Under Section 13(q)
    A. Definition of ``Resource Extraction Issuer''
    B. Definition of ``Commercial Development of Oil, Natural Gas,
or Minerals''
    C. Definition of ``Payment''
    1. Types of Payments
    2. The ``Not De Minimis'' Requirement
    D. Payments by ``a Subsidiary . . . or an Entity Under the
Control of . . .''
    E. Definition of ``Project''
    1. General
    2. The API Proposal
    F. Definition of ``Foreign Government'' and ``Federal
Government''
    G. Disclosure Required and Form of Disclosure
    1. Annual Report Requirement
    2. Public Filing
    3. Exemption From Compliance
    4. Alternative Reporting
    5. Exhibits and Interactive Data Format Requirements
    6. Treatment for Purposes of Securities Act and Exchange Act
    H. Effective Date
    I. General Request for Comment
III. Economic Analysis
    A. Introduction and Baseline
    B. Potential Effects Resulting From the Payment Reporting
Requirement
    1. Benefits
    2. Costs
    C. Potential Effects Resulting From Specific Implementation
Choices
    1. Exemption From Compliance
    2. Alternative Reporting
    3. Definition of Control
    4. Definition of ``Commercial Development of Oil, Natural Gas,
or Minerals''
    5. Types of Payments
    6. Definition of ``Not De Minimis''
    7. Definition of ``Project''
    8. Annual Report Requirement
    9. Exhibit and Interactive Data Requirement
    D. Request for Comments
IV. Paperwork Reduction Act
    A. Background
    B. Estimate of Issuers
    C. Estimate of Issuer Burdens
    D. Solicitation of Comments
V. Small Business Regulatory Enforcement Fairness Act
VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules

    D. Reporting, Recordkeeping, and Other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. Request for Comment

I. Introduction and Background

    On August 22, 2012, the Commission adopted a rule and form
amendments \4\ (the ``2012 Rules'') to implement Section 13(q) of the
Exchange Act. The 2012 Rules were vacated by the U.S. District Court
for the District of Columbia by order dated July 2, 2013. In light of
the court's order, we are re-proposing Rule 13q-1 and proposing an
amendment to Form SD to implement Section 13(q).
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    \4\ See Exchange Act Release No. 67717 (Aug. 22, 2012), 77 FR
56365 (Sept. 12, 2012) available at http://www.sec.gov/rules/final/2012/34-67717.pdf (the ``2012 Adopting Release''). See also Exchange
Act Release No. 63549 (Dec. 15, 2010), 75 FR 80978 (Dec. 23, 2010)
available at http://www.sec.gov/rules/proposed/2010/34-63549.pdf
(the ``2010 Proposing Release'').
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A. Section 13(q) of the Exchange Act

    Section 13(q) was added in 2010 by Section 1504 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``the Act'').\5\ It
directs the Commission to ``issue final rules that require each
resource extraction issuer to include in an annual report . . .
information relating to any payment made by the resource extraction
issuer, a subsidiary of the resource extraction issuer, or an entity
under the control of the resource extraction issuer to a foreign
government or the Federal Government for the purpose of the commercial
development of oil, natural gas, or minerals, including--(i) the type
and total amount of such payments made for each project of the resource
extraction issuer relating to the commercial development of oil,
natural gas, or minerals, and (ii) the type and total amount of such
payments made to each government.'' \6\
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    \5\ Public Law 111-203 (July 21, 2010).
    \6\ 15 U.S.C. 78m(q)(2)(A). As discussed further below, Section
13(q) also specifies that the Commission's rules must require
certain information to be provided in interactive data format.
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    Based on the statutory text and the legislative history, we
understand that Congress enacted Section 1504 to increase the
transparency of payments made by oil, natural gas, and mining companies
to governments for the purpose of the commercial development of their
oil, natural gas, and minerals. As discussed in more detail below, the
legislation reflects U.S. foreign policy interests in supporting global
efforts to improve transparency in the extractive industries. The goal
of such transparency is to help combat global corruption and empower
citizens of resource-rich countries to hold their governments
accountable for the wealth generated by those resources.\7\
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    \7\ See, e.g., 156 Cong. Rec. S3816 (daily ed. May 17, 2010)
(Statement of Senator Lugar, one of the sponsors of Section 1504)
(``Adoption of the Cardin-Lugar amendment would bring a major step
in favor of increased transparency at home and abroad. . . . More
importantly, it would help empower citizens to hold their
governments to account for the decisions made by their governments
in the management of valuable oil, gas, and mineral resources and
revenues. . . . The essential issue at stake is a citizen's right to
hold its government to account. Americans would not tolerate the
Congress denying them access to revenues our Treasury collects. We
cannot force foreign governments to treat their citizens as we would
hope, but this amendment would make it much more difficult to hide
the truth.''); id. at S3817-18 (May 17, 2010) (Statement of Senator
Dodd) (``[C]ountries with huge revenue flows from energy development
also frequently have some of the highest rates of poverty,
corruption and violence. Where is all that money going? [Section
13(q)] is a first step toward addressing that issue by setting a new
international standard for disclosure.'').
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    Section 13(q) provides the following definitions of several key
terms:
     ``resource extraction issuer'' means an issuer that is
required to file an annual report with the Commission and engages in
the commercial development of oil, natural gas, or minerals; \8\
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    \8\ 15 U.S.C. 78m(q)(1)(D).
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     ``commercial development of oil, natural gas, or
minerals'' includes exploration, extraction, processing, export, and
other significant actions relating to oil, natural gas, or minerals, or
the acquisition of a license for any such activity, as determined by
the Commission; \9\
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    \9\ 15 U.S.C. 78m(q)(1)(A).
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     ``foreign government'' means a foreign government, a
department, agency or instrumentality of a foreign government, or a
company owned by a foreign government, as determined by the Commission;
\10\ and
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    \10\ 15 U.S.C. 78m(q)(1)(B).
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     ``payment'' means a payment that:
     is made to further the commercial development of oil,
natural gas, or minerals;
     is not de minimis; and
     includes taxes, royalties, fees (including license fees),
production entitlements, bonuses, and other material benefits, that the
Commission, consistent with the guidelines of the Extractive Industries
Transparency Initiative (``EITI'') (to the extent practicable),
determines are part of the commonly recognized revenue stream for the
commercial development of oil, natural gas, or minerals.\11\
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    \11\ 15 U.S.C. 78m(q)(1)(C).
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    Section 13(q) specifies that ``[t]o the extent practicable, the
rules . . . shall support the commitment of the Federal Government to
international transparency promotion efforts relating to the commercial
development of oil, natural gas, or minerals.'' \12\ As noted above in
the definition of ``payment,'' the statute explicitly refers to an
international initiative, the EITI.\13\ Although the separate provision
in Section 13(q) about supporting the Federal Government's commitment
to international transparency efforts does not explicitly mention the
EITI,\14\ the legislative history indicates that the EITI was
considered in connection with the new statutory provision.\15\ On March
19, 2014, the United States completed the process of becoming an EITI
candidate country,\16\ with its first mandatory report due within two
years of the approval of its application.\17\ In re-

proposing rules, we have considered the guidance in the EITI Standard
and EITI Handbook on what should be included in a country's EITI
plan,\18\ as well as reports made by EITI member countries.
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    \12\ 15 U.S.C. 78m(q)(2)(E).
    \13\ The EITI is a voluntary coalition of oil, natural gas, and
mining companies, foreign governments, investor groups, and other
international organizations. The coalition was formed with industry
participation and describes itself as being dedicated to fostering
and improving transparency and accountability in resource-rich
countries through the publication and verification of company
payments and government revenues from oil, natural gas, and mining.
See Implementing EITI for Impact--A Handbook for Policymakers and
Stakeholders (2011) (``EITI Handbook''), at xii. A country
volunteers to become an EITI candidate and must complete an EITI
validation process to become a compliant member. Currently 49
countries are EITI implementing countries. See https://eiti.org/countries/ (last visited Dec. 8, 2015). Of those, 31 have achieved
``EITI compliant'' status, four have their EITI status temporarily
suspended, and the rest are implementing the EITI requirements but
are not yet compliant. Id. Several countries not currently a part of
the EITI have indicated their intention to implement the EITI. See
https://eiti.org/countries/other (last visited Dec. 8, 2015).
    \14\ 15 U.S.C. 78m(q)(2)(E).
    \15\ See, e.g., 156 Cong. Rec. S3816 (daily ed. May 17, 2010)
(Statement of Senator Lugar) (``This domestic action will complement
multilateral transparency efforts such as the Extractive Industries
Transparency Initiative--the EITI--under which some countries are
beginning to require all extractive companies operating in their
territories to publicly report their payments.'').
    \16\ When becoming an EITI candidate, a country must establish a
multi-stakeholder group, including representatives of civil society,
industry, and government, to oversee implementation of the EITI. The
stakeholder group for a particular country agrees to the terms of
that country's EITI plan, including the requirements for what
information will be provided by the governments and by the companies
operating in that country. Generally, under the EITI, companies and
the host country's government submit payment information
confidentially to an independent administrator selected by the
country's multi-stakeholder group, which is frequently an
independent auditor. The auditor reconciles the information provided
to it by the government and by the companies and produces a report.
While the information provided in the reports varies among
countries, the reports must adhere to the EITI requirements provided
in the EITI Standard (2013). See the EITI's Web site at http://eiti.org (last visited Dec. 8, 2015).
    \17\ In December 2012, the U.S. government established a multi-
stakeholder group, the USEITI Advisory Committee, headed by the
Department of the Interior (``DOI'') and including the Departments
of Energy and Treasury, as well as members of industry and civil
society. See Multi-Stakeholder Group List of Members, at http://www.doi.gov/eiti/FACA/upload/List-of-Members_03-16-15.pdf. USEITI's
current plans include producing its first report in December 2015,
and producing its second report and submitting it to the EITI board
in December 2016. See 2015 Workplan--USEITI, available at http://www.doi.gov/eiti/FACA/upload/WORKPLAN-2015-12_19_14-final.pdf. See
also letter from Department of Interior Office of Natural Resources
Revenue (Nov. 6, 2015) (``DOI 1'').
    \18\ The EITI Standard encompasses several documents fundamental
to the EITI: (1) The ``EITI Principles,'' which set forth the
general aims and commitments of EITI participants; (2) the ``EITI
Requirements,'' which must be followed by countries implementing the
EITI; (3) the ``Validation Guide,'' which provides guidance on the
EITI validation process; (4) the ``Protocol: Participation of Civil
Society,'' which provides guidance regarding the role of civil
society in the EITI; and (5) documents relevant to the governance
and management of the EITI (e.g., the EITI Articles of Association,
the EITI Openness Policy, and the draft EITI Code of Conduct). The
EITI Handbook provides guidance on implementing the EITI, including
overcoming common challenges to EITI implementation.
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    Pursuant to Section 13(q), the rules must require a resource
extraction issuer to submit the payment information included in an
annual report in an interactive data format \19\ using an interactive
data standard established by us.\20\ Section 13(q) defines
``interactive data format'' to mean an electronic data format in which
pieces of information are identified using an interactive data
standard.\21\ It also defines ``interactive data standard'' as a
standardized list of electronic tags that mark information included in
the annual report of a resource extraction issuer.\22\ Section 13(q)
also requires that the rules include electronic tags that identify, for
any payments made by a resource extraction issuer to a foreign
government or the Federal Government:
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    \19\ 15 U.S.C. 78m(q)(2)(C).
    \20\ 15 U.S.C. 78m(q)(2)(D).
    \21\ 15 U.S.C. 78m(q)(1)(E).
    \22\ 15 U.S.C. 78m(q)(1)(F).
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     The total amounts of the payments, by category;
     the currency used to make the payments;
     the financial period in which the payments were made;
     the business segment of the resource extraction issuer
that made the payments;
     the government that received the payments and the country
in which the government is located; and
     the project of the resource extraction issuer to which the
payments relate.\23\
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    \23\ 15 U.S.C. 78m(q)(2)(D)(ii).
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    Section 13(q) further authorizes the Commission to require
electronic tags for other information that we determine are necessary
or appropriate in the public interest or for the protection of
investors.\24\
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    \24\ Id.
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    Section 13(q) requires, to the extent practicable, that the
Commission make publicly available online a compilation of the
information required to be submitted by resource extraction issuers
under the new rules.\25\ The statute does not define the term
compilation.
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    \25\ 15 U.S.C. 78m(q)(3).
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    Finally, Section 13(q) provides that the final rules ``shall take
effect on the date on which the resource extraction issuer is required
to submit an annual report relating to the fiscal year . . . that ends
not earlier than one year after the date on which the Commission issues
final rules . . . .'' \26\
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    \26\ 15 U.S.C. 78m(q)(2)(F).
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B. The 2012 Rules and Litigation

    We adopted final rules implementing Section 13(q) on August 22,
2012.\27\ In October 2012, the American Petroleum Institute (``API''),
the U.S. Chamber of Commerce, and two other industry groups challenged
the 2012 Rules.\28\ On July 2, 2013, the U.S. District Court for the
District of Columbia vacated the rules.\29\ The court based its
decision on two findings: First, that the Commission misread Section
13(q) to compel the public disclosure of the issuers' reports; and
second, the Commission's explanation for not granting an exemption for
when disclosure is prohibited by foreign governments was arbitrary and
capricious. On September 18, 2014, Oxfam filed suit in the U.S.
District Court for the District of Massachusetts to compel the
Commission to promulgate a final rule implementing Section 1504. Oxfam
asked the court to compel the Commission to:
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    \27\ We received over 150 unique comment letters on the 2010
Proposing Release, as well as over 149,000 form letters (including a
petition with 143,000 signatures). The letters, including the form
letters designated as Type A, Type B, and Type C, are available at
http://www.sec.gov/comments/s7-42-10/s74210.shtml. In addition, to
facilitate public input on the Act before the official comment
periods opened, the Commission provided a series of email links,
organized by topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml. The public comments we received on Section
1504 of the Act, which were submitted prior to the 2010 Proposing
Release, are available on our Web site at http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specialized-disclosures.shtml. Many commenters provided comments prior to, in
response to, and after the 2010 Proposing Release. Comments received
after the 2012 Adopting Release are available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.
    \28\ See API et al. v. SEC, No. 12-1668 (D.D.C. Oct. 10, 2012).
Petitioners also filed suit in the U.S. Court of Appeals for the
D.C. Circuit, which subsequently dismissed the suit for lack of
jurisdiction. See API v. SEC, 714 F. 3d 1329 (D.C. Cir. 2013).
    \29\ See API v. SEC, 953 F. Supp. 2d 5 (D.D.C., 2013) (``API
Lawsuit'').
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     Issue a proposed rule within 30 days of the granting of
summary judgment in its favor or on August 1, 2015, whichever comes
first;
     open a 45-day period for public notice and comment; and
     promulgate a final rule within 45 days after the end of
said period, with the final rule promulgated no later than November 1,
2015.
    On September 2, 2015, the court issued an order holding that the
Commission unlawfully withheld agency action by not promulgating a
final rule.\30\ The court concluded that despite the earlier adoption
of final rules and vacatur by the U.S. District Court for the District
of Columbia, ``the duty to promulgate a final extraction payments
disclosure rule remains unfulfilled more than four years past
Congress's deadline.'' The Commission filed an expedited schedule for
promulgating the final rule with the court on October 2, 2015. Pursuant
to that proposed expedited schedule, the Commission would vote on the
adoption of a final rule in June 2016.\31\
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    \30\ See Oxfam America, Inc. v. United States Securities and
Exchange Commission, Civil Action, No. 14-13648 (DJC), 2015 WL
5156554 (D. Mass. Sept. 2, 2015).
    \31\ In the Notice of Proposed Expedited Rulemaking Schedule,
the Commission also advised the court of several factors that may
result in variation from the proposed expedited schedule. These
factors include the overall volume of the Commission's work, the
Commission's inability to guarantee a favorable vote from a majority
of its Commissioners, and the possibility that exigencies may arise
that may make it impracticable for the Commission to meet the
proposed deadline (e.g., a government shut-down, relevant
international developments, unexpected relevant legal developments).
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C. Developments Subsequent to the 2013 Court Decision

    Since the U.S. District Court for the District of Columbia's
decision in 2013, the European Parliament and Council of the European
Union have adopted two directives that include payment disclosure rules
similar to the 2012 Rules.\32\ The EU Accounting Directive

and the EU Transparency Directive (the ``EU Directives'') determine the
baseline requirements for oil, gas, mining, and logging companies to
disclose annually the payments they make to governments on a by country
and by project basis.\33\ The EU Accounting Directive regulates the
provision of financial information by all ``large'' companies \34\
incorporated under the laws of a European Economic Area (``EEA'')
member state.\35\ It requires covered oil, gas, mining, and logging
companies to disclose specified payments to governments. The EU
Transparency Directive applies these disclosure requirements to all
companies listed on EU-regulated markets \36\ even if they are not
registered in the EEA or are incorporated in other countries.\37\ The
EU Directives determine the applicability and scope of the requirements
and set the baseline for what has to be reported in each member
country. Member states are, however, granted some leeway for when the
report is due and what penalties will result from violations of the
regulations.\38\ Companies' required public disclosure of payments in
an annual report is anticipated to begin in 2016 in all European Union
and EEA member states once the essential provisions have been
effectively incorporated into domestic law in each country.\39\
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    \32\ Directive 2013/34/EU of the European Parliament and of the
Council of 26 June 2013 on the annual financial statements,
consolidated financial statements and related reports of certain
types of undertakings (``EU Accounting Directive''); and Directive
2013/50/EU of the European Parliament and of the Council of 22
October 2013 amending Directive 2004/109/EC on transparency
requirements in relation to information about issuers whose
securities are admitted to trading on a regulated market, Directive
2003/71/EC of the European Parliament and of the Council on the
prospectus to be published when securities are offered to the public
or admitted to trading and Commission Directive 2007/14/EC on the
implementation of certain provisions of Directive 2004/109/EC (the
``EU Transparency Directive'').
    \33\ Unlike the 2012 Rules and the proposed rules, the EU
Directives also apply to companies active in the logging of primary
forests.
    \34\ See Article 3(4) of the EU Accounting Directive, which
defines large companies (``large undertakings'') to mean those which
on their balance sheet dates exceed at least two of the three
following criteria: (a) Balance sheet totaling [euro]20 million
(approximately $21.4 million (USD) as of Nov. 10, 2015); (b) net
turnover of [euro]40 million (approximately $42.8 million (USD) as
of Nov. 10, 2015); and (c) average number of employees of 250.
Neither the 2012 rules nor the proposed rules have a size
limitation.
    \35\ The EEA is composed of the EU Member states plus Iceland,
Liechtenstein and Norway.
    \36\ The term ``regulated market'' is defined in the EU's
Markets in Financial Instruments Directive 2004/39/EC (``MiFID''),
as amended by 2010/78/EU. The list of regulated markets can be found
on the European Securities and Markets Authority's Web site at
http://mifiddatabase.esma.europa.eu/Index.aspx?sectionlinks_id=23&language=0&pageName=REGULATED_MARKETS_Display&subsection_id=0&action=Go&ds=8&ms=9&ys=2015&mic_code=MIC%20Code&full_name=Full%20Name&cpage=0 (last visited Dec. 8, 2015).
    \37\ See EU Transparency Directive, Art. 2(1)(d) and Art. 6.
    \38\ See, e.g., Article 45 of the EU Accounting Directive (``The
report . . . on payments to governments shall be published as laid
down by the laws of each Member State . . . .''); Id. at Article 51
(``Member States shall provide for penalties applicable to
infringements of the national provisions adopted in accordance with
this Directive . . . .'').
    \39\ The requirements of the EU Directives are implemented
through the enacting legislation of each EU Member State. The
deadlines for implementing the EU Accounting Directive and the EU
Transparency Directive are July 20, 2015 and November 26, 2015
respectively. In general, non-EU EEA countries enact implementing
legislation after an EU Directive is adopted into the EEA by Joint
Committee decision. The EEA Joint Committee adopted the Accounting
Directive on October 30, 2015 and the Transparency Directive is
awaiting decision (as of November [6], 2015). As of November [6],
2015, Austria, Croatia, the Czech Republic, Denmark, Germany,
Hungary, Italy, Lithuania, Portugal, Slovakia, Spain, and the United
Kingdom have filed notifications of full transposition of the
Accounting Directive with the European Commission. Norway, a non-EU
member of the EEA, has adopted legislation that complies with both
the Accounting and Transparency Directives, effective for fiscal
years beginning on or after January 1, 2014. Other EU and EEA member
countries are working towards implementation.
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    The EU Directives are similar to the 2012 Rules in that they
require disclosure of the same payment types on a per project and per
government basis and do not provide any exemption from the disclosure
requirements. Further, each of these regulations also requires public
disclosure of payment information, including the issuer's identity.
There are, however, significant differences from the 2012 Rules. One
difference is that the EU Directives define the term ``project,'' \40\
whereas the 2012 Rules left this term undefined.\41\ Another difference
is that the EU Directives allow issuers to use reports prepared for
foreign regulatory purposes to satisfy their disclosure obligations
under EU law if those reports are deemed equivalent pursuant to
specified criteria while the 2012 Rules do not contain such a
provision.\42\
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    \40\ See, e.g., Article 41(4) of the EU Accounting Directive.
    \41\ The Commission did not define the term ``project'' in the
2012 Rules, but it did provide guidance on its meaning in the 2012
Adopting Release, stating that ``resource extraction issuers
routinely enter into contractual arrangements with governments for
the purpose of commercial development of oil, natural gas, or
minerals. The contract defines the relationship and payment flows
between the resource extraction issuer and the government, and
therefore, we believe it generally provides a basis for determining
the payments, and required payment disclosure, that would be
associated with a particular `project'.'' 2012 Adopting Release at
85-86 [77 FR 56385].
    \42\ See, e.g., Article 46-7 of the EU Accounting Directive.
Another significant difference is that the EU Directives cover
logging activities in addition to the extractive industry. See,
e.g., Article 42(1) of the EU Accounting Directive (``Member States
shall require . . . entities active in the extractive industry or
the logging of primary forests to prepare and make public a report
on payments made to governments on an annual basis.'').
---------------------------------------------------------------------------

    Canada also has adopted a federal resource extraction disclosure
law, the Extractive Sector Transparency Measures Act (``ESTMA''), which
is similar to the 2012 Rules.\43\ ESTMA, like the EU Directives, allows
for the Minister of Natural Resources Canada to determine that the
requirements of another jurisdiction are an acceptable substitute for
the domestic requirements.\44\ For example, on July 31, 2015 the
Minister determined that the reporting requirements in the EU
Directives were an acceptable substitute for Canada's requirements
under ESTMA.\45\ The draft guidance and technical reporting
specifications under ESTMA also include project-level reporting using
the same definition as the EU Directives.\46\ Unlike the EU Directives
and the 2012 Rules, which did not provide for any exemptions unique to
resource extraction payment disclosure, ESTMA authorizes the adoption
of regulations respecting, among other matters, ``the circumstances in
which any provisions of this Act do not apply to entities, payments or
payees.'' \47\ As of the date of this release, the Minister of Natural
Resources Canada has not authorized any regulations pursuant to that
provision that provide for exemptions under ESTMA.
---------------------------------------------------------------------------

    \43\ See Extractive Sector Transparency Measures Act, 2014 S.C.,
ch. 39, s. 376 (Can.), which came into force on June 1, 2015.
    \44\ See ESTMA, Section 10(1) (``If, in the Minister's opinion,
and taking into account any additional conditions that he or she may
impose, the payment reporting requirements of another jurisdiction
achieve the purposes of the reporting requirements under this Act,
the Minister may determine that the requirements of the other
jurisdiction are an acceptable substitute . . . .'').
    \45\ Extractive Sector Transparency Measures Act--Substitution
Determination, available at http://www..gc.ca/acts-regulations/17754
(last visited Dec. 8, 2015).
    \46\ See draft Extractive Sector Transparency Measures Act--
Guidance (``ESTMA Guidance''). The Minister of Natural Resources of
Canada has recommended the adoption of a definition of project that
is identical to the EU Directives' definition of project. See
Natural Resources Canada, Extractive Sector Transparency Measures
Act-Technical Reporting Specifications, Sec.  2.2.2 (Aug. 1, 2015),
available at http://www.nrcan.gc.ca/sites/.nrcan.gc.ca/files/pdf/estma/Technical_Reporting_Specifications_EN.pdf. Although the ESTMA
Guidance is currently in draft form, we assume for purposes of this
proposal that it and the related draft ESTMA--Technical Reporting
Specifications (``ESTMA Specifications'') will be finalized in
substantially similar form prior to the effective date of our final
rules under Section 13(q). We will continue to evaluate any
developments in the ESTMA Guidance, ESTMA Specifications, and their
impact on our approach prior to the adoption of our final rules.
    \47\ See ESTMA, Section 23(1).
---------------------------------------------------------------------------

    In addition to the developments in the European Union and Canada,
which govern a large percentage of the companies that would be impacted
by

our proposed rules,\48\ there have been significant developments in the
EITI's approach since the 2012 Rules. In the 2012 Adopting Release, we
noted that the EITI's approach at the time was fundamentally different
from Section 13(q) in that companies would generally submit payment
information confidentially to an independent administrator selected by
the country's multi-stakeholder group who then used that information to
produce a report.\49\ That report could have presented aggregated data
if the multi-stakeholder group approved of such presentation. Since
then, in order to elicit more intelligible, comprehensive, reliable,
and accurate information,\50\ the EITI has revised its standard to
require the report to include payment disclosure by each company,
rather than aggregated data, and project level disclosure if consistent
with the EU and Commission rules.\51\
---------------------------------------------------------------------------

    \48\ See Section III.B.2.b below for our estimate of the number
of companies that would be fully affected by the proposed rules.
    \49\ See 2012 Adopting Release, n.27 and accompanying text.
    \50\ See History of EITI (``The Board undertook an extensive
strategy review to address . . . [h]ow to ensure that the EITI
provided more intelligible, comprehensive and reliable information .
. . . The resulting EITI Standard . . . therefore sought . . .
[b]etter and more accurate disclosure . . . .'') available at
https://eiti.org/eiti/history (last visited Dec. 8, 2015).
    \51\ See EITI Standard, at 6, 31.
---------------------------------------------------------------------------

    Since the 2012 Rules were vacated, numerous parties have also
submitted comment letters to the Commission and have met with members
of the Commission or the staff.\52\ These commenters provided
recommendations on how the Commission could structure the rules
required by Section 13(q) in light of the U.S. District Court for the
District of Columbia's decision and the international developments
described above. Through this process, the Commission also has become
aware that a number of extractive industry companies around the world
have voluntarily undertaken to make detailed disclosures of their
resource extraction payments to foreign governments.\53\ We have
reviewed and considered the comments received and the rules we are
proposing reflect such consideration.
---------------------------------------------------------------------------

    \52\ Copies of the letters and meeting memoranda relating to
these matters are available at http://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.
    \53\ See, e.g., letters from Kosmos Energy (Oct. 19, 2015)
(``Kosmos''); Statoil ASA (Feb. 22, 2011) (``Statoil''); and
Columbia Center on Sustainable Investment (Oct. 30, 2015). See also
BHP Billiton, Economic Contribution and Payments to Governments
Report 2015 available at http://www.bhpbilliton.com/~/media/bhp/
documents/investors/annual-reports/2015/
bhpbillitoneconomics2015.pdf?la=en.
---------------------------------------------------------------------------

D. Summary of Proposed Rules

    In general, the proposed rules, which are described in more detail
in Part II below, would require resource extraction issuers to file a
Form SD on an annual basis that includes information about payments
related to the commercial development of oil, natural gas, or minerals
that are made to governments. The following are the key provisions of
the proposed rules:
     The term ``resource extraction issuer'' would apply to all
U.S. companies and foreign companies that are required to file annual
reports pursuant to Section 13 or 15(d) of the Exchange Act and are
engaged in the commercial development of oil, natural gas, or minerals.
     The term ``commercial development of oil, natural gas, or
minerals'' would mean exploration, extraction, processing, and export,
or the acquisition of a license for any such activity, consistent with
Section 13(q).
     The term ``payment'' would mean payments that are made to
further the commercial development of oil, natural gas, or minerals,
are ``not de minimis,'' and includes taxes, royalties, fees (including
license fees), production entitlements, and bonuses, consistent with
Section 13(q). We also propose including dividends and payments for
infrastructure improvements in the definition. In addition, we propose
defining ``not de minimis'' to mean any payment, whether a single
payment or a series of related payments, that equals or exceeds
$100,000 during the most recent fiscal year.
     In addition to the payments it makes directly, a resource
extraction issuer would be required to disclose payments made by its
subsidiaries and other entities under its control. An issuer would
disclose those payments that are included in its consolidated financial
statements made by entities that are consolidated or proportionately
consolidated, as determined by applicable accounting principles.
     The term ``project'' would be defined. We propose to
define it in a manner similar to the EU Directives, using an approach
focused on the legal agreement that forms the basis for payment
liabilities with a government. In certain circumstances this definition
would also include operational activities governed by multiple legal
agreements.
     The term ``foreign government'' would mean a foreign
national government as well as a foreign subnational government, such
as the government of a state, province, county, district, municipality,
or territory under a foreign national government, consistent with
Section 13(q).
     The term ``Federal Government'' would mean the United
States Federal Government.
     The proposed rules would require a resource extraction
issuer to file its payment disclosure on Form SD, on the Commission's
Electronic Data Gathering, Analysis, and Retrieval System (``EDGAR''),
no later than 150 days after the end of its fiscal year. Form SD would
require issuers to include a brief statement directing users to
detailed payment information provided in an exhibit.
     Recognizing the discretion granted to us under Section
13(q), the proposed rules would require issuers to disclose the payment
information publicly, including the identity of the issuer.
     The proposed rules would not include any express
exemptions. Instead, resource extraction issuers could apply for, and
the Commission would consider, exemptive relief on a case-by-case
basis.\54\
---------------------------------------------------------------------------

    \54\ See Sections 12(h) and 36(a) of the Exchange Act (15 U.S.C.
78l(h) and 78mm(a)).
---------------------------------------------------------------------------

     In light of recent developments in the European Union and
Canada, as well as the developments with the U.S. Extractive Industries
Transparency Initiative (``USEITI''), Form SD would include a provision
by which resource extraction issuers could use a report prepared for
foreign regulatory purposes or for USEITI to comply with the proposed
rules if the Commission deems the foreign jurisdiction's applicable
requirements or the USEITI reporting regime to be substantially similar
to our own.
     Resource extraction issuers would be required to present
the payment disclosure using the eXtensible Business Reporting Language
(``XBRL'') electronic format and the electronic tags identified in Item
2.01 of Form SD. These tags would include those listed in Section
13(q), as well as tags for the type and total amount of payments made
for each project, the type and total amount of payments made to each
government, the particular resource that is the subject of commercial
development, and the subnational geographic location of the project.
     Resource extraction issuers generally would be required to
comply with the rules starting with their fiscal year ending no earlier
than one year after the effective date of the adopted rules.

E. Objectives of Section 13(q)'s Required Disclosures and the Proposed
Rules

    Section 13(q) reflects U.S. foreign policy interests in supporting
global efforts to improve the transparency of payments made in the
extractive industries. The use of securities law disclosure
requirements to advance foreign policy objectives is uncommon, and
therefore foreign policy is not a topic we routinely address in our
rulemaking.\55\ Nonetheless, because Congress has directed the
Commission to issue rules effectuating Section 13(q), we have sought to
understand the governmental interests that the statute and rules are
designed to serve, and to determine the best way to structure our rules
so as to further those governmental interests.
---------------------------------------------------------------------------

    \55\ In this regard, we note that there are only two other
Federal securities law disclosure requirements that appear designed
primarily to advance U.S. foreign policy objectives. The first is
Section 13(p) of the Exchange Act [15 U.S.CM 78m(p)], which was
added in 2010 by the Act. Section 13(p) directs the Commission to
adopt rules requiring certain disclosures regarding the use of
conflict minerals originating in the Democratic Republic of the
Congo. The other disclosure provision is Section 13(r) of the
Exchange Act [15 U.S.C. 78m(r)], which was added by the Iran Threat
Reduction and Syria Human Rights Act of 2012. Section 13(r) is a
self-executing provision that requires a reporting company to
include in its annual and quarterly reports disclosure about
specified Iran-related activities, and transactions or dealings with
persons whose property and interests are blocked pursuant to two
Executive Orders relating to terrorism and the proliferation of
weapons of mass destruction. Public Law 112-158 (Aug. 10, 2012).
---------------------------------------------------------------------------

    Accordingly, we have carefully examined the legislative history,
relevant materials from the Executive Branch, and the many comments we
have received, in order to develop our understanding of the objectives
of Section 13(q). To assist us further in understanding the
governmental interests, Commission staff consulted with relevant staff
from the Department of State, the Department of the Interior, and the
U.S. Agency for International Development.\56\ Commission staff also
conferred with representatives from the Canadian and British
governments, as well as a representative of the European Union. As
outlined below, these sources and consultations have helped form our
view that Section 13(q) and the rules required thereunder are intended
to advance the important U.S. foreign policy objective of combatting
global corruption and, in so doing, to potentially improve
accountability and governance in resource-rich countries around the
world.\57\ In light of our understanding, the disclosure that we are
proposing to require of resource extraction issuers (i.e., company
specific, project-level, public disclosure of information relating to
payments made to a foreign government for the purpose of the commercial
development of oil, natural gas, or minerals) is designed to further
these critical U.S. interests.
---------------------------------------------------------------------------

    \56\ See Section 13(q)(2)(B) (expressly authorizing the
Commission in developing the rules under Section 13(q) to ``consult
with any agency or entity that the Commission determines is
relevant'').
    \57\ See, e.g., letters from United States Department of State
(Nov. 13, 2015) (``State Department'') (``[Section 13(q)] directly
advances the United States' foreign policy interests in increasing
transparency and reducing corruption in the oil, gas, and mineral
sectors.''); DOI 1.
---------------------------------------------------------------------------

1. The U.S. Government's Foreign Policy Interest in Reducing Corruption
in Resource-Rich Countries
    An important component of the U.S. foreign policy agenda is ``to
stem corruption around the world and hold to account those who exploit
the public's trust for private gain.'' \58\ Indeed, ``[t]he United
States has been a global leader on anti-corruption efforts since
enacting the first foreign bribery law, the Foreign Corrupt Practices
Act (FCPA), in 1977.'' \59\ For example, ``[t]he United States was a
leader in developing fundamental international legal frameworks [to
combat corruption] such as the UN Convention against Corruption and the
Organization for Economic Cooperation and Development (OECD) Anti-
Bribery Convention[.]'' \60\ And ``[t]he United States has also been a
leader in providing funding for capacity building to fight corruption
and promote good governance.'' \61\
---------------------------------------------------------------------------

    \58\ The White House, Fact Sheet: The U.S. Global Anticorruption
Agenda (Sept. 24, 2014) (``White House Fact Sheet'') available at
https://www.whitehouse.gov/the-press-office/2014/09/24/fact-sheet-us-global-anticorruption-agenda (``Preventing corruption preserves
funds for public revenue and thereby helps drive development and
economic growth. By contrast, pervasive corruption siphons revenue
away from the public budget and undermines the rule of law and the
confidence of citizens in their governments, facilitates human
rights abuses and organized crime, empowers authoritarian rulers,
and can threaten the stability of entire regions.''). See also
letter from State Department (``Efforts to promote transparency and
good governance, and combat corruption are at the forefront of the
[State] Department's diplomatic and development efforts.'').
    \59\ White House Fact Sheet. See also Press Statement, Secretary
of State John Kerry, U.S. Welcomes International Anticorruption Day
(Dec. 9, 2014) (``Kerry Statement'') available at http://www.state.gov/secretary/remarks/2014/12/234873.htm (``[T]he United
States is using a variety of tools, including bilateral diplomacy,
multilateral engagement, enforcement, and capacity building
assistance, to advance our anticorruption agenda.''); Secretary of
State Hillary Rodham Clinton, Speech at the Transparency
International-USA's Annual Integrity Award Dinner (Mar. 22, 2012)
(``Clinton Transparency Speech'') (describing how the United States
has ``made it a priority to fight corruption and promote
transparency'').
    \60\ White House Fact Sheet. See generally OECD Convention on
Combating Bribery of Foreign Public Officials in International
Business Transactions (Dec. 17, 1997) available at http://www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.pdf.
    \61\ White House Fact Sheet. See also Kerry Statement (``[W]e
renew our notice to kleptocrats around the world: Continued theft
from your communities will not be tolerated . . . .''); Clinton
Transparency Speech (stating that ``[c]orruption is a key focus of
our strategic dialogue with civil society''); Staff of Senate
Committee on Foreign Relations, 110th Cong., The Petroleum and
Poverty Paradox, at 17 (Oct. 2008) (``Senate Report'') (``One of the
five `key objectives' of U.S. foreign assistance is to ensure that
recipient countries are `governing justly and democratically,' which
for developing countries means that foreign aid is directed to
`support policies and programs that accelerate and strengthen public
institutions and the creation of a more vibrant local government,
civil society, and media.''). See generally The White House, Fact
Sheet: Leading the Fight Against Corruption and Bribery (Nov. 11,
2014) available at https://www.whitehouse.gov/the-press-office/2014/11/11/fact-sheet-leading-fight-against-corruption-and-bribery)
(``The United States continues to lead in providing funding for
capacity building to fight corruption and promote good
governance.'').
---------------------------------------------------------------------------

    One area of particular concern for the U.S. Government is
corruption within the governments of developing countries that are rich
in oil, gas, or minerals.\62\ Indeed, it has been explained that
``[h]igher levels of corruption present the most obvious political risk
that can arise from large holdings of natural resources. The short run
availability of large financial assets [i.e., revenues from natural
resources] increases the opportunity for the theft of such assets by
political leaders.'' \63\
---------------------------------------------------------------------------

    \62\ See, e.g., White House Fact Sheet (explaining that ``the
United States is taking several actions to ensure that extractives
companies and governments remain accountable''); letter from State
Department (``Efforts to increase transparency have been a high
priority for this Administration as part of the United States' good
governance promotion, anti-corruption, and energy security
strategies.''). See also Testimony of Secretary Hillary Rodham
Clinton, Senate Foreign Relations Committee Hearing on National
Security and Foreign Policy Priorities in the FY 2013 International
Affairs Budget (Feb. 28, 2012) (explaining that ``everybody is
benefited by the disinfectant of sunshine and the spotlight to hold
institutions accountable'' and the Section 13(q) disclosures
``complement[] other efforts at transparency that [the U.S.
Government is] committed to''); Senate Report, at 17 (``[I]n the
summer of 2008, the State Department, under a provision of the
FY2008 State appropriations bill, issued new guidance to embassies
to revoke or deny visas to high-level foreign officials involved in
extractive industries corruption.'').
    \63\ Maccartan Humphreys, Jeffrey D. Sachs & Joseph E. Stiglitz,
Escaping the Resource Curse (2007), at 11 (``Escaping the Resource
Curse''). See also, Simon Dietz, Eric Neumayer, & Indra de Soysa,
Corruption, the Resource Curse, and Genuine Saving, Environment
Development Economics (2007) (noting that ``[t]he availability of
resource rents may give rise to corruption''). See generally Senate
Report, at 12 (explaining that ``transparency in extractive
industries abroad is in [U.S.] interests because mineral wealth
breeds corruption, which dulls the effects of U.S. foreign
assistance''); Escaping the Resource Curse, at 11 (noting that
``statistical studies that seek to account for variation in levels
of corruption across different countries find that natural resource
dependence is a strong predictor''); Global Witness, Oil Revenue
Transparency (Mar. 2007) (``In all, 26 of the world's 36 oil-rich
countries rank among the bottom half of the world's most corrupt
countries.''); letter from Civil Society Coalition on Oil and Gas in
Uganda (May 18, 2015) (``CSCU'') (explaining that revenues from
extractive activities are a ``major vector for corruption and
malfeasance in the extractive sectors'').

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

    The costs of such corruption to the national economies of these
resource-rich developing countries can be ``enormous.'' \64\ Many
experts and policymakers in this area contend that such corruption ``is
central to explaining why resource-rich countries perform badly in
terms of socio-economic development, a phenomenon that has been termed
the resource curse.'' \65\ The State Department has similarly explained
that ``[c]orruption and mismanagement of these resources can impede
economic growth, reduce opportunities for U.S. trade and investment,
divert critically needed funding from social services and other
government activities, and contribute to instability and conflict.''
\66\ Whatever form the relationship between corruption and the resource
curse may take in a given resource-rich developing country, many
believe that the two are closely connected.\67\
---------------------------------------------------------------------------

    \64\ Escaping the Resource Curse, at 11.
    \65\ Ivar Kolstad and Arne Wiig, Is Transparency the Key to
Reducing Corruption in Resource Rich Countries? World Development
(Feb. 2009). See also, Simon Dietz, Eric Neumayer, & Indra de Soysa,
Corruption, the Resource Curse, and Genuine Saving, Environment
Development Economics (2007) (discussing the ``persuasive
theoretical and empirical arguments in the literature that suggest
corruption may be a major explanatory factor in the resource
curse''); Carles Leite & Jens Weidmann, Does Mother Nature Corrupt?
Natural Resources, Corruption, and Economic Growth, IMF (July 1999)
(discussing a regression analysis demonstrating that ``long-term
growth is negatively affected by the level of corruption''); Senate
Report, at 10 (``The resource curse is the product of multiple
factors including . . . [i]ncreases in incentives for corruption and
political rent-seeking when large commodity revenue streams are
available[.]''). See generally Escaping the Resource Curse, at 1
(``Countries with large endowments of natural resources, such as oil
and gas, often perform worse in terms of economic development and
good governance than do countries with fewer resources.
Paradoxically, despite the prospects of wealth and opportunity that
accompany the discovery and extraction of oil and other natural
resources, such endowments all too often impede rather than further
balanced and sustainable development.'') (emphasis in original);
Bank Information Center & Global Witness, Assessment of IMF and
World Bank Group Extractive Industries Transparency Implementation
(Oct. 2008) (``[M]any resource-rich countries are among the most
corrupt and the poorest countries in the world.'').
    \66\ Letter from State Department.
    \67\ At least one potential explanation for the relationship
between resource-revenue corruption and poor socio-economic
performance is that resource revenues tend to ``produce weak state
structures that make corrupt practices considerably easier for
government officials.'' Escaping the Resource Curse, at 11. The weak
state structures, in turn, may result from the fact that ``resource-
rich governments receive so much revenue from rents that they have
little need for taxation'' and, therefore, can operate in a manner
that is less accountable to the general public. Caitlin C. Corrigan,
Breaking the Resource Curse: Transparency in the Natural Resource
Sector and the Extractive Industries Transparency Initiative,
Resource Policy (2014). It has been argued that ``[s]uch governments
have lower motivation to push through development enhancing
proposals or remain democratic.'' Id. See generally Escaping the
Resource Curse, at 257 (``Simply stated, petroleum dependence turns
oil states into `honey pots'--ones to be raided by all actors,
foreign and domestic, regardless of the long-term consequences
produced by this collective rent-seeking.'').
---------------------------------------------------------------------------

    In recent years, a global consensus has begun to emerge that
increasing revenue transparency through the public disclosure of
revenue payments made by companies in the resource extraction sector to
foreign governments can be an important tool to help combat the
corruption that resource-rich developing countries too often
experience.\68\ For example, as discussed above, since 2002 an
international coalition that includes various foreign governments,
international organizations, and resource extraction issuers has
maintained the EITI, which seeks to improve public transparency and
accountability in countries rich in oil, natural gas, or minerals.\69\
As also discussed above, the European Union and Canada have both
enacted resource extraction payment disclosure requirements.\70\
Moreover, the World Bank requires ``revenue transparency as a condition
on new investments in [extractive industries].'' \71\ The International
Monetary Fund similarly seeks to promote such transparency in
developing countries.\72\
---------------------------------------------------------------------------

    \68\ See, e.g., letter from State Department (explaining that
transparency has been ``widely identified as a key component of the
fight against corruption in this sector''); Liz David-Barrett & Ken
Okamura, The Transparency Paradox: Why Do Corrupt Countries Join
EITI? Working Paper No. 38, European Research Centre for Anti-
Corruption and State-Building (Nov. 2013) (explaining that
transparency initiatives ``have become a key part of the anti-
corruption toolkit on the assumption that sunlight is the best
disinfectant''); Alexandra Gillies & Antoine Heuty, Does
Transparency Work? The Challenges of Measurement and Effectiveness
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011)
(``Transparency has emerged as the most broadly recommended policy
response to poor governance records in resource-rich states and
their damaging developmental effects.''). See also Escaping the
Resource Curse, at 26 (``The central problem facing resource-rich
countries may be easily stated: Various individuals wish to divert
as much of that endowment as possible for their own private benefit.
Modern economic theory has analyzed the generic problem of inducing
agents (here government officials) to act in the interests of those
they are supposed to serve (the principals, here the citizens more
generally). Agency problems arise whenever information is imperfect,
and hence there is a need to emphasize transparency, or improving
the openness and availability of information in an attempt to
control corruption.'') (emphasis in original).
    \69\ See Senate Report, at 14 (describing as ``[k]ey EITI
goals'' the ``prevent[ion] [of] revenue-related corruption'' and the
``promotion [of] public fiscal transparency and political
accountability'').
    \70\ Another example of an international transparency effort is
the amendments to the Hong Kong Stock Exchange listing rules for
mineral companies. See Amendments to the GEM Listing Rules of the
Hong Kong Stock Exchange, Chapter 18A.05(6)(c) (effective June 3,
2010), available at http://www.hkex.com.hk/eng/rulesreg/listrules/gemrulesup/Documents/gem34_miner.pdf (requiring a mineral company to
include in its listing document, if relevant and material to the
company's business operations, information regarding its compliance
with host country laws, regulations and permits, and payments made
to host country governments in respect of tax, royalties, and other
significant payments on a country by country basis).
    \71\ World Bank, Striking a Better Balance--the World Bank Group
and Extractive Industries: The Final Report of the Extractive
Industries Review (Sept. 17, 2004).
    \72\ See IMF, Guide on Resource Revenue Transparency (2007) (``A
high immediate priority should be given to improving the quality and
public disclosure of data on resource revenue transactions . . .
.The public availability of information on all resource-related
transactions is central to fiscal transparency.''). See generally
Senate Report, at 3 (``The World Bank and the International Monetary
Fund have both launched efforts to improve accounting and
transparency of extractive industry revenues, and to make it harder
for government officials to hide corruption--and easier for citizens
to demand that the money be spent wisely.'').
---------------------------------------------------------------------------

    In accordance both with the U.S. Government's long-standing foreign
policy objective to reduce global corruption and with the increased
appreciation that resource extraction payment transparency may help
combat corruption, Congress in 2010 enacted the Section 13(q) public
disclosure requirement.\73\ Section 13(q) directly

embodies this governmental purpose, providing expressly that ``[t]o the
extent practicable, the rules issued [under the provision] shall
support the commitment of the Federal Government to international
transparency promotion efforts relating to the commercial development
of oil, natural gas, or minerals.'' \74\ The legislative history
underlying the enactment of Section 13(q) further confirms that the
provision was intended to help combat corruption by increasing public
transparency of resource extraction payments and, in so doing, to
potentially enhance accountability and governance in resource-rich
developing countries.\75\ And since the enactment of Section 13(q), the
President and the State Department have emphasized the important role
that disclosure pursuant to Section 13(q) is intended to have in
helping to combat corruption in resource-rich countries.\76\
---------------------------------------------------------------------------

    \73\ The legislative history demonstrates that, by at least
2008, Congress became aware that a mandatory disclosure regime was
needed to complement the voluntary EITI regime to achieve
significant international gains in payment transparency. See, e.g.,
Transparency of Extractive Industries: High Stakes for Resource-Rich
Countries, Citizens, and International Business, Hearing before the
Committee on Financial Services, U.S. House of Representatives (No.
110-75) (Oct. 25, 2007) at 7 (testimony of Ian Gary) (``EITI may
make progress in some countries where political will to tackle the
problem is strong and lasting, and requires the active involvement
of civil society. But the initiative is weakened by its voluntary
nature and will not capture many countries where problems are most
severe.''). As explained in a 2008 Senate Foreign Relations
Committee report:
    United States and multilateral efforts to promote extractive
industries transparency are intended to work within the bounds of
the political will and technical capacity of the resource-rich
countries. With their revenue windfall, some of these nations are
increasingly intransigent in resisting outside pressure. This has
led some to urge that the U.S. should take steps domestically to
promote transparency overseas, much as the Foreign Corrupt Practices
Act was U.S. domestic legislation to thwart corruption abroad. One
such proposal is to mandate revenue reporting for companies listed
with the Securities and Exchange Commission and working in
extractives abroad.
    Senate Report, at 20. This report's findings served as the basis
for Section 13(q). See 156 Cong. Rec. S3816 (May 17, 2010)
(Statement of Senator Lugar) (explaining that Section 13(q) ``builds
on the findings'' of this report); id. at S3817 (May 17, 2010)
(Statement of Senator Dodd). See also id. S3818 (May 17, 2010)
(Statement of Senator Dodd) (stating that ``broad new requirements
for greater disclosure by resource extractive companies operating
around the world[ ] would be an important step'' to complement the
EITI's ``voluntary program'').
    \74\ Section 13(q)(2)(E).
    \75\ See, e.g., 156 Cong. Rec. S3816 (May 17, 2010) (Statement
of Senator Lugar) (explaining that the provision will help combat
the problem where ``[t]oo often, oil money intended for a nation's
poor ends up lining the pockets of the rich or is squandered on
showcase projects instead of productive investments''); id. at S3976
(May 19, 2010) (Statement of Senator Feingold) (explaining that the
provision will ``require companies listed on U.S. stock exchanges to
disclose in their SEC filing extractive payments made to foreign
governments for oil, gas, and mining . . . . This information would
then be made public, empowering citizens in resource-rich countries
in their efforts to combat corruption and hold their governments
accountable.''); id. at S5913 (July 15, 2010) (Statement of Senator
Leahy) (``[Section 13(q)] will enable citizens of these resource-
rich countries to know what their governments and governmental
officials are receiving from foreign companies in exchange for
mining rights. This will begin to hold governments accountable for
how those funds are used and help ensure that the sale of their
countries' natural resources are used for the public good.''). We
note that the legislative history also indicates that Congress
intended for the Section 13(q) disclosures to serve as a potential
informational tool for investors. See, e.g., id. at 3316 (Statement
of Senator Cardin) (May 6, 2010) (``The investor has a right to know
about the payments. Secrecy of payments carries real bottom-line
risks for investors.'').
    \76\ See, e.g., President Barack Obama, Speech Before the United
Nations General Assembly (Sept. 22, 2010) (``So we are leading a
global effort to combat corruption, which in many places is the
single greatest barrier to prosperity, and which is a profound
violation of human rights. That's why we now require oil, gas and
mining companies that raise capital in the United States to disclose
all payments they make to foreign governments.''); letter from State
Department (recommending that the Commission ``produce a strong
[Section 13(q)] rule that improves transparency by ensuring a
sufficiently detailed level of information concerning payments from
the extractive industry to foreign governments for the development
of oil, natural gas, and mineral'' that would be ``made public and
accessible to civil society''); id. (``A strong [Section 13(q) rule
would complement [the U.S. Government's anti-corruption] efforts,
bolster our credibility with foreign partners on these issues, and
promote U.S. foreign policy interests. It is important the United
States lead by example by modeling strong transparency legislation
and rulemaking.''); Clinton Transparency Speech (stating that
Section 13(q) should ``have a very profound effect on [the U.S.
Government's] ability to try to manage some of the worst practices
that we see in the extractive industry and in the relationships with
governments at local and national levels around the world'').
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2. Reasons for Proposing Issuer-Specific, Project-Level, Public
Disclosures of Resource Extraction Payments
    Given the important governmental interests underlying Section 13(q)
and this rulemaking, we have considered the manner in which the public
disclosure of resource extraction payments might best promote those
governmental interests. As detailed in Section II of this release, we
are proposing a requirement for company-specific, project-level, public
disclosure. By ``project-level'' reporting, we refer to ``project'' as
defined by our proposed rules--a definition that is generally based on
the operational activities that are governed by a single contract,
license, lease, concession or similar legal agreement and that forms
the basis for payment liabilities.\77\ We believe that such company-
specific, project-level payment transparency is potentially beneficial
and that our proposal to require such disclosure is properly designed
to further the goal of combatting corruption.
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    \77\ See Section II.E below. Our definition is generally
comparable to the ``project'' definition that the European Union has
adopted and that Canada is considering adopting. We note that the
State Department has advised that a Commission rule ``compatible
with'' the EU and Canadian ``transparency measures would further
advance the United States' foreign policy interests.'' Letter from
State Department. Some commenters have argued for a much broader
definition of project that would encompass vast expanses of
territory in many instances, but as we explain immediately below and
in Section II.E, the more granular definition contained in the
proposed rules would provide greater payment transparency and better
serve the statutory objectives. See generally letter from Iraqi
Transparency Alliance for Extractive Industries (Sept. 28, 2015)
(``Iraqi Transparency Alliance'') (explaining that ``EITI data in
Iraq is reported by field, but some fields are enormous,'' such as
the ``Rumaila field--a super-giant oil field, covering around 700
[square miles], with around 270 production wells in operation,
producing around 1.3 m barrels per day,'' and stating that
``[w]ithout project-level information, [Iraqi citizens] cannot see
the detailed roles that individual companies are playing in the
region and whether Iraqi citizens are seeing the appropriate
benefits from the extraction'').
---------------------------------------------------------------------------

    Scholars and other experts have noted that ``[t]he extractive
sector presents particularly strong asymmetries of information across
the principal stakeholders: Citizens, governments, and companies.''
\78\ While resource extraction companies are aware of the payments that
they make and government actors may be aware of the revenues that they
receive, too often ``[t]he citizens of resource-rich countries have
very little information about the extractive industry-related
activities in which their government engages.'' \79\ This has been
described as ``a formula for corruption.'' \80\
---------------------------------------------------------------------------

    \78\ Alexandra Gillies & Antoine Heuty, Does Transparency Work?
The Challenges of Measurement and Effectiveness in Resource-Rich
Countries, 6 Yale J. Int'l Aff. 25 (2011). See also 156 CONG. REC.
S3817 (May 17, 2010) (Statement of Senator Dodd) (explaining that in
many resource-rich countries ``governance and accountability systems
are rudimentary, at best,'' and ``corruption, secrecy, and a lack of
transparency regarding public finance are pervasive''). See
generally Gillies & Heuty (``This uneven allocation [of information]
reflects the centralization of power and control of the petroleum
and mineral sectors that commonly occurs in developing
countries.'').
    \79\ Escaping the Resource Curse, at xiv. See also Gillies &
Heuty (``Media, parliaments, civil society, the population,
opposition parties, and other outsiders often have very limited
access to information, which constrains their ability to exercise
their oversight and accountability functions.''). See also letters
from Iraqi Transparency Alliance (``While EITI data is certainly an
improvement upon what we had before . . . there are some serious
shortcomings [in that disclosure] that prevent civil society
organizations . . . from properly monitoring the flow of money in
our oil sector.''); Publish What You Pay--Zimbabwe (Feb. 20, 2015)
(``PWYP-ZIM'') (``Currently there is very little useful data
published by government or industry in Zimbabwe's extractives
sector.''); Global Witness (Dec. 18, 2013) (``Global Witness 2'')
(referring to insufficient disclosure by governments and industry
participants resulting in corruption among other things).
    \80\ Escaping the Resource Curse, at 266. See generally Dilan
Olcer, OECD Working Paper No. 276, Extracting the Maximum from EITI
(Mar. 11, 2009) (describing the problem in terms of principal-agent
theory where the country's citizens are the principal and the
government officials are the agents: ``The agent does not faithfully
serve the interests of the principal because they have conflicting
interests and the actions of the agent are not observable by the
principal'') (emphasis added).
---------------------------------------------------------------------------

    The public disclosure of resource extraction payments that are made
to foreign governments can become an important step towards combatting
the information asymmetries that can foster corruption and a lack of
governmental accountability.\81\ This is in part because

``[i]mproved transparency in the transactions between governments and
extractive corporations means that there should be less room for hidden
---------------------------------------------------------------------------
or opaque behavior[.]'' \82\ As one academic article describes it:

    \81\ See, e.g., letter from State Department (explaining that a
``sufficiently detailed level of information concerning payments
from the extractive industry to foreign governments for the
development of oil, natural gas, and minerals'' that is made
publicly available is necessary to achieve the anti-corruption and
transparency objectives and further explaining that ``[i]n the
absence of this level of transparency, citizens have fewer means to
hold their governments accountable, and accountability is a key
component of reducing the risk of corruption''); World Bank,
Striking a Better Balance--the World Bank Group and Extractive
Industries: The Final Report of the Extractive Industries Review
(Sept. 17, 2004) (describing revenue transparency as ``an important
step''). We note that the potential for communities and civil
society to reduce corruption and achieve greater governmental
accountability exists even where the governments at issue have
authoritarian tendencies. See also letter from ONE Campaign (Nov. 6,
2015) (``ONE Campaign'') (detailing various case studies involving
successful citizen actions taken in countries such as Angola,
Azerbaijan and Zimbabwe to ``demonstrate[e] that even in countries
with closed political systems and restricted civil liberties
citizens are still able to use information to drive change'').

    \82\ Dilan Olcer, OECD Working Paper No. 276, Extracting the
Maximum from EITI (Mar. 11, 2009). See also 156 CONG. REC. S5872
(July 15, 2010) (Statement of Senator Cardin) (``By giving the
citizens the information about how payments are made to their
country, they have a much better chance to hold their government
officials accountable.''); Escaping the Resource Curse, at xiv
(``The obvious remedy is greater transparency and
accountability.''). See generally Global Witness, Oil Revenue
Transparency: A Strategic Component of U.S. Energy Security and
Anti-Corruption Policy (Mar. 2007) (``[E]nergy revenue transparency
limits the scope of oil-related corruption through fiscal
accountability.''); Caitlin C. Corrigan, Breaking the Resource
Curse: Transparency in the Natural Resources Sector and the
Extractive Industries Transparency Initiative, Resources Policy
(2014) (``Transparency and accountability within government is
expected to mitigate some of the negative economic and quality of
governance effects seen in countries with poor institutions and
abundant resources by making it harder for government to divert
revenues to corruption and patronage.'').
---------------------------------------------------------------------------

    Information asymmetries facilitate rent-seeking behavior and
permit those in charge to utilize the country's resource wealth to
advance their personal and political aims. In such a context, where
informational asymmetries are key characteristics of power
differentials, transparency is both difficult and a potential agent
of change . . . Demystifying the extractive sector and financial
flows dilutes some of the center's power by enabling other actors to
participate more fully. It eliminates informational enclaves where
incentives favor self-interested behavior.\83\
---------------------------------------------------------------------------

    \83\ Alexandra Gillies & Antoine Heuty, Does Transparency Work?
The Challenges of Measurement and Effectiveness in Resource-Rich
Countries, 6 Yale J. Int'l Aff. 25 (2011). See also id.
(``Transparency should alter incentives as perceived by the
individual in charge by increasing the costs associated with `bad'
policies or behavior, such as signing an unfavorable contract in
exchange for a bribe or failing to property assess royalties. It
should also alter incentives by increasing external pressure for
decision makers to advance the broader national interest as
information empowers broader constituencies.''); Ivar Kolstad & Arne
Wiig, Is Transparency the Key to Reducing Corruption in Resource
Rich Countries? World Development (Feb. 2009) (``Transparency, or
access to information, can have an effect on corruption.
Transparency can reduce bureaucratic corruption by making corrupt
acts more risky . . . . Transparency can reduce political corruption
by helping make politicians more accountable to the public.''); Liz
David-Barrett & Ken Okamura, The Transparency Paradox: Why Do
Corrupt Countries Join EITI?, Working Paper No. 38, European
Research Centre for Anti-Corruption and State-Building (Nov. 2013)
(``A lack of transparency makes corruption less risky and more
attractive.''). See generally Escaping the Resource Curse, at 26
(``With the cost-benefit calculus for corruption changed, there
might be less corruption.'').

    While public disclosure of information about resource extraction
payments to foreign governments should help reduce the information
asymmetries that allow corruption to occur, the question remains of
what form that disclosure should take to best reduce corruption
consistent with the statutory objectives. Having considered the public
comments received, information the staff learned from inter-agency
consultations, relevant academic literature, and other expert analyses
(as well as the mandatory disclosure regimes that have recently been
adopted by the European Union and Canada), we are proposing to require
company-specific, project-level, public disclosure of payment
information as the means best designed to advance the U.S. Government's
interests in reducing corruption and promoting accountability and good
governance.
    An important consideration in support of detailed project-level
disclosure of the type proposed is that such disaggregated information
may help local communities and subnational governments combat
corruption by enabling them to verify that they are receiving the
resource extraction revenue allocations from their national government
that they may be entitled to under law.\84\ Several commenters made
this point. For example, a civil society group in Cameroon explained:
---------------------------------------------------------------------------

    \84\ See, e.g., letter from National Advocacy Coalition on
Extractives (Feb. 10, 2015) (``NACE'') (``In order to calculate the
amount of money they are entitled to and hold [national] government
agencies to account for allocating the correct amount, communities
need access to project-level revenue data.'').

    The Cameroonian Mining Code states that municipality and local
communities are entitled to 25 percent of the Ad Valorem tax and
Extraction tax paid by companies for the projects located in their
jurisdiction . . . . [W]ithout project-level fiscal data, local
populations will not be able to cross-check whether or not they are
receiving the share of revenues they are legally entitled to.\85\
---------------------------------------------------------------------------

    \85\ Letter from Publish What You Pay Cameroon (June 8, 2015)
(``PWYP-CAM''). See also id. (``Unfortunately, insufficient
granularity is a serious flaw in Cameroon's EITI reports, as
companies report the total amount of money they are pay[ing] for all
projects in our country, combined.'') (emphasis in original).

A civil society group in Angola similarly represented that project-
level data would help ``ensur[e] [that] local communities receive their
entitlements from revenue sharing agreements[.]'' \86\ Project-level
disclosure could help reduce instances where government officials are
corruptly depriving subnational governments and local communities of
revenue allocations to which they are entitled.\87\
---------------------------------------------------------------------------

    \86\ Letter from Open Society Institute for Southern Africa-
Angola (Jan. 29, 2015) (``OSISA-A''). See also id. (``[T]he Angolan
government is required by law to transfer 10 per cent of the taxes
generated by extraction projects in Cabinda directly to the
provincial government. The revenue is earmarked for spending on
local development initiatives in order to help offset some of the
social and environmental costs of oil production for local
communities. Similar oil revenue-sharing agreements exist in the
Angolan provinces of Zaire and Bengo.''); letter from ONE Campaign
(stating that in Burkina Faso mining companies are required to pay
1.0% of their revenues to local communities in which they operate in
order to help communities finance improvements in healthcare,
education, sanitation, and clean water and explaining that
``[a]ccess to project-level payment information will be crucial for
helping citizens to monitor that mining companies are paying 1% of
revenues to local communities and to hold the government accountable
for those funds'').
    \87\ For example, a civil society group in Indonesia reports
that it is already using Indonesia's EITI reports--which apparently
now include project-level reporting--to ``[e]nsur[e] that local
governments and communities are properly compensated for the oil,
gas, and mining activity in their'' geographical areas. See Letter
from Publish What You Pay--Indonesia (Mar. 11, 2015) (``PWYP-IND'')
(``By law, local governments [in Indonesia] are to receive 15
percent of oil revenue generated by local projects, 30 percent of
gas revenue, and 80 percent of mineral royalties . . . . [D]istrict
governments and citizens inhabiting resource-rich areas can now
calculate the share of extractives revenue they are owed, and
confirm that it is delivered.''). We note that in an analogous area
such public disclosure has reduced corruption. See R. Reinikka & J.
Svensoon, Fighting Corruption to Improve Schooling: Evidence from a
Newspaper Campaign in Uganda, Journal of European Economic
Association (2005) (reporting that, following surveys in Uganda
showing that only 13% of education grants actually reached schools
in the 1990s (the rest being captured by local governments), the
Ugandan government started to publish monthly grants to districts in
newspapers; the study found that publication of the grants had a
substantial effect on preventing the corrupt diversion of the funds
such that, by 2001, more than 80% of grants on average reached
schools).
---------------------------------------------------------------------------

    Company-specific, project-level, public data also may permit
citizens, civil society groups, and others to actively engage in the
monitoring of revenue flows in various other ways that may reduce
corruption and increase accountability.\88\ For example, project-

level reporting would potentially allow for comparisons of revenue
flows among different projects.\89\ The potential to engage in cross-
project revenue comparisons may allow citizens, civil society groups,
and others to identify potential payment discrepancies that reflect
corruption or other inappropriate financial discounts.\90\
---------------------------------------------------------------------------

    \88\ See generally Liz David-Barrett & Ken Okamura, The
Transparency Paradox: Why Do Corrupt Countries Join EITI?, Working
Paper No. 38, European Research Centre for Anti-Corruption and
State-Building (Nov. 2013) (``[P]roviding highly aggregated
macroeconomic figures on oil revenues or expenditures is likely to
result in collective action problems, where individual incentives to
act on the information are weak.''); Bank Information Center &
Global Witness, Assessment of IMF and World Bank Group Extractive
Industries Transparency Implementation (Oct. 2008) (``Local groups
working on [extractive industry] transparency issues insist that
project-level disclosure is necessary to carrying out meaningful
tracking of revenue flows from extractive industries, especially
important to local communities.''); letters from Iraqi Transparency
Alliance (``[C]itizens most impacted by extraction--such as
communities located near extraction sites--will require project-
level data in order to determine whether they are receiving a fair
share of services from their provincial governments. For example, a
villager located near an extraction site might draw on project level
data to discover that her provincial government is generating huge
sums of money from a nearby project, yet providing relatively paltry
services to the affected village. In such a case, project level
payment information could be used to effectively lobby the
provincial government for additional expenditures.''); and
Transparency International-USA (Dec. 8, 2015) (stating that project-
level disclosure ``will allow anti-corruption groups to identify
corruption and hold governments and companies to account'').
    \89\ See, e.g., letters from PWYP-ZIM (``Project-level reporting
would also allow for some comparison along projects at similar
levels of maturation.''); CSCU (``[I]f revenue data is not
disaggregated by company, it will not aid our understanding of the
deals negotiated, and variations in payments made, by different
companies.'').
    \90\ See generally letter from CSCU (``Only payment data that is
company-specific would enable us to call on both companies and the
Government to explain any substantial variations among different
companies, and ensure that individual firms are not improperly
obtaining fiscal benefits.'').
---------------------------------------------------------------------------

    Furthermore, to the extent that a company's specific contractual or
legal obligations to make resource extraction payments to a foreign
government are known (or are discoverable), company-specific, project-
level disclosure may help assist citizens, civil society groups, and
others ``to monitor individual company's contributions to the public
finances and ensure firms are meeting their payment obligations.'' \91\
Such data may also help various actors ensure that the government ``is
properly collecting and accounting for payments.'' \92\ Relatedly, an
important additional benefit of company-specific and project-level
transparency ``is that it would also act as a strong deterrent to
companies underpaying royalties'' or other monies owed.\93\
---------------------------------------------------------------------------

    \91\ Letter from CSCU. See also letter from ONE Campaign
(describing how EITI disclosures in Liberia enabled civil society
groups to discover that a mining company had fraudulently failed to
pay over $100,000 to the government and to compel the company to
make the required payment).
    \92\ Id. See also id. (``[CSCU] is planning to use project- and
company-level data . . . in conjunction with a new contract modeling
tool developed by the U.K. NGO Global Witness, which allows citizens
to use publicly available contracts to predict how much revenue a
government will receive from that contract. We will check project-
level payment data disclosed by companies against the model's
predictions to analyze and raise questions about any discrepancies
between reported payments from modeled predictions.''). See
generally Dilan Olcer, OECD Working Paper No. 276, Extracting the
Maximum from EITI (Mar. 11, 2009) (discussing the earlier version of
the EITI which did not require project-level disclosure and
explaining that ``disaggregated data'' is needed to ``ensure the
level of transparency that is necessary to enable scrutiny by
outsiders'').
    \93\ Letter from CSCU.
---------------------------------------------------------------------------

    Additionally, we note that various commenters have asserted that
``[p]roject-level reporting in particular will help communities and
civil society [groups] to weigh the costs and benefits of an individual
project.'' \94\ Where the net benefits of a project are small or non-
existent, this may be an indication that the foreign government's
decision to authorize the project is based on corruption or other
inappropriate motivations.\95\
---------------------------------------------------------------------------

    \94\ Letter from PWYP-ZIM (``If, however, payments cannot be
linked to a company or project, it will be impossible to carry out a
full assessment of their impact.''). See also letters from Robert F.
Conrad, Ph.D. (July 17, 2015) (``[P]roject level reporting is
necessary for resource owners, whom I define as the citizens of most
natural resource projecting countries, in order to evaluate the net
benefits of resource development, both in total and at the
margin.''); NACE (``Project level payment data is also necessary to
enable communities to conduct an informed cost-benefit analysis of
the projects in their backyard . . . . For local communities
affected by extractive projects, knowledge of the total, combined
amount a company has paid the government for all extractive projects
is of little value; what matters most to a community is the revenue
generated from the specific projects in its backyard.''). See
generally letter from CSCU (explaining that the civil society group
is planning to ``translate the oil revenues into the potential
tangible infrastructure and development projects that the revenues
could fund to improve lives of citizens throughout the country and
especially in areas where [the projects] are located . . . . By
pairing the exact number of schools, health centers, roads, and
power plants made possible by oil revenues from specific companies
and projects with actual local need, [CSCU] aim[s] to educate
citizens about the potential benefits of oil revenues, encourage
them to become more engaged . . . and demand realization of these
benefits on the ground.'').
    \95\ Letter from PWYP-ZIM (explaining that without company-
specific, project-level, public disclosure, ``we would not know the
monetary amounts received by the government when it sells individual
licenses, which is fundamental to determining corruption and
incentivizing public officials to secure a fair return on the sale
of natural resources''). Cf. generally Escaping the Resource Curse,
at 14 (``Corporations in the extractive industries also have an
incentive to limit transparency, to make it more difficult for
citizens to see how much their government is getting in exchange for
sale of the country's resources.'').
---------------------------------------------------------------------------

    Finally, in proposing company-specific, project-level, public
disclosure of resource extraction payments to foreign governments, we
are mindful that this new transparency alone would likely not eliminate
corruption in connection with resource extraction payments to foreign
governments.\96\ The ``ultimate impact [of the disclosures] will
largely depend on the ability of all stakeholders--particularly civil
society, media, parliamentarians, and governments--to use [the]
available information to improve the management of their resource
extractive sector.'' \97\ Nevertheless, the payment transparency that
our proposed rules would promote could constitute an important and
necessary step to help combat corruption in the resource extraction
area.\98\
---------------------------------------------------------------------------

    \96\ See, e.g., Escaping the Resource Curse, at 333
(``[T]ransparency may well be a necessary condition for better
management of oil and gas wealth, but it is unlikely to be a
sufficient condition.''); Alexandra Gillies & Antoine Heuty, Does
Transparency Work? The Challenges of Measurement and Effectiveness
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011) (``The
availability and access to information can only address asymmetries
if the stakeholders have the capacity and access needed to use the
information and respond when decision makers fail to represent their
interests.'').
    \97\ Alexandra Gillies & Antoine Heuty, Does Transparency Work?
The Challenges of Measurement and Effectiveness in Resource-Rich
Countries, 6 Yale J. Int'l Aff. 25 (2011). See generally Dilan
Olcer, OECD Working Paper No. 276, Extracting the Maximum from EITI
(Mar. 11, 2009) (stating that ``transparency is only part of
accountability, and may be of limited value if the other dimensions
are neglected'').
    \98\ See generally Escaping the Resource Curse, at 278
(explaining that ``[g]reater access to information sets the
framework for producing better monitoring'').
---------------------------------------------------------------------------

    Lastly, it appears to us that the U.S. Government may have few
other means beyond the disclosure mechanism required by Section 13(q)
to directly target governmental corruption associated with the
extractive sector in foreign countries.\99\ This reality informs our
view that the public disclosure mechanism that we are proposing is a
sensible, carefully tailored policy prescription.\100\
---------------------------------------------------------------------------

    \99\ See generally Senate Report, 17-21 (discussing potential
policy tools available to the U.S. Government).
    \100\ We note that much of the commentary on improved
transparency in connection with resource extraction payments to
governments in resource-rich developing countries focuses on the
potential to produce improved socio-economic conditions in those
countries. In the context of the disclosures required by Section
13(q), however, we believe that the primary governmental interest is
the more modest objective of reducing corruption and potentially
enhancing governmental accountability; the potential to improve
socio-economic conditions is, in our view, a secondary objective.
Compare generally Alexandra Gillies & Antoine Heuty, Does
Transparency Work? The Challenges of Measurement and Effectiveness
in Resource-Rich Countries, 6 Yale J. Int'l Aff. 25 (2011) (noting
``[m]ethodological challenges'' in demonstrating a ``causal chain
between the disclosure of information and improved development
outcomes''); with Andres Mejia Acosta, The Impact and Effectiveness
of Accountability and Transparency Initiatives: The Governance of
Natural Resources, Development Policy Review (2013) (``Existing
evidence of effective impact is also likely to increase as countries
are exposed for longer periods to [transparency and accountability
initiatives].'').

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

II. Proposed Rules Under Section 13(q)

A. Definition of ``Resource Extraction Issuer''

    Section 13(q) defines a resource extraction issuer in part as an
issuer that is ``required to file an annual report with the
Commission.'' We believe this language could reasonably be read either
to cover or to exclude issuers that file annual reports on forms other
than Forms 10-K, 20-F, or 40-F. We are proposing, however, to cover
only issuers filing annual reports on forms 10-K, 20-F, or 40-F.
Specifically, the proposed rules would define the term ``resource
extraction issuer'' to mean an issuer that is required to file an
annual report with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act and that engages in the commercial development of oil,
natural gas, or minerals.\101\ The proposed definition would therefore
exclude, for example, issuers subject to Tier 2 reporting obligations
under Regulation A. In addition, consistent with the 2012 Rules,
investment companies registered under the Investment Company Act of
1940 (``Investment Company Act'') would not be subject to the proposed
rules.\102\
---------------------------------------------------------------------------

    \101\ See proposed Rule 13q-1(c) and proposed Item 2.01(c)(11)
of Form SD. We interpret ``engages'' as used in Section 13(q) and
proposed Rule 13q-1 to include indirectly engaging in the specified
commercial development activities through an entity under a
company's control. See Section II.E below for our discussion of
``control.''
    \102\ See 2012 Adopting Release, n.390 (clarifying the
Commission's intent to exclude companies required to file annual
reports on forms other than Forms 10-K, 20-F or 40-F). The intended
exclusion was not explicit in the definition of ``resource
extraction issuer'' in the 2012 Rules. See also General Instruction
C to Form SD (providing that the disclosures required in Form SD
shall not apply to investment companies required to file reports
pursuant to Investment Company Act Rule 30d-1).
---------------------------------------------------------------------------

    We believe that covering other issuers would do little to further
the transparency objectives of Section 13(q) but would add costs and
burdens to the existing disclosure regimes governing those categories
of issuers. In this regard, we note that none of the Regulation A
issuers with qualified offering statements between 2009 and 2014 appear
to have been resource extraction issuers at the time of those
filings.\103\ It also seems unlikely that an entity that fits within
the definition of an ``investment company'' \104\ would be one that is
``engag[ing] in the commercial development of oil, natural gas, or
minerals.''
---------------------------------------------------------------------------

    \103\ Based on a review of their assigned Standard Industrial
Classification (SIC) codes. Nevertheless, we recognize that Tier 2
of Regulation A, with a maximum offering amount of $50 million, is a
new disclosure regime and that the types of companies previously or
currently using Regulation A may not be representative of its future
use. In addition, since Regulation A issuers were not required to
file annual reports when Section 13(q) was enacted, it seems
unlikely that Congress contemplated Regulation A issuers having to
comply with Section 13(q). Given the added costs and burdens
discussed above, we do believe it is prudent to extend the rule in
this manner.
    \104\ See Section 3(a)(1) of the Investment Company Act (15
U.S.C. 80a-3(a)(1)).
---------------------------------------------------------------------------

    As noted above, the proposed definition of the term ``resource
extraction issuer'' would apply only to issuers that are required to
file an annual report with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. As with the 2012 Rules, we are not proposing
exemptions to the definition of resource extraction issuer based on
size, ownership, foreign private issuer status,\105\ or the extent of
business operations constituting commercial development of oil, natural
gas, or minerals. Some commenters on the 2012 Rules urged us to provide
exemptions for certain categories of issuers that file annual reports
pursuant to Section 13 or 15(d) of the Exchange.\106\ Other commenters
supported the approach we are proposing.\107\ These commenters noted
that the legislative intent underlying Section 1504 was to provide the
broadest possible coverage of extractive companies so as to create a
level playing field.\108\ We agree that broader coverage would appear
to serve better the transparency objectives of Section 13(q) by
requiring disclosure from all the resource extraction issuers that are
subject to our existing Exchange Act reporting framework. Moreover, as
some commenters noted, additional categorical exemptions could
contribute to an unlevel playing field and raise competitiveness
concerns for companies that would be subject to the rules.\109\
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    \105\ We believe that not including government-owned companies
within the scope of the disclosure rules could raise competitiveness
concerns. See also 2012 Adopting Release at Section II.B.
    \106\ See 2012 Adopting Release at Section II.B.2 for a
discussion of these comment letters and related analysis.
    \107\ See id.
    \108\ See, e.g., letters from Calvert Investments (Mar. 1, 2011)
(``Calvert 1''); Global Witness (Feb. 25, 2011) (``Global Witness
1''); Oxfam America (Feb. 21, 2011) (``Oxfam 1''); Publish What You
Pay U.S. (Feb. 25, 2011) (``PWYP 1''); Senator Benjamin Cardin,
Senator John Kerry, Senator Patrick Leahy, Senator Charles Schumer,
and Representative Barney Frank (March 1, 2011) (``Sen. Cardin et
al. 1''); Senator Carl Levin (Feb. 1, 2011) (``Sen. Levin 1''); and
World Resources Institute (Mar. 1, 2011) (``WRI'').
    \109\ See 2012 Adopting Release, nn. 33-34 and accompanying
text.
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    In contrast to the call to provide exemptions, some commenters on
the 2010 Proposing Release requested that the Commission extend the
disclosure requirements to foreign private issuers that are exempt from
Exchange Act registration and reporting obligations pursuant to
Exchange Act Rule 12g3-2(b).\110\ Those commenters asserted that
requiring such issuers to comply with the disclosure requirements would
help ameliorate anti-competitive concerns. As noted by commenters who
opposed this suggestion, extending the disclosure required under
Section 13(q) to companies that are exempt from Exchange Act
registration and reporting would discourage reliance on Rule 12g3-2(b)
\111\ and would be inconsistent with the effect, and we believe the
purpose, of that rule.\112\ In this regard, we note that Rule 12g3-2(b)
provides relief to foreign private issuers that are not currently
Exchange Act reporting companies (i.e., they are neither listed nor
have made a registered offering in the United States) and whose primary
trading market is located outside the United States. In these
circumstances, we do not believe it would be appropriate to require
foreign private issuers whose connections with the U.S. markets do not
otherwise require them to make reports with the Commission to undertake
such an obligation solely for the purpose of providing the required
payment information. Moreover, imposing a reporting obligation on such
issuers would seem to go beyond what is contemplated by Section 13(q),
which defines a ``resource extraction issuer'' as an issuer that is
``required to file an annual report with the Commission.'' \113\ While
we acknowledge that not requiring these issuers to disclose the
required payment information could potentially limit the transparency
objectives of the statute, and potentially give rise to anti-
competitive concerns as some commenters suggested, we believe these
effects are mitigated by the fact that some foreign private issuers
that are exempt from registration and reporting under Rule 12g3-2(b)
may be listed in foreign jurisdictions, such as the European Union or
Canada, that have recently implemented their own revenue transparency
measures, in which case these issuers will be

required to disclose similar payment information in their home
jurisdictions.
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    \110\ See letters from American Petroleum Institute (Jan. 28,
2011) (``API 1''); Calvert 1; Exxon Mobil (Jan. 31, 2011)
(``ExxonMobil 1''); Global Witness 1; Revenue Watch Institute (Feb.
17, 2011) (``RWI 1''); and Royal Dutch Shell plc (Jan. 28, 2011)
(``RDS 2'').
    \111\ See letter from New York State Bar Association, Securities
Regulation Committee (Mar. 1, 2011) (``NYSBA Committee'').
    \112\ See letter from National Mining Association (Mar. 2, 2011)
(``NMA 2'') and NYSBA Committee.
    \113\ See 15 U.S.C. 78m(q)(1)(D).
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Request for Comment
1. Should we exempt certain categories of issuers from the proposed
rules, such as smaller reporting companies, emerging growth
companies, or foreign private issuers? \114\ If so, which ones and
why? If not, why not? Should we exempt companies that are unlikely
to make payments above the proposed de minimis threshold of
$100,000? \115\ For example, should we provide that a resource
extraction issuer with annual revenues and net cash flows from
investing activities below the de minimis threshold in a fiscal year
would not be subject to the proposed disclosure rules for the
subsequent fiscal year? Should we use a threshold that is different
from the de minimis threshold or some other measure of an issuer's
ability to make such payments to make this determination?
Alternatively, should our rules provide for different disclosure and
reporting obligations for these or other types of issuers? If so,
what should the requirements be?
---------------------------------------------------------------------------

    \114\ See the definition of ``smaller reporting company'' in
Exchange Act Rule 12b-2 [17 CFR 240.12b-2], the definition of
``emerging growth company'' in Exchange Act Section 3(a)(80) [15
U.S.C. 78c(a)(80)], and the definition of ``foreign private issuer''
in Exchange Act Rule 3b-4 [17 CFR 240.3b-4].
    \115\ See Sections II.C.2 and III.B.2.b below.
---------------------------------------------------------------------------

2. Should we provide for a delayed implementation date for certain
categories or types of issuers in order to provide them additional
time to prepare for the disclosure requirements and the benefit of
observing how other companies comply?
3. Should we, as proposed, limit the definition of ``resource
extraction issuer'' to those issuers that are required to file an
annual report with us under Exchange Act Section 13 or 15(d), thus
excluding issuers who file annual reports pursuant to other
provisions? Why or why not? For example, should we, as proposed,
exclude issuers subject to Tier 2 reporting obligations under
Regulation A?
4. Would our proposed rules present unique challenges for particular
categories of issuers? If so, what is the nature of these challenges
and could they be mitigated?
5. Should we define ``resource extraction issuer'' to include
investment companies registered under the Investment Company Act?
Why or why not?

B. Definition of ``Commercial Development of Oil, Natural Gas, or
Minerals''

    As noted above, Section 13(q) defines ``commercial development of
oil, natural gas, or minerals.'' \116\ Consistent with the statute and
the 2012 Rules we propose to define ``commercial development of oil,
natural gas, or minerals'' to include exploration, extraction,
processing, export and the acquisition of a license for any such
activity. This approach should enhance international transparency by
covering activities similar to those covered by the EU Directives and
Canada's ESTMA.\117\ Prior to the 2012 Rules, we received significant
comment on this aspect of the proposal. Some commenters sought a more
narrow definition than proposed, while other commenters sought a
broader definition.\118\ Although we have discretionary authority under
Section 13(q) to include other significant activities relating to oil,
natural gas, or minerals, we are not proposing to do so. As a general
matter, in light of the potentially significant costs associated with
the proposed rules, we have not sought to impose disclosure obligations
that extend beyond Congress' required disclosures and the disclosure
standards developed in connection with international transparency
efforts. In this regard, we note that the definition of ``commercial
development'' in Section 13(q) is broader than the activities typically
covered by the EITI \119\ and in some respects, other comparable
disclosure regimes.\120\
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    \116\ See Section I above.
    \117\ The EU Directives cover ``exploration, prospection,
discovery, development, and extraction of minerals, oil, natural gas
deposits or other materials.'' See, e.g., Article 41(1) of the EU
Accounting Directive. ESTMA defines ``commercial development of oil,
gas or minerals'' as ``(a) the exploration or extraction of oil, gas
or minerals; (b) the acquisition or holding of a permit, licence,
lease or any other authorization to carry out any of the activities
referred to in paragraph (a); or (c) any other prescribed activities
in relation to oil, gas or minerals.''
    \118\ See 2012 Adopting Release at Section II.C.2. Although we
have received several comments since the U.S. District Court for the
District of Columbia vacated the rules adopted in 2012, none has
addressed the scope of ``commercial development.''
    \119\ An EITI plan typically covers the ``upstream activities''
of exploration and production but not ``downstream activities,''
such as processing or export. The relevant multi-stakeholder group
does, however, have the option of expanding the scope of its EITI
program by including some downstream activities. See the EITI
Handbook, at 35.
    \120\ For example, processing, export, and the acquisition of
licenses are not specifically mentioned by the EU Directives.
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    As noted in the 2010 Proposing Release, the proposed definition of
``commercial development'' is intended to capture only activities that
are directly related to the commercial development of oil, natural gas,
or minerals.\121\ It is not intended to capture activities that are
ancillary or preparatory to such commercial development. Accordingly,
we would not consider an issuer providing only services that support
the exploration, extraction, processing, or export of such resources to
be a ``resource extraction issuer,'' such as an issuer that
manufactures drill bits or provides hardware to help companies explore
and extract.\122\ Similarly, an issuer engaged by an operator to
provide hydraulic fracturing or drilling services, thus enabling the
operator to extract resources, would not be considered a resource
extraction issuer. We note, however, that where a service provider
makes a payment to a government on behalf of a resource extraction
issuer that meets the definition of ``payment,'' under the proposed
rules, the resource extraction issuer would be required to disclose
such payments. We believe this approach is consistent with Section
13(q) and the approach of the EU Directives and the EITI that only
companies directly engaged in the extraction or production of oil,
natural gas, or minerals must disclose payments made to
governments.\123\
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    \121\ See 2010 Proposing Release at Section II.C.
    \122\ Marketing activities would also not be included. Section
13(q) does not include marketing in the list of activities covered
by the definition of ``commercial development.'' In addition,
including marketing activities within the final rules under Section
13(q) would go beyond what is covered by the EITI and other
international regimes. See, e.g., the EITI Handbook, at 35. For
similar reasons, the definition of ``commercial development'' does
not include activities relating to security support. See 2012
Adopting Release at Section II.D for a related discussion of
payments for security support.
    \123\ It does not appear that such activities are covered by the
EU Directives' provisions on resource extraction payment disclosure.
For example, Article 41 of the EU Accounting Directive only refers
to the economic activities listed in ``Section B, Divisions 05 to 08
of Annex I to Regulation (EC) No 1893/2006'' when defining the types
of companies subject to the disclosure rules. Activities such as
``mining support service activities'' and ``support activities for
petroleum and natural gas extraction,'' however, are not included in
those Divisions but are explicitly included in Division 09.
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    In response to commenters' prior requests for clarification of the
activities covered by the proposed definition of ``commercial
development,'' we are identifying the activities that would be covered
by the terms ``extraction'' and ``export'' and providing examples of
the activities that would be covered by the term ``processing.'' We
note, however, that whether an issuer is a resource extraction issuer
would depend on the specific facts and circumstances. ``Extraction''
would mean the production of oil and natural gas as well as the
extraction of minerals.\124\ ``Processing'' would include, but is not
limited to, midstream activities such as the processing of gas to
remove liquid hydrocarbons, the removal of 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. It would also include
the crushing and processing of raw ore prior to the smelting
phase.\125\
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    \124\ Proposed Item 2.01(c)(5) of Form SD.
    \125\ See proposed Instruction 7 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We do not believe that ``processing'' should include the downstream
activities of refining or smelting. The objective of the disclosure
required by Section 13(q) is to make more transparent the payments that
resource extraction issuers make to governments, which are primarily
generated by ``upstream'' activities like exploration and extraction.
Issuers do not typically make payments to the host government in
connection with refining or smelting. We also note that in other
contexts Congress has treated midstream activities like ``processing''
and downstream activities like ``refining'' as separate activities,
which further supports our view that Congress did not intend to include
``refining'' and ``smelting'' as ``processing'' activities.\126\
Finally, we note that including refining or smelting within the rules
under Section 13(q) would go beyond what is currently contemplated by
the EITI, which does not typically include the downstream activities of
refining and smelting.\127\ The EU Directives also do not cover
refining or smelting in its list of covered activities.\128\
---------------------------------------------------------------------------

    \126\ The Sudan Accountability and Divestment Act of 2007
(``SADA''), which also relates to resource extraction activities,
specifically includes ``processing'' and ``refining'' as two
distinct activities in its list of ``mineral extraction activities''
and ``oil-related activities . . .'' See 110 P.L. No. 174 (2007).
Similarly, the Commission's oil and gas disclosure rules exclude
refining and processing from the definition of ``oil and gas
producing activities'' (other than field processing of gas to
extract liquid hydrocarbons by the company and the upgrading of
natural resources extracted by the company other than oil or gas
into synthetic oil or gas). See Rule 4-10(a)(16)(ii) of Regulation
S-X [17 CFR 210.4-10(a)(16)(ii)] and 2012 Adopting Release, n.108.
    \127\ See, e.g., the EITI Handbook, at 35.
    \128\ See, e.g., Article 41(1) of the EU Accounting Directive
(including ``exploration, prospection, discovery, development, and
extraction'' in the definition of an ``undertaking active in the
extractive industry,'' but not including refining or smelting).
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    ``Export'' would mean the transportation of a resource from its
country of origin to another country by an issuer with an ownership
interest in the resource.\129\ This definition of the term ``export''
reflects the significance of the relationship between upstream
activities such as exploration and extraction and the categories of
payments to governments identified in the statute. In contrast, we do
not believe that Section 13(q) was intended to capture payments related
to transportation on a fee-for-service basis across an international
border by a service provider with no ownership interest in the
resource.\130\
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    \129\ See proposed Item 2.01(c)(4) of Form SD. Several
commenters have argued that ``export'' means the removal of the
resource from the place of extraction to the refinery, smelter, or
first marketable location. See 2012 Adopting Release, nn.111, 112,
134 and accompanying text. We believe that our interpretation of
``export'' better captures the intended meaning of that term. In
this regard, we are not aware of anything in Section 13(q) or the
legislative history that suggests Congress meant ``export'' to have
a meaning that does not require the resource to be transported
across an international boundary.
    \130\ It is noteworthy that Section 13(q) includes export, but
not transportation, in the list of covered activities. In contrast,
SADA specifically includes ``transporting'' in the definition of
``oil and gas activities'' and ``mineral extraction activities.''
The inclusion of ``transporting'' in SADA, in contrast to the
language of Section 13(q), suggests that the term export means
something different than transportation.
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    In an effort to emphasize substance over form or characterization
and to reduce the risk of evasion, we are also proposing an anti-
evasion provision.\131\ The proposed rules would require disclosure
with respect to an activity (or payment) that, although not within the
categories included in the proposed rules, is part of a plan or scheme
to evade the disclosure required under Section 13(q).\132\ For example,
under this provision a resource extraction issuer could not avoid
disclosure by re-characterizing an activity as transportation that
would otherwise be covered under the rules.\133\
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    \131\ See Section II.C.1 below for more detail on the anti-
evasion provision.
    \132\ See proposed Rule 13q-1(b).
    \133\ Similarly, if a resource extraction issuer were to make a
payment to a third party in order to avoid disclosure under the
proposed rules, whether at the direction of a foreign government or
otherwise, the proposed rules would require the disclosure of such
payment.
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Request for Comment
6. Should we, as proposed, define ``commercial development of oil,
natural gas, or minerals'' as the term is described in the statute?
Should it be defined more broadly or more narrowly? If more broadly,
should the definition of ``commercial development of oil, natural
gas, or minerals'' include any additional activities not expressly
identified in the statute? If so, what activities should be covered?
Would including additional activities impose any significant
additional costs on issuers? Does our proposed definition further
the U.S. Government's foreign policy objective of battling
corruption and, in so doing, potentially improve governance and
accountability in resource-rich countries? If not, what would?
7. Should any of the activities listed in the statute be excluded
from the definition of ``commercial development of oil, natural gas,
or minerals?'' If any activities should be excluded, which
activities and why?
8. Should activities that are ancillary or preparatory, such as
services associated with or in support of activities included in
Section 13(q), be expressly included in activities covered by the
rules, resulting in the companies performing such services being
considered ``resource extraction issuers?'' Why or why not? Should
we provide any additional guidance regarding the types of activities
that may be ``directly related'' to the ``commercial development of
oil, natural gas, or minerals,'' as opposed to activities that are
ancillary or preparatory? For example, are other types of services
so critical to the commercial development of oil, natural gas, or
minerals that they should be covered expressly by the rules? Why or
why not?
9. Should we provide additional guidance on which activities would
be covered by the terms ``extraction,'' ``processing,'' and
``export?'' If so, what guidance would be helpful?
10. As noted above, ``extraction'' would mean the production of oil
and natural gas as well as the extraction of minerals. Are the
activities covered too narrow or too broad?
11. As noted above, ``processing'' would include midstream
activities such as (a) the processing of gas to remove liquid
hydrocarbons, (b) the removal of impurities from natural gas prior
to its transport through a pipeline, (c) 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, and (d) the crushing and processing
of raw ore prior to the smelting phase. Are these examples of
``processing'' too narrow or too broad? Why or why not?
12. As discussed above, the definition of ``commercial development
of oil, natural gas, or minerals'' would not cover transportation