[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Rules and Regulations]
[Pages 4662-4725]
[FR Doc No: 2020-28103]

Vol. 86

Friday,

No. 10

January 15, 2021

Part VIII

Securities and Exchange Commission

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17 CFR Parts 240 and 249b

Disclosure of Payments by Resource Extraction Issuers; Final Rule

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules
and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

[Release No. 34-90679; File No. S7-24-19]
RIN 3235-AM06

Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting a rule under the Securities Exchange Act of
1934 (``Exchange Act'') and an amendment to Form SD to implement
Section 13(q) of the Exchange Act. Section 13(q) directs the Commission
to issue rules requiring resource extraction issuers to include in an
annual report information relating to payments made 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
these issuers to provide information about the type and total amount of
payments made for each of their projects 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:
    Effective date: The final rule and form amendment are effective
March 16, 2021.
    Compliance date: See Section II.O. for further information on
transitioning to the final rules.

FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel,
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission initially adopted 17 CFR
240.13q-1 and an amendment to Form SD on August 22, 2012. Those rules
were vacated by the U.S. District Court for the District of Columbia on
July 2, 2013. On June 27, 2016, the Commission adopted a revised
version of 17 CFR 240.13q-1 and an amendment to Form SD. On February
14, 2017, the revised rules were disapproved by a joint resolution of
Congress pursuant to the Congressional Review Act. Although the joint
resolution vacated the 2016 Rules, the statutory mandate under Section
13(q) of the Exchange Act remains in effect. As a result, we proposed
17 CFR 240.13q-1 and an amendment to Form SD under the Exchange Act \1\
on December 18, 2019. We are now adopting 17 CFR 240.13q-1 (``Rule 13q-
1'') and an amendment to Form SD \2\ under the Exchange Act largely as
proposed.
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    \1\ 15 U.S.C. 78a et seq.
    \2\ 17 CFR 249b.400.
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Table of Contents

I. Background
    A. Section 13(q) of the Exchange Act
    B. Prior Section 13(q) Rulemakings and Congress's Actions Under
the Congressional Review Act
    C. Summary of the Final Rules
II. Final Rules Under Section 13(q)
    A. Definition of ``Project''
    1. Comments and Considerations Regarding the Modified Project
Definition
    2. Discussion of the Modified Project Definition
    B. Public Reporting
    1. Public Disclosure of the Issuer's Payment Information,
Including the Issuer's Name
    2. Public Compilation
    C. Definition of a ``Not De Minimis'' Payment
    D. Exemptions From Compliance
    1. Exemption for Conflicts of Law
    2. Exemption for Conflicts With Pre-Existing Contracts
    3. Exemption for Smaller Reporting Companies and Emerging Growth
Companies
    4. Delayed Reporting for Payments Related to Exploratory
Activities
    5. Transitional Relief for Recently Acquired Companies
    6. Transitional Relief for Initial Public Offerings
    7. Case-by-Case Exemption
    E. Definition of ``Subsidiary'' and ``Control''
    F. Treatment for Purposes of the Exchange Act and Securities Act
    G. Definitions of ``Foreign Government'' and ``Federal
Government''
    H. Definition of ``Resource Extraction Issuer''
    I. Definition of ``Commercial Development of Oil, Natural Gas,
or Minerals''
    1. ``Extraction'' and ``Processing''
    2. ``Export''
    3. ``Minerals''
    J. Definition of ``Payment''
    1. Taxes
    2. Royalties, Fees, and Bonuses
    3. Dividend Payments
    4. Infrastructure Payments
    5. Community and Social Responsibility Payments
    6. In-Kind Payments
    7. Accounting Considerations
    K. Anti-Evasion
    L. Annual Report Requirement
    1. Form SD
    2. Annual Deadline for Form SD
    M. Exhibits and Interactive Data Format Requirements
    N. Alternative Reporting
    1. Alternative Reporting Requirements
    2. Recognition of EU Directives, U.K.'s Reports on Payments to
Governments Regulations, Norway's Regulations on Country-by-Country
Reporting, and Canada's ESTMA as Alternative Reporting Regimes
    O. Compliance Date
    P. Other Matters
III. Economic Analysis
    A. Introduction and Baseline
    B. Potential Benefits Resulting From the Payment Reporting
Requirement
    C. Potential Costs Resulting From the Payment Reporting
Requirement
    D. Discussion of Discretionary Choices
    1. Definition of ``Project''
    2. Exemptions From Disclosure
    3. Annual Report Requirement
    4. Public Availability of Data
    5. Alternative Reporting
    6. Definition of Control
    7. Definition of ``Commercial Development of Oil, Natural Gas,
or Minerals''
    8. Types of Payments
    9. Definition of ``Not De Minimis''
    10. Exhibit and Interactive Data Requirement
    11. Quantitative Estimates of Costs Resulting From the
Rulemaking
IV. Paperwork Reduction Act
    A. Background
    B. Estimate of Issuers
    C. Estimate of Issuer Burdens
V. Regulatory Flexibility Act Certification
VI. Statutory Authority

I. Background

A. Section 13(q) of the Exchange Act

    Section 13(q) was added to the Exchange Act in 2010 by Section 1504
of the Dodd-Frank Act.\3\ Congress enacted Section 1504 to increase the
transparency of payments made by oil, natural gas, and mining companies
\4\ to governments for the purpose of the commercial development of
oil, natural gas, and minerals.\5\
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    \3\ Public Law 111-203 (July 21, 2010).
    \4\ The disclosure requirements mandated by Section 13(q) only
apply to oil, natural gas and mining companies that are required to
file reports under Section 13 or 15(d) of the Securities Exchange
Act of 1934. See 15 U.S.C. 78m(q)(1)(D)(i).
    \5\ According to Senator Richard Lugar, who co-sponsored the
amendment that was the basis for this statutory provision, a goal
was to provide more information to the global commodity markets and
``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.'' See 156 Cong. Rec.
S3816 (daily ed. May 17, 2010).
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    Section 13(q) directs the Commission to issue final rules that
require each resource extraction issuer to include in an annual report
information relating to payments 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. The information must
include: (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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    \6\ 15 U.S.C. 78m(q)(2)(A).
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    Section 13(q) defines 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; \7\
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    \7\ 15 U.S.C. 78m(q)(1)(D). Given this definition of ``resource
extraction issuer,'' the use of the Commission's disclosure rules to
achieve the transparency goals of Section 13(q) is inherently
limited because the statute only applies to Exchange Act reporting
companies. In contrast, the resource extraction reporting regimes of
the European Union and Canada include registered companies as well
as private companies of a certain specified size that are domiciled
in their jurisdictions. See infra at Section III.C.
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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; \8\
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    \8\ 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;
\9\ and
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    \9\ 15 U.S.C. 78m(q)(1)(B).
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     ``Payment'' means a payment that:
    [cir] Is made to further the commercial development of oil, natural
gas, or minerals;
    [cir] Is not de minimis; and
    [cir] 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 (the ``EITI'') \10\ (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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    \10\ The EITI is a voluntary coalition of oil, natural gas, and
mining companies, foreign governments, investor groups, and other
international organizations committed to establishing a global
standard (the ``EITI Standard'') for the good governance of oil,
gas, and mineral resources. 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 (2012) (``EITI Handbook''), at xii. After volunteering
to become an EITI candidate, a country must implement a series of
requirements set forth in the EITI Standard and complete an EITI
validation process to become a compliant member.
    \11\ 15 U.S.C. 78m(q)(1)(C).
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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 \12\ using an interactive
data standard established by the Commission.\13\ 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.\14\ 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.\15\ 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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    \12\ 15 U.S.C. 78m(q)(2)(C).
    \13\ 15 U.S.C. 78m(q)(2)(D).
    \14\ 15 U.S.C. 78m(q)(1)(E).
    \15\ 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.\16\
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    \16\ 15 U.S.C. 78m(q)(2)(D)(ii).
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    Section 13(q) further authorizes the Commission to require
additional electronic tags that it determines are necessary or
appropriate in the public interest or for the protection of
investors.\17\ In addition, 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 rules.\18\ The statute does not define the
term compilation.
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    \17\ Id.
    \18\ 15 U.S.C. 78m(q)(3).
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    Section 13(q) further 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.'' \19\
Although the statutory definition of ``payment'' explicitly refers to
the EITI, the provision in Section 13(q) about supporting the Federal
Government's commitment to international transparency promotion efforts
\20\ does not mention the EITI.\21\
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    \19\ 15 U.S.C. 78m(q)(2)(E). The rules we are adopting in this
release are consistent with this requirement, as explained
throughout this adopting release. Although the new rules differ from
those of the European Union and Canada in certain respects
(including the definition of ``project''), neither Section
13(q)(2)(E) nor any other provision of law requires the Commission
to adopt identical or significantly similar rules to those adopted
by other foreign governments. When the Commission did adopt rules
that were significantly similar to those of the European Union and
Canada, Congress disapproved those rules.
    \20\ In 2013, the European Parliament and Council of the
European Union (``EU'') adopted two directives that include payment
disclosure rules. The EU Accounting Directive and the EU
Transparency Directive (the ``EU Directives'') established the
baseline in each EU member state and European Economic Area
(``EEA'') country for annual disclosure requirements for oil, gas,
mining, and logging companies concerning the payments made to
governments on a per country and per project basis. All EU member
states have implemented both of the EU Directives. The UK adopted
its ``Reports on Payments to Governments Regulations 2014'' to
implement the EU Directives, which remains effective following the
UK's withdrawal from the EU. Norway adopted regulations similar to
the EU Directives in 2013. Canada adopted a federal resource
extraction disclosure law, the Extractive Sector Transparency
Measures Act (``ESTMA''), in 2015. For further information about
these international transparency promotion efforts, see Section I.B.
of Release No. 34-87783 (Dec. 18, 2019) [85 FR 2522 (Jan. 15, 2020)]
(``2019 Rules Proposing Release'').
    \21\ See 15 U.S.C. 78m(q)(2)(E). Although the United States
became an EITI candidate country in 2014, it withdrew as an EITI
implementing country in 2017. See letter from Gregory Gould,
Director of the Office of Natural Resources Revenue, U.S. Department
of the Interior, to Fredrik Reinfeldt, Chair of the EITI (Nov. 2,
2017)) (noting ``the fact that the U.S. laws prevent us from meeting
specific provisions of the EITI Standard''), which is available at
https://www.doi.gov/sites/doi.gov/files/uploads/eiti_withdraw.pdf.
The United States has, however, maintained its status as a
supporting country of the EITI.
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B. Prior Section 13(q) Rulemakings and Congress's Actions Under the
Congressional Review Act

    On August 22, 2012, the Commission adopted Rule 13q-1 and
amendments to Form SD (the ``2012 Rules'').\22\ The 2012 Rules were
vacated by the U.S. District Court for the District of Columbia on July
2, 2013.\23\ On June 27, 2016, the

Commission adopted a revised version of Rule 13q-1 and amendments to
Form SD (the ``2016 Rules'') that addressed the concerns raised in the
prior litigation.\24\
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    \22\ See Release No. 34-67717 (Aug. 22, 2012) [77 FR 56365
(Sept. 12, 2012)] (the ``2012 Rules Adopting Release'') available at
http://www.sec.gov/rules/final/2012/34-67717.pdf. See also Release
No. 34-63549 (Dec. 15, 2010) [75 FR 80978 (Dec. 23, 2010)] (the
``2012 Rules Proposing Release'') available at http://www.sec.gov/rules/proposed/2010/34-63549.pdf.
    \23\ See API v. SEC, 953 F. Supp. 2d 5 (D.D.C. July 2, 2013).
The District 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. See 953 F. Supp.
2d at 17-19 and 21-23.
    \24\ See Release No. 34-78167 (June 27, 2016) [81 FR 49359 (July
27, 2016)] available at https://www.sec.gov/rules/final/2016/34-78167.pdf (the ``2016 Rules Adopting Release''). See also Release
No. 34-76620 (Dec. 11, 2015) [80 FR 80057 (Dec. 23, 2015)] available
at https://www.sec.gov/rules/proposed/2015/34-76620.pdf (the ``2016
Rules Proposing Release'').
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    On February 14, 2017, the 2016 Rules were disapproved by a joint
resolution \25\ of Congress pursuant to the Congressional Review Act
(the ``CRA'').\26\ Members of the House and the Senate who supported
the joint resolution expressed a number of concerns with the 2016
Rules. The principal concerns focused on the potential adverse economic
effects of the rules. Specifically, members expressed the view that the
2016 Rules would impose undue compliance costs on companies,\27\
undermine job growth and burden the economy,\28\ and impose competitive
harm \29\ to U.S. companies relative to foreign competition.
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    \25\ See H.R.J. Res. 41, 115th Cong. (2017) (enacted).
    \26\ 5 U.S.C. 801 et seq.
    \27\ See, e.g., 163 Cong. Rec. H.848 (February 1, 2017)
(Statement of Rep. Hensarling) (``The SEC has estimated that ongoing
compliance costs for his rule could reach as high as $591 million
annually. . . Furthermore, this rule still goes far beyond the
statute passed by Congress and mandates public specialized
disclosures that cost more and more, and is more burdensome than the
law requires.'').
    \28\ See id. (Statement of Rep. Hensarling) (``That is $591
million every year that could better be used to hire thousands more
Americans in an industry where the average pay is 50 percent higher
than the U.S. average. Literally we could be talking about 10,000
jobs on the line for this ill-advised rule.'').
    \29\ See id. (Statement of Rep. Hensarling) (``The economic
opportunities of . . . millions of Americans . . . are not helped by
top-down, politically driven regulations that give many foreign
companies an advantage over American public companies. That is
exactly what this Securities and Exchange Commission regulation that
we are talking about today does. It forces American public companies
to disclose [expensive] proprietary information that can actually be
obtained by their foreign competitors, including state-owned
companies in China and Russia. This is just one regulation out of
thousands and thousands that are burdening our companies, our job
creators, and are costing our households by one estimate, over
$14,000 a year. . .''); see also 163 Cong. Rec. H.851 (February 1,
2017) (Statement of Rep. Wagner) (``This particular SEC regulation .
. . regarding resource extraction disclosures will make it more
expensive for our public companies that are involved with energy
production to be competitive overseas with foreign state-owned
companies.'').
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    Some members who voted in favor of the disapproval nonetheless
reiterated support for the rule's transparency and anti-corruption
objectives. For instance, a group of senators who voted for the joint
resolution expressed their ``strong support'' for anticorruption
policies and stated that they were ``committed to efforts to encourage
corporate transparency on these matters consistent with the
international standards already adopted by European and other
governments.'' \30\ They also indicated, however, that they voted in
favor of disapproving the 2016 Rules in part due to their concern that
those rules would place ``American and other SEC-registered companies''
at a significant competitive disadvantage.\31\
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    \30\ See letter from Senator Bob Corker, Senator Susan Collins,
Senator Marco Rubio, Senator Johnny Isakson, Senator Lindsey Graham,
Senator Todd Young (Feb. 2, 2017) (``Sen. Corker et al.''),
available at https://www.sec.gov/comments/df-title-xv/resource-extraction-issuers/resource-extraction-issuers.shtml.
    \31\ See id.
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    Although the joint resolution vacated the 2016 Rules, the statutory
mandate under Section 13(q) of the Exchange Act remains in effect. As a
result, the Commission is statutorily obligated to issue a new
rule.\32\ Under the CRA, however, the Commission may not reissue the
disapproved rule in ``substantially the same form'' or issue a new rule
that is ``substantially the same'' as the disapproved rule.\33\ The CRA
does not define ``substantially the same form'' or ``substantially the
same'' and courts have not provided guidance on this issue. We
therefore look to the plain meaning of the term ``substantially,''
which is ``to a large degree'' \34\ or ``to a great extent.'' \35\
While providing general guidance for comparing a new final rule to the
rule that Congress disapproved pursuant to the CRA, this construct does
not provide guidance regarding the specific textual revisions or policy
adjustments that the Commission should make to the disapproved rule. We
also recognize that, in the context of a mandatory rulemaking such as
Section 13(q) requires, there generally is not one ``correct''
approach. As a result of the combination of these factors, we believe
that determining the path forward falls to the agency assigned to
undertake the mandatory rulemaking and that the agency should exercise
its reasoned judgment in shaping new rules, evaluating a reasonable
range of potential responses, including by considering the statutory
provision that compels the rulemaking, the administrative record, and
the CRA's requirements, among other things.
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    \32\ A number of members who supported the joint resolution
noted that the Commission would be obligated to issue a new rule
fulfilling the statutory mandate. See, e.g., 163 Cong. Rec. H.848,
849 (February 1, 2017) (Statement of Rep. Hensarling) (``Let's also
remember that this joint resolution does not repeal section 1504 of
Dodd-Frank. I wish it did, but it doesn't. . . It simply tells the
SEC to go back to the drawing board, comply with the Dodd-Frank Act,
and come up with a better rule . . .''); 163 Cong. Rec. S.635 (Feb.
2, 2017) (Statement of Sen. Crapo) (``What this resolution does is
to cause the current SEC rule to not take effect. As it was
characterized yesterday on the House floor and will be characterized
further today on the Senate floor, what the SEC will need to do is
to go back to the drawing board and come up with a better rule that
complies with the law of the land.'').
    \33\ See 5 U.S.C. 801(b)(2). (``A rule that does not take effect
(or does not continue) . . . may not be reissued in substantially
the same form, and a new rule that is substantially the same as such
a rule may not be issued, unless the reissued or new rule is
specifically authorized by a law enacted after the date of the joint
resolution disapproving the original rule.'').
    \34\ See Cambridge Dictionary (Cambridge University Press)
(2020).
    \35\ See Oxford English Dictionary (Oxford University Press)
(2020).
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    We received a number of comments on our approach to satisfying the
statutory mandate in Section 13(q) in a manner that also adheres to the
CRA's requirements.\36\ Some commenters generally supported the
Commission's approach regarding the CRA.\37\ Several commenters,
however, argued that the Commission interpreted the impact of the CRA
resolution too broadly and gave too much emphasis to statements from
members of Congress who supported the resolution.\38\ Several
commenters added that the economic concerns expressed during the CRA
floor debates (particularly related to costs and competiveness) have
been ameliorated by international developments, eliminating or at least
reducing the need to change the substance of the final rules to address
those consequences.\39\ According to these commenters, the Commission
(1) incorrectly concluded that the CRA resolution restricted its
discretion when issuing new rules under Section 13(q) and (2)
improperly relied on the CRA resolution to justify proposing rules that
do not provide the level of disclosure needed to achieve the objectives
of Section 13(q).\40\
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    \36\ See, e.g., letters from Center for Progressive Reform (Mar.
16, 2020); Cary Coglianese (Mar. 16, 2020); Oxfam America and
Earthrights International (Mar. 23, 2020); and PWYP-US (Mar. 16,
2020).
    \37\ See, e.g., letter from National Association of
Manufacturers (Mar. 16, 2020) (NAM) (stating that the proposed rule
represents a tailored implementation of the statute and includes
numerous important reforms from the 2016 proposal that faced
disapproval from Congress).
    \38\ See, e.g., letters from Oxfam America and Earthrights
International; PWYP-US (Mar. 16, 2020); and Sierra Club (March 14,
2020).
    \39\ See id.
    \40\ See, e.g., letters from Center for Progressive Reform; Cary
Coglianese; Oxfam America and Earthrights International; and PWYP-US
(Mar. 16, 2020).

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    The CRA resolution does not modify the Section 13(q) mandate that
the Commission issue rules regarding the disclosure of resource
extraction payments. It does, however, as set forth above, restrict
somewhat our discretion regarding the form that those rules may
take.\41\ Thus, we believe our task is to exercise our discretion to
craft and issue a new rule that reasonably achieves the objectives of
Section 13(q) within the narrower range of available approaches imposed
by the CRA.
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    \41\ For example, by the plain terms of the CRA, it seems
apparent that the Commission, at a minimum, could not simply readopt
the disapproved rule.
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    Some commenters expressed the view that we could readopt the 2016
Rules with only minor modifications and still satisfy the CRA.\42\
According to these commenters, it would be sufficient for the
Commission to readopt most of the 2016 Rules while primarily modifying
the rationales for or the economic analysis set forth in the prior
rulemaking.\43\ This approach, in our view, is inconsistent with the
plain language of the CRA, which instructs that the ``new rule'' itself
may not be substantially the same. Based on the plain language of the
CRA, the Commission in our view is required to do more than
substantially revise the rationales (including the economic analysis)
in the adopting release accompanying the disapproved rule.\44\ Rather,
we believe that a better understanding of the CRA is that it requires
us to make sufficient changes to the substantive operation of
(including the requirements imposed by) the rule itself to meet the CRA
mandate. Based on that general understanding, we believe that an
appropriate and reasonable way to assess the CRA's not ``substantially
the same'' requirement in the context of a disclosure-oriented
provision such as Section 13(q) is primarily by comparing the extent to
which the disclosures under the disapproved rule would differ from the
disclosures under the new rule.\45\
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    \42\ The CRA disapproval process is not a routine or perfunctory
process. To disapprove a rule under the CRA, the support of a
majority of both houses of Congress and the assent of the President
is required, which taken together reflects a significant undertaking
on the part of two elected branches of the Federal government. Based
on the foregoing alone, it seems doubtful that the appropriate
response to a CRA disapproval should be mere minor modifications.
    \43\ See, e.g., letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
    \44\ Revising the economic analysis from the 2016 adopting
release would not in our view satisfy the CRA. The economic analysis
was not part of the substantive rule because it neither imposed any
legally enforceable obligations, nor provided any rights or
benefits. Further, the economic analysis did not otherwise purport
to offer the Commission's interpretation of any statutory provision
or agency rule, nor did it set forth any general statements of
agency policy, or establish any rules of agency organization,
procedure, or practice. Rather, the economic analysis in the
adopting release served to memorialize the Commission's
understanding and consideration of the economic implications of the
2016 Rules. Moreover, even if in theory changing the economic
analysis to include revised cost estimates might be sufficient in
some cases to satisfy the CRA, we nonetheless disagree that a change
in the economic analysis would be sufficient in this particular
case. The argument put forward by some commenters is that the
projected costs and competitive burdens included in the 2016 Rules
Adopting Release were too high. See id. The costs and competitive
burdens were, however, only one component of the considerations on
which the Commission based the 2016 Rules. As the 2016 Rules
Adopting Release explained, the economic impact of the 2016 Rules
was relevant, but not determinative. See 2016 Rules Adopting Release
at Sections II.B and C. Thus, merely revising the economic analysis
and retaining the myriad other reasons that led the Commission to
adopt the granular public disclosure model, and largely reissuing
the same rule, would not, in our view, satisfy the CRA requirement.
Any such rule, including the underlying analysis, would continue to
be in substantially the same form as the disapproved rule.
    \45\ We recognize, as discussed in Section III.A below, that
economic and other considerations relevant to Section 13(q) have
continued to evolve since the 2016 Rules were adopted. Specifically,
data and other information concerning the subsequent experiences of
resource extraction issuers operating under foreign disclosure
regimes that are similar to the disapproved 2016 Rules indicate that
the potential compliance costs and competitive harm associated with
the disclosures may be less than the Commission had projected at the
time that it issued the 2016 Rules. Even if these external facts
could be considered to have significantly mitigated such concerns,
they do not eliminate the CRA mandate that the new rule cannot be
substantially the same as the disapproved rule. In formulating the
final rules, however, we have considered the developments in
international payment reporting regimes, including the extent to
which they might provide additional insights regarding the potential
costs and competitive effects of project-level disclosures.
---------------------------------------------------------------------------

    Commenters also argued that readopting a new rule that included
essentially the same (or similar) core discretionary components of the
2016 rulemaking would satisfy the CRA provided that the Commission made
adjustments to a significant number of the ancillary or secondary
components of the rule.\46\ In the context of the Section 13(q)
disclosure provision, however, we are not persuaded that ancillary or
secondary adjustments would satisfy the CRA requirement that the new
rule cannot be substantially the same as the disapproved rule. Various
changes to the ancillary or secondary components of the 2016 Rules,
alone and in combination, generally would yield a very similar
disclosure model and thus result in payment disclosures substantially
the same as those required by the 2016 Rules.
---------------------------------------------------------------------------

    \46\ See, e.g., letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    Rather, we believe that, in the context of Section 13(q), producing
a rule that is not ``substantially the same'' as the disapproved rule
is reasonably achieved by changing at least one of the two central
discretionary determinations at the heart of the Section 13(q)
disclosure system that the Commission made when it issued the 2016
Rules. Based on the administrative record and our understanding of
Section 13(q), we believe that the two central determinations over
which the Commission has discretionary authority are (1) publication of
issuers' payment disclosures versus anonymization and (2) the relative
granularity of the definition of ``project.'' Modifying the other
discretionary determinations available in this particular rulemaking,
in our view, likely would fail to produce a rule that is not
substantially the same as the disapproved rule given the level of
similarity that would remain between the disclosures under the new rule
and those that would have resulted under the disapproved rule.
Moreover, given our obligations under the CRA and based on our review
of the administrative record, we believe that the final rules
reasonably satisfy the statutory requirements of Section 13(q).
    As discussed below, we believe that, of these two core
discretionary determinations, the change that more effectively achieves
Section 13(q)'s goal of increasing transparency with respect to
extractive payments by resource extraction issuers while adhering to
the requirements of the CRA, is to modify the project definition so
that it requires less granularity in the payment disclosures than in
the disapproved rule. In choosing to make this change, we are mindful
of Section 13(q)'s goal, which could be significantly limited by
anonymization. For reasons discussed in more detail below, we believe
the final rules we are adopting appropriately comply with the CRA's not
``substantially the same'' rule requirement, and do so in a manner that
reasonably achieves the objectives of Section 13(q) within the CRA's
constraints.
    Finally, we believe that the form and manner of the revision to the
project definition is not just a reasonable change within our
discretion to implement Section 13(q), but also one that alone is
sufficient to comply with the CRA's requirements that the disapproved
rule not be reissued in ``substantially the same form'' and a new rule
may not be ``substantially the same'' as the disapproved rule.
Accordingly, while we are making

various other changes to more ancillary or secondary matters that could
further support our efforts to comply with the CRA's requirements,
these changes are motivated by policy considerations and the
administrative record.\47\
---------------------------------------------------------------------------

    \47\ Nevertheless, even if a modified definition of project
alone were insufficient to comply with the CRA, given these other
changes, we believe that the final rules, when considered as a
whole, comply with the CRA's restriction on subsequent rulemaking.
To be clear, however, we did not make these other changes in
response to the CRA, but rather on independent policy grounds.
---------------------------------------------------------------------------

C. Summary of the Final Rules

    We are adopting rules to implement Section 13(q) largely as
proposed, with some modifications in response to comments received. As
we previously explained, given the requirements of Section 13(q),
certain elements of the final rules remain unchanged from the 2016
Rules.\48\ In light of the changes that we have made, as discussed
below, the fact that certain elements remain the same does not change
our belief that the final rules are not substantially the same as the
2016 Rules and therefore are in compliance with the CRA's restriction
on subsequent rulemaking.
---------------------------------------------------------------------------

    \48\ See 2019 Rules Proposing Release at Section I.C.3. For
example, we proposed, and are adopting, the same delayed reporting
provision for exploratory activities, the same transitional relief
for recently acquired companies, and a similar alternative reporting
mechanism, all of which were adopted in 2016. See infra Sections
II.D. and N. We also are adopting, as proposed, the same definitions
as adopted in 2016 for ``resource extraction issuer,'' ``commercial
development of oil, natural gas, or minerals,'' ``payment,'' and
``foreign government.'' See infra Sections II.G-J. As further
discussed below, most commenters who addressed those definitions in
the 2016 rulemaking generally supported them, and most submitting
comments on the 2019 Rules Proposing Release either supported the
definitions or chose not to address them.
---------------------------------------------------------------------------

    In this regard, the final rules include several changes from the
2016 Rules. Most notably, the final rules will revise the definition of
the term ``project,'' a term that was not statutorily defined, to
require disclosure at the national and major subnational political
jurisdiction, as opposed to the contract-level disclosure as required
by the disapproved rule. Because the definition of ``project'' plays a
central role in Section 13(q)'s disclosure regime, we believe that
changing this definition is sufficient for meeting the CRA's mandate
that the new rule not be substantially the same as the disapproved
rule.\49\ Some commenters have suggested that changing other aspects of
the 2016 Rules, such as the definition of ``control,'' would equally
fulfill the CRA mandate.\50\ As discussed above, however, we believe
that these suggested changes, some of which we are adopting, constitute
relatively minor modifications that, by themselves, would not effect a
substantial difference from the disapproved rule.
---------------------------------------------------------------------------

    \49\ See infra Section II.A.
    \50\ See, e.g., letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    In addition to changing the project definition, the final rules
will:
     Add two new conditional exemptions for situations in which
a foreign law or a pre-existing contract prohibits the required
disclosure; \51\
---------------------------------------------------------------------------

    \51\ See infra Section II.D.1.-2.
---------------------------------------------------------------------------

     Add an exemption for smaller reporting companies and
emerging growth companies; \52\
---------------------------------------------------------------------------

    \52\ See infra Section II.D.3.
---------------------------------------------------------------------------

     Revise the definition of ``control'' to exclude entities
or operations in which an issuer has a proportionate interest; \53\
---------------------------------------------------------------------------

    \53\ See infra Section II.E.
---------------------------------------------------------------------------

     Limit the liability for the required disclosure by deeming
the payment information to be furnished to, but not filed with, the
Commission; \54\
---------------------------------------------------------------------------

    \54\ See infra Section II.F.
---------------------------------------------------------------------------

     Add relief for issuers that have recently completed their
U.S. initial public offerings; \55\ and
---------------------------------------------------------------------------

    \55\ See infra Section II.D.6.
---------------------------------------------------------------------------

     Extend the deadline for furnishing the payment
disclosures.\56\
---------------------------------------------------------------------------

    \56\ See infra Section II.L.2.
---------------------------------------------------------------------------

    We believe the final rules are reasonably designed to achieve the
transparency goals of Section 13(q). For example, the final rules will
require the public disclosure of the payment information, including the
identity of the issuer.\57\ We considered the alternative approach
suggested by some commenters that would enable issuers to submit the
payment information non-publicly, which would then be published in an
anonymized compilation by the Commission.\58\ Although this approach
would constitute a significant difference from the 2016 Rules and would
be within our discretionary authority, we determined not to adopt this
approach because we believe doing so could limit the transparency and
related objectives of Section 13(q).\59\
---------------------------------------------------------------------------

    \57\ See infra Section II.B. Other aspects of the final rules
that are reasonably likely to achieve the transparency goals of
Section 13(q) include adding infrastructure payments, social or
community payments, and certain dividend payments to the statutorily
required payment types. See infra Section II.J.
    \58\ See, e.g., letter from API (Mar. 16, 2020).
    \59\ See infra Section II.B.
---------------------------------------------------------------------------

    In contrast, although the changed project definition would diminish
the granularity of disclosure compared to a contract-based definition,
we believe that the final rules, taken as a whole, will achieve the
transparency and related goals of Section 13(q) by providing
significant and useful payment information regarding resource
extraction payment flows from reporting companies to foreign
governments. Transparency-enhancing changes from the proposed rules
include our adoption of the $100,000 threshold in the definition of a
``not de minimis'' payment \60\ and the requirement to disclose the
amount of payments by payment type for, and identify, each subnational
government payee.\61\
---------------------------------------------------------------------------

    \60\ See infra Section II.C.
    \61\ See infra Section II.G.
---------------------------------------------------------------------------

    The following chart summarizes the primary changes in the proposed
and final rules compared to the 2016 Rules:

----------------------------------------------------------------------------------------------------------------
                Issue                 2016 Rules (disapproved)       Proposed rules             Final rules
----------------------------------------------------------------------------------------------------------------
Definition of ``project''...........   Defined as        Defined using     Same as
                                       operational activities    three factors:            proposed.
                                       governed by a single     (1) Type of resource;
                                       contract, license,       (2) type of
                                       lease, concession, or     operation;and
                                       similar legal            (3) major subnational
                                       agreement, which forms    jurisdiction.
                                       the basis for payment
                                       liabilities with a
                                       government.

Aggregation of payments.............   No aggregation    Aggregation of    Aggregation
                                       of payments beyond        the same type of          at major subnational
                                       contract level, except    payments permitted at     jurisdiction level
                                       that payments related     major subnational         (same as proposed).
                                       to operational            jurisdiction level,       Aggregation
                                       activities governed by    which must be             of the same type of
                                       multiple legal            identified;               payments permitted at
                                       agreements could be                                 levels below major
                                       aggregated together as                              subnational level,
                                       long as the multiple                                which may be
                                       agreements were                                     described generically
                                       operationally and                                   (e.g., as county or
                                       geographically related.                             municipality).
                                                                                Issuer may
                                                                                aggregate payments by
                                                                                payment type, but
                                                                                must disclose
                                                                                aggregated amount for
                                                                                each subnational
                                                                                government payee and
                                                                                identify each
                                                                                subnational
                                                                                government payee.
Exemptions from compliance based on    No exemptions     Conditional       Same as
 conflicts with foreign laws or        for conflicts with        exemptions for foreign    proposed.
 contract terms.                       foreign laws or           law conflicts and pre-
                                       contract terms.           existing (pre-
                                       Case-by-case      effectiveness) contract
                                       exemptive process         terms that prohibit
                                       established.              disclosure.
Exemption for smaller reporting        No exemption      Exemption for     Same as
 companies or emerging growth          for smaller reporting     smaller reporting         proposed, but limit
 companies.                            companies or emerging     companies and emerging    exemption to
                                       growth companies.         growth companies.         companies not subject
                                                                                to an alternative
                                                                                reporting regime,
                                                                                which has been deemed
                                                                                by the Commission to
                                                                                require disclosure
                                                                                that satisfies the
                                                                                transparency
                                                                                objectives of Section
                                                                                13(q).
Definition of ``control''...........   Based on          Similar to        Same as
                                       established financial     approach under 2016       proposed.
                                       reporting principles:     Rules, except that an
                                       Issuer has control over   issuer is not required
                                       an entity when it is      to disclose payments
                                       required under GAAP or    made by entities that
                                       IFRS to consolidate or    it only proportionately
                                       proportionately           consolidates.
                                       consolidate the
                                       financial results of
                                       that entity.
Filed vs. furnished--application of    Reports           Reports are       Same as
 Exchange Act Section 18 liability.    required to be filed;     furnished;                proposed.
                                       Potential         No Section 18
                                       Section 18 liability.     liability.
Relief for Initial Public Offerings    No relief for     Transitional      Same as
 (IPOs).                               IPOs.                     relief for IPOs;          proposed.
                                                                 Issuer would
                                                                 not have to comply with
                                                                 the Section 13(q) rules
                                                                 until the first fiscal
                                                                 year following the
                                                                 fiscal year in which it
                                                                 completed its initial
                                                                 public offering.
Deadline for furnishing payment        For all           For issuers       2 year
 disclosures.                          issuers, no later than    with fiscal years         transition period
                                       150 days after the end    ending on or before       during which no Form
                                       of the issuer's most      June 30, no later than    SD due.
                                       recent fiscal year.       March 31 in the           Following
                                                                 following calendar        transition period,
                                                                 year;                     Form SD due no later
                                                                 For issuers       than 270 days after
                                                                 with fiscal years         the end of the
                                                                 ending after June 30,     issuer's fiscal year.
                                                                 no later than March 31
                                                                 in the second calendar
                                                                 year following their
                                                                 most recent fiscal
                                                                 year.
----------------------------------------------------------------------------------------------------------------

II. Final Rules Under Section 13(q)

    We received over 70 letters on the 2019 Proposed Rules from a range
of commenters that included companies; trade associations; not-for-
profit, non-governmental organizations (``NGOs''); members of Congress;
and investors.\62\ When developing these final rules, we have
considered these comments while keeping in mind the transparency and
related objectives of Section 13(q), the disapproval of the 2016 Rules
under the CRA, and the CRA requirement not to adopt a new rule that is
``substantially the same'' as the disapproved rule.
---------------------------------------------------------------------------

    \62\ These comment letters are available at https://www.sec.gov/comments/s7-24-19/s72419.htm.
---------------------------------------------------------------------------

    In this section, we first discuss the final rule provisions that,
based on the large number of comments that addressed them, involve
issues that we believe are the most critical in this rulemaking. Those
issues include the definition of ``project'' and the related issue
concerning the aggregation of payments, the definition of a ``not de
minimis'' payment, whether to include exemptions (and the nature of any
exemptions), whether the Section 13(q) disclosures must be public and
include the identity of the issuer, the definitions of ``subsidiary''
and ``control,'' and the treatment of the Section 13(q) disclosures for
purposes of liability under the Exchange Act and Securities Act.\63\
While, as discussed below, we believe that the revised definition of
project is both necessary and sufficient to satisfy the CRA, we note
that several of the other provisions also represent changes from the
2016 rules. Thus, even if the revised project definition were not

sufficient, this change when considered with the other changes we are
making should satisfy the CRA's mandate.
---------------------------------------------------------------------------

    \63\ See infra Sections II.A. through II.F.
---------------------------------------------------------------------------

    We then discuss final rule provisions that received fewer comments
but are nonetheless important to the statutory scheme. These include
the definition of ``resource extraction issuer,'' \64\ the definition
of ``payment,'' \65\ and the interactive data format requirement for
the Section 13(q) disclosure.\66\
---------------------------------------------------------------------------

    \64\ See infra Section II.H.
    \65\ See infra Section II.J.
    \66\ See infra Section II.M.
---------------------------------------------------------------------------

    Before we discuss the specific components of the new rules, we
acknowledge that some commenters suggested that in the Proposing
Release the Commission unduly relied on various floor statements made
by members of Congress during the CRA votes to disapprove the 2016
Rules. The floor statements in question dealt with the potential high
cost and competitive harm that could flow from the 2016 Rules.
Commenters have identified a number of reasons why they believe these
congressional floor statements are not relevant to the current
rulemaking, including: (1) These floor statements are not necessarily
consistent with the views of most members of Congress and are not
legally binding in any case; (2) the floor statements themselves give
no clear indication of how the Commission should modify the rules; and
(3) the concerns expressed in these floor statements about costs and
competitive effects may be based on estimates and economic analyses in
the 2016 Rules Adopting Release that have been called into question by
actual cost data and information regarding the potential anti-
competitive effects derived from resource extraction issuers'
experiences with the disclosure regimes in Europe and Canada.\67\
---------------------------------------------------------------------------

    \67\ See letter from Oxfam America and Earthrights International
(stating that other regulators have conducted reviews of
implementation of alternative reporting regimes and found that no
material competitive or compliance impacts have thus far been
documented); see also European Commission, Review of country-by-
country reporting requirements for extractive and logging industries
(Final report) (2018).
---------------------------------------------------------------------------

    When the Commission adopted the 2016 Rules, it reasonably relied on
the data available to it in the administrative record and that data may
have informed the views subsequently expressed by members of Congress
regarding the projected potentially high costs and significant risk of
competitive harm as a result of the implementation of Section 13(q).
Since that time, however, additional data and other information that
has become available regarding resource extraction companies'
experiences with the European and Canadian disclosure regimes indicate
that the cost and anti-competitive effects of payment disclosure, while
still relevant considerations,\68\ may well be lower than the
Commission projected in 2016.\69\
---------------------------------------------------------------------------

    \68\ See generally Exchange Act Sections 3(f) and 23(a)(2).
    \69\ See Section III.D.11 below.
---------------------------------------------------------------------------

    Thus, in formulating the final rules (and in contrast to our
approach in the proposing release), we have not based our discretionary
determinations for the final rules on previously expressed concerns,
including from various members of Congress, about the economic effects
of the 2016 Rules (although we do acknowledge various points where
those concerns may align with our discretionary determinations).
Instead, we have been informed by the comments received on the
Proposing Release and our own evaluation of the potential economic and
other effects of the final rules. Having considered the totality of the
record before us, and for the reasons set forth below, we believe the
final rules represent an appropriate and faithful implementation of the
Section 13(q) disclosure provision while, at the same time, complying
with the CRA and reflecting a reasoned exercise of our discretionary
authority to make sound policy choices based on the administrative
record.

A. Definition of ``Project''

    Consistent with Section 13(q), the final rules will require a
resource extraction issuer to disclose payments made to governments
relating to the commercial development of oil, natural gas, or minerals
by type and total amount per project. We are adopting, as proposed, the
definition of ``project'' using the following three criteria: (1) The
type of resource being commercially developed; (2) the method of
extraction; and (3) the major subnational political jurisdiction where
the commercial development of the resource is taking place.\70\ This
definition (``Modified Project Definition'') differs from the
definition included in the 2016 Rules, which defined ``project'' as the
operational activities governed by a single contract, license, lease,
concession, or similar agreement, which form the basis for payment
liabilities with a government (``Contract-Level Project
Definition'').\71\
---------------------------------------------------------------------------

    \70\ This definition is similar to the definition of ``project''
previously suggested by one industry commenter. See letters from the
API (Nov. 7, 2013) and (Feb. 16, 2016). The term ``project'' as used
in this release will only apply to disclosure provided pursuant to
Rule 13q-1 and not, for example, the disclosure required by Article
4-10 of Regulation S-X (17 CFR 210.4-10) or subpart 1200 or 1300 of
Regulation S-K (17 CFR 229.1200 or 229.1300).
    \71\ See 2016 Rules Adopting Release at Section II.E.3.
---------------------------------------------------------------------------

1. Comments and Considerations Regarding the Modified Project
Definition
    Several commenters supported adoption of the proposed Modified
Project Definition.\72\ For example, one commenter stated that it
represented the best method for reducing regulatory costs and
unnecessary exposure of issuers' competitively sensitive data while
promoting transparency.\73\ Another commenter indicated that the
proposed project definition would address the concerns some market
participants have raised about overly descriptive disclosures revealing
competitively sensitive information,\74\ and, by allowing for increased
aggregation of payments, would also reduce the cost burden of the
Section 13(q) disclosure requirement.\75\ A third commenter stated that
the proposed project definition would achieve an appropriate balance
that promotes transparency from extraction payments while reducing the
regulatory burden anticipated to result from the 2016 Rules.\76\
---------------------------------------------------------------------------

    \72\ See letters from API (Mar. 16, 2020); Chamber of Commerce
(Mar. 16, 2020) (Chamber); NAM; Petrobras (Mar. 16, 2020); and
Shareholder Advocacy Forum (Mar. 16, 2020) (SAF).
    \73\ See letter from API (Mar. 16, 2020). When recommending that
the Commission adopt the non-public submission and anonymized
compilation approach, however, this commenter stated that reverse
engineering was possible even under the Modified Project Definition.
See id. We address this comment in Section II.B.1. infra.
    \74\ See letter from NAM.
    \75\ See id.
    \76\ See letter from SAF.
---------------------------------------------------------------------------

    Other commenters opposed the Modified Project Definition for
several reasons,\77\ including the following:
---------------------------------------------------------------------------

    \77\ See, e.g., letter from Sens. Benjamin L. Cardin, Sherrod
Brown, Richard J. Durbin, Edward J. Markey, Jeffrey A. Merkley,
Sheldon Whitehouse, Patrick Leahy, Elizabeth Warren, Christopher A.
Coons, and Jeanne Shaheen (Mar. 11, 2020) (Sens. Cardin et al.);
letter from Oxfam in Kenya (Mar. 16, 2020); letter from PolicyAlert!
(Feb. 27, 2020); letter from PWYP-US (Mar. 16, 2020); and letter
from Sens. Benjamin L. Cardin and Richard J. Durbin (Dec. 11, 2020)
(Sens. Cardin and Durbin).
---------------------------------------------------------------------------

     Some indicated that the Modified Project Definition would
fail to produce the transparency necessary to enable citizens to detect
corruption and demand accountability from their host governments as
Congress intended.\78\
---------------------------------------------------------------------------

    \78\ See, e.g., letter from PWYP-US (Mar. 16, 2020); see also
letters from Sens. Cardin et al; and Sens. Cardin and Durbin.
Several other commenters emphasized the need for disaggregated
payment disclosure as an anti-corruption tool in various countries.
See, e.g., letter from EG Justice (Mar. 11, 2020) (describing the
corruption in Equatorial Guinea); letter from the Carter Center
(Mar. 16, 2020) (discussing the need for a contract-based definition
of project to combat corruption in the Democratic Republic of the
Congo); and letters from Daniel Kaufmann (May 1, 2020), One.org
(Mar. 24, 2020), and Eric Postel (Mar. 19, 2020) (each generally
discussing the importance of disaggregated, granular reporting as an
anti-corruption tool).

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

     Some pointed to a study that showed that a large amount of
payment data would be lost under the Modified Project Definition if the
proposed ``not de minimis'' thresholds were adopted.\79\
---------------------------------------------------------------------------

    \79\ See, e.g., letter from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International. We discuss these comments and
the referenced study in greater detail in Section II.C.
---------------------------------------------------------------------------

     Some believed that because the Modified Project Definition
would allow issuers to report payments in the aggregate, at the country
and major subnational level, without requiring disclosure of the
contract or license that gave rise to the payments, it would limit the
utility of the reported payment data for citizens in resource-rich
countries with revenue-sharing laws.\80\
---------------------------------------------------------------------------

    \80\ According to these commenters, the Modified Project
Definition would particularly impact citizens residing in countries
with revenue-sharing laws that require the national government to
distribute a portion of the revenues received from extractive
activities to subnational governments or local communities. See
letter from PWYP-US (Mar. 16, 2020); see also letters from Sens.
Cardin et al.; and Congr. Waters et al. See also letters from
Friends of the Nation; Iraqi Transparency Alliance for Extractive
Industries (Mar. 10, 2020) (``Iraqi Transparency Alliance''); Kenya
Civil Society Platform Oil and Gas and PWYP-Kenya (Mar. 16, 2020)
(``KCSPOG''); Oxfam in Kenya; PWYP-Burkina Faso (Apr. 22, 2020);
PWYP-Indonesia (Mar. 16, 2020); and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

     Some opposed the Modified Project Definition because in
their opinion it is an arbitrary construction that does not reflect
standard industry practice.\81\
---------------------------------------------------------------------------

    \81\ See, e.g., letter from PWYP-US (Mar. 16, 2020); see also
letters from Elise J. Bean (Apr. 29, 2020); and Alan Detheridge
(Mar. 15, 2020).
---------------------------------------------------------------------------

     Some stated that the Modified Project Definition deviates
from what has become the international norm for a project definition in
payments-to-governments reporting, namely, a project definition based
on a single contract, license, lease, or concession.\82\
---------------------------------------------------------------------------

    \82\ See, e.g., letter from PWYP-US (Mar. 16, 2020); see also
letters from Oxfam America and Earthrights International; and ONE
Campaign (Mar. 16, 2016).
---------------------------------------------------------------------------

     Some argued that the Modified Project Definition does not
satisfy the plain language of Section 13(q).\83\
---------------------------------------------------------------------------

    \83\ See, e.g., letter from Oxfam America and Earthrights
International.
---------------------------------------------------------------------------

     Finally, some indicated that investors need contract-based
data to assess a resource extraction issuer's future cash flows and
other indices of risk.\84\
---------------------------------------------------------------------------

    \84\ See, e.g., letter from PWYP-US (Mar. 16, 2020); see also
letter from Frederic Samama, Steve Waygood, Vicki Bakhshi, Helena
Vi[ntilde]es Fiestas, John Wilson, Meryam Omi, Christopher P.
Conkey, and Katarina Hammar (Mar. 16, 2020) (F. Samama et al.).
---------------------------------------------------------------------------

    As discussed below, we believe that the Modified Project Definition
that we are adopting will achieve Section 13(q)'s statutory mandate by
increasing transparency regarding resource extraction payments while
also ensuring that the final rules comply with the requirements of the
CRA.\85\ A key threshold issue, however, is the application of the CRA
in the context of Section 13(q). As discussed above, we believe that
there are only two discretionary aspects of the Section 13(q) rules
where we can make a change that will likely achieve compliance with the
CRA mandate against issuing a rule that is substantially the same as
the disapproved rule: The definition of project or changing from a
public filing to an anonymized compilation.\86\ Without a change to one
of these two aspects, we believe it is unlikely that the final rules
would satisfy the CRA mandate. Although changing from a public filing
to an anonymized compilation would likely satisfy the CRA mandate, for
the reasons we discuss in Section II.B.1. below, we believe it is a
less effective option for achieving Section 13(q)'s mandated
transparency goals.\87\ Thus, in light of our decision to require
public disclosure of payment information, and not change to an
anonymized compilation, we believe that making a significant change to
the definition of project is warranted in order for the disclosure
regime under the final rules not to be substantially the same as that
under the disapproved 2016 Rules.\88\
---------------------------------------------------------------------------

    \85\ The Modified Project Definition that we are adopting is an
alternative that was available to the Commission in the reasonable
exercise of its discretion when it sought to implement the Section
13(q) rules in 2012 and 2016. Although the Commission chose not to
use this definition in its prior rulemakings, we view the Modified
Project Definition as fully consistent with the structure and
purpose of Section 13(q). To the extent that the Commission may have
suggested otherwise in 2016, we believe that was incorrect for the
reasons explained below.
    \86\ See supra Section I.B.
    \87\ We do not read Section 13(q) to preclude an anonymized
compilation as a legal matter and as such believe that an anonymized
compilation would be within our statutory discretion to adopt.
Although an anonymized compilation would likely not allow users of
the data to know the specific issuer to which any project-payment
disclosures might relate, we do not read Section 13(q) to require
such disclosure. Thus, for example, the definition of project that
we are adopting could be coupled with an anonymized disclosure, with
project payments disclosed in the compilation, but not in a manner
that would clearly identify the issuer making the payments for the
specific project. As discussed below, however, we do not believe
that this would advance the transparency goals of Section 13(q) to
the same extent as we believe our Modified Project Definition will.
    \88\ By adopting the Modified Project Definition, we are
establishing the minimum level of disclosure that a resource
extraction issuer must provide concerning its projects. We recognize
that some resource extraction issuers have expressed a commitment to
following the more granular model of reporting adopted by the EU
countries, Norway, and Canada. See, e.g., letters from BHP (Mar. 16,
2020); BP America, Inc. (Mar. 13, 2020); Eni (Mar. 25, 2020);
Equinor ASA (Mar. 13, 2020); Kosmos Energy (Feb. 19, 2020); Ovintiv
(Mar. 16, 2020); Rio Tinto (Mar. 16, 2020); and Total (Feb. 10,
2020). As discussed below, issuers may elect to furnish reports
prepared under these foreign transparency regimes to satisfy their
Section 13(q) reporting obligations pursuant to the alternative
reporting provision we are adopting. In addition, there is nothing
in the approach that we are taking that would preclude such issuers
from providing additional disclosure concerning their projects,
e.g., by disclosing payments at a level below the major subnational
government level, outside of the Form SD. For example, such issuers
could provide the disclosure on their website, in annual or periodic
reports, or in a Form 8-K or Form 6-K.
---------------------------------------------------------------------------

    Although we believe that a significant change to the definition of
project is warranted, we acknowledge that the CRA does not compel us to
adopt any particular definition of project within the range of
definitions that would lead to rules that are not ``substantially the
same'' as the disapproved 2016 Rules. Thus, we have based our
determination to adopt the Modified Project Definition on various
policy considerations that are tied to Section 13(q) and its goals.\89\
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    \89\ We are not aware of, and commenters have not identified,
any uniform or generally accepted definition of ``project.'' We have
sought to provide a definition that both complies with the
requirements imposed by the CRA and reasonably achieves the goals of
Section 13(q), taking into account the views of resource extraction
issuers who are making the disclosures and third parties who are
seeking to use the information. We acknowledge that there may be
alternatives to the Modified Project Definition that could
potentially achieve the same objectives. The administrative record
that has developed through the various rounds of rulemaking,
however, reflects that the vast majority of commenters supported one
of two competing definitions--i.e., the contract-level definition
that the Commission adopted in the disapproved 2016 Rules, and the
Modified Project Definition we are adopting. Thus, given the
administrative record before us, we considered the Modified Project
Definition to be the principal alternative to the Contract Level
Definition included in the 2016 Rules.
---------------------------------------------------------------------------

    As a starting point, we believe that the motivating purpose of the
Section 13(q) mandated disclosure of resource extraction payments is to
provide transparency around the source and recipients of these
payments; specifically, to identify a country's share of the resource
extraction revenue generated by each project of an issuer \90\ and the
governmental level and governmental entity within the country receiving
the money from each project of an issuer (hereinafter ``Project-to-
Government Payment Disclosure'').\91\ Further, we believe that the
principal goal of this Project-to-Government Payment Disclosure is to
provide an informational tool that may help users

of the information to hold various governments accountable for how
those governments spend money received. This understanding is
consistent with the text of Section 13(q) and the congressional
concerns leading to its adoption.\92\
---------------------------------------------------------------------------

    \90\ See 15 U.S.C. 78m(q)(2)(A)(i).
    \91\ See 15 U.S.C. 78m(q)(2)(A)(ii).
    \92\ See 15 U.S.C. 78m(q)(2)(A). As discussed below, we do not
find persuasive support for any conclusion that Congress intended
Section 13(q) to provide material information to investors. Although
some commenters have asserted that granular disclosure through a
contract-level project definition might provide certain investors
with useful information, we believe that other disclosures already
required by the Commission operate to provide the relevant
information that is material to an investment decision. Accordingly,
we decline in the exercise of our discretion to provide granular
information that is not required by Section 13(q) and, in our view,
generally is not material to or necessary for investors. In reaching
this conclusion, we recognize that Section 13(q)(2)(D)(VII) affords
us discretionary authority to require resource extraction issuers to
submit additional payment-related data in an interactive data format
including electronic tags beyond that data identified in the statute
if the Commission determines that such data could benefit investors.
We have determined not to use this authority, however, because as
discussed above, we do not believe the data collected under Section
13(q) is material to investors, nor have we determined that
electronically tagging additional data is necessary or appropriate
in the public interest or for the benefit of investors.
---------------------------------------------------------------------------

    We believe that the Modified Project definition is reasonably
tailored to achieve this goal, providing transparency to users of the
information and doing so with a consistent and understandable frame of
reference. Moreover, as we explain in Section II.B.1. below, we believe
it is a better choice than the anonymized compilation for achieving
this goal because it permits the users of the information to see, by
identified issuers, the payments from specified activities in a defined
area of the country to the various governmental authorities within the
country.
    Further, we anticipate the Modified Project Definition should
provide resource extraction issuers with a practical and relatively
straightforward definition of ``project'' that they can utilize in
tracking and reporting payments wherever they may have ongoing
operations around the globe. We also note that it appears that the
Modified Project Definition may reduce the compliance burden of the
Section 13(q) rules compared to the 2016 Rules. Specifically, the
Modified Project Definition will allow an issuer to make the payment
disclosure at a greater level of aggregation than under the Contract-
Level Project Definition. As such, there should be fewer individual
data points that have to be tracked, electronically tagged and
reported, which may make it less burdensome to disclose the payment
information on an ongoing basis. For similar reasons, the revised
definition may also help limit any adverse competitive effects
associated with project-based disclosures.
    We acknowledged in the 2019 Rules Proposing Release that the
Modified Project Definition, in contrast to the more granular Contract-
Level Project Definition, might narrow the scope of the transparency
benefits under Section 13(q). We stated that by providing transparency
about the revenues generated from each contract, license, and
concession, the Contract-Level Project Definition could serve to reduce
further the potential for corruption in connection with the negotiation
and implementation of a resource extraction contract as compared to the
Modified Project Definition. As such, it could reduce instances of
corruption that may occur before resource-extraction revenue is paid to
the government.\93\ As discussed below, however, we view this potential
for incremental deterrence as a discretionary goal rather than the
primary objective of Section 13(q).
---------------------------------------------------------------------------

    \93\ See 2019 Rules Proposing Release at Section II.F.1.
---------------------------------------------------------------------------

    Some commenters asserted that only a granular (e.g., contract-
level) definition of project will fully achieve the transparency and
anti-corruption purposes that Congress sought to achieve with Section
13(q).\94\ In advancing this argument, these commenters point to five
considerations that the Commission identified in the 2016 Adopting
Release to support the conclusion that a granular ``definition of
project . . . is necessary and appropriate to achieve a level of
transparency that will help advance the important anti-corruption and
accountability objectives of Section 13(q).'' Specifically, these
commenters noted, the 2016 Adopting Release stated that a granular
definition would: (1) Help reduce instances where government officials
are depriving subnational and local communities of revenue allocations
to which they are entitled; (2) potentially permit ``comparisons of
revenue flows among different projects'' to identify ``payment
discrepancies that [may] reflect potential corruption and other
financial discounts''; (3) help citizens and others ensure that firms
are meeting their payment obligations; (4) help local communities and
civil society groups possibly weigh the costs and benefits of a
project; and (5) possibly deter companies from underpaying royalties or
other monies owed.\95\
---------------------------------------------------------------------------

    \94\ See, e.g., letters from PWYP-US (Mar. 16, 2020); and Oxfam
America and Earthrights International.
    \95\ See 2016 Rules Adopting Release at Section II.E.3.
---------------------------------------------------------------------------

    As a threshold matter, we observe that any effort to achieve the
foregoing objectives would appear to depend on other factors beyond the
scope of Section 13(q) and the Commission's rulemaking authority.\96\
For example, item (1) assumes that there are statutory obligations for
the national government to provide revenue allocations to other
governmental levels within a country. In any event, as explained below,
to the extent that a country has enacted a revenue-sharing law, we
believe that the Modified Project Definition will provide significant
information about payments to the national government that would help
determine whether that government has met its statutory revenue-sharing
obligations. Additionally, items (2) and (3) would appear to require at
a minimum the disclosure of the underlying contracts, licenses, or
leases to determine whether the payment obligations are similar among
them; without that information, there would be no obvious way to make
cross-project comparisons or ensure that resource extraction issuers
are meeting their payment obligations. And with respect to items (4)
and (5), without public awareness of the payment obligations (as well
as the gross revenues earned annually by the project), it would appear
doubtful that there could be any reasonably complete (or accurate)
cost-benefit determination of the project or any form of oversight
resulting in meaningful deterrence.
---------------------------------------------------------------------------

    \96\ This stands in contrast to what we believe is the primary
congressional concern underlying Section 13(q), which (as we discuss
below) can be fully addressed within available authority, and it is
a factor in leading us to believe that these five potential
collateral uses for the payment disclosures are neither statutorily
compelled nor necessary to the transparency goals that Congress
intended to advance.
---------------------------------------------------------------------------

    Based on the foregoing, as well as our consideration of the text of
Section 13(q) and the history leading to its adoption in 2010, we do
not find any persuasive support for the 2016 Adopting Release's
conclusion that Section 13(q) requires payment disclosures that could
advance the five purposes enumerated in that release. Thus, even
assuming that the granular disclosure required by the 2016 Rules might
facilitate in some fashion one or more of those goals, this result is
not compelled, either directly or indirectly, by Section 13(q); and to
the extent that the 2016 Adopting Release suggests otherwise, we
disavow that determination.\97\ Instead, those goals are

better understood as (at most) secondary or ancillary objectives that
the agency in its discretion sought to further by requiring granular
payment disclosure through the project definition. Consistent with that
interpretation, we decline to exercise our discretion to follow the
2016 approach by utilizing a project definition that is focused on
furthering these secondary objectives of the payment information.
---------------------------------------------------------------------------

    \97\ In this regard, we find it telling that Congress did not
provide a definition of project or even direct us to define the
term. Nor, when Section 13(q) was enacted, was there a definition of
project under EITI or any foreign transparency regimes (as none then
existed). The Commission chose to define the term project in the
exercise of its discretionary authority. This indicates that the
Commission could have declined to adopt a uniform definition of
project, let alone a granular definition, and instead allowed
resource extraction issuers the ability to define the contours of
their projects on a case-by-case basis. Accordingly, we do not read
Section 13(q) as necessarily requiring the Commission to adopt
granular disclosure through a definition of the term project.
---------------------------------------------------------------------------

    We now turn to explain various aspects of the final rules. First,
the final rules include changes from the proposal that we believe will
help limit the potential loss of payment information compared to a
contract-based definition. Specifically, the rules that we adopt in
this release will include the reinstatement of the $100,000 threshold
in the definition of a ``not de minimis'' payment \98\ as well as a
requirement to disclose the amounts paid to, and to identify, each
subnational government payee.\99\
---------------------------------------------------------------------------

    \98\ See infra Section II.C.
    \99\ See infra Section II.G.
---------------------------------------------------------------------------

    Second, issuers will be required to disclose payments at the major
subnational government level. As such, users of this information would
be able to see the payments made directly to a province or state, and
could use this data to assess a province's or state's use of the funds
received, such as whether the province is employing the funds to
benefit its citizens.\100\
---------------------------------------------------------------------------

    \100\ Although not a goal of Section 13(q) (see the discussion
above concerning the ultimate goal of the Project-to-Government
Payment Disclosure of Section 13(q)), the final rules may provide
information that would be useful for determining whether national
governments in countries that have revenue-sharing laws have
allocated funds to provinces or other subnational governments if and
as required by law. For example, users of the information would be
able to see all the reported payments made by resource extraction
issuers from their projects that are paid to a particular national
government in a particular year. They could then apply the relevant
percentage under the country's revenue-sharing law to the aggregated
amount of payments from all issuers to determine the portion of
funds that should be allocated to a given province or other
subnational government. Such persons could then use that data to
hold the national government accountable for what they believe to be
the lawful allocation of revenues required to be paid to a given
subnational government from the extractive operations in that
country. Similarly, the final rules will identify the specific
government payees, which will help users of the information assess
whether the payees allocated any funds to the specific communities
where project activities are being conducted. The usefulness,
however, of the Section 13(q) payment data for purposes of
determining the lawful allocation from the national government to a
subnational government will depend on the complexity of the
particular revenue-sharing law. For allocations under complex
revenue-sharing laws, which rely on factors other than a percentage-
based formula, see, e.g., letter from Iraqi Transparency Alliance,
it is likely that neither a contract-based project definition nor
the Modified Project Definition would be useful for this purpose.
---------------------------------------------------------------------------

    We also note that there is no single generally accepted definition
of project in the mining industry and the definitions that exist are
typically very broad and do not define project based on an individual
contract level.\101\ The definitions of project in the oil and gas
industry (and related definitions in the Commission's oil and gas
disclosure requirements) similarly do not focus on contractual
arrangements that generate payment obligations but rather on whether
operations will result in the development and production of
reserves.\102\ In light of this, we believe the Modified Project
Definition, based on the resource (and how and where it is extracted,
as well as the company's identity) is a reasonable approach.
---------------------------------------------------------------------------

    \101\ For example, the Canadian disclosure regime for companies
with mining operations defines a mineral project as ``any
exploration, development or production activity'' regarding ``base
and precious metals, coal, and industrial minerals.'' See National
Instrument (NI) 43-101, Part 1.1 (2016).
    \102\ See, e.g., Society of Petroleum Engineers, Petroleum
Resources Management System, Section 1.2 (June 2018) (stating that a
project may, for example, ``constitute the development of a well, a
single reservoir, or a small field; an incremental development in a
producing field; or the integrated development of a field or several
fields together with the associated processing facilities (e.g.,
compression.''); see also 17 CFR 210.4-10(a)(8) (Rule 4-10(a)(8) of
Regulation S-X), which defines a ``development project'' as ``the
means by which petroleum resources are brought to the status of
economically producible'' and provides as examples ``the development
of a single reservoir or field, an incremental development in a
producing field, or the integrated development of a group of several
fields and associated facilities with a common ownership.''
---------------------------------------------------------------------------

    Some commenters opposed the Modified Project Definition because it
deviates from the contract-based definition of project adopted under
the EU Directives, Canada's ESTMA, and, most recently, the EITI, which
they describe as the international norm for a project definition in
payments-to-governments reporting.\103\ They maintain that the Modified
Project Definition would (1) produce differences in the granularity of
the payment disclosure reported under the Section 13(q) rules and that
reported under the EU Directives, Canada's ESTMA, UK's and Norway's
transparency regimes, and the voluntary reporting program of the EITI,
and (2) result in issuers with multi-jurisdictional operations
collecting and reporting two different sets of payment data to
accommodate the different project definitions, thereby unnecessarily
increasing compliance costs and potentially confusing users of the
payment data.\104\ Commenters therefore recommended adoption of a
contract-based definition to maintain a level playing field among
industry competitors \105\ and to increase the comparability of the
payment data.
---------------------------------------------------------------------------

    \103\ See, e.g., letters from BHP; BP; Oxfam and Earthrights
International; and PWYP-US (Mar. 16, 2020).
    \104\ See letters from BHP and PWYP-U.S. (Mar. 16, 2020).
    \105\ See letters from BP and Total (Feb. 10, 2020).
---------------------------------------------------------------------------

    One commenter stated that, instead of permitting the aggregation of
contracts under the Modified Project Definition, the Commission should
adopt the approach for aggregating contracts used in the foreign
reporting regimes, which permits agreements with substantially similar
terms that are both operationally and geographically integrated to be
treated by the issuer as a single project. According to this commenter,
the recommended approach would constitute a change from the 2016 Rules
that better aligns with international practice.\106\
---------------------------------------------------------------------------

    \106\ See letter from Oxfam America and Earthrights
International.
---------------------------------------------------------------------------

    We acknowledge that adoption of the Modified Project Definition may
in many instances produce differences in the granularity of the payment
disclosure reported under the Section 13(q) rules and that reported
under the EU Directives, Canada's ESTMA, UK's and Norway's transparency
regimes, and the voluntary reporting program of the EITI. We are not
statutorily required, however, to harmonize our disclosure obligations
with other reporting regimes. We also believe that other aspects and
considerations regarding the final rules should significantly diminish
these concerns about differences with other payment reporting regimes.
    For example, as proposed, we are adopting an alternative reporting
provision that will allow issuers to meet the requirements of the
Section 13(q) rules by providing disclosures that comply with a foreign
jurisdiction's reporting regime if the Commission has determined that
the foreign reporting regime requires disclosure that satisfies the
transparency objectives of Section 13(q).\107\ Concurrent with adoption
of these final rules, we are issuing an order recognizing that the
resource extraction

payment disclosure requirements of the European Union, United Kingdom,
Norway,\108\ and Canada satisfy the transparency objectives of the
Section 13(q) rules. Consequently, a resource extraction issuer will be
able to submit a report complying with the reporting requirements of
either the EU Accounting Directive or the EU Transparency Directive, in
each case as implemented in an EU or European Economic Area (EEA)
member country, the UK Reports on Payments to Governments Regulations,
Norway's Regulations on Country-by-Country Reporting, and Canada's
ESTMA, to satisfy its disclosure obligations under the Section 13(q)
rules.
---------------------------------------------------------------------------

    \107\ See infra Section II.N. Issuers will have to meet certain
conditions in order to avail themselves of the alternative reporting
provision.
    \108\ Norway is a member of the EEA, not the EU. While the EU
Directives apply to EEA members, Norway adopted its Regulations on
Country-by-Country Reporting in 2013 prior to the adoption of the EU
Directives. See FOR-2013-12-20-1682, which is available at https://lovdata.no/dokument/SF/forskrift/2013-12-20-1682.
---------------------------------------------------------------------------

    A resource extraction issuer that avails itself of the alternative
reporting provision will only have one set of data to collect and
report--that pertaining to the alternative reporting regime--and will
largely not incur costs related to the need to collect and report two
different sets of payment data in order to comply with our Section
13(q) rules.\109\
---------------------------------------------------------------------------

    \109\ See infra Section III.D.5.
---------------------------------------------------------------------------

    In addition, to the extent that some issuers only file under the
Section 13(q) rules, we understand that the Modified Project Definition
could produce differences in the granularity of the payment disclosure
reported under the Section 13(q) rules and other regimes. While the
extent of such differences will vary depending upon the particular
issuer and the location of its resource extraction operations, given
that the other reporting regimes permit some aggregation of payments
for multiple agreements that are substantially interconnected
operationally and geographically,\110\ in some instances the
differences in granularity could be small. In this regard, although one
commenter recommended that we adopt the foreign reporting regimes'
approach to the aggregation of payments for related contracts as a
change to the 2016 Rules,\111\ such an approach would not constitute a
change from the 2016 Rules. The 2016 Rules included a largely similar
provision that allowed agreements that are both operationally and
geographically interconnected to be treated by the resource extraction
issuer as a single project.\112\
---------------------------------------------------------------------------

    \110\ See, e.g., EU Accounting Directive, Art. 41(4). We
discussed the non-U.S. payments-to-governments reporting regimes in
some detail in the 2016 Rules Adopting Release at Section I.C.
    \111\ See letter from Oxfam America and Earthrights
International.
    \112\ See 2016 Rules Adopting Release at Section II.E.
---------------------------------------------------------------------------

    Similarly, the deviation from the standards adopted in other
regimes could result in a lower compliance burden for resource
extraction issuers subject solely to the Section 13(q) rules. Unlike
resource extraction issuers who are also subject to the EU Directives
(or one of the other foreign reporting regimes), issuers subject solely
to the Section 13(q) rules will only have to track and disclose
payments at the more aggregated level required by the Modified Project
Definition.\113\ This differential in burden, however, is not due to
our rules' selectively imposing substantively different requirements.
Rather, it is due to the fact that some issuers are also obligated to
comply with the EU Directives (or another foreign reporting regime).
---------------------------------------------------------------------------

    \113\ See letter from Total (Feb. 10, 2020).
---------------------------------------------------------------------------

    Some commenters maintained that a contract-based definition of
project is superior to the Modified Project Definition because the
latter is an artificial construct that deviates from industry
practice.\114\ As a threshold matter, we reiterate that there is no
single generally accepted definition of project in the mining industry.
In addition, as we discuss below in Section III.D., there is no
indication that issuers that are not already subject to a foreign
reporting regime have systems in place to track payments at the
contract level.\115\ Thus, it is likely that these issuers will incur
compliance costs to implement systems to track, verify, and record
payments under either a contract-based project definition or the
Modified Project Definition.\116\
---------------------------------------------------------------------------

    \114\ See, e.g., letter from PWYP-US (Mar. 16, 2020).
    \115\ See infra Section III.D.1.
    \116\ One industry commenter expressly noted that using the
Modified Project Definition would ``lower issuer compliance costs in
collecting and furnishing the information.'' Letter from API (Mar.
16, 2020) at 6-7.
---------------------------------------------------------------------------

    Other commenters have argued that the Modified Project definition
fails to satisfy the plain language of Section 13(q).\117\ These
commenters argued that the language in the statute calling for
``payments made for each project'' and the language calling for ``the
type and total amount of such payments made to each government.'' when
read together, indicate that Congress intended to require disaggregated
reporting by project.\118\ Congress, however, did not define the term
``project'' in Section 13(q), leaving the Commission discretion to
adopt a definition that encompasses all payments as that term is
defined by the Commission. Commenters did not explain how this plain
language argument compels a particular definition of ``project,'' such
as the contract-based definition.
---------------------------------------------------------------------------

    \117\ See, e.g., letter from Oxfam America and Earthrights
International.
    \118\ Id.
---------------------------------------------------------------------------

    Commenters also argued that the requirement in Section 13(q) to
disclose ``royalties, license fees, production entitlements and
bonuses'' suggests that Congress intended that the Commission adopt a
contract-based definition because such items are typically levied
according to the terms of specific contracts and licenses.'' Again,
however, we do not view this language as compelling a particular
``project'' definition, as companies could aggregate or disaggregate
these items according to the ``project'' definition adopted by the
Commission.
    Finally, some commenters opposed the Modified Project Definition
because of their belief that a Contract-Level Project Definition is
necessary to enable investors to assess the financial, political, and
market risks regarding a particular issuer's projects.\119\ As we
explained in the 2019 Rules Proposing Release,\120\ we do not believe
that the purpose of the required disclosures is to provide material
information to investors.\121\ First, we believe that the Commission's
existing rules should elicit all material risk-related disclosure. For
example, issuers are required to disclose the most significant risks
affecting an issuer or the securities being offered \122\ as well as
any known trends or uncertainties that have had or are reasonably
likely to have a material impact on the registrant's liquidity, capital
resources, or results of operations.\123\ Moreover, we continue to
believe that the direct incremental benefit to investors from the
payment information may be limited because investors would typically
require additional information to calculate cash flows and other
indices of risk, which may be lacking.\124\ Further, it is likely that
the vast majority of the individual contract-level project payment

amounts \125\ would not be material to the financial condition of the
issuers that are subject to the Section 13(q) reporting
requirements.\126\ As such, we do not believe that such information is
likely to be material to an investment decision.\127\
---------------------------------------------------------------------------

    \119\ See, e.g., letter from PWYP-US (Mar. 16, 2020); and F.
Samama et al.
    \120\ See 2019 Rules Proposing Release at Section II.F.1.
    \121\ See, e.g., 163 Cong. Rec. H.850 (February 1, 2017)
(Statement of Rep. Huizenga) (observing that the Congressional goals
underlying Section 13(q) are outside of the SEC's ``core mission''
of ``protect[ing] investors,'' ``maintain[ing] fair, orderly and
efficient markets,'' and ``facilitat[ing] capital formation'').
    \122\ See 17 CFR 229.503(c).
    \123\ See 17 CFR 229.303.
    \124\ See infra Section III.D.1.
    \125\ Based on publicly available data, the average payment for
projects under the contract level definition was $29 million and 95%
of the payments were at or below $61 million.
    \126\ In this regard, we note that most smaller reporting
companies and emerging growth companies will be exempt from the
Section 13(q) reporting requirements.
    \127\ This was acknowledged by the then Chairman of the Senate
Banking Committee, Senator Christopher Dodd, one of the bill's co-
sponsors. (The required payment information ``appears not to rise to
the level of materiality for investors that currently governs the
disclosure requirements of public companies under Federal securities
laws.'') 156 Cong. Rec. 3801, 3818 (May 17, 2010). In further
support of our view that Section 13(q) disclosures were not intended
for investor use, we observe that Section 13(q) itself makes no
reference to investor interests or protection (unlike many other
provisions of the securities laws) and instead states that, to the
extent practicable, any rules under Section 13(q) should support the
``commitment of the Federal Government to international transparency
promotion efforts.'' Those efforts, which involve the EITI as well
as European and Canadian law, are also generally not considered to
be investor disclosure measures. While we acknowledge that the
placement of Section 13(q) in the Exchange Act could be understood
to support a contrary congressional intention here, we think that it
is more likely that the placement of the resource extraction payment
disclosures in the Exchange Act is primarily because the Commission
has a deep history involving issuer disclosures and Congress sought
to leverage that experience. In that regard, we note that Section
1504 of the Dodd-Frank Act, which amended the Exchange Act to add
Section 13(q), was not incorporated into any of the Dodd-Frank's
titles that principally deal with financial regulatory matters, but
rather near the end of the Act in a title labeled ``Miscellaneous
Provisions.''
---------------------------------------------------------------------------

    After consideration of all of these issues, we continue to believe
that adopting the Modified Project Definition is the appropriate choice
to produce a rule that is not substantially the same,\128\ yet one that
continues to provide a level of transparency sufficient to meet Section
13(q)'s goals.
---------------------------------------------------------------------------

    \128\ See infra Section II.B., for a discussion of why we do not
believe that a non-public submission followed by an anonymized
compilation is the appropriate choice for complying with the CRA and
meeting the overarching disclosure objectives of Section 13(q).
---------------------------------------------------------------------------

2. Discussion of the Modified Project Definition
    In the following three subsections, we discuss the disclosure
required by each of the three prongs of the Modified Project Definition
in greater detail. Except for comments that either generally supported
or opposed the Modified Project Definition, we received no comments
directly addressing the specific prongs of the project definition.
Accordingly, except as indicated, we are adopting the Modified Project
Definition largely as proposed.\129\
---------------------------------------------------------------------------

    \129\ In Section II.P, the Commission explains its preference
for how the final rule under Section 13(q) should be applied if the
definition of ``project'' should be held invalid by a Federal court
or otherwise deemed ineffective for any reason. If this should
occur, it is the Commission's preference that the final rule should
be enforced and resource extraction issuers should disclose resource
extraction payments to the fullest extent practicable, including the
per-project payment disclosures as required by Section
13(q)(2)(A(i). Further, issuers should determine based on their own
business structure and other relevant considerations how to identify
and describe their various projects until such time as the
Commission completes any further rulemaking that seeks to define the
term. In reaching this recommendation, we note that Section 13(q)
does not define project nor does it compel the Commission to do so.
Accordingly, we believe that it is appropriate to allow issuers to
identify their projects in a reasonable manner just as they would be
permitted to do by the statute in the absence of the Commission's
exercise of discretion to adopt a definition. In specifying the
preference above, the Commission is mindful that Congress enacted
Section 13(q) over a decade ago and that to date no disclosures have
been made under that provision. Finally, issuers are reminded that
the anti-evasion provision in the final rule would continue to apply
to their payment disclosures in these circumstances.
---------------------------------------------------------------------------

a. Type of Resource
    Under the Modified Project Definition, the first prong for
determining the parameters of a project is the type of resource that is
being commercially developed. A resource extraction issuer will be
required to disclose whether the project relates to the commercial
development of oil, natural gas, or a specified type of mineral. As we
explained in the 2019 Rules Proposing Release, this prong will not
require an issuer to describe the specific type or quality of oil or
natural gas or distinguish between subcategories of the same mineral
type.\130\ For example, an issuer disclosing payments relating to an
oil project will not be required to describe whether it is extracting
light or heavy crude oil. Similarly, an issuer disclosing payments
relating to a mining project will be required to disclose whether the
mineral is gold, copper, coal, sand, gravel, or some other generic
mineral class, but not whether it is, for example, bituminous coal or
anthracite coal.\131\
---------------------------------------------------------------------------

    \130\ See 2019 Rules Proposing Release at Section II.F.2.
    \131\ For clarity and consistency, we are adopting an
instruction to Form SD, as proposed, that will require synthetic oil
or gas obtained through the processing of coal to be classified as
``coal.'' See Instruction 5 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We continue to believe that a requirement to provide greater detail
regarding the type of resource that is the subject of extractive
activities is not necessary for persons to determine whether those
activities have given rise to government payments in which they may
have an interest. The presence of the activities combined with the
disclosure of the method of extraction (well, open pit, etc.) and the
identification of the resource as oil, gas or, e.g., gold, copper, or
coal, will provide transparency to the users of the information to
assess whether and to what extent there are payments being made for
extraction activities in a particular area. We believe that requiring
greater detail about the type of resource could reveal proprietary
information that could cause competitive harm, a concern that members
of Congress expressed when disapproving the 2016 Rules. Such an
approach could make the final rules less likely to satisfy the CRA's
restriction on reissuing the disapproved rule in substantially the same
form or adopting a new rule that is substantially the same.
b. Method of Extraction
    The second prong for determining the parameters of a project is the
method of extraction. This prong will require a resource extraction
issuer to identify whether the resource is being extracted through the
use of a well, an open pit, or underground mining. Additional detail
about the method of extraction will not be required. For example, a
resource extraction issuer would not be required to disclose whether it
is using horizontal or vertical drilling, hydraulic fracturing, or
strip, sublevel stope, or block cave mining. Similar to the type of
resource prong, we believe that such a level of specificity regarding
the particular method of extraction would not provide any additional
meaningful information to end users, and that the required disclosure
about method of extraction will provide transparency to users of the
information to assess whether and to what extent there are payments
being made for extraction activities in a particular area. On the other
hand, such disclosure could result in the disclosure of proprietary
information, which could potentially result in competitive harm and
thus make it less likely that the final rules satisfy the CRA
requirements.
c. Major Subnational Political Jurisdiction
    The third prong for determining the parameters of a project is the
major subnational political jurisdiction where the commercial
development of the resource is taking place. This prong will require an
issuer to disclose only to the level of major subnational jurisdiction
(e.g., state, province, district, region, territory) in which the
resource

extraction activities are occurring. As discussed below, we are also
adopting the proposed requirement that an issuer must provide an
electronic tag for both the country and the major subnational political
jurisdiction in which the extractive activities are occurring that is
consistent with the International Organization for Standardization
(``ISO'') code pertaining to countries and their major
subdivisions.\132\ We believe that the required use of ISO codes to
identify major subnational jurisdictions will provide a standardized
data format that may be more easily analyzed than the data produced
under the Contract-Level Project Definition.
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    \132\ See infra Section II.M. In a change from the proposed
rules, in response to commenters' concerns that the proposed
treatment of payments to subnational governments (below the level of
major subnational political jurisdiction) was not sufficiently
transparent, issuers will also be required to provide an electronic
tag identifying each subnational government payee rather than
referring to such payees generically (i.e., as ``county'' or
``municipality''). See infra Section II.G.
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    For example, a project for extractive activities in the city of
Timika in the province of Papua, Indonesia would be identified as
occurring in Papua, without identifying Timika, as Papua would be the
major subnational political jurisdiction. Similarly, an issuer would
identify the project for activities in the counties of Elko, Nevada and
White Pine, Nevada, as occurring in Nevada because Nevada would be the
major subnational political jurisdiction.
    If the extractive activity is offshore, we proposed requiring an
issuer to include in its project identification that its operations are
offshore as well as the nearest major subnational political
jurisdiction. One commenter stated that labeling projects in national
waters according to the nearest major subnational political
jurisdiction could create an incorrect impression that the identified
subnational jurisdiction has a greater practical or legal relationship
to the project than other subnational jurisdictions in the area, which
may well not be the case. This could in turn create ``undesirable or
wasteful political dynamics between states or provinces in the host
country.'' \133\ For offshore resource extraction, that commenter
recommended identifying the project by the body of water in which the
project is located (e.g., Gulf of Mexico) instead of the nearest major
subnational jurisdiction.\134\
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    \133\ Letter from API (Mar. 16, 2020).
    \134\ See id.
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    We agree with this commenter that in certain circumstances labeling
an offshore project by the nearest major subnational jurisdiction could
be confusing, for example, a particular offshore project may be
equidistant from multiple coastal states or provinces. Accordingly, we
have revised the proposed third prong of the Modified Project
Definition to provide that, for offshore projects, the identification
of the major subnational political jurisdiction where the commercial
development of the resource is taking place should include the body of
water in which the project is located, using the smallest body of water
applicable (e.g., gulf, bay, sea), as well as the nearest major
subnational jurisdiction. In addition, if the project is equidistant
from two major subnational jurisdictions, the issuer may disclose both
such jurisdictions.\135\
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    \135\ See Instruction (5)(iii) to Item 2.01 of Form SD.
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d. Special Situation
    Under the final rules, commercial development activities using
multiple resource types or extraction methods can be treated as a
single project if such activities are located in the same major
subnational political jurisdiction.\136\ The issuer will be required to
describe each type of resource that is being commercially developed and
each method of extraction used for that project. For example, an open
pit and underground zinc mining project in Erongo, Namibia would be
described as ``ER/Zinc/Open Pit/Underground'' and a drilling project
off the shore of Veracruz, Mexico that produced both oil and natural
gas would be described as ``Offshore-Gulf of Mexico/Veracruz/Oil/
Natural Gas/Well.''
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    \136\ See Instruction (5)(iv) to Item 2.01 of Form SD.
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    We recognize that such an approach could result in broad
aggregation of projects within a major subnational political
jurisdiction, which could make it more difficult for end-users of the
disclosure to identify the specific commercial development activities
associated with the disclosed payments. Nevertheless, as we explained
in the Proposing Release, we believe that this approach is appropriate
because issuers often develop more than one type of resource at a
particular location and use more than one method of extraction.
Limiting the definition of project to only commercial development
activities comprising the same type of resource, method of extraction,
and major subnational political jurisdiction may result in artificial
distinctions. For example, an issuer would be required to treat oil and
natural gas extraction from the same well as separate projects, and
similarly, open pit and underground mining in the same location as
separate projects. Requiring that these types of related activities be
treated as separate projects could also lead to confusion about how
reportable payments should be allocated between such projects. Although
we solicited comment on the proposed approach to development activities
using multiple resource types or extraction methods, no commenters
specifically objected or suggested alternative approaches.
    In some situations, the site where a resource is being commercially
developed could cross the borders between, and generate payment
obligations in, multiple major subnational political jurisdictions. In
such a case, the final rules will require the issuer to treat the
activities in each major subnational political jurisdiction as separate
projects, as proposed.\137\ This approach reflects the fact that,
although the cross-border extractive activities are related, the
disaggregated payment information would be of interest to different
users of the information.
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    \137\ See Instruction (5)(iv) to Item 2.01 of Form SD.
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B. Public Reporting

1. Public Disclosure of the Issuer's Payment Information, Including the
Issuer's Name
    Section 13(q) provides the Commission with the discretion to
require public disclosure of payments by resource extraction issuers,
including their names, or to permit nonpublic filings.\138\ When
proposing the 2019 Rules, the Commission expressed its belief that
exercising its discretion to require public disclosure, including the
issuer's name, might better accomplish the objectives of Section
13(q).\139\ The Commission stated, however, in the 2019 Rules Proposing
Release that it would also consider an alternative approach supported
by some commenters on the 2016 Rules that would permit issuers to
submit their Section 13(q) reports to the Commission non-publicly and
have the Commission use those nonpublic submissions to produce an
aggregated, anonymized compilation that would be made available to the
public.\140\ After reviewing the numerous comments received on the
public reporting issue,

we are adopting the proposed requirement that resource extraction
issuers provide the Section 13(q) disclosure publicly, including their
names, through the searchable, online EDGAR system.\141\
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    \138\ See API v. SEC, 953 F. Supp. 2d at 11 (finding that the
Commission ``misread the statute to mandate public disclosure of the
reports'' when adopting the 2012 Rules).
    \139\ See 2019 Rules Proposing Release at Section II.I.1; see
also 2016 Rules Adopting Release at II.H.3.
    \140\ See 2019 Rules Proposing Release at Section II.I.1 (citing
letters from API (Feb. 16, 2016) and (Jan. 28, 2011); BP (Feb. 16,
2016); Chevron (Feb. 16, 2016); and Royal Dutch Shell (Feb. 5,
2016)); see also 2016 Rules Proposing Release, Section II.G.2 and
2016 Adopting Release, n.345.
    \141\ As we did in the 2012 and 2016 rulemakings, we are
requiring that a resource extraction issuer provide the required
Section 13(q) disclosures on Form SD (17 CFR 249b.400).
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    Many commenters supported the proposed public submission of the
Section 13(q) reports and expressly opposed the alternative, non-public
submission and anonymized compilation approach.\142\ Commenters
indicated that public reporting of issuer-specific payment information
is essential to carry out Section 13(q)'s transparency, accountability,
and anti-corruption objectives.\143\ Commenters stated that, to achieve
these objectives, public reporting is necessary to hold both government
actors and commercial actors accountable in resource-rich countries so
as to achieve meaningful oversight of government revenue collection and
management and deter corruption.\144\ Commenters maintained that, in
contrast, the non-public submission and anonymized compilation approach
would not be conducive to building trust between issuers, governments,
and local citizens, would not prevent mismanagement of funds obtained
from resource payments, and would negate the transparency and anti-
corruption benefits for citizens that Section 13(q) was intended to
achieve.\145\ Some commenters also noted that the non-public submission
and anonymized compilation approach would nullify Section 13(q)'s
benefits to investors by preventing them from obtaining issuer-specific
payment data to help them assess risk in investing in resource
extraction issuers.\146\ Finally, commenters stated that adoption of
the non-public submission and anonymized compilation approach would
result in a decrease in comparability with the non-U.S. payments-to-
governments reporting regimes, each of which requires public, issuer-
specific reporting of payments.\147\
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    \142\ See, e.g., letters from Congr. Waters et al; Equinor;
Oxfam and Earthrights International; Project On Government Oversight
(Mar. 13, 2020) (POGO); PWYP-US; Sens. Cardin et al.; and
Transparencia por Colombia (Mar. 19, 2020).
    \143\ See, e.g., letters from Oxfam America and Earthrights
International; PWYP-US (Mar. 16, 2020); and Sens. Cardin et al.
    \144\ See, e.g., letters from Oxfam American and Earthrights
International; and PWYP-US (Mar. 16, 2020); see also letter from
POGO.
    \145\ See letters from Equinor; Oxfam American and Earthrights
International; and Congr. Waters et al.
    \146\ See letters from Congr. Waters et al; Oxfam American and
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \147\ See, e.g., letters from Oxfam American and Earthrights
International; and PWYP-US (Mar. 16, 2020).
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    A few commenters supported the non-public submission and anonymized
compilation approach.\148\ One commenter stated that Congress's goal of
enabling people to hold their governments accountable for the revenues
generated from resource development would be achieved as long as
citizens know the amount of money the government receives, and not the
companies that make each individual payment.\149\ This commenter
further expressed its concern that public disclosure of issuer-specific
extractive payments may result in harm by allowing competitors to
reverse-engineer the value a particular issuer places on a specific
resource area. Moreover, the commenter stated that the threat of
reverse-engineering could occur even under the proposed Modified
Project Definition by allowing a competitor to compare changes in
reported payments for the same area year after year, which could
provide competitive insights especially where a particular country
effectively possesses a single major area of resource development.\150\