David Buxton

David Buxton 

Posted Friday May 23, 2014

Arachnys submission to the SEC on Dodd-Frank

Arachnys submission to the SEC on Dodd-Frank

Earlier this week our CEO, David Buxton, submitted a comment to the United States Securities and Exchange Commission (SEC) regarding the implementation of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This relatively small section of a much larger act has proved to be a major point of contention for transparency campaigners and the extractives industry and is currently under review after a successful legal challenge by the American Petroleum Institute.

Section 1504 of the Dodd-Frank Act requires companies registered with the SEC to publish payments to governments for access to oil, gas and mineral concessions on a country-by-country and project-by-project basis with all data to be published in an interactive format. This level of reporting is critical to improving transparency and anti-corruption within the sector. But our concern is about the functionality of this new reporting. Due diligence professionals and campaigners alike will only be able to make use of this new level of data if it’s properly searchable. That is to say, it is text searchable, downloadable and reproducible, allowing it to be properly scrutinised and audited. We are concerned that this stipulation will be omitted or weakened in the new version of 1504 which is why we have written to the SEC on this matter.

We believe that greater transparency and more functional data within the extractives sector will not only benefit campaigners and civil society but will also be helpful to the extractives sector itself in the long-term, not least when operators look to ensure Dodd-Frank compliance, and our position is broadly supported by many others. In fact, 34 institutional investors have also submitted a comment to the SEC highlighting investor benefits should 1504 be implemented as is. In addition to this, the EU passed an Accounting Directive in 2013 requiring extractives and logging companies based in the EU or listed on an EU stock exchange to do exactly what we have recommended, setting a precedent.

You can read our full submission below. Please do get in touch if you have any questions.

Dear Chair White,

As a leading due diligence research platform focusing on emerging markets we have watched the legislative path of the Dodd-Frank Wall Street Reform and Consumer Protection Act with interest. Section 1504 of the DFA, which relates to improving transparency and the availability of open-source data within the extractive industries, is a hugely progressive step; it will improve the ability of due diligence professionals and open source intelligence investigators to undertake rigorous and comprehensive investigations. Critically, it will also allow extractives companies themselves to better engage with civil society, governments, and investors and improve their ability to manage corruption risks in emerging markets.

We believe that 1504 could set the benchmark of extractives financial disclosures legislation. Already, the recent EU Accounting and Transparency Directives follow 1504 by including articles on extractives disclosures. In addition, UK-based Tullow Oil has already published project-by-project reports on a voluntary basis ahead of the EU Directives coming into force, and Statoil is required to disclose project-level payments pursuant to Norwegian reporting rules effective from January 2014.

We have found that in the open data world, fine-grained detail is vital for investigators to come to concrete conclusions that hold up to scrutiny. Therefore, we believe it is crucial that data is published in full at a project or licence level. Moreover, the implementation of 1504 should require any data disclosed to be in an interactive format allowing ease of access and manipulation.

At present it is difficult to see in which way the SEC will implement 1504 but we strongly advise against any proposals to aggregate data, anonymize information on payments or change the format of the data disclosed. This will render much of the newly required information very difficult to analyse. It will also weaken what could be a hugely valuable new pool of market data for extractives companies and sector investors.

Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is undoubtedly a positive step forward in providing clearer parameters for extractive companies, however, to not strongly enforce Section 1504 would represent a huge opportunity missed in efforts to make the sector more efficient and transparent.

Yours Sincerely,

David Buxton, CEO

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