4662 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

1 15 U.S.C. 78a et seq. 

2 17 CFR 249b.400. 

3Public Law 111–203 (July 21, 2010). 

4The 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). 

5According to Senator Richard Lugar, who cosponsored 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). 

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. 

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. 

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 PreExisting 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

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 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4663 

6 15 U.S.C. 78m(q)(2)(A). 

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. 

8 15 U.S.C. 78m(q)(1)(A). 

9 15 U.S.C. 78m(q)(1)(B). 

10The 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). 

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). 

16 15 U.S.C. 78m(q)(2)(D)(ii). 

17 Id. 

18 15 U.S.C. 78m(q)(3). 

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’’). 

21See 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. 

22See 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. 

23See API v. SEC, 953 F. Supp. 2d 5 (D.D.C. July 

2, 2013). The District Court based its decision on 

Continued 

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

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

• ‘‘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

• ‘‘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 

• ‘‘Payment’’ means a payment that: 

Æ Is made to further the commercial 

development of oil, natural gas, or 

minerals; 

Æ Is not de minimis; and 

Æ 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

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: 

• 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

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. 

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

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 

4664 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

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. 

24See 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’’). 

25See H.R.J. Res. 41, 115th Cong. (2017) 

(enacted). 

26 5 U.S.C. 801 et seq. 

27See, 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.’’). 

28See 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.’’). 

29See 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.’’). 

30See 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-titlexv/resource-extraction-issuers/resource-extractionissuers.shtml. 

31See id. 

32A 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 DoddFrank 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.’’). 

33See 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.’’). 

34See Cambridge Dictionary (Cambridge 

University Press) (2020). 

35See Oxford English Dictionary (Oxford 

University Press) (2020). 

36See, 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). 

37See, 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). 

38See, e.g., letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); and Sierra Club (March 14, 2020). 

39See id. 

40See, e.g., letters from Center for Progressive 

Reform; Cary Coglianese; Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

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

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. 

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 SECregistered companies’’ at a significant 

competitive disadvantage.31

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. 

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

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4665 

41For example, by the plain terms of the CRA, it 

seems apparent that the Commission, at a 

minimum, could not simply readopt the 

disapproved rule. 

42The 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. 

43See, e.g., letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

44Revising 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. 

45We 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. 

46See, e.g., letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

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. 

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

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. 

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 

4666 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

47Nevertheless, 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. 

48See 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. 

49See infra Section II.A. 

50See, e.g., letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

51See infra Section II.D.1.–2. 

52See infra Section II.D.3. 

53See infra Section II.E. 

54See infra Section II.F. 

55See infra Section II.D.6. 

56See infra Section II.L.2. 

57See 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. 

58See, e.g., letter from API (Mar. 16, 2020). 

59See infra Section II.B. 

60See infra Section II.C. 

61See infra Section II.G. 

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

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. 

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. 

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

• Add an exemption for smaller 

reporting companies and emerging 

growth companies; 52

• Revise the definition of ‘‘control’’ to 

exclude entities or operations in which 

an issuer has a proportionate interest; 53

• Limit the liability for the required 

disclosure by deeming the payment 

information to be furnished to, but not 

filed with, the Commission; 54

• Add relief for issuers that have 

recently completed their U.S. initial 

public offerings; 55 and 

• Extend the deadline for furnishing 

the payment disclosures.56

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 nonpublicly, 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

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

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 operational activities 

governed by a single contract, 

license, lease, concession, or 

similar legal agreement, which 

forms the basis for payment liabilities with a government. 

• Defined using three factors: 

(1) Type of resource; 

(2) type of operation;and 

(3) major subnational jurisdiction. 

• Same as proposed. 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4667 

62These comment letters are available at https:// 

www.sec.gov/comments/s7-24-19/s72419.htm. 63See infra Sections II.A. through II.F. 

Issue 2016 Rules 

(disapproved) Proposed rules Final rules 

Aggregation of payments ............... • No aggregation of payments 

beyond contract level, except 

that payments related to operational activities governed by 

multiple legal agreements could 

be aggregated together as long 

as the multiple agreements 

were operationally and geographically related. 

• Aggregation of the same type 

of payments permitted at major 

subnational jurisdiction level, 

which must be identified; 

• Aggregation at major subnational jurisdiction level (same 

as proposed). 

• Aggregation of the same type 

of payments permitted at levels 

below major subnational level, 

which may be described generically (e.g., as county or 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 conflicts with foreign 

laws or contract terms.

• No exemptions for conflicts with 

foreign laws or contract terms. 

• Case-by-case exemptive process established. 

• Conditional exemptions for foreign law conflicts and pre-existing (pre-effectiveness) contract 

terms that prohibit disclosure. 

• Same as proposed. 

Exemption for smaller reporting 

companies or emerging growth 

companies.

• No exemption for smaller reporting companies or emerging 

growth companies. 

• Exemption for smaller reporting 

companies and emerging 

growth companies. 

• Same as proposed, but limit exemption to 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 established financial 

reporting principles: Issuer has 

control over an entity when it is 

required under GAAP or IFRS 

to consolidate or proportionately 

consolidate the financial results 

of that entity. 

• Similar to approach under 2016 

Rules, except that an issuer is 

not required to disclose payments made by entities that it 

only proportionately consolidates. 

• Same as proposed. 

Filed vs. furnished—application of 

Exchange Act Section 18 liability.

• Reports required to be filed; 

• Potential Section 18 liability. 

• Reports are furnished; 

• No Section 18 liability. 

• Same as proposed. 

Relief for Initial Public Offerings 

(IPOs).

• No relief for IPOs. • Transitional relief for IPOs; 

• 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. 

• Same as proposed. 

Deadline for furnishing payment 

disclosures.

• For all issuers, no later than 

150 days after the end of the 

issuer’s most recent fiscal year. 

• For issuers with fiscal years 

ending on or before June 30, 

no later than March 31 in the 

following calendar year; 

• For issuers with fiscal years 

ending after June 30, no later 

than March 31 in the second 

calendar year following their 

most recent fiscal year. 

• 2 year transition period during 

which no Form SD due. 

• Following transition period, 

Form SD due no later than 270 

days after the end of the 

issuer’s 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, nongovernmental 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. 

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 

4668 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

64See infra Section II.H. 

65See infra Section II.J. 

66See infra Section II.M. 

67See 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). 

68See generally Exchange Act Sections 3(f) and 

23(a)(2). 

69See Section III.D.11 below. 

70This 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). 

71See 2016 Rules Adopting Release at Section 

II.E.3. 

72See 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). 

73See letter from API (Mar. 16, 2020). When 

recommending that the Commission adopt the nonpublic 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. 

74See letter from NAM. 

75See id. 

76See letter from SAF. 

77See, 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). 

78See, 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, 

sufficient, this change when considered 

with the other changes we are making 

should satisfy the CRA’s mandate. 

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

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 anticompetitive effects derived from 

resource extraction issuers’ experiences 

with the disclosure regimes in Europe 

and Canada.67

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

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

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

Other commenters opposed the 

Modified Project Definition for several 

reasons,77 including the following: 

• 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

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4669 

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 anticorruption tool). 

79See, 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. 

80According 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; PWYPBurkina Faso (Apr. 22, 2020); PWYP-Indonesia 

(Mar. 16, 2020); and PWYP–US (Mar. 16, 2020). 

81See, 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). 

82See, e.g., letter from PWYP–US (Mar. 16, 2020); 

see also letters from Oxfam America and Earthrights 

International; and ONE Campaign (Mar. 16, 2016). 

83See, e.g., letter from Oxfam America and 

Earthrights International. 

84See, e.g., letter from PWYP–US (Mar. 16, 2020); 

see also letter from Frederic Samama, Steve 

Waygood, Vicki Bakhshi, Helena Vin ̃ es Fiestas, 

John Wilson, Meryam Omi, Christopher P. Conkey, 

and Katarina Hammar (Mar. 16, 2020) (F. Samama 

et al.). 

85The 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. 

86See supra Section I.B. 

87We 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. 

88By 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. 

89We 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. 

90See 15 U.S.C. 78m(q)(2)(A)(i). 

91See 15 U.S.C. 78m(q)(2)(A)(ii). 

• 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

• 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

• Some opposed the Modified Project 

Definition because in their opinion it is 

an arbitrary construction that does not 

reflect standard industry practice.81

• Some stated that the Modified 

Project Definition deviates from what 

has become the international norm for a 

project definition in payments-togovernments reporting, namely, a 

project definition based on a single 

contract, license, lease, or concession.82

• Some argued that the Modified 

Project Definition does not satisfy the 

plain language of Section 13(q).83

• 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

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

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

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-toGovernment 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 

4670 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

92See 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. 

93See 2019 Rules Proposing Release at Section 

II.F.1. 

94See, e.g., letters from PWYP–US (Mar. 16, 

2020); and Oxfam America and Earthrights 

International. 

95See 2016 Rules Adopting Release at Section 

II.E.3. 

96This 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. 

97 In this regard, we find it telling that Congress 

did not provide a definition of project or even direct 

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

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 ContractLevel 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). 

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

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. 

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 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4671 

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. 

98See infra Section II.C. 

99See infra Section II.G. 

100Although 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 percentagebased 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. 

101For 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). 

102See, 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.’’ 

103See, e.g., letters from BHP; BP; Oxfam and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

104See letters from BHP and PWYP–U.S. (Mar. 

16, 2020). 

105See letters from BP and Total (Feb. 10, 2020). 

106See letter from Oxfam America and Earthrights 

International. 

107See infra Section II.N. Issuers will have to 

meet certain conditions in order to avail themselves 

of the alternative reporting provision. 

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. 

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

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

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. 

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-togovernments 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 multijurisdictional 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. 

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

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 

4672 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

108Norway is a member of the EEA, not the EU. 

While the EU Directives apply to EEA members, 

Norway adopted its Regulations on Country-byCountry 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. 

109See infra Section III.D.5. 

110See, e.g., EU Accounting Directive, Art. 41(4). 

We discussed the non-U.S. payments-togovernments reporting regimes in some detail in the 

2016 Rules Adopting Release at Section I.C. 

111See letter from Oxfam America and Earthrights 

International. 

112See 2016 Rules Adopting Release at Section 

II.E. 

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

114See, e.g., letter from PWYP–US (Mar. 16, 

2020). 

115See infra Section III.D.1. 

116One 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. 

117See, e.g., letter from Oxfam America and 

Earthrights International. 

118 Id. 

119See, e.g., letter from PWYP–US (Mar. 16, 

2020); and F. Samama et al. 

120See 2019 Rules Proposing Release at Section 

II.F.1. 

121See, 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’’). 

122See 17 CFR 229.503(c). 

123See 17 CFR 229.303. 

124See infra Section III.D.1. 

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. 

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

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

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). 

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

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. 

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 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4673 

125Based 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. 

127This 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.’’ 

128See 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). 

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. 

130See 2019 Rules Proposing Release at Section 

II.F.2. 

131For 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. 

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

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. 

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

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

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 

4674 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

132See 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. 

133Letter from API (Mar. 16, 2020). 

134See id. 

135See Instruction (5)(iii) to Item 2.01 of Form 

SD. 

136See Instruction (5)(iv) to Item 2.01 of Form SD. 

137See Instruction (5)(iv) to Item 2.01 of Form SD. 138See 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). 

139See 2019 Rules Proposing Release at Section 

II.I.1; see also 2016 Rules Adopting Release at 

II.H.3. 

140See 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. 

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 ContractLevel Project Definition. 

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

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

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.’’ 

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. 

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, 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4675 

141As 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). 

142See, 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). 

143See, e.g., letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); and Sens. Cardin et al. 

144See, e.g., letters from Oxfam American and 

Earthrights International; and PWYP–US (Mar. 16, 

2020); see also letter from POGO. 

145See letters from Equinor; Oxfam American and 

Earthrights International; and Congr. Waters et al. 

146See letters from Congr. Waters et al; Oxfam 

American and Earthrights International; and 

PWYP–US (Mar. 16, 2020). 

147See, e.g., letters from Oxfam American and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

148See letters from API (Mar. 16, 2020); Chamber; 

and NAM. 

149See letter from API (Mar. 16, 2020). 

150See id. 

151See supra Section II.A. 

152See infra Sections II.D.1. and 2. 

153See infra Section II.D.3. 

154See infra Section II.D.6 

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

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 issuerspecific payment information is 

essential to carry out Section 13(q)’s 

transparency, accountability, and anticorruption 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 nonU.S. payments-to-governments reporting 

regimes, each of which requires public, 

issuer-specific reporting of payments.147

A few commenters supported the nonpublic 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 reverseengineer 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 For those reasons, this 

commenter believed that the non-public 

submission and anonymized 

compilation approach would best 

balance the goals of achieving the 

objectives of Section 13(q) and 

preventing unnecessary harm to 

resource extraction issuers. 

We acknowledge the concerns raised 

about potential competitive harm, but 

do not believe that adoption of the nonpublic submission and anonymized 

compilation is necessary to avoid any 

such potential competitive harm. 

Rather, as discussed above, we believe 

that adopting the Modified Project 

Definition, under which issuers will not 

be required to disclose overly 

descriptive disclosures potentially 

revealing competitively sensitive 

information, is sufficient to address any 

such risks. 

Moreover, we do not believe that 

adoption of the non-public submission 

and anonymized compilation would 

achieve the same level of transparency 

as our approach in the final rules. We 

acknowledge that the anonymized 

compilation would reveal the payments 

to foreign governments at all levels, 

including the specific agency and 

department within the government. As 

such, it would provide some level of 

transparency in foreign nations that 

currently do not disclose such 

information, or do not do so accurately. 

Importantly, however, the reduced 

transparency provided by an 

anonymized compilation would 

significantly limit the usefulness of the 

disclosure because all similar activities 

in the same subnational jurisdiction, 

regardless of issuer, would be 

indistinguishable. Thus, we believe that 

this would be much less effective in 

achieving Section 13(q)’s transparency 

goals as compared to our approach. 

In this regard, we note that if Congress 

had simply been focused on the 

disclosure of revenues into foreign 

governments, it would have been 

sufficient to require only the disclosure 

of payments to foreign governments 

required by Section 13(q)(2)(A)(ii), 

which requires information about the 

payments to each government. Yet 

Congress also included Section 

13(q)(2)(A)(i), which mandates that the 

Commission’s rules must require the 

disclosure of the type and total amount 

of such payments made ‘‘for each 

project of the resource extraction 

issuer.’’ Thus, we believe that the 

Modified Project Definition, which 

provides for public disclosure of the 

issuer, is the more effective choice for 

satisfying the CRA mandate and 

achieving the transparency goals of 

Section 13(q). 

We also do not believe that it is 

necessary to adopt the non-public 

submission and anonymized 

compilation approach to fulfill the 

CRA’s mandate that the new rule not be 

substantially the same as the 

disapproved rule. Rather, as discussed 

above, we believe that adoption of the 

Modified Project Definition will largely 

accomplish this objective. We also 

believe that the other changes to the 

2016 Rules that we are adopting will 

further distinguish the final rules from 

the disapproved rules and, in addition, 

help address concerns about the rules’ 

burdens. In addition to the Modified 

Project Definition,151 these changes 

include the rule-based exemptions for 

conflicts with foreign law and preexisting contracts; 152 the exemptions for 

smaller reporting companies and 

emerging growth companies; 153

transitional relief for a resource 

extraction issuer that has completed its 

initial public offering in its last full 

fiscal year; 154 and an extended 

4676 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

155See infra Section II.L.2. 

156See infra Section II.D.4. 

157See infra Section II.J.5. 

158See infra Section II.G. 

159Social or community payments are frequently 

made as accommodations by resource extraction 

issuers to local communities impacted by extractive 

activities. For example, when filing its Exchange 

Act annual report, a mining registrant is required 

to attach a technical report summary prepared by 

its mining expert (its ‘‘qualified person’’), which 

must include a description of ‘‘accommodations the 

registrant commits or plans to provide to local 

individuals or groups in connection with its mine 

plans.’’ See 17 CFR 229.601(b)(96)(iii)(B)(17)[Item 

601(b)(96)(iii)(B)(17) of Regulation S–K. 

160 15 U.S.C. 78m(q)(2)(E). 

161See supra note 147. See also ESTMA 

Specifications, Section 2.4 (‘‘Reporting Entities are 

required to publish their reports on the internet so 

they are available to the public’’); and EU 

Accounting Directive Arts. 42(1) and 45(1) 

(requiring disclosure of payments to governments in 

a report made public on an annual basis and 

published pursuant to the laws of each member 

state). We are not aware of any existing 

transparency regimes that do not require public 

disclosure. 

162See 15 U.S.C. 78m(q)(3). 

163See 17 CFR 240.13q–1(e). 

164See id. We do not anticipate that the staff 

would produce such a compilation more frequently 

than once a year. 

165Except for comments that addressed the 

anonymized compilation approach, see supra 

Section II.B.1., we did not receive any comments 

that addressed the proposed compilation provision. 

166See 15 U.S.C. 78m(q)(1)(C). 

167Consistent with the 2012 and 2016 Rules, we 

continue to believe that it is appropriate to adopt 

a definition of ‘‘not de minimis’’ to provide clear 

guidance regarding when a resource extraction 

issuer must disclose a payment. 

168See 2019 Rules Proposing Release at Section 

II.C.9. 

169See 2016 Adopting Release, Section II.C.3.c. 

The 2012 Rules also defined a ‘‘not de minimis’’ 

payment using the $100,000 threshold. See 2012 

Adopting Release, Section II.D.2.c. 

170See 2019 Rules Proposing Release at Section 

II.C.9 (citing letter from Nouveau Inc. (Feb. 16, 

2016) (stating that the $100,000 reporting threshold 

would be unreasonably low for companies working 

on massive scale projects and would require parties 

to engage in the costly collection, compilation, and 

standardization of potentially thousands of different 

data points). 

171See id. 

172See letter from NAM. 

173See letter from SAF. 

174See letters from Africa Center for Energy 

Policy (Mar. 16, 2020); Elise J. Bean; Better Markets 

(Mar. 16, 2020); Sens. Cardin et al.; the Carter 

Center; Derecho Ambiente y Recursos Naturales 

(Mar. 15, 2020) (DAR); Financial Accountability 

and Corporate Transparency Coalition (Mar. 18, 

2020) (FACT Coalition); Shannon Gough (Mar. 16, 

2020); KCSPOG; S. Kaimal, CEO of Natural 

Resource Governance Institute (Mar. 16, 2020) (S. 

Kaimal, CEO of NRGI); Daniel Kaufmann; ONE.org; 

Oxfam America and Earthrights International; Eric 

Postel; Public Citizen (Mar. 16, 2020); PWYP–US 

(Mar. 16, 2020); F. Samama et al., Sierra Club (Mar. 

14, 2020); Forum for Sustainable and Responsible 

Investment (Jun. 17, 2020) (SIF), Total (Feb. 10, 

2020); and Congr. Waters et al. 

175See, e.g., letters from Elise J. Bean; Shannon 

Gough; ONE.org; Oxfam America and Earthrights 

International; and PWYP–US (Mar. 16, 2020). 

176See, e.g., letters from Elise J. Bean; Oxfam 

America and Earthrights International; and PWYP– 

US (Mar. 16, 2020). The study was conducted by 

the Natural Resource Governance Institute and is 

submission deadline.155 Adoption of the 

proposed delayed reporting for 

exploratory activities, which we first 

adopted in 2016, should also help to 

mitigate the potential for competitive 

harm.156

Moreover, like the 2016 Rules, the 

final rules will include contractually 

required social and community 

payments among the required 

disclosures,157 and issuers will be 

required to disclose those payments 

made to subnational governments while 

identifying each subnational 

government payee.158 As such, the users 

of the information may be able to assess 

whether the local communities are in 

fact receiving the promised payments 

and whether those payments are being 

used by the governments for their 

intended purpose.159

Finally, although not a primary goal 

of Section 13(q), we note that adoption 

of the requirement for issuer-specific, 

public disclosure may nevertheless help 

to further Section 13(q)’s directive to 

support the commitment of the Federal 

Government to international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas, or minerals.160 As 

commenters noted, all other existing 

reporting regimes require public 

disclosure of the payment information, 

including the identity of the issuer.161

Adoption of a similar requirement 

under Section 13(q) would be consistent 

with the statutory directive to support 

the commitment of the Federal 

Government to international 

transparency efforts by increasing the 

total number of companies that provide 

public, issuer-specific disclosure. 

2. Public Compilation 

Consistent with Section 13(q),162 and 

as proposed, the final rules provide that, 

to the extent practicable, the staff will 

periodically make a compilation of the 

information that issuers are required to 

submit under Section 13(q) publicly 

available online.163 The staff may 

determine the form, manner, and timing 

of the compilation,164 except that no 

information included in the compilation 

may be anonymized, whether by 

redacting the names of the resource 

extraction issuers or otherwise. Since 

we are requiring the public disclosure of 

the payment information on Form SD, 

we do not believe it would be 

appropriate or useful to anonymize any 

of the information in the compilation.165

C. Definition of a ‘‘Not De Minimis’’ 

Payment 

Section 13(q) defines ‘‘payment’’ in 

part to mean a payment that is made to 

further the commercial development of 

oil, natural gas, or minerals and that is 

not de minimis.166 Section 13(q), 

however, does not define ‘‘not de 

minimis.’’ 167 We proposed to define 

‘‘not de minimis’’ to mean any payment 

made to each foreign government in a 

host country or the Federal Government 

that equals or exceeds $150,000, or its 

equivalent in the issuer’s reporting 

currency, whether made as a single 

payment or series of related payments, 

subject to the condition that single 

payment (or a series of related 

payments) disclosure for a project is 

only required if the total payments for 

a project equal or exceed $750,000.168

This proposed definition differed from 

the definition of ‘‘not de minimis’’ in 

the 2016 Rules, which defined a ‘‘not de 

minimis’’ payment in relevant part as 

one that equals or exceeds $100,000, 

whether made as a single payment or 

series of related payments.169 We 

proposed this change in light of 

previously expressed concerns from 

commenters that the threshold was 

unreasonably low and costly to 

calculate 170 and the likely impact of the 

proposed revised definition of project, 

which would allow aggregation of 

payments at a higher level and likely 

increase the value of the individual 

types of payments.171

Several commenters supported the 

proposed definition of ‘‘not de minimis’’ 

as any payment that equals or exceeds 

$150,000 made in connection with a 

project that equals or exceeds $750,000 

in total payments. For example, one 

commenter stated that the proposed 

definition would reduce compliance 

costs by allowing companies to forgo 

reporting on payments that are 

insignificant to the project and to their 

investors.172 Another commenter stated 

that the proposed not de minimis 

thresholds would help preserve 

shareholder resources and enable longterm growth within the resource 

extraction industry.173

Numerous commenters opposed the 

proposed definition of a ‘‘not de 

minimis’’ payment.174 Several 

commenters stated that the proposed 

definition would undermine 

Congressional intent underlying Section 

13(q) by eliminating a significant 

amount of project and payment 

disclosures.175 In support of this 

statement, some commenters referred to 

a study of 4,018 projects conducted by 

731 companies that have published 

reports pursuant to the payments-togovernments laws of the EU, United 

Kingdom, Canada, and Norway.176

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4677 

described in the letter from S. Kaimal, CEO of NRGI 

(Mar. 16, 2020). 177See letters from letters from Elise J. Bean; 

Oxfam America and Earthrights International; and 

PWYP–US (Mar. 16, 2020); see also letter from 

Kaufmann. 178See letter from PWYP–US (Mar. 16, 2020). 179See id.; see also letters from Elise J. Bean; 

Oxfam America and Earthrights International; Eric 

Postel; Sierra Club; and Congr. Waters et al. 180See letters from Elise J. Bean; Oxfam America 

and Earthrights International; and PWYP–US (Mar. 

16, 2020). 181See, e.g., letters from Sens. Cardin et al.; FACT 

Coalition; and F. Samama et al. 182See letter from Total (stating that, together 

with the proposed project definition, the different 

‘‘not de minimis’’ threshold may result in a 

competitive disadvantage detrimental to EU 

issuers). 183See, e.g., letters from Better Markets; Oxfam 

America and Earthrights International; and Public 

Citizen. 

184See supra note 174. 

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

186See Instruction 2 to Item 2.01 of Form SD. 

187See id. (stating that ‘‘[i]n all cases, a resource 

extraction issuer must disclose the method used to 

calculate the currency conversion and must choose 

a consistent method for all such currency 

conversions within a particular Form SD 

submission’’). 

188See API v. SEC, 953 F. Supp. 2d at 21–23. 

189See 2019 Rules Proposing Release at Section 

II.J. 

190The Commission recently amended the 

definition of ‘‘smaller reporting company’’ to 

expand the number of registrants that qualify as 

smaller reporting companies, and to reduce 

compliance costs for these registrants and promote 

capital formation, while maintaining appropriate 

investor protections. The amended definition of 

‘‘smaller reporting company’’ includes registrants 

with a public float of less than $250 million 

(compared to $75 million in the earlier rule), as 

well as registrants with annual revenues of less than 

$100 million for the previous year and either no 

public float or a public float of less than $700 

million. See Release No. 33–10513 (Jun. 28, 2018) 

[83 FR 31992 (Jul. 10, 2018)]. 

191The term ‘‘emerging growth company’’ means 

an issuer that had total annual gross revenues of 

less than $1,070,000,000 during its most recently 

completed fiscal year. See the definition of 

emerging growth company in Securities Act Rule 

405 and Exchange Act Rule 12b–2. 

192See 2016 Adopting Release, Section II.G.3. 

193See 2019 Rules Proposing Release at Section 

II.J.6. 

194See 2019 Rules Proposing Release at Section 

II.J.7. 

Utilizing the most recent payments-togovernments reports submitted by these 

companies, the study indicated that 

49% of the reported projects, when 

using the Modified Project Definition, 

would fall below the $750,000 threshold 

and, therefore, go unreported. This 

study led commenters to assert that the 

proposed definition would severely 

undermine the utility of the rule in 

carrying out Section 13(q)’s protransparency mandate.177

One commenter opposing the 

proposed ‘‘not de minimis’’ payment 

definition stated that the proposed 

$750,000 threshold would operate as a 

de facto ‘‘materiality’’ requirement for 

the definition of project, which the 

commenter argued has no support in the 

statutory language.178 Several 

commenters contended that both the 

$750,000 and $150,000 thresholds 

appear to be arbitrary and unsupported 

by anything in the record.179 Some 

commenters also stated that the 

proposed definition is inconsistent with 

the payment threshold adopted in over 

30 countries under the laws of the other 

payments-to-governments reporting 

regimes, each of which approximates 

$100,000.180 Other commenters 

maintained that the proposed ‘‘not de 

minimis’’ payment definition would 

lessen the comparability of the payment 

data for users interested in analyzing the 

data on a global basis 181 and could 

result in a competitive disadvantage to 

companies operating and reporting in 

the other non-U.S. jurisdictions.182

Finally, some commenters believed that 

the proposed ‘‘not de minimis’’ payment 

definition could encourage corruption, 

or at least be inconsistent with the anticorruption objective of Section 13(q), by 

facilitating the manipulation of 

payments to below one or both 

thresholds and thereby keeping them 

non-reportable.183 For the above 

reasons, many commenters requested 

that, consistent with the 2016 Rules, we 

define ‘‘not de minimis’’ as a payment 

that equals or exceeds $100,000, 

whether made as a single payment or 

series of related payments.184

We believe that these commenters 

have raised a number of valid concerns, 

the most significant of which is that the 

proposed definition could result in a 

high percentage of projects going 

unreported, thereby unduly reducing 

transparency. We also believe that 

adopting the $100,000 threshold will 

mitigate against the potential loss of 

information that may arise as a result of 

our adoption of the Modified Project 

Definition, which, as we have 

discussed, we believe is the most 

appropriate way to comply with the 

CRA. 

Under the adopted definition, a ‘‘not 

de minimis’’ payment means any 

payment, whether made as a single 

payment or a series of related payments, 

that equals or exceeds $100,000, or its 

equivalent in the resource extraction 

issuer’s reporting currency.185 We are 

adopting the remainder of the proposed 

definition, which provides that, in the 

case of any arrangement providing for 

periodic payments or installments, a 

resource extraction issuer must use the 

aggregate amount of the related periodic 

payments or installments of the related 

payments in determining whether the 

payment threshold has been met for that 

series of payments, and accordingly, 

whether disclosure is required. We did 

not receive any comments on this part 

of the definition, which is similar to the 

definition adopted under the 2016 

Rules. 

We are also adopting the proposed 

instruction that allows an issuer to 

choose several methods to calculate 

currency conversions for payments not 

made in U.S. dollars or the issuer’s 

reporting currency. That instruction also 

provides that the same methods are 

available to issuers when calculating 

whether a payment not made in U.S. 

dollars meets or exceeds the ‘‘not de 

minimis’’ threshold.186 We did not 

receive any comments on this 

instruction. We continue to believe that 

providing alternative methods for 

calculating currency conversions would 

help limit compliance costs under 

Section 13(q). As under the 2016 Rules, 

an issuer would be required to use a 

consistent method for its payment 

currency conversions, including when 

determining if a payment is not de 

minimis, and would be required to 

disclose which method it used.187

D. Exemptions From Compliance 

The 2013 District Court opinion found 

that the Commission has the authority 

to grant exemptions with respect to 

Section 13(q).188 We proposed three 

new exemptions from reporting under 

Section 13(q),189 as follows: 

• If the Section 13(q) disclosure is 

prohibited by foreign law; 

• If the required disclosure would 

violate one or more pre-existing contract 

terms; and 

• If the resource extraction issuer is a 

smaller reporting company 190 or an 

emerging growth company.191

We also proposed delayed reporting 

for exploratory activities and 

transitional relief for recently acquired 

companies, both of which were 

included in the 2016 Rules.192 In 

addition, we proposed similar 

transitional relief for a resource 

extraction issuer that has recently 

conducted its initial public offering.193

Finally, we proposed to retain the 2016 

Rules’ provision allowing an issuer to 

file an application for exemptive relief 

on a case-by-case basis.194

When proposing the exemptions for 

situations involving conflicts with 

foreign laws or pre-existing contract 

terms, we noted that several industry 

commenters had specifically 

recommended these two exemptions in 

connection with prior rulemakings to 

reduce the risk of competitive harm that 

4678 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

195See 2019 Rules Proposing Release at Section 

II.J. (citing letters from API (Feb. 16, 2016) and 

(Nov. 7, 2013); Chevron (Feb. 16, 2016); 

ExxonMobil (Feb. 16, 2016); and Nouveau (Feb. 16, 

2016)). 

196See 17 CFR 240.13q–1(d)(1). 

197See, e.g., 2019 Rules Proposing Release at 

Section II.J.; see also letters from API (Feb. 16, 

2016); and ExxonMobil (Feb. 16, 2016). (Indicating 

that if an issuer chose to provide the payment 

disclosure in violation of the host country law, the 

issuer could face the shut down and, in the extreme 

case, expropriation of its facilities in the host 

country, the imposition of fines, or the withholding 

of permits.) 

198See, e.g., 163 Cong. Rec. H. 848, 853 (February 

1, 2017) (Statement of Rep. Rothfus) (‘‘I am also 

concerned that this rule could force companies to 

withdraw from certain countries. Among other 

things, some foreign countries have laws to prohibit 

the sort of disclosures called for in this rule. Since 

the rule provides no exemptions, American firms 

may be forced to abandon business ventures that 

provide jobs and opportunities for Americans.’’); 

see also letter from Sen. Corker et al. 

199See letters from API (Mar. 16, 2020); Chamber; 

Davis Polk & Wardwell (Mar. 6, 2020) (Davis Polk); 

NAM; Petrobras (Mar. 16, 2020); and SAF. 

200See letters from API (Mar. 16, 2020); NAM; 

and SAF. Some commenters articulated this 

concern about a case-by-case exemptive approach 

for handling conflict of laws situations in the 2016 

rulemaking. See letters from API (Feb. 16, 2016); 

and ExxonMobil (Feb. 16, 2016). 

201See, e.g., letters from Africa Center for Energy 

Policy; Elise J. Bean; Sens. Cardin et al.; DAR; EG 

Justice (Mar. 11, 2020); FACT Coalition; Friends of 

the Nation (Mar. 16, 2020); Shannon Gough; 

KCSPOG; Eric Postel; Robert Rutkowski (Mar. 16, 

2020); Transparency International (U.S.) (Mar. 13, 

2020); and Congr. Waters et al. 

202See, e.g., letters from Elise J. Bean; and Congr. 

Waters et al. In this regard, we acknowledge that 

the conflicts of law exemption may lessen 

comparability with the EU and Canadian 

transparency regimes to a certain extent. 

203See, e.g., letters from Elise J. Bean; FACT 

Coalition; and Robert Rutkowski. 

204See, e.g., letters from Elise J. Bean; Eric Postel; 

and Congr. Waters et al. 

205See, e.g., letter from API (Mar. 16, 2020). In 

addition, commenters on the 2016 Rules discussed 

how such conflicts could ultimately force a 

resource extraction issuer to abandon or sell its 

assets in the host country. See, e.g., letter from API 

(Feb. 16, 2016). 

206See, e.g., the data cited in letter from PWYP– 

US (Mar. 16, 2020). 

207See, e.g., letters from NAM; and API (Feb. 16, 

2016). 

could result from the required Section 

13(q) payment disclosure. According to 

these commenters, without these 

exemptions, a resource extraction issuer 

that faced a legal or contractual conflict 

would have to choose between 

complying with Section 13(q) or the 

host country law or contract.195 We 

believe that these exemptions and the 

proposed transitional relief would 

address the previously expressed 

concerns about the burdens and 

potential risks of Section 13(q) 

disclosure. 

We also believe that the proposed 

exemptions are consistent with the 

CRA’s prohibition on adopting rules 

that are in substantially the same form 

as the disapproved rules. Accordingly, 

we are adopting these provisions largely 

as proposed, except that we have added 

a condition to the exemption for 

emerging growth companies and smaller 

reporting companies to address specific 

concerns raised by commenters. We 

discuss each of these provisions in more 

detail below. 

1. Exemption for Conflicts of Law 

We are adopting, as proposed, a 

conditional exemption for when an 

issuer is unable to provide the required 

disclosure without violating the laws of 

the jurisdiction where the project is 

located.196 We proposed this exemption 

after reconsidering comments in the 

2016 rulemaking concerning the 

potential harm that could occur from a 

situation involving a conflict with 

foreign law.197 Congressional members 

who voted to disapprove the 2016 Rules 

also expressed concern about the lack of 

exemptions under the 2016 Rules.198

Several commenters in the current 

rulemaking continued to express 

concerns about a conflict of law 

situation in the host country and 

supported an exemption to address the 

potential competitive harm and 

administrative difficulties resulting 

from such a situation.199 Some industry 

commenters also stated their belief that 

a case-by-case exemptive approach for 

handling situations involving conflicts 

of law (or contract prohibitions) is 

problematic. These commenters stated 

that the substantial practical and 

administrative difficulties associated 

with obtaining timely exemptive relief, 

particularly for an issuer threatened 

with the potential total loss of its 

operations in the host country, render 

this option unworkable.200

Other commenters objected to any 

exemption to the Section 13(q) rules, 

including one for conflicts of law 

situations.201 These objections were 

largely based on (1) the absence of 

exemptions under the EU and Canadian 

transparency regimes and the 

comparative gap in coverage that would 

occur; 202 (2) a concern that the Section 

13(q) exemptions, particularly the 

conflicts of law exemption, could create 

an incentive for countries to enact 

similar provisions that would 

undermine international transparency 

promotion efforts; 203 and (3) the lack of 

demonstrated need for the exemptions, 

which some commenters viewed as 

overly broad.204

After considering the comments, and 

with a view to limiting delay and 

burdens, the final rules will permit 

issuers, as proposed, to avail themselves 

of the exemptions for situations 

involving conflicts with foreign laws (or 

pre-existing contract terms) without 

seeking individual relief on a case-bycase basis. This approach will help 

facilitate an issuer’s timely submission 

of Form SD and alleviate some of the 

uncertainties of handling conflicts of 

law situations. Further, to the extent 

that the requirement to obtain a case-bycase exemption (and the attendant 

uncertainties surrounding whether such 

relief might be granted) could inhibit 

companies from bidding on or initiating 

resource extraction projects in particular 

countries or otherwise impair the ability 

of companies to compete effectively for 

such projects, we anticipate that our 

revised approach will substantially 

eliminate these potential barriers. 

Although commenters differed 

regarding whether there is a 

demonstrated need for a conflicts of law 

exemption, in order to address concerns 

about the potentially significant 

consequences of such a conflict, on 

balance we think it is appropriate to 

provide such an exemption. One 

commenter has identified at least two 

countries—China and Qatar—that have 

laws that may prohibit the Section 13(q) 

disclosure.205 Although publicly 

available information reveals that some 

resource extraction issuers have 

disclosed payments to governments in 

those countries,206 the possibility 

remains that those countries, or others, 

could elect in the future to enforce or 

enact laws that conflict with the Section 

13(q) requirements. We agree with those 

commenters who indicated that, to the 

extent that such a conflict exists, 

resource extraction issuers should not 

have to choose between complying with 

the Section 13(q) rules and violating 

host country laws.207

We also do not believe that the 

conflicts of law exemption is overly 

broad. The mere existence of a foreign 

law that may prohibit the Section 13(q) 

disclosure will not be sufficient to 

justify use of the exemption. We 

proposed, and are now adopting, several 

conditions that limit the availability of 

the exemption. These conditions are 

expressly designed to help ensure that 

issuers forgo disclosure only when there 

is a legitimate conflict of law, so that the 

exemption does not unreasonably 

frustrate the statutory goal of increasing 

transparency regarding resource 

extraction payments. Specifically, an 

issuer seeking to rely on the exemption 

will be required to take certain steps to 

qualify for the exemption, including 

providing specified disclosures about its 

eligibility for relief. Although issuers 

can avail themselves of the exemption 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4679 

208See 17 CFR 240.13q–1(d)(1)(i). 209See 17 CFR 240.13q–1(d)(1)(ii). 210See 17 CFR 240.13q–1(d)(1)(iii). 211See letters from PWYP–US (Mar. 16, 2020); 

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

and Oxfam America and Earthrights International. 

213Compare letter from PWYP–US (Mar. 16, 

2020) with letter from API (Mar. 16, 2020). 

214See 17 CFR 240.13q–1(d)(2). 

215 Id. 

216See letters from API (Mar. 16, 2020); Chamber; 

Davis Polk; NAM; and Petrobras. 

217See letter from NAM. 

218See letters from API (Mar. 16, 2020); and 

Chamber. 

219See, e.g., letters from Elise J. Bean; Eric Postel; 

and Congr. Waters et al. 

220See letters from PWYP–US (Mar. 16, 2020); 

and Oxfam America and Earthrights International. 

221See letter from API (Feb. 16, 2016) (stating that 

‘‘many companies’ contracts with host governments 

contain clauses requiring the government’s 

permission before a company publicly reveals 

payment information’’ and noting that ‘‘[a]lthough 

some of these contracts allow an issuer to disclose 

payment information to comply with securities 

laws, many do not, particularly older contracts.’’). 

without further Commission action, 

they can only do so in the prescribed 

manner and under the prescribed 

circumstances. Moreover, as is the case 

with all filings, the issuer’s disclosure 

and reliance on this exemption will be 

subject to Commission staff review, 

which should discourage potentially 

inappropriate uses of the exemption. 

To be eligible to claim the conflicts of 

law exemption, an issuer will first have 

to take reasonable steps to seek and use 

exemptions or other relief under the 

applicable law of the foreign 

jurisdiction.208 After taking such steps 

and failing to obtain an exemption or 

other relief, the issuer will have to 

disclose the foreign jurisdiction for 

which it has excluded disclosure, the 

law preventing disclosure, its efforts to 

seek and use exemptions or other relief 

under such law, and the results of those 

efforts.209 This disclosure will be 

required in the body of Form SD. The 

issuer will also be required to furnish as 

an exhibit to Form SD a legal opinion 

from counsel that opines on the 

inability of the issuer to provide the 

required disclosure without violating 

the foreign jurisdiction’s law.210

These conditions are similar to some 

of the suggested conditions 

recommended by some commenters. 

Those commenters indicated that, 

although they did not believe a conflicts 

of law exemption was necessary, they 

acknowledged that such an exemption 

would address specific concerns of 

some members of Congress who 

disapproved the 2016 Rules, would 

significantly contribute to the final 

rules’ being not substantially the same 

as the disapproved rules, as required by 

the CRA, and would be a permissible 

change as long as accompanied by 

sufficient safeguards.211

Several commenters recommended 

that we include an additional condition 

that limits the exemption to foreign laws 

in existence before the enactment of 

Section 13(q) in July 2010, or at least 

before adoption of the final rules.212

After considering all of the comments, 

we have determined not to limit the 

conflicts of law exemption to preexisting foreign laws. Unlike the 

situation involving a conflict with preexisting contract terms, where an issuer 

has control over the contract terms and 

would be in a position to negotiate or 

modify terms so that they do not 

conflict with the Section 13(q) 

requirements following adoption of the 

final rules, a resource extraction issuer 

has no control over a foreign 

government’s enactment of laws, 

including those that may prohibit the 

Section 13(q) disclosure. 

We acknowledge that adoption of the 

conflicts of law exemption could 

incentivize a foreign government to 

adopt a law that prohibits the Section 

13(q) disclosure. We further note that 

commenters on both sides of this issue 

indicated in support of their respective 

positions that no government has 

adopted a law or rule prohibiting the 

payment disclosures since the adoption 

of Section 13(q).213 While this may be 

correct, it is not determinative of what 

countries may do in the future. In light 

of the potential harm that could result 

to a resource extraction issuer from a 

future conflicts of law situation, we are 

not limiting this exemption to preexisting foreign laws. 

2. Exemption for Conflicts With PreExisting Contracts 

We are adopting a conditional 

exemption, as proposed, from Section 

13(q)’s disclosure requirements when 

the terms of an existing contract 

prohibit the disclosure.214 The 

exemption will only apply to contracts 

in which such terms are expressly 

included in writing prior to the effective 

date of the final rules. As previously 

noted, we believe this limitation is 

justified because issuers have control 

over the terms of their contracts and 

have the ability to modify future 

contract terms. Similar to the exemption 

for conflicts of law, and for the same 

reasons, issuers will not need to seek 

the exemption on an individual, caseby-case basis. The issuer will, however, 

be required to meet certain conditions to 

qualify for relief,215 and its disclosure 

and reliance on the exemption will be 

subject to staff review, which should 

help to discourage potentially 

inappropriate uses of the exemption. In 

addition, since multiple contracts may 

constitute a project under the Modified 

Project Definition, the exemption would 

only be available to exempt the specific 

payment information in the applicable 

contract that the issuer is expressly 

prohibited from disclosing by the 

relevant contract provision. 

Several commenters supported the 

proposed exemption for conflicts with 

pre-existing contract terms for reasons 

similar to those expressed in support of 

the exemption for conflicts of law.216

For example, one commenter stated that 

the proposed exemption would allow 

companies to avoid being forced into a 

choice between complying with the new 

disclosure requirements and complying 

with agreements entered into with 

foreign governmental partners.217 Other 

commenters indicated that the proposed 

exemption would minimize the harm 

and ease the administrative difficulties 

caused by conflicts with pre-existing 

contract terms.218

Other commenters opposed the 

proposed exemption for conflicts with 

pre-existing contract terms for reasons 

similar to those expressed in opposition 

to the exemption for conflicts with 

foreign law. These commenters stated 

that the proposed exemption was overly 

broad, was not needed, would reduce 

comparability with the non-U.S. 

payments-to-governments reporting 

regimes, which lack such an exemption, 

and would not further international 

transparency promotion efforts.219 Other 

commenters that did not believe the 

proposed exemption for conflicts with 

pre-existing contracts was warranted 

nevertheless stated that such an 

exemption would be a permissible 

change to help make the new rule not 

substantially the same as the 

disapproved 2016 Rules as long as there 

are sufficient safeguards to protect 

against abuse.220

After reviewing all of the comments, 

we are adopting the proposed 

exemption for conflicts with preexisting contract terms. As one 

commenter noted, without such an 

exemption, an issuer whose contract 

prohibits the disclosure of payment 

information without the host 

government’s permission, and who fails 

to obtain such permission, could face 

adverse financial consequences.221 The 

adopted exemption for conflicts with 

pre-existing contract terms will help to 

mitigate the potential burdens of the 

Section 13(q) rules in this regard. We 

also believe that the exemption is not 

overly broad or susceptible to misuse 

4680 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

222See 17 CFR 240.13q–1(d)(2)(i). 

223See 17 CFR 240.13q–1(d)(2)(ii). 

224See 17 CFR 240.13q–1(d)(2)(iii). 

225See letters from PWYP–US (Mar. 16, 2020); 

and Oxfam American and Earthrights International. 

226See letters from PWYP–US (Mar. 16, 2020); 

and Oxfam American and Earthrights International. 

227See letter from Davis Polk. 

228See infra Section II.D.6. 

229See supra note 190 for the definition of 

‘‘smaller reporting company,’’ as amended. 

230See supra note 191 for the definition of 

‘‘emerging growth company.’’ 

231See 2019 Rules Proposing Release at Section 

II.J.3. In particular, we expressed concern about the 

impact of the fixed cost component of the proposed 

rules on smaller reporting companies and emerging 

growth companies. 

232See Section 3(f) of the Exchange Act [15 U.S.C. 

78c(f)]. 

233See, e.g., Pay Ratio Disclosure, Release No. 

33–9877 (Aug. 5, 2015) [80 FR 50103 (Aug. 18, 

2015)] (exempting smaller reporting companies and 

emerging growth companies, among others, from 

the scope of the required pay ratio disclosure). Prior 

to the JOBS Act, the Commission provided a 

number of accommodations to smaller reporting 

companies, such as not requiring risk factor 

disclosure from smaller reporting companies in 

their Exchange Act registration statements and 

annual and periodic reports, which continue today. 

See, e.g., Release No. 33–10825 (Aug. 26, 2020) [85 

FR 63726 (Oct. 8, 2020)], note 197. 

234Public Law 112–106, 126 Stat. 306 (2012). 

235See letters from Chambers and NAM. 

236See letter from NAM. 

237See letter from Chamber. 

238See, e.g., letters from Africa Center for Energy 

Policy; Sens. Cardin et al.; the Carter Center; DAR; 

Shannon Gough; KCSPOG; Oxfam America and 

Earthrights International; Eric Postel; Public 

Citizen; PWYP–US (Mar. 16, 2020), F. Samama et 

al.; and Congr. Waters et al. 

239See, e.g., letters from Sens. Cardin et al.; 

Oxfam America and Earthrights International; 

PWYP–US (Mar. 16, 2020); F. Samama et al.; and 

Eric Postel. 

240See, e.g., letters from Public Citizen (stating 

that smaller reporting companies and emerging 

growth companies have been involved in the same 

industry practices that have enabled corruption and 

misappropriation in the past, and indicating that 

smaller issuers are generally more susceptible to 

equity risks than larger issuers because they take 

more operational risks); see also letter from PWYP– 

US (Mar. 16, 2020). 

because of the several conditions 

proposed for use of the exemption, 

which we are now adopting. 

An issuer will first be required to take 

reasonable steps to seek and use any 

contractual exceptions or other 

contractual relief (e.g., attempting to 

obtain the consent of the relevant 

contractual parties) to disclose the 

payment information.222 This obligation 

to take reasonable steps would not 

include an obligation to renegotiate an 

existing contract or to compensate the 

other contractual parties in exchange for 

their consent to disclose the payments. 

If the issuer fails to obtain consent, the 

issuer will have to disclose the 

jurisdiction where it has excluded such 

disclosure, the particular contract terms 

preventing the issuer from providing 

disclosure, its efforts to seek consent or 

other contractual relief, and the results 

of those efforts.223 This disclosure will 

be required in the body of Form SD. The 

issuer will also be required to furnish as 

an exhibit to Form SD a legal opinion 

from counsel that opines on the 

inability of the issuer to provide the 

required disclosure without violating 

the applicable contractual terms.224 The 

opinion should confirm that counsel has 

reviewed all of the contracts underlying 

or related to a project under the 

Modified Project Definition, that the 

applicable contractual provision 

prohibits the disclosure of the payment 

information that the issuer would 

otherwise be required to provide under 

Section 13(q), and that the exemption is 

only being applied to exempt that 

specific disclosure. 

Some commenters recommended 

adding other conditions in order to 

prevent abuse of the exemption. For 

example, commenters recommended 

limiting the exemption to contracts that 

existed prior to the enactment of Section 

13(q) in July 2010 in order to exclude 

issuers that have engaged in ‘‘10 years 

of gamesmanship and sub-standard 

contracting practice meant to avoid 

transparency.’’ 225 We do not believe 

such a limitation is appropriate as we 

are not aware of any evidence 

demonstrating that issuers have drafted 

contract terms during the last decade to 

preclude reporting of payments to 

governments in this context. 

Some commenters also indicated that 

it is common practice to include a nonconfidentiality provision in oil, gas, and 

mining contracts that allows for the 

disclosure of information when required 

by an issuer’s home government or its 

securities exchange.226 These 

commenters stated that we should 

prohibit an issuer from using the 

exemption if such a standard 

confidentiality exclusion provision 

exists. We do not believe that adding 

such a provision is necessary because an 

issuer will be required to submit a legal 

opinion that explains why it is 

contractually precluded from providing 

the Section 13(q) disclosure. In such 

situations, the opinion would 

necessarily have to address why the 

issuer is contractually precluded from 

providing the Section 13(q) disclosure 

in light of the presence of a contractual 

provision that expressly permits such 

disclosure when required by home 

government laws or securities exchange 

regulations. 

One commenter requested that we 

modify the exemption for conflicts with 

pre-existing contracts by providing that 

the exemption applies to contracts 

signed prior to an issuer’s initial public 

offering, but after the effective date of 

the final rules.227 We decline to make 

this modification because we believe 

that such an issuer will have received 

ample notice of the Section 13(q) rules 

and will have the opportunity to 

negotiate or modify the contract terms to 

remedy any conflict. Moreover, as 

discussed below, we are providing 

transitional relief for issuers that have 

recently completed their initial public 

offering, which should mitigate any 

resulting hardship.228

3. Exemption for Smaller Reporting 

Companies and Emerging Growth 

Companies 

When proposing to exempt smaller 

reporting companies 229 and emerging 

growth companies 230 from the scope of 

Rule 13q–1,231 we explained that the 

proposed exemption would be 

consistent with our statutory duty in a 

public rulemaking to consider, in 

addition to investor protection 

concerns, whether an action will 

promote efficiency, competition, and 

capital formation.232 The proposed 

exemption also would be consistent 

with our treatment of smaller reporting 

companies and emerging growth 

companies in other rulemakings 233

undertaken since the enactment of the 

Jumpstart Our Business Startups Act 

(‘‘JOBS Act’’).234

Some commenters supported the 

proposed exemption for smaller 

reporting companies and emerging 

growth companies.235 For example, one 

commenter stated that the proposed 

exemption would provide important 

cost savings for growing companies.236

Another commenter indicated that the 

proposed exemption aligned with the 

streamlined disclosure requirements 

typically afforded to smaller and newer 

reporting issuers.237

Several other commenters opposed 

the proposed exemption for smaller 

reporting companies and emerging 

growth companies.238 Most of those 

commenters opposed the proposed 

exemption primarily because it would 

exclude a significant percentage of the 

issuers that currently report under the 

EU Directives and Canada’s ESTMA and 

that would have been included under 

the 2016 Rules.239 Some commenters 

also asserted that smaller reporting 

companies and emerging growth 

companies are equally susceptible to 

corruption as larger issuers while posing 

a greater risk.240

We continue to be concerned that the 

fixed cost component of the Section 

13(q) rules would have a greater relative 

impact on smaller reporting companies 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4681 

241See infra Section III.D.2. 

242See 17 CFR 240.13q–1(c). 

243See 17 CFR 240.13q–1(d)(3). We discuss the 

alternative reporting provision in Section II.N and 

its associated costs in Section III.D.1. 

244See 15 U.S.C. 78mm(a). 

245See supra note 241. 

246See Item 2.01(b)(1) of Form SD. 

247 In the Form SD for the fiscal year following 

the fiscal year in which the exploratory payments 

were made, the issuer would be required to report 

those exploratory payments as well as all applicable 

non-exploratory payments, if any, made during the 

fiscal year following the fiscal year in which the 

issuer made the exploratory payments. 

248See 2016 Adopting Release, Section II.I.3. 

(citing letter from API (Feb. 16, 2016), which 

explained the competitive harm that could result 

from the disclosure of bonus and other payments 

to the host government regarding high-potential 

exploratory territory and stating that a case-by-case 

exemptive approach would be insufficient to 

protect against competitive harm in those 

situations). See also letter from ExxonMobil (Feb. 

16, 2016) (discussing the competitive harm from the 

forced disclosure of payments that may allow 

competitors to identify new areas of potential 

resource development an issuer has identified, and 

to determine the value the issuer places on such 

resources). 

249See letter from API (Mar. 16, 2020). 

250See letter from NAM. 

251See letter from PWYP–US (Mar. 16, 2020). 

252See letter from Oxfam America and Earthrights 

International. 

253We reject the commenter’s suggestion that the 

absence of a similar exemption under the foreign 

reporting regimes means that the concern for 

potential competitive harm resulting from the 

premature disclosure of payments related to 

exploratory activities does not exist or does not 

need to be addressed. 

254See supra note 248. 

and emerging growth companies and 

thus could impede their growth and 

access to capital markets.241 We also 

understand commenters’ concerns about 

the potentially large number of resource 

extraction issuers that would be 

excluded under the proposed exemption 

and the gap in coverage that would 

result. Therefore, while we are adopting 

an exemption for smaller reporting 

companies and emerging growth 

companies, we are removing from the 

scope of the exemption any company 

that is subject to the resource extraction 

payment disclosure requirements of an 

alternative reporting regime that has 

been deemed by the Commission to 

require disclosure that satisfies the 

transparency objectives of Section 

13(q).242 There will be only limited 

additional costs as such issuers will be 

able to submit a report complying with 

the reporting requirements of the 

alternative jurisdiction to satisfy its 

Section 13(q) disclosure obligations.243

Those companies eligible for 

alternative reporting will have a 

significantly reduced compliance 

burden under Section 13(q) and 

therefore will not need the exemption 

from Section 13(q) reporting as much as 

those smaller reporting companies and 

emerging growth companies that are not 

subject to an alternative reporting 

regime. We believe that this added 

limitation will reduce the scope of the 

exemption while retaining the 

exemption for companies that otherwise 

would bear the full burden of the 

Section 13(q) rules. For these latter 

companies, neither a smaller reporting 

company nor an emerging growth 

company will be required to provide 

any of the payment disclosure mandated 

by Section 13(q) and Rule 13q–1. 

By tailoring the exemption in this 

way, we believe that the exemption for 

smaller reporting companies and 

emerging growth companies is 

consistent with the Commission’s 

authority under Section 36(a) of the 

Exchange Act to adopt an exemption 

that is necessary or appropriate in the 

public interest, and consistent with the 

protection of investors.244 The added 

limitation is in the public interest 

because it promotes the transparency 

objective of Section 13(q) while 

permitting smaller reporting companies 

and emerging growth companies not 

subject to foreign reporting regimes to 

reduce their regulatory burdens to the 

ultimate benefit of their investors.245

4. Delayed Reporting for Payments 

Related to Exploratory Activities 

We are adopting a provision 

permitting delayed reporting of 

payments related to exploratory 

activities, as proposed.246 Pursuant to 

this provision, issuers will not be 

required to report payments related to 

exploratory activities in the Form SD for 

the fiscal year in which payments are 

made. Instead, an issuer may delay 

reporting such payments until it 

submits a Form SD for the fiscal year 

following the fiscal year in which the 

payments were made.247 We are 

proposing a limited, delayed approach 

because we believe that the likelihood 

of competitive harm from the disclosure 

of payment information related to 

exploratory activities diminishes over 

time. For example, once exploratory 

activities end and development 

activities begin, the likelihood of 

competitive harm from payments terms 

related to the exploratory activities (e.g., 

payment information that might reveal 

the scope or significance of the project) 

is greatly diminished. 

We adopted a similar delayed 

reporting provision in the 2016 Rules 

after considering the concerns raised by 

industry commenters that the disclosure 

of payment information regarding 

exploratory activities could result in 

competitive harm to a resource 

extraction issuer.248 Industry 

commenters have continued to support 

a delayed reporting provision for 

payments related to exploratory 

activities. For example, one commenter 

stated that exploration activity 

represents some of the most 

commercially sensitive investments by 

issuers and that reporting needs should 

be balanced to protect such 

information.249 Another commenter 

described the proposed delayed 

reporting provision as critical to 

protecting commercially sensitive 

information about resource extraction 

issuers’ exploratory activities.250

Other commenters, however, opposed 

the proposed delayed reporting of 

payments related to exploratory 

activities. One commenter stated that 

exploratory activities can pose a high 

risk of corruption.251 Another 

commenter indicated that, in the EU 

and Canadian transparency regimes, no 

issuer appears to have raised concerns 

about disclosures during the exploratory 

phase.252

We continue to believe that a 

provision permitting delayed reporting 

for payments related to exploratory 

activities is appropriate because of the 

commercially sensitive nature of 

exploratory activities. In reaching this 

conclusion, we have considered 

whether such a provision continues to 

be appropriate in light of the Modified 

Project Definition, which will provide 

the geographic location of a project at 

the national and major subnational 

political jurisdiction and therefore 

should mitigate the potential 

competitive harm that could result from 

disclosing a project at the contract level. 

Although the Modified Project 

Definition should help alleviate 

competitive harm, and despite the 

absence of a similar exemption under 

the foreign reporting regimes,253 we 

remain concerned that such harm could 

still occur. For example, harm could 

occur to the extent that the disclosure of 

a particular type or amount of a 

payment associated with the issuer’s 

exploratory activities could reveal 

competitively sensitive information 

about the nature, significance, or 

specific details of such activities.254

Thus, we continue to believe that a 

delayed reporting provision for 

disclosure of payments related to 

exploratory activities would mitigate the 

potential competitive harm that issuers 

might experience in these 

circumstances. Importantly, we do not 

believe it would substantially reduce 

the overall benefits of the disclosure to 

its users. Although one commenter 

4682 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

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

256We appreciate that the exploratory phase may 

vary from project to project, and that this variance 

can depend on such considerations as the 

geographic area in which the exploration is being 

undertaken and the type of resource being sought. 

In adopting a one-year reporting delay, we note that 

commenters in the oil and gas industry asserted a 

specific need for the exemptive relief. We 

understand that the exploratory period for oil and 

gas generally involves a seismic survey/analysis 

phase followed by an exploratory drilling phase. 

We further understand that, while the time periods 

for those activities can vary considerably, 

conducting seismic surveys and analyzing the data 

can take six months or more, while (at least for 

conventional onshore hydrocarbons) exploratory 

drilling and site clearance can potentially take a 

similar length of time. These considerations lead us 

to believe that one year is an appropriate period for 

the delay in reporting exploratory payments. 

Although we solicited comment on other potential 

timeframes for relief, no commenters suggested 

other timeframes. We further note that an issuer 

would be able to apply for an exemption on a caseby-case basis, as discussed below in Section II.D.6., 

if it believes that its individual circumstances 

warranted a longer exemptive period than the 

proposed one-year exemption. 

257See Item 2.01(b)(2) of Form SD. 

258See 2016 Adopting Release, Section II.G.3. 

(citing letters from Cleary, Gottlieb, Steen and 

Hamilton (Feb. 17, 2016); and Ropes & Gray (Feb. 

16, 2016)). 

259 17 CFR 240.13p–1. 

260See Instruction (3) to Item 1.01 of Form SD. 

The final rules differ, however, from what is 

provided for under Rule 13p–1 because disclosure 

under Rule 13p–1 occurs on a calendar year basis 

rather than a fiscal year basis. 

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

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

263See id. 

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

indicated that exploratory activities can 

pose a high risk of corruption, we 

believe that any such risk is mitigated 

because the exemption is of limited 

duration. Specifically, the payments 

related to the exploratory activities must 

be reported in the fiscal year following 

the fiscal year in which the issuer made 

the payments. 

We also have considered whether this 

delayed reporting provision is 

appropriate in light of the extended 

deadline for furnishing the payment 

information compared to the deadline 

under the 2016 Rules. Again, we believe 

it is appropriate because of the difficulty 

of determining the precise point at 

which exploratory activities cease being 

commercially sensitive. 

For purposes of this provision, we 

will consider payments to be related to 

exploratory activities if they are made as 

part of the process of: (1) Identifying 

areas that may warrant examination; (2) 

examining specific areas that are 

considered to have prospects of 

containing oil and gas reserves; or (3) 

conducting a mineral exploration 

program. In all cases, exploratory 

activities will be limited to activities 

conducted prior to the commercial 

development of the oil, natural gas, or 

minerals that are the subject of the 

exploratory activities.255

When proposing this provision, we 

also considered that the total payment 

streams from the first year of 

exploration that would be covered by 

the exemption would typically be 

relatively small compared to, for 

example, the annual payment streams 

that would likely occur once an issuer 

commences development and 

production. Given this, we continue to 

believe that any diminished 

transparency as a result of the one-year 

delay in reporting of such payments is 

justified by the potential competitive 

harm that we anticipate may be avoided 

as a result of this exemptive relief. 

Nevertheless, we are limiting the delay 

to one year because we believe that the 

likelihood of competitive harm from 

disclosing the payment information 

diminishes over time once exploratory 

activities have begun.256

5. Transitional Relief for Recently 

Acquired Companies 

We are adopting, as proposed, 

transitional relief with respect to 

recently acquired companies where 

such companies were not previously 

subject to Section 13(q) or an alternative 

reporting regime deemed by the 

Commission to satisfy the transparency 

objectives of Section 13(q).257 The 

Commission provided this relief under 

the 2016 Rules based on the 

recommendations of commenters who 

asserted that such relief was necessary 

to reduce the compliance costs 

associated with recently acquired 

companies that may experience 

difficulty timely complying with the 

payment disclosure requirements.258 As 

noted by those commenters, the 

Commission adopted a similar provision 

under Rule 13p–1,259 which also 

requires disclosure on Form SD.260

We received little comment on the 

proposed transitional relief for recently 

acquired companies. One commenter 

did not believe that the proposed relief 

was necessary and noted that this issue 

never arose during adoption of the EU 

and Canadian transparency regimes.261

This commenter also stated that since 

the relief is temporary, and of short 

duration, the commenter would not 

object if the Commission finds that this 

transitional relief for recently acquired 

companies provides necessary 

compliance cost reductions. 

Under Section 13(q) and the final 

rules, an issuer is required to disclose 

resource extraction payment 

information for every entity it controls. 

Therefore, absent an exemption, an 

issuer would be required to include the 

acquired issuer’s resource extraction 

payment information in its first annual 

submission after obtaining control. We 

continue to be concerned that 

implementing the appropriate reporting 

mechanisms in a timely manner for an 

issuer that was not previously subject to 

reporting under Section 13(q) or an 

alternative reporting regime might 

remain a significant undertaking. As 

such, we are adopting the proposed 

transitional relief with respect to such 

issuers. 

Under the final rules, issuers will not 

need to report payment information for 

an issuer that it acquired or over which 

it otherwise obtained control, if the 

acquired issuer, in its last full fiscal 

year, was not obligated to disclose 

resource extraction payment 

information pursuant to Rule 13q–1 or 

an alternative reporting regime’s 

requirements deemed by the 

Commission to satisfy Section 13(q)’s 

transparency objectives. In these 

circumstances, the resource extraction 

issuer will begin reporting payment 

information for the acquired issuer 

starting with the Form SD submission 

for the first full fiscal year immediately 

following the effective date of the 

acquisition. As under the 2016 Rules, 

and in contrast to the delayed reporting 

provision for exploratory activities, an 

issuer will not be required to provide 

the (excluded) payment disclosure for 

the year in which it acquired the issuer 

in a future Form SD.262

As explained in the 2016 rulemaking, 

the transitional relief will not apply to 

companies that have been subject to 

Section 13(q)’s disclosure requirements 

or to those of an alternative reporting 

regime in their last full fiscal year prior 

to their acquisition.263 Those companies 

should already be generally familiar 

with the Section 13(q) requirements or 

have sufficient notice of them to 

establish reporting systems and prepare 

the appropriate disclosure during the 

fiscal year of their acquisition. 

6. Transitional Relief for Initial Public 

Offerings 

We are adopting, as proposed, similar 

transitional relief for a resource 

extraction issuer that has completed its 

initial public offering in the United 

States in its last full fiscal year.264 Such 

an issuer will not have to comply with 

the Section 13(q) rules until the first 

fiscal year following the fiscal year in 

which it completed its initial public 

offering. 

We received a small number of 

comments on the proposed transitional 

relief for initial public offerings. Those 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4683 

265See letters from PWYP–US (Mar. 16, 2020); 

and Oxfam America and Earthrights International. 

266See 2016 Adopting Release, Section II.G. 

267See supra note 232. 

268See, e.g., Remarks of Chairman Jay Clayton on 

Capital Formation at the 36/86 Entrepreneurship 

Festival (Aug. 29, 2018), which is available at 

https://www.sec.gov/news/speech/speech-clayton082918. 

269See 15 U.S.C. 78mm(a). 

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

271See 17 CFR 240.13q–1(d)(4). 

272See 2016 Rules Adopting Release at Section 

II.I.3. 

273See, e.g., letters from Elise J. Bean; and PWYP– 

US (Mar. 16, 2020). 

274See letter from PWYP–US (Mar. 16, 2020). 

275See, e.g., letter from Elise J. Bean. 

276See 17 CFR 240.13q–1(d)(4) (requiring an 

issuer that files an application for a case-by-case 

exemption to follow the procedures of 17 CFR 

240.0–12, which, pursuant to 17 CFR 240.0–12(a), 

requires the request for exemptive relief to be in 

writing). 

277See 15 U.S.C. 78mm(a)(providing the 

Commission with broad authority to provide 

exemptions when it is necessary or appropriate in 

the public interest, and it is consistent with the 

protection of investors). 

278See 15 U.S.C. 78m(q)(2)(A). 

commenters stated that, although the 

proposed measure would result in some 

loss of transparency, because the relief 

would be temporary, it was an 

appropriate modification of the 2016 

Rules that would help meet the CRA 

mandate that the new rule not be 

substantially the same as the 

disapproved rule.265

This transitional relief for companies 

that have recently completed their U.S. 

initial public offerings is a change from 

the 2016 Rules. At that time, the 

Commission stated its belief that such 

companies would have sufficient notice 

of the payment reporting requirements 

to establish reporting systems and 

prepare the appropriate disclosure prior 

to undertaking the initial public 

offering.266

In reconsidering the 2016 Rules, 

however, we believe that the Section 

13(q) rules could impose a compliance 

burden on a non-reporting resource 

extraction issuer that could impede its 

ability to become a public company and 

fully gain access to U.S. capital markets. 

We further believe that providing 

transitional relief for issuers conducting 

initial public offerings is consistent with 

our statutory duty in a public 

rulemaking to consider whether an 

action will promote efficiency, 

competition, and capital formation.267

Reducing regulatory burdens in 

connection with initial public offerings 

not only helps issuers conducting those 

offerings but provides investors with 

expanded investment opportunities.268

For the foregoing reasons, we believe 

that providing transitional relief to 

resource extraction issuers conducting 

initial public offerings is also consistent 

with our authority under Section 36(a) 

of the Exchange Act to provide an 

exemption to the extent that such 

exemption is appropriate in the public 

interest and is consistent with the 

protection of investors.269

As we explained when proposing this 

transitional relief for initial public 

offerings, an issuer that is preparing to 

conduct its U.S. initial public offering 

would have notice of the Section 13(q) 

rules. Thus, such an issuer would likely 

need to incur costs to establish a 

payment reporting system to comply 

with the Section 13(q) rules in advance 

of the public offering despite not 

knowing whether it will successfully 

conduct that initial public offering. The 

issuer would then incur these costs 

unnecessarily if it chose not to move 

forward with a planned initial public 

offering.270 We also continue to believe 

that the adopted transitional relief is an 

appropriate measure to prevent the 

situation where an issuer contemplating 

a U.S. initial public offering would need 

to postpone or, in the extreme case, 

refrain from conducting its U.S. initial 

public offering to avoid the Section 

13(q) compliance costs. These outcomes 

would be inconsistent with our 

statutory duty to adopt rules that 

promote capital formation and would 

result in lost investment opportunities 

to the detriment of investors. They also 

would be contrary to the stated goals of 

Section 13(q) as they would delay the 

disclosure provided under that section. 

7. Case-by-Case Exemption 

We are adopting the proposed rule 

provision that will permit issuers to 

apply for exemptions on a case-by-case 

basis using the procedures set forth in 

17 CFR 240.0–12 (Rule 0–12 of the 

Exchange Act).271 This provision will 

enable issuers to address any other 

potential bases for exemptive relief, 

beyond the rule-based exemptions and 

transitional relief described above. We 

adopted a similar provision in the 2016 

Rules.272

We received a limited number of 

comments on the proposed case-by-case 

exemption.273 One commenter opposed 

the proposed exemption because it did 

not believe that any other exemptions 

are warranted, and noted that no such 

exemptions exist in the other markets 

where companies are already regularly 

reporting their payments to 

governments.274 Other commenters 

suggested that the case-by-case 

exemptive approach in the 2016 Rules 

was preferable to the proposed 

exemptions for conflicts of law and preexisting contracts and the proposed 

exemption for smaller reporting 

companies and emerging growth 

companies, which they believed to be 

overly broad.275

Under the final rules, issuers seeking 

a case-by-case exemption will be 

required to submit a written request for 

exemptive relief to the Commission.276

The request should describe the 

particular payment disclosures it seeks 

to omit (e.g., signature bonuses in 

Country X or production entitlement 

payments in Country Y) and the specific 

facts and circumstances that warrant an 

exemption, including the particular 

costs and burdens it faces if it discloses 

the information. The Commission will 

be able to consider all appropriate 

factors in deciding whether to grant 

requests, including whether the 

disclosure is already publicly available 

and whether (and how frequently) 

similar information has been disclosed 

by other companies, under the same or 

similar circumstances. We anticipate 

relying on Section 36(a) of the Exchange 

Act 277 to provide exemptive relief 

under this framework. In situations 

where exigent circumstances exist, the 

Commission staff, acting pursuant to 

delegated authority from the 

Commission, could rely on 15 U.S.C. 

78l(h) (Exchange Act Section 12(h)) for 

the limited purpose of providing interim 

relief while the Commission considered 

the Section 36(a) exemptive application. 

This approach will allow the 

Commission to determine if and when 

exemptive relief may be warranted and 

how broadly it should apply, based on 

the specific facts and circumstances 

presented in the application. For 

example, an issuer could apply for an 

exemption in situations where 

disclosure would have a substantial 

likelihood of jeopardizing the safety of 

an issuer’s personnel, or in other 

situations posing a significant threat of 

commercial harm that fall outside the 

scope of the proposed rule-based 

exemptions and transitional relief 

described above. The Commission could 

then determine the best approach to 

take based on the facts and 

circumstances, including denying an 

exemption, providing an individual 

exemption, providing a broader 

exemption for all issuers operating in a 

particular country, or providing some 

other appropriately tailored exemption. 

E. Definition of ‘‘Subsidiary’’ and 

‘‘Control’’ 

Section 13(q) requires a resource 

extraction issuer to disclose payments 

by a subsidiary or an entity under the 

control of the issuer.278 We are adopting 

4684 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

279See Item 2.01(d)(12) of Form SD. 

280Under Exchange Act Rule 12b–2, ‘‘control’’ 

(including the terms ‘‘controlling,’’ ‘‘controlled by’’ 

and ‘‘under common control with’’) is defined to 

mean the possession, direct or indirect, of the 

power to direct or cause the direction of the 

management and policies of a person, whether 

through the ownership of voting shares, by contract, 

or otherwise. 

281See 2012 Adopting Release at Section II.D.4.c. 

282See Item 2.01(d)(3) of Form SD.; see also 

Accounting Standards Codification (‘‘ASC’’) 810, 

Consolidation; and IFRS 10, Consolidated Financial 

Statements. 

283See Item 2.01(d)(3) of Form SD. 

284See ASC 235–10–50; IFRS 8. See also 17 CFR 

210.1–01, 2–01 and 4–01 (Rules 1–01, 3–01, and 4– 

01 of Regulation S–X). 

285See Exchange Act Section 13(b)(2)(B) [15 

U.S.C. 78m(b)(2)(B)]. See also 17 CFR 240.13a–15 

and 17 CFR 240.15d–15. We note, however, that the 

final rules will not create a new auditing 

requirement. 

286See 2016 Rules Adopting Release at Section 

II.D.3. 

287See Item 2.01(d)(3) of Form SD. 

Proportionately consolidated entities or operations 

include those entities or operations that are 

proportionately consolidated in accordance with 

ASC 810–10–45–14 and ‘‘joint operations’’ as 

defined in IFRS 11, Joint Arrangements. 

288See 2019 Rules Proposing Release at Section 

II.E (citing letters from API (Feb. 16, 2016); BP (Feb. 

16, 2016); Chevron (Feb. 16, 2016); ExxonMobil 

(Feb. 16, 2016); Petrobras (Feb. 16, 2016); and Royal 

Dutch Shell (Feb. 5, 2016)). 

289See, e.g., letters from API (Feb. 16, 2016); and 

ExxonMobil (Feb. 16, 2016). 

290See letters from API (Mar. 16, 2020); Ovintiv; 

Petrobras; and SAF. 

291See letter from API (Mar. 16, 2020). 

292See letters from API (Mar. 16, 2020); Ovintiv; 

Petrobras; and SAF. 

293See letter from API (Mar. 16, 2020). 

the proposed definition of ‘‘subsidiary’’ 

to mean an entity controlled directly or 

indirectly through one or more 

intermediaries.’’ 279 We also are 

adopting the proposed definition of 

‘‘control’’ based on accounting 

principles rather than using the 

definition of that term provided in 17 

CFR 240.12b–2 (‘‘Exchange Act Rule 

12b–2’’),280 which was the case under 

the 2012 Rules.281

Under the final rules, a resource 

extraction issuer will have ‘‘control’’ of 

another entity when the issuer 

consolidates that entity under the 

accounting principles applicable to its 

financial statements included in the 

periodic reports filed pursuant to 

Section 13(a) or 15(d) of the Exchange 

Act. Thus, for purposes of determining 

control, the resource extraction issuer 

should follow the consolidation 

requirements under generally accepted 

accounting principles in the United 

States (‘‘U.S. GAAP’’) or under the 

International Financial Reporting 

Standards (‘‘IFRS’’) as issued by the 

International Accounting Standards 

Board, as applicable.282 A foreign 

private issuer that prepares financial 

statements according to a 

comprehensive set of accounting 

principles, other than U.S. GAAP, and 

files with the Commission a 

reconciliation to U.S. GAAP should 

consider determining control using U.S. 

GAAP.283

We continue to believe that this 

definition of control, compared to the 

definition of ‘‘control’’ in Rule 12b–2, 

would better balance transparency for 

users of the payment disclosure and the 

burden on issuers. Issuers already apply 

this concept of control for financial 

reporting purposes, which should 

facilitate compliance. Assuming a 

reporting issuer consolidates the entity 

making the eligible payment, this 

approach also should have the benefit of 

limiting the potential overlap of the 

disclosed payments because generally, 

under applicable financial reporting 

principles, only one party can control, 

and therefore consolidate, that entity. 

Further, this approach could enhance 

the quality of the reported data since 

each resource extraction issuer is 

required to provide audited financial 

statement disclosure of its significant 

consolidation accounting policies in the 

notes to the audited financial statements 

included in its existing Exchange Act 

annual reports.284 The disclosure of 

these accounting policies should 

provide greater transparency about how 

the issuer determined which entities 

and payments should be included 

within the scope of the required 

disclosures. Finally, a resource 

extraction issuer’s determination of 

control under the Section 13(q) rules 

will be subject to the audit process as 

well as to the internal accounting 

controls that issuers are required to have 

in place with respect to reporting 

audited financial statements filed with 

the Commission.285

The 2016 Rules included the same 

definition of ‘‘subsidiary’’ and a similar 

definition of ‘‘control.’’ 286 Unlike the 

2016 Rules, the definition of control we 

are adopting excludes entities or 

operations in which an issuer has only 

a proportionate interest, so that a 

resource extraction issuer will not be 

required to disclose the proportionate 

amount of the payments made by its 

proportionately consolidated entities or 

operations.287 We proposed to exclude 

such entities after reconsidering some of 

the comments in the 2016 rulemaking 

that raised concern about the definition 

of control and the potential compliance 

burden and impracticalities associated 

with using a broader definition of 

control.288 Compared to an issuer that 

consolidates an entity, an issuer with a 

proportionate interest in an entity or 

operations may not have the same level 

of ability to direct the entity or 

operations making the payments. For 

example, as commenters in the 2016 

rulemaking noted, an issuer that holds 

a proportionate interest in a joint 

venture typically does not have ready 

access to detailed payment information 

when it is not the operator of that 

venture.289 Requiring such a nonoperator issuer to provide the payment 

disclosure based on its proportionate 

interest in the venture could compel 

that issuer to renegotiate its joint 

venture agreement or make other 

arrangements to obtain sufficiently 

detailed payment information to comply 

with the Section 13(q) rules, which 

could significantly increase its 

compliance burden. 

Most commenters that addressed the 

issue supported the proposed definition 

of control based on applicable 

accounting principles.290 For example, 

one commenter stated that the proposed 

approach will reduce compliance costs 

for issuers since the definition of control 

is consistent with the entities that are 

included in financial filings, will align 

with internal controls, and lead to 

greater consistency in interpretation of 

Section 13(q) obligations across resource 

extraction issuers.291

A number of commenters also 

supported the proposed treatment of 

proportionate interests.292 One 

commenter stated that proportionate 

reporting would require a significant 

number of issuers subject to Section 

13(q) to modify their internal 

accounting/financial reporting systems 

and processes.293 Several commenters 

also reiterated their concern that 

requiring the reporting of payments by 

proportionate interests would conflict 

with the typical operating model in the 

oil and natural gas industry for joint 

ventures or similar arrangements. In 

those arrangements, a single company 

typically explores, develops, and 

operates a field, including making the 

necessary disbursements to 

governments for the entire joint venture 

or arrangement. The other (nonoperator) members then reimburse the 

operator for their respective share of the 

payments. The non-operator members 

typically do not have access to the level 

of information required to report the 

payments and may be forced to 

renegotiate the joint venture agreement 

or make other arrangements to obtain 

sufficiently detailed payment 

information, or may not be able to 

obtain that information from the 

operator. In addition, the resource 

extraction issuer that is the operator of 

the joint venture or arrangement would 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4685 

294See letter from API (Mar. 16, 2020). 

295See, e.g., letters from API (Mar. 16, 2020); and 

Ovintiv. 

296See letter from Ovintiv. 

297See letter from PWYP–US (Mar. 16, 2020); see 

also letter from Oxfam America and Earthrights 

International. 

298See letter from Public Citizen; see also letter 

from KCSPOG. 

299See letters from API (Mar. 16, 2020); and 

Ovintiv. 

300See Instruction 6 to Item 2.01 of Form SD. 

301The final rules use the term ‘‘furnished’’ when 

referring to the requirement to submit Form SD to 

provide Section 13(q) payment information to the 

Commission. See, e.g., 17 CFR 240.13q–1(a); see 

also General Instruction B.4 to Form SD (stating 

that, for purposes of Rule 13q–1, the information 

and documents furnished on Form SD shall not be 

deemed to be incorporated by reference into any 

filing under the Securities Act or the Exchange Act, 

unless a registrant specifically incorporates them by 

reference into such filing). 

302See 2012 Rules Proposing Release at Section 

II.F.3 (noting that Section 13(q) neither specifically 

states how the information should be submitted nor 

states that the disclosure be included in the annual 

reports that are customarily filed with the 

Commission, such as Form 10–K, Form 20–F, or 

Form 40–F.) 

303See 2012 Rules Adopting Release at Section 

II.F.3; and 2016 Rules Adopting Release at Section 

II.L.3. 

304For example, in the prior rulemakings, 

commenters that indicated the Section 13(q) 

information should be deemed ‘‘filed’’ maintained 

that investors would benefit from the payment 

information being subject to Exchange Act Section 

18 liability. Other commenters asserted that 

allowing the information to be furnished would 

diminish the importance of the information while 

requiring it to be filed would enhance the quality 

of the disclosure and ensure that it could be used 

reliably for investment analysis and other purposes. 

Commenters who favored treating the Section 13(q) 

disclosure as ‘‘furnished’’ emphasized that, in 

contrast to disclosure that is typically required to 

be filed under Section 13, the nature and purpose 

of the Section 13(q) disclosure requirements are not 

for the protection of investors but, rather, to 

increase the accountability of governments for the 

proceeds they receive from their natural resources 

and to support international transparency 

promotion efforts relating to the commercial 

development of oil, natural gas, or minerals, and 

that users of the payment information did not need 

the level of protection associated with Section 18 

liability. See 2012 Adopting Release at Section 

II.F.3.b.; and 2016 Adopting Release at Section 

II.L.2. 

305See 2019 Rules Proposing Release at Section 

II.M. 

306See letters from API (Mar. 16, 2020); Chamber; 

Equinor; Ovintiv; and Royal Dutch Shell (Mar. 30, 

2020). 

307See letter from API (Mar. 16, 2020). 

308See letters from Chamber; and Equinor. 

309See letters from Chris Barnard (Mar. 19, 2020); 

KCSPOG; Public Citizen; and PWYP–US (Mar. 16, 

2020). 

310See letter from PWYP–US (Mar. 16, 2020). 

311See letter from Chris Barnard. 

then be required to provide its nonoperating partners with the amount and 

type of each payments remitted to each 

governmental entity, the timing of the 

remittance and their corresponding 

share of the remittance.294 Thus, not 

requiring proportionate reporting 

should reduce the compliance burden 

on all members of the joint venture or 

arrangement.295

In addition, according to one 

commenter, not requiring proportionate 

reporting would reduce the risks of 

double counting payments, 

uncertainties relating to the 

proportionate amount that should be 

included in each member’s report and 

inconsistent approaches being taken 

between different joint ventures.296

Other commenters stated that, while 

they were not in favor of eliminating the 

requirement to report the payments of 

proportionate interests because of the 

significant loss of data that would 

result, this change would be an 

acceptable way to cause the new rule to 

be not substantially the same as the 

2016 Rules, because it would reduce 

compliance costs without undermining 

consistency with the non-U.S. paymentto-governments reporting regimes. 

According to these commenters, the 

question of joint venture reporting is 

neither squarely addressed in Section 

13(q) nor has it been settled globally, as 

the reporting of joint venture payments 

has been inconsistent.297 A small 

number of commenters opposed the 

proposed definition of control because 

of its potential detrimental effect on the 

reporting of payments by joint 

ventures.298

We recognize that excluding 

proportionate interest entities or 

operations from the proposed definition 

of control could potentially result in 

less payment information about joint 

ventures or arrangements becoming 

public, as compared to the 2016 Rules. 

The most recent comments on this 

issue, which are mostly in favor of 

excluding such entities, have 

nevertheless reinforced our belief that 

this potential reduction in transparency 

is justified as a means to help reduce the 

compliance burden of the Section 13(q) 

rules. 

Some commenters requested that we 

clarify the payment disclosure 

obligations of members in a joint 

venture or other joint arrangement 

where no one party has control.299 We 

agree that additional clarification would 

be useful and have added an 

appropriate instruction. That instruction 

provides that in a joint venture or 

arrangement, where no single party has 

control, a resource extraction issuer that 

is the operator of the venture or 

arrangement and makes payments to 

governments for the entire venture or 

arrangement, on behalf of its nonoperator members, must report all of the 

payments. The non-operator members 

are not required to report payments that 

they make to reimburse the operator for 

their share of the payments to 

governments. Such non-operator 

members are only required to report 

payments that, as resource extraction 

issuers, they make directly to 

governments.300

F. Treatment for Purposes of the 

Exchange Act and Securities Act 

We are adopting the proposed 

treatment of the disclosure provided 

pursuant to Section 13q–1 on Form SD 

as being furnished to, but not filed with, 

the Commission.301 The Commission 

originally proposed a similar approach 

in the 2012 Rules Proposing Release,302

but chose to require the disclosure to be 

filed in both the 2012 and the 2016 

Rules.303 When most recently proposing 

the Section 13(q) rules, after reviewing 

the various reasons articulated for 

treating the Section 13(q) disclosure as 

filed or furnished,304 the Commission 

stated that compelling arguments could 

be made on both sides of this policy 

choice.305

Several commenters supported the 

proposed treatment of the Section 13(q) 

disclosure on Form SD as furnished.306

One commenter favored the proposed 

treatment because it viewed the purpose 

of the Section 13(q) disclosure as 

different from the type of information 

normally filed with the Commission by 

issuers. This commenter also indicated 

that, in its view, the proposed treatment 

strikes an appropriate balance between 

addressing the need for transparency 

with the costs and liabilities associated 

with filing it with the Commission.307

Other commenters supported treating 

the payment disclosure as furnished 

because, in addition to not resulting in 

Section 18 liability, such treatment 

would not subject the disclosure to 

incorporation by reference in a 

Securities Act filing.308

Some commenters, however, opposed 

the proposed treatment of the Section 

13(q) reports as being furnished.309 For 

example, one commenter stated that the 

objectives of Section 13(q) are identical 

in nature and purpose to other 

disclosures required under the 

Exchange Act that are designed to 

benefit investors.310 Another 

commenter stated that subjecting the 

payment disclosure to Section 18 

liability would be appropriate because 

Section 18 imposes liability on any 

person who makes false and misleading 

statements of material fact on any report 

filed under the Exchange Act.311 Other 

commenters stated that the proposed 

treatment would diminish the rules’ 

effectiveness and ease the level of 

accountability to which resource 

4686 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

312See letters from KCSPOG; and Public Citizen. 

313See, e.g., letter from API (Mar. 16, 2020). 

314See, e.g., Section 10(b) of the Exchange Act [15 

U.S.C. 78j(b)] and 17 CFR 240.10b–5. 

315See General Instruction B.4 of Form SD. Form 

S–3 requires reports ‘‘filed’’ pursuant to Sections 

13(a), 13(c), 14 or 15(d) of the Exchange Act prior 

to the termination of the offering to be incorporated 

by reference into the prospectus. Although Form SD 

will be the form used for disclosures under Section 

13(q), Section 15(d) of the Exchange Act refers 

generally to periodic information, documents, and 

reports required by Section 13 reports with respect 

to securities registered under Section 12, not simply 

Section 13(a) reports. Thus, if Form SD were 

deemed ‘‘filed,’’ it could raise concerns that the 

payment disclosure would be incorporated by 

reference into a Securities Act filing. 

316See 15 U.S.C. 78m(q)(1)(B). 

317See Item 2.01(d)(7) of Form SD. 

318See id. To the extent that aboriginal, 

indigenous, or tribal governments are subnational 

governments in foreign countries, payments to 

those government entities will be covered by the 

Section 13(q) rules. 

319See Item 2.01(d)(6) of Form SD. 

320See 2016 Rules Adopting Release at Section 

II.F.3; and 2012 Rules Adopting Release at Section 

II.E.3. 

321See id. 

322See, e.g., Article 41(3) of the EU Accounting 

Directive, which defines ‘‘government’’ to mean 

‘‘any national, regional or local authority of a 

Member State or of a third country’’ and which 

‘‘includes a department, agency or undertaking 

controlled by that authority. . .’’; see also Article 

2 of Canada’s ESTMA, which defines ‘‘payee’’ to 

mean ‘‘(a) any government in Canada or in a foreign 

state; (b) a body that is established by two or more 

governments; (c) any trust, board, commission, 

corporation or body or authority that is established 

to exercise or perform, or that exercises or performs, 

a power, duty or function of government for a 

government . . . or (d) any other prescribed payee;’’ 

and Requirement 4.6 of the EITI Standard (2019), 

which requires the multi-stakeholder group to 

ensure that company payments to subnational 

government entities and the receipt of these 

payments are disclosed, if material. 

323See 2012 Rules Adopting Release at Section 

II.E.2., note 341 and accompanying text. 

324See letter from PWYP–US (Mar. 16, 2020). 

325See 2019 Rules Proposing Release at Section 

II.G. 

326Compare Section 13(q)(1)(B) with Section 

13(q)(2(A). 

extraction issuers are held when 

reporting payments.312

After reviewing all of the comments, 

we are persuaded to treat the Section 

13(q) reports as furnished to, and not 

filed with, the Commission. We believe 

this is a reasonable and appropriate 

policy choice because of the different 

nature and purpose of the Section 13(q) 

disclosures compared to other 

disclosures required under Section 13. 

Specifically, in contrast to disclosure 

that is typically required to be filed 

under Section 13, the Section 13(q) 

disclosure requirements are not for the 

protection of investors. Rather, they are 

to increase the accountability of 

governments for the proceeds they 

receive from their natural resources and 

to support the commitment of the 

Federal Government to international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas, or minerals.313 While such 

disclosures may be considered by some 

investors, as noted above, the disclosure 

is not for investor protection purposes. 

Since Section 18 is designed to protect 

investors, we do not believe it is 

necessary or appropriate to apply it to 

the Section 13(q) disclosures. 

Additionally, we believe that this 

treatment will not significantly 

undermine the transparency objectives 

of Section 13(q), as it will limit the 

Section 18 liability for the required 

disclosures but will not affect the 

content of those disclosures. Moreover, 

we note that the Section 13(q) 

disclosures will continue to be subject 

to the Exchange Act’s general antifraud 

provisions.314

This treatment will eliminate the 

possibility of Section 18 liability for the 

Section 13(q) disclosure. It will also 

eliminate the risk that the disclosure 

would be incorporated by reference into 

a filing under the Securities Act of 1933 

(the ‘‘Securities Act’’) and be potentially 

subject to strict liability under Section 

11 of the Securities Act, unless the 

issuer expressly incorporates such 

information.315

G. Definitions of ‘‘Foreign Government’’ 

and ‘‘Federal Government’’ 

We are adopting the proposed 

definitions of ‘‘foreign government’’ and 

‘‘Federal Government’’ with a slight 

modification. Consistent with Section 

13(q),316 we proposed to define ‘‘foreign 

government’’ to mean a foreign 

government, a department, agency, or 

instrumentality of a foreign government, 

or a company at least majority-owned by 

a foreign government. In order to 

eliminate the circularity of the first part 

of the proposed definition, we are 

clarifying that, under the final rules, a 

‘‘foreign government’’ means the 

national government of a foreign 

country, as well as any department, 

agency, or instrumentality of the 

national government, or a company at 

least majority owned by the national 

government of a foreign country.317

Similar to the proposed definition, the 

adopted definition also provides that 

the term ‘‘foreign government’’ also 

includes any subnational governments 

of a foreign country, such as the 

government of a state, province, county, 

district, municipality, or territory under 

a foreign national government.318 As 

proposed, ‘‘Federal Government’’ is 

defined as the Federal government of 

the United States and does not include 

subnational governments within the 

United States.319

These definitions are essentially the 

same definitions of ‘‘foreign 

government’’ and ‘‘Federal 

Government’’ adopted in the 2016 and 

2012 rulemakings.320 We included all 

subnational governments within the 

definition of ‘‘foreign government’’ in 

both the 2012 and 2016 rulemakings.321

We believe this is a reasonable and 

appropriate way to define the term 

‘‘foreign government.’’ For example, we 

note that this approach is consistent 

with the inclusion of subnational 

governments under the foreign reporting 

regimes and the EITI.322 Although we 

received little comment on the proposed 

definitions in the current rulemaking, 

many prior commenters supported the 

inclusion of subnational governments in 

the definition of foreign government 

because resource extraction issuers 

frequently make payments to 

subnational governments.323

In the current rulemaking, one 

commenter supported both of the 

proposed definitions but recommended 

that we include under the definition of 

‘‘foreign government’’ a company that is 

controlled by a foreign government.324

We decline to follow this 

recommendation because, as we 

explained when proposing the 

definition of ‘‘foreign government’’ to 

include a company that is at least 

majority-owned by a foreign 

government,325 we believe it would be 

difficult for issuers to determine when 

the government has control over a 

particular entity outside of a majorityownership context. In this regard, we 

note that Section 13(q) refers to a 

company ‘‘owned’’ by a foreign 

government, not ‘‘controlled’’ by a 

foreign government. Moreover, the 

‘‘control’’ concept is explicitly included 

in Section 13(q) in other contexts.326

For purposes of identifying the 

foreign governments that received 

payments at a level below the major 

subnational government level, we 

proposed to permit an issuer to 

aggregate all of its payments of a 

particular payment type without having 

to identify the particular subnational 

government payee. The proposed 

instruction to Form SD would have 

permitted an issuer to aggregate 

payments by payment type made to 

multiple counties and municipalities 

(the level below major subnational 

government level), disclose the 

aggregate amount without having to 

identify the particular subnational 

government payee, and instead 

generically identify the subnational 

government payee (e.g., as ‘‘county,’’ 

‘‘municipality’’ or some combination of 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4687 

327See 2019 Rules Proposing Release at Section 

II.G (discussing proposed Instruction (14) to Item 

2.01 of Form SD). 

328See id. 

329See letters of API (Mar. 16, 2020); Chamber; 

and NAM. 

330See letter from API (Mar. 16, 2020). 

331See letter from NAM. 

332See letters from Oxfam America and 

Earthrights International; POGO; PWYP–US (Mar. 

16, 2020); and Congr. Waters et al. 

333See letters from PWYP–US (Mar. 16, 2020); 

and Congr. Waters et al. (stating that full public 

reporting—including of the company making the 

payment and the entity receiving it—is a basic 

requirement of an effective transparency regime). 

334See letter from PWYP–US (Mar. 16, 2020). 

335See id. (stating that, under Canada’s ESTMA, 

issuers must disclose payments to governments at 

any level, including national, regional, state, 

provincial, territorial, or local/municipal levels; 

under UK payments-to-governments regulations, 

‘‘government’’ is defined as any national, regional, 

or local authority of a country; and under the EITI 

Standard, payment data must be disaggregated by 

each government entity). 

336See Oxfam America and Earthrights 

International (citing 15 U.S.C. 78m(q)(2)(D)(ii)(V)). 

337See id.; see also letter from POGO. 

338The three major oil sands regions in Alberta 

are the Athabasca, Peace River, and Cold Lake 

regions. See, e.g., Regional Aquatics Monitoring 

Program, ‘‘The Oil Sands Described,’’ available at 

http://www.ramp-alberta.org/resources/ 

development/distribution.aspx. 

339See letter from ExxonMobil (Feb. 16, 2016) 

(‘‘. . . some commenters appear to overlook the fact 

that project tagging is only one aspect of the 

multiple data points to be included in 1504 reports. 

In addition to tagging payments by project, 

companies would also report each payment outside 

the U.S. by specific government payee, including 

national, sub-national, and local and communitylevel government payees. Thus, the API project 

definition combined with reporting of payments at 

all levels of government will enable host country 

citizens easily to determine the amounts received 

by their local, state and federal government 

agencies from resource extraction activities 

occurring in their state or province. Citizens would 

know how much money is coming directly from the 

industry at each level of government and be able to 

lobby the applicable level of government for greater 

accountability for the use of such revenues, such as 

by advocating for changes in revenue sharing or 

allocations to local needs.’’) 

subnational governments).327 We 

proposed this option for aggregated 

disclosure of subnational government 

payments to reduce the potential for 

competitive harm that could result from 

implementation of the Section 13(q) 

rules.328

A few commenters supported the 

proposed approach permitting the 

generic description and aggregated 

disclosure of subnational government 

payments.329 One commenter indicated 

that because payments below the major 

subnational jurisdictional level tend to 

be relatively minimal, it did not believe 

that more granular reporting below that 

level would provide meaningful 

transparency benefits.330 Another 

commenter stated that the proposed 

approach would reduce compliance 

costs.331

In contrast, several commenters 

opposed the proposed approach 

regarding the aggregated and generic 

disclosure of subnational government 

payments.332 For example, several of 

these commenters stated that the 

disclosure of each subnational payee is 

critical to fulfill the transparency and 

anti-corruption objectives of Section 

13(q).333 One commenter indicated that 

the proposed approach would equate to 

anonymity for local government entities, 

which would deprive citizens of the 

information needed to hold local 

government entities accountable for 

receipt and management of payments to 

them and which, in the absence of such 

information, could fuel suspicion that 

payments were not made in accordance 

with fiscal obligations.334 This 

commenter further maintained that 

transparent disclosure of payments 

made at the subnational government 

level would not increase the potential 

for competitive harm because many 

issuers are already disclosing such 

payments and identifying the 

subnational government payee pursuant 

to the requirements of non-U.S. 

reporting regimes.335

Another commenter stated that the 

proposed generic approach to 

subnational government payments is 

inconsistent with the statutory language, 

which dictates that the payment 

disclosure include electronic tags that 

identify the government that received 

the payment, in addition to the country 

in which the government is located.336

This commenter, along with others, also 

indicated that the proposed generic 

approach would undermine the anticorruption objective of Section 13(q).337

After considering all of the comments, 

we have reconsidered our proposed 

generic approach to the disclosure of 

payments to subnational governments. 

Under the final rules, an issuer will still 

be able to aggregate payments by 

payment type when disclosing 

payments made at a level below the 

major subnational government level. It 

will, however, now be required to 

disclose the aggregated amount paid to, 

and identify, each subnational political 

jurisdiction. For example, an issuer with 

extractive operations in the three oil 

sands regions of Alberta, Canada 338 (the 

Regional Municipality of Wood Buffalo, 

Northern Sunrise County, and the 

Municipality of Cold Lake), would be 

required to identify each such 

subnational government entity, as well 

as aggregate and report all of its fees 

paid for environmental and other 

permits to each such entity. 

In this regard, an issuer’s reporting 

obligations at the level below major 

subnational government will be the 

same as its reporting obligations at the 

major subnational government level. For 

example, an issuer could aggregate all of 

the royalties arising from its operations 

in the three oil sands areas paid at the 

provincial level but will be required to 

disclose the particular agency payee, 

e.g., the Alberta Department of Energy. 

We find persuasive commenters’ 

concerns that Section 13(q)’s 

transparency objective will be better 

served by this approach. Further, we 

believe that adoption of the Modified 

Project Definition is sufficient to render 

the final rules not substantially the same 

as the 2016 Rules for the purpose of 

satisfying the CRA. Thus, while the 

proposed approach could help 

distinguish the final rules from the 

disapproved rules, we do not believe it 

is necessary or appropriate in light of 

the changes described above and its 

likely adverse impact on Section 13(q)’s 

transparency objective. 

Moreover, as one industry commenter 

indicated in the 2016 rulemaking, the 

disclosure of payments at the 

subnational government level and the 

identification of the subnational 

government payee would work in 

tandem with a definition of ‘‘project’’ 

that permits the aggregation of payments 

at the major subnational jurisdiction 

level. According to this commenter, this 

information would provide citizens 

with the payment data necessary to hold 

their leaders accountable at all levels of 

government.339 We note that this 

industry commenter, who consistently 

argued that a less granular project 

definition was necessary to minimize 

the potential for competitive harm, also 

supported the required identification of 

subnational government payees. Upon 

reconsideration, we similarly believe 

that the proposed generic approach to 

subnational government payments is a 

discretionary choice that is not 

necessary to minimize the potential for 

competitive harm. 

With respect to the definition of 

‘‘Federal Government,’’ we believe that 

Section 13(q) is clear in only requiring 

disclosure of payments made to the 

Federal government in the United States 

and not to state, local, or tribal 

governments. In this regard, we believe 

that typically the term ‘‘Federal 

Government’’ refers only to the U.S. 

national government and not the states 

or other subnational governments in the 

United States. 

H. Definition of ‘‘Resource Extraction 

Issuer’’ 

We are adopting the proposed 

definition of ‘‘resource extraction 

4688 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

340 17 CFR 249.310. 341 17 CFR 249.220f. 342 17 CFR 249.240f. 343 15 U.S.C. 78m or 78o(d). 344See 17 CFR 240.13q–1(d)(11). 345 15 U.S.C. 78m(q)(1)(D). 346See 2019 Rules Proposing Release at Section 

II.A. 347 In prior releases, the Commission noted that, 

in the staff’s experience, resource extraction issuers 

rarely use Regulation A. This continues to be the 

case. Between June 2015 through December 2019, 

we estimate that only 5 of the 343 Regulation A 

issuers with a qualified offering statement appears 

to have been a resource extraction issuer at the time 

of filing based on a review of assigned Standard 

Industrial Classification (SIC) codes listed in Part 1 

of Form 1–A. Similarly, between May 2016 through 

December 2019, we estimate that only 1 of the 1,975 

Regulation Crowdfunding issuers appears to have 

been a resource extraction issuer. 

348 15 U.S.C. 80a–1 et seq. 

349 It seems unlikely that an entity that fits within 

the definition of ‘‘investment company’’ would be 

one that is ‘‘engag[ing] in the commercial 

development of oil, natural gas, or minerals.’’ See 

Section 3(a)(1) of the Investment Company Act (15 

U.S.C. 80a–3(a)(1)). 

350See 2016 Rules Adopting Release at Section 

II.A.2. 

351We did receive related comments objecting to 

broad exemptions from the scope of the Section 

13(q) rules for classes of companies, such as 

emerging growth companies and smaller reporting 

companies, which would have been covered 

resource extraction issuers under the 2016 Rules. 

See, e.g., letters from KCSPOG; PWYP–US (Mar. 16, 

2020); and Oxfam America and Earthrights 

International. As previously explained, we are 

exempting emerging growth companies and smaller 

reporting companies from the scope of Rule 13q– 

1 because we believe that this change from the 2016 

Rules will reduce the overall cost of the Section 

13(q) rules. See supra Section II.D.3. 

352See letter from PWYP–US (Mar. 16, 2020). 

353See the definition of ‘‘foreign private issuer’’ 

in 17 CFR 230.405 and 17 CFR 240.3b–4. 

354See letter from PWYP–US (Mar. 16, 2020). 

355See 2016 Rules Adopting Release at Section 

II.A.3; and 2016 Rules Proposing Release at Section 

II.A. 

356See Item 2.01(d)(2) of Form SD. 

357See 15 U.S.C. 78m(q)(1)(A). 

358See id. 

359See 2019 Rules Proposing Release at Section 

II.B; and 2016 Rules Adopting Release at Section 

II.B.2.a. 

360See letter from PWYP–US (Mar. 16, 2020). 

361Marketing and security-related activities are 

not included within the final rules because those 

activities are not specifically included in the list of 

activities covered by the definition of ‘‘commercial 

development’’ under Section 13(q). In addition, 

including marketing and security-related activities 

within the final rules under Section 13(q) would go 

beyond what is covered by the non-U.S. paymentsto-governments reporting regimes. See 2019 Rules 

Proposing Release at note 96. 

issuer’’ to mean an issuer that is 

required to file an annual report with 

the Commission on Form 10–K,340 Form 

20–F,341 or Form 40–F 342 pursuant to 

Section 13 or 15(d) of the Exchange 

Act 343 and engages in the commercial 

development of oil, natural gas, or 

minerals.344 Section 13(q) defines a 

resource extraction issuer in part as an 

issuer that is ‘‘required to file an annual 

report with the Commission.’’ 345 As we 

explained when proposing this 

definition, we believe this language 

could reasonably be read to include or 

to exclude issuers that file annual 

reports on forms other than Forms 10– 

K, 20–F, or 40–F.346 We are therefore 

exercising our discretion and covering 

only issuers that file annual reports on 

Forms 10–K, 20–F, or 40–F. As with the 

2016 Rules, we believe that covering 

issuers that provide disclosure outside 

of the Exchange Act reporting 

framework would do little to reasonably 

likely achieve the transparency 

objectives of Section 13(q) but would 

add costs and burdens to the existing 

disclosure regime governing those 

categories of issuers. The adopted 

definition therefore excludes issuers 

subject to Tier 2 reporting obligations 

under Regulation A and issuers filing 

annual reports pursuant to Regulation 

Crowdfunding.347 In addition, 

investment companies registered under 

the Investment Company Act of 1940 

(‘‘Investment Company Act’’) 348 will 

not be subject to the final rules.349

Although almost all of the 

commenters on the 2016 Rules 

Proposing Release supported a 

definition similar to the one we are 

adopting in this release,350 we received 

little comment on the more recently 

proposed definition of ‘‘resource 

extraction issuer.’’ 351 One commenter 

supported the proposed definition 

because, in the commenter’s view, it 

aligns with the statutory definition of 

resource extraction issuer.352 This 

commenter also agreed that foreign 

private issuers 353 that file annual 

reports on Forms 20–F or 40–F should 

be included within the scope of the 

definition. The commenter stated that to 

exclude such foreign private issuers 

would be inconsistent with 

Congressional intent underlying Section 

13(q) and the international transparency 

promotion laws, none of which exclude 

foreign companies.354

Although the final rules will apply to 

reporting foreign private issuers, as 

proposed, consistent with the 2016 

Rules, the final rules will not apply to 

foreign private issuers that are exempt 

from Exchange Act registration and 

reporting obligations pursuant to 17 

CFR 240.12g3–2(b) (‘‘Rule 12g3–2(b)’’). 

As discussed in prior releases, we 

continue to believe that expanding the 

statutory definition of ‘‘resource 

extraction issuer’’ to include foreign 

private issuers that are relying on Rule 

12g3–2(b) would discourage reliance on 

the Rule 12g3–2(b) exemption and 

would be inconsistent with the effect 

and purpose of that rule.355

I. Definition of ‘‘Commercial 

Development of Oil, Natural Gas, or 

Minerals’’ 

We are adopting the proposed 

definition of ‘‘commercial development 

of oil, natural gas, or minerals’’ to mean 

exploration, extraction, processing, and 

export of oil, natural gas, or minerals, or 

the acquisition of a license for any such 

activity.356 This definition is consistent 

with the statutory definition.357

Although we have discretionary 

authority to include other significant 

activities relating to oil, natural gas, or 

minerals,358 we have elected not to 

expand the list of covered activities 

beyond the explicit terms of Section 

13(q). As we noted when proposing this 

definition, we adopted the same 

approach when defining ‘‘commercial 

development of oil, natural gas, or 

minerals’’ in the 2016 rulemaking, and 

most commenters that addressed this 

aspect of the prior rules supported this 

approach.359 As was the case with the 

2016 Rules, we have not sought to 

impose disclosure obligations that 

extend beyond Congress’ required 

disclosures in Section 13(q) and the 

disclosure standards developed in 

connection with international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas, or minerals. This approach 

should limit the compliance costs of the 

Section 13(q) rules. 

The proposed definition of 

‘‘commercial development of oil, 

natural gas, or minerals’’ received little 

comment. One commenter supported 

the proposed definition because it is 

consistent with the statutory language of 

Section 13(q) and is in line with 

established international transparency 

standards.360

As proposed, the adopted definition 

of ‘‘commercial development’’ will 

capture only those activities that are 

directly related to the commercial 

development of oil, natural gas, or 

minerals, and not activities ancillary or 

preparatory to such commercial 

development. Accordingly, an issuer 

that is only providing products or 

services that support the exploration, 

extraction, processing, or export of such 

resources will not be a ‘‘resource 

extraction issuer’’ under the final 

rules.361 For example, an issuer that 

manufactures drill bits or provides 

hardware to help issuers explore and 

extract will not be considered a resource 

extraction issuer. Similarly, an issuer 

engaged by an operator to provide 

hydraulic fracturing or drilling services, 

to enable the operator to extract 

resources, will not be a resource 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4689 

362As under the 2016 Rules, and as proposed, a 

resource extraction issuer will be required to 

disclose payments when a service provider makes 

a payment to a government on its behalf that meets 

the definition of ‘‘payment.’’ See 2019 Rules 

Proposing Release at note 97. However, at the 

request of commenters, and consistent with our 

treatment of proportionate interests, see supra 

Section II.E., we have clarified that this disclosure 

obligation does not apply to a non-operator partner 

of a joint venture or arrangement that reimburses 

the operator for its share of the payments to 

governments made by the operator. See Instruction 

7 to Item 2.01 of Form SD. 

363See the 2016 Rules Adopting Release at 

Section II.B.2.a. 

364See 2016 Rules Adopting Release at Section 

II.B.2; and 2012 Rules Adopting Release at Section 

II.C.2. 

365See 2019 Rules Proposing Release at Section 

II.B.1–3. 

366See Item 2.01(d)(5) of Form SD. 

367We proposed to define ‘‘extraction’’ to mean 

the production of oil and natural gas as well as the 

extraction of minerals. See 2019 Rules Proposing 

Release at Section II.B.1. In response to a suggestion 

by one commenter, the final rules use the 

disjunctive ‘‘or’’ in the definition of extraction. See 

letter from Keith P. Bishop (Jan. 1, 2020). 

368See 2016 Rules Adopting Release at Section 

II.B.3. 

369See letter from PWYP–US (Mar. 16, 2020). 

370The proposed rules included an instruction on 

the meaning of the term ‘‘processing’’ but did not 

provide a defined term. See Instruction (8) to Item 

2.01 of Form SD. 

371 In other contexts, Congress has treated 

midstream activities like ‘‘processing’’ and 

downstream activities like ‘‘refining’’ as separate 

activities, which further supports our view that 

Congress did not intend to include ‘‘refining’’ and 

‘‘smelting’’ as ‘‘processing’’ activities. For example, 

the Sudan Accountability and Divestment Act of 

2007 (‘‘SADA’’), which also relates to resource 

extraction activities, specifically includes 

‘‘processing’’ and ‘‘refining’’ as two distinct 

activities in its list of ‘‘mineral extraction activities’’ 

and ‘‘oil-related activities . . .’’ See 110 Public Law 

No. 174 (2007). Similarly, the Commission’s oil and 

gas disclosure rules exclude refining and processing 

from the definition of ‘‘oil and gas producing 

activities’’ (other than field processing of gas to 

extract liquid hydrocarbons by the issuer and the 

upgrading of natural resources extracted by the 

issuer other than oil or gas into synthetic oil or gas). 

See 17 CFR 210.4–10(a)(16)(ii) (Rule 4–10(a)(16)(ii) 

of Regulation S–X). 

372See letter from PWYP–US (Mar. 16, 2020). 

373See letter from Petrobras. 

374See Item 2.01(d)(4) of Form SD. 

375See id. 

376See letters from PWYP–US (Mar. 16, 2020); 

and Joseph Williams, Advocacy Manager, NRGI 

(Mar. 16, 2020) (J. Williams, NRGI); see also letter 

from Pietro Poretti (Feb. 15, 2016). 

377See letters from PWYP–US (Mar. 16, 2020); 

and J. Williams, NRGI. 

378See 2016 Rules Adopting Release at Section 

II.B.3. 

extraction issuer.362 We believe this 

approach is consistent with Section 

13(q) and the approach adopted in the 

2016 rulemaking, which most 

commenters that addressed the issue 

supported.363 We also note that no 

commenter opposed this approach 

when commenting on the 2019 Rules 

Proposing Release. 

Because, in response to commenters’ 

requests, we provided guidance to 

clarify certain activities covered by the 

definition of ‘‘commercial 

development’’ in prior rulemakings,364

we proposed to define or provide 

similar guidance on several terms 

contained within the definition.365 We 

discuss these definitions and guidance 

and our reasons for adopting them in 

the subsections that follow. 

1. ‘‘Extraction’’ and ‘‘Processing’’ 

The final rules define ‘‘extraction’’ to 

mean the production of oil or natural 

gas or the extraction of minerals.366 This 

definition largely tracks the proposed 

definition 367 and is consistent with the 

definition adopted in the 2016 

rulemaking.368

We received few comments on the 

proposed definition of extraction. One 

commenter supported the proposed 

definition because it is consistent with 

the statutory language of Section 13(q) 

and is in line with the established 

international transparency standards.369

No commenter opposed the proposed 

definition on substantive grounds. 

We are also adopting the proposed 

instruction regarding ‘‘processing.’’ 370

Like the definition of extraction, the 

instruction regarding processing largely 

tracks the one adopted in the 2016 

rulemaking. Pursuant to that 

instruction, ‘‘processing’’ includes, but 

is not limited to, midstream activities 

such as removing liquid hydrocarbons 

from gas, removing impurities from 

natural gas prior to its transport through 

a pipeline, and the upgrading of 

bitumen and heavy oil, through the 

earlier of the point at which oil, gas, or 

gas liquids (natural or synthetic) are 

either sold to an unrelated third party or 

delivered to a main pipeline, a common 

carrier, or a marine terminal. 

‘‘Processing’’ also includes the crushing 

or preparing of raw ore prior to the 

smelting or refining phase. 

The instruction regarding 

‘‘processing’’ also provides, as 

proposed, that ‘‘processing’’ does not 

include downstream activities, such as 

refining or smelting. The focus of 

Section 13(q) is on transparency in 

connection with the payments that 

resource extraction issuers make to 

governments. Those payments are 

primarily generated by ‘‘upstream’’ 

activities like exploration and extraction 

and not in connection with refining or 

smelting.371 Accordingly, we do not 

believe that, for purposes of the Section 

13(q) rules, the term ‘‘processing’’ 

should cover downstream activities. We 

also note that including refining or 

smelting within the final rules under 

Section 13(q) would go beyond what is 

contemplated by the statute. 

We received a limited number of 

comments on the proposed instruction 

regarding ‘‘processing.’’ One commenter 

agreed with the list of activities 

proposed to be included under the term 

‘‘processing’’ because it is consistent 

with the statutory language of Section 

13(q) and in line with established 

international transparency standards.372

Another commenter stated that it was 

unclear whether certain midstream 

activities that it engaged in would be 

included within the definition of 

‘‘processing,’’ but then did not identify 

the activities for which it sought further 

guidance.373

2. ‘‘Export’’ 

We are adopting the proposed 

definition of ‘‘export’’ to mean the 

movement of a resource across an 

international border from the host 

country to another country by an issuer 

with an ownership interest in the 

resource.374 Pursuant to this definition, 

‘‘export’’ will not include the movement 

of a resource across an international 

border by an issuer that (i) is not 

engaged in the exploration, extraction, 

or processing of oil, natural gas, or 

minerals and (ii) acquired its ownership 

interest in the resource directly or 

indirectly from a foreign government or 

the Federal Government. ‘‘Export’’ also 

will not include cross-border 

transportation activities by an entity 

that is functioning solely as a service 

provider, with no ownership interest in 

the resource being transported.375 This 

definition is the same definition of 

export adopted under the 2016 Rules. 

As in the 2016 rulemaking, we 

received a small number of comments 

that recommended defining ‘‘export’’ to 

include trading-related activities when 

an issuer makes a payment for the 

purchase of oil, natural gas, or minerals 

sold by a government, including a 

nationally owned company (‘‘NOC’’).376

These commenters indicated that 

commodity-trading related payments to 

governments for the purchase of oil, 

natural gas, or minerals has become an 

important source of revenue for many 

resource-rich countries across the globe, 

and is a commonly recognized revenue 

stream in relation to the commercial 

development of oil, natural gas, and 

minerals.377

We decline to follow this 

recommendation for similar reasons 

expressed when we elected not to 

include commodity-trading activities in 

connection with the purchase of oil, 

natural gas, or minerals from a 

government, including a NOC, in the 

2016 rulemaking.378 The adopted 

4690 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

379 It is noteworthy that Section 13(q) includes 

export, but not transportation, in the list of covered 

activities. In contrast, SADA specifically includes 

‘‘transporting’’ in the definition of ‘‘oil and gas 

activities’’ and ‘‘mineral extraction activities.’’ The 

inclusion of ‘‘transporting’’ in SADA, in contrast to 

the language of Section 13(q), suggests that the term 

export means something different than 

transportation. 

380See supra note 377. 

381See infra Section II.J.6. (discussing when and 

how payments must be reported in instances where 

an issuer is repurchasing government production 

entitlements that were originally extracted by that 

issuer). 

382See 2019 Rules Proposing Release at Section 

II.B.3. 

383See proposed Instruction (13) to Item 2.01 of 

Form SD, which stated that ‘‘minerals,’’ as used in 

Item 2.01 of Form SD, includes any material for 

which an issuer with mining operations would 

provide disclosure under the Commission’s existing 

disclosure requirements and policies, including 

Industry Guide 7 or any successor requirements or 

policies (see 17 CFR 229.1300 et seq. (subpart 1300 

of Regulation S–K)). The proposed instruction 

further stated that ‘‘minerals’’ does not include oil 

and gas resources (as defined in 17 CFR 210.4– 

10(a)(16)(D) or any successor provision). 

384The Commission’s staff has previously 

provided similar guidance. See Disclosure of 

Payments by Resource Extraction Issuers FAQ 3 

(May 30, 2013) available at https://www.sec.gov/ 

divisions/corpfin/guidance/resourceextractionfaq.htm. 

385 In 2018, the Commission revised its disclosure 

requirements for mining properties to provide 

investors with a more comprehensive 

understanding of a registrant’s mining properties 

and to align those disclosure requirements and 

policies more closely with current industry and 

global regulatory practices and standards. See 

Release No. 33–10570 (October 31, 2018) [83 FR 

66344 (December 26, 2018)]. The new mining 

property disclosure rules, which are codified in 

subpart 1300 of Regulation S–K, will replace the 

mining property disclosure guidance in 17 CFR 

229.801(g) and 802(g) (Industry Guide 7) and 

requirements in 17 CFR 229.102 (Item 102 of 

Regulation S–K). Registrants engaged in mining 

operations must comply with the new rules for the 

first fiscal year beginning on or after January 1, 

2021. See Release No. 33–10570 at Section I. 

386For example, new subpart 1300 of Regulation 

S–K defines ‘‘mineral resource’’ to mean a 

concentration or occurrence of material of economic 

interest in or on the Earth’s crust in such form, 

grade, or quality, and quantity that there are 

reasonable prospects for economic extraction. 

‘‘Material of economic interest’’ is then defined to 

include ‘‘mineralization, including dumps and 

tailings, mineral brines, and other resources 

extracted on or within the earth’s crust’’ while 

excluding oil and gas resources resulting from oil 

and gas producing activities, gases (e.g., helium and 

carbon dioxide), geothermal fields, and water. See 

17 CFR 229.1300. Industry Guide 7 similarly does 

not explicitly define the term ‘‘minerals,’’ but does 

provide a definition of, and guidance regarding the 

disclosure of, ‘‘reserves,’’ which includes references 

to ‘‘minerals’’ and ‘‘mineralization.’’ 

387See 2019 Rules Proposing Release at Section 

II.B.3 (citing 2016 Rules Adopting Release, note 149 

and accompanying text). 

388See letter from PWYP–US (Mar. 16, 2020). 

389See letter from Keith P. Bishop. 

390See subpart 1300 of Regulation S–K. 

391See Instruction (13) to Item 2.01 of Form SD. 

392 15 U.S.C. 78m(q)(1)(C). 

definition of export reflects the 

significance of the relationship between 

upstream activities, such as exploration 

and extraction, and the categories of 

payments to governments identified in 

the statute. We do not believe that 

Section 13(q) was intended to capture 

payments related to transportation on a 

fee-for-service basis across an 

international border by a service 

provider with no ownership interest in 

the resource.379 We also do not believe 

that ‘‘export’’ was intended to capture 

activities with little direct relationship 

to upstream or midstream activities, 

such as commodity trading-related 

activities. We also note that, although 

commenters have stated that payments 

in connection with commodity tradingrelated activities have become a 

commonly recognized revenue stream in 

relation to the commercial development 

of oil, gas and minerals,380 it does not 

appear that any of the other non-U.S. 

payments-to-governments reporting 

regimes (other than the EITI) have 

included such payments within their 

scope. 

The adopted definition of export will 

cover, however, the purchase of such 

government-owned resources by a 

company otherwise engaged in resource 

extraction due to the stronger nexus 

between the movement of the resource 

across an international border and the 

upstream development activities. We 

believe this nexus would be particularly 

strong in instances where the company 

is repurchasing government production 

entitlements that were originally 

extracted by that issuer.381

3. ‘‘Minerals’’ 

The proposed rules included an 

instruction on the meaning of the term 

‘‘minerals’’ but did not define the 

term.382 The proposed instruction to 

Form SD referred issuers to the use of 

the term ‘‘minerals’’ in our other 

disclosure rules.383 We used this 

approach based on our belief that the 

term ‘‘minerals’’ is commonly 

understood 384 and includes, at a 

minimum, any material for which an 

issuer with mining operations would 

provide disclosure under the 

Commission’s existing or successor 

disclosure requirements and policies for 

mining properties.385 We also believed 

that a flexible approach to this term 

would preserve consistency between the 

term’s use under the Section 13(q) rules 

and its use in our other disclosure 

requirements and policies.386 As such, 

the Form SD guidance on the term 

‘‘minerals’’ would encompass any 

changes to that term that may be 

reflected in our disclosure requirements 

for mining registrants. In support of this 

approach, which is consistent with the 

Commission’s approach in the 2016 

rulemaking, we noted that no industry 

commenter suggested that we define the 

term in connection with the 2016 

Rules.387

We received limited comment on our 

approach to the term ‘‘minerals.’’ One 

commenter supported the proposed 

instruction regarding ‘‘minerals’’ and 

did not believe that further defining the 

term was necessary.388 Another 

commenter, however, did not believe 

that there was a commonly understood 

meaning of ‘‘minerals’’ and 

recommended that we provide a 

definition for the term.389

We decline to follow the 

recommendation of the commenter who 

suggested that we define the term 

‘‘mineral.’’ In this regard, we note that, 

in response to the 2019 proposed 

rulemaking, as well as to the 2016 

rulemaking, no industry commenter has 

requested that we provide a definition 

of ‘‘minerals.’’ This reinforces our belief 

that the term ‘‘minerals’’ is commonly 

understood. We also continue to believe 

that our flexible approach will preserve 

consistency with the use of that term in 

our other disclosure requirements and 

policies, and in particular, with the use 

of that term under the Commission’s 

new disclosure rules for mining 

registrants.390

We are therefore not adopting a 

separate definition for ‘‘minerals’’ and, 

instead, are adopting the proposed 

instruction with one minor revision. 

Because the new disclosure rules for 

mining registrants will be effective, and 

will supersede the older guidance in 

Industry Guide 7, when issuers will be 

required to comply with the Section 

13(q) rules, the adopted instruction 

refers solely to the new mining 

disclosure rules, and omits the reference 

to Industry Guide 7.391

J. Definition of ‘‘Payment’’ 

Section 13(q) defines ‘‘payment’’ to 

mean a payment that: 

• Is made to further the commercial 

development of oil, natural gas, or 

minerals; 

• Is not de minimis; and 

• Includes taxes, royalties, fees 

(including license fees), production 

entitlements, bonuses, and other 

material benefits, that the Commission, 

consistent with the EITI’s guidelines (to 

the extent practicable), determines are 

part of the commonly recognized 

revenue stream for the commercial 

development of oil, natural gas, or 

minerals.392

As with the 2016 Rules, we proposed 

to define ‘‘payment’’ to include the 

specific types of payments identified in 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4691 

393See 2019 Rules Proposing Release at Section 

II.C. 

394 15 U.S.C. 78m(q)(1)(C)(ii). 

395 Id. 

396See letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); and J. Williams, NRGI. 

397See supra Section II.I.2. 

398See infra Section II.J.6. 

399See Item 2.01(d)(9)(A) of Form SD. 

400See Instruction (9) to Item 2.01 of Form SD. 

401See Instruction (4) to Item 2.01 of Form SD. 

Pursuant to this instruction, and as proposed, if an 

issuer does report a tax at the entity level, it may 

omit certain inapplicable electronic tags, such as a 

project or business segment tag, for that payment as 

long as it provides all other electronic tags, 

including the tag identifying the recipient 

government. 

402See letters from API (Mar. 16, 2020); Petrobras; 

and PWYP–US (Mar. 16, 2020). 

403See letter from API (Mar. 16, 2020). 

404See letter from Petrobras. This commenter 

urged the Commission to provide additional 

guidance on the reporting of tax payments 

‘‘considering the particularities of income tax 

payments in each country.’’ Id. Providing such 

detailed guidance would exceed the scope of this 

rulemaking. To the extent that issuers have 

questions regarding the reporting of tax payments, 

or any other payments, on Form SD, they should 

contact the staff. 

405See letter from PWYP–US (Mar. 16, 2020). 

406See id. 

407See infra Section II.N. 

408See letter from KCSPOG. 

409See Instruction (4) to Item 2.01 of Form SD 

under the 2016 Rules; see also 2012 Rules Adopting 

Release, note 155 and accompanying text. 

410See Item 2.01(d)(B), (C), and (E). 

the statute, as well as community and 

social responsibility (‘‘CSR’’) payments 

that are required by law or contract, 

payments of certain dividends, and 

payments for infrastructure. We also 

proposed guidance on the statutory 

payment categories of royalties, fees, 

and bonuses, and addressed in-kind 

payments.393

We received only a limited number of 

comments on the proposed definition of 

‘‘payment’’ and the proposed guidance 

regarding the payment types. We 

discuss these comments below along 

with our reasons for adopting the 

proposed definition of ‘‘payment’’ and 

related guidance. 

In addition to the types of payments 

expressly included in the definition of 

‘‘payment’’ in the statute, Section 13(q) 

provides that the Commission include 

within the definition ‘‘other material 

benefits’’ that it determines are ‘‘part of 

the commonly recognized revenue 

stream for the commercial development 

of oil, natural gas, or minerals.’’ 394

According to Section 13(q), these ‘‘other 

material benefits’’ must be consistent 

with the EITI’s guidelines ‘‘to the extent 

practicable.’’ 395

Some commenters recommended that 

we include commodity trading-related 

payments for the purchase of oil, natural 

gas, or minerals from a government, 

including a NOC, within the definition 

of ‘‘payment’’ because, according to 

those commenters, those payments have 

become a commonly recognized revenue 

stream for the commercial development 

of oil, natural gas, or minerals.396 We 

decline to follow this recommendation 

for the same reasons that we rejected the 

suggestion to include activities related 

to such commodity trading within the 

definition of export.397 We acknowledge 

that significant payments may be made 

by buying/trading companies or similar 

companies to purchase natural 

resources. Nevertheless, we do not 

believe that purchasing or trading oil, 

natural gas, or minerals, even at a level 

above the ‘‘not de minimis threshold,’’ 

is on its own sufficiently related to the 

‘‘commercial development’’ of those 

resources to warrant being covered by 

the final rules, particularly when the 

rules will require disclosure of in-kind 

payments of production entitlements.398

We continue to believe that Section 

13(q) directs us to make an affirmative 

determination that the other ‘‘material 

benefits’’ are part of the commonly 

recognized revenue stream. 

Accordingly, the other material benefits 

specified in the final rules are limited to 

CSR payments required by law or 

contract, dividends, and infrastructure 

payments. As was the case with the 

2016 Rules, and as discussed in more 

detail below, we have determined that 

these payment types represent material 

benefits that are part of the commonly 

recognized revenue stream for the 

commercial development of oil, natural 

gas, and minerals and that otherwise 

meet the definition of payment. 

1. Taxes 

Consistent with Section 13(q), the 

final rules require a resource extraction 

issuer to disclose payments made in the 

form of taxes.399 The final rules also 

include an instruction, as proposed, to 

clarify that a resource extraction issuer 

will be required to disclose payments 

for taxes levied on corporate profits, 

corporate income, and production, but 

will not be required to disclose 

payments for taxes levied on 

consumption, such as value added 

taxes, personal income taxes, or sales 

taxes.400 We are also adopting the 

proposed instruction stating that, if a 

government levies a payment obligation, 

such as a tax or dividend, at the entity 

level rather than on a per project basis, 

a resource extraction issuer may 

disclose that payment at the entity 

level.401 Both instructions were also 

included in the 2016 Rules. 

We received a small number of 

comments on the tax payment reporting 

requirement. Some commenters 

supported the proposed requirement, 

including the treatment of taxes levied 

at the entity level.402 One commenter 

stated that it is often impossible to 

identify, on a project basis, the relevant 

portion of a given payment obligation 

that is imposed at the entity level.403

Another commenter indicated that it is 

impractical to isolate the corporate 

income tax payments made on income 

generated from the commercial 

development of oil, natural gas, or 

minerals.404

A third commenter supported the 

proposed approach to tax payments 

because it is consistent with the 

approach afforded to tax payments 

under the EITI and the other non-U.S. 

payments-to-governments reporting 

regimes.405 This commenter, however, 

recommended that we include a 

provision requiring that, if a government 

requires a corporate tax to be ringfenced to a particular project, an issuer 

must report such payments at the 

project level. By way of example, this 

commenter stated that the UK imposes 

such a requirement.406 We do not 

believe this suggested provision is 

necessary because the adopted 

instruction already provides that tax 

reporting by the entity level on Form SD 

is dependent on the government levying 

the tax at the entity level. Moreover, if 

an issuer listed or registered in the UK 

is subject to such a per project tax 

reporting requirement, it would likely 

provide such tax reporting when it 

submits its Form SD under the 

alternative reporting provision.407

Another commenter recommended 

that we require the reporting of tax 

payments at the contract level.408 We 

decline to adopt this recommendation 

because, even under the 2016 Rules, 

which used a contract-based project 

definition, we permitted the reporting of 

corporate taxes levied at the entity level 

in response to earlier expressed 

concerns by commenters about the 

difficulty of allocating payments that are 

made for obligations levied at the entity 

level, such as corporate taxes, to the 

project level.409

2. Royalties, Fees, and Bonuses 

We are adopting the proposed 

inclusion of royalties, fees, and bonuses 

in the list of payment types required to 

be disclosed 410 because Section 13(q) 

includes them in its definition of 

‘‘payment.’’ The statute provides 

‘‘license fees’’ as an example of the 

types of fees covered by that term but 

4692 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

411 15 U.S.C. 78m(q)(1)(C)(ii). 

412See 2019 Rules Proposing Release at Section 

II.C.2. 

413See proposed Instruction (10) to Form SD in 

the 2019 Rules Proposing Release. 

414See letter from KCSPOG. 

415See letter from PWYP–US (Mar. 16, 2020). 

416See id. 

417See 2019 Rules Proposing Release at II.C.2. 

418See Instruction (10) to Item 2.01 of Form SD. 

419See EITI Standard (October 15, 2019) at 22– 

23. 

420For a discussion of these types of royalties, see 

World Bank, Mining Royalties: Their Impact on 

Investors, Government and Civil Society (2006), 

pp.50–54 available at http://wwwwds.worldbank.org/external/default/WDSContent

Server/WDSP/IB/2006/09/11/000090341_

20060911105823/Rendered/PDF/372580

Mining0r101OFFICIAL0USE0ONLY1.pdf. 

421See, e.g., letter from PWYP–US (Mar. 16, 

2020). 

422See Item 2.01(d)(9)(F) of Form SD. 

423See Instruction (11) to Item 2.01 of Form SD. 

424See 2016 Adopting Release, Section II.C.2.a.; 

and 2012 Adopting Release at Section II.D.1.b. 

425See letter from PWYP–US (Mar. 16, 2020). 

426See Item 2.01(d)(9)(G) of Form SD. 

427See 2019 Rules Proposing Release at Section 

II.C.4. 

428See EITI Standard at 24. 

429See, e.g., letters from AngloGold Ashanti (Jan. 

31, 2011); Barrick Gold Corporation (Feb. 28, 2011); 

EarthRights International (Jan. 26, 2011); 

Earthworks (Mar. 2, 2011); Global Witness (Feb. 25, 

2011) ; ONE (Mar. 2, 2011); and PWYP–US (Feb. 25, 

2011). 

430See letter from PWYP–US (Mar. 16, 2020). 

431See id.. 

432See 15 U.S.C. 78m(q)(2)(E). 

does not provide examples of royalties 

and bonuses.411 As under the 2016 

Rules, we proposed an instruction to 

Form SD to provide further clarification 

of these terms.412 The proposed 

instruction stated that royalties include 

unit-based, value-based, and profitbased royalties; fees include license 

fees, rental fees, entry fees, and other 

considerations for licenses or 

concessions; and bonuses include 

signature, discovery, and production 

bonuses.413

We received a limited number of 

comments on the proposed instruction. 

One commenter supported the 

disaggregation of payments into the 

proposed categories of royalties, fees, 

and bonuses because it would help the 

public hold their governments 

accountable for the specific types of 

payments.414 Another commenter 

supported the inclusion of an 

instruction that provides a nonexhaustive list of fees, bonuses, and 

royalties because providing examples of 

these payment types would help 

companies more accurately interpret the 

rules’ requirements.415 In order to 

clarify that the list of examples is nonexhaustive, this commenter 

recommended revising the proposed 

instruction to state that each payment 

type includes, but is not limited to, the 

provided list of examples.416

While it was our intention that the list 

of examples for royalties, fees, and 

bonuses would be non-exhaustive,417

we agree with the commenter that 

stating this in the instruction would be 

a useful improvement. We are therefore 

adopting the proposed instruction with 

this one modification.418

The examples of fees and bonuses 

included in the instruction are 

specifically mentioned in the EITI’s 

guidance as payments that should be 

disclosed by EITI participants,419 which 

supports our view that they are part of 

the commonly recognized revenue 

stream. The instruction also includes 

examples of royalties.420 Although not 

mentioned in the EITI’s guidance, based 

on the experience of the Commission 

staff’s mining engineers and the support 

of commenters,421 we believe that these 

examples are part of the commonly 

recognized revenue stream and that the 

instruction will provide additional 

clarity for issuers. These are only 

examples, however, and resource 

extraction issuers could be required to 

disclose other types of royalties, fees, 

and bonuses, depending on the facts 

and circumstances. 

3. Dividend Payments 

We are adopting the proposed 

inclusion of dividends in the list of 

payment types required to be 

disclosed.422 We also are adopting the 

proposed instruction clarifying that a 

resource extraction issuer generally 

would not need to disclose dividends 

paid to a government as a common or 

ordinary shareholder of the issuer as 

long as the dividend is paid to the 

government under the same terms as 

other shareholders.423 The issuer would, 

however, be required to disclose any 

dividends paid to a government in lieu 

of production entitlements or royalties. 

Under this approach, ordinary dividend 

payments would not be part of the 

commonly recognized revenue stream 

because they are not made to further the 

commercial development of oil, natural 

gas, or minerals. 

This approach is consistent with the 

approach taken towards dividend 

payments in both the 2012 Rules and 

2016 Rules. Most of the commenters 

who discussed the definition of 

payments in the earlier rulemakings 

either supported or did not object to this 

approach towards dividends.424

Although we received little comment 

on the treatment of dividend payments 

in response to the 2019 proposed rules, 

the comments that we received 

supported our approach. One 

commenter stated that our proposed 

approach would align with the text and 

Congressional intent of Section 13(q), as 

dividend payments are material benefits 

that are part of the commonly 

recognized revenue stream, and are 

recognized by the EU Directives, 

ESTMA, and the EITI Standard as 

payments required to be disclosed.425

As in 2016, no commenter objected to 

the treatment of dividend payments. 

4. Infrastructure Payments 

We are also adopting the proposed 

inclusion of payments for infrastructure 

in the list of payment types required to 

be disclosed.426 Such payments would 

include those made to build a road or 

railway to further the development of 

oil, natural gas, or minerals. As we have 

previously noted, payments for 

infrastructure often are in-kind 

payments rather than direct monetary 

payments.427 We continue to believe 

such payments are ‘‘other material 

benefits’’ that are part of the commonly 

recognized revenue stream for the 

commercial development of oil, natural 

gas, or minerals because they are 

required to be disclosed under the 

EITI 428 and their inclusion as required 

payments under Section 13(q) has been 

supported by commenters since the 

earliest rulemaking.429

Our inclusion of infrastructure 

payments in the list of payment types 

required to be disclosed under Section 

13(q) continues to find support in the 

current rulemaking. As in 2016, no 

commenter objected to the inclusion of 

such payments, and one commenter 

provided affirmative support. That 

commenter indicated that because 

natural resources are frequently located 

in remote or under-developed areas, 

many extractive companies, in 

particular mining companies, make 

infrastructure-related payments, which 

are generally viewed as part of the cost 

of doing business in these regions.430

According to this commenter, 

infrastructure payments make up a 

commonly recognized revenue stream 

from natural resource extraction and are 

covered payments under the EU 

Directives, ESTMA, and the EITI.431 We 

therefore agree with this commenter that 

the inclusion of infrastructure payments 

under Section 13(q) would help support 

the commitment of the Federal 

Government to international 

transparency promotion efforts, 

pursuant to Section 13(q).432

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4693 

433See Item 2.01(d)(9)(H) of Form SD. 

434See 2019 Rules Proposing Release at Section 

II.C.5; and 2016 Rules Adopting Release at Section 

II.C.2.a. 

435See letter from ExxonMobil (Feb. 16, 2016). 

436See letter from PWYP–US (Mar. 16, 2020). 

437For example, in the 2016 rulemaking, one 

commenter noted the prevalent discussion of CSR 

payments in industry conferences, studies, 

guidance, and compliance manuals. See letter from 

Harry G. Broadman and Bruce H. Searby (Jan. 25, 

2016). 

438See 15 U.S.C. 78m(q)(1)(C)(ii). 

439See EITI Standard at 29; see also 2019 Rules 

Proposing Release at Section II.C.5. 

440See, e.g., Equinor 2019 Sustainability Report 

(disclosing that in 2019 Equinor made $23 million 

in social investments, sponsorships, and 

donations); Newmont 2019 Sustainability Report 

(reporting a total of $23.3 million in community 

development and donations); and BHP 2019 

Sustainability Report (reporting that BHP’s 

voluntary community investment totaled $93.5 

million in 2019). 

441See Instruction (12) to Item 2.01 of Form SD. 

442See Item 2.01(d)(9)(D) of Form SD. 

443See letters from API (Mar. 16, 2020); Oxfam 

America and Earthrights International; and PWYP– 

US (Mar. 16, 2020). 

444See 2019 Rules Proposing Release at Section 

II.C.6. In addition, in light of the requirement in 

Section 13(q) to tag the information to identify the 

currency in which the payments were made, the 

proposed instruction further stated that issuers 

providing a monetary value for in-kind payments 

must tag the information as ‘‘in-kind’’ for purposes 

of the currency tag. 

445See id. 

446See letter from API (Mar. 16, 2020). 

447See id. 

448See letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

449See id. 

450See 2019 Rules Proposing Release at Section 

II.C.6 (citing letter from ExxonMobil (Mar. 8, 2016)). 

451See Instruction (12) to Item 2.01 of Form SD. 

5. Community and Social Responsibility 

Payments 

We are adopting the proposed 

inclusion of CSR payments that are 

required by law or contract in the list of 

payment types required to be disclosed 

under Section 13(q).433 CSR payments 

could include, for example, funds to 

build or operate a training facility for oil 

and gas workers, funds to build housing, 

payments for tuition or other 

educational purposes, and in general 

payments to support the social or 

economic well-being of communities 

within the country where the 

expenditures are made. For the reasons 

discussed below, we continue to believe 

that such CSR payments are part of the 

commonly recognized revenue stream 

for the commercial development of oil, 

natural gas, or minerals. 

When proposing the inclusion of CSR 

payments required by law or contract, 

we noted that most commenters on the 

2016 Rules Proposing Release that 

addressed the issue supported the 

inclusion of CSR payments.434 This 

view was supported by a broad range of 

commenters, including one industry 

commenter.435 Although we received 

little comment on this issue in the 

current rulemaking, the one party that 

did comment supported the proposed 

inclusion of CSR payments required by 

law or contract because they are 

material benefits that are part of the 

commonly recognized revenue stream 

for the commercial development of oil, 

natural gas, or minerals, as evidenced 

by: The required reporting of mandatory 

CSR payments by the EITI; the adoption 

by numerous countries of provisions in 

their mining laws and policies that 

require extractive companies to make 

CSR payments; the significant amount 

of CSR payments routinely made by oil, 

gas, and mining companies, which can 

total in the millions or, in some cases, 

billions of dollars annually; and the fact 

that many oil, gas, and mining 

companies already voluntarily report 

CSR payments.436

We find the evidence cited by this 

commenter and those in the 2016 

rulemaking to be persuasive.437 When 

determining whether there are ‘‘other 

material benefits’’ that are part of the 

commonly recognized revenue stream 

for the commercial development of oil, 

natural gas, or minerals, we are 

statutorily required, to the extent 

practicable, to adopt a determination 

that is consistent with the EITI’s 

guidance.438 We find it instructive that 

disclosure of CSR payments that are 

required by law or contract has been 

required under the EITI since 2013.439

The fact that several resource extraction 

issuers already report their voluntary or 

required CSR payments also supports 

our conclusion that such payments are 

part of the commonly recognized 

revenue stream for the commercial 

development of oil, natural gas, or 

minerals.440

6. In-Kind Payments 

We are adopting the proposed 

requirement that a resource extraction 

issuer must disclose payments that fall 

within the specified payment types that 

are made in-kind rather than through a 

monetary payment to the host country 

government.441 Examples include 

production entitlement payments 442

and infrastructure payments. Although 

no commenter objected to the inclusion 

of in-kind payments, a small number of 

commenters raised concerns about 

different aspects of the proposed 

instruction providing guidance on how 

to report in-kind payments.443

Section 13(q) specifies that the rules 

require the disclosure of the type and 

total amount of payments made for each 

project and to each government. 

Accordingly, the proposed instruction 

stated that, when reporting an in-kind 

payment, a resource extraction issuer 

must determine the monetary value of 

the in-kind payment.444 Similar to the 

2016 Rules, the proposed instruction 

further provided that a resource 

extraction issuer must report the in-kind 

payment at cost, or if cost is not 

determinable, fair market value, and 

provide a brief description of how the 

monetary value was calculated.445

One commenter objected to the 

proposed instruction to use historical 

cost when determining the monetary 

value of an in-kind payment.446 The 

commenter stated that fair market value 

represents the best benchmark for 

valuing in-kind payments because fair 

market values are readily available and 

more relevant to providing transparency 

than cost data. The commenter also 

expressed concern that publishing 

specific cost information could result in 

issuers having to share business 

sensitive data with third party 

competitors.447

We continue to believe that the 

required disclosure would be more 

consistent and comparable if issuers are 

required to report in-kind payments at 

cost and only permitted to report using 

fair market value if historical costs are 

not reasonably available or 

determinable. We also believe that 

adoption of the Modified Project 

Definition, which allows for the 

aggregation of payments, including inkind payments, across multiple 

contracts should mitigate the concern 

raised about the publishing of 

competitively sensitive information. 

Two other commenters supported the 

proposed instruction requiring the use 

of historical cost if determinable, but 

recommended that we also require the 

disclosure of the volume of in-kind 

payments, where applicable.448 Those 

commenters stated that such a 

requirement would be consistent with 

the valuing of in-kind payments under 

the EU Directives and would enable 

users of the payment data to understand 

better the methodology used to calculate 

the value of in-kind payments.449 We 

decline to follow this recommendation 

because we do not believe such 

information is necessary.450 The 

adopted instruction requires an issuer to 

provide a brief description of how the 

monetary value of an in-kind payment 

was calculated, which would provide 

additional context for assessing the 

reasonableness of the disclosure.451 An 

issuer may disclose volume information 

when providing this description if it 

4694 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

452See id. 453See id. 454See Item 2.01(a)(2) of Form SD. 455See the 2016 Adopting Release at Section 

II.C.3. 456See letter from PWYP–US (Mar. 16, 2020). 

457See 2019 Rules Proposing Release at Section 

II.C.8. 458See EITI Standard at 26. 459See, e.g., letters from Anadarko Petroleum 

Corporation (Mar. 2, 2011); API (Jan. 28, 2011); 

British Petroleum p.l.c. (Feb. 11, 2011); Chevron 

Corporation (Jan. 28, 2011); Ernst & Young (Jan. 31, 

2011); New York State Bar Association, Securities 

Regulation Committee (Mar. 1, 2011); Petroleo 

Brasileiro S.A. (Feb. 21, 2011); and 

PricewaterhouseCoopers LLP (Mar. 2, 2011). 460See 17 CFR 240.13q–1(b). This provision is 

identical to the one included in the 2016 Rules. 461See, e.g., letter from Elise J. Bean (Feb. 16, 

2016). 462See, e.g., letter from PWYP–US (Feb. 16, 

2016). 

463See letters from Better Markets; Oxfam 

America and Earthrights International; and PWYP– 

US (Mar. 16, 2020). 

464See letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

465See letter from Better Markets. 

466For example, an issuer would be required to 

report payments characterized or structured as 

related to exploratory activities, without applying 

the delayed reporting provision, when in fact they 

are payments related to development activities. 

467See 15 U.S.C. 78m(q)(2)(A). 

468See 17 CFR 240.13q–1(a). As proposed, the 

amended Form SD will require an issuer to include 

a brief statement in the body of the form in an item 

entitled, ‘‘Disclosure of Payments by Resource 

Extraction Issuers,’’ directing readers to the detailed 

payment information provided in the exhibits to the 

form. See Item 2.01(a)(3) of Form SD. 

believes such information would be 

appropriate under the circumstances. 

As proposed, the adopted instruction 

clarifies how to report payments made 

to a foreign government or the Federal 

Government to purchase the resources 

associated with production entitlements 

that are reported in-kind. An issuer’s 

purchase of production entitlements 

affects the ultimate cost of such 

entitlements. Accordingly, if the issuer 

is required to report an in-kind 

production entitlement payment under 

the rules and then repurchases the 

resources associated with the 

production entitlement within the same 

fiscal year, the issuer will be required to 

use the purchase price (rather than 

using the valuation methods described 

above) when reporting the in-kind value 

of the production entitlement.452

If the in-kind production entitlement 

payment and the subsequent purchase 

are made in different fiscal years and 

the purchase price is greater than the 

previously reported value of the in-kind 

payment, the issuer will be required to 

report the difference in values in the 

latter fiscal year if that amount exceeds 

the ‘‘not de minimis’’ threshold. In other 

situations, such as when the purchase 

price in a subsequent fiscal year is less 

than the in-kind value already reported, 

no disclosure relating to the purchase 

price would be required.453

7. Accounting Considerations 

We are adopting the proposed item on 

Form SD stating that the payment 

disclosure must be made on a cash basis 

instead of an accrual basis and need not 

be audited.454 This is consistent with 

the approach that the Commission 

proposed and adopted in the 2016 

rulemaking.455 We continue to believe 

that requiring reporting to be made on 

a cash basis is the best approach 

because: (1) These payment disclosures 

are largely cash-based, so reporting 

them on a cash basis would limit the 

associated compliance burden; and (2) 

requiring a consistent approach to 

reporting would improve comparability 

and therefore result in greater 

transparency. 

No commenter opposed the proposed 

‘‘cash basis’’ requirement, and one 

commenter supported it. This 

commenter stated that the proposed 

approach is consistent with the 

approach under the EITI and other nonU.S. payments-to-governments reporting 

regimes.456

When proposing that the payment 

information is not required to be 

audited, we noted that the EITI 

approach is different from Section 

13(q).457 Under the EITI, companies and 

the host country’s government generally 

each submit payment information 

confidentially to an independent 

administrator selected by the country’s 

multi-stakeholder group, frequently an 

independent auditor, who reconciles the 

information provided by the companies 

and the government and then produces 

a report.458 In contrast, Section 13(q) 

does not contemplate that an 

administrator would audit and reconcile 

the information or produce a report as 

a result of the audit and reconciliation. 

Moreover, while Section 13(q) refers to 

‘‘payments,’’ it does not require the 

information to be included in the 

financial statements. In addition, by not 

imposing an audit requirement for the 

payment information, we are mindful of 

the concerns raised by some previous 

commenters that such an auditing 

requirement would significantly 

increase implementation and ongoing 

reporting costs.459

K. Anti-Evasion 

We are adopting the proposed 

provision that will require disclosure 

with respect to an activity or payment 

that, although not within the categories 

included in the final rules, is part of a 

plan or scheme to evade the disclosure 

required under Section 13(q).460 This 

provision is designed to emphasize 

substance over the form or 

characterization of payments. We 

believe that it covers most of the 

situations that have concerned 

commenters in prior rulemakings. For 

example, the provision would cover 

payments that were substituted for 

otherwise reportable payments in an 

attempt to evade the disclosure rules,461

as well as activities and payments that 

were structured, split, or aggregated in 

an attempt to avoid application of the 

rules.462 Similarly, a resource extraction 

issuer could not avoid disclosure by 

improperly characterizing an activity as 

transportation that would otherwise be 

covered under the rules, or by making 

a payment to the government via a third 

party in order to avoid disclosure under 

the rules. 

We received a limited number of 

comments that addressed the proposed 

anti-evasion provision.463 Some 

commenters recommended specifically 

stating, to align more closely with the 

EU Directives and ESTMA, that 

activities and payments must not be 

artificially structured, split, or 

aggregated to avoid the application of 

the rules.464 Another commenter 

recommended that, because a 

government official may demand that a 

transaction be structured a certain way 

to avoid application of the rules, we 

strengthen the anti-evasion provision to 

prevent an issuer in such circumstances 

from claiming that it is just following 

the demands of the government and is 

not part of a plan or scheme to evade the 

disclosure required under Section 

13(q).465 We decline to adopt either 

recommendation because we believe 

that the proposed principles-based antievasion provision is broad enough, and 

the most effective way, to prohibit the 

evasive activity in these, as well as 

other, cases.466

L. Annual Report Requirement 

1. Form SD 

Section 13(q) mandates that a 

resource extraction issuer provide the 

payment disclosure required by that 

section in an annual report but 

otherwise does not specify the location 

of the disclosure, either in terms of a 

specific form or in terms of location 

within a form.467 For the following 

reasons, and consistent with the 2016 

Rules, we are adopting the proposed 

requirement that resource extraction 

issuers provide the required disclosure 

about payments on Form SD.468

Form SD is already used for 

specialized disclosure not included 

within an issuer’s periodic or current 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4695 

469 17 CFR 240.13p–1 (Rule 13p–1). See also 

Exchange Act Release No. 34–67716 (Aug. 22, 2012) 

[77 FR 56273 (Sept. 12, 2012)] (‘‘Conflict Minerals 

Release’’). 

470See letter from PWYP–US (Mar. 16, 2020). 

471See 2012 Rules Adopting Release, notes 366– 

370 and accompanying text. Under the rules 

proposed in the 2012 Rules Proposing Release, a 

resource extraction issuer would have been 

required to furnish the payment information in its 

annual report on Form 10–K, Form 20–F, or Form 

40–F. One commenter continued to support this 

approach after the 2012 Rules Adopting Release. 

See letter from Susan Rose-Ackerman (Mar. 28, 

2014) (‘‘[t]here is no need for the cost of a separate 

report.’’). 

472 In this regard, we considered permitting the 

resource extraction payment disclosure to be 

submitted as an amendment to Form 10–K, 20–F, 

or 40–F, as applicable, but we are concerned that 

this might give the false impression that a 

correction had been made to a previous filing. See 

also 2012 Rules Adopting Release, n.379 and 

accompanying text. 

473See Item 2.01(a)(1) of Form SD. 

474 General Instruction B.1 of Form SD. See also 

Exchange Act Rule 13p–1. 

475Of the 414 companies that we estimate would 

be subject to the final rules, only 50 filed a Form 

SD pursuant to Rule 13p–1 in 2019. In addition, we 

note that the conflict minerals reporting regime 

adopted a uniform reporting period, in part, 

because such a period allows component suppliers 

that are part of a manufacturer’s supply chain to 

provide reports to their upstream purchasers only 

once a year. See Conflict Minerals Release, note 352 

and accompanying text. The same reasoning does 

not apply to the issuer-driven disclosure under the 

Section 13(q) rules. 

476See 2019 Rules Proposing Release at Section 

II.H. 

477See 2016 Adopting Release at Section II.G.3. 

478See 2019 Rules Proposing Release at Section 

II.H. 

479See letters from Sens. Cardin et al.; EITI Civil 

Society Board (Mar. 13, 2020); PolicyAlert!; Eric 

Postel; Public Citizen; and PWYP–US (Mar. 16, 

2020). 

480See, e.g., letters from Sens. Cardin et al.; EITI 

Civil Society Board; Eric Postel; Public Citizen; and 

PWYP–US (Mar. 16, 2020). 

481See letter from PWYP–US (Mar. 16, 2020). 

482See, e.g., letters from EITI Civil Society Board; 

Eric Postel; Public Citizen; and PWYP–US (Mar. 16, 

2020). 

483See General Instruction B.2. to Form SD. 

reports, specifically, the disclosure 

required by the rule implementing 

Section 1502 of the Dodd-Frank Act.469

As such, we believe that using Form SD 

would facilitate interested parties’ 

ability to locate the disclosure. In this 

regard, we disagree with the commenter 

that opposed the use of Form SD 

because it believed that using the same 

form as is used for conflict minerals 

disclosure would unnecessarily confuse 

users of the payment information and 

cause them to conflate the two issues.470

Because the amendment to Form SD 

includes the Section 13(q) disclosure 

requirements in its own section (Section 

2), distinct from the conflict minerals 

requirements in Section 1 of that Form, 

we believe that any user confusion 

would be kept to a minimum. 

We also believe that using Form SD 

would address the concerns expressed 

by issuers in prior rulemakings about 

having to provide the disclosure in their 

Exchange Act annual reports on Forms 

10–K, 20–F or 40–F.471 For example, the 

adopted approach should alleviate the 

concern that the disclosure will be 

subject to the officer certifications 

required by 17 CFR 240.13a–14 and 

240.15d–14 (Exchange Act Rules 13a–14 

and 15d–14). It also will allow the 

Commission, as discussed below, to 

adjust the timing of the submission 

without directly affecting the broader 

Exchange Act disclosure framework.472

Section 13(q) also does not 

specifically mandate the time period in 

which a resource extraction issuer must 

provide the disclosure. We are adopting 

the proposed requirement that an issuer 

report the payments made in its last 

fiscal year.473 We continue to believe 

that fiscal year reporting would limit 

resource extraction issuers’ compliance 

costs by allowing them to use their 

existing tracking and reporting systems 

for their public reports to also track and 

report payments under Section 13(q). 

We also considered the possibility 

that certain resource extraction issuers 

may be required to submit two reports 

on Form SD every year if we use a 

reporting period based on the fiscal year 

and they are subject to the May 31st 

conflict minerals disclosure deadline.474

Nevertheless, we continue to believe 

that the fiscal year is the appropriate 

reporting period for the payment 

disclosure. We believe it would reduce 

resource extraction issuers’ compliance 

costs when compared to a fixed, annual 

reporting requirement by allowing them 

to use their existing tracking and 

reporting systems for their public 

reports to also track and report 

payments under Section 13(q). In 

addition, although minimizing the 

number of Forms SD an issuer would 

need to submit if it was also subject to 

the conflict minerals disclosure rules 

could have benefits, we do not believe 

that those benefits outweigh those 

arising from a reporting regime tailored 

to a resource extraction issuer’s fiscal 

year.475

2. Annual Deadline for Form SD 

We proposed a Form SD submission 

deadline that differed depending on a 

resource extraction issuer’s fiscal yearend. We proposed to require an issuer 

with a fiscal year ending on or before 

June 30 to submit Form SD no later than 

March 31 in the calendar year following 

its most recent fiscal year. For an issuer 

with a fiscal year ending after June 30, 

we proposed the Form SD submission 

deadline to be no later than March 31 

in the second calendar year following its 

most recent fiscal year.476 This 

approach differed from the 2016 Rules, 

which required all resource extraction 

issuers to submit Form SD on EDGAR 

no later than 150 days after the end of 

the issuer’s most recent fiscal year. We 

based the 2016 deadline in part on the 

need to avoid a conflict with the 

deadline for an issuer’s annual report on 

Form 10–K, 20–F, or 40–F under the 

Exchange Act.477 When proposing the 

different annual reporting deadline in 

2019, we explained that, although we 

continued to believe that it is reasonable 

to provide a deadline that would be 

later than an issuer’s Exchange Act 

annual report deadline, in light of the 

concerns about compliance burdens 

under the 2016 Rules, we were 

proposing a submission deadline for 

Form SD that is longer than the 150 day 

deadline.478

Several commenters objected to the 

proposed annual deadline for 

submitting Form SD.479 Noting that the 

proposed reporting deadline would be 

significantly longer than the 2016 

reporting deadline, particularly for 

calendar year-end companies, most of 

those commenters stated that the 

proposed reporting deadline would 

limit the usefulness of the disclosed 

payment information and undermine its 

effectiveness for citizens, investors, and 

other data users.480 For example, one 

commenter stated that, under the 

proposed deadline, for a calendar yearend company, there would be 465 days 

between the end of the fiscal year and 

the deadline for reporting payments for 

that fiscal year, which would 

unnecessarily limit benefits to citizens 

and investors.481 Some commenters 

recommended that we instead reinstate 

the annual report deadline under the 

2016 Rules (i.e., 150 days after the end 

of the issuer’s most recent fiscal 

year).482

We understand commenters’ concerns 

regarding adopting an annual report 

deadline that could significantly limit 

the usefulness of the payment 

disclosures. We also, however, believe 

that the annual report deadline should 

be longer than the 150-day deadline 

under the 2016 Rules so that it does not 

interfere with an issuer’s annual 

reporting obligations under the 

Exchange Act. 

Accordingly, we are adopting an 

annual deadline for Form SD that 

requires an issuer to submit Form SD no 

later than 270 days following the end of 

its most recently completed fiscal 

year.483 Although this deadline is longer 

than the deadline imposed under the 

2016 Rules, it is significantly shorter 

4696 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

484See supra note 232. 

485Section 13(q) provides that the rules shall 

require that the information included in the annual 

report of a resource extraction issuer be submitted 

in an interactive data format. See 15 U.S.C. 

78m(q)(2)(C). and 15 U.S.C. 78m(q)(2)(D)(ii). The 

Commission has defined an ‘‘interactive data file’’ 

to be the interactive data submitted in a machinereadable format. See 17 CFR 232.11; Release No. 

33–9002 (Jan. 14, 2009) [74 FR 6776 (Feb. 10, 

2009)], 6778, note 50. 

486See Item 2.01(a)(5) of Form SD. 

487See 2019 Rules Adopting Release at Section 

II.K. 

488See Release No. 33–10514 (Jun. 28, 2018) [83 

FR 40846 (Jul. 16, 2018)]. 

489See letter from PWYP–US (Mar. 16, 2020) 

(stating that Inline XBRL would be useful because, 

in the reports filed under the EU Directives and 

Canada’s ESTMA, issuers include narrative, 

context, and clarifying footnotes in addition to the 

statutorily required data). In this regard, however, 

the final rules require that the alternative reports 

must be tagged using XBRL. 

490Letter from XBRL US (Mar. 16, 2020). 

491For example, payment types could be 

royalties, bonuses, taxes, fees, or production 

entitlements. 

492An issuer must provide an electronic tag 

identifying the government for each national and 

subnational government payee. 

493See Item 2.01(a)(5) of Form SD. 

494See Item 2.01(a)(5)(i) through (ii). 

495See Section 13(q)(2)(A)(i) through (ii). 

496See Item 2.01(a)(5)(ix) through (xi). 

497See Instruction (3) to Item 2.01 of Form SD. 

ISO 3166–1 pertains to countries whereas ISO 

3166–2 pertains to major subdivisions in the listed 

countries. 

498See 2016 Rules Adopting Release at Section 

II.K.3. 

499See Item 2.01(a)(5)(iv) of Form SD. 

500See Instruction 2 to Item 2.01 of Form SD. 

Foreign private issuers may currently present their 

financial statements in a currency other than U.S. 

dollars for purposes of Securities Act registration 

and Exchange Act registration and reporting. See 17 

CFR 210.3–20 (Rule 3–20 of Regulation S–X). 

than what we proposed. We believe that 

this annual report deadline 

appropriately balances the interest of 

users in maintaining the effectiveness of 

the payment disclosures with the 

interest of issuers in reducing the 

compliance burdens of the Section 13(q) 

rules. We also believe that reducing the 

likelihood that the filing of the Form SD 

will interfere with an issuer’s annual 

reporting obligations under the 

Exchange Act is consistent with the 

Commission’s statutory duty to adopt 

rules that promote efficiency in U.S. 

capital markets.484

M. Exhibits and Interactive Data Format 

Requirements 

As required by Section 13(q),485 and 

as proposed, the final rules will require 

a resource extraction issuer to submit 

the required disclosure on EDGAR in an 

XBRL exhibit to Form SD.486 Providing 

the required disclosure elements in a 

machine readable (electronically tagged) 

format will enable users easily to 

extract, aggregate, and analyze the 

information in a manner that is most 

useful to them. For example, it will 

allow the information received from the 

issuers to be converted by EDGAR and 

other commonly used software and 

services into an easily readable tabular 

format. 

When proposing to require the use of 

XBRL as the interactive data format, we 

noted that most commenters on the 

2016 Rules Proposing Release that 

addressed the issue supported the use of 

XBRL, but did not similarly support the 

use of Inline XBRL.487 Inline XBRL is a 

particular form of XBRL that allows 

filers to embed XBRL data directly into 

an HTML document, eliminating the 

need to tag a copy of the information in 

a separate XBRL exhibit. 

The Commission recently adopted 

rule amendments to require the use of 

the Inline XBRL format for the 

submission of operating company 

financial statement information and 

mutual fund risk/return summaries.488

One commenter recommended that we 

require the use of Inline XBRL for the 

Section 13(q) payment disclosure.489

Another commenter, however, 

supported the proposed use of XBRL 

and was ‘‘agnostic as to whether 

conventional (XML-based) XBRL or 

Inline (HTML-based XBRL) is 

adopted.490 Like the proposed rules, 

however, the final rules do not require 

a resource extraction issuer to use Inline 

XBRL when submitting the Section 

13(q) payment information. Given the 

nature of the disclosure required by the 

Section 13(q) rules, which is primarily 

an exhibit with tabular data, we 

continue to believe that Inline XBRL 

would not improve the usefulness or 

presentation of the required disclosure. 

Under the final rules, and consistent 

with the statute, a resource extraction 

issuer will be required to submit the 

payment information in XBRL using 

electronic tags—a taxonomy of defined 

reporting elements—that identify, for 

any payment required to be disclosed: 

• The total amounts of the payments, 

by payment type; 491

• 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; 492 and 

• The project of the resource 

extraction issuer to which the payments 

relate.493

In addition to the electronic tags 

specifically required by the statute, a 

resource extraction issuer will also be 

required, as proposed, to provide and 

tag the type and total amount of 

payments, by payment type, made for 

each project and the type and total 

amount of payments, by payment type, 

for all projects made to each 

government.494 These additional tags 

relate to information that is specifically 

required to be included in the resource 

extraction issuer’s annual report by 

Section 13(q).495

The final rules will also require 

resource extraction issuers, as proposed, 

to tag the particular resource that is the 

subject of commercial development, the 

method of extraction, and the country 

and major subnational political 

jurisdiction of the project.496 While 

these three items of information also 

would be included in the project 

description, we believe that having 

separate electronic tags for these items 

will further enhance the usefulness of 

the data with an insignificant 

corresponding increase in compliance 

costs. 

For the country in which the 

government and project is located and 

the major subnational geographic 

location of a project, the final rules 

require, as proposed, that the issuer use 

an electronic tag that is consistent with 

the appropriate ISO code.497 As some 

previous commenters pointed out, such 

use would standardize references to 

those geographic locations and thereby 

help to reduce confusion caused by a 

particular project description.498

Consistent with the statute, the final 

rules will require a resource extraction 

issuer to include an electronic tag that 

identifies the currency used to make the 

payments.499 The statute also requires a 

resource extraction issuer to present the 

type and total amount of payments 

made for each project and to each 

government, but does not specify how 

the issuer should report the total 

amounts. We believe that the statutory 

requirement to provide a tag identifying 

the currency used to make the payment, 

coupled with the requirement to 

disclose the total amount of payments 

by payment type for each project and to 

each government, requires issuers to 

perform currency conversions when 

payments are made in multiple 

currencies. 

We are adopting the instruction to 

Form SD, as proposed, clarifying that 

issuers will be required to report the 

amount of payments made for each 

payment type, and the total amount of 

payments made for each project and to 

each government, in U.S. dollars or in 

the issuer’s reporting currency if not 

U.S. dollars.500 We understand that 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4697 

501See 2019 Rules Proposing Release at Section 

II.K. 

502See 2016 Adopting Release at Section II.K.1. 

503See Instruction 2 to Item 2.01 of Form SD. 

504See letter from Petrobras (Feb. 16, 2016) 

(stating that the three proposed methods for 

calculating the currency conversion when payments 

are made in multiple currencies provide issuers 

with sufficient options to address any possible 

concerns about compliance costs and comparability 

of the disclosure among issuers). 

505See Instruction 2 to Item 2.01 of Form SD. 

506See Item 2.01(a)(5)(vi) of Form SD. 

507See Item 2.01(d)(1) of Form SD. The term 

‘‘reportable segment’’ is defined in FASB ASC 

Topic 280, Segment Reporting, and IFRS 8, 

Operating Segments. We did not receive any 

comments on the proposed definition of ‘‘business 

segment.’’ 

508See Instruction 4 to Item 2.01 of Form SD. 

509See supra note 20. 

510See Item 2.01(c) of Form SD. 

511See 2016 Rules Adopting Release at Section 

II.J.2. 

512See, e.g., letters from API (Mar. 16, 2020); 

BHP; BP America; Chamber; Eni; Equinor; PWYP– 

US (Mar. 16, 2020); Rio Tinto; Royal Dutch Shell; 

SAF; and Total (Feb. 10, 2020). 

513See Item 2.01(c)(1) through (2) of Form SD. 

514See Item 2.01(c)(2) of Form SD. The format of 

the report could differ to the extent necessary to 

comply with the conditions placed by the 

Commission on the alternative reporting 

accommodation. For example, the report may not 

have been originally submitted in the home 

jurisdiction in XBRL or may not have been in 

English, both of which are requirements under the 

rules we are adopting. 

515See Item 2.01(c)(3) of Form SD. 

516See Item 2.01(c)(4) of Form SD. 

517See Item 2.01(c)(5) of Form SD. 

518 17 CFR 232.306 (Rule 306 of Regulation S–T) 

requires that all electronic filings and submissions 

be in the English language. If a filing or submission 

requires the inclusion of a foreign language 

document, Rule 306 requires that the document be 

translated into English in accordance with 17 CFR 

230.403(c) (Securities Act Rule 403(c)) or 17 CFR 

240.12b–12(d) (Exchange Act Rule 12b–12(d)). 

issuers may have concerns regarding the 

compliance costs related to making 

payments in multiple currencies and 

being required to report the information 

in another currency.501 As we did in the 

2016 Rules,502 in order to address those 

concerns, we are adopting the proposed 

instruction that allows a resource 

extraction issuer to choose to calculate 

the currency conversion between the 

currency in which the payment was 

made and U.S. dollars or the issuer’s 

reporting currency, as applicable, in one 

of three ways: 

• By translating the expenses at the 

exchange rate existing at the time the 

payment is made; 

• By using a weighted average of the 

exchange rates during the period; or 

• Based on the exchange rate as of the 

issuer’s fiscal year end.503

No commenter opposed this 

instruction, and the one commenter that 

addressed the Commission’s identical 

currency conversion approach in the 

2016 rulemaking supported it.504

The adopted instruction requires a 

resource extraction issuer to disclose the 

method used to calculate the currency 

conversion. In addition, as proposed, in 

order to avoid confusion, the issuer will 

be required to choose a consistent 

method for all such currency 

conversions within a particular Form 

SD.505

Consistent with the statute, the final 

rules will require a resource extraction 

issuer to include an electronic tag that 

identifies the business segment of the 

resource extraction issuer that made the 

payments.506 We are adopting the 

proposed definition of ‘‘business 

segment’’ to mean a business segment 

consistent with the reportable segments 

used by the resource extraction issuer 

for purposes of financial reporting.507

Defining ‘‘business segment’’ in this 

way would enable issuers to report the 

information according to how they 

currently report their business 

operations, which should help to limit 

compliance costs. 

Finally, to the extent that payments, 

such as corporate income taxes and 

dividends, are made for obligations 

levied at the entity level, issuers will be 

able to omit certain tags that may be 

inapplicable (e.g., project tag, business 

segment tag) for those payment types. 

Issuers will, however, be required to 

provide all other electronic tags, 

including the tag identifying the 

recipient government.508

N. Alternative Reporting 

1. Alternative Reporting Requirements 

As noted above, several countries 

have implemented resource extraction 

payment disclosure laws.509 In light of 

these developments, and with a view 

towards limiting compliance costs, we 

are adopting the proposed provision 

that will allow issuers to meet the 

requirements of the Section 13(q) rules, 

in certain circumstances, by providing 

disclosures that comply with a foreign 

jurisdiction’s reporting regime. 

Specifically, this provision would apply 

if the Commission has determined that 

the alternative reporting regime requires 

disclosure that satisfies the transparency 

objectives of Section 13(q).510 The 

Commission adopted a similar approach 

to alternative reporting in connection 

with the 2016 Rules.511 As in the 2016 

rulemaking, all of the commenters that 

addressed the issue supported this 

approach.512

If the Commission has determined 

that the foreign reporting regime 

requires disclosure that satisfies the 

transparency objectives of Section 13(q), 

the alternative reporting provision will 

allow an issuer subject to the foreign 

reporting regime to submit the report it 

prepared under the foreign requirements 

in lieu of the report that would 

otherwise be required by our disclosure 

rules, subject to certain conditions. This 

framework for alternative reporting will, 

at least in part, allow a resource 

extraction issuer to avoid the costs of 

having to prepare a separate report 

meeting the requirements of our Section 

13(q) disclosure rules when it already 

submits a report pursuant to another 

jurisdiction’s requirements deemed by 

the Commission to satisfy Section 

13(q)’s transparency objectives. 

An issuer will only be permitted to 

use an alternative report for an 

approved foreign jurisdiction or regime 

if the issuer was subject to the resource 

extraction payment disclosure 

requirements of that jurisdiction or 

regime and had made the report 

prepared in accordance with that 

jurisdiction’s requirements publicly 

available prior to submitting it to the 

Commission.513 An issuer choosing to 

avail itself of this accommodation will 

be required to submit as an exhibit to 

Form SD the same report that it 

previously made publicly available in 

accordance with the approved 

alternative jurisdiction’s 

requirements.514 The issuer also will be 

required to state in the body of its Form 

SD that it is relying on this 

accommodation and identify the 

alternative reporting regime for which 

the report was prepared.515

In addition, we are adopting the 

proposed requirement that the 

alternative reports must be tagged using 

XBRL.516 We believe that requiring a 

consistent data format for all reports 

submitted to the Commission would 

enhance the ability of users to access the 

data and create their own compilations 

in a manner most useful to them. We 

also believe that requiring a consistent 

data format would better enable the 

Commission’s staff to provide any 

additional compilations of Section 13(q) 

information. 

An issuer relying on the alternative 

reporting accommodation will also be 

required to provide a fair and accurate 

English translation of the entire report if 

prepared in a foreign language.517 Given 

the specificity of the disclosure and the 

electronic tagging required under Rule 

13q–1 and Form SD, we do not believe 

it would be appropriate to permit an 

English summary of a foreign language 

document that is being provided as an 

alternative report.518 Other than the 

XBRL and English translation 

4698 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

519See Item 2.01(c)(6) of Form SD. 

520See 2019 Rules Proposing Release at Section 

II.L. We proposed the four business day deadline 

because it is consistent with other Commission 

reporting deadlines. See, e.g., General Instruction 

B.1. to Form 8–K. 

521See letter from PWYP–US (Mar. 16, 2020). 

522See supra note 520. 

523See 17 CFR 240.13q–1(c). 

524Rule 0–13 permits an application to be filed 

with the Commission to request a ‘‘substituted 

compliance order’’ under the Exchange Act. 

525See 17 CFR 240.0–13(e) and (g). 

526See 17 CFR 240.0–13(h). 

527See 17 CFR 240.0–13(i). 

528 2014 UK Statutory Instrument No. 3209. 

529FOR–2013–12–20–1682. 

530See Release No. 34–78169 (Jun. 16, 2016) [81 

FR 49163 (July 27, 2016)] (stating that a resource 

extraction issuer that files a report complying with 

the reporting requirements of the EU Directives, 

ESTMA, and the USEITI would satisfy its 

disclosure obligations under Rule 13q–1). 

531See, e.g., letters from API (Mar. 16, 2020); 

BHP; BP America; Chamber; Equinor; and Rio 

Tinto. 

532For example, the EU Directives impose 

disclosure requirements for logging companies in 

addition to oil, natural gas, and mining companies. 

533For example, the final rules require alternative 

reports to be submitted in XBRL format. See supra 

Section II.N.1. 

534See, e.g., letters from API (Mar. 16, 2020); 

BHP; BP America; Chamber; Equinor; Rio Tinto; 

and Total. 

535 15 U.S.C. 78m(q)(2)(F). 

requirements, an issuer that elects to use 

the alternative reporting option will not 

be required to meet a requirement under 

the final rules to the extent that the 

alternative reporting regime imposes a 

different requirement. 

Similar to the 2016 Rules, a resource 

extraction issuer will be able to follow 

the submission deadline of an approved 

alternative jurisdiction if it submits a 

notice on or before the due date of its 

Form SD indicating its intent to submit 

the alternative report using the 

alternative jurisdiction’s deadline.519

We proposed that if a resource 

extraction issuer fails to submit such 

notice on a timely basis, or submits such 

a notice but fails to submit the 

alternative report within four business 

days of the alternative jurisdiction’s 

deadline, as proposed, it will not be able 

to rely on the alternative reporting 

accommodation for the following fiscal 

year.520 One commenter recommended 

that we permit an issuer to submit an 

alternative report up to ten business 

days after the deadline of the approved 

alternative jurisdiction.521 Although we 

believe that four business days is a 

reasonable amount of time to file the 

alternative report,522 we are adopting a 

seven business day deadline instead of 

the proposed four business day deadline 

to address concerns about the need for 

additional time for an issuer to submit 

its alternative report. 

We anticipate making determinations 

about whether a foreign jurisdiction’s 

disclosure requirements satisfy Section 

13(q)’s transparency objectives either on 

our own initiative or pursuant to an 

application submitted by an issuer or a 

jurisdiction. We will then publish the 

determinations in the form of a 

Commission order. We anticipate 

considering, among others, the 

following criteria in determining 

whether a foreign jurisdiction’s 

reporting regime requires disclosure that 

satisfies Section 13(q)’s transparency 

objectives: (1) The types of activities 

that trigger disclosure; (2) the types of 

payments that are required to be 

disclosed; and (3) whether project-level 

disclosure is required and how 

‘‘project’’ is defined. We also anticipate 

considering other factors as appropriate 

or necessary under the circumstances. 

Applications could be submitted by 

issuers, governments, industry groups, 

and trade associations.523 Applicants 

would follow the procedures set forth in 

17 CFR 240.0–13 (Rule 0–13 of the 

Exchange Act) to request recognition of 

other jurisdictions’ reporting regimes as 

satisfying Section 13(q)’s transparency 

objectives.524 Pursuant to Rule 0–13, the 

applicant will be required to include 

supporting documents, and, once 

complete, the application will be 

referred to the Commission’s staff for 

review.525 Also pursuant to Rule 0–13, 

the Commission will publish a notice in 

the Federal Register that a complete 

application has been submitted and 

allow for public comment.526 The 

Commission could also, in its sole 

discretion, schedule a hearing before the 

Commission on the matter addressed by 

the application.527

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 

In conjunction with our adoption of 

the final rules, we are issuing an order 

recognizing the EU Directives, the UK’s 

Reports on Payments to Governments 

Regulations 2014,528 Norway’s 

Regulations on Country-by-Country 

Reporting,529 and Canada’s ESTMA as 

alternative reporting regimes that satisfy 

the transparency objectives of Section 

13(q) for purposes of alternative 

reporting under the final rules, subject 

to certain conditions. We similarly 

issued a concurrent order when 

adopting the 2016 Rules.530 Several 

commenters requested that we issue 

such an order concurrent with or shortly 

after adoption of these final rules.531

We have determined that these 

disclosure regimes satisfy the 

transparency objectives of Section 13(q). 

For example, all four regimes require 

annual, public disclosure, including the 

identity of the filer; include the same or 

similar activities within the scope of 

their laws or regulations; require 

project-level reporting; cover similar 

payment types; cover similar controlled 

entities and subsidiaries; and require 

foreign subnational payee reporting. 

Although we acknowledge differences 

between these regimes and the final 

rules,532 we do not believe that such 

differences support reaching a different 

conclusion, particularly in light of the 

requirements we are imposing on 

alternative reporting.533 We note that, 

among those commenters that addressed 

the issue, there was agreement that the 

Commission should allow alternative 

reporting under the EU Directives, 

U.K.’s Reports on Payments to 

Governments Regulations, Norway’s 

Regulations on Country-by-Country 

Reporting, and Canada’s ESTMA.534

This further persuades us that it is 

appropriate at this time to grant these 

regimes alternative reporting status in 

their current form. 

O. Compliance Date 

Section 13(q) provides that, with 

respect to each resource extraction 

issuer, the final rules issued under that 

section shall take effect on the date on 

which the resource extraction issuer is 

required to submit an annual report 

relating to the issuer’s fiscal year that 

ends not earlier than one year after the 

date on which the Commission issues 

the final rules under Section 13(q).535

We are adopting the proposed two-year 

transition period so that a resource 

extraction issuer will be required to 

comply with Rule 13q–1 and Form SD 

for fiscal years ending no earlier than 

two years after the effective date of the 

final rules. For example, if the rules 

were to become effective on March 1, 

2021, the compliance date for an issuer 

with a December 31 fiscal year-end 

would be Monday, September 30, 2024 

(i.e., 270 days after its fiscal year end of 

December 31, 2023). 

This two-year transition period is the 

same as the transition period for the 

2016 Rules. In this regard, we note that 

issuers that have not previously been 

subject to an alternative reporting 

regime would likely have to modify 

their internal systems to track, record, 

and report the required payment 

information. The two-year transition 

period should provide these issuers 

with sufficient time to establish the 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4699 

536 5 U.S.C. 801 et seq. 

537See, e.g., letters from Oxfam American and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

538Because our discretionary choices are 

informed by the statutory mandate, our discussion 

of the benefits and costs of those choices 

necessarily involves the benefits and costs of the 

underlying statute. 

539See supra Sections I.A. through B. for a 

discussion of the current legal requirements and 

significant international transparency promotion 

regimes that affect market practices. 

540Based on the available data, however, it does 

not appear that the increased compliance costs 

would be significant on a per issuer basis. See infra 

Section III.D.11. 

541See supra Section II. 

542See letter from Oxfam America and Earthrights 

International. 

543 In addition to our analysis against the 

baseline, we have also noted other instances where 

Continued 

necessary systems and procedures to 

capture and track all the required 

payment information before the fiscal 

year covered by their first Form SD. It 

also should afford issuers an 

opportunity to make any other 

necessary arrangements to comply with 

Section 13(q) and the final rules, such 

as seeking exemptive relief on a case-bycase basis. 

P. Other Matters 

Pursuant to the Congressional Review 

Act,536 the Office of Information and 

Regulatory Affairs has designated these 

rules as a ‘‘major rule,’’ as defined by 5 

U.S.C. 804(2). 

Separately, if any of the provisions of 

these rules, or the application thereof to 

any person or circumstance, is held to 

be invalid, such invalidity shall not 

affect other provisions or application of 

such provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. Implementation of these 

rules has been ongoing since 2011. As 

a result, we are specifying how the 

Commission intends for the rule to 

operate in the event that it is challenged 

and a court rejects the rule’s approach 

to either of the two matters that have 

been a particular focus of dispute among 

the commenters: The definition of 

project and the need for, and scope of, 

exemptions. If the definition of project 

is challenged and invalidated or 

otherwise not permitted to take effect, 

issuers must continue to make all the 

disclosures required by Section 13(q), 

but issuers may utilize their own 

reasonable definition of project while 

the Commission reconsiders the project 

definition. In such circumstances, 

allowing issuers to utilize their own 

reasonable definition of project (which 

they will need to identify in Form SD) 

until such time as a revised rule may be 

issued and all litigation connected to it 

is resolved would be an appropriate 

interim alternative for the reasons 

discussed in the 2012 Rules Proposing 

Release. Further, if one or more of the 

rule’s exemptions is invalidated or 

otherwise not permitted to take effect, 

resource-extraction issuers must 

continue to make all of the required 

disclosures under this rule, but the 

Commission, while reconsidering how 

to proceed with any possible revised 

rulemaking, retains the authority under 

Section 36(a) of the Exchange Act to 

issue exemptive orders as appropriate. 

III. Economic Analysis 

A. Introduction and Baseline 

As discussed above, Section 13(q) 

mandates a new disclosure provision 

under the Exchange Act that requires 

resource extraction issuers to identify 

and report payments they make to 

foreign governments or the Federal 

Government relating to the commercial 

development of oil, natural gas, or 

minerals. It does so to help foster 

payment transparency in resource-rich 

countries. According to some 

commenters, increased transparency of 

payments may further increased 

accountability and anti-corruption 

efforts in resource-rich countries.537

Exchange Act Section 23(a)(2) 

requires us to consider the impact that 

any new rule would have on 

competition. In addition, Section 3(f) of 

the Exchange Act directs us, when 

engaging in rulemaking that requires us 

to consider or determine whether an 

action is necessary or appropriate in the 

public interest, to consider, in addition 

to the protection of investors, whether 

the action will promote efficiency, 

competition, and capital formation. 

As such, we have considered the costs 

and benefits that would result from the 

final rules, as well as the potential 

effects on efficiency, competition, and 

capital formation. Many of the potential 

economic effects of the final rules stem 

from the statutory mandate, while 

others stem from the discretion we are 

exercising in implementing the statutory 

mandate. As noted above, our 

discretionary choices have been 

informed, in part, by the disapproval of 

the 2016 Rules under the CRA and in 

particular the CRA’s prohibition on 

promulgating a new rule in substantially 

the same form. The following discussion 

addresses the costs and benefits that 

might result from both the statute and 

our discretionary choices.538

The baseline the Commission uses to 

analyze the potential effects of the final 

rules is the current set of legal 

requirements and market practices.539

To the extent that resource extraction 

issuers are not already tracking and 

disclosing the information required 

under the rules, the final rules likely 

will have a significant impact on their 

disclosure practices and in addition 

increase aggregate compliance costs. 

The overall magnitude of the potential 

costs of the final disclosure 

requirements will depend on the 

number of affected issuers and 

individual issuers’ costs of 

compliance.540 In addition, the final 

rules could impose burdens on 

competition, although as discussed 

elsewhere in this release, the anticompetitive effects of transparency 

disclosures have been called into 

question based upon resource extraction 

issuers’ experiences with the disclosure 

regimes in Europe and Canada.541 In 

any event, the changes we are making 

from the 2016 Rules are intended to 

mitigate any such effects. 

One commenter asserted that the 

baseline contains significant gaps and 

fails to recognize current market 

trends.542 According to this commenter, 

we do not consider that the global 

transparency landscape has changed 

dramatically since the 2016 Rules; 

specifically that the international 

standards of reporting have moved 

towards fully public, project-level 

reporting, defined at the contract-level 

consistent with every other 

transparency regime, and towards a 

consistent definition of ‘‘not de 

minimis.’’ We agree with the commenter 

that the global transparency landscape 

has evolved since the 2016 Rules. This 

has had an effect on the competitive 

landscape as well, because some of the 

competitors of U.S.-reporting issuers are 

now required to provide similar 

disclosures. We disagree with the 

commenter that our baseline fails to 

recognize that change. Indeed, in the 

baseline we discuss and quantify the 

number of potential issuers that are 

reporting under existing regimes and the 

potential effect on their costs. 

We expect that the final rules will 

affect both U.S. issuers and foreign 

issuers that meet the definition of 

‘‘resource extraction issuer’’ in much 

the same way, except for issuers already 

subject to requirements adopted in the 

EU, EEA, UK, or Canada, as discussed 

above in Section I.B. The discussion 

below describes the Commission’s 

understanding of the markets and 

issuers that would be affected by the 

final rules.543

4700 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

the final rules differ in their economic effects from 

the 2016 Rules. To be clear, however, our 

assessment of the final rules’ economic effects is 

measured against the current state of the world in 

which issuers are not required by U.S. law to 

disclose resource extraction payments. 

544Specifically, the oil, natural gas, and mining 

SIC codes considered are 1000, 1011, 1021, 1031, 

1040, 1041, 1044, 1061, 1081, 1090, 1094, 1099, 

1220, 1221, 1222, 1231, 1311, 1321, 1381, 1382, 

1389, 1400, 2911, 3330, 3331, 3334, and 3339. 

545We note that such issuers may incur certain 

tagging and translation costs. See infra Section 

III.D.5. Given that, because we exclude these issuers 

from the number of potentially affected issuers, our 

estimates of the aggregate compliance costs 

associated with the final rules may be understated 

to the extent of these costs. 546 In a change from the Proposing release, the 

final rules define ‘‘not de minimis’’ as a payment 

that equals or exceeds $100,000. The analysis in 

this section reflects this change. 547We assume that an issuer is subject to the EEA 

or Canadian rules if it is listed on a stock exchange 

located in one of these jurisdictions or if it has a 

business address or is incorporated in the EEA or 

Canada and its total assets are greater than $50 

million. The latter criterion is a proxy for 

multipronged eligibility criteria underlying both 

EEA and Canadian rules that include issuer assets, 

revenues, and the number of employees. 548We are adopting an alternative reporting 

option for resource extraction issuers that are 

subject to foreign disclosure requirements that the 

Commission determines satisfy the transparency 

objectives of Section 13(q). See infra Section III.D.5 

for a discussion concerning how this alternative 

reporting option could potentially reduce 

compliance costs to a negligible amount for eligible 

issuers. 

549The primary costs for issuers using the 

alternative reporting provision would be those 

related to electronic tagging and translating. See 

supra Section II.N.1. See infra Section III.D.5 for a 

discussion concerning the costs related to tagging 

and translating. 

550Because it may be unclear at the beginning of 

a financial period whether payments from an issuer 

will exceed the de minimis threshold by the end of 

such period, an excluded issuer may incur costs to 

collect the information to be reported under the 

final rules even if that issuer is not subsequently 

required to file an annual report on Form SD. Our 

estimate thus may understate the aggregate 

compliance costs associated with the final rules. 

551Our consideration of potential benefits and 

costs and likely effects on efficiency, competition, 

and capital formation also is reflected throughout 

the discussion in Section II above. 

To estimate the number of potentially 

affected issuers, we use data from 

Exchange Act annual reports filed on 

Forms 10–K, 20–F, and 40–F for the 

period January 1, 2018, through 

December 31, 2019. We consider all 

issuers with oil, natural gas, and mining 

Standard Industrial Classification 

(‘‘SIC’’) codes 544 as likely to be resource 

extraction issuers. We also include 

issuers that do not have the abovementioned oil, natural gas, and mining 

SIC codes (because their primary 

business is not necessarily resource 

extraction) as likely resource extraction 

issuers if they have some resource 

extraction operations, such as 

ownership of mines. In addition, we 

remove issuers that use oil, natural gas, 

and mining SIC codes but appear to be 

more accurately classified under other 

SIC codes based on the disclosed nature 

of their business. Finally, we exclude 

royalty trusts from our analysis because 

we believe it is uncommon for such 

companies to make the types of 

payments that will be covered by the 

final rules. 

From these filings, we estimate that 

the number of potentially affected 

issuers is 678. We note that this number 

does not reflect the number of issuers 

that actually made resource extraction 

payments to governments in the period 

under consideration but rather 

represents the estimated number of 

issuers that might make such payments. 

In determining which issuers are 

likely to bear the full costs of 

compliance with the final rules, we 

make three adjustments to the list of 

affected issuers. First, we exclude 

issuers that are smaller reporting 

companies or emerging growth 

companies and that are not subject to 

alternative reporting regimes that the 

Commission has deemed to satisfy the 

transparency objectives of Section 13(q), 

as the final rules provide an exemption 

for those issuers. Second, we exclude 

issuers that are subject to disclosure 

requirements in foreign jurisdictions 

that generally require more granular 

disclosure than the final rules and 

therefore are likely already bearing 

compliance costs for such disclosure.545

Third, we exclude small issuers that 

likely could not have made any 

payment above the de minimis amount 

of $100,000 to any government entity in 

the period January 1, 2018, through 

December 31, 2019.546

First, among the 678 issuers that we 

estimate will be affected by the final 

rules, 214 reported being smaller 

reporting companies (SRCs) and 191 

reported being emerging growth 

companies (EGCs) in the period January 

1, 2018, through December 31, 2019. 

There are 84 issuers that reported both 

SRC and EGC status during this period. 

There are also 69 issuers with SRC or 

EGC status that were subject to 

alternative reporting regimes that, 

concurrent with adoption of the final 

rules, the Commission is deeming to 

satisfy the transparency objectives of 

Section 13(q). These issuers are 

therefore not eligible for the EGC/SRC 

exemption. Subtracting the 69 nonexempt issuers that are either SRCs or 

EGCs from the total of 321 issuers with 

SRC or EGC status results in 252 SRCs 

and EGCs that are potentially exempt 

from the final rules. Subtracting these 

252 SRCs and EGCs from the sample of 

678 potentially affected issuers results 

in 426 issuers that will be subject to the 

final rules. 

To address the second consideration, 

we searched the filed annual forms for 

issuers that have a business address, are 

incorporated, or are listed on markets in 

the EEA, UK, or Canada.547 For 

purposes of our analysis, we assume 

that issuers in these jurisdictions 

already are providing more granular 

resource extraction payment disclosure 

than the disclosure that will be required 

by the final rules and that the additional 

costs to comply with the final rules will 

be much lower than costs for other 

issuers.548 We identified 177 such 

issuers (including the 69 previously 

mentioned SRCs and EGCs). For 

purposes of our economic analysis, we 

assume that these issuers will not have 

to incur significant compliance costs 

related to the final rules, as they are 

already tracking, recording, and 

reporting resource extraction payment 

disclosure at a more granular level.549

Third, among the remaining 249 

issuers (i.e., 426 minus 177) we 

searched for issuers that, in the most 

recent fiscal year as of the date of their 

Exchange Act annual report filing, 

reported that they are shell companies 

and thus have no or only nominal 

operations, or have both revenues and 

absolute value net cash flows from 

investing activities of less than the de 

minimis payment threshold of $100,000. 

Under these financial constraints, such 

issuers are unlikely to have made any 

non-de minimis and otherwise 

reportable payments to governments 

and therefore are unlikely to be subject 

to the final reporting requirements. We 

identified 12 such issuers. 

Taking these estimates of the number 

of excluded issuers together, we 

estimate that approximately 237 issuers 

(i.e., 678 minus 252 minus 177 minus 

12) will bear the full costs of 

compliance with the final rules.550

In the following economic analysis, 

we discuss the potential benefits and 

costs and likely effects on efficiency, 

competition, and capital formation that 

might result from both the new 

reporting requirement mandated by 

Congress and from the specific 

implementation choices that we have 

made in formulating the final rules.551

We analyze these potential economic 

effects through a qualitative and, where 

possible, a quantitative discussion of the 

potential costs and benefits that might 

result from the payment reporting 

requirement (Sections III. B and III.C) 

and our specific implementation 

choices (Section III.D), respectively. 

Several commenters provided us with 

data on compliance costs, which we 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4701 

552See infra Section III.D.11. 

553For positive findings, see Caitlin C. Corrigan, 

‘‘Breaking the resource curse: Transparency in the 

natural resource sector and the extractive industries 

transparency initiative,’’ Resources Policy, 40 

(2014), 17–30 (finding that the negative effect of 

resource abundance on GDP per capita, the capacity 

of the government to formulate and implement 

sound policies and the level of rule of law is 

mitigated in EITI countries but noting that the EITI 

has little effect on the level of democracy, political 

stability and corruption (the author also submitted 

a comment letter in the 2016 rulemaking attaching 

an updated version of the study; see Letter from 

Caitlin C. Corrigan (Feb. 16, 2016))); Liz DavidBarrett and Ken Okamura, ‘‘The Transparency 

Paradox: Why Do Corrupt Countries Join EITI?’’, 

Working Paper No. 38, European Research Centre 

for Anti-Corruption and State-Building (Nov. 2013) 

(finding that EITI compliant countries gain access 

to increased aid the further they progress through 

the EITI implementation process and that EITI 

achieves results in terms of reducing corruption), 

available at https://eiti.org/document/transparencyparadox-why-do-corrupt-countries-join-eiti, Maya 

Schmaljohann, ‘‘Enhancing Foreign Direct 

Investment via Transparency? Evaluating the Effects 

of the EITI on FDI,’’ University of Heidelberg 

Discussion Paper Series No. 538 (Jan. 2013) (finding 

that joining the EITI increases the ratio of the net 

foreign direct investment inflow to GDP by two 

percentage points); Paul F. Villar and Elissaios 

Papyrakis, ‘‘Evaluating the Impact of the Extractive 

Industries Transparency Initiative (EITI) on 

Corruption in Zambia. The Extractive Industries 

and Society, (2017), forthcoming (finding that EITI 

implementation reduced corruption in Zambia); 

Elissaios Papyrakis, Matthias Rieger, and Emma 

Gilberthorpe, ‘‘Corruption and the Extractive 

Industries Transparency Initiative,’’ Journal of 

Development Studies, 53 (2017), 295–309 (finding 

that EITI reduces corruption). For negative findings, 

see O ̈ lcer, Dilan (2009): Extracting the Maximum 

from the EITI (Development Centre Working Papers 

No. 276): Organisation for Economic Cooperation 

and Development (finding that the EITI has not 

been able to significantly lower corruption levels); 

Benjamin J. Sovacool, Goetz Walter, Thijs Van De 

Graaf, and Nathan Andrews, ‘‘Energy Governance, 

Transnational Rules, and the Resource Curse: 

Exploring the Effectiveness of the Extractive 

Industries Transparency Initiative (EITI),’’ World 

Development, 83 (2017), 179–192 (finding that the 

first 16 countries that attained EITI compliance do 

not perform better than other countries or their own 

past performance in terms of accountability, 

political stability, government effectiveness, 

regulatory quality, rule of law, corruption, foreign 

direct investment, and GDP growth); Kerem Oge, 

‘‘Which transparency matters? Compliance with 

anti-corruption efforts in extractive industries,’’ 

Resources Policy, 49 (2016), 41–50 (finding that 

EITI disclosure had no significant effect on 

corruption in EITI countries). 

554See Andre ́s Mejı ́a Acosta, The Impact and 

Effectiveness of Accountability and Transparency 

Initiatives: The Governance of Natural Resources, 

31 DEV. POL’Y REV. s89–s105 (2013); Alexandra 

Gillies and Antoine Heuty, Does Transparency 

Work? The Challenges of Measurement and 

Effectiveness in Resource-Rich Countries, YALE J. 

INT’L AFF. 25–42 (2011). 

555We note that these intended benefits differ 

from the investor protection benefits that our 

disclosure rules typically strive to achieve. 

556See supra note 30. 

557See, e.g., Pranab Bardhan, Corruption and 

Development: A Review of Issues, 35 J. ECON. 

LITERATURE 1320–1346 (1997); Jakob Svensson, 

Eight Questions about Corruption, 19(3) J. ECON. 

PERSP. 19–42 (2005) (‘‘Svensson Study’’). 

have used to estimate the potential 

initial and ongoing compliance costs for 

issuers likely to bear the full costs of 

compliance with the final rules.552

Although aspects of the final rules are 

similar to the 2016 Rules, the final rules 

include several changes from the 2016 

Rules that we believe will help limit the 

resulting compliance costs and burdens 

without significantly affecting the 

potential benefits that the Section 13(q) 

disclosure is designed to achieve. These 

changes include: (1) The Modified 

Project Definition, which requires 

disclosure at the national and major 

subnational political jurisdiction, as 

opposed to the contract level; (2) the 

addition of two new conditional 

exemptions for situations in which a 

foreign law or a pre-existing contract 

prohibits the required disclosure; (3) the 

addition of an exemption for smaller 

reporting companies (SRCs) and 

emerging growth companies (EGCs); (4) 

revisions to the definition of ‘‘control’’ 

to exclude entities or operations in 

which an issuer has a proportionate 

interest; (5) limitations on liability for 

the required disclosure by deeming the 

payment information to be furnished to, 

but not filed with, the Commission; (6) 

revisions to the filing deadline; and (7) 

the addition of transitional relief for 

issuers that have recently completed 

their U.S. initial public offerings. As 

explained below, we believe that these 

changes taken as a whole would 

meaningfully reduce, in the aggregate, 

the compliance costs and burdens for 

issuers compared to the compliance 

costs and burden estimated for the 2016 

Rules. 

B. Potential Benefits Resulting From the 

Payment Reporting Requirement 

Section 13(q) seeks increased 

transparency about the payments that 

companies in the extractive industries 

make to foreign governments and the 

Federal Government. While this 

statutory goal and intended benefits are 

of potential global significance, the 

potential positive economic effects that 

may result cannot be readily quantified 

with any precision. The current 

empirical evidence on the direct causal 

effect of increased transparency in the 

resource extraction sector on societal 

outcomes is inconclusive,553 and several 

academic papers have noted the 

inherent difficulty in empirically 

validating a causal link between 

transparency interventions and 

governance improvements.554

Importantly, Congress has directed us 

to promulgate a rule requiring 

disclosure of resource extraction 

payments. Thus, in assessing the 

potential benefits resulting from the 

rule, we believe it reasonable to rely on 

Congress’ determination that such a rule 

will produce the transparency benefits 

by providing significant and useful 

payment information to persons seeking 

to understand the resource extraction 

payment flows to foreign 

governments.555 In that regard, we note 

that Congress did not repeal the 

mandate under Section 13(q), and in 

fact, some members of Congress who 

supported the joint resolution to 

disapprove the 2016 Rules also 

expressed their ‘‘strong support’’ for the 

transparency and anti-corruption 

objectives of the rules.556 In addition, 

none of the industry commenters over 

the years has expressed the view that 

the disclosures required by Section 

13(q) would fail to help produce anticorruption and accountability benefits. 

To the extent that the Section 13(q) 

disclosures increase transparency and 

reduce corruption, they could increase 

efficiency and capital formation either 

directly abroad or indirectly in the 

United States. While the objectives of 

Section 13(q) may not appear to be ones 

that would necessarily generate 

measurable, direct economic benefits to 

investors or issuers, investors and 

issuers might benefit from the final 

rules’ indirect effects. In the following 

paragraphs, we discuss existing 

theoretical arguments and empirical 

evidence that reduced corruption and 

better governance could have longer 

term positive impacts on economic 

growth and investment in certain 

countries where the affected issuers 

operate, which could in turn benefit 

issuers and their shareholders. 

Although the research and data 

available at this time do not allow us to 

draw any firm conclusions, we have 

considered several theoretical causal 

explanations for why reductions in 

corruption may increase economic 

growth and political stability, which in 

turn may reduce investor risk.557 High 

levels of corruption could introduce 

inefficiencies in market prices as a 

result of increased political risks and 

the potential awarding of projects to 

companies for reasons other than the 

merit of their bids. This, in turn, could 

prop up inefficient companies and limit 

investment opportunities for others. 

These potential distortions could have a 

negative impact on the economies of 

countries with high corruption, 

particularly to the extent that potential 

revenue streams are diminished or 

diverted. 

Additionally, the cost of corrupt 

expenditures, direct or indirect, impacts 

profitability, and, if the cost is 

4702 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

558See, e.g., Isaac Ehrlich and Francis Lui, 

Bureaucratic Corruption and Endogenous Economic 

Growth, 107(7) J. POL. ECON. 270–293 (1999); 

Keith Blackburn, Niloy Bose, and M. Emanrul 

Haque, The Incidence and Persistence of Corruption 

in Economic Development, 30 J. ECON. DYNAMICS 

& CONTROL 2447–2467 (2006); Carlos Leite and 

Jens Weidmann, Does Mother Nature Corrupt? 

Natural Resources, Corruption, and Economic 

Growth (Int’l Monetary Fund, Working Paper No. 

99/85, July 1999). 

559See, e.g., Paulo Mauro, The Effects of 

Corruption on Growth, Investment and Government 

Expenditure: A Cross-Country Analysis, in 

CORRUPTION & THE GLOBAL ECONOMY 83–107, 

(Kimberly Ann Elliot ed., 1997); Helene Poirson, 

Economic Security, Private Investment, and Growth 

in Developing Countries (Int’l Monetary Fund, 

Working Paper No. 98/4, Jan. 1998); Institute for 

Economics and Peace, Peace and Corruption 2015: 

Lowering Corruption—A Transformative Factor for 

Peace (2015) available at https://reliefweb.int/sites/ 

reliefweb.int/files/resources/Peace%20and

%20Corruption.pdf. 

560See Pak Hung Mo, Corruption and Economic 

Growth, 29 J. COMP. ECON. 66 (2001); Kwabena 

Gyimah-Brempong, Corruption, Economic Growth, 

and Income Inequality in Africa, 3 ECON. 

GOVERNANCE 183–209 (2002); Pierre-Guillaume 

Me ́on and Khalid Sekkat, Does corruption grease or 

sand the wheels of growth?, 122 PUBLIC CHOICE 

69–97 (2005). 

561Several studies present evidence that 

reduction in corruption increases foreign direct 

investments. See, e.g., Shang-Jin Wei, How Taxing 

is Corruption on International Investors?, (Nat’l 

Bureau of Econ. Research, Working Paper 6030 

(1997); George Abed and Hamid Davoodi, 

Corruption, Structural Reforms, and Economic 

Performance in the Transition Economies (Int’l 

Monetary Fund, Working Paper No. 00/132 (July 

2000). 

562See Daniel Kaufmann and Shang-Jin Wei, Does 

‘Grease Money’ Speed Up the Wheels of Commerce? 

(Nat’l Bureau of Econ. Research, Working Paper 

7093 (1999) (finding, based on survey evidence, that 

firms that pay fewer bribes have lower, not higher, 

cost of capital); Charles Lee and David Ng, 

Corruption and International Valuation: Does 

Virtue Pay?, 18(4) J. INVESTING 23–41 (2009) 

(finding that firms from more corrupt countries 

trade at significantly lower market multiples). 

563See letter from Kaufmann (May 1, 2020). 

564See letters from Kaufmann and PWYP–US 

(Mar. 16, 2020). 

565See letter from Kaufmann. 

566See letter from PWYP–US (Mar. 16, 2020). 

567See letter from C. Corrigan (Feb. 16, 2016) 

(referring to her earlier study: Caitlin Corrigan, 

Breaking the Resource Curse: Transparency in the 

Natural Resource Sector and the Extractive 

Industries Transparency Initiative, 41 RESOURCES 

POL’Y 17–30 (2014); Letter from PWYP–US (Feb. 

16, 2016) (referring to Fernando London ̃ o, Does 

Joining the Extractive Industries Transparency 

Initiative Have an Impact on Extractive and NonExtractive FDI Inflows? (2014), available at http:// 

gppreview.com/wp-content/uploads/2014/02/ 

Londono-F.pdf) (‘‘London ̃ o Study’’) and Maya 

Schmaljohann, Enhancing Foreign Direct 

Investment via Transparency? Evaluating the 

Effects of the EITI on FDI (Jan. 2013), available at 

http://archiv.ub.uni-heidelberg.de/volltextserver/ 

14368/1/Schmaljohann_2013_dp538.pdf 

(‘‘Schmaljohann Study’’))); Letter from ONE 

Campaign (Mar. 16, 2016). 

568See letters from Oxfam America and 

Earthrights International; and PWYP–US (Mar. 16, 

2020). 

sufficiently high, some potentially 

economically efficient or productive 

investments may not be made. Thus, 

reducing corruption could increase the 

number of productive investments and 

the level of profitability of each 

investment and could lead to improved 

efficiency in the allocation of talent, 

technology, and capital. Insofar as these 

effects are realized, each of them could 

benefit issuers operating in countries 

with reduced corruption levels. These 

and other considerations form a basis 

for several dynamic general equilibrium 

models predicting a negative 

relationship between corruption and 

economic development.558

A number of empirical studies have 

also shown that reducing corruption 

might result in an increase in the level 

of GDP and a higher rate of economic 

growth through more private 

investments, better deployment of 

human capital, and political stability.559

Other studies find that corruption 

reduces economic growth, both directly 

and indirectly, through lower 

investments.560 To the extent that 

increased transparency could lead to a 

reduction in corruption and, in turn, 

improved political stability and 

investment climate, some investors may 

consider such factors in their 

investment decisions, including when 

pricing resource extraction assets of 

affected issuers operating in these 

countries.561

There also could be positive 

externalities from increased investor 

confidence to the extent that improved 

economic growth and investment 

climate could benefit other issuers 

working in those countries. Although 

we believe the evidence is presently too 

inconclusive to allow us to predict the 

likelihood that such a result would 

occur, there is some empirical evidence 

suggesting that lower levels of 

corruption might reduce the cost of 

capital and improve valuations for some 

issuers.562

One commenter provided additional 

citations of studies that present 

empirical evidence on the role of 

transparency in reducing corruption.563

Those studies, according to the 

commenter, show a positive relation 

between transparency and the lowering 

of corruption and improvements in 

socio-economic and human 

development indicators. The commenter 

also argued that transparency is a 

necessary, but not sufficient condition 

for reducing corruption. Two 

commenters also listed studies that 

show benefits from disclosure and 

transparency improvements in 

extractive industries.564 One of these 

commenters pointed out, however, that 

there are a number of studies that show 

mixed or no evidence of a positive effect 

of transparency in the extractive 

industries on reduction in 

corruption.565 One commenter also 

provided several concrete examples 

from countries such as Ghana, 

Indonesia, and Mozambique on how the 

transparency resulting from the 

disclosure of payments to governments 

from issuers under the European Union 

regime has enabled citizens to more 

effectively hold companies and 

governments accountable.566

We also note that global transparency 

efforts such as the EITI and others are 

relatively new, which makes it difficult 

at this time to draw any firm empirical 

conclusions about the potential longterm benefits that such transparency 

regimes may produce for resource-rich 

countries. Many studies suggest a 

possible link between improvements in 

transparency, which they measure as a 

resource-rich country joining the EITI, 

and increases in GDP and net foreign 

direct investments, reduction in conflict 

and unrest, and effects on economic 

development.567 The causal 

mechanisms involved, however, are 

complex (impacted by myriad factors) 

and it may take several decades before 

those mechanisms yield empirically 

verifiable social gains. While some of 

these studies provide useful insight into 

the potential benefits of resource 

payment transparency regimes, we 

believe that there are limitations 

associated with each of these studies 

that make it difficult for us to draw firm 

conclusions based on their findings. 

Additionally, other factors could affect 

both corruption and economic 

development (e.g., a country’s 

institutions), making it difficult to 

detect a causal relationship between the 

former and the latter. 

Some commenters on the 2019 Rules 

Proposing Release criticized us for not 

discussing in detail the benefits that the 

disclosures required by Section 13(q) 

could provide to investors.568 According 

to those commenters, the rules, 

especially the contract-level project 

definition, provide very useful 

information to investors in making 

investment decisions. We discuss the 

effects of our choice of project definition 

in more detail below. Although we do 

not believe this is the primary purpose 

of the required disclosures, we 

acknowledge the possibility that the 

disclosures might provide potentially 

useful information to certain investors. 

Notwithstanding the commenters’ 

views, we believe the direct incremental 

benefit to investors from the Section 

13(q) disclosures is limited. Most 

impacted issuers, other than smaller 

reporting companies, are already 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4703 

569See 17 CFR 229.305 and 229.503. 

570See 17 CFR 229.101(d). 

571See letters from API, Chamber, and NAM. 

572See, e.g., Canada’s ESTMA at Section 8(1), 

providing that ESTMA’s reporting requirement 

apply to ‘‘(a) an entity that is listed on a stock 

exchange in Canada; (b) an entity that has a place 

of business in Canada, does business in Canada or 

has assets in Canada and that, based on its 

consolidated financial statements, meets at least 

two of the following conditions for at least one of 

its two most recent financial years: (i) It has at least 

$20 million in assets, (ii) it has generated at least 

$40 million in revenue, (iii) it employs an average 

of at least 250 employees; and (c) any other 

prescribed entity. 

required to disclose their most 

significant operational and financial 

risks 569 as well as certain financial 

information related to the geographic 

areas in which they operate, in their 

Exchange Act annual reports.570 We 

discuss this issue in greater detail in 

Section III.D.1 below where we discuss 

the implications of the definition of 

‘‘project.’’ 

C. Potential Costs Resulting From the 

Payment Reporting Requirement 

The disclosures required by Section 

13(q) could result in direct compliance 

costs for affected issuers. The direct 

compliance costs will stem from the 

time and effort, to the extent necessary, 

to modify issuers’ core enterprise 

resource planning systems and financial 

reporting systems to capture and report 

payment data at the project level, for 

each type of payment, government 

payee, and currency of payment, to the 

extent that such payments are not 

currently tracked by the issuers’ 

reporting systems. Examples of 

modifications that may be necessary 

include establishing additional 

granularity in existing coding structures 

(e.g., splitting accounts that contain 

both government and non-government 

payment amounts), developing a 

mechanism to appropriately capture 

data by ‘‘project,’’ building new 

collection tools within financial 

reporting systems, establishing a trading 

partner structure to identify and provide 

granularity around government entities, 

establishing transaction types to 

accommodate different types of 

payment (e.g., royalties, taxes, or 

bonuses), and developing a systematic 

approach to handle ‘‘in-kind’’ payments. 

We estimate the direct compliance costs 

resulting from the final rules in Section 

III.D.11 below. 

Several commenters asserted that 

Section 13(q)’s mandated disclosures 

could result in competitive harm to 

issuers, especially those that are not 

currently subject to payment disclosure 

in other jurisdictions.571 These 

commenters did not provide specific 

information or data that would allow us 

to assess the likelihood or magnitude of 

any such effect. As a general matter, we 

acknowledge that the final rules’ 

mandated disclosures may have under 

certain circumstances adverse 

competitive effects on resource 

extraction issuers covered by the final 

rules; however, we are not aware of, and 

no commenter has provided us evidence 

of, any information demonstrating that 

the resource extraction companies that 

have been subject to similar foreign 

disclosure requirements for several 

years have experienced significant 

adverse competitive effects. We base 

this on the fact that for several years a 

large number of companies have been 

disclosing payment information in the 

European Union, UK, and Canada, all of 

which have transparency laws that 

require more granular disclosure than 

that required by the final rules, and we 

are not aware of evidence that would 

suggest these companies have suffered 

from competitive harm as a result. We 

also note that those regimes cover a 

wider pool of affected companies than 

the final rules as these regimes are not 

limited to companies that are publicly 

traded in their jurisdictions but instead 

also cover companies of a certain size 

that are domiciled in their jurisdictions 

(including potentially foreign 

subsidiaries of U.S. resource extraction 

issuers).572

We discuss below the significant 

choices we have made to implement the 

statutory requirements that are the main 

drivers of the direct compliance costs of 

the final rules. We then discuss the 

associated benefits and costs of those 

choices. In that regard, we are unable to 

quantify the impact of each of the 

choices discussed below because 

reliable, empirical evidence about the 

effects is not readily available to the 

Commission. For most of the choices 

described below, commenters did not 

provide any data allowing us to quantify 

costs or benefits. We do, however, 

provide an estimate of total compliance 

costs in Section III.D.11. 

D. Discussion of Discretionary Choices 

1. Definition of ‘‘Project’’ 

Section 13(q) requires a resource 

extraction issuer to disclose information 

about the type and total amount of 

payments made to a foreign government 

or the Federal Government for each 

project relating to the commercial 

development of oil, natural gas, or 

minerals, but it does not define the term 

‘‘project.’’ The final rules define 

‘‘project’’ using a three-pronged 

definition: (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. 

The definition of ‘‘project’’ can affect 

the extent of direct compliance costs 

imposed on affected issuers. The extent 

of this effect depends on the degree to 

which issuers’ financial and reporting 

systems track and report payments 

using a definition of project different 

from the one included in the final rules 

(or using no definition at all). The 

definition of ‘‘project’’ may require 

modifications to issuers’ core enterprise 

resource planning systems and financial 

reporting systems to capture and report 

payment data for each type of payment, 

government payee, and currency of 

payment, thus generating compliance 

costs, at least in the short run. To the 

extent that some issuers already have 

internal systems in place for recording 

payments that would be required to be 

disclosed under Section 13(q), or that 

any necessary adjustments to issuers’ 

existing reporting systems could be 

done in a timely and cost-effective 

manner, compliance costs may be low. 

The Modified Project Definition that 

we are adopting may help limit direct 

compliance costs for affected issuers. 

With respect to direct compliance costs, 

the Modified Project Definition will 

allow an issuer to make the payment 

disclosure at a higher level of 

aggregation than under the 2016 Rules’ 

contract-based definition. Instead of 

tracking, recording, and disclosing 

payment information at the single 

contract, license, or lease level, under 

the Modified Project Definition, affected 

issuers will have to report this 

information at the resource type, 

extraction method, and the major 

subnational political jurisdiction level. 

This higher level of information 

aggregation should lower the cost of 

providing the required payment 

disclosure (as compared to the 2016 

Rules) because there will be fewer 

individual data points to be tracked, 

electronically tagged, and reported. It 

should also make it easier for the issuer 

to report the payment information. 

However, as discussed in Section 

III.D.11, below, the most recent cost 

estimates provided by commenters 

based on experience reporting under the 

EU Directives indicates that the initial 

and ongoing costs estimated in the 2016 

Adopting Release may have been 

overstated. To the extent these reporting 

costs are lower than the Commission 

previously anticipated, the cost savings 

associated with the Modified Project 

Definition, as compared to a contractbased definition, would be reduced. 

4704 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

573See letter from API (Mar. 16, 2020). 

574See letters from API (Mar. 16, 2020); Chamber; 

NAM; Petrobas; and SAF. 

575See letter from API (Mar. 16, 2020). 

576See, e.g., letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); and Better Markets. 

577See letter from Better Markets. 

578See letter from Oxfam America and Earthrights 

International. 

579See, e.g., letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); Congr. Waters et al., and POGO. 

580See letter from Oxfam America and Earthrights 

International. 

581See Id. 

582See supra Section II.N. 

In addition, because the required 

payment information is at a higher level 

of aggregation than under a contractbased definition, it is likely that an 

issuer already aggregates some of the 

required payment information for its 

own internal accounting or financial 

reporting purposes. For example, one 

commenter asserted that the vast 

majority of the revenue stream for 

extractive industry issuers is realized at 

the national or subnational 

jurisdictional level, and that payments 

below that level tend to be minimal.573

In that event, requiring payment 

information at a higher level of 

aggregation may be less costly because 

the issuer may be able to modify its 

existing internal accounting systems to 

collect the required payment 

information rather than having to build 

a new system to collect the payment 

information on a contract-by-contract 

basis. 

At the same time, the Modified 

Project Definition will continue to 

provide a level of transparency that 

people could use to assess revenue 

flows from projects in their local 

communities. As we discuss above in 

Section III.B, this should have a number 

of potential benefits for information 

users seeking to prevent corruption and 

promote accountability. 

Finally, we acknowledge that the 

Modified Project Definition may narrow 

the scope of the transparency benefits 

compared to the previous definition 

proposed in 2016. We believe, however, 

that the revised definition, because it 

identifies the type of resource, the 

method of extraction, and the location, 

will, in conjunction with other aspects 

of the final rules, provide substantial 

transparency about the overall revenue 

flows to national and subnational 

governments, as explained in Section 

II.A above. 

Several commenters supported the 

Modified Project Definition, arguing that 

it would reduce compliance costs while 

promoting transparency.574 One 

commenter noted that this approach 

would reduce regulatory costs and 

unnecessary exposure of issuers’ 

competitively sensitive data while 

promoting transparency.575

Many commenters did not support the 

Modified Project Definition and 

disagreed with the Commission’s 

analysis in the Proposing Release of the 

potential benefits and costs of the 

Modified Project Definition, especially 

compared to the contract-level 

definition used in the 2016 Rule and in 

other jurisdictions. The criticism 

followed several broad themes, which 

we summarize below. 

a. Effects on Transparency 

Many commenters argued that the 

Modified Project Definition would 

impede the benefits of transparency 

compared to a contract-based 

definition.576 One commenter stated 

that the aggregation of payments 

permitted by the revised definition 

would increase issuers’ ability to hide 

payments made to smaller 

municipalities or government 

officials.577 Another commenter stated 

that contract-level disclosure is more 

valuable since corruption occurs within 

individual deals and not across them.578

Several commenters also opposed the 

Commission’s proposal to permit an 

issuer to aggregate payments of a 

particular payment type below the 

major subnational government level 

without having to identify the particular 

subnational government payee.579 We 

note that under the final rules, an issuer, 

while still able to aggregate payments by 

payment type when disclosing 

payments made at a level below the 

major subnational government level, 

will now be required to disclose the 

aggregated amount paid to, and identify, 

each subnational government payee. 

One commenter argued that contractlevel data was very useful for investors 

and civil society who could only get it 

from disclosures under Section 13(q).580

According to this commenter, by 

eliminating contract-level reporting and 

allowing the aggregation in the Modified 

Project Definition, the Commission is 

effectively proposing to shift the burden 

of identifying which payments relate to 

which project, and tracking financial 

flows from a company to a particular 

government, to the public and investors. 

The commenter argued that competitors 

could get such contract-level 

information from energy intelligence 

firms and services, but the price of those 

is prohibitively high for individual 

investors and civil society. 

We acknowledge, as commenters have 

asserted, that compared to a contractbased level of disclosure, the Modified 

Project Definition may limit the ability 

of citizens and civil society 

organizations to identify some payments 

made to their local government and thus 

advocate more effectively with them. As 

discussed above, however, the final 

rules’ disclosure will include the name 

of the issuer as well as the particular 

subnational government payee. Thus, 

although the revised definition will 

provide less granular information as 

compared to the 2016 Rules, we believe 

it still will provide substantial 

transparency about the overall revenue 

flows to foreign governments and the 

U.S. Federal government, as required by 

Section 13(q). 

b. Effects on Compliance Costs 

Some commenters argued that the 

Modified Project Definition would not 

decrease issuers’ compliance costs 

compared to a contract-based definition. 

One commenter asserted that issuers 

already track payments at the contract 

level because of standard business 

practices.581 According to that 

commenter, because of the widespread 

use of contract-level reporting, our 

Modified Project Definition could 

actually increase compliance costs 

because registrants will have to switch 

their systems to a new project 

definition. Also, the commenter stated 

that issuers that are cross-listed or have 

substantial subsidiaries in Canada and 

the EU will not incur large costs because 

they already collect this information at 

a contract-based level. Similarly, the 

commenter argued that many issuers 

collect data for similar IRS payment 

disclosure categories and hence have 

internalized the cost of creating a 

system that could be used to provide 

disclosure at a contract-based definition. 

We note, however, there is no 

indication that affected issuers track 

payments at the contract level as a 

matter of standard business practices. In 

addition, not all issuers that would be 

affected by the final rules have 

subsidiaries in countries that require 

contract-level reporting and thus may 

not have systems in place to track 

payments at the contract level. Finally, 

companies that are reporting under 

other reporting regimes (that the 

Commission has determined satisfy the 

transparency objectives of Section 13(q)) 

can file those reports under the 

alternative reporting provision. Such 

issuers will not have to change their 

reporting systems to conform to the 

Modified Project Definition.582

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583See supra note 571. 

584See, e.g., letters from Kaufmann; Oxfam 

America and Earthrights International; and PWYP– 

US (Mar. 16, 2020). 

585See, e.g., letters from PWYP–US (Mar. 16, 

2020); Kaufmann; and POGO. 

586See, e.g., letter from Oxfam America and 

Earthrights International. 

587See, e.g., letters from Oxfam America and 

Earthrights International; PWYP–US (Mar. 16, 

2020); F. Samama et al.; and WK Associates (Mar. 

16, 2020). 

588See letter from Oxfam America and Earthrights 

International. 

589See letter from PWYP–US (Mar. 16, 2020). 590See 17 CFR 229.303. 

c. Competitive Harm Effects 

While some commenters expressed 

concern that the Section 13(q) 

disclosures could potentially cause 

competitive harm,583 a number of 

commenters who opposed the Modified 

Project Definition argued that there is no 

need to modify the project definition to 

address concerns related to competitive 

harm.584 Some commenters stressed that 

a contract-level definition of project 

would not result in competitive harm to 

resource extraction issuers based upon 

the numerous issuers already subject to 

contract-level disclosure requirements 

in the foreign payments-to-governments 

reporting regimes and the EITI and 

because contract information about 

competitors is available from paid thirdparty service providers.585 Others noted 

that there has not been evidence of any 

competitive harm by global and 

overseas issuers already subject to 

detailed contract-level disclosures 

resulting from the EU directives and 

Canadian legislation.586

As noted above, as a general matter, 

we do not believe that the final rules’ 

mandated disclosures are likely to result 

in significant adverse competitive 

effects for affected issuers. Therefore, 

although the Modified Project Definition 

might help to mitigate any risk of 

competitive harm for those issuers that 

are not currently subject to payment 

disclosure in other jurisdictions, we 

view this as an ancillary rather than 

primary benefit of the modified 

definition. 

d. Investor Benefit Effects 

Some commenters argued that, 

compared to the Modified Project 

Definition, a contract-based definition 

would provide significant benefits to 

investors, and criticized us for not 

highlighting these benefits in the 

economic analysis.587 According to 

these commenters, the main investor 

benefits would be the ability to evaluate 

regulatory and political risks of 

registrants in the extractive sectors, 

value the projects and registrants more 

accurately, and perform a better 

portfolio risk evaluation. One 

commenter argued that it would help 

investors understand portfolio risk.588

The same commenter noted that the 

current disclosures in Regulation S–K 

do not apply to smaller reporting 

companies, which means investors 

would not be able to evaluate the risks 

associated with investing in such 

companies. Another commenter quoted 

a number of institutional investors 

stating that contract-based payment 

disclosure would enhance the 

identification of opportunities and risks 

in portfolios with exposure to the 

extractives sectors, which have a history 

of volatility due to political and 

regulatory risk.589 According to these 

investors, the disclosures required by 

Section 13(q) would also help address 

the need for detailed information 

regarding the financial relationship 

between extractives companies and the 

governments where they operate. 

While we acknowledge, as we did in 

the 2019 Rules Proposing Release, that 

Section 13(q) disclosures could be 

helpful for some investors, we remain 

skeptical of the benefit of contract-level 

disclosure, as put forth by commenters, 

for evaluating portfolio risk or providing 

more accurate project or issuer 

valuation. It is true that Section 13(q) 

disclosures, whether contract-level or 

based on the Modified Project 

Definition, may provide some 

information (e.g., taxes paid, operating 

expenditures such as royalties, etc.) that 

could be used to value an issuer or its 

projects in various countries, or the 

volatility of these projects. Significant 

information about these projects, 

however, will still remain unreported 

because there is no requirement in the 

relevant laws or regulations that require 

issuers to report it. This would 

significantly limit an investor’s ability 

to perform project valuation and risk 

analyses and hence would limit the 

usefulness of the Section 13(q) 

disclosures (whether contract-level or 

based on the Modified Project 

Definition) for investors. 

For example, even with Section 13(q) 

disclosures, a major driver of project 

value and risk such as cash flows will 

be impossible to calculate because the 

applicable financial statement 

disclosure requirements do not 

necessarily compel issuers to disclose 

project level revenues and other key 

project level operating costs such as 

employee compensation. This lack of 

key information will make it very 

difficult for an investor to determine 

and/or quantify a particular project’s 

valuation and risk. Similar reasoning 

applies regarding the potential 

usefulness of Section 13(q) disclosures 

(whether contract-level or based on the 

Modified Project Definition) for the 

valuation of issuers. The Section 13(q) 

payments already will be reflected in an 

issuer’s consolidated financial 

statements, thus making the Section 

13(q) payments disclosure (whether 

contract-level or based on the Modified 

Project Definition) redundant for an 

issuer’s cash flow projections and its 

valuation. Moreover, an issuer would 

also be required to disclose any 

information concerning a particular 

project or operation in a country when 

necessary to understand its financial 

condition or results of operations.590

We also believe that there will be 

little or no marginal benefit of using the 

Section 13(q) disclosures to evaluate a 

country’s political and regulatory risks, 

as suggested by commenters. In this 

regard, there are other disclosure 

requirements (risk factors, 

management’s discussion of known 

trends and uncertainties, etc.) as well as 

other measures of such risks (e.g., 

various indices measuring a country’s 

corruption level, governance, ease of 

doing business, freedom of press, etc.) 

that are freely available to investors. 

2. Exemptions From Disclosure 

The final rules would provide 

conditional exemptions for situations in 

which a conflict with foreign law or a 

pre-existing (pre-adoption) contract 

term prohibits the Section 13(q) 

disclosure. We acknowledge that absent 

potential exemptive relief, resource 

extraction issuers operating in countries 

that prohibit, or may in the future 

prohibit, the disclosure required under 

Section 13(q) could bear substantial 

costs. Such costs could arise if issuers 

are forced to cease operations in certain 

countries or otherwise violate local law. 

Specifically, if an issuer violates local 

law, it could suffer expropriation of its 

facilities in the host country, the 

imposition of fines or the withholding 

of permits, or otherwise be forced to 

abandon the project. In addition, the 

country’s laws could have the effect of 

preventing them from participating in 

future projects. Similar to the 2016 

Rules, we are also adopting a provision 

that will allow an issuer to apply for an 

exemption on a case-by-case basis using 

the procedures set forth in Rule 0–12 of 

the Exchange Act for other situations 

posing a significant threat of 

commercial harm. 

Several commenters supported the 

exemptions for conflicting laws or preVerDate Sep<11>2014 06:11 Jan 15, 2021 Jkt 253001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 E:\FR\FM\15JAR7.SGM 15JAR7
4706 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

591See letters from API, (Mar. 16, 2020); 

Chamber; Davis Polk; FACT Coalition; NAM; 

Petrobras; PWYP–US (Mar. 16, 2020); and SAF. 592See letter from API (Mar. 16, 2020). 593 Id. 594See letters from Africa Center for Energy 

Policy; Elise J. Bean; Sens. Cardin et al.; DAR; EG 

Justice; FACT Coalition; Friends of the Nation; 

Shannon Gough; KCSPOG; Eric Postel; Robert 

Rutkowski; Transparency International; and Congr. 

Waters et al. 

595See letter from Elise J. Bean. 

596See 2019 Rules Proposing Release at Section 

II.J.3. 

597See infra Section III.D.5. 

598See supra Section II.N. 

599See letters from Chamber and NAM. 

600See letters from and NRGI (Mar. 16, 2020); 

Public Citizen; and PWYP–US (Mar. 16, 2020). 

601This submission deadline is longer than the 

2016 Rules’ deadline, which required the Form SD 

report to be filed no later than 150 days following 

the most recently completed fiscal year end. A 

resource extraction issuer may be able to save 

resources to the extent that the timing of these 

obligations with enable it to allocate its resources, 

in particular personnel, more efficiently. 

existing contract terms.591 These 

commenters generally argued that the 

exemptions could reduce costs and 

competitive burdens for issuers and 

potentially investors. One of these 

commenters argued that the exemptions 

would not impede the statutory purpose 

because transparency continues to grow 

as an international practice as new 

countries continue to join the EITI, and 

the exemptions are designed to be used 

in very limited circumstances.592 That 

commenter asserted that two 

countries—Qatar and China—prohibit 

the required disclosures.593

Many commenters opposed the 

exemptions for conflicting laws or preexisting contract terms that we are 

adopting.594 In general, those 

commenters pointed out that other 

disclosure regimes such as those in the 

EU and Canada do not provide such 

exemptions and issuers disclosing 

under those regimes did not report any 

concerns. One commenter argued that 

several years of reporting of 

disaggregated project-level payment 

information by nearly 800 companies 

under reporting regimes that provide no 

exemptions have not led to any 

companies being barred from operating 

in certain jurisdictions, or to any large 

costs to issuers.595 The same commenter 

asserted that it was a standard industry 

practice to include contract provisions 

that allow disclosure of information that 

would otherwise be considered 

confidential if it is required by law, 

regulators, or exchanges. 

We do not believe that the exemptions 

will undermine the purpose of Section 

13(q) disclosures as they include several 

conditions that are designed to limit the 

availability of the exemptions and help 

ensure that issuers forgo disclosure only 

when there is a legitimate conflict. At 

the same time, we believe the 

exemptions will substantially decrease 

any indirect costs and competitive 

effects that could result from any 

potential conflicts with foreign law and 

pre-existing contracts, or from other 

situations where the required payment 

disclosure would pose a significant 

threat of commercial harm. 

In addition to the exemptions for 

conflicts with foreign law and preexisting contracts, and the case-by-case 

exemptive procedure, the final rules 

will allow for delayed reporting for 

explorative activities and transitional 

relief for recently acquired companies 

not previously obliged to disclose 

resource extraction payment 

information. In a change from the 2016 

Rules, the final rules would also provide 

transitional relief for companies that 

have completed their U.S. initial public 

offering in the last full fiscal year. These 

additional forms of exemptive relief 

should reduce compliance costs for 

affected issuers. 

In a change from the Proposing 

Release, we have modified the proposed 

exemption for smaller reporting 

companies (SRCs) and emerging growth 

companies (EGCs). As we discussed, we 

proposed this exemption because the 

final rules could result in significant 

fixed compliance costs, which are likely 

to have a greater relative impact on 

smaller resource extraction issuers. 

Thus, we believe that this exemption 

will promote capital formation by 

decreasing compliance costs for SRCs 

and EGCs.596

The exemption we are adopting in 

this release, however, exempts only 

those SRCs and EGCs that are not 

subject to the EU Directives, Canada’s 

ESTMA, or other similar disclosure 

regimes. We believe that SRCs and EGCs 

that already provide such payments 

disclosure under a similar disclosure 

regime will incur small compliance 

costs when providing the Section 13(q) 

disclosure, mainly related to tagging and 

translation.597 This is because the final 

rules will allow them to meet their 

reporting obligations by submitting the 

report required by that foreign 

jurisdiction with the Commission 

subject to the condition that the 

Commission has determined that the 

foreign jurisdiction’s reporting 

obligations satisfy the transparency 

objectives of Section 13(q).598

As noted above, we identified a total 

of 321 issuers with SRC or EGC status 

in the period January 1, 2018, through 

December 30, 2019: 214 issuers reported 

being SRCs, 191 issuers reported being 

EGCs and 84 issuers reported being both 

SRCs and EGCs. Of these 321 issuers, 

there are 69 issuers with SRC or EGC 

status that were subject to alternative 

reporting regimes that, concurrent with 

adoption of the final rules, the 

Commission is deeming to satisfy the 

transparency objectives of Section 13(q), 

and which are therefore not eligible for 

the EGC/SRC exemption. This results in 

252 issuers that are potentially exempt 

from the final rules. The exemption for 

SRCs and EGCs would avoid adding to 

the costs of being a public reporting 

company for these companies. 

Two commenters supported the 

exemption for EGCs and SRCs on the 

grounds that it would result in 

important cost savings for such 

companies.599 Several commenters 

opposed the exemption for EGCs and 

SRCs, arguing that those issuers may be 

equally susceptible to corruption and 

that they tend to take greater operational 

risks than larger issuers.600 We note, 

however, that exposure to greater 

operational risks does not automatically 

result in greater engagement in 

corruption activity, and we are not 

aware of any empirical evidence that 

documents such a link. 

3. Annual Report Requirement 

Section 13(q) provides that the 

resource extraction payment disclosure 

must be ‘‘include[d] in an annual 

report.’’ As under the 2016 Rules, the 

required payment information would be 

reported on Form SD. Following a 2- 

year transition period, during which no 

report would be due, the Form SD 

would be due no later than 270 days 

following the end of its most recently 

completed fiscal year. This should 

lessen the burden of compliance with 

Section 13(q) and the related rules 

because issuers will have additional 

time to prepare their report and will not 

have to incur the burden and cost of 

providing the payment disclosure at the 

same time that they must fulfill their 

disclosure obligations with respect to 

Exchange Act annual reports.601

An additional benefit is that this 

requirement would provide payment 

information to users in a standardized 

manner for all issuers rather than in 

different annual report forms depending 

on whether a resource extraction issuer 

is a domestic or foreign filer. Moreover, 

requiring the disclosure in Form SD, 

rather than in issuers’ Exchange Act 

annual reports, should alleviate any 

concerns and costs associated with the 

disclosure being subject to the officer 

certifications required by Exchange Act 

Rules 13a–14 and 15d–14. 

In a change from the 2016 Rules, the 

final rules require an issuer to furnish 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4707 

602See, e.g., letter from API (Mar. 16, 2020). 

603Exchange Act Section 18 [15 U.S.C. 78r] 

imposes liability for false or misleading statements 

made in any application, report, or document filed 

with the Commission pursuant to the Exchange Act. 

604See supra Section II.F. 

605See letters from API (Mar. 16, 2020); Chamber; 

Equinor; Ovintiv; and Royal Dutch Shell. 

606See letters from Chris Barnard; KCSPOG; 

Public Citizen; and PWYP–US (Mar. 16, 2020). 

607See letters from Sens. Cardin et al.; EITI 

(International Secretariat) (Mar. 16, 2020); Equinor; 

FACT Coalition; Friends of the Nation; Oxfam 

America and Earthrights International; ONE.org; 

Oxfam in Kenya; POGO; Eric Postel; PWYP–US 

(Mar. 16, 2020); Transparencia por Colombia; 

Congr. Waters et al.; and Zimbabwe Environmental 

Law Organization. 

608See letters from API (Mar. 16, 2020); Chamber; 

and NAM. 

rather than file the payment disclosure 

in an annual report on Form SD. This 

will limit the incremental risk of 

liability under Section 18 of the 

Exchange Act and promote capital 

formation. This limit to the incremental 

risk of liability could decrease the 

quality of payment information reported 

to the extent that issuers are less 

attentive to collecting and submitting 

the information. We note, however, that 

Section 18 does not create strict liability 

for ‘‘filed’’ information. In addition, 

issuers would still be subject to 

antifraud liability under the Federal 

securities laws for material 

misstatements or omissions, which 

should mitigate the risk of decreased 

quality of the reported payment 

information. We also believe this change 

is appropriate given the nature and 

purpose of the Section 13(q) disclosure 

requirements, which are not for the 

protection of investors, although some 

investors may find the disclosures to be 

useful. Rather, they are to increase the 

accountability of governments and to 

support the commitment of the Federal 

Government to international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas, or minerals.602 Since 

Section 18 is designed to protect 

investors,603 we do not believe it is 

necessary or appropriate to apply it to 

the Section 13(q) disclosures.604

Commenters were split in their views 

on whether issuers should file or 

furnish the payment disclosure. Several 

commenters argued that furnishing it 

would reduce compliance costs without 

compromising the benefits of 

transparency.605 A similar number of 

other commenters generally argued that 

without the liability that comes with 

filing the disclosures, the disclosure 

might be ineffective.606

Resource extraction issuers would 

incur costs associated with preparing 

and furnishing the required information 

on Form SD. We do not believe, 

however, that the costs associated with 

furnishing the information on Form SD 

instead of providing it in an existing 

Exchange Act form would be significant 

given that the existing form would have 

to be modified to accommodate the 

requirements of Section 13(q) 

disclosure. 

4. Public Availability of Data 

The final rules will require a resource 

extraction issuer to furnish the required 

payment disclosure publicly, including 

the name of the issuer. As an alternative 

to requiring payment disclosure by 

individual issuers, we could have 

permitted resource extraction issuers to 

furnish the information non-publicly 

and having the Commission publish, an 

aggregated and anonymized compilation 

of company-provided resource 

extraction payment information. Such 

an approach would mitigate concerns 

regarding the disclosure of potentially 

sensitive issuer information that could 

create competitive harm. Additionally, 

such an alternative would still result in 

the disclosure of the type and amount 

of payments to governments, albeit on 

an aggregated basis. 

Such anonymized public compilation, 

however, may not further transparency 

efforts to the same degree as companyspecific disclosure. As discussed in 

Section II.A above, we believe that 

Section 13(q) is reasonably understood 

to promote Project-to-Government 

Payment Disclosure, which identifies 

the project of the issuer that generated 

specific payments and the foreign 

government that received those 

payments. Absent disclosure of the 

issuer, the Modified Project Definition 

would not identify the specific project 

of the issuer that was the source of the 

payments. Rather, all similar activities 

in the same subnational jurisdiction, 

regardless of issuer, would be 

indistinguishable. In addition, requiring 

issuers to disclose their payment 

information publicly would also 

provide users with more current and 

immediately available information than 

a separate compilation produced by the 

Commission. 

In contrast, under an approach that 

depends upon the Commission 

publishing a separate public 

compilation of previously submitted 

non-public information, users of the 

information would have to wait to 

access the information in an issuer’s 

Form SD until the Commission 

publishes its periodic compilation. We 

do not believe that the requirement for 

issuers to disclose the payment 

information publicly would increase an 

issuer’s compliance burden compared to 

the alternative of issuers submitting the 

payment information non-publicly (and 

the Commission using the nonpublic 

submissions to produce a publicly 

available compilation). The compliance 

costs would be similar under each 

alternative because the issuer would 

have to furnish the same payment 

information to the Commission. In 

addition, for the reasons discussed 

above, we do not believe there is a 

significant risk of competitive harm 

from public disclosure. Moreover, any 

such risk would be marginal because of 

the Modified Project Definition and the 

extended filing deadline. 

Many commenters supported the 

public reporting of the Section 15(q) 

disclosure.607 These commenters 

generally argued that the aggregated, 

anonymized reporting would 

undermine the transparency benefits 

that the statute is supposed to generate 

and limit the usefulness of the payment 

disclosure to interested parties such as 

citizens and civil society in those 

countries. Some commenters favored 

the alternative, anonymized compilation 

approach.608 According to those issuers, 

public reporting would cause 

competitive harm to reporting issuers. 

As we noted above, however, the 

potential for competitive harm would be 

marginal because the Modified Project 

Definition should significantly alleviate 

the likelihood of such harm occurring, 

and because of the extended filing 

deadline. 

5. Alternative Reporting 

The final rules would allow resource 

extraction issuers subject to a foreign 

jurisdiction’s resource extraction 

payment disclosure requirements to 

meet their reporting obligations by 

submitting the report required by that 

foreign jurisdiction with the 

Commission subject to the condition 

that the Commission has determined 

that the foreign jurisdiction’s reporting 

obligations satisfy the transparency 

objectives of Section 13(q). Concurrently 

with the 2016 Rules Adopting Release, 

the Commission issued an order 

designating the EU Directives and 

ESTMA as eligible substitute reporting 

regimes for purposes of the alternative 

reporting provision in those rules. The 

Commission is making a similar 

determination in connection with 

adoption of the final rules, which 

should significantly decrease 

compliance costs for issuers that are 

cross-listed or incorporated in these 

jurisdictions. 

As noted above, we estimated that 177 

issuers are subject to other regulatory 

regimes that may allow them to utilize 

4708 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

609These are issuers that have a business address, 

are incorporated, or are listed on exchanges, in the 

EEA or Canada. 610See supra note 545. 611See letters from API (Mar. 16, 2020); BHP; BP 

America; Chamber; Sarah Chayes et al.; Eni; 

Equinor; PWYP–US (Mar. 16, 2020); Rio Tinto; 

Royal Dutch Shell; SAF; Gayle Smith et al.; and 

Total (Feb. 10, 2020). 

612See 2012 Rules Proposing Release at Section 

II.D.4. 

613See supra Section II.E. 

614As some commenters noted (see, e.g., letter 

from API (Mar. 16, 2020)), it is not standard 

industry practice for an operator to aggregate, 

quantify and provide its non-operating partners 

with a list of payments remitted to each 

governmental entity, the timing of the remittance, 

and their corresponding share of the remittance. As 

such, it is possible, if not likely, that affected 

issuers would have to pay the operator a fee to 

obtain this information, increasing their compliance 

costs. 

615See letters from API; Ovintiv; Oxfam America 

and Earthrights International; Petrobras; PWYP–US 

(Mar. 16, 2020); and SAF. 

this provision.609 For these issuers, the 

costs associated with preparing and 

furnishing a Form SD should be 

negligible when compared to the costs 

associated with tracking, recording, and 

filing such information, although they 

would be required to format the data in 

interactive (XBRL) format and 

potentially translate it into English 

before submitting it with the 

Commission. Thus, such issuers may 

incur certain tagging and translation 

costs. We are not able to quantify those 

costs, and no commenter provided 

estimates of such costs.610 Commenters 

generally supported the alternative 

reporting provision.611

As an alternative, we could have 

excluded such a provision from the final 

rules. Such an alternative would have 

increased the compliance costs for 

issuers that are subject to foreign 

disclosure requirements that satisfy the 

transparency objectives of Section 13(q). 

These issuers would have to comply 

with multiple disclosure regimes and 

bear compliance costs for each regime, 

although the marginal costs for 

complying with an additional disclosure 

regime would likely be mitigated to the 

extent of any overlap between these 

reporting regimes and the final rules. 

6. Definition of Control 

Section 13(q) requires resource 

extraction issuers to disclose payments 

made by a subsidiary or entity under the 

control of the issuer. As discussed in 

Section II.E above, the final rules will 

define the term ‘‘control’’ based on 

accounting principles. Alternatively, we 

could have used a definition based on 

Exchange Act Rule 12b–2, as in the 2012 

Rules.612 We believe that the approach 

we are adopting would be less costly for 

issuers to comply with than such an 

alternative because issuers are currently 

required to apply the accounting 

concept of ‘‘control’’ on at least an 

annual basis for financial reporting 

purposes. 

Using a definition based on Rule 12b– 

2 would require issuers to undertake 

additional steps beyond those currently 

required for financial reporting 

purposes. Specifically, a resource 

extraction issuer would be required to 

make a factual determination as to 

whether it has control of an entity based 

on a consideration of all relevant facts 

and circumstances. Thus, this 

alternative would require issuers to 

engage in a separate analysis of which 

entities are included within the scope of 

the required disclosures (apart from the 

consolidation determinations made for 

financial reporting purposes) and could 

increase the compliance costs for issuers 

compared to the approach we are 

proposing. 

In addition, there are several other 

advantages of using a definition based 

on accounting principles. There will be 

audited financial statement disclosure 

of an issuer’s significant consolidation 

of accounting policies in the footnotes 

to its audited financial statements 

contained in its Exchange Act annual 

reports. Also, an issuer’s determination 

of control under the proposed rules 

would be subject to the audit process as 

well as subject to the internal 

accounting controls that issuers are 

required to have in place with respect 

to audited financial statements filed 

with the Commission.613 All of these 

advantages may lead to more accurate, 

reliable, and consistent reporting of 

subsidiary payments, thereby enhancing 

the quality of the reported data. 

In a change from the 2016 Rules, the 

final rules do not require disclosure of 

the proportionate amount of the 

payments made by a resource extraction 

issuer’s proportionately consolidated 

entities or operations. Excluding 

proportionate interest entities or 

operations from the final definition of 

control would eliminate concerns about 

the ability of an issuer to obtain 

sufficiently detailed payment 

information from proportionately 

consolidated entities or operations 

when it is not the operator of that 

venture.614 This in turn could limit 

compliance costs for affected issuers 

who might otherwise be forced to 

renegotiate their joint venture 

agreements or make other arrangements 

in order to be able to obtain sufficiently 

detailed payment information to comply 

with the Section 13(q) rules. 

At the same time, this approach 

would exclude some joint ventures from 

the scope of the proposed rules, thereby 

limiting the transparency benefits of the 

Section 13(q) disclosures. It also could 

potentially provide an incentive for 

affected parties to structure their 

resource extraction operations to 

include proportionately consolidated 

entities or operations in order to avoid 

disclosure. We believe, however, that 

many factors, other than Section 13(q) 

disclosure, likely would influence how 

parties structure their operations and 

agreements, and some of these factors 

may outweigh the disclosure 

consideration. 

As an alternative, we could have 

required disclosure of payments made 

by a resource extraction issuer’s 

proportionately consolidated entities or 

operations. This alternative would have 

resulted in disclosure of payments made 

by some joint ventures that would not 

be covered by the scope of the proposed 

rules, which would increase the 

transparency benefits of the Section 

13(q) disclosures compared to the 

proposed approach. As noted above, 

however, it could also increase 

compliance costs to the extent issuers 

were forced to renegotiate their joint 

venture agreements or make other 

arrangements to obtain sufficiently 

detailed payment information. 

Most commenters supported the 

definition of control that we are 

adopting.615 Those commenters 

generally pointed out that the definition 

would reduce burdens for issuers, will 

drive greater consistency in 

interpretation across companies, and 

will align with companies’ internal 

controls. 

7. Definition of ‘‘Commercial 

Development of Oil, Natural Gas, or 

Minerals’’ 

The final rules define ‘‘commercial 

development of oil, natural gas, or 

minerals’’ to include exploration, 

extraction, processing, and export, or 

the acquisition of a license for any such 

activity. As described above, the final 

rules generally track the language in the 

statute. 

We acknowledge that a broader 

definition of ‘‘commercial development 

of oil, natural gas, or minerals’’ could 

increase issuers’ costs. We also 

acknowledge that expanding the 

definition in a way that is broader than 

other reporting regimes could 

potentially lead to a competitive 

disadvantage for those issuers covered 

only by our rules, provided that issuers 

subject to other disclosure regimes are 

exempt from the final rules under the 

alternative reporting provision. We 

decided to use the proposed definition 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4709 

616See supra Section II.J.5. 

617See, e.g., letters from API (Mar. 16, 2020); 

Petrobras; and PWYP–US (Mar. 16, 2020). 

618See letter from Elise J. Bean. 

619See letters from API and NAM. 

because we believe that the language is 

consistent with what we believe to be 

the plain meaning of the statute. 

Additionally, most commenters did not 

object to this definition. 

On the other hand, we recognize that 

limiting the definition to these specified 

activities could adversely affect those 

using the payment information if 

disclosure about payments made for 

activities not included in the list of 

specified activities, such as refining, 

smelting, marketing, or stand-alone 

transportation services (i.e., 

transportation that is not otherwise 

related to export), would be useful to 

users of the information. We believe, for 

the reasons identified above, that the 

definition adopted in the final rules 

appropriately takes into account both 

issuers’ compliance costs and the 

benefits of transparency. 

8. Types of Payments 

As under the 2016 Rules, the final 

rules include the specific types of 

payments identified in the statute, as 

well as CSR payments that are required 

by law or contract, payments of certain 

dividends, and payments for 

infrastructure. The final rules will 

include payments of certain dividends 

and payments for infrastructure 

because, based on comments to the 

Proposing Release and received in prior 

rulemakings, we believe they are part of 

the commonly recognized revenue 

stream for the commercial development 

of oil, natural gas and minerals. For 

example, payments for infrastructure 

improvements have been required under 

the EITI since 2011. Additionally, the 

EU Directives and ESTMA require these 

payment types to be disclosed. Thus, 

including dividends and payments for 

infrastructure improvements (e.g., 

building a road) in the list of payment 

types required to be disclosed under the 

final rules would further the statutory 

objective of supporting the commitment 

of the Federal Government to 

international transparency promotion 

efforts. 

As under the 2016 Rules, the final 

rules would include CSR payments that 

are required by law or contract in the 

list of covered payment types. We also 

note that the EITI requires the 

disclosure of CSR payments if required 

by law or contract.616 Thus, the addition 

of CSR payments to the list of types of 

payments that must be disclosed should 

improve the quality of the disclosure 

required by the statute and would 

further the statutory objective of 

supporting the commitment of the 

Federal Government to international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas or minerals. Additionally, 

requiring issues to disclose both CSR 

payments and infrastructure payments 

may lead to lower compliance costs, as 

issuers will not be required to make 

what can be a difficult distinction, that 

is, determining whether a particular 

payment is an infrastructure payment, 

and as such reportable, or a CSR 

payment, in the event that such 

payments were not reportable. 

As discussed earlier, under the final 

rules, resource extraction issuers would 

incur costs to provide the payment 

disclosure for the required payment 

types. For example, there would be 

costs to modify the issuers’ core 

enterprise resource planning systems 

and financial reporting systems so that 

they can track and report payment data 

at the project level, for each type of 

payment, government payee, and 

currency of payment. Since some of the 

payments would be required to be 

disclosed only if they are required by 

law or contract (e.g., CSR payments), 

resource extraction issuers presumably 

already track such payments and hence 

the costs of disclosing these payments 

may not be large. Nevertheless, the 

addition of dividends, payments for 

infrastructure improvements, and CSR 

payments to the list of payment types 

for which disclosure is required may 

marginally increase some issuers’ costs 

of complying with the final rules 

because they will have to track a larger 

number of payments. 

To address concerns about the 

difficulty of allocating payments that are 

made for obligations levied at the entity 

level,617 such as corporate income taxes, 

to the project level, the final rules 

would permit issuers to disclose those 

payments at the entity level rather than 

the project level. This accommodation 

also should help limit compliance costs 

for issuers without significantly 

interfering with the goal of achieving 

increased payment transparency. 

Under the final rules, issuers must 

disclose payments made in-kind. The 

EU Directives and ESTMA also require 

disclosure of in-kind payments, as does 

the EITI. Consequently, this requirement 

should help further the goal of 

supporting the commitment of the 

Federal Government to international 

transparency promotion efforts relating 

to the commercial development of oil, 

natural gas or minerals and enhance the 

effectiveness of the payment disclosure. 

At the same time, this requirement 

could impose costs if issuers have not 

previously had to value their in-kind 

payments. To minimize the potential 

additional costs, the final rules provide 

issuers with the flexibility of reporting 

in-kind payments at cost, or if cost is 

not determinable, at fair market value. 

We believe this approach should help 

limit the overall compliance costs 

associated with our requirement to 

disclose in-kind payments. Due to the 

lack of data, we are unable to quantify 

the costs related to valuing in-kind 

payment, either at cost or fair value. 

As an alternative, one commenter 

suggested that the final rules should 

include large payments that are not a 

part of the legitimate revenue stream, 

yet may nonetheless be a common, if 

‘‘unwelcome and illegitimate,’’ source of 

revenue for a government or its 

officials.618 We note, however, that 

identifying such payments would create 

significant compliance costs for issuers 

because by nature they are likely to be 

irregular and hence more difficult to 

track. 

9. Definition of ‘‘Not De Minimis’’ 

Section 13(q) requires the disclosure 

of payments that are ‘‘not de minimis,’’ 

leaving that term undefined. In a change 

from the Proposing Release, we have 

reduced the ‘‘not de minimis’’ 

threshold: Under the final rule’s 

definition of ‘‘not de minimis’’ resource 

extraction issuers would be required to 

disclose payments made to each foreign 

government in a host country or the 

Federal government that equal or exceed 

$100,000, or its equivalent in the 

issuer’s reporting currency, whether 

made as a single payment or series of 

related payments. 

We could have adopted a definition of 

‘‘not de minimis’’ based on a qualitative 

standard or a relative quantitative 

standard rather than an absolute 

quantitative standard. We are adopting 

an absolute quantitative approach 

because an absolute quantitative 

approach would be easier for issuers to 

apply than a definition based on either 

a qualitative standard or relative 

quantitative standard. Thus, using an 

absolute dollar amount threshold for 

disclosure purposes should help limit 

compliance costs by reducing the work 

necessary to determine what payments 

must be disclosed. 

Two commenters supported the 

definition of ‘‘not de minimis’’ in the 

2019 Rules Proposing Release primarily 

because such a definition would reduce 

issuers’ compliance costs.619

Specifically, defining payments that 

equal or exceed $100,000 as ‘‘not de 

4710 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

620See letters from Africa Center for Energy 

Policy; Elise J. Bean; Better Markets; Sens. Cardin 

et al.; Carter Center; DAR; FACT Coalition; 

Shannon Gough; Kaufmann; KCSPOG; NRGI (Mar. 

16, 2020); ONE.org; Oxfam America and Earthrights 

International; Eric Postel; Public Citizen; PWYP–US 

(Mar. 16, 2020); F. Samama et al.; Sierra Club; Total 

(Feb. 10, 2020); and Congr. Waters et al. 

621See letter from NRGI (Mar. 16, 2020). 

622Users of this information should be able to 

render the information by using software available 

on the Commission’s website at no cost. 

623See 2016 Rules Adopting Release at Section 

II.C.9. 

624See letter from PWYP–US (Mar. 16, 2020). 

625See letter from XBRL US. 

626See supra Section II.M. 

627See id. 

628We similarly believe that the discussions and 

explanations concerning competitive effects, also 

based on actual experiences, are likely more 

accurate than those included in the 2016 Rules 

Adopting Release. See supra note 67. 

minimis’’ will lead to more payments 

disclosure, which could result in higher 

compliance costs for issuers than under 

the proposed definition. 

Numerous commenters opposed the 

definition of ‘‘not de minimis’’ in the 

2019 Rules Proposing Release.620

Commenters’ chief concern was the 

potential elimination of a large number 

of projects and payments from the 

Section 13(q) disclosure under the 

higher threshold in the Proposing 

Release and the resulting significant 

negative effect on transparency. One 

commenter asserted that, based on 

analysis that that commenter did using 

disclosure data from issuers reporting 

under the EU Directives and ESTMA, 

the threshold in the Proposing Release 

was expected to leave out about 50% of 

projects.621 We believe that adopting a 

$100,000 threshold for ‘‘not de 

minimis,’’ which is similar to the 

threshold used in the international 

transparency regimes and is the same as 

the threshold under the 2016 Rules, will 

alleviate such concerns. By scoping in 

more projects, the $100,000 threshold 

will enhance the benefits of 

transparency, and will provide for a 

standardized reporting threshold across 

jurisdictions, benefiting the potential 

users of this disclosure. The $100,000 

threshold could generate higher 

compliance costs for affected issuers 

who are not otherwise tracking and 

recording these payments at the 

$100,000 level, compared to the higher 

threshold in the Proposing Release, but 

we believe, for the reasons set forth 

above, that any such costs are justified 

by the benefits of the additional 

disclosure. 

10. Exhibit and Interactive Data 

Requirement 

Section 13(q) requires the payment 

disclosure to be electronically formatted 

using an interactive data format. The 

final rules will require a resource 

extraction issuer to provide the required 

payment disclosure in an XBRL exhibit 

to Form SD that includes all of the 

electronic tags required by Section 13(q) 

and the proposed rules.622

We believe that requiring the 

specified information to be presented in 

XBRL format will offer advantages to 

issuers and users of the information by 

promoting consistency and 

standardization of the information and 

increasing the usability of the payment 

disclosure. Providing the required 

disclosure elements in a machinereadable (electronically tagged) format 

will allow users to quickly examine, 

extract, aggregate, compare, and analyze 

the information in a manner that is most 

useful to them. This includes searching 

for specific information within a 

particular submission as well as 

performing large-scale statistical 

analysis using the disclosures of 

multiple issuers and across date ranges. 

Specifying XBRL as the required 

interactive data format may increase 

compliance costs for some issuers. The 

electronic formatting costs would vary 

depending upon a variety of factors, 

including the amount of payment data 

disclosed and an issuer’s prior 

experience with XBRL. We believe that 

most issuers are already familiar with 

XBRL as they use it to tag financial and 

cover page information in their annual 

and quarterly reports filed with the 

Commission. Thus, we do not expect 

most affected issuers to incur start-up 

costs associated with the format. 

Additionally, we do not believe that 

the ongoing costs associated with this 

formatting requirement will be 

significantly greater than filing the data 

in a custom XML format.623 One 

commenter stated that the final rules 

should require Inline XBRL tagging 

rather than XBRL tagging so that the 

payment information could be 

‘‘electronically tagged but also be made 

available in a human readable format 

together with any further narrative, 

context, clarificatory footnotes or basis 

of preparation deemed helpful by the 

issuer.’’ 624 Another commenter 

supported the proposal and was 

‘‘agnostic as to whether conventional 

(XML-based) XBRL or Inline (HTMLbased XBRL) is adopted.’’ 625 For the 

reasons discussed above, we do not 

believe an Inline XBRL requirement 

would improve the usefulness or 

presentation of the payment 

information.626

Consistent with the statute, the final 

rules require a resource extraction issuer 

to include an electronic tag that 

identifies the currency used to make the 

payments. Under the final rules, if 

multiple currencies are used to make 

payments for a specific project or to a 

government, a resource extraction issuer 

may choose to provide the amount of 

payments made for each payment type 

and the total amount per project or per 

government in either U.S. dollars or the 

issuer’s reporting currency. We 

recognize that a resource extraction 

issuer could incur costs associated with 

converting payments made in multiple 

currencies to U.S. dollars or its 

reporting currency. Nevertheless, given 

the statute’s tagging requirements and 

the requirement to disclose total 

amounts, we believe reporting in one 

currency is necessary.627 The final rules 

provide flexibility to issuers in how to 

perform the currency conversion, which 

may help to limit compliance costs by 

allowing issuers to choose the option 

that works best for them. 

The final rules also require issuers to 

tag the subnational geographic location 

of a project using ISO codes. Using ISO 

codes will standardize references to 

those subnational geographic locations 

and would benefit the users of this 

information by making it easier for them 

to sort and compare the data. It will also 

increase compliance costs for issuers to 

the extent that they do not currently use 

such codes in their reporting systems. 

11. Quantitative Estimates of Costs 

Resulting From the Rulemaking 

In this section, we discuss the 

quantitative data in the administrative 

record relating to the economic 

considerations connected to this 

rulemaking. This new lower cost data 

(as noted in Section I) is based on actual 

experiences rather than estimates and as 

such we believe that it is likely more 

accurate than the estimates the 

Commission included in the 2016 Rules 

Adopting Release.628 While, as reflected 

in the discussion in Section II above, we 

have considered these appreciably 

reduced cost estimates in crafting the 

final rules, this data has not been the 

sole basis of any discretionary 

determinations that we have made. 

In the 2016 Rules Adopting Release, 

the Commission estimated initial issuer 

compliance costs to be in the range of 

$128,787 to $1,352,268 assuming no 

fixed costs and in the range of $561,932 

to $1,547,437 assuming the rule 

requirements would generate fixed costs 

for affected issuers. Similarly, the 

Commission estimated the ongoing 

issuer compliance costs to be in the 

range of $51,515 to $1,287,874 assuming 

no fixed costs and in the range of 

$224,773 to $1,389,882 assuming fixed 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4711 

629See 2012 Rules Adopting Release (citing 

letters from Barrick Gold (Feb. 28, 2011), 

ExxonMobil (Jan. 31, 2011), and Rio Tinto plc (Mar. 

2, 2011)). 

630See letters from Alan Detheridge (Mar. 15, 

2020); FACT Coalition; Kaufmann; ONE Campaign; 

Oxfam America and Earthrights International; 

PWYP (International Secretariat); PWYP–US (Mar. 

16, 2020); Total (Feb. 17, 2020); and Congr. Waters 

et al. 

631See letter from Total (Feb. 17, 2020) at 1. 

632See letter from PWYP (International 

Secretariat) at 4. 

633See letter from PWYP–US (Mar. 16, 2020). 

634See https://www.tullowoil.com/application/ 

files/5815/8636/0065/2019_Annual_Report_and_

Accounts.pdf. 

635See https://www.sec.gov/Archives/edgar/data/ 

879764/000119312520080490/d862109d20f.htm. 

636 It is calculated as ($300,000 + $1,170,000 + 

$54,990 + $150,000)/4. We convert BASF’s ongoing 

cost of Euro Ö47,000 into US dollars using a USD/ 

Euro exchange rate of 1.17. 

637 It is calculated as ($200,000 + $585,000 + 

$30,420 + $150,000)/4. We convert BASF’s annual 

cost of Euro Ö26,000 into US dollars using a USD/ 

Euro exchange rate of 1.17. 

638See letter from Equinor. 

639See letter from Alan Detheridge. 

640See letter from FACT Coalition. 

641See 2019 Rules Proposing Release at note 66 

and accompanying text. See also letter from PWYP– 

US (Mar. 16, 2020). 642See letter from PWYP–US; see also European 

Comm’n, Review of Country-By-Country Reporting 

Requirements for Extractive and Logging Industries 

(2018), available at https://ec.europa.eu/info/sites/ 

info/files/business_economy_euro/company_

reporting_and_auditing/documents/181126- 

country-by-country-reporting-extractive-loggingindustries-study_en.pdf. 

costs. We note that those estimates were 

based on cost estimates provided mostly 

by three large issuers: Barrick Gold, 

ExxonMobil, and Rio Tinto.629 For the 

reasons discussed below, we no longer 

rely on these estimates. 

Several commenters provided 

information relevant to the expected 

compliance costs of the Section 13(q) 

rules.630 Total S.A. estimated that its 

costs to comply with the EU Directives 

were $100,000 for a one-time external 

auditor fee and $200,000 per year for 

internal costs.631 Another commenter 

reported EU Directives’ compliance 

costs for two companies based on 

information collected by the EC for its 

2018 evaluation of the EU Directives: 

BASF (Germany), which reported a 

start-up cost of Ö47,000 and an annual 

reporting cost of Ö26,000; and Eni 

(Italy), which reported a start-up cost of 

Ö1,000,000 and annual reporting costs 

of Ö500,000.632 Similarly, a commenter 

provided compliance cost estimates for 

an unaffiliated company: Tullow Oil. 

According to this commenter, Tullow 

reported initial costs of $150,000 and 

on-going annual costs of $150,000 to 

comply with the UK payments-togovernments rules.633 Similar to the 

issuers that provided the cost estimates 

used in the 2016 Rules, all of the cost 

estimates provided by commenters were 

for large issuers. Tullow Oil is the 

smallest issuer with total assets of $8.3 

billion as of 2019,634 while Total S.A. is 

the largest issuer with total assets as of 

2019 of $273.3 billion.635 Additionally, 

no commenters provided estimates of 

the compliance costs under the ESTMA 

reporting regime. 

Both the initial and ongoing cost 

estimates reported by the commenters 

are generally smaller than the ranges of 

cost estimates from the 2016 Rules, 

especially the range that includes fixed 

costs. We believe these cost estimates 

are more accurate than the cost 

estimates considered in the adoption of 

the 2016 Rules because they are based 

on real expenses incurred by issuers 

under a currently functioning disclosure 

regime: The EU Directives and the UK 

reporting regime. In contrast, the 

estimates in the 2016 Rules were 

hypothetical estimates based on the 

requirements of a reporting regime that 

was not yet implemented. We 

acknowledge, however, that our current 

estimates, as were the estimates from 

the 2016 Rules, are based on a small 

sample of issuers, and, thus, this limits 

our ability to draw firm conclusions 

from the data. 

We estimate the average initial cost 

and ongoing annual cost associated with 

the final rules by calculating the average 

of the cost estimates provided by 

commenters. The average initial cost is 

approximately $420,000 per issuer,636

while the average ongoing cost is 

approximately $240,000 per issuer.637

Based on these averages, the initial cost 

would be 0.005% of the total assets of 

the smallest issuer, Tullow Oil, that 

provided cost estimates. Further, we 

note that the commenters’ estimates are 

based on compliance with the EU 

Directives, which has a more granular 

definition of ‘‘project’’ than the final 

rules. Thus, to the extent that 

compliance costs are materially less 

expensive under the Modified Project 

Definition, an issuer’s costs, both initial 

and ongoing, are likely to be smaller 

under the final rules. 

Other commenters provided 

qualitative assessments of compliance 

costs. One commenter described the 

costs to comply with the EU Directives 

as modest and acceptable.638 Another 

commenter stated that he did not 

believe that the compliance costs of 

reporting at the contract level could be 

deemed burdensome for companies 

because many already provide such data 

under the EITI, EU Directives, or 

ESTMA.639 Another commenter 

similarly stated that the Section 13(q) 

compliance costs would be negligible 

because, in addition to being subject to 

payments-to-governments reporting 

under other regimes, many extractive 

companies already report detailed tax 

payment information on a country-bycountry basis.640

A 2018 study by the UK Department 

for Business, Energy & Industrial 

Strategy (the ‘‘UK study’’) is another 

source of potential cost estimates.641 We 

reviewed that data and note that the cost 

estimates presented in the study, like 

cost estimates provided by commenters, 

are not based upon compliance with the 

Modified Project Definition. Based on 

the data provided by the study, the total 

compliance costs under the UK rules 

ranged from approximately $24,547 per 

company for small companies to 

approximately $2,260,263 per company 

for large companies. As discussed, the 

payment disclosure would be provided 

at a greater level of aggregation under 

the final rules than under the UK 

contract-level definition. As such, to the 

extent that compliance costs under the 

Modified Project Definition are smaller 

than those resulting from compliance 

with the UK rules, the data in the UK 

study may overestimate the cost 

estimates for the final rules. Also, the 

small sample size in the UK study, as 

only 15 companies that responded, 

makes it difficult for us to assess with 

any confidence the actual costs of the 

UK’s regime (which, broadly speaking, 

is very similar to the 2016 Rules that 

were disapproved by Congress under 

the CRA). In addition, the majority of 

companies (84%) surveyed in the UK 

study indicated that they do not track 

compliance costs. As such, the study, 

relying on actual or estimated 

compliance cost data from 15 

companies, may or may not be 

representative of the broader 

population. 

With those caveats, the estimates of 

total compliance costs (initial and 

ongoing) in the UK report are broadly 

consistent with the range we estimated 

in the 2016 Rules, which like the UK 

regime had a contract-level definition of 

project. Our compliance costs estimates 

based on commenters’ data fall within 

this range. Thus, we can view the range 

of estimates from the UK study as a 

lower and upper limit on compliance 

cost estimates under the EU Directives 

and the UK regime. 

A European Commission report in 

2018 provided a range of total 

compliance cost estimates based on data 

provided by two companies.642

According to the report that range was 

between $14,040 (EUR 12,000) and 

$42,120 (EUR 36,000). We note that 

these estimates are considerably lower 

4712 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

643 It is estimated in the following way: ($420,000 

+ $240,000 + $240,000)/3 = $300,000 (estimated 

over a three-year period for purposes of the PRA). 

644 44 U.S.C. 3501 et seq. 

645 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

646As discussed above, Rule 13q–1 requires a 

resource extraction issuer to submit the payment 

information specified in Form SD. The collection of 

information requirements associated with the final 

rules will be reflected in the burden hours 

estimated for Form SD. Therefore, there is no 

separate burden estimate for Rule 13q–1. 

647See supra Section I.A. 

648See supra Section III.A. (explaining how we 

use data from Exchange Act annual reports for the 

period January 1, 2018 through December 31, 2019 

to estimate the number of issuers that might make 

payments covered by the final rules). As noted in 

that section, this number does not reflect the 

number of issuers that actually made resource 

extraction payments to governments. 

649See id. (describing how we identify issuers 

that may be subject to those alternative reporting 

regimes and how we use shell company status and 

revenues and net cash flows from investing 

activities to identify issuers that would be unlikely 

to make payments exceeding the proposed ‘‘not de 

minimis’’ threshold). 

650 Issuers subject to the alternative reporting 

regimes described above will already be gathering, 

or have systems in place to gather, resource 

extraction payment data, which should reduce their 

compliance burden. In addition, under the final 

rules, a resource extraction issuer that is subject to 

the resource extraction payment disclosure 

requirements of an alternative reporting regime, 

deemed by the Commission to require disclosure 

that satisfies Section 13(q)’s transparency 

objectives, may satisfy its payment disclosure 

obligations by including, as an exhibit to Form SD, 

a report complying with the reporting requirements 

of the alternative jurisdiction. See Item 2.01(c) of 

Form SD. Concurrent with adoption of the final 

rules, we are issuing an order deeming the 

following alternative reporting regimes as requiring 

disclosure that satisfy the transparency objectives of 

Section 13(q): The EU Directives; U.K.’s Reports on 

Payments to Governments Regulations; Norway’s 

Regulations on Country-by-Country Reporting; and 

Canada’s ESTMA. Since the 177 issuers are subject 

to one or more of these alternative reporting 

regimes, they will incur relatively small compliance 

burdens and costs associated with the final rules. 

We have nevertheless included them in our 

estimate of affected issuers for PRA purposes 

because under the final rules they will still have an 

obligation to furnish a report on Form SD in XBRL 

and English, and will incur related electronic 

tagging and translation costs, but those costs will 

be significantly lower than the overall compliance 

burden of issuers subject solely to the final rules. 

651See supra Section III.A. 

652 678 minus 252 minus 177 minus 12 = 237. 

653We recognize that the costs of retaining 

outside professionals may vary depending on the 

nature of the professional services, but for purposes 

than those provided by commenters and 

in the UK study. Given that the 

estimated range is based on data from 

only two companies, we found it to be 

of limited use. 

In Section IV below, we estimate for 

the purposes of PRA average total 

compliance costs of $300,000 per issuer 

per year (using $400/hr. for both 

internal and professional costs and 

averaging over three years). If we 

estimate an average total compliance 

cost per issuer based on the average 

initial and ongoing estimates derived 

above, this estimate is approximately 

$300,000 per issuer.643 Thus, the PRA 

estimate is approximately equal to the 

estimate derived using data provided by 

commenters. It includes an estimate of 

IT costs ($100,000) which could be 

viewed as a fixed cost to issuers. 

IV. Paperwork Reduction Act 

A. Background 

Certain provisions of the final rules 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).644 The Commission submitted 

the proposed rules to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.645

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid OMB control 

number. The title for the collection of 

information is: 

• ‘‘Form SD’’ (OMB Control No. 

3235–0697).646

Form SD is currently used to file 

Conflict Minerals Reports pursuant to 

Rule 13p–1 of the Exchange Act. We are 

adopting amendments to Form SD to 

accommodate disclosures required by 

Rule 13q–1. We are adopting Rule 13q– 

1 to implement Section 13(q) of the 

Exchange Act, which was added to the 

Exchange Act by Section 1504 of the 

Dodd-Frank Act. As described in detail 

above,647 Section 13(q) directs the 

Commission to issue rules requiring 

resource extraction issuers to include in 

an annual report certain specified 

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. In addition, Section 

13(q) requires a resource extraction 

issuer to provide information about 

those payments in an interactive data 

format. 

The final rules will require that the 

mandated payment information be 

provided in an XBRL exhibit to Form 

SD, which will be submitted to the 

Commission on EDGAR. The disclosure 

requirements will apply equally to U.S. 

issuers and foreign issuers meeting the 

definition of ‘‘resource extraction 

issuer.’’ Compliance with the rules by 

affected issuers will be mandatory. 

Responses to the information collections 

will not be kept confidential and there 

will be no mandatory retention period 

for the collection of information. A 

description of the final rules, including 

the need for the information and its use, 

as well as a description of the likely 

respondents, can be found in Section II 

above, and a discussion of the economic 

effects of the final amendments can be 

found in Section III above. 

B. Estimate of Issuers 

The number, type and size of the 

issuers that would be required to file the 

payment information required in Form 

SD, as amended, is uncertain, but, as 

discussed in the economic analysis 

above, we estimate that the number of 

potentially affected issuers is 678.648 Of 

these issuers, we excluded 252 issuers 

that reported being either smaller 

reporting companies, emerging growth 

companies, or both, and that are not 

subject to alternative reporting regimes 

that the Commission has deemed to 

satisfy the transparency objectives of 

Section 13(q), because the final rules 

will exempt these issuers from the 

Section 13(q) requirements. In addition, 

we excluded 177 issuers that are subject 

to resource extraction payment 

disclosure rules in other jurisdictions 

that require more granular payment 

disclosure than will be required by the 

final rules, and 12 issuers with no or 

only nominal operations, or that are 

unlikely to make any payments that 

would be subject to the final disclosure 

requirements.649

For the 177 issuers subject to those 

alternative reporting regimes, the 

additional costs to comply with the final 

rules likely will be much lower than 

costs for other issuers.650 For the 12 

issuers that are unlikely to make 

payments subject to the final rules, we 

believe there will be no additional costs 

associated with the final rules.651

Accordingly, we estimate that 237 

issuers will bear the full costs of 

compliance with the final rules 652 and 

177 will bear significantly lower costs. 

C. Estimate of Issuer Burdens 

We derive our burden estimates by 

estimating the average number of hours 

it will take an issuer to prepare and 

furnish the required disclosure. In 

deriving our estimates, we recognize 

that the burdens will likely vary among 

individual issuers based on a number of 

factors, including the size and 

complexity of their operations and 

whether they are subject to similar 

disclosure requirements in other 

jurisdictions. 

When determining the estimates 

described below, we have assumed that 

75 percent of the burden of preparation 

is carried by the issuer internally and 25 

percent of the burden of preparation is 

carried by outside professionals retained 

by the issuer at an average cost of $400 

per hour.653

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4713 

of this PRA analysis, we estimate that such costs 

will be an average of $400 per hour. This is the rate 

we typically estimate for outside legal services used 

in connection with public company reporting. 

Because we believe that a resource extraction issuer 

likely will seek the advice of an attorney to help 

it comply with the rule and form requirements 

under U.S. Federal securities laws, including 

Section 13(q), we continue to use the $400 per hour 

estimate when considering the applicable costs and 

burdens of this collection of information. 654See 2019 Rules Proposing Release at Section 

IV.C. We continue to believe that basing the PRA 

analysis initially on the compliance burden 

estimated for the 2016 Rules is a reasonable 

approach because the 2016 assessment was based 

on an estimate of the hourly increase in the 

compliance burden provided by a prior commenter. 

Although we received estimates of the costs in 

dollars to comply with the 2019 proposed rules, we 

did not receive any estimates of the incremental 

increase in burden hours resulting from such 

compliance. Nevertheless, we believe that our PRA 

assessment of the final rules is consistent with the 

recent cost estimates provided by commenters. See 

supra Section III.D.11. 

655See supra Section II.A. and Section III.D.1. 

656See supra Section II.D.1 and 2. 

657For example, issuers may spend fewer internal 

hours and/or incur fewer professional costs to 

prepare case-specific exemptive relief requests in 

connection with the required disclosures. 

658 5 U.S.C. 601 et seq. 

659See 17 CFR 240.13q–1(c). Concurrent with 

adoption of the final rules, the Commission is 

issuing an order finding that the following 

alternative reporting regimes satisfy the 

transparency objectives of Section 13(q): The EU 

Directives; U.K.’s Reports on Payments to 

Governments Regulations; Norway’s Regulations on 

Country-by-Country Reporting; and Canada’s 

ESTMA. See supra Section II.N. 

660For purposes of the RFA, Exchange Act Rule 

0–10(a) [17 CFR 240.0–10(a)] defines an issuer 

(other than an investment company) to be a ‘‘small 

business’’ or ‘‘small organization’’ if it had total 

assets of $5 million or less on the last day of its 

most recent fiscal year. Because Exchange Act Rule 

12b–2 defines a smaller reporting company as an 

issuer (that is not an investment company) with 

either a public float of less than $250 million, or 

annual revenues of less than $100 million for the 

previous year and either no public float or a public 

float of less than $700 million, most small entities 

likely will fall within the definition of smaller 

Continued 

The portion of the burden carried by 

outside professionals is reflected as a 

cost, while the portion of the burden 

carried by the issuer internally is 

reflected in hours. We expect that the 

final rules’ burden will be greatest 

during the first year of their 

effectiveness and diminish in 

subsequent years. We believe that the 

burden associated with this collection of 

information will be greatest during the 

initial compliance period in order to 

account for initial set up costs, 

including initial adjustments to an 

issuer’s internal books and records, plus 

costs associated with the collection, 

verification, and review of the payment 

information for the first year. We believe 

that ongoing compliance costs will be 

less because an issuer will have already 

made any necessary modifications to its 

internal systems to capture and report 

the information required by the final 

rules. To account for this expected 

diminishing burden, we use a three-year 

average of the expected implementation 

burden during the first year and the 

expected ongoing compliance burden 

during the next two years. 

When conducting the PRA analysis in 

connection with the proposed rules, we 

estimated that the incremental burden 

of the proposed rules would be at least 

25 percent less than the incremental 

burden of the 2016 Rules.654 We 

continue to believe that this reduction 

in the burden estimate is reasonable 

primarily because of the change to the 

definition of project, which should 

generally simplify and reduce the 

collection and reporting of payment 

information for a resource extraction 

issuer.655 We note that this reduction in 

the burden estimate does not take into 

account the two new exemptions for 

conflicts with foreign law and preexisting contracts.656 While these 

exemptions may result in a reduced 

PRA burden compared to the 2016 

Rules,657 because it is more difficult to 

estimate the effects of these exemptions, 

and to avoid underestimating the final 

rules’ burden and costs, we have not 

factored them into the current PRA 

estimates. 

The following table shows the 

estimated internal burden hours and 

professional and other external costs for 

the 237 issuers bearing the full costs and 

burden of the final rules and for the 177 

issuers subject to more granular 

resource extraction payment disclosure 

requirements in foreign jurisdictions 

when preparing and submitting Form 

SD. These total burden hours and total 

external costs will be in addition to the 

existing estimated hour and cost 

burdens applicable to Form SD because 

of compliance with Exchange Act Rule 

13p–1. 

PRA TABLE—ESTIMATED INCREASE IN TOTAL BURDEN HOURS AND COSTS

Whether issuer 

is subject to 

alternative 

reporting regime 

Number of 

estimated 

affected 

responses 

Burden 

hours per 

current 

affected 

response 

Total burden 

hours for 

current 

affected 

responses 

Internal 

burden 

hours for 

current 

affected 

responses 

Professional 

(external) 

hours for 

current 

affected 

responses 

Professional 

(external) 

costs for 

current 

affected 

responses 

Additional 

(external) 

IT costs per 

current 

affected 

response 

Total 

additional 

IT costs 

Total 

external 

costs 

(A) (B) (C) = (A) × (B) (D) = (C) × .75 (E) = (C) × .25 (F) = (E) × $400 (G) (H) = (A) × (G) (I) = (F) + (H) 

No .............................. 237 1 500 118,500 88,875 29,625 $11,850,000 3 $100,000 $23,700,000 $35,550,000 

Yes ............................ 177 2 25 4,425 3,319 1,106 442,400 0 0 442,400 

Total ................... 414 .................... .............................. 92,194 .............................. 12,292,400 .................... 23,700,000 35,992,400 

1This is based on 25 percent of 500 hours (the incremental hourly increase estimated for the 2016 Rules). 500 × .25 = 125. We estimate that compliance with the final rules would require 375 

hours (500¥125) to make initial changes to an issuer’s internal books and records and another 375 hours a year on an ongoing basis to review and verify the payment information, resulting in 

750 hours per issuer for the initial incremental PRA burden. Using the 3-year average of the expected burden during the first year and the expected ongoing burden during the next 2 years, we 

estimate that the incremental PRA burden would be 500 hours per fully affected issuer (750 + 375 + 375 hours/3 years). 2As proposed, and as we did in the 2016 rulemaking, we estimate that an issuer that is already subject to a qualifying alternative reporting regime will incur an internal burden that is five percent of the burden incurred by a fully affected issuer. 500 hours × .05 = 25 hours. 3We estimate that an issuer bearing the full costs of the final rules will incur additional initial compliance costs for IT consulting, training, and travel of $100,000. We have increased the proposed estimate of $75,000 for such additional costs based on total cost estimates received in response to the 2019 proposed rules. We do not, however, believe that these initial IT costs will 

apply to the issuers that are already subject to a qualifying alternative reporting regime since those issuers should already have IT systems in place to comply with the alternative reporting 

regime. 

V. Regulatory Flexibility Act 

Certification 

In connection with the 2019 Rules 

Proposing Release, the Commission 

certified that the proposed rules would 

not, if adopted, have a significant 

economic impact on a substantial 

number of small entities. The 

certification, including the factual bases 

for the determination, was published 

with the 2019 Rules Proposing Release 

in satisfaction of Section 605(b) of the 

Regulatory Flexibility Act (‘‘RFA’’).658

The Commission requested comment on 

the certification and received none. 

The final rules will exempt smaller 

reporting companies and emerging 

growth companies from the 

requirements of Section 13(q) and Rule 

13q–1, but in a change from the 2019 

proposed rules, those companies will be 

exempt only if they are not subject to an 

alternative reporting regime that has 

been deemed by the Commission to 

require disclosure that satisfies the 

transparency objectives of Section 

13(q).659 Most small entities 660 will fall 

4714 Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 

reporting company and, therefore, will be eligible 

for the exemption from the final rules. 661See supra Section III.A. (indicating that, based 

upon a review of filings in 2018–2019, 69 of the 321 

issuers with smaller reporting company or emerging 

growth company status were subject to alternative 

reporting regimes that likely made them ineligible 

for the exemption). 

662The primary costs for issuers using the final 

rules’ alternative reporting provision would be 

those related to XBRL tagging and, if necessary, 

translating the alternative report into English. See 

supra Section III.A. 

within the scope of this exemption and, 

therefore, will not be subject to the final 

rules. Although some small entities will 

not be eligible for the exemption 

because they are subject to the reporting 

requirements of a Commissionrecognized alternative reporting 

regime,661 because those entities will be 

able to submit a report prepared for the 

alternative reporting regime to satisfy 

their Section 13(q) reporting obligations, 

those entities will have relatively few 

costs to comply with the final rules.662

Accordingly, the Commission hereby 

certifies, pursuant to 5 U.S.C. 605(b), 

that the final rules, including Rule 13q– 

1 and the amendments to Form SD, will 

not have a significant economic impact 

on a substantial number of small entities 

for purposes of the RFA. 

VI. Statutory Authority 

We are adopting the rule and form 

amendments contained in this 

document under the authority set forth 

in Sections 3(b), 12, 13, 15, 23(a), and 

36 of the Exchange Act. 

List of Subjects in 17 CFR Parts 240 and 

249b 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Amendments 

In accordance with the foregoing, the 

Commission amends title 17, chapter II 

of the Code of Federal Regulations as 

follows: 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 1. The authority citation for part 240 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, and 7201 et seq., and 8302; 

7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 

U.S.C. 1350; Pub. L. 111–203, 939A, 124 Stat. 

1376 (2010); and Pub. L. 112–106, sec. 503 

and 602, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

Section 240.13q–1 is also issued under sec. 

1504, Pub. L. 111–203, 124 Stat. 2220. 

■ 2. Section 240.13q–1 is revised to read 

as follows: 

§ 240.13q–1 Disclosure of payments made 

by resource extraction issuers. 

(a) Resource extraction issuers. Every 

issuer that is required to file an annual 

report with the Commission on Form 

10–K (17 CFR 249.310), Form 20–F (17 

CFR 249.220f), or Form 40–F (17 CFR 

249.240f) pursuant to Section 13 or 

15(d) of the Exchange Act (15 U.S.C. 

78m or 78o(d)) and engages in the 

commercial development of oil, natural 

gas, or minerals must furnish a report on 

Form SD (17 CFR 249b.400) within the 

period specified in that Form disclosing 

the information required by the 

applicable items of Form SD as 

specified in that Form. 

(b) Anti-evasion. Disclosure is 

required under this section in 

circumstances in which an activity 

related to the commercial development 

of oil, natural gas, or minerals, or a 

payment or series of payments made by 

a resource extraction issuer to a foreign 

government or the Federal Government 

for the purpose of commercial 

development of oil, natural gas, or 

minerals, is not, in form or 

characterization, within one of the 

categories of activities or payments 

specified in Form SD, but is part of a 

plan or scheme to evade the disclosure 

required under this section. 

(c) Alternative reporting. An 

application for recognition by the 

Commission that an alternative 

reporting regime requires disclosure that 

satisfies the transparency objectives of 

Section 13(q) (15 U.S.C. 78m(q)), for 

purposes of alternative reporting 

pursuant to Item 2.01(c) of Form SD, 

must be filed in accordance with the 

procedures set forth in § 240.0–13, 

except that, for purposes of this 

paragraph (c), applications may be 

submitted by resource extraction 

issuers, governments, industry groups, 

or trade associations. 

(d) Exemptions—(1) Conflicts of law. 

A resource extraction issuer that is 

prohibited by the law of the jurisdiction 

where the project is located from 

providing the payment information 

required by Form SD may exclude such 

disclosure, subject to the following 

conditions: 

(i) The issuer has taken all reasonable 

steps to seek and use any exemptions or 

other relief under the applicable law of 

the foreign jurisdiction, and has been 

unable to obtain or use such an 

exemption or other relief; 

(ii) The issuer must disclose on Form 

SD: 

(A) The foreign jurisdiction for which 

it is omitting the disclosure pursuant to 

this paragraph (d)(1); 

(B) The particular law of that 

jurisdiction that prevents the issuer 

from providing such disclosure; and 

(C) The efforts the issuer has 

undertaken to seek and use exemptions 

or other relief under the applicable law 

of that jurisdiction, and the results of 

those efforts; and 

(iii) The issuer must furnish as an 

exhibit to Form SD a legal opinion from 

counsel that opines on the issuer’s 

inability to provide such disclosure 

without violating the foreign 

jurisdiction’s law. 

(2) Conflicts with pre-existing 

contracts. A resource extraction issuer 

that is unable to provide the payment 

information required by Form SD 

without violating one or more contract 

terms that were in effect prior to the 

effective date of this section may 

exclude such disclosure, subject to the 

following conditions: 

(i) The issuer has taken all reasonable 

steps to obtain the consent of the 

relevant contractual parties, or to seek 

and use another contractual exception 

or other relief, to disclose the payment 

information, and has been unable to 

obtain such consent or other contractual 

exception or relief; 

(ii) The issuer must disclose on Form 

SD: 

(A) The jurisdiction for which it is 

omitting the disclosure pursuant to this 

paragraph (d)(2); 

(B) The particular contract terms that 

prohibit the issuer from providing such 

disclosure; and 

(C) The efforts the issuer has 

undertaken to obtain the consent of the 

contracting parties, or to seek and use 

another contractual exception or relief, 

to disclose the payment information, 

and the results of those efforts; and 

(iii) The issuer must furnish as an 

exhibit to Form SD a legal opinion from 

counsel that opines on the issuer’s 

inability to provide such disclosure 

without violating the contractual terms. 

(3) Exemption for emerging growth 

companies and smaller reporting 

companies. An issuer that is an 

emerging growth company or a smaller 

reporting company, each as defined 

under § 240.12b–2, is exempt from, and 

need not comply with, the requirements 

of this section, unless it is subject to the 

resource extraction payment disclosure 

requirements of an alternative reporting 

regime, which has been deemed by the 

Commission to require disclosure that 

satisfies the transparency objectives of 

Section 13(q) (15 U.S.C. 78m(q)), 

pursuant to § 240.13q–1(c). 

Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021 / Rules and Regulations 4715 

(4) Case-by-case exemption. A 

resource extraction issuer may file an 

application for exemptive relief under 

this section in accordance with the 

procedures set forth in § 240.0–12. 

(e) Compilation. To the extent 

practicable, the staff will periodically 

make a compilation of the information 

required to be submitted under this 

section publicly available online. The 

staff may determine the form, manner 

and timing of the compilation, except 

that no information included therein 

may be anonymized (whether by 

redacting the names of the resource 

extraction issuers or otherwise). 

PART 249b—FURTHER FORMS, 

SECURITIES EXCHANGE ACT OF 1934 

■ 3. The authority citation for part 249b 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 78a et seq., unless 

otherwise noted. 

* * * * * 

Section 249b.400 is also issued under secs. 

1502 and 1504, Public Law 111–203, 124 

Stat. 2213 and 2220. 

■ 4. Amend Form SD (referenced in 

§ 249b.400) by: 

■ a. Adding a check box for Rule 13q– 

1; 

■ b. Revising instruction A. under 

‘‘General Instructions’’; 

■ c. Redesignating instruction B.2. as 

B.3 and adding new instructions B.2. 

and B.4. under the ‘‘General 

Instructions’’; and 

■ d. Redesignating Section 2 as Section 

3, adding new Section 2, and revising 

newly redesignated Section 3 under the 

‘‘Information to be Included in the 

Report’’. 

The addition and revision read as 

follows: 

Note: The text of Form SD does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

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* * * * * 

By the Commission. 

Dated: December 16, 2020. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2020–28103 Filed 1–14–21; 8:45 am] 

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