Document ID: SEC-2021-0060-0001
Agency: sec
Document Type: Rule
Title: Disclosure of Payments by Resource Extraction Issuers
Posted Date: 2021-01-15T05:00Z

[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Rules and Regulations]
[Pages 4662-4725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28103]

[[Page 4661]]

Vol. 86

Friday,

No. 10

January 15, 2021

Part VIII

Securities and Exchange Commission

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17 CFR Parts 240 and 249b

Disclosure of Payments by Resource Extraction Issuers; Final Rule

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

[[Page 4662]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249b

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

Disclosure of Payments by Resource Extraction Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting a rule under the Securities Exchange Act of 
1934 (``Exchange Act'') and an amendment to Form SD to implement 
Section 13(q) of the Exchange Act. Section 13(q) directs the Commission 
to issue rules requiring resource extraction issuers to include in an 
annual report information relating to payments made to a foreign 
government or the Federal Government for the purpose of the commercial 
development of oil, natural gas, or minerals. Section 13(q) requires 
these issuers to provide information about the type and total amount of 
payments made for each of their projects related to the commercial 
development of oil, natural gas, or minerals, and the type and total 
amount of payments made to each government. In addition, Section 13(q) 
requires a resource extraction issuer to provide information about 
those payments in an interactive data format.

DATES: 
    Effective date: The final rule and form amendment are effective 
March 16, 2021.
    Compliance date: See Section II.O. for further information on 
transitioning to the final rules.

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

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

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

I. Background

A. Section 13(q) of the Exchange Act

    Section 13(q) was added to the Exchange Act in 2010 by Section 1504 
of the Dodd-Frank Act.\3\ Congress enacted Section 1504 to increase the 
transparency of payments made by oil, natural gas, and mining companies 
\4\ to governments for the purpose of the commercial development of 
oil, natural gas, and minerals.\5\
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    \3\ Public Law 111-203 (July 21, 2010).
    \4\ The disclosure requirements mandated by Section 13(q) only 
apply to oil, natural gas and mining companies that are required to 
file reports under Section 13 or 15(d) of the Securities Exchange 
Act of 1934. See 15 U.S.C. 78m(q)(1)(D)(i).
    \5\ According to Senator Richard Lugar, who co-sponsored the 
amendment that was the basis for this statutory provision, a goal 
was to provide more information to the global commodity markets and 
``help empower citizens to hold their governments to account for the 
decisions made by their governments in the management of valuable 
oil, gas, and mineral resources and revenues.'' See 156 Cong. Rec. 
S3816 (daily ed. May 17, 2010).
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    Section 13(q) directs the Commission to issue final rules that 
require each resource extraction issuer to include in an annual report 
information relating to payments made by the resource extraction 
issuer, a subsidiary of the resource extraction issuer, or an entity 
under the control of the resource extraction issuer, to a foreign 
government or the Federal Government for the purpose of the commercial

[[Page 4663]]

development of oil, natural gas, or minerals. The information must 
include: (i) The type and total amount of such payments made for each 
project of the resource extraction issuer relating to the commercial 
development of oil, natural gas, or minerals, and (ii) the type and 
total amount of such payments made to each government.\6\
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    \6\ 15 U.S.C. 78m(q)(2)(A).
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    Section 13(q) defines several key terms:
     ``Resource extraction issuer'' means an issuer that is 
required to file an annual report with the Commission and engages in 
the commercial development of oil, natural gas, or minerals; \7\
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    \7\ 15 U.S.C. 78m(q)(1)(D). Given this definition of ``resource 
extraction issuer,'' the use of the Commission's disclosure rules to 
achieve the transparency goals of Section 13(q) is inherently 
limited because the statute only applies to Exchange Act reporting 
companies. In contrast, the resource extraction reporting regimes of 
the European Union and Canada include registered companies as well 
as private companies of a certain specified size that are domiciled 
in their jurisdictions. See infra at Section III.C.
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     ``Commercial development of oil, natural gas, or 
minerals'' includes exploration, extraction, processing, export, and 
other significant actions relating to oil, natural gas, or minerals, or 
the acquisition of a license for any such activity, as determined by 
the Commission; \8\
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    \8\ 15 U.S.C. 78m(q)(1)(A).
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     ``Foreign government'' means a foreign government, a 
department, agency or instrumentality of a foreign government, or a 
company owned by a foreign government, as determined by the Commission; 
\9\ and
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    \9\ 15 U.S.C. 78m(q)(1)(B).
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     ``Payment'' means a payment that:
    [cir] Is made to further the commercial development of oil, natural 
gas, or minerals;
    [cir] Is not de minimis; and
    [cir] Includes taxes, royalties, fees (including license fees), 
production entitlements, bonuses, and other material benefits, that the 
Commission, consistent with the guidelines of the Extractive Industries 
Transparency Initiative (the ``EITI'') \10\ (to the extent 
practicable), determines are part of the commonly recognized revenue 
stream for the commercial development of oil, natural gas, or 
minerals.\11\
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    \10\ The EITI is a voluntary coalition of oil, natural gas, and 
mining companies, foreign governments, investor groups, and other 
international organizations committed to establishing a global 
standard (the ``EITI Standard'') for the good governance of oil, 
gas, and mineral resources. The coalition was formed with industry 
participation and describes itself as being dedicated to fostering 
and improving transparency and accountability in resource-rich 
countries through the publication and verification of company 
payments and government revenues from oil, natural gas, and mining. 
See Implementing EITI for Impact--A Handbook for Policymakers and 
Stakeholders (2012) (``EITI Handbook''), at xii. After volunteering 
to become an EITI candidate, a country must implement a series of 
requirements set forth in the EITI Standard and complete an EITI 
validation process to become a compliant member.
    \11\ 15 U.S.C. 78m(q)(1)(C).
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    Pursuant to Section 13(q), the rules must require a resource 
extraction issuer to submit the payment information included in an 
annual report in an interactive data format \12\ using an interactive 
data standard established by the Commission.\13\ Section 13(q) defines 
``interactive data format'' to mean an electronic data format in which 
pieces of information are identified using an interactive data 
standard.\14\ It also defines ``interactive data standard'' as a 
standardized list of electronic tags that mark information included in 
the annual report of a resource extraction issuer.\15\ Section 13(q) 
also requires that the rules include electronic tags that identify, for 
any payments made by a resource extraction issuer to a foreign 
government or the Federal Government:
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    \12\ 15 U.S.C. 78m(q)(2)(C).
    \13\ 15 U.S.C. 78m(q)(2)(D).
    \14\ 15 U.S.C. 78m(q)(1)(E).
    \15\ 15 U.S.C. 78m(q)(1)(F).
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     The total amounts of the payments, by category;
     The currency used to make the payments;
     The financial period in which the payments were made;
     The business segment of the resource extraction issuer 
that made the payments;
     The government that received the payments and the country 
in which the government is located; and
     The project of the resource extraction issuer to which the 
payments relate.\16\
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    \16\ 15 U.S.C. 78m(q)(2)(D)(ii).
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    Section 13(q) further authorizes the Commission to require 
additional electronic tags that it determines are necessary or 
appropriate in the public interest or for the protection of 
investors.\17\ In addition, Section 13(q) requires, to the extent 
practicable, that the Commission make publicly available online a 
compilation of the information required to be submitted by resource 
extraction issuers under the rules.\18\ The statute does not define the 
term compilation.
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    \17\ Id.
    \18\ 15 U.S.C. 78m(q)(3).
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    Section 13(q) further specifies that ``[t]o the extent practicable, 
the rules . . . shall support the commitment of the Federal Government 
to international transparency promotion efforts relating to the 
commercial development of oil, natural gas, or minerals.'' \19\ 
Although the statutory definition of ``payment'' explicitly refers to 
the EITI, the provision in Section 13(q) about supporting the Federal 
Government's commitment to international transparency promotion efforts 
\20\ does not mention the EITI.\21\
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    \19\ 15 U.S.C. 78m(q)(2)(E). The rules we are adopting in this 
release are consistent with this requirement, as explained 
throughout this adopting release. Although the new rules differ from 
those of the European Union and Canada in certain respects 
(including the definition of ``project''), neither Section 
13(q)(2)(E) nor any other provision of law requires the Commission 
to adopt identical or significantly similar rules to those adopted 
by other foreign governments. When the Commission did adopt rules 
that were significantly similar to those of the European Union and 
Canada, Congress disapproved those rules.
    \20\ In 2013, the European Parliament and Council of the 
European Union (``EU'') adopted two directives that include payment 
disclosure rules. The EU Accounting Directive and the EU 
Transparency Directive (the ``EU Directives'') established the 
baseline in each EU member state and European Economic Area 
(``EEA'') country for annual disclosure requirements for oil, gas, 
mining, and logging companies concerning the payments made to 
governments on a per country and per project basis. All EU member 
states have implemented both of the EU Directives. The UK adopted 
its ``Reports on Payments to Governments Regulations 2014'' to 
implement the EU Directives, which remains effective following the 
UK's withdrawal from the EU. Norway adopted regulations similar to 
the EU Directives in 2013. Canada adopted a federal resource 
extraction disclosure law, the Extractive Sector Transparency 
Measures Act (``ESTMA''), in 2015. For further information about 
these international transparency promotion efforts, see Section I.B. 
of Release No. 34-87783 (Dec. 18, 2019) [85 FR 2522 (Jan. 15, 2020)] 
(``2019 Rules Proposing Release'').
    \21\ See 15 U.S.C. 78m(q)(2)(E). Although the United States 
became an EITI candidate country in 2014, it withdrew as an EITI 
implementing country in 2017. See letter from Gregory Gould, 
Director of the Office of Natural Resources Revenue, U.S. Department 
of the Interior, to Fredrik Reinfeldt, Chair of the EITI (Nov. 2, 
2017)) (noting ``the fact that the U.S. laws prevent us from meeting 
specific provisions of the EITI Standard''), which is available at 
https://www.doi.gov/sites/doi.gov/files/uploads/eiti_withdraw.pdf. 
The United States has, however, maintained its status as a 
supporting country of the EITI.
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B. Prior Section 13(q) Rulemakings and Congress's Actions Under the 
Congressional Review Act

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

[[Page 4664]]

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

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[[Page 4665]]

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

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

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

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

[[Page 4666]]

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

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

C. Summary of the Final Rules

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4667]]

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

II. Final Rules Under Section 13(q)

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

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

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

[[Page 4668]]

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

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

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

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

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

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

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

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

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

A. Definition of ``Project''

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

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

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

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

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

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

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

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

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

[[Page 4669]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Although we believe that a significant change to the definition of 
project is warranted, we acknowledge that the CRA does not compel us to 
adopt any particular definition of project within the range of 
definitions that would lead to rules that are not ``substantially the 
same'' as the disapproved 2016 Rules. Thus, we have based our 
determination to adopt the Modified Project Definition on various 
policy considerations that are tied to Section 13(q) and its goals.\89\
---------------------------------------------------------------------------

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

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

[[Page 4670]]

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

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

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

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

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

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

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

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

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

[[Page 4671]]

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4672]]

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4673]]

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

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

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

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

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

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

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

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

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

[[Page 4674]]

extraction activities are occurring. As discussed below, we are also 
adopting the proposed requirement that an issuer must provide an 
electronic tag for both the country and the major subnational political 
jurisdiction in which the extractive activities are occurring that is 
consistent with the International Organization for Standardization 
(``ISO'') code pertaining to countries and their major 
subdivisions.\132\ We believe that the required use of ISO codes to 
identify major subnational jurisdictions will provide a standardized 
data format that may be more easily analyzed than the data produced 
under the Contract-Level Project Definition.
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    \132\ See infra Section II.M. In a change from the proposed 
rules, in response to commenters' concerns that the proposed 
treatment of payments to subnational governments (below the level of 
major subnational political jurisdiction) was not sufficiently 
transparent, issuers will also be required to provide an electronic 
tag identifying each subnational government payee rather than 
referring to such payees generically (i.e., as ``county'' or 
``municipality''). See infra Section II.G.
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    For example, a project for extractive activities in the city of 
Timika in the province of Papua, Indonesia would be identified as 
occurring in Papua, without identifying Timika, as Papua would be the 
major subnational political jurisdiction. Similarly, an issuer would 
identify the project for activities in the counties of Elko, Nevada and 
White Pine, Nevada, as occurring in Nevada because Nevada would be the 
major subnational political jurisdiction.
    If the extractive activity is offshore, we proposed requiring an 
issuer to include in its project identification that its operations are 
offshore as well as the nearest major subnational political 
jurisdiction. One commenter stated that labeling projects in national 
waters according to the nearest major subnational political 
jurisdiction could create an incorrect impression that the identified 
subnational jurisdiction has a greater practical or legal relationship 
to the project than other subnational jurisdictions in the area, which 
may well not be the case. This could in turn create ``undesirable or 
wasteful political dynamics between states or provinces in the host 
country.'' \133\ For offshore resource extraction, that commenter 
recommended identifying the project by the body of water in which the 
project is located (e.g., Gulf of Mexico) instead of the nearest major 
subnational jurisdiction.\134\
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    \133\ Letter from API (Mar. 16, 2020).
    \134\ See id.
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    We agree with this commenter that in certain circumstances labeling 
an offshore project by the nearest major subnational jurisdiction could 
be confusing, for example, a particular offshore project may be 
equidistant from multiple coastal states or provinces. Accordingly, we 
have revised the proposed third prong of the Modified Project 
Definition to provide that, for offshore projects, the identification 
of the major subnational political jurisdiction where the commercial 
development of the resource is taking place should include the body of 
water in which the project is located, using the smallest body of water 
applicable (e.g., gulf, bay, sea), as well as the nearest major 
subnational jurisdiction. In addition, if the project is equidistant 
from two major subnational jurisdictions, the issuer may disclose both 
such jurisdictions.\135\
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    \135\ See Instruction (5)(iii) to Item 2.01 of Form SD.
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d. Special Situation
    Under the final rules, commercial development activities using 
multiple resource types or extraction methods can be treated as a 
single project if such activities are located in the same major 
subnational political jurisdiction.\136\ The issuer will be required to 
describe each type of resource that is being commercially developed and 
each method of extraction used for that project. For example, an open 
pit and underground zinc mining project in Erongo, Namibia would be 
described as ``ER/Zinc/Open Pit/Underground'' and a drilling project 
off the shore of Veracruz, Mexico that produced both oil and natural 
gas would be described as ``Offshore-Gulf of Mexico/Veracruz/Oil/
Natural Gas/Well.''
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    \136\ See Instruction (5)(iv) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    We recognize that such an approach could result in broad 
aggregation of projects within a major subnational political 
jurisdiction, which could make it more difficult for end-users of the 
disclosure to identify the specific commercial development activities 
associated with the disclosed payments. Nevertheless, as we explained 
in the Proposing Release, we believe that this approach is appropriate 
because issuers often develop more than one type of resource at a 
particular location and use more than one method of extraction. 
Limiting the definition of project to only commercial development 
activities comprising the same type of resource, method of extraction, 
and major subnational political jurisdiction may result in artificial 
distinctions. For example, an issuer would be required to treat oil and 
natural gas extraction from the same well as separate projects, and 
similarly, open pit and underground mining in the same location as 
separate projects. Requiring that these types of related activities be 
treated as separate projects could also lead to confusion about how 
reportable payments should be allocated between such projects. Although 
we solicited comment on the proposed approach to development activities 
using multiple resource types or extraction methods, no commenters 
specifically objected or suggested alternative approaches.
    In some situations, the site where a resource is being commercially 
developed could cross the borders between, and generate payment 
obligations in, multiple major subnational political jurisdictions. In 
such a case, the final rules will require the issuer to treat the 
activities in each major subnational political jurisdiction as separate 
projects, as proposed.\137\ This approach reflects the fact that, 
although the cross-border extractive activities are related, the 
disaggregated payment information would be of interest to different 
users of the information.
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    \137\ See Instruction (5)(iv) to Item 2.01 of Form SD.
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B. Public Reporting

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

[[Page 4675]]

we are adopting the proposed requirement that resource extraction 
issuers provide the Section 13(q) disclosure publicly, including their 
names, through the searchable, online EDGAR system.\141\
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    \138\ See API v. SEC, 953 F. Supp. 2d at 11 (finding that the 
Commission ``misread the statute to mandate public disclosure of the 
reports'' when adopting the 2012 Rules).
    \139\ See 2019 Rules Proposing Release at Section II.I.1; see 
also 2016 Rules Adopting Release at II.H.3.
    \140\ See 2019 Rules Proposing Release at Section II.I.1 (citing 
letters from API (Feb. 16, 2016) and (Jan. 28, 2011); BP (Feb. 16, 
2016); Chevron (Feb. 16, 2016); and Royal Dutch Shell (Feb. 5, 
2016)); see also 2016 Rules Proposing Release, Section II.G.2 and 
2016 Adopting Release, n.345.
    \141\ As we did in the 2012 and 2016 rulemakings, we are 
requiring that a resource extraction issuer provide the required 
Section 13(q) disclosures on Form SD (17 CFR 249b.400).
---------------------------------------------------------------------------

    Many commenters supported the proposed public submission of the 
Section 13(q) reports and expressly opposed the alternative, non-public 
submission and anonymized compilation approach.\142\ Commenters 
indicated that public reporting of issuer-specific payment information 
is essential to carry out Section 13(q)'s transparency, accountability, 
and anti-corruption objectives.\143\ Commenters stated that, to achieve 
these objectives, public reporting is necessary to hold both government 
actors and commercial actors accountable in resource-rich countries so 
as to achieve meaningful oversight of government revenue collection and 
management and deter corruption.\144\ Commenters maintained that, in 
contrast, the non-public submission and anonymized compilation approach 
would not be conducive to building trust between issuers, governments, 
and local citizens, would not prevent mismanagement of funds obtained 
from resource payments, and would negate the transparency and anti-
corruption benefits for citizens that Section 13(q) was intended to 
achieve.\145\ Some commenters also noted that the non-public submission 
and anonymized compilation approach would nullify Section 13(q)'s 
benefits to investors by preventing them from obtaining issuer-specific 
payment data to help them assess risk in investing in resource 
extraction issuers.\146\ Finally, commenters stated that adoption of 
the non-public submission and anonymized compilation approach would 
result in a decrease in comparability with the non-U.S. payments-to-
governments reporting regimes, each of which requires public, issuer-
specific reporting of payments.\147\
---------------------------------------------------------------------------

    \142\ See, e.g., letters from Congr. Waters et al; Equinor; 
Oxfam and Earthrights International; Project On Government Oversight 
(Mar. 13, 2020) (POGO); PWYP-US; Sens. Cardin et al.; and 
Transparencia por Colombia (Mar. 19, 2020).
    \143\ See, e.g., letters from Oxfam America and Earthrights 
International; PWYP-US (Mar. 16, 2020); and Sens. Cardin et al.
    \144\ See, e.g., letters from Oxfam American and Earthrights 
International; and PWYP-US (Mar. 16, 2020); see also letter from 
POGO.
    \145\ See letters from Equinor; Oxfam American and Earthrights 
International; and Congr. Waters et al.
    \146\ See letters from Congr. Waters et al; Oxfam American and 
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \147\ See, e.g., letters from Oxfam American and Earthrights 
International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    A few commenters supported the non-public submission and anonymized 
compilation approach.\148\ One commenter stated that Congress's goal of 
enabling people to hold their governments accountable for the revenues 
generated from resource development would be achieved as long as 
citizens know the amount of money the government receives, and not the 
companies that make each individual payment.\149\ This commenter 
further expressed its concern that public disclosure of issuer-specific 
extractive payments may result in harm by allowing competitors to 
reverse-engineer the value a particular issuer places on a specific 
resource area. Moreover, the commenter stated that the threat of 
reverse-engineering could occur even under the proposed Modified 
Project Definition by allowing a competitor to compare changes in 
reported payments for the same area year after year, which could 
provide competitive insights especially where a particular country 
effectively possesses a single major area of resource development.\150\ 
For those reasons, this commenter believed that the non-public 
submission and anonymized compilation approach would best balance the 
goals of achieving the objectives of Section 13(q) and preventing 
unnecessary harm to resource extraction issuers.
---------------------------------------------------------------------------

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

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

[[Page 4676]]

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

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

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

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

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

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

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

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

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

    Section 13(q) defines ``payment'' in part to mean a payment that is 
made to further the commercial development of oil, natural gas, or 
minerals and that is not de minimis.\166\ Section 13(q), however, does 
not define ``not de minimis.'' \167\ We proposed to define ``not de 
minimis'' to mean any payment made to each foreign government in a host 
country or the Federal Government that equals or exceeds $150,000, or 
its equivalent in the issuer's reporting currency, whether made as a 
single payment or series of related payments, subject to the condition 
that single payment (or a series of related payments) disclosure for a 
project is only required if the total payments for a project equal or 
exceed $750,000.\168\ This proposed definition differed from the 
definition of ``not de minimis'' in the 2016 Rules, which defined a 
``not de minimis'' payment in relevant part as one that equals or 
exceeds $100,000, whether made as a single payment or series of related 
payments.\169\ We proposed this change in light of previously expressed 
concerns from commenters that the threshold was unreasonably low and 
costly to calculate \170\ and the likely impact of the proposed revised 
definition of project, which would allow aggregation of payments at a 
higher level and likely increase the value of the individual types of 
payments.\171\
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    \166\ See 15 U.S.C. 78m(q)(1)(C).
    \167\ Consistent with the 2012 and 2016 Rules, we continue to 
believe that it is appropriate to adopt a definition of ``not de 
minimis'' to provide clear guidance regarding when a resource 
extraction issuer must disclose a payment.
    \168\ See 2019 Rules Proposing Release at Section II.C.9.
    \169\ See 2016 Adopting Release, Section II.C.3.c. The 2012 
Rules also defined a ``not de minimis'' payment using the $100,000 
threshold. See 2012 Adopting Release, Section II.D.2.c.
    \170\ See 2019 Rules Proposing Release at Section II.C.9 (citing 
letter from Nouveau Inc. (Feb. 16, 2016) (stating that the $100,000 
reporting threshold would be unreasonably low for companies working 
on massive scale projects and would require parties to engage in the 
costly collection, compilation, and standardization of potentially 
thousands of different data points).
    \171\ See id.
---------------------------------------------------------------------------

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

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

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

[[Page 4677]]

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

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

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

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

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

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

    We are also adopting the proposed instruction that allows an issuer 
to choose several methods to calculate currency conversions for 
payments not made in U.S. dollars or the issuer's reporting currency. 
That instruction also provides that the same methods are available to 
issuers when calculating whether a payment not made in U.S. dollars 
meets or exceeds the ``not de minimis'' threshold.\186\ We did not 
receive any comments on this instruction. We continue to believe that 
providing alternative methods for calculating currency conversions 
would help limit compliance costs under Section 13(q). As under the 
2016 Rules, an issuer would be required to use a consistent method for 
its payment currency conversions, including when determining if a 
payment is not de minimis, and would be required to disclose which 
method it used.\187\
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    \186\ See Instruction 2 to Item 2.01 of Form SD.
    \187\ See id. (stating that ``[i]n all cases, a resource 
extraction issuer must disclose the method used to calculate the 
currency conversion and must choose a consistent method for all such 
currency conversions within a particular Form SD submission'').
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D. Exemptions From Compliance

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

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

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

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

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

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

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

[[Page 4678]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 4679]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4680]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4681]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 4682]]

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

    We also have considered whether this delayed reporting provision is 
appropriate in light of the extended deadline for furnishing the 
payment information compared to the deadline under the 2016 Rules. 
Again, we believe it is appropriate because of the difficulty of 
determining the precise point at which exploratory activities cease 
being commercially sensitive.
    For purposes of this provision, we will consider payments to be 
related to exploratory activities if they are made as part of the 
process of: (1) Identifying areas that may warrant examination; (2) 
examining specific areas that are considered to have prospects of 
containing oil and gas reserves; or (3) conducting a mineral 
exploration program. In all cases, exploratory activities will be 
limited to activities conducted prior to the commercial development of 
the oil, natural gas, or minerals that are the subject of the 
exploratory activities.\255\
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    \255\ See Item 2.01(b)(1) of Form SD.
---------------------------------------------------------------------------

    When proposing this provision, we also considered that the total 
payment streams from the first year of exploration that would be 
covered by the exemption would typically be relatively small compared 
to, for example, the annual payment streams that would likely occur 
once an issuer commences development and production. Given this, we 
continue to believe that any diminished transparency as a result of the 
one-year delay in reporting of such payments is justified by the 
potential competitive harm that we anticipate may be avoided as a 
result of this exemptive relief. Nevertheless, we are limiting the 
delay to one year because we believe that the likelihood of competitive 
harm from disclosing the payment information diminishes over time once 
exploratory activities have begun.\256\
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    \256\ We appreciate that the exploratory phase may vary from 
project to project, and that this variance can depend on such 
considerations as the geographic area in which the exploration is 
being undertaken and the type of resource being sought. In adopting 
a one-year reporting delay, we note that commenters in the oil and 
gas industry asserted a specific need for the exemptive relief. We 
understand that the exploratory period for oil and gas generally 
involves a seismic survey/analysis phase followed by an exploratory 
drilling phase. We further understand that, while the time periods 
for those activities can vary considerably, conducting seismic 
surveys and analyzing the data can take six months or more, while 
(at least for conventional onshore hydrocarbons) exploratory 
drilling and site clearance can potentially take a similar length of 
time. These considerations lead us to believe that one year is an 
appropriate period for the delay in reporting exploratory payments. 
Although we solicited comment on other potential timeframes for 
relief, no commenters suggested other timeframes. We further note 
that an issuer would be able to apply for an exemption on a case-by-
case basis, as discussed below in Section II.D.6., if it believes 
that its individual circumstances warranted a longer exemptive 
period than the proposed one-year exemption.
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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\
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    \257\ See Item 2.01(b)(2) of Form SD.
    \258\ See 2016 Adopting Release, Section II.G.3. (citing letters 
from Cleary, Gottlieb, Steen and Hamilton (Feb. 17, 2016); and Ropes 
& Gray (Feb. 16, 2016)).
    \259\ 17 CFR 240.13p-1.
    \260\ See Instruction (3) to Item 1.01 of Form SD. The final 
rules differ, however, from what is provided for under Rule 13p-1 
because disclosure under Rule 13p-1 occurs on a calendar year basis 
rather than a fiscal year basis.
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    We received little comment on the proposed transitional relief for 
recently acquired companies. One commenter did not believe that the 
proposed relief was necessary and noted that this issue never arose 
during adoption of the EU and Canadian transparency regimes.\261\ This 
commenter also stated that since the relief is temporary, and of short 
duration, the commenter would not object if the Commission finds that 
this transitional relief for recently acquired companies provides 
necessary compliance cost reductions.
---------------------------------------------------------------------------

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

    Under Section 13(q) and the final rules, an issuer is required to 
disclose resource extraction payment information for every entity it 
controls. Therefore, absent an exemption, an issuer would be required 
to include the acquired issuer's resource extraction payment 
information in its first annual submission after obtaining control. We 
continue to be concerned that implementing the appropriate reporting 
mechanisms in a timely manner for an issuer that was not previously 
subject to reporting under Section 13(q) or an alternative reporting 
regime might remain a significant undertaking. As such, we are adopting 
the proposed transitional relief with respect to such issuers.
    Under the final rules, issuers will not need to report payment 
information for an issuer that it acquired or over which it otherwise 
obtained control, if the acquired issuer, in its last full fiscal year, 
was not obligated to disclose resource extraction payment information 
pursuant to Rule 13q-1 or an alternative reporting regime's 
requirements deemed by the Commission to satisfy Section 13(q)'s 
transparency objectives. In these circumstances, the resource 
extraction issuer will begin reporting payment information for the 
acquired issuer starting with the Form SD submission for the first full 
fiscal year immediately following the effective date of the 
acquisition. As under the 2016 Rules, and in contrast to the delayed 
reporting provision for exploratory activities, an issuer will not be 
required to provide the (excluded) payment disclosure for the year in 
which it acquired the issuer in a future Form SD.\262\
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    \262\ See 2016 Adopting Release at Section II.G.3.
---------------------------------------------------------------------------

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

    \263\ See id.
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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.
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    \264\ See Item 2.01(b)(3) of Form SD.
---------------------------------------------------------------------------

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

[[Page 4683]]

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

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

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

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

    In reconsidering the 2016 Rules, however, we believe that the 
Section 13(q) rules could impose a compliance burden on a non-reporting 
resource extraction issuer that could impede its ability to become a 
public company and fully gain access to U.S. capital markets. We 
further believe that providing transitional relief for issuers 
conducting initial public offerings is consistent with our statutory 
duty in a public rulemaking to consider whether an action will promote 
efficiency, competition, and capital formation.\267\ Reducing 
regulatory burdens in connection with initial public offerings not only 
helps issuers conducting those offerings but provides investors with 
expanded investment opportunities.\268\ For the foregoing reasons, we 
believe that providing transitional relief to resource extraction 
issuers conducting initial public offerings is also consistent with our 
authority under Section 36(a) of the Exchange Act to provide an 
exemption to the extent that such exemption is appropriate in the 
public interest and is consistent with the protection of 
investors.\269\
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    \267\ See supra note 232.
    \268\ See, e.g., Remarks of Chairman Jay Clayton on Capital 
Formation at the 36/86 Entrepreneurship Festival (Aug. 29, 2018), 
which is available at https://www.sec.gov/news/speech/speech-clayton-082918.
    \269\ See 15 U.S.C. 78mm(a).
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

[[Page 4684]]

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\
---------------------------------------------------------------------------

    \278\ See 15 U.S.C. 78m(q)(2)(A).
    \279\ See Item 2.01(d)(12) of Form SD.
    \280\ Under Exchange Act Rule 12b-2, ``control'' (including the 
terms ``controlling,'' ``controlled by'' and ``under common control 
with'') is defined to mean the possession, direct or indirect, of 
the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
shares, by contract, or otherwise.
    \281\ See 2012 Adopting Release at Section II.D.4.c.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

[[Page 4685]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 4686]]

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

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

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

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

    This treatment will eliminate the possibility of Section 18 
liability for the Section 13(q) disclosure. It will also eliminate the 
risk that the disclosure would be incorporated by reference into a 
filing under the Securities Act of 1933 (the ``Securities Act'') and be 
potentially subject to strict liability under Section 11 of the 
Securities Act, unless the issuer expressly incorporates such 
information.\315\
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    \315\ See General Instruction B.4 of Form SD. Form S-3 requires 
reports ``filed'' pursuant to Sections 13(a), 13(c), 14 or 15(d) of 
the Exchange Act prior to the termination of the offering to be 
incorporated by reference into the prospectus. Although Form SD will 
be the form used for disclosures under Section 13(q), Section 15(d) 
of the Exchange Act refers generally to periodic information, 
documents, and reports required by Section 13 reports with respect 
to securities registered under Section 12, not simply Section 13(a) 
reports. Thus, if Form SD were deemed ``filed,'' it could raise 
concerns that the payment disclosure would be incorporated by 
reference into a Securities Act filing.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

[[Page 4687]]

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

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

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

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

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

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

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

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

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

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

    In this regard, an issuer's reporting obligations at the level 
below major subnational government will be the same as its reporting 
obligations at the major subnational government level. For example, an 
issuer could aggregate all of the royalties arising from its operations 
in the three oil sands areas paid at the provincial level but will be 
required to disclose the particular agency payee, e.g., the Alberta 
Department of Energy.
    We find persuasive commenters' concerns that Section 13(q)'s 
transparency objective will be better served by this approach. Further, 
we believe that adoption of the Modified Project Definition is 
sufficient to render the final rules not substantially the same as the 
2016 Rules for the purpose of satisfying the CRA. Thus, while the 
proposed approach could help distinguish the final rules from the 
disapproved rules, we do not believe it is necessary or appropriate in 
light of the changes described above and its likely adverse impact on 
Section 13(q)'s transparency objective.
    Moreover, as one industry commenter indicated in the 2016 
rulemaking, the disclosure of payments at the subnational government 
level and the identification of the subnational government payee would 
work in tandem with a definition of ``project'' that permits the 
aggregation of payments at the major subnational jurisdiction level. 
According to this commenter, this information would provide citizens 
with the payment data necessary to hold their leaders accountable at 
all levels of government.\339\ We note that this industry commenter, 
who consistently argued that a less granular project definition was 
necessary to minimize the potential for competitive harm, also 
supported the required identification of subnational government payees. 
Upon reconsideration, we similarly believe that the proposed generic 
approach to subnational government payments is a discretionary choice 
that is not necessary to minimize the potential for competitive harm.
---------------------------------------------------------------------------

    \339\ See letter from ExxonMobil (Feb. 16, 2016) (``. . . some 
commenters appear to overlook the fact that project tagging is only 
one aspect of the multiple data points to be included in 1504 
reports. In addition to tagging payments by project, companies would 
also report each payment outside the U.S. by specific government 
payee, including national, sub-national, and local and community-
level government payees. Thus, the API project definition combined 
with reporting of payments at all levels of government will enable 
host country citizens easily to determine the amounts received by 
their local, state and federal government agencies from resource 
extraction activities occurring in their state or province. Citizens 
would know how much money is coming directly from the industry at 
each level of government and be able to lobby the applicable level 
of government for greater accountability for the use of such 
revenues, such as by advocating for changes in revenue sharing or 
allocations to local needs.'')
---------------------------------------------------------------------------

    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

[[Page 4688]]

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\
---------------------------------------------------------------------------

    \340\ 17 CFR 249.310.
    \341\ 17 CFR 249.220f.
    \342\ 17 CFR 249.240f.
    \343\ 15 U.S.C. 78m or 78o(d).
    \344\ See 17 CFR 240.13q-1(d)(11).
    \345\ 15 U.S.C. 78m(q)(1)(D).
    \346\ See 2019 Rules Proposing Release at Section II.A.
    \347\ In prior releases, the Commission noted that, in the 
staff's experience, resource extraction issuers rarely use 
Regulation A. This continues to be the case. Between June 2015 
through December 2019, we estimate that only 5 of the 343 Regulation 
A issuers with a qualified offering statement appears to have been a 
resource extraction issuer at the time of filing based on a review 
of assigned Standard Industrial Classification (SIC) codes listed in 
Part 1 of Form 1-A. Similarly, between May 2016 through December 
2019, we estimate that only 1 of the 1,975 Regulation Crowdfunding 
issuers appears to have been a resource extraction issuer.
    \348\ 15 U.S.C. 80a-1 et seq.
    \349\ It seems unlikely that an entity that fits within the 
definition of ``investment company'' would be one that is 
``engag[ing] in the commercial development of oil, natural gas, or 
minerals.'' See Section 3(a)(1) of the Investment Company Act (15 
U.S.C. 80a-3(a)(1)).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \350\ See 2016 Rules Adopting Release at Section II.A.2.
    \351\ We did receive related comments objecting to broad 
exemptions from the scope of the Section 13(q) rules for classes of 
companies, such as emerging growth companies and smaller reporting 
companies, which would have been covered resource extraction issuers 
under the 2016 Rules. See, e.g., letters from KCSPOG; PWYP-US (Mar. 
16, 2020); and Oxfam America and Earthrights International. As 
previously explained, we are exempting emerging growth companies and 
smaller reporting companies from the scope of Rule 13q-1 because we 
believe that this change from the 2016 Rules will reduce the overall 
cost of the Section 13(q) rules. See supra Section II.D.3.
    \352\ See letter from PWYP-US (Mar. 16, 2020).
    \353\ See the definition of ``foreign private issuer'' in 17 CFR 
230.405 and 17 CFR 240.3b-4.
    \354\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \355\ See 2016 Rules Adopting Release at Section II.A.3; and 
2016 Rules Proposing Release at Section II.A.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \356\ See Item 2.01(d)(2) of Form SD.
    \357\ See 15 U.S.C. 78m(q)(1)(A).
    \358\ See id.
    \359\ See 2019 Rules Proposing Release at Section II.B; and 2016 
Rules Adopting Release at Section II.B.2.a.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

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

    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

[[Page 4689]]

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.
---------------------------------------------------------------------------

    \361\ Marketing and security-related activities are not included 
within the final rules because those activities are not specifically 
included in the list of activities covered by the definition of 
``commercial development'' under Section 13(q). In addition, 
including marketing and security-related activities within the final 
rules under Section 13(q) would go beyond what is covered by the 
non-U.S. payments-to-governments reporting regimes. See 2019 Rules 
Proposing Release at note 96.
    \362\ As under the 2016 Rules, and as proposed, a resource 
extraction issuer will be required to disclose payments when a 
service provider makes a payment to a government on its behalf that 
meets the definition of ``payment.'' See 2019 Rules Proposing 
Release at note 97. However, at the request of commenters, and 
consistent with our treatment of proportionate interests, see supra 
Section II.E., we have clarified that this disclosure obligation 
does not apply to a non-operator partner of a joint venture or 
arrangement that reimburses the operator for its share of the 
payments to governments made by the operator. See Instruction 7 to 
Item 2.01 of Form SD.
    \363\ See the 2016 Rules Adopting Release at Section II.B.2.a.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \364\ See 2016 Rules Adopting Release at Section II.B.2; and 
2012 Rules Adopting Release at Section II.C.2.
    \365\ See 2019 Rules Proposing Release at Section II.B.1-3.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \366\ See Item 2.01(d)(5) of Form SD.
    \367\ We proposed to define ``extraction'' to mean the 
production of oil and natural gas as well as the extraction of 
minerals. See 2019 Rules Proposing Release at Section II.B.1. In 
response to a suggestion by one commenter, the final rules use the 
disjunctive ``or'' in the definition of extraction. See letter from 
Keith P. Bishop (Jan. 1, 2020).
    \368\ See 2016 Rules Adopting Release at Section II.B.3.
    \369\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \370\ The proposed rules included an instruction on the meaning 
of the term ``processing'' but did not provide a defined term. See 
Instruction (8) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \372\ See letter from PWYP-US (Mar. 16, 2020).
    \373\ See letter from Petrobras.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \374\ See Item 2.01(d)(4) of Form SD.
    \375\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \376\ See 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).
    \377\ See letters from PWYP-US (Mar. 16, 2020); and J. Williams, 
NRGI.
---------------------------------------------------------------------------

    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

[[Page 4690]]

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 trading-related 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.
---------------------------------------------------------------------------

    \378\ See 2016 Rules Adopting Release at Section II.B.3.
    \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.
    \380\ See supra note 377.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \381\ See 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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \382\ See 2019 Rules Proposing Release at Section II.B.3.
    \383\ See 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).
    \384\ The 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/resourceextraction-faq.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.
    \386\ For 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.''
    \387\ See 2019 Rules Proposing Release at Section II.B.3 (citing 
2016 Rules Adopting Release, note 149 and accompanying text).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \388\ See letter from PWYP-US (Mar. 16, 2020).
    \389\ See letter from Keith P. Bishop.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \390\ See subpart 1300 of Regulation S-K.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

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

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\
---------------------------------------------------------------------------

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

    As with the 2016 Rules, we proposed to define ``payment'' to 
include the specific types of payments identified in

[[Page 4691]]

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\
---------------------------------------------------------------------------

    \393\ See 2019 Rules Proposing Release at Section II.C.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \394\ 15 U.S.C. 78m(q)(1)(C)(ii).
    \395\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \396\ See letters from Oxfam America and Earthrights 
International; PWYP-US (Mar. 16, 2020); and J. Williams, NRGI.
    \397\ See supra Section II.I.2.
    \398\ See infra Section II.J.6.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \399\ See Item 2.01(d)(9)(A) of Form SD.
    \400\ See Instruction (9) to Item 2.01 of Form SD.
    \401\ See 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \402\ See letters from API (Mar. 16, 2020); Petrobras; and PWYP-
US (Mar. 16, 2020).
    \403\ See letter from API (Mar. 16, 2020).
    \404\ See 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.
---------------------------------------------------------------------------

    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 ring-fenced 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\
---------------------------------------------------------------------------

    \405\ See letter from PWYP-US (Mar. 16, 2020).
    \406\ See id.
    \407\ See infra Section II.N.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \408\ See letter from KCSPOG.
    \409\ See Instruction (4) to Item 2.01 of Form SD under the 2016 
Rules; see also 2012 Rules Adopting Release, note 155 and 
accompanying text.
---------------------------------------------------------------------------

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

[[Page 4692]]

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 profit-based 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\
---------------------------------------------------------------------------

    \410\ See Item 2.01(d)(B), (C), and (E).
    \411\ 15 U.S.C. 78m(q)(1)(C)(ii).
    \412\ See 2019 Rules Proposing Release at Section II.C.2.
    \413\ See proposed Instruction (10) to Form SD in the 2019 Rules 
Proposing Release.
---------------------------------------------------------------------------

    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 non-exhaustive 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 
non-exhaustive, 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\
---------------------------------------------------------------------------

    \414\ See letter from KCSPOG.
    \415\ See letter from PWYP-US (Mar. 16, 2020).
    \416\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \417\ See 2019 Rules Proposing Release at II.C.2.
    \418\ See Instruction (10) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \419\ See EITI Standard (October 15, 2019) at 22-23.
    \420\ For 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://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2006/09/11/000090341_20060911105823/Rendered/PDF/372580Mining0r101OFFICIAL0USE0ONLY1.pdf.
    \421\ See, e.g., letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \422\ See Item 2.01(d)(9)(F) of Form SD.
    \423\ See Instruction (11) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \424\ See 2016 Adopting Release, Section II.C.2.a.; and 2012 
Adopting Release at Section II.D.1.b.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

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\
---------------------------------------------------------------------------

    \426\ See Item 2.01(d)(9)(G) of Form SD.
    \427\ See 2019 Rules Proposing Release at Section II.C.4.
    \428\ See EITI Standard at 24.
    \429\ See, 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \430\ See letter from PWYP-US (Mar. 16, 2020).
    \431\ See id..
    \432\ See 15 U.S.C. 78m(q)(2)(E).

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

[[Page 4693]]

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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \434\ See 2019 Rules Proposing Release at Section II.C.5; and 
2016 Rules Adopting Release at Section II.C.2.a.
    \435\ See letter from ExxonMobil (Feb. 16, 2016).
    \436\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \437\ For 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).
    \438\ See 15 U.S.C. 78m(q)(1)(C)(ii).
    \439\ See EITI Standard at 29; see also 2019 Rules Proposing 
Release at Section II.C.5.
    \440\ See, 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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \441\ See Instruction (12) to Item 2.01 of Form SD.
    \442\ See Item 2.01(d)(9)(D) of Form SD.
    \443\ See letters from API (Mar. 16, 2020); Oxfam America and 
Earthrights International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \444\ See 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.
    \445\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \446\ See letter from API (Mar. 16, 2020).
    \447\ See id.
---------------------------------------------------------------------------

    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 in-kind 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

[[Page 4694]]

believes such information would be appropriate under the circumstances.
---------------------------------------------------------------------------

    \448\ See letters from Oxfam America and Earthrights 
International; and PWYP-US (Mar. 16, 2020).
    \449\ See id.
    \450\ See 2019 Rules Proposing Release at Section II.C.6 (citing 
letter from ExxonMobil (Mar. 8, 2016)).
    \451\ See Instruction (12) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \452\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \453\ See id.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \454\ See Item 2.01(a)(2) of Form SD.
    \455\ See the 2016 Adopting Release at Section II.C.3.
---------------------------------------------------------------------------

    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 non-
U.S. payments-to-governments reporting regimes.\456\
---------------------------------------------------------------------------

    \456\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \457\ See 2019 Rules Proposing Release at Section II.C.8.
    \458\ See EITI Standard at 26.
    \459\ See, 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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \460\ See 17 CFR 240.13q-1(b). This provision is identical to 
the one included in the 2016 Rules.
    \461\ See, e.g., letter from Elise J. Bean (Feb. 16, 2016).
    \462\ See, e.g., letter from PWYP-US (Feb. 16, 2016).
---------------------------------------------------------------------------

    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 anti-evasion provision is 
broad enough, and the most effective way, to prohibit the evasive 
activity in these, as well as other, cases.\466\
---------------------------------------------------------------------------

    \463\ See letters from Better Markets; Oxfam America and 
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \464\ See letters from Oxfam America and Earthrights 
International; and PWYP-US (Mar. 16, 2020).
    \465\ See letter from Better Markets.
    \466\ For 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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \467\ See 15 U.S.C. 78m(q)(2)(A).
    \468\ See 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.
---------------------------------------------------------------------------

    Form SD is already used for specialized disclosure not included 
within an issuer's periodic or current

[[Page 4695]]

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.
---------------------------------------------------------------------------

    \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'').
    \470\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \471\ See 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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \474\ General Instruction B.1 of Form SD. See also Exchange Act 
Rule 13p-1.
    \475\ Of 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.
---------------------------------------------------------------------------

2. Annual Deadline for Form SD
    We proposed a Form SD submission deadline that differed depending 
on a resource extraction issuer's fiscal year-end. 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\
---------------------------------------------------------------------------

    \476\ See 2019 Rules Proposing Release at Section II.H.
    \477\ See 2016 Adopting Release at Section II.G.3.
    \478\ See 2019 Rules Proposing Release at Section II.H.
---------------------------------------------------------------------------

    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 
year-end 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\
---------------------------------------------------------------------------

    \479\ See letters from Sens. Cardin et al.; EITI Civil Society 
Board (Mar. 13, 2020); PolicyAlert!; Eric Postel; Public Citizen; 
and PWYP-US (Mar. 16, 2020).
    \480\ See, e.g., letters from Sens. Cardin et al.; EITI Civil 
Society Board; Eric Postel; Public Citizen; and PWYP-US (Mar. 16, 
2020).
    \481\ See letter from PWYP-US (Mar. 16, 2020).
    \482\ See, e.g., letters from EITI Civil Society Board; Eric 
Postel; Public Citizen; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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

[[Page 4696]]

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\
---------------------------------------------------------------------------

    \483\ See General Instruction B.2. to Form SD.
    \484\ See supra note 232.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \485\ Section 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 machine-readable format. See 17 CFR 232.11; Release 
No. 33-9002 (Jan. 14, 2009) [74 FR 6776 (Feb. 10, 2009)], 6778, note 
50.
    \486\ See Item 2.01(a)(5) of Form SD.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \487\ See 2019 Rules Adopting Release at Section II.K.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \488\ See Release No. 33-10514 (Jun. 28, 2018) [83 FR 40846 
(Jul. 16, 2018)].
    \489\ See 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.
    \490\ Letter from XBRL US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \491\ For example, payment types could be royalties, bonuses, 
taxes, fees, or production entitlements.
---------------------------------------------------------------------------

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

    \492\ An issuer must provide an electronic tag identifying the 
government for each national and subnational government payee.
---------------------------------------------------------------------------

     The project of the resource extraction issuer to which the 
payments relate.\493\
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \494\ See Item 2.01(a)(5)(i) through (ii).
    \495\ See Section 13(q)(2)(A)(i) through (ii).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \497\ See 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.
    \498\ See 2016 Rules Adopting Release at Section II.K.3.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

    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

[[Page 4697]]

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:
---------------------------------------------------------------------------

    \500\ See 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).
    \501\ See 2019 Rules Proposing Release at Section II.K.
    \502\ See 2016 Adopting Release at Section II.K.1.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \503\ See Instruction 2 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \504\ See 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \505\ See Instruction 2 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \506\ See Item 2.01(a)(5)(vi) of Form SD.
    \507\ See 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.''
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \508\ See Instruction 4 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \509\ See supra note 20.
    \510\ See Item 2.01(c) of Form SD.
    \511\ See 2016 Rules Adopting Release at Section II.J.2.
    \512\ See, 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \513\ See Item 2.01(c)(1) through (2) of Form SD.
    \514\ See 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.
    \515\ See Item 2.01(c)(3) of Form SD.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

[[Page 4698]]

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.
---------------------------------------------------------------------------

    \517\ See 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)).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \519\ See Item 2.01(c)(6) of Form SD.
    \520\ See 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.
    \521\ See letter from PWYP-US (Mar. 16, 2020).
    \522\ See supra note 520.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \523\ See 17 CFR 240.13q-1(c).
    \524\ Rule 0-13 permits an application to be filed with the 
Commission to request a ``substituted compliance order'' under the 
Exchange Act.
    \525\ See 17 CFR 240.0-13(e) and (g).
    \526\ See 17 CFR 240.0-13(h).
    \527\ See 17 CFR 240.0-13(i).
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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\
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    \528\ 2014 UK Statutory Instrument No. 3209.
    \529\ FOR-2013-12-20-1682.
    \530\ See 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).
    \531\ See, e.g., letters from API (Mar. 16, 2020); BHP; BP 
America; Chamber; Equinor; and Rio Tinto.
---------------------------------------------------------------------------

    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.
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    \532\ For example, the EU Directives impose disclosure 
requirements for logging companies in addition to oil, natural gas, 
and mining companies.
    \533\ For example, the final rules require alternative reports 
to be submitted in XBRL format. See supra Section II.N.1.
    \534\ See, e.g., letters from API (Mar. 16, 2020); BHP; BP 
America; Chamber; Equinor; Rio Tinto; and Total.
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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).
---------------------------------------------------------------------------

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

    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

[[Page 4699]]

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-by-case 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).
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \537\ See, e.g., letters from Oxfam American and Earthrights 
International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \538\ Because 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.
---------------------------------------------------------------------------

    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 anti-competitive 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.
---------------------------------------------------------------------------

    \539\ See supra Sections I.A. through B. for a discussion of the 
current legal requirements and significant international 
transparency promotion regimes that affect market practices.
    \540\ Based 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.
    \541\ See supra Section II.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \542\ See letter from Oxfam America and Earthrights 
International.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \543\ In addition to our analysis against the baseline, we have 
also noted other instances where 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.

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

[[Page 4700]]

    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 above-
mentioned 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.
---------------------------------------------------------------------------

    \544\ Specifically, 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \545\ We 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.
---------------------------------------------------------------------------

    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 non-exempt 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\
---------------------------------------------------------------------------

    \547\ We 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.
    \548\ We 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.
    \549\ The 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \550\ Because 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.
---------------------------------------------------------------------------

    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

[[Page 4701]]

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\
---------------------------------------------------------------------------

    \551\ Our 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.
    \552\ See infra Section III.D.11.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \553\ For 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 David-Barrett 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/transparency-paradox-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 [Ouml]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).
    \554\ See Andr[eacute]s Mej[iacute]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).
---------------------------------------------------------------------------

    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 anti-corruption and accountability benefits.
---------------------------------------------------------------------------

    \555\ We note that these intended benefits differ from the 
investor protection benefits that our disclosure rules typically 
strive to achieve.
    \556\ See supra note 30.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \557\ See, 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'').
---------------------------------------------------------------------------

    Additionally, the cost of corrupt expenditures, direct or indirect, 
impacts profitability, and, if the cost is

[[Page 4702]]

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\
---------------------------------------------------------------------------

    \558\ See, 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \559\ See, 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.
    \560\ See 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 M[eacute]on and Khalid Sekkat, Does 
corruption grease or sand the wheels of growth?, 122 PUBLIC CHOICE 
69-97 (2005).
    \561\ Several 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \562\ See 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \563\ See letter from Kaufmann (May 1, 2020).
    \564\ See letters from Kaufmann and PWYP-US (Mar. 16, 2020).
    \565\ See letter from Kaufmann.
    \566\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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 long-term 
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.
---------------------------------------------------------------------------

    \567\ See 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 
Londo[ntilde]o, Does Joining the Extractive Industries Transparency 
Initiative Have an Impact on Extractive and Non-Extractive FDI 
Inflows? (2014), available at http://gppreview.com/wp-content/uploads/2014/02/Londono-F.pdf) (``Londo[ntilde]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).
---------------------------------------------------------------------------

    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

[[Page 4703]]

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.''
---------------------------------------------------------------------------

    \568\ See letters from Oxfam America and Earthrights 
International; and PWYP-US (Mar. 16, 2020).
    \569\ See 17 CFR 229.305 and 229.503.
    \570\ See 17 CFR 229.101(d).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \571\ See letters from API, Chamber, and NAM.
    \572\ See, 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.
---------------------------------------------------------------------------

    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 contract-based definition, would be 
reduced.

[[Page 4704]]

    In addition, because the required payment information is at a 
higher level of aggregation than under a contract-based 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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \574\ See letters from API (Mar. 16, 2020); Chamber; NAM; 
Petrobas; and SAF.
    \575\ See letter from API (Mar. 16, 2020).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \576\ See, e.g., letters from Oxfam America and Earthrights 
International; PWYP-US (Mar. 16, 2020); and Better Markets.
    \577\ See letter from Better Markets.
    \578\ See letter from Oxfam America and Earthrights 
International.
    \579\ See, e.g., letters from Oxfam America and Earthrights 
International; PWYP-US (Mar. 16, 2020); Congr. Waters et al., and 
POGO.
---------------------------------------------------------------------------

    One commenter argued that contract-level 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.
---------------------------------------------------------------------------

    \580\ See letter from Oxfam America and Earthrights 
International.
---------------------------------------------------------------------------

    We acknowledge, as commenters have asserted, that compared to a 
contract-based 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.
---------------------------------------------------------------------------

    \581\ See Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \582\ See supra Section II.N.

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[[Page 4705]]

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 
third-party 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\
---------------------------------------------------------------------------

    \583\ See supra note 571.
    \584\ See, e.g., letters from Kaufmann; Oxfam America and 
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \585\ See, e.g., letters from PWYP-US (Mar. 16, 2020); Kaufmann; 
and POGO.
    \586\ See, e.g., letter from Oxfam America and Earthrights 
International.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \587\ See, e.g., letters from Oxfam America and Earthrights 
International; PWYP-US (Mar. 16, 2020); F. Samama et al.; and WK 
Associates (Mar. 16, 2020).
    \588\ See letter from Oxfam America and Earthrights 
International.
    \589\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \590\ See 17 CFR 229.303.
---------------------------------------------------------------------------

    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 
pre-

[[Page 4706]]

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\
---------------------------------------------------------------------------

    \591\ See letters from API, (Mar. 16, 2020); Chamber; Davis 
Polk; FACT Coalition; NAM; Petrobras; PWYP-US (Mar. 16, 2020); and 
SAF.
    \592\ See letter from API (Mar. 16, 2020).
    \593\ Id.
---------------------------------------------------------------------------

    Many commenters opposed the exemptions for conflicting laws or pre-
existing 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.
---------------------------------------------------------------------------

    \594\ See 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.
    \595\ See letter from Elise J. Bean.
---------------------------------------------------------------------------

    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 
pre-existing 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\
---------------------------------------------------------------------------

    \596\ See 2019 Rules Proposing Release at Section II.J.3.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \597\ See infra Section III.D.5.
    \598\ See supra Section II.N.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \599\ See letters from Chamber and NAM.
    \600\ See letters from and NRGI (Mar. 16, 2020); Public Citizen; 
and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

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\
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    \601\ This 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.
---------------------------------------------------------------------------

    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

[[Page 4707]]

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\
---------------------------------------------------------------------------

    \602\ See, e.g., letter from API (Mar. 16, 2020).
    \603\ Exchange 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.
    \604\ See supra Section II.F.
---------------------------------------------------------------------------

    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\
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    \605\ See letters from API (Mar. 16, 2020); Chamber; Equinor; 
Ovintiv; and Royal Dutch Shell.
    \606\ See letters from Chris Barnard; KCSPOG; Public Citizen; 
and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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 company-specific 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.
---------------------------------------------------------------------------

    \607\ See 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.
    \608\ See letters from API (Mar. 16, 2020); Chamber; and NAM.
---------------------------------------------------------------------------

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

[[Page 4708]]

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\
---------------------------------------------------------------------------

    \609\ These are issuers that have a business address, are 
incorporated, or are listed on exchanges, in the EEA or Canada.
    \610\ See supra note 545.
    \611\ See 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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \612\ See 2012 Rules Proposing Release at Section II.D.4.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \613\ See supra Section II.E.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \614\ As 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \615\ See letters from API; Ovintiv; Oxfam America and 
Earthrights International; Petrobras; PWYP-US (Mar. 16, 2020); and 
SAF.
---------------------------------------------------------------------------

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

[[Page 4709]]

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.
---------------------------------------------------------------------------

    \616\ See supra Section II.J.5.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \617\ See, e.g., letters from API (Mar. 16, 2020); Petrobras; 
and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \618\ See letter from Elise J. Bean.
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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

[[Page 4710]]

minimis'' will lead to more payments disclosure, which could result in 
higher compliance costs for issuers than under the proposed definition.
---------------------------------------------------------------------------

    \619\ See letters from API and NAM.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \620\ See 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.
    \621\ See letter from NRGI (Mar. 16, 2020).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \622\ Users of this information should be able to render the 
information by using software available on the Commission's website 
at no cost.
---------------------------------------------------------------------------

    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 machine-readable 
(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 (HTML-based 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\
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    \623\ See 2016 Rules Adopting Release at Section II.C.9.
    \624\ See letter from PWYP-US (Mar. 16, 2020).
    \625\ See letter from XBRL US.
    \626\ See supra Section II.M.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \627\ See id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \628\ We 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.
---------------------------------------------------------------------------

    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

[[Page 4711]]

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.
---------------------------------------------------------------------------

    \629\ See 2012 Rules Adopting Release (citing letters from 
Barrick Gold (Feb. 28, 2011), ExxonMobil (Jan. 31, 2011), and Rio 
Tinto plc (Mar. 2, 2011)).
---------------------------------------------------------------------------

    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 [euro]47,000 and an annual reporting cost of 
[euro]26,000; and Eni (Italy), which reported a start-up cost of 
[euro]1,000,000 and annual reporting costs of [euro]500,000.\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-to-governments 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.
---------------------------------------------------------------------------

    \630\ See 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.
    \631\ See letter from Total (Feb. 17, 2020) at 1.
    \632\ See letter from PWYP (International Secretariat) at 4.
    \633\ See letter from PWYP-US (Mar. 16, 2020).
    \634\ See https://www.tullowoil.com/application/files/5815/8636/0065/2019_Annual_Report_and_Accounts.pdf.
    \635\ See https://www.sec.gov/Archives/edgar/data/879764/000119312520080490/d862109d20f.htm.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \636\ It is calculated as ($300,000 + $1,170,000 + $54,990 + 
$150,000)/4. We convert BASF's ongoing cost of Euro [euro]47,000 
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 [euro]26,000 into 
US dollars using a USD/Euro exchange rate of 1.17.
---------------------------------------------------------------------------

    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-
by-country basis.\640\
---------------------------------------------------------------------------

    \638\ See letter from Equinor.
    \639\ See letter from Alan Detheridge.
    \640\ See letter from FACT Coalition.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \641\ See 2019 Rules Proposing Release at note 66 and 
accompanying text. See also letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    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

[[Page 4712]]

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.
---------------------------------------------------------------------------

    \642\ See 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-logging-industries-study_en.pdf.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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:
---------------------------------------------------------------------------

    \644\ 44 U.S.C. 3501 et seq.
    \645\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

     ``Form SD'' (OMB Control No. 3235-0697).\646\
---------------------------------------------------------------------------

    \646\ As 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \647\ See supra Section I.A.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \648\ See 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.
    \649\ See 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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
    \651\ See supra Section III.A.
    \652\ 678 minus 252 minus 177 minus 12 = 237.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \653\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes 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.

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

[[Page 4713]]

    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 pre-existing 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.
---------------------------------------------------------------------------

    \654\ See 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.
    \655\ See supra Section II.A. and Section III.D.1.
    \656\ See supra Section II.D.1 and 2.
    \657\ For 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.
---------------------------------------------------------------------------

    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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Additional
                                          Number of      Burden       Total burden     Internal burden      Professional       Professional     (external)
      Whether issuer is subject to        estimated    hours per   hours for current  hours for current   (external) hours   (external) costs    IT costs    Total additional    Total external
      alternative reporting regime         affected     current         affected           affected         for current        for current     per current       IT costs            costs
                                          responses     affected       responses          responses           affected           affected        affected
                                                        response                                             responses          responses        response
                                                 (A)          (B)    (C) = (A) x (B)    (D) = (C) x .75    (E) = (C) x .25   (F) = (E) x $400          (G)    (H) = (A) x (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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1 This is based on 25 percent of 500 hours (the incremental hourly increase estimated for the 2016 Rules). 500 x .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).
2 As 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 x .05 = 25 hours.
3 We 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.
---------------------------------------------------------------------------

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

    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

[[Page 4714]]

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 Commission-recognized 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.
---------------------------------------------------------------------------

    \659\ See 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.
    \660\ For 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 
reporting company and, therefore, will be eligible for the exemption 
from the final rules.
    \661\ See 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).
    \662\ The 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.
---------------------------------------------------------------------------

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

0
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.

0
2. Section 240.13q-1 is revised to read as follows:

Sec.  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 Sec.  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 Sec.  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 Sec.  
240.13q-1(c).

[[Page 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 Sec.  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

0
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.

0
4. Amend Form SD (referenced in Sec.  249b.400) by:
0
a. Adding a check box for Rule 13q-1;
0
b. Revising instruction A. under ``General Instructions'';
0
c. Redesignating instruction B.2. as B.3 and adding new instructions 
B.2. and B.4. under the ``General Instructions''; and
0
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]
BILLING CODE 8011-01-C