Regulation Harms Business, Except When It Doesn’t

Regulation Harms Business, Except When It Doesn’t

Michael Vinci, Breaking Energy Staff

In February 2017, President Trump approved action taken by congressional Republicans to repeal regulation affecting energy companies that conduct business in the United States. The rule required all oil, gas, and mining companies listed on any U.S. stock exchange to disclose how much money they pay to foreign governments, as an amendment to Dodd-Frank.

The rule, as well as the Amendment itself, was originally created to prevent foreign government officials from skimming money off the payments made by various oil and drilling companies. Without this type of transparency, it becomes much easier for these foreign leaders to unobtrusively profit personally from money intended as payment to the government.

The Amendment in question, the Cardin-Lugar Amendment, was not entirely scraped; only this particular provision was removed. Under the guidelines of the Amendment, a new disclosure rule must be created by the SEC in the coming months.

The opponents of the regulation claim that foreign oil, gas, and mining companies are not subject to similar rules, and therefore American companies are disadvantaged on the global landscape. Additional concerns include the disclosure of proprietary information that would again reduce competitiveness.

It would seem pressure on the Republicans to go through with the repeal came from the American Petroleum Institute, the chief U.S. lobbying organization for energy companies. They frequently echo similar claims that U.S. regulations are over-burdening energy companies. However, these claims are patently false. The U.S. regulation applies to all companies listed on American stock exchanges, which includes foreign companies.

The data has shown that the regulation did not cost one single American job. The prospect that this rule is a constraint on American jobs is false. Further, investors will likely be turned off by this obfuscation of numbers; the passage of the bill alone can cause anxiety to shareholders of these energy companies that in turn can affect price movements.

Further, the SEC has stated that any rule enforced by the EU, Canada, or the EITI will satisfy the same requirements as the original regulation under Cardin-Lugar. 84 of the top 100 oil and gas companies are listed either once or dually on U.S., European and Canadian stock exchanges, meaning that over 80% of the top companies globally must abide by the same regulation.

Arguments have been made that repealing this regulation will actual do more harm to the business environment than good. Under the current standards of the Congressional Review Act – the act by which Republicans sought the repeal of this regulation – the replacement rule that the SEC must create cannot be “substantially similar” to the former rule.

Because the former rule was so aligned with the rules of international exchanges (on which many U.S. companies are dually listed) we will likely see two different sets of rules emerge that companies will have to find a way to comply with.

When Cardin-Lugar was passed in 2010, it was immediately followed by the EU and Canada passing nearly identical legislation, so that companies such as BP and Shell (non-US companies) have filed the same transparent disclosure documents. Even state-controlled Russian energy companies such as Rosneft and Gazprom have been forced to follow similar legislation; the leadership of America created an international standard that improved business and created a level playing field; everyone was held to the same standards, despite the protests from the lobbyists. The repeal of this legislation would undo those improvements.


Published at Sat, 25 Feb 2017 00:15:47 +0000

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