Comment letters on the U.S. Securities and Exchange Commission's proposed rule, published on December 23, 2010, to require "resource extraction issuers" to disclose to the Federal government payments made to foreign governments under the Dodd-Frank Act, have revealed different corporate worries.

Section 1504 of Dodd-Frank adds Section 13(q) to the Securities Exchange Act of 1934, requiring the Commission to report annually the type and total amount of payment made by the issuer or by an issuer's “controlled entity” for projects related to the commercial development of oil, natural gas, or minerals.

74 commenters submitted letters in time for the March 2 deadline, which had been extended by one month.

Industry voices such as Exxon and the U.S. Chamber of Commerce are pushing the SEC to limit the scope of the rules in a variety of ways, says Martin Rosenbaum, partner at the law firm Maslon Edelman Borman & Brand. For example, they suggest that the ‘annual report' required by Dodd-Frank be confidential on an individual company basis, and that only the SEC's compilation be made public, he says. They also want broad exclusions from any requirements that would be inconsistent with non-U.S. laws, and blanket exclusions for smaller companies.

On the other side are institutional investors that push for socially responsible investing, which strongly oppose limits on the reporting requirements, Rosenbaum says. They have an interest in obtaining this information for policy reasons, he continues, and they also argue that transparency on an individual company basis will benefit investors.

Corporate letters often raise questions around the project-based reporting requirement—as opposed to, say, a country-based requirement. "We firmly advocate a country-level aggregation unit for disclosure as it has been recognized by governments around the world and others as advancing the objective of revenue transparency while also protecting individual companies and shareholders from disclosure of commercially sensitive information," said PetroChina Company Limited's chief financial officer Zhou Ming Chun in a March 2 letter. Furthermore, since the SEC did not define "project," disclosures “are likely to be varied and not comparable across companies,” Chun said.

Requiring issuers to report on payments in every country at a project level could incur real costs, especially for large companies with projects in many countries.

PricewaterhouseCoopers, in its letter from March 2, expressed concerns about such detailed reporting requirements creating an accounting burden for companies: “Because registrants' existing reporting processes and accounting systems are based on the accrual method of accounting (and require certain payments to be capitalized), the proposed rule will require registrants' accounting groups to develop new information systems, processes, and controls."

This burden coincides with registrants already being charged with putting numerous, large-scale accounting standards in place, said PwC in the letter. “Accordingly, we recommend the first year impact to registrants' accounting resources be considered by the SEC staff as the proposed rule is finalized, especially in regard to the implementation date.”

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