SEC Foreign Payment Rule Challenge Declined by Court

A challenge to a U.S. Securities and Exchange Commission rule requiring oil and mining companies to disclose payments to foreign governments must first be handled by a lower court, the U.S. Court of Appeals in Washington said.

The SEC disclosure regulation comes under a section of law requiring review by the U.S. District Court, not the appeals court, which has jurisdiction over many commission rules, the court said in a ruling today. The regulation, issued under the 2010 Dodd-Frank financial reform law, covers about 1,100 public companies engaged in oil, natural gas or mineral extraction.

Anticipating the dispute over venue, the American Petroleum Institute, the U.S. Chamber of Commerce and two other trade groups that sued in the appeals court lodged a similar, pending complaint in district court in Washington.

“Their caution proved prescient,” U.S. Circuit Judge David Tatel wrote for the three-judge panel.

“This may not be the most efficient way to resolve such cases,” Tatel said. “But it is Congress’s job, not ours, to determine ‘the court in which review of agency decisions may occur.’”

The contested regulation implements a provision of Dodd- Frank aimed at increasing transparency and thwarting corruption by giving citizens of resource-rich countries information about their governments’ oil and mineral revenue.

Eugene Scalia, of Gibson Dunn & Crutcher LLP, an attorney for the plaintiffs, didn’t immediately reply to a phone message and e-mail requesting comment on the decision.

Free Speech

The oil industry group and the other plaintiffs argued the regulation will hobble companies’ competetiveness and violate their free speech rights by forcing them to publicly disclose information that can be used to influence political events in other countries.

The ruling is important for supporters of the disclosure rule because it ensures that “the case will be heard in the court that Congress intended,” said Ian Gary, senior policy manager for extractive industries for Boston-based Oxfam America, which intervened in the case in support of the SEC and raised the issue of jurisdiction in its filings.

The district court “has more flexibility to review the copius administrative record,” than the appeals court, Gary said in an e-mailed statement.

The SEC is “ready to present our case to the district court,” John Nester, a commission spokesman, said in an e- mailed statement.

The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-1398, U.S. Court of Appeals for the District of Columbia (Washington).

The district court case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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