SEC Oil Rule, Basel Impact, Vatican Bank: Compliance

A U.S. Securities and Exchange Commission rule mandating disclosure of payments by oil and mining companies to foreign governments was thrown out by a federal judge in Washington who said the agency misread the law.

U.S. District Judge John Bates in Washington yesterday ruled in favor of the American Petroleum Institute, the U.S. Chamber of Commerce and two other trade groups that argued the regulation would hobble companies’ competitiveness by forcing them to publicly disclose information that could be used to influence political events in other countries.

“The commission offers no persuasive arguments that the statute unambiguously requires public disclosure of the full reports,” Bates said in his 30-page opinion. He said the SEC’s rejection of an exemption for countries that prohibit payment disclosure was arbitrary and capricious. China, Qatar, Angola and Cameroon bar disclosure of payments.

The rule, issued under the 2010 Dodd-Frank financial reform law, covers about 1,100 public companies engaged in oil, natural gas or mineral extraction. It was aimed at increasing transparency and thwarting corruption by giving citizens of resource-rich countries information about their governments’ oil and mineral revenue.

The SEC estimated the rule could cost the companies as much as $1 billion and required natural-resource companies such as Exxon Mobil Corp. (XOM), BP Plc (BP/) and BHP Billiton Ltd. (BHP) to disclose how they pay governments -- including the U.S. -- to tap their resources.

John Nester, an SEC spokesman, said in a phone interview that the agency was reviewing the decision.

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

Special Section: Basel III Impact

U.S. Prepares to Impose Stricter Rules on Eight Largest Banks

JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) are among eight U.S. banks facing a new round of domestic rules on capital and debt that would be even stricter than global standards approved yesterday.

Regulators will push banks to maintain a leverage ratio of capital to assets that exceeds the 3 percent minimum set by the Basel Committee on Banking Supervision, Federal Reserve Governor Daniel Tarullo said, and the Federal Deposit Insurance Corp. said a proposal may be published next week. Another measure “in the next few months” would compel banks to hold a set amount of equity and long-term debt to help regulators dismantle failing lenders, Tarullo said.

The remarks show U.S. regulators plan to ratchet up demands for bigger buffers against losses to prevent a repeat of the 2008 credit crisis, brushing aside protests from bankers who say lending and profit will be hurt. The Fed’s board unanimously approved new global rules known as Basel III yesterday even as Tarullo said key parts are too weak.

People with knowledge of the matter have said U.S. regulators may want to double Basel’s 3 percent capital threshold, known as the leverage ratio.

The measures under consideration would affect the eight U.S. institutions already tagged as being “of global systemic importance,” according to Tarullo. The Financial Stability Board has identified those as JPMorgan, Wells Fargo, Goldman Sachs, Bank of America Corp., Citigroup Inc. (C), Morgan Stanley (MS), State Street Corp. (STT) and Bank of New York Mellon Corp.

When finalizing the rule, the U.S. eased requirements for some of the smallest firms while tightening for the biggest ones. Bankers have argued that new regulations and capital ratios will inhibit lending and erode profit.

For more, click here.

Fed Approves New Capital Standards in Line With Basel

Federal Reserve Chairman Ben S. Bernanke, Fed Governors Daniel Tarullo and Elizabeth Duke, Michael Gibson, director of the Fed’s Division of Banking Supervision and Regulation, and Ann Lee Hewko, a deputy assistant director, spoke at a Fed meeting in Washington about a proposed leverage ratio minimum for banks that would exceed the 3 percent requirement set by the Basel Committee on Banking Supervision.

For the video, click here.

During the hearing, Tarullo said the U.S. is “very close” to proposing a leverage ratio minimum that will exceed the 3 percent requirement set by the Basel Committee on Banking Supervision.

For the video, click here.

FDIC to Vote Next Week on Leverage Rule That Goes Beyond Basel

U.S. banks may face capital requirements that exceed the so-called Basel III minimum when the Federal Deposit Insurance Corp. considers a new proposal next week.

The FDIC -- one of three agencies that must approve the rules cleared yesterday by the Federal Reserve -- added a vote on “enhanced supplementary leverage ratio standards” to its July 9 meeting agenda.

Andrew Gray, an FDIC spokesman, declined to comment on the details of the proposal. FDIC Vice Chairman Thomas Hoenig has repeatedly called for a ratio of 10 percent tangible equity to tangible assets.

The FDIC will consider Basel III as an “interim final rule” rather than as a final rule as the Fed did, according to the agenda.

Compliance Policy

SEC Creates Task Forces to Detect Accounting and Microcap Fraud

The U.S. Securities and Exchange Commission has formed two enforcement task forces aimed at rooting out improper accounting and fraud at small companies, the agency said.

The SEC’s enforcement division also created a Center for Risk and Quantitative Analytics to identify risks and threats that could harm investors, the agency said in a statement yesterday.

The financial reporting task force will concentrate on publicly filed statements, issuer reporting and audit failures, the SEC said. The group, which will also focus on a review of financial restatements and revisions, will be led by David Woodcock, head of the SEC’s regional office in Fort Worth, Texas.

Compliance Action

Russia Claims First Insider Trading Case in Unilever’s Kalina

Russia’s market regulator said it’s identified the country’s first case of insider trading in Unilever (UNA)’s 2011 acquisition of skincare maker Kalina.

Several people involved in the deal, including a Kalina executive who purchased shares in his own name, bought stock before the acquisition, Dmitry Pankin, head of Russia’s financial markets regulator, said in a blog post. Kalina shares surged 75 percent to 2,198 rubles in the three weeks before the announcement, which Pankin said triggered the investigation.

While Russia’s federal law on insider information and market manipulation came into force in January 2011, those who violate the legislation can only be criminally prosecuted from July 27. Unilever, the world’s second-biggest consumer goods company, agreed to acquire 82 percent of Kalina, a maker of beauty products, in a deal valuing the company at 21.5 billion rubles ($694 million).

Unilever’s Moscow press service didn’t immediately respond to calls and e-mailed requests for comment. The case materials will be sent to the police in the “near future,” Pankin said.


Sprint Must Face New York’s $300 Million Alleged Tax Fraud Suit

Sprint-Nextel Corp. (S) must face a lawsuit for $300 million brought by the New York attorney general claiming the third-largest U.S. wireless carrier deliberately failed to pay sales taxes.

New York Supreme Court Judge O. Peter Sherwood denied Sprint-Nextel’s bid to dismiss the case in a ruling dated June 27. The complaint “satisfactorily alleges that Sprint knowingly submitted false monthly tax statements,” Sherwood wrote.

Attorney General Eric Schneiderman last year took over the whistle-blower lawsuit filed in New York in 2011, claiming Sprint didn’t collect and pay some sales taxes on flat-rate access charges for wireless calling plans, costing state and local governments more than $100 million.

“Sprint is disappointed in the court’s decision, and we intend to file an appeal shortly,” John Taylor, a spokesman for Overland Park, Kansas-based Sprint, said in an e-mailed statement. “With this lawsuit, the Attorney General’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. As we have in the past, we will continue to stand up for New York consumers’ rights and fight this suit.”

The attorney general seeks three times Sprint’s alleged underpayment of more than $100 million plus penalties under the state’s false claims act.

New York v. Spring Nextel, 103917-2011, New York Supreme Court (Manhattan).

Comings and Goings

Vatican Bank Managers Quit Amid Broadening Financial Scandal

The director and deputy director of the Vatican bank resigned yesterday, the latest management shake-up at the Church’s financial arm amid a series of corruption investigations.

Paolo Cipriani and his deputy Massimo Tulli stepped down “in the best interest of the institute and the Holy See,” the Vatican said in a statement late in the day on July 1. Ernst von Freyberg, the bank’s president appointed last February, will take over as interim director general and a new position of chief risk officer will be created. “It is clear today that we need new leadership to increase the pace of this transformation process,” von Freyberg said in the statement.

The resignations come three days after senior Vatican cleric Monsignor Nunzio Scarano was arrested by Italian authorities along with an Italian secret service agent and a financial broker as part of a fraud probe. The three are accused of plotting to bring 20 million euros ($26 million) into Italy from Switzerland in a private jet, according Rome prosecutor Nello Rossi. Scarano has denied the accusations.

The Vatican bank, whose formal name is the Institute for the Works of Religion, or IOR, is increasingly in the spotlight of investigations as Pope Francis works to bring it in line with international standards. The IOR oversees about 7.1 billion euros in assets, mostly in bonds and cash.

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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