April 2017

By Jeremiah Baronberg


Government regulation is increasingly in the headlines in the United States today, as the new Trump administration and Republican majority Congress has made regulatory reform and a key part of its governing philosophy.

As part of this approach, one regulation that was recently rolled back was a 2010 bipartisan Congressional effort to address corruption around the world—particularly in undemocratic and poorer, developing countries—by bringing greater transparency to the impact of international private sector energy exploration.

Named for its Senate co-authors, the Cardin-Lugar amendment was passed under Section 1504 of the Dodd-Frank Act and is known as “Publish What You Pay.” It required any extractive industry company (oil, gas, mining, etc.) listed on the U.S. stock exchange, including non-U.S. firms to publicly disclose all payments, such as taxes and royalties paid to foreign governments for the licenses and permits to conduct energy exploration projects in their host countries— on a project-by-project basis.

Soon after taking office, the disclosure rule mandated by Cardin-Lugar was effectively repealed when President Trump signed a joint Congressional “resolution of disapproval.” This effort was accomplished on strict party lines through a simple majority of 51 Senate votes, rather than the normal 60 needed to overcome a filibuster—by using a parliamentary procedure under the Congressional Review Act (CRA) that allows for the disapproval of a rule within a specified period of time following its adoption.

Inspired by a 2006 resolution introduced by Republican Representative Chris Smith, proponents of Cardin-Lugar argued that its approach was particularly helpful in combatting the resource curse or “Dutch disease,” the failure of less developed—and often undemocratic nations—to translate vast mineral wealth into wider prosperity for its citizens. Autocratic leaders in poor countries have essentially been able to pocket royalty and tax payments as part of agreements reached with foreign energy firms that were intended for, though never reached, their states’ public budgets to support wider social development initiatives and infrastructure projects.

By shining a light and following the money, Cardin-Lugar was designed to tackle corruption, waste, and mismanagement and to enable citizen oversight in an arena that was previously beyond its domain. Former Republican Senator Richard Lugar envisioned the law as a means to leverage America’s soft power impact so that U.S. corporations and foreign aid efforts would not be “seen as largely benefiting a corrupt ruling class, but society at large.”

The measure was endorsed by a wide range of U.S. stakeholders, including industry, investors, civil society, and governments. In addition to sparking a global trend towards disclosure, proponents argue that “increased transparency resulting from disclosures required under section 1504 lowers the cost of capital for covered U.S.-listed firms by up to $12.6 billion.” Cardin-Lugar is credited with having spurred a virtuous circle of similar reporting requirements in up to 30 other Western countries, including across the European Union and in resource-savvy places with leading oil exploration firms such as the UK, France, Norway, and Canada. Some laws are even more stringent than Cardin-Lugar, all of which remain on the books today.

Opposing Cardin-Lugar were several major U.S. energy companies and associations, including Exxon Mobil and its former CEO and current Secretary of State Rex Tillerson, who argued that the disclosure requirement was too onerous and would put U.S. firms at a competitive disadvantage globally and that reporting such payments to foreign governments already came under the umbrella of the Foreign Corrupt Practices Act of 1977 (FCPA).

Proponents, including the measure’s co-authors countered that these concerns were largely unfounded and inflated, with many countries now operating under the same or similar disclosure systems, including 84 of the world’s 100 major oil and gas companies.

Outside the United States, energy investment disclosure requirements remain in effect such as for companies with European and Canadian listings and those party to the Extractive Industries Transparency Initiative (EITI) as well as many members of the International Council on Mining and Metals (ICMM).

Still, while the U.S. rule itself was scrapped, the actual Cardin-Lugar amendment and the Dodd-Frank Act remain as law. As a result, the SEC is technically required to re-issue a new disclosure rule to replace the one that has been voided.

However, some observers have doubts that this may actually occur as the CRA requires the creation of a new rule that is not “substantially similar” to the original one.

With the Trump administration and Congress working to overhaul Dodd-Frank, observers will be closely watching the evolving parameters of U.S. leadership in this arena.