By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends most of her time in Asia researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.
In an op-ed in yesterday’s Wall Street Journal, How the House Will Roll Back Washington’s Rule by Bureaucrat, Kevin McCarthy, House majority leader, pledged that Republicans would begin next week to use the Congressional Review Act (CRA)– enacted as part of Newt Gingrich’s Contract with America Advancement Act of 1996– to roll back “midnight regulations”– rules finalized during the past 60 legislative days, by a simple majority vote of both House and Senate.
(This 2009 Harvard Law Review Note, The Mysteries of the Congressional Review Act, tells all that one would conceivably wish to know about this arcane piece of legislation– which has only been used once before, to reverse the Clinton Administration’s November 2000 final rule on ergonomics.)
Earlier this month, Congress also passed the REINS Act– discussed in this post by Yves entitled House Passes Koch Brothers-Backed REINS Act that Weakens Gov’t Regulatory Agencies, which requires separate approval votes by House and Senate within 70 legislative days of final agency action on any new regulation of $100 million before a rule can be considered final; otherwise, the rule becomes null and void and cannot be re-issued. Taken together, CRA and REINS represent a bold attempt both to unwind the final work of a previous administration and subject future regulatory efforts to effective veto by one house of Congress
It’ll Be A Hot Time in the Old Town Tonight for Energy Companies
Top of the list of rules Republicans intend to target under CRA are those affecting energy companies. As McCarthy writes in his WSJ op-ed:
Perhaps no aspect of America’s economy has been as overregulated as energy. So the House will repeal the Interior Department’s Stream Protection Rule, which could destroy tens of thousands of mining jobs and put up to 64% of the country’s coal reserves off limits, according to the National Mining Association.
Likewise, the Obama administration moved at the 11th hour to limit the oil-and-gas industry through a new methane regulation. It could cost up to $1 billion by 2025, the American Petroleum Institute estimates, even though the industry is already subject to the Clean Air Act and has leveraged technological advances to dramatically reduce methane emissions. The additional regulation would force small and struggling operations— in the West in particular— to close up shop, which is why it will be one of the first to go.
Jerri-Lynn here: I particularly appreciate McCarthy’s insouciant citations of National Mining Association and American Petroleum Institute numbers as holy writ.
Resource Extraction Issuers Disclosure Rules Target ‘Resource Curse’
Also on McCarthy’s CRA list is are rules announced by the Securities and Exchange Commission (SEC) in June 2016 requiring resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas or minerals and due to come into effect in 2018. The rules — mandated by the 2010 Dodd-Frank legislation– are just one policy intended to address the resource curse that blights countries with ample natural resources (the US position requiring disclosure on this issue was lauded in a Wall Street Journal op-ed by then-UK Prime Minister David Cameron, who called on Europe to do the same). Government officials and the wealthy siphon off and mineral wealth in these countries, at the expense of the majority of a country’s citizens; in general, countries well-endowed with natural resources boast lower rates of economic growth compared to those that lack such advantages. The rationale behind these rules is that by requiring issuers to disclose the payments– i.e., bribes– they’ve had to pay to develop national resources, internal and external campaigners will have necessary information to pressure governments to cease their corrupt practices.
These disclosure rules have long been a bugbear of energy companies– which earlier sued successfully to overturn a 2012 predecessor version overturned, resulting in a 2013 federal district court decision sending the rules back to the SEC to start again.
As I’ve pointed out in this post, Mary Jo White Leaves Behind a Weakened SEC for Trump to Weaken Further, if former SEC chairperson Mary Jo White (and for that matter, her predecessor, Mary Schapiro), had more effectively headed the agency, necessary rulemakings under Dodd-Frank would have been completed more quickly— and not often missed the timetables set forth in the legislation. With a bit more diligence on the part of the SEC, the resource extraction issuers rules would not now be subject to the CRA. I don’t buy the excuse that it was a hostile lawsuit that was at exclusively fault here. That lawsuit was concluded in July 2013 when the original extractive industries rule was kicked back to the agency. Regulators then dragged their feet and in fact, it took a lawsuit– by Oxfam America– and a judge’s order– to get the SEC to promulgate new rules in June 2016 on what was unironically called an “expedited schedule”. Surely the SEC didn’t need nearly four years– from July 2013 to June 2016– to redraft the rule? (I should point out so as not to confuse careful readers that although the June 2016 date for enactment of the latest rules– might not appear to fall within the CRA’s 60 day window, it indeed does– the statute keys off of legislative days rather than calendar days.)
Alternative Facts, Resource Extraction, and Competitiveness of US Companies
At this point, I’d like to point out that Kellyanne Conway is not the only one to rely occasionally on alternative facts in framing arguments. To this end, indulge me please while I quote again from McCarthy’s WSJ op-ed:
The House will also take the ax to the Securities and Exchange Commission’s disclosure rule for resource extraction, which adds an unreasonable compliance burden on American energy companies that isn’t applied to their foreign competitors. This rule, which closely mimics a regulation already struck down by the courts, would put American businesses at a competitive disadvantage.
Unfortunately, his blithe assertion about said competitive disadvantage isn’t supported by facts. In fact, as the National Resource Governance Institute said in a June press release issued at the time the SEC announced the revised rules:
Similar rules requiring public, project-level payment disclosure have been passed in the European Union (including the U.K., home to many extractive companies), Norway and Canada since the Dodd-Frank Act was made law, but the U.S. had lagged behind due to legal challenges and a failure to implement the pioneering law. Many U.S.-listed companies such as Royal Dutch Shell, BP, Statoil and Total have already reported under European laws, but the SEC’s new rule will extend these requirements to a further 425 companies such as ExxonMobil and Chevron which have vigorously opposed disclosure, as well as some major state-owned companies such as Brazil’s corruption-plagued Petrobras and China’s CNOOC.
Jay Clayton’s Confirmation Hearings
I hope Trump’s nominee for SEC chair, Jay Clayton, is asked some questions during his confirmation hearings on his views on the resource extraction issuers disclosure rules– such as whether he agrees with Congress using the CRA to overturn them (if that has indeed been undertaken by the time of his hearings), and in what form (if any) they should be replaced. As I’ve discussed in this post, Trump Selects Jay Clayton, S & C Partner, to Head SEC, Clayton in 2011 co-authored an article on the Foreign Corrupt Practices Act (FCPA) entitled, “The FCPA and its Impact on International Business Transactions – Should Anything be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?”, which resulted from deliberations by a drafting committee comprised of members of the Committee on International Business Transactions of the New York City Bar Association that Clayton chaired.
Clayton’s article concluded:
While accepting and fully embracing the ultimate policy goal of the FCPA—the prevention of corruption worldwide—the purpose of this article is to call for an assessment of (1) the ability of the United States to achieve that goal unilaterally and (2) the direct and indirect costs of continuing such an effort. This paper has identified several factors, including the incentives of the various participants and the decrease in the relative importance of the U.S.-regulated companies in the international marketplace, that strongly and clearly suggest that the United States cannot continue to do it alone. The costs of pursuing such an approach are substantial and, in certain cases, irreversible and, consequently, a realignment of the U.S. position in the global anti-bribery enforcement regime is necessary (p. 26).
So, if Congress does indeed apply CRA and overturn the SEC’s ill-fated resource extraction issuers disclosure rules, less information will be available about energy and other companies in extractive industries subject to the SEC’s disclosure regime compared to those companies that must follow regulations set by the EU, Canada, or the UK. What does Clayton think about that?