An interesting development in recent United States ("US") financial reform legislation is a disclosure obligation contained in a miscellaneous provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act which was signed into law by President Obama on Wednesday, July 21, 2010. The Act was approved by the US House of Representatives on June 30, 2010 and by the Senate on July 15, 2010. According to section 1504 of the Act, titled "Disclosure of Payments by Resource Extraction Issuers",
"Not later than 270 days after the date of enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Commission1 shall issue final rules that require each resource extraction issuer to include in an annual report of the resource extraction issuer information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals,2 including—
- the type and total amount of such payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals; and
- the type and total amount of such payments made to each government."
The term 'resource extraction issuer' is defined as an issuer of securities that is
- required to file an annual report with the SEC; and
- engages in the commercial development of oil, natural gas, or minerals.3
As this provision also relates to payments made to foreign governments by a subsidiary or entity under the control of the issuer, the implication for Nigeria is that all major payments made by IOCs whose parent companies are regarded as "issuers" or who are controlled by "issuers" to the Nigerian government or its agencies to further the commercial development of oil, natural gas, or minerals would, after the issuance of the proposed final rules, be required to be included in the annual report of such companies to be filed with SEC.
This provision supports the Extractive Industries Transparency Initiative (EITI) which aims to strengthen governance by improving transparency and accountability in the extractives sector.4 In 2007, Nigeria enacted the Nigerian Extractive Industry Transparency Initiative (NEITI) Act 2007 as a subset of the global EITI aimed at following due process and achieving transparency in payments by Extractive Industry companies to governments and government linked entities and in the revenues received and reported by those governments and entities.5
In line with the objective of NEITI and the global EITI, the government through its oil and gas industry institutions and the NNPC is bound by the principles of the NEITI Act, 2007. Of particular relevance is one of the functions of the NEITI Act6 i.e., to "disseminate by way of publication of records, report or otherwise any information concerning the revenue received by the Federal Government from all extractive industry companies, as it may consider necessary".
The Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173) thus provides another avenue for monitoring transparency (at least in the area of payments made by subsidiaries of US issuers to government and its agencies) in the Nigerian oil and gas industry.
Footnotes
1. The US Securities and Exchange Commission ("SEC").
2. The term 'commercial development of oil, natural gas, or minerals' include 'exploration, extraction, processing, export, and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity.
3. This automatically includes most of the major IOCs.
4. See the EITI website at http://eiti.org/eiti
5. See the NEITI Handbook on Transparency and Reform in the Oil, Gas and Solid Minerals Sector.
6. See Section 3(h).
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