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Resource curse puts miners, oil companies in crosshairs

Canadian energy and mining companies listed in the United States will be forced to disclose all payments made to foreign governments under new anti-corruption rules being developed by the Securities and Exchange Commission, measures facing stiff resistance by global players.

Oil companies, including international giants such as Exxon Mobil Corp. and Chevron Corp. , warn that strict disclosure rules will put all U.S.-listed companies at competitive disadvantage against international rivals, since many oil-rich developing countries are not likely to support the transparency measures.

Large Canadian oil companies such as Nexen Inc. and Talisman Energy Inc. , and big miners like Barrick Gold Corp. and Iamgold Corp. are listed on Toronto and New York exchanges, and do business in developing countries around the world. Their U.S. listings mean they'll need to comply with the new SEC regulations.

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Western energy and mining companies are under increasing pressure to ensure their projects in developing countries do not become cesspools of corruption and bribery - the so-called resource curse. But those companies are also facing new competition from aggressive state-owned corporations, many of which do not have the same pressure for reporting overseas activity.

The Ontario Securities Commission, which regulates companies listed on the Toronto exchange, said it is monitoring the SEC rule-making.

The commission is expected to adopt final rules by mid-April to conform to the Dodd-Frank Act, a major financial reform bill passed by Congress following the market meltdown. It recently extended the comment period until March 2 to give all parties time to respond.

The oil industry, in particular, is raising alarms.

In a submission to the U.S. regulator, the American Petroleum Institute (API) - which represents the industry in Washington - said the overly strict rules could result in U.S.-listed companies being shut out of promising new oil plays while failing to achieve any reduction of corruption or bribery.

"If the rules … require public disclosure of unnecessarily detailed information, such disclosure will provide competitors not covered … with sensitive commercial information and place U.S. filers at a competitive disadvantage," the API said in its submission.

"Unless implemented properly, [the new regulations]could also undermine many years of progress on international transparency. No state will support disclosure of information that could harm the state's vital national interest, especially if the harmful disclosure can be avoided by choosing to do business with a firm not subject to the requirements."

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In addition to the API, Exxon, Chevron, Royal Dutch Shell PLC, and BP PLC have registered their concerns over the proposed regulations. They are urging the SEC to set disclosure requirements on overall payments to governments - rather than a project-by-project basis - and to grant exemptions where host governments prohibit the publication of such information.

Canadian companies are closely watching the debate unfold in Washington. While some companies will be directly affected, domestically listed companies can expect the federal and provincial governments to respond to the U.S. effort to toughen anti-corruption rules.

Canada's mining companies already face tougher disclosure rules than many of their international competitors, Gordon Peeling, chief executive officer of the Mining Association of Canada, said in an interview.

While the association welcomed the intent of the U.S. act, Mr. Peeling said companies worry about onerous compliance costs and competitive disadvantage. And they would prefer the rule-making be harmonized among major trading partners to reduce the potential for problems.

Transparency proponents warn against corporate efforts to water down the proposed SEC rules and render them ineffective.

The law represents the first mandatory disclosure obligations "with the potential for making a fundamental change in how oil, natural gas and mining payments to governments are reported to the public," Senator Carl Levin of Michigan, a key supporter of the Dodd-Frank Act, said in a submission.

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"It is opposed by some companies and foreign officials determined to weaken or undermine the law," he said.

The stakes are huge. The U.S. already has a Foreign Corrupt Practices Act, and has meted out several fines of hundreds of millions of dollars against international companies that were found to have bribed foreign officials.

Most international resources companies now participate in the Extractive Industries Transparency Initiative, a voluntary disclosure that has major loopholes for companies operating in jurisdictions that don't want sensitive information made public.

However, mandatory "publish-what-you-pay" laws would bring added transparency to the murky world of corporate investment in corruption-prone countries, said James Klotz, Toronto-based partner with Miller Thomson LLP and president of Transparency International Canada, an advocacy group for greater corporate accountability.

Mr. Klotz said there is considerable interest in the SEC rule-making in Canada.

"Would we want them to go down that path? We certainly want a lot more out of our securities regulator," he said. "We don't have a lot of the controls against corruption that the U.S. has."

While Canada does have foreign corruption laws, it has not empowered securities exchanges to enforce them, as the U.S. has, but instead relies on the RCMP. The federal police recently confirmed it is pursuing 23 separate investigations under the federal Corruption of Foreign Public Officials Act.

Despite the slow pace, progress against corruption is being made, Mr. Klotz said.

"We are miles from where we were a few years back in the global fight against corruption," he said. "Companies are recognizing finally that this is a worthwhile endeavor and this is the way the world is going - at least the Western world."

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