A resolution to void section 1504 of the 2010 Dodd-Frank Wall Street Reform Act, set up in response to the 2008 financial crisis, was narrowly passed last week after a senate vote of 52 to 48.The House of Representatives had also voted earlier to void the legislation.
Section 1504, which came into force only last year after hitting a series of hurdles, required companies in the extractive industries to report any payments they made to the US or foreign governments to the former’s enforcement agency, the Securities & Exchange Commission.
Its supporters argued that this helped deter corruption, for example by preventing bribes from being disguised as legitimate payments, and forced companies’ tax and other financial affairs out into the open, which made them more likely to comply with the rules.
However, since its inception, others have argued that section 1504 represented a regulatory overreach that was burdensome and expensive and put US companies at a disadvantage.
The provision was finalised last June because of disagreements between oil, gas and mining companies on the one side and NGOs and other civil society organisations on the other. Both were putting pressure on the SEC over the rule.
This delay made section 1504 vulnerable. The resolution to void the rule used a 1996 act allowing congress to nullify any recently finalised federal regulation by a simple majority, as long as it is also approved by the president.
President Donald Trump will have to sign off on the vote, but is widely expected to do so.
Trump has the entire the Dodd-Frank act in his sights, stating that it was a “disaster”.
An executive order stipulating that Dodd-Frank be reviewed is widely anticipated in the coming days. “We’re going to be doing a big number on Dodd-Frank,” Trump said last week.
While Dodd-Frank as a whole established more stringent controls on financial institutions and stronger protections for consumers, campaigners said section 1504 also helped tackle corruption in poorer countries.
Many developing country economies and governments rely on extractive industries. These are prone to corruption, which limits the benefits to a nation’s citizens, and are also plagued by problems like tax evasion.
It is estimated the developing world loses a collective $1trn per year to such problems.
Section 1504 enabled citizens and civil society to track whether companies were paying their taxes, paying their workforces properly or paying bribes, said Eric LeCompte, of the Jubilee USA Network, which advocates for a fairer financial system to benefit the world’s poorest.
It had become a “critical revenue building measure” he told PFI. He added that, while it was still in the early stages of existence, its potential benefits were clear from the success of similar legislation such as the Foreign Corrupt Practices Act.
LeCompte, who has long been an advocate of section 1504, said he was “shaken” about the speed and suddenness with which it was quashed, as well as the fact that a number of Republicans who had always been strong supporters of the provision and worked towards its implementation chose to vote against it.
“We don’t know what changed their opinion because they express a lot of sympathy to us on these issues,” he said, adding that it was also “unusual” for the vote to be split so clearly on party lines given the issue usually gathered bipartisan support.
A new provision to replace section 1504 could be developed, but this could take years and would, under US law, have to be substantially different.
This could mean any replacement might be significantly weaker, LeCompte explained, noting he was particularly “worried” about what will happen in the meantime, when no enforcement measures to ensure companies report would be in place.