Dodd-Frank’s Cardin-Lugar Amendment Undermined by Weak SEC

Two years after becoming law, Section 1504 of the Dodd-Frank bill, also known as the Cardin-Lugar Amendment, will finally come into effect. The Amendment, hailed as a transformative step towards establishing transparency in developing countries by groups such as the State Department, Oxfam and Jubilee USA, requires that companies listed on the American stock exchange involved in extractive industries “disclose payments they make at the country and project level to the United States and foreign governments.” Over 1,000 companies involved in oil, gas, and mining will be covered under this bill, including an estimated 90% of internationally operating oil companies. Senator Ben Cardin (R-MD), for whom the Amendment is partially named, has billed it as a necessary step to end the abuse of power rampant in developing countries with significant oil, mineral, and natural gas deposits. Cardin has stated that the implementation of the Amendment will allow the European Union to adopt complementary measures.

Given the positive response the Amendment received within the governmental and non-profit spheres and the gravity of the situation in many resource-rich developing countries, one wonders why the Securities and Exchange Commission issued the final rules for the implementation of the Cardin-Lugar Amendment 16 months behind schedule. Even more distressing is the fact that Oxfam felt compelled to file suit against the SEC after the Commission missed its original April 2011 deadlines for issuing rules. Unfortunately, the agency that is entrusted with the responsibility of reviewing the companies’ reports and investigating any discrepancies is the very agency that has delayed the implementation of the Cardin-Lugar Amendment.

This failure raises the question of whether or not the SEC is capable of overseeing such crucial legislation. Questions about the agency’s competency have been rampant since the Bernie Madoff scandal was brought to light. Though Congress and the Project on Government Oversight have called for the SEC to implement reforms to reduce errors and outright corruption in the agency, there has yet to be significant, systematic reform in the agency. The Project on Government Oversight reported that two years after the Senate released a statement calling for reforms, the SEC had made no progress on 27 of the 52 reforms recommended by the Inspector General. It has become ever more obvious that the SEC is unable to fulfill its role as an adversarial regulator; unfortunately, this incompetency means that the importance of the Cardin-Lugar Amendment has been squandered on an agency that cannot fulfill its mandate.

While the Cardin-Lugar Amendment has the potential to reduce corruption in both resource-rich countries and powerful international corporations, without an enthusiastic and competent regulatory body enforcing its tenets it will represent nothing more than the formalization of good intentions.

Hilary Matfess is an Institute for Policy Studies intern and a Johns Hopkins University student.