Judge raises free speech question about SEC rule
WASHINGTON — A federal appeals court judge asked Friday how a new federal rule requiring publicly traded companies to disclose payments of $100,000 or more to foreign governments squares with the First Amendment’s free speech protection.
The Securities and Exchange Commission rule applies to payments for commercial development of oil, gas or minerals. Business groups including the American Petroleum Institute are challenging the rule on several grounds — including their argument that it amounts to compelled speech in violation of the First Amendment. The rule, which stems from the Dodd-Frank 2010 financial overhaul law, is aimed at providing greater transparency in foreign projects.
At a hearing Friday, Judge David Sentelle asked several pointed questions of SEC lawyer William Shirey, who argued that factual information is not subject to First Amendment protections.
“This is speech,” responded Sentelle, an appointee of Republican President Ronald Reagan.
Shirey said that even if it is, the government had a foreign policy objective in passing the rule: providing transparency in resource-rich countries. The SEC and several members of Congress said in court papers that the rule was designed to counter the “resource curse,” which they described as oil, gas and mineral deposits that lead to corruption, wasteful spending, military adventurism and instability in poor countries.
Shirey said that U.S. foreign policy is furthered by democratic governments that don’t breed terrorism.
But Sentelle wasn’t buying it.
“How does it advance the war on terrorism?” he asked, later wondering how a dictatorship would be more likely to breed terrorists.
Meanwhile, Judge David Tatel, an appointee of Democratic President Bill Clinton, suggested the lawyer take a different tack. He said that the SEC’s “strongest defense” was providing information to investors.
“Congress believed this was important to investors,” Shirey said. He added that disclosure to investors isn’t subjected to heightened First Amendment review.
Eugene Scalia, a lawyer representing the business groups, argued that the rule does violate the First Amendment. He said it “commandeers” speech “to force regime change.”
Scalia said the rule would cost shareholders $14 billion, and criticized the SEC for not allowing some exemptions. The business groups had argued for an exemption for disclosures that are prohibited by foreign governments or contracts.
Tatel responded that the SEC didn’t accept the business groups’ position that some foreign governments won’t allow the disclosures.