Cross posted from EG Justice.

Oral arguments in API v. SEC were held before the United States District Court for the District of Columbia on June 7, 2013. Each side had 45 minutes to speak before Judge Bates, who heavily questioned both API and the SEC about whether Section 1504 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires reports to be filed publicly, whether there are any previous examples or case law demonstrating the failure to define a term was found to be arbitrary and capricious, and whether compelled disclosure of payment information actually violates the First Amendment.

Lawyers for the American Petroleum Institute (API) again argued that both the statute and the final Rule issued by the Securities and Exchange Commission (SEC) violate the First Amendment by compelling political speech. However, Judge Bates noted the case at hand was not similar to previous First Amendment cases dealing with compelled disclosure, and he observed disclosures compelled by the Rule are different because they do not deal with an ideological message. Judge Bates then noted there are tons of examples (“oodles and oodles,” to quote him precisely) of compelled disclosure requirements the government has already put into place, and questioned whether this is really a situation where heightened scrutiny is required. API conceded this is a different situation; however, it maintained the required disclosures are still compelled content speech to draw companies into an international debate about government revenues and spending, which is political speech.

The recurring theme in API’s arguments involved protecting company secrecy. In API’s opinion, public disclosure will cause companies competitive harm by exposing contract terms. API provided the example that by complying with the disclosure requirements, country B will now know what deal a particular company has struck with company A, and demand the same terms or a similar discount, thus causing the company competitive harm. At one point, API asserted the disclosure of how much money the government receives from which project would be enough – there is no need to know the name of the company making the payment.

In response, lawyers for the SEC argued that if Congress wanted confidentiality for the disclosures, it would have explicitly stated so in Section 1504. Furthermore, the SEC reminded Judge Bates that transparency is one of the main purposes of the statute, so it does not follow common sense for Congress to impose confidential disclosure requirements in its effort to increase transparency. It also pointed out that historically, annual reports filed with the SEC have been publicly disclosed, and there is no evidence for the SEC to believe otherwise in this case.

Regarding API’s argument that the SEC wrongly refused to exercise its exemption power, the SEC responded by noting the goal of the statute is to make it harder for governments to hide the truth; to allow an exemption would move 180 degrees from this goal. Additionally, the SEC has the discretion to grant exemptions, so deciding not to exercise this discretion does not make it arbitrary and capricious.

Oxfam, an Intervenor in the case, was granted five minutes to address issues in the case. Oxfam took the opportunity to remind Judge Bates the European Union has, since API filed the case, taken the exact same position as the SEC with regard to allowing exemptions. This information is relevant to his analysis, as it is evidence of the “new international standard” for revenue transparency in the extractive industries Congress intended to create by enacting Section 1504.

At the end of the hearing, Judge Bates offered assurances he would try to reach his decision as quickly as possible. Possible outcomes include his ruling in favor of the SEC and upholding the final Rule, vacating the rule and remanding to the SEC to try again, or declaring both Section 1504 and the final Rule unconstitutional.