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U.S. appeals court won't rule on energy, mining companies' foreign payments

By Sarah N. Lynch

WASHINGTON (Reuters) - A U.S. appeals court on Friday declined to rule on a legal challenge filed by business groups against a Securities and Exchange Commission rule that would force energy and mining companies to disclose payments to foreign governments.

The unanimous decision by the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit now means a lower court will hear the lawsuit instead.

"We dismiss the petition for review for lack of jurisdiction," Judge David Tatel wrote in the opinion for the court.

With the legal challenge now moving to a lower court, the resolution of the case could be drawn out further, creating uncertainty for companies that are supposed to begin complying with the rules by early next year.

The American Petroleum Institute, the U.S. Chamber of Commerce and two other groups are suing the SEC over a rule known as "resource extraction," one of three sets of mining-related disclosure rules in the 2010 Dodd-Frank finance reform law.

The resource extraction rule is championed by human rights organizations like Oxfam America, the U.S. State Department, and a bipartisan group of U.S. lawmakers who have said it could be an important step toward curbing corruption.

The business groups call the rule one of the most burdensome rules in the SEC's history, saying it will impose more than $14 billion in costs on U.S. companies while providing no real benefits to investors.

One of the groups' central arguments is that the SEC failed to weigh the costs and benefits of the rule and its effect on capital formation, competition and efficiency.

In addition, the groups also say the rule violates companies' First Amendment free speech rights because the disclosures would force them to engage in speech they do not want to make and to violate their "contractual and legal commitments."

Oxfam had challenged the appeals court's authority to hear the case on technical grounds.

Ian Gary, senior policy manager of Oxfam America's oil, gas and mining program, called Friday's decision "a huge victory."

He called on oil companies such as Exxon Mobil Corp, Chevron Corp, BP Plc and Royal Dutch Shell Plc to "disassociate themselves from this groundless lawsuit" and expressed confidence that the lower court would uphold the resource extraction rule.

But API spokesman Brian Straessle said his organization planned to keep up its challenge and that the resource extraction rule constituted a "clear violation" of numerous laws.

"The court's decision today is not a ruling in any way on the merits of API's challenge to the rule," he said.

"The court simply concluded that it does not have jurisdiction to decide the case at this time. We will continue to explore every avenue as our challenge moves forward in the District Court for the District of Columbia."

Both the SEC and the business groups, which are represented by Gibson Dunn lawyer Eugene Scalia, disagreed with Oxfam's position and urged the court during oral arguments last month to proceed with hearing the case.

However, the groups had previously filed the lawsuit in the lower court as well as the appellate court.

That means that the appeals will not need to transfer the case, Tatel wrote. In addition, he added, the appeals court's dismissal of the case "is without prejudice to petitioners' suit in the district court."

SEC spokesman John Nester said the agency was still reviewing the court's procedural ruling, but that it stands ready to present its case in district court.

"SEC staff continue to believe that our legal interpretation and economic analysis are sound and that this congressionally-mandated rule will be affirmed," he said.

Meanwhile, companies will still be preparing to gear up for compliance with the rules while the business groups and the SEC continue to battle it out in court.

Jason Flemmons, a former deputy chief accountant in the SEC's enforcement division who is now with FTI Consulting, warned clients earlier this month in a newsletter that implementation of the rule might not be easy.

"The new disclosure mandates contain several reporting layers that will result in most companies having to implement major changes in how they record, track and compile disbursement activity that falls within the scope of this rule," he wrote in the article.

(Reporting by Sarah N. Lynch and Emily Stephenson; Editing by Lisa Von Ahn and Carol Bishopric)

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