You’ve heard the term “throwing the baby out with the bathwater”?

In essence, that’s what the U.S. Securities and Exchange Commission (SEC) did by issuing regulations designed to foster transparency about legal payments U.S.-listed companies make to foreign governments in the course of doing business.

The idea of promoting transparency is a good one – it’s why we’ve partnered with governments (including the Obama administration), NGOs and other corporations to support the Extractive Industries Transparency Initiative (EITI). But while EITI has offered a constructive framework for encouraging transparency, the method proposed by the SEC to implement Section 1504 of the Dodd-Frank Act goes in the wrong direction.

For one thing, the SEC rules actually threaten the competitiveness of U.S. companies. Worse, there’s reason to think these rules will end up harming transparency rather than helping it.

I explained in detail how come when the SEC acted two months ago. Those arguments are at the heart of a legal challenge to the rules filed recently by the American Petroleum Institute (API), the National Foreign Trade Council,  the Independent Petroleum Association of America, and the U.S. Chamber of Commerce on behalf of American companies (like ExxonMobil) that do large amounts of business around the world in the petroleum and mining industries.

A few points bear repeating.

For one thing, the rules will only apply to companies listed on U.S. exchanges. Unlisted foreign-owned competitors – many of which are much bigger than the so-called “Big Oil” companies (see the nearby chart from API) – will not be bound by these requirements.

Make no mistake, these requirements will place an extra financial burden on U.S.-listed companies that won’t be borne by non-listed foreign competitors. The regulations will force ExxonMobil and a handful of similar U.S. firms to track, gather, validate and report every single government payment from every project they operate worldwide at every level of government in every country.

This type of business reporting has no national or international precedent. For companies like ExxonMobil this could involve hundreds of thousands of data points each year – revealing to our competitors the inner workings of our business and contracts – and for no evident purpose.

As the suit notes, the SEC itself estimates its rules will cost industry $1 billion upfront to set up the necessary accounting systems and hundreds of millions of dollars a year in compliance costs.

And that doesn’t even account for what the SEC also acknowledges as billions of dollars of additional costs for the lost business that will result from the regulations’ perverse directives to divulge proprietary data and to either break the law or cancel projects in countries prohibiting such detailed disclosure.

The SEC has long prided itself on working to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

Sadly, however, its Dodd-Frank rules will do none of those things and instead will harm U.S. companies and their investors. Those who have an interest in seeing the United States maintain its international competitiveness should hope the court sends the SEC back to the drawing board.