August 19, 2002
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
File No. S7-21-02 - Certification of Disclosure in companies' quarterly and annual reports - Comments by the Federation of Swiss Industrial Holding Companies
Dear Mr. Katz
The Federation of Swiss Industrial Holding Companies (Vereinigung Schweizerischer Industrie-Holdinggesellschaften) is a business federation representing the interests of the largest Swiss multinational companies from the manufacturing and service sectors. The member companies of our federation are leading suppliers of goods, technology and services. They account for approx. 50 per cent of the total capitalization of the Swiss stock market.
Among our members an important number of companies are "foreign private issuers" under Commission rules, and as a result of the listing of their securities on the New York Stock Exchange are required to file Form 20-F and other reports with the Commission. They are thus affected by certain provisions of the Sarbanes-Oxley Act of 2002 signed into law on July 30, 2002.
Given this situation we welcome and highly appreciate the opportunity to submit our requests and comments regarding the implementation rules to be adopted by the Commission pursuant to Sec. 302 of the Sarbanes-Oxley Act and trust that the Commission will give due consideration to our submissions.
We request that the Commission, in implementing Sec. 302 of the Sarbanes-Oxley Act and in exercising its rulemaking discretion, exempt foreign private issuers from the certification requirements and revise its Sec. 302 Release accordingly.
In its previous Release No. 34-46079 the Commission has rightfully pointed out that, for the following reasons, certification requirements should not be extended to foreign private issuers:
In the context of implementing Sec. 302 of the Sarbanes-Oxley Act these reasons for not imposing certification requirements on foreign private issuers remain valid in the same way. Indeed, under Swiss law numerous provisions prohibit company executives from making false or misleading statements in financial reports, rendering them liable not only under civil law but also under criminal law1, if they disregard the respective provisions. We assume on the other hand that not complying with the implementation rules to Sec. 302 will equally be sanctioned and furthermore note, that there is still a great deal of uncertainty as to whether and how far Sec. 906 and its sanctions will also apply in cases that fall under Sec. 302 of the Sarbanes-Oxley Act. In effect this may lead to the situation that executives of Swiss foreign private issuers, if falling under the provisions of the Sarbanes-Oxley Act, could for their same behavior be held liable under Swiss law, as well as under U.S. law. This seems highly unjustified and moreover violates the internationally accepted principle "ne bis in idem" i.e. that no one should be prosecuted twice with respect to the same offence. Singling out certain executives with respect to specific liabilities is moreover contrary to law and practice in Switzerland. Liable are those persons who are factually responsible irrespective of their position in the management or board of the company. Imposing certification requirements and respective liabilities on foreign private issuers might also conflict with further provisions in their home jurisdiction such as discharge provisions etc.
This shows that the stance taken by Release No. 34-46079 should be maintained, i.e. at least as long as no in depth discussion with respect to the consequences of an extension of the scope of application has taken place, the scope of the certification requirements should not be extended to foreign private issuers. The statement made by Senator Enzi during the Senate conference debate to approve the final version of the bill clearly supports this stance:
"In addition, I believe we need to be clear with respect to the area of foreign issuers and their coverage under the bill's broad definitions. While foreign issuers can be listed and traded in the U.S. if they agree to conform to [generally accepted accounting principles in the United States] and New York Stock Exchange rules, the [Commission] historically has permitted the home country of the issuer to implement corporate governance standards. Foreign issuers are not part of the current problems being seen in the U.S. capital markets, and I do not believe it was the intent of the conferees to export U.S. standards, disregarding the sovereignty of other countries as well as their regulators."
Construing Sec. 302 of the Sarbanes-Oxley Act strongly indicates that in fact the provision was never meant to be applicable to foreign private issuers. Sec 302(a) of the Act specifies that the certification requirement is to apply to "each company filing periodic reports under section 13(c) or 15(d) of the Securities Exchange Act". As such, the provision appears prima facie to cover foreign private issuers which file such reports. However, Sec. 302(a) should be read in the light of Section 302(b) and the legislative history underlying the Act. Sec. 302(b) deals with the concern that U.S. companies will reincorporate outside the United States in order to evade the certification requirements. On its face, it assumes that reincorporating outside the United States would in fact relieve the company of some or all of the requirements of Section 302(a). Were Section 302(a) read to apply identically to domestic and foreign private issuers, there would have been no reason for Congress to include Section 302(b) to prevent domestic issuers from circumventing the rules.
The Commission has traditionally refrained from imposing undue burdens on foreign private issuers, duplicating or being inconsistent with requirements already imposed by their respective home jurisdictions. This emerges e.g. from the following examples:
We urge the Commission to adhere to this policy and are positive, that in the given situation, where there are strong indications (based on the wording of relevant provisions of the Act and on statements made in the Senate) that Congress did not intend to cover foreign private issuers by Sec. 302, the Commission has the necessary discretionary power to do so. Foreign private issuers that listed their securities on a U.S. Stock Exchange in the past never expected (and neither had to expect) that all of a sudden their executives would become subject to provisions in the field of certification of financial reports, conflicting with the provisions in their home jurisdiction.
Foreign private issuers have in the past been required to include in their U.S. disclosure documents descriptions regarding their internal governance procedures and the legal regimes under which they operate and explanations to what extent the procedures and regimes differ from those that apply to U.S. issuers. Such additional disclosure has provided U.S. investors with the information they needed to make an informed decision about investing in the securities of foreign issuers, while at the same time assuring U.S. investors that the laws of the home jurisdiction of the foreign private issuer provide for adequate control in view of securing their interests. We consider that this approach could equally be pursued with respect to the issue at stake.
The question whether foreign private issuers are covered by the Sarbanes-Oxley Act, might arise with respect to further provisions of the Act. For the same reasons as stated above, we urge the Commission to exempt foreign private issuers in all those cases, where the respective decision is in its competence.
Thanking you again for the opportunity to participate in the consultation procedure, we remain
I N D U S T R I E - H O L D I N G
Dr. Arnold Knechtle, Director
Christian Stiefel, Legal Counsel
|1|| See e.g. Article 152 of the Swiss Penal Code:
False Statements relating to businesses