ALLEN & OVERY
Our Ref: ICM:617048.3
16th August, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Dear Mr Katz,
File No. S7-21-02; Section 302 of the Sarbanes-Oxley Act of 2002
Allen & Overy is writing in response to the proposed rules set forth in Releases No. 34-46300 and 34-46079 for the certification by principal executive officers and principal financial officers of certain disclosure (the "Proposals"). We support the principles underlying the Proposals and are grateful for the opportunity to comment on them in relation to special considerations in their application to foreign private issuers.
We recognize that Commission's rules have historically deferred in certain circumstances to the home-country practices of non-U.S. issuers. We believe this deference, as sustained inter alia in connection with Release Nos. 33-7745, 34-41936 and International Release No. 1205 (the "International Disclosure Standards") and Release Nos. 33-7759, 34-42054, 39-2378 and International Release No. 1208 (the "Cross-Border Rules and the Takeover Rules"), is in keeping with the principles promulgated by the International Organization of Securities Commissions, which aim to facilitate the cross-border flow of securities and capital by reducing the regulatory burden on foreign issuers while continuing to protect investors. In our experience, this deference has encouraged foreign companies to register securities in the United States and list such securities on U.S. national securities exchanges. We believe that persuasive reasons exist for applying similar deference to the implementation of certain provisions of the Sarbanes-Oxley Act of 2002, particularly with regard to those for which comments have been solicited in File No. S7-21-02.
A. Application of Section 302 Certification Requirements to Foreign Private Issuers
As discussed in Release No. 34-46300, we understand that Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act") applies to foreign private issuers, as well as domestic issuers, that are subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Release No. 34-46300 states the Commission's explicit intention to apply the certification requirement mandated by Section 302 of the Act ("Section 302") to the annual reports of foreign private issuers on Forms 20-F or 40-F under the Exchange Act. We believe that this implies that Section 302 certification should not apply to the 6-K filings of foreign private issuers, including those 6-K filings containing quarterly or other interim financial results. We strongly support this interpretation, as discussed below, and would request that this be made explicit in the final rules.
The rule-making mandate of Section 302 refers to annual or quarterly reports "filed or submitted" by each company filing periodic reports under Section 13(a) or 15(d) of the Exchange Act. We believe that, because reports on Form 6-K under the Exchange Act are "furnished" (rather than "filed or submitted"), the plain meaning of Section 302's certification requirement is not applicable to a foreign private issuer's interim reports "furnished" on Form 6-K.
In addition to the plain-meaning rationale for excluding reports on Form 6-K from Section 302's certification requirements, there are practical and policy reasons for such an interpretation. Interim financial information furnished in reports on Form 6-K by foreign private issuers is, in our experience, regularly prepared under the registrant's local generally accepted accounting principles ("GAAP") and frequently not reconciled to U.S. GAAP. The certification required under Section 302, however, does not distinguish between financial information prepared in accordance with U.S. GAAP and that prepared under other local GAAP. We believe that, if the same certification standard applicable to financial information prepared under U.S. GAAP applies to financial information prepared under other local GAAP, foreign private issuers may as a practical matter be exposed to a greater liability risk exposure than their U.S. counterparts. A foreign private issuer might, for instance, be deemed to have made a material misstatement or omission in an interim financial report prepared under local GAAP if that report is not reconciled to U.S. GAAP so as to be comparable with the U.S. GAAP reconciled year-end financial statements contained in the issuer's annual report on Form 20-F or Form 40-F.
B. Application of Section 906 to Foreign Private Issuers
Although we understand that comments for File No. S7-21-02 have been specifically requested with regard to certification of disclosure in quarterly and annual reports under Section 302 of the Act, we should like to take this opportunity to comment that we also believe that, for the reasons discussed above, certification under Section 906 of the Act should not apply to interim financial information furnished by foreign private issuers on Form 6-K.
C. Application of Other Provisions of the Act to Foreign Private Issuers
We are aware that you will be considering other provisions of the Act in the coming weeks, and we believe that certain of these provisions also call for special consideration with respect to their application to foreign private issuers. In particular, we believe that Section 402 of the Act should allow some deference to home country practices in relation to foreign private issuers. We would be very pleased for the opportunity to comment specifically on this provision and others of the Act in the future.
Thank you for allowing us the opportunity to comment on the Proposals. Should you wish to discuss any of these matters further, please contact Bart Capeci of this firm in our London office at 011 44 171 330 2401.
Allen & Overy