18 December, 2002
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Attn: Jonathan G. Katz, Secretary of the Commission
Re: Release no. S7-45-02, File No. 33-8150.wp
Dear Mr. Katz:
This letter is addressed to you on behalf of Royal Dutch Petroleum Company, which is a Dutch company with its home listing in The Netherlands and also listed on the New York Stock Exchange.
We are writing to express some of our concerns about the proposed rule: Implementation of Standards of Professional Conduct for Attorneys, 17 CFR Part 205 (the 'Proposed Rule'). We have reviewed and support the comment letter on the Proposed Rule submitted to you by 77 law firms on December 18, 2002.
The Proposed Rule goes far beyond the wording of Section 307 of the Sarbanes-Oxley Act (the "Act"). The wording of Section 307 of the Act already creates considerable problems and dilemmas for foreign in-house lawyers in particular. We are of the view that the Securities & Exchange Commission ("SEC") should not adopt a rule which goes beyond the wording of section 307 of the Act and that any rule adopted should take account of the difference in position between a US lawyer, US securities lawyers in particular, and a foreign lawyer.
Under the Proposed Rule "attorney" is very widely defined, and includes lawyers "in any jurisdiction, domestic or foreign." As explained in the following paragraphs, the inclusion of foreign attorneys will lead to major problems in practice, as foreign lawyers are in general not familiar with US securities laws. How can they comply with legal requirements they do not have (detailed) knowledge of? Put simply, foreign lawyers cannot be presumed to know the US securities laws.
The definition of "appearing and practicing before the commission" is too wide. Lawyers may be working and advising on matters without knowing that their work product will be used in any US submission or filing. Again in this context, the Proposed Rule should not presume that foreign lawyers are familiar with the exhibit requirements of the US securities laws. The rule should clarify that no lawyer other than the lawyer actually filing or submitting a document to the SEC is appearing and practicing before the commission unless such lawyer has first been explicitly advised that his work product or advise is used for that purpose. Section 205.2 (a) (4) (Preparing, or participating in the process of preparing, etc.) is too wide and too loose. It should be restricted to those who are directly involved and responsible for the overall statement and filing thereof or who can be regarded as the lead or supervising attorney therefore, and should exclude those whose involvement is remote.
The operative part of the Proposed Rule is that an attorney who becomes aware of evidence of a material violation by the issuer must start the up the ladder reporting. A problem in this respect is that foreign lawyers in particular may not recognize a breach of securities law. They may be unfamiliar with securities law and even less so with US securities law. They may, against the background of different national securities law or the involvement of more experienced foreign or US securities lawyers, work under the presumption that what is being prepared is no breach of US securities law. On that basis he "reasonably believes" seems a trigger that is too light, open for interpretation and uncertainty.
Finally, as a matter of principle, we would like to point out that the 'noisy withdrawal' obligation may have an adverse effect as it may discourage issuers from seeking legal advice. An issuer may hesitate to inform its (inside or outside) legal counsel of the details of the factual background of a question as it could trigger a 'noisy withdrawal' by its legal counsel. If for instance, it is uncertain whether a certain matter is material and should therefore be disclosed, an issuer should be able to have an open and fair discussion with its counsel advising on the US security aspects related thereto. In case the issuer is of the opinion that an item should not be disclosed as it is in its opinion not material but its legal counsel has a different opinion, the result could be that the item will be disclosed in any case. The practical effect of the rule could be that an issuer will be hesitant to discuss items or will discuss issues without disclosing all information, which would have a negative impact on the quality of the SEC filings. In view thereof we believe that the scope of the Act should not be extended to include the noisy withdrawal obligation. The reporting of a perceived violation to the audit committee or another committee of independent directors of the issuer should be sufficient.
In view of the above we request the SEC to align the scope of the final rule on the Implementation of Standards of Professional Conduct for Attorneys with the wording of the Act and, in any case, exclude the applicability thereof to foreign lawyers.
Royal Dutch Petroleum Company
Robbert van der Vlist