August 19, 2002

Jonathan G. Katz
Secretary
U. S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: Petition for Rulemaking Relating to the Sarbanes-Oxley Act of 2002

Dear Mr. Katz:

The Organization for International Investment ("OFII") is the leading business association in the United States representing the interests of U.S. subsidiaries of nearly 100 international companies (membership list attached). Many of these international companies are "foreign private issuers" under Commission rules and are required to file Form 20-F or Form 40-F and other reports with the Commission, often as a result of a listing of their securities on the New York Stock Exchange or another market. These companies are therefore subject to many of the provisions of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), which was signed into law on July 30, 2002.

Our members fully support the intent of the U.S. Congress and the Commission to enhance investor protection. In particular, Sarbanes-Oxley is an important legislative initiative aimed at increasing the accuracy and reliability of corporate disclosures made pursuant to the federal securities laws.

The purpose of this letter, however, is to petition the Commission to take prompt action to exempt foreign private issuers from certain provisions of Sarbanes-Oxley that became immediately effective and that may be inconsistent with the laws or practices of these issuers' home jurisdictions.

A secondary purpose of this letter is to request that the Commission, in implementing those provisions of Sarbanes-Oxley that contemplate rulemaking by the Commission, consider appropriate exemptions or accommodations for foreign private issuers.

I. Traditional Commission Accommodation of Foreign Private Issuers

The Commission has for many years, as a matter of policy, encouraged foreign private issuers to enter the U.S. capital and securities markets as "reporting companies" under the Securities and Exchange Act of 1934 (the "1934 Act"). The Commission has implemented this policy by providing foreign private issuers with a number of accommodations to foreign practices and polices where such accommodations would not be inconsistent with the protection of U.S. investors. These accommodations include:

- interim reporting on the basis of home country and stock exchange practice rather than mandated quarterly reports;

- exemption from the proxy rules and the insider reporting and short swing profit recovery provisions of Section 16;

- aggregate executive compensation disclosure rather than individual disclosure, if so permitted in an issuer's home country;

- use of home country accounting principles with a reconciliation to U.S. generally accepted accounting principles, with acceptance of certain International Accounting Standards; and

- acquiescence in New York Stock Exchange and National Association of Securities Dealers corporate governance standards that are tailored to the needs of foreign private issuers.

As of the end of 2001, more than 1300 foreign private issuers from 59 countries had become reporting companies in reliance on the Commission's accommodations.

II. Foreign Private Issuers and the Immediately Effective Provisions of Sarbanes-Oxley

The majority of the requirements of Sarbanes-Oxley become effective only after the adoption of rules by the Commission or by the newly-created Public Company Accounting Oversight Board. Certain of these rules must be adopted within 30 days from enactment, while others may be adopted over periods of up to one year.

However, certain provisions of Sarbanes-Oxley became effective immediately upon the President's signature of the law on July 30, 2002. These provisions include a prohibition on loans to directors and executive officers (§402) and a forfeiture by certain officers of compensation and securities-related profits in the event of certain restatements (§304).

OFII submits that these immediately-effective provisions represent an unfair, unnecessary and highly intrusive interference with the home country standards applicable to foreign private issuers.

Sarbanes-Oxley does not by its terms distinguish U.S. from foreign reporting companies. There appears little doubt, however, that Congress was primarily focusing on U.S. companies in the hearings and debate that resulted in the new law. For example, in remarks submitted on July 25, 2002 for inclusion in the Congressional Record, Senator Enzi stated that "[f]oreign issuers are not part of the current problems being seen in the U.S. capital markets." He went on to state his belief that it was not the intent of the conferees "to export U.S. standards disregarding the sovereignty of other countries as well as their regulators." He also stated his belief that the conferees intended to permit the Commission "wide latitude" in using its authority to deal with "technical matters such as the scope of the definitions and their applicability to foreign issuers."

Senator Enzi also referred to the Commission's historical deference to the home countries of foreign private issuers to prescribe corporate governance standards. Indeed, it is highly unlikely that more than 1300 foreign private issuers would have voluntarily submitted themselves to the 1934 Act's reporting requirements if they had believed that in so doing they would have subjected themselves to the intrusive requirements referred to above.

III. Prohibition on Personal Loans

The need for prompt exemptive action by the Commission is clearest in the case of the prohibition in Section 402 of Sarbanes-Oxley on loans to directors and executive officers.

Overnight, it has become unlawful for a foreign reporting company "directly or indirectly" to make any "extension of credit," to "arrange" for any extension of credit, or to "renew" an extension of credit, where the credit is in the form of a "personal loan," to any "director or executive officer," wherever in the world that person may be located.

Section 402 has a particularly intrusive and dramatic effect on foreign companies. Sarbanes-Oxley does not recognize, for example, the safeguards afforded by foreign regulatory schemes relating to such loans. Nor does it make provision for legal or contractual obligations of foreign private issuers to their directors or executive officers to extend, arrange, renew or modify loans.

Also, the technical terms of the prohibition are set forth in terms of U.S. legal concepts. For example, many U.S. lawyers are recommending to their U.S. clients that the prohibition on "arranging" be applied on the basis of the definition of that term for the Federal Reserve's Regulation T - a prohibition that applies to U.S. broker-dealers and many of the interpretations of which are decades old.

Moreover, the exceptions to the prohibition that were intended by Congress to mitigate the effect of the prohibition are again set forth in terms of U.S. legal concepts. Whether a loan qualifies as a "non-personal" loan or as "consumer credit" is defined in terms of the U.S. statutory scheme.

Finally, the exception for bank or margin loans is set forth in terms of U.S. issuers. An "insured depository institution" may make a loan to a director or executive officer in accordance with current U.S. restrictions on loans to "insiders," but a foreign bank may not make such a loan because its deposits are not FDIC-insured. A broker-dealer registered with the Commission may make a margin loan to an "employee," but routine margin loans extended by a foreign private issuer to a director or executive officer in accordance with home country practice would not qualify for the exception. Additionally, a loan to purchase the foreign company's stock may be exactly the type of loan that is customary in many countries.

Loans to directors and executive officers are already the subject of Commission disclosure requirements under Item 7B of Form 20-F. Moreover, while we cannot generalize as to all reporting foreign private issuers, such loans are frequently the subject of home country regulation. In Germany, for example, the Stock Corporation Law requires that extensions of credit to members of the board of managers be approved by the supervisory board as to amount, interest rate and repayment terms. This includes extensions of credit to family members and certain other related persons. Loans by financial services companies are subject to a separate statutory regulatory scheme.

We do not believe the Commission can provide any meaningful relief in this area short of a blanket exemption for foreign private issuers along the lines of the exemptions currently provided in Rule 3a12-3(b), i.e., by adding "§13(k)" to the references in that rule, and we hereby petition the Commission to provide such an exemption.

IV. Forfeitures of Compensation and Securities-Related Profits

Another immediately effective provision of Sarbanes-Oxley (§304) requires the chief executive and chief financial officers of a reporting company to reimburse the company for bonuses, incentives or equity-based compensation and for profits realized from the sale of securities in the event the company is "required" to prepare an "accounting restatement" due to material noncompliance, "as a result of misconduct," with any financial reporting requirement under the securities laws.

Section 304 has a particularly harsh and intrusive effect on foreign companies. Consider, for example, a restatement by a foreign private issuer as a result of its noncompliance with home country financial reporting requirements. Given that the Commission's financial reporting requirements for a foreign private issuer are defined in terms of the issuer's home country financial reporting requirements, Section 304 would create a private right by the issuer of action for reimbursement under U.S. law by the issuer against its chief executive and chief financial officers as a result of a violation of home country requirements.

Home country shareholders might seek to enforce the reimbursement obligation in home country courts, further compounding the intrusive effect of Section 304. U.S. stockholders might also seek to enforce the obligation in U.S. courts, perhaps by serving them while they are temporarily present in the United States.

Moreover, the officers of foreign private issuers may have contractual employment or compensation claims that a court in the issuer's home country would regard as superior to the claims of Section 304. This could result in the issuer's being required by the foreign court to make the officers whole for any amount a U.S. court might require them to pay, with the possibility of a further reimbursement claim by yet another stockholder.

As in the case of the prohibition on loans, we do not believe the Commission can provide any meaningful relief in this area short of a blanket exemption for foreign private issuers by adding "§304 of the Sarbanes-Oxley Act of 2002" to the references in Rule 3a12-3(b), and we hereby petition the Commission to provide such an exemption.

V. Commission Rulemaking

We recognize that the Commission is facing an unprecedented rulemaking burden as a result of Sarbanes-Oxley. By some measures, it must propose and adopt more than 24 sets of rules over the next several months, and another 20 if one takes into consideration the rules of the Public Company Accounting Oversight Board that the Commission is required to approve.

In formulating its rule proposals, we urge the Commission to consider making appropriate accommodation for foreign private issuers in the following areas:

- In its current rulemaking project under §302 of Sarbanes-Oxley, the Commission should consider exempting individual officers of foreign private issuers from the certification requirements. Such an exemption is particularly called for where, under home country law, the responsibility for the accuracy of disclosure documents is borne by a collective body rather than individuals.

- Moreover, the Commission should make clear that Form 6-K reports will not be subject to the §302 certification requirements. First, Form 6-K reports are not "quarterly" reports as specified in §302. More importantly, unlike Form 20-F reports, reports on Form 6-K represent disclosures made in accordance with home country rather than U.S. requirements.

- The "fair presentation" certification requirement under §302 should in any event not apply to the financial information included solely for the purpose of reconciling financial statements to U.S. generally accepted accounting principles.

- Foreign private issuers should not be required to adopt the corporate governance standards that apply to U.S. companies. Any such requirement would risk direct conflicts with foreign law (as in the case, for example, of accommodating audit committees within a two-tier board structure or dealing with a legal requirement that outside auditors be appointed by the stockholders). We believe investor protection would be adequately served by a requirement, such as that recently recommended by the New York Stock Exchange's committee on Corporate Accountability and Listing Standards, that companies disclose any differences in corporate governance standards.

- Accounting firms should be permitted to perform non-audit services for foreign private issuers as permitted in the home country.

- The Commission should consider other appropriate exemptions for foreign private issuers from the provisions of Section 10A that were added by Sarbanes-Oxley.

- Codes of ethics for senior financial officers, and related disclosures, should be required only if required in the home country.

- Internal control assessments, related officer certificates and related auditor attestations and reports, should be required only if required in the home country.

We intend to urge the Public Company Accounting Oversight Board (the "Board") to make similar accommodations for foreign private issuers in the rules that Sarbanes-Oxley requires it to adopt. We also intend to offer comments on rules proposed by the Commission as well as the Board.

VI. Addressing Foreign Concerns Regarding Sarbanes-Oxley

It has surely not escaped the Commission's attention that the application of Sarbanes-Oxley to foreign private issuers has become the subject of considerable concern outside the United States. We believe the Commission has the opportunity to demonstrate that much of this concern is unwarranted.

The Commission can do so by reaffirming its policy of providing accommodations for foreign private issuers where compliance with U.S. law would represent an unwarranted intrusion onto home country laws or practices and would not be necessary for the protection of investors. We believe the areas specified above relating to loans and forfeitures are two such areas where exemptive action is clearly warranted by these standards. The prompt granting of such exemptions will have a calming effect among foreign private issuers as well as their regulators. The calming effect will be enhanced as the Commission demonstrates during the rulemaking process a continuing commitment to making appropriate accommodation for foreign private issuers.

We also note that foreign concern about Sarbanes-Oxley is undoubtedly having a chilling effect on foreign private issuers' willingness to enter the U.S. capital and securities markets. Such a result is unfortunate, especially given both major exchanges' efforts to foster foreign listings and to implement responsible corporate governance standards. Again, prompt Commission action as requested in this letter would be particularly effective in alleviating the concerns of foreign private issuers about entering the U.S. capital and securities markets.

Please do not hesitate to contact me regarding this petition for rulemaking or regarding any aspect of Sarbanes-Oxley and its impact on foreign issuers.

Sincerely,

Todd M. Malan
Executive Director

cc: Hon. Harvey L. Pitt, Chairman
Hon. Cynthia A. Glassman, Commissioner
Hon. Harvey J. Goldschmid, Commissioner
Hon. Paul Atkins, Commissioner

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Hon. Roel Campos, Commissioner