Stibbe P.C.
Mr Chairman and Honorable Commissioners: I - Introduction We are submitting this letter in response to the request by your commission (the "Commission") for comments on the Commission's proposed Part 205 of Title 17, Chapter II of the Code of Federal Regulations ("Proposed Rules"). The Proposed Rules would establish standards of professional conduct for attorneys who appear and practice before the Commission in the representation of an issuer. We are a law firm of 380 attorneys with principal offices in Amsterdam and Brussels and additional offices in London and New York. Our firm represents a broad range of corporate clients from The Netherlands, Belgium and other jurisdictions, including many companies that are listed on U.S. stock exchanges and have securities registered under the U.S. Securities Exchange Act of 1934. The attorneys within our firm are all members of the Dutch or Belgian bars. All attorneys within the firm - including those in London and New York - practice only either Dutch, Netherlands Antilles and Aruban law or Belgian law. Since the signatories of this letter are admitted to practice law in The Netherlands, our comments primarily focus on those aspects of the Proposed Rules that raise the greatest concern from the perspective of attorneys licensed to practice law in The Netherlands and practicing Dutch law in The Netherlands or abroad ("Dutch attorneys"). Similar concerns exist and comments can be made with respect to the position of the attorneys within our firm that are members of one of the Belgian bars. We would be most willing to provide you at your request with a similar detailed discussion of the position under Belgian law if that would not otherwise have been provided to you. Our comments chiefly regard concerns resulting from the applicability of the Proposed Rules to foreign and - thus - Dutch attorneys. Below we will set forth our principal reasons to argue that the Proposed Rules should not cover Dutch attorneys. II - The Proposed Rules as drafted would apply to Dutch attorneys 1. Anticipated application of Proposed Rules to Dutch attorneys There is a substantial number of companies organized under the laws of The Netherlands that are - or over the next several years may become - issuers within the meaning of proposed Part 205.2(g). In addition, Dutch attorneys regularly advise issuers organized under U.S. (state) law or laws of other jurisdictions on matters of Dutch law. Accordingly, the Proposed Rules would potentially apply to a significant number of attorneys admitted to practice law in The Netherlands and to the relationship between those attorneys and their clients. 2. Principal reasons why the Proposed Rules should not apply to Dutch attorneys For the following reasons we believe the Proposed Rules should not apply to Dutch attorneys. First, the Commission should not attempt to regulate the legal profession in countries other than the United States. Second, Dutch attorneys would encounter irreconcilable conflicts (of legal obligations) and could face disciplinary, civil and criminal sanctions under Dutch law if compelled to comply with the Proposed Rules under certain circumstances. Third, the Proposed Rules would be unnecessarily disruptive to the Dutch client-attorney relationship. Fourth, we query whether including Non-US attorneys would enhance the protection of investors. U.S. regulation of the Dutch legal profession would be contrary to principles of international comity Historically, the regulation of the legal profession in The Netherlands has been the responsibility of the Dutch Bar Association (de Nederlandse Orde van Advocaten). The Dutch Bar Association was created pursuant to the Attorneys Act (Advocatenwet). It qualifies as a public body under section 134 of the Dutch Constitution (de Grondwet). Given the central role of the legal profession for the functioning of the court system in The Netherlands, the adoption of standards of professional conduct for Dutch attorneys was made and should stay the exclusive responsibility of the Dutch Bar Association. It has been a long standing principle of international comity that attorneys are regulated by the states or countries which law they practice. For example, an attorney admitted to the Bar of New York appearing before an international tribunal remains subject only to his own professional rules. Similarly, attorneys admitted to practice law in the United States but practicing such laws for example in The Netherlands are not subject to Dutch rules of professional conduct. The underlying principle being that the origin of the rules of professional conduct is inextricably linked to that of the law that is being practiced. We believe it would be inappropriate for the Commission to seek to regulate Dutch attorneys solely because they may from time to time advise as to matters of Dutch law on behalf of clients whose securities are listed on a U.S. stock exchange or traded on a U.S. inter-dealer quotation system or because they are in the process of conducting a public offering of securities in the United States. We therefore urge the Commission - in deference to long-standing principles of international comity - to refrain from attempting to exercise jurisdiction over the legal profession in The Netherlands or in other jurisdictions outside the United States. Irreconcilable conflicts and disciplinary, civil and criminal sanctions for Dutch attorneys If the Commission were to include Dutch attorneys within the scope of its final rules, such attorneys would be faced with two sets of clearly conflicting standards of professional conduct. The rules applicable to Dutch attorneys contain guidelines that apply when an attorney becomes aware that a client seeks to employ the services of the attorney in the commission of an illegal act. It is however not permitted for the attorney to terminate the representation and notify third parties or regulators of the illegal act ("noisy withdrawal") in breach of the attorney's duty of confidentiality to the client. Both section 46 of the Attorneys Act and the Code of Ethics (Gedragsregels) based thereon thus provide. The Dutch Bar Association is unlikely to defer to the Commission's statements in the release containing the Proposed Rules that these preempt conflicting bar regulations on this point. Furthermore, even if it would, the Dutch courts will likely hold such deference to be a violation of Dutch law, because, inter alia, the Dutch attorney-client privilege is considered a matter of public policy. Moreover, a violation of the Dutch attorney-client privilege can result in disciplinary, civil and criminal sanctions against Dutch attorneys. Thus, if the Proposed Rules were adopted, Dutch attorneys would encounter irreconcilable conflicts of legal obligations as - in short - compliance with the Proposed Rules would yield a violation of Dutch law at the same time. Unnecessary disruption of the Dutch client-attorney relationship Dutch attorneys are subject to a comprehensive set of standards of professional conduct. These rules impose on attorneys - inter alia - strict duties to their clients of loyalty and confidentiality. The purpose of these rules is to foster a relationship of trust between clients and their counsel and to enable clients to be candid in their dealings with counsel. The requirement that an attorney "noisily withdraws" from representation of a client in certain circumstances could have a chilling effect on the willingness of clients to confide secrets in their counsel. This would impair the ability of counsel to effectively represent their clients. It is exactly for this reason that the Dutch attorney-client privilege is strict (and arguably stricter than its U.S. counterpart), in that a waiver by a client does not necessarily invalidate the privilege. Before observing a waiver of the privilege, the attorney must first make his or her own assessment as to whether the public interest (algemeen belang) would - despite such waiver - require the privilege being upheld. The factors to be considered by the attorney in arriving at this judgment include the effect of the waiver on the ability of those seeking legal advice to confide in their Dutch counsel without reservation. The Proposed Rules would hamper such candour and thus compromise the client-attorney relationship as established under Dutch professional rules. No enhanced investor protection We believe that the inclusion of attorneys licensed to practice in a foreign jurisdiction within the definition of "attorney" would not enhance the protection of investors. As drafted, the Proposed Rules would for example include Dutch attorneys who participate in the drafting of documents subsequently filed as exhibits to registration statements even if - as is typically the case - they have no participation in the review of such filings. This aspect of the Proposed Rules is particularly troubling because the vast majority of Dutch attorneys have no background in or exposure to U.S. securities laws. As a result, they cannot reasonably be expected to detect violations of U.S. securities laws or US fiduciary duties, or make judgments regarding their materiality. Subjecting Dutch attorneys to the reporting and withdrawal requirements of the Proposed Rules is not likely to increase the protection of investors. Further, Dutch attorneys simply do not make determinations of this type under U.S. law at present, and instead typically refer such issues to U.S. counsel. Thus imposing such duties on Dutch counsel would amount to redundant, and likely unproductive, regulation. In fact, on occasion, it may hurt the stability of the markets, as inexperienced foreign lawyers may err on the side of caution and undertake unnecessary and disruptive withdrawals. In this regard we also note that the Proposed Rules do not define securities laws to mean solely U.S. securities laws, though such a reading of term is implicit in the proposing release. Especially since the definition of a material violation includes a violation "similar" to a violation of securities laws, it is uncertain whether not also a material violation of Dutch securities laws would trigger application of the Proposed Rules. If such would be the case, then a subsequent query would be which Dutch laws actually qualify as "securities laws". Similar definitional problems arise with respect to a "breach of fiduciary duty" which as such is a common law concept. Furthermore, Dutch attorneys would not - as they would not in the event of a violation of U.S. securities laws - be able to assess whether the violation was in fact "material", as this standard would remain a U.S. legal concept. In sum, we believe the responsibility for assisting issuers in the drafting of documents to be filed with the Commission and making materiality judgments is more appropriately assigned to U.S. securities counsel, especially as companies located in The Netherlands almost without exception employ the services of attorneys licensed in the United States and practising US securities law, when they access the U.S. capital markets or make filings with the Commission. III - Conclusion For the reasons explained above, we strongly urge the Commission to exclude from the definition of attorney, attorneys who are admitted, licensed or otherwise qualified to practice law in countries other than the United States. We would like to thank you for your attention to the above. If you have any questions regarding this letter, please feel free to contact us. Sincerely yours, /s/ Allard C. Metzelaar /s/ Derk J.R. Lemstra | ||||||||||