Comisión Nacional Bancaria y de Valores
December 18, 2002
Via E-Mail: email@example.com
Mr. Jonathan G. Katz, Secretary,
Re: Sarbanes-Oxley Act § 307 - Implementation
Dear Mr. Katz:
We are submitting this letter in response to the request by the U.S. Securities and Exchange Commission for comments on the Commission's proposed Part 205 of Title 17, Chapter II of the Code of Federal Regulations, which would establish standards of professional conduct for attorneys who appear and practice before the Commission in the representation of an issuer.
We have been consulting with the Mexican Bar and some of the leading law firms in Mexico regarding the applicability and effects of Part 205, and have identified some concerns from the perspective of attorneys licensed to practice law in Mexico and issuer activity abroad, which we share and which are reflected in the document we attached hereto for your review.
We respectfully request the Commission to take into consideration the arguments expressed in the attached document and, if possible, to allow additional time to comment and analyze the implications of Part 205 on non-U.S. lawyers and non-U.S. issuer activity in the United States.
December 18, 2002
Messrs. C.P. Jorge Familiar Calderón
Comisión Nacional Bancaria y de Valores
Reference is hereby made to our discussions regarding the applicability and effects of Part 205 of Title 17, Chapter II of the Code of Federal Regulations ("Part 205") which is being proposed by the U.S. Securities and Exchange Commission (the "Commission"), and which would establish standards of professional conduct for attorneys who appear and practice before the Commission in the representation of an issuer.
As we all know, there are a number of companies organized under the laws of Mexico that are, or over the next several years may become, issuers under U.S. laws and regulations and within the meaning of Part 205. Accordingly, the Commission's rules, if implemented as proposed, would potentially apply to many attorneys practicing law in Mexico and to the relationship between those attorneys and their clients. As discussed below, the proposed rules, as drafted, would conflict with laws and standards of professional conduct applicable to the legal profession in Mexico. In addition, we are concerned that application of the proposed rules to attorneys practicing law in Mexico would be unnecessarily disruptive to the relationship between them and their clients without significantly enhancing the protection of investors. Moreover, it seems that the application of Part 205 to Mexican attorneys may disincentivate Mexican companies from registering their securities in the United States, limiting their options for financing in the future. Most importantly, the application of Part 205 to attorneys practicing law in Mexico would also be unfair, given the fact that Mexican attorneys most likely will not be familiar with U.S. securities laws and regulations.
In Mexico, the regulation of the legal profession is the responsibility of the Ministry of Public Education (Secretaría de Educación Pública) and up to certain degree, of bar associations. The adoption of standards of professional conduct for attorneys practicing law in Mexico should remain the exclusive responsibility of such entities.
The regulation of attorneys admitted to practice and practicing law in Mexico solely because they may from time to time act 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, seems to be unfair because the vast majority of Mexican attorneys are not familiar with U.S. securities laws, and consequently, will not be able to comply with such responsibilities. Absent an international treaty in effect, we believe the Commission, in deference to long-standing principles of international comity, should refrain from attempting to exercise jurisdiction over the legal profession in Mexico.
If the Commission were to include non-U.S. attorneys practicing law outside the United States within the scope of its final rules, attorneys practicing law in these jurisdictions would be faced with potentially conflicting standards of professional conduct. In Mexico, for example, the Law which Regulates Article 5 of the Constitution in connection with the Practice of Professions (Ley Reglamentaria del Artículo 5 Constitucional, relativo al ejercicio de las profesiones en el Distrito Federal) regulates the so-called "professional secret" (secreto profesional) under which every professional must keep secrecy regarding matters entrusted to him by clients, except for those reports which may be required by applicable law (for these purposes, foreign law is not considered "applicable law"). In addition, the Criminal Code (Código Penal para el Distrito Federal) imposes criminal liability to a professional who, in certain cases, discloses a secret or a confidential communication of which has knowledge as a result of the services he provides to clients. Codes of Ethics must also be considered. In Mexico, there is an important number of bar and professional associations which have issued Codes of Ethics regulating professional conduct. For example, the Code of Ethics issued by the Mexican Bar Association (Barra Mexicana, Colegio de Abogados, A.C.) also regulates the professional secret, including events in which the professional secret may not apply. Codes of Ethics applicable to attorneys practicing law in Mexico usually permit client representation withdrawal in very limited circumstances, which are not necessarily consistent with those set forth in Part 205. Client representation withdrawal in situations not expressly set forth in Mexican law or Codes of Ethics, may result in liability to a withdrawing attorney. In sum, the proposed rules would violate the professional secret rules and standards of the Mexican legal profession, and contravene Mexican public order.
Part 205, as currently drafted, assumes attorneys admitted to practice and practicing law in Mexico, are familiar with U.S. securities laws and regulations, which is not the case. Mexican companies usually rely on U.S. law firms for appearing and practicing before the Commission, and Mexican law firms have a very limited role, if any. Accordingly, we have a great concern on the expansiveness of the definition of "appearing and practicing before the Commission" as set forth in Part 205. The definition of "attorney" also results particularly troubling because the vast majority of attorneys practicing law in Mexico are not admitted to practice law in the United States, and, accordingly, have no background in or exposure to the U.S. securities laws and regulations. As a result, they cannot reasonably be expected to detect violations of the U.S. securities laws and regulations or make judgments regarding materiality or reasonableness standards in the United States. Subjecting them to the requirements of the proposed rules does not appear to increase the protection of investors. Instead, 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, because as referred to above, companies located in Mexico customarily employ the services of law firms with U.S. law capability when they access the U.S. capital markets or make filings with the Commission. In addition, Part 205 identify "breaches of fiduciary duties" as understood under common law. It should be noted, however, that there are many jurisdictions, such as Mexico, where a civil law system prevails and concepts may be understood differently. Finally, Part 205 also assumes chief legal officers in Mexico have authority to impose sanctions or take remedial action in connection with material violations of U.S. securities laws and regulations, which, again, in many instances results not being the case.
Considering the short time provided by the Commission for comments, this letter is not intended to be a comprehensive analysis of all issues arising from Part 205. However, as a result of our discussions, we deemed as an extremely important matter to communicate to you and the Commission some of the great concerns we have regarding the proposed rules.
If you have any questions regarding this letter, feel free to contact Tomás Heather at (52-55)9178-7000 or Ricardo Maldonado at (52-55)5201-7400.