Palacios, Ortega y Asociados

December 18, 2002

No. 12286/02

ABM
LEP

via e-Mail: rule-comments@sec.gov

Mr. Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, DC 20549-0609.

Ref.: Sarbanes-Oxley Act § 307 - Implementation of Standards
of Professional Conduct for Attorneys - Part 205

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 are members of the bar of Distrito Federal of Venezuela. Accordingly, our comments focus on those aspects of the proposed rules that raise the greatest concern from the perspective of attorneys licensed to practice law in Venezuela.

There are a number of companies organized under the laws of Venezuela that are, or over the next several years may become, issuers within the meaning of proposed Part 205.2(g). Accordingly, the Commission's rules, if implemented as proposed, would potentially apply to many attorneys practicing law in Venezuela and to the relationship between those attorneys and their clients. As discussed below, we believe the Commission should not attempt to regulate the legal profession in countries other than the United States. In addition, we are concerned that application of the proposed rules to attorneys practicing law in Venezuela would be unnecessarily disruptive to the relationship between them and their clients without significantly enhancing the protection of investors. It would also be unfair, given the fact that non-U.S. attorneys most likely will not be conversant with U.S. securities laws.

Historically, the regulation of the legal profession in Venezuela has been the responsibility of the Congress, by means of the law; and Venezuelan bar associations. Given the central role of the legal profession for the functioning of the court system in Venezuela, the adoption of standards of professional conduct for attorneys practicing law in Venezuela should remain exclusively upon Venezuelan law. We believe it would be inappropriate for the Commission to regulate attorneys admitted to practice and practicing law in Venezuela 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. Therefore, we urge the Commission, in deference to long-standing principles of international comity, to refrain from attempting to exercise jurisdiction over the legal profession in Venezuela or in other jurisdictions outside the Untied States.

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 two sets of potentially conflicting standards of professional conduct. For example, the rules applicable to attorneys practicing law in Venezuela contain detailed provisions 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. However, while these provisions contain safeguards to ensure that the attorney does not participate in the act, they do not permit the attorney to make a "noisy withdrawal" and/or [notify third parties or regulators of the illegal act in breach of the attorney's duty of confidentiality to the client. Venezuelan bar associations are unlikely to defer to the Commission's statements in the release proposing the new rules that these rules preempt conflicting bar regulations on this point. Accordingly, if the rules were adopted as proposed, attorneys practicing law in Venezuela would be faced with irreconcilable conflicts.

In addition, there are a number of other reasons why non-U.S. attorneys practicing law outside the United States should not be subject to the rules, including the following:

• The rules would be unnecessarily disruptive to the client-attorney relationship. Attorneys admitted to practice law in Venezuela are subject to a comprehensive set of standards of professional conduct. These rules impose on attorneys, among other things, strict duties 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 withdraw" from representation of a client in certain circumstances could have a chilling effect on the willingness of clients to confide secrets in their counsel, thereby impairing the ability of counsel to effectively represent their clients.

• The inclusion of non-U.S. attorneys practicing law outside the United States within the definition of "attorney" would not enhance the protection of investors. As drafted, the proposed rules would include non-U.S. attorneys practicing law outside the United States who participate in the drafting of documents subsequently being filed as exhibits even if, as is typically the case, they have no participation in the review of the resulting filings. This aspect of the proposed rules is particularly troubling because the vast majority of attorneys practicing law in Venezuela are not admitted to practice law in the United States, and, accordingly, have no background in or exposure to the U.S. securities laws. As a result, they cannot reasonably be expected to detect violations of the U.S. securities laws or make judgments regarding their materiality. Accordingly, subjecting them to the reporting and withdrawal requirements of the proposed rules does not appear well calculated to increase the protection of investors. Instead, 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 Venezuela 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.

For the reasons explained above, we strongly urge the Commission not to include non-U.S. attorneys admitted to practice law outside the United States in the definition of "attorney".

* * *

The comments reflected herein represent solely the views, comments and concerns of the undersigned's law firm but do not necessarily represent the views of our firm's clients. If you have any questions regarding this letter, feel free to contact us at Calle Guaicaipuro con Av. Ppal. Las Mercedes, Torre Forum, Piso 6, Ofic. A, Urb. El Rosal, Caracas, Venezuela. Tel.: +58 (212) 951 3333. Fax: +58 (212) 951 2851.
E-mail: lepalacios@palaciosortega.com c/o abanegas@palaciosortega.com c/o general@palaciosortega.com.

Sincerely yours,

By Palacios, Ortega y Asociados