URÍA & MENÉNDEZ
Jorge Juan 6
Tel. 915 860 400
Fax 915 860 403
Madrid, December 17, 2002
Jonathan G. Katz, Secretary,
Securities and Exchange Commission
450 Fifth Street, N.W., Stop 6-9
Washington, D.C., 20549
United States of America
Dear Mr. Katz:
Implementation of Standards of Professional Conduct for Attorneys
File No. S7-45-02
We are pleased to submit this letter in response to the Commission's request for comments on its proposed rules on standards of professional conduct for attorneys (the "Proposed Rules of Conduct") pursuant to Section 307 of the U.S. Sarbanes-Oxley Act of 2002 (the "SOX Act"), as contained in Release Nos. 33-8150, 34-46868 and IC-25829 (Nov. 21, 2002) (the "Release").
As currently drafted, the Proposed Rules of Conduct may be interpreted to impose substantial obligations on our firm's lawyers. We strongly oppose any proposal that would impose the Commission's standards of professional conduct on our lawyers because:
Uría & Menéndez is one of the largest law firms in Spain. We counsel both Spanish and non-Spanish clients on matters of Spanish, Portuguese and European Community law. None of our lawyers is qualified or licensed to render advice with respect to U.S. securities or fiduciary law, and the firm has never held itself out as qualified or licensed to render advice with respect to such law. Indeed, when Uría & Menéndez acts for clients in the context of multijurisdictional transactions, we explain clearly in our discussions and opinions that our advice is limited to matters of Spanish, Portuguese or European Community law, as the case may be.
While Uría & Menéndez does not act as counsel on matters of U.S. law, a number of our clients are listed on U.S. stock exchanges or are otherwise present in the U.S. securities market. As a result, Uría & Menendéz is sometimes required to address questions and requests from our clients' U.S. counsel in connection with the preparation of documents filed with the Commission. For example, U.S. counsel and other parties often request that we review portions of such documents that relate to matters of Spanish law or confirm that we are not aware of any material misstatement or omission in such documents. Likewise, we may be asked to provide an opinion as to the validity under Spanish law of securities issued by a Spanish company and related matters, which U.S. counsel may later include as an exhibit to a U.S. registration statement. At no point in its interaction with U.S. lawyers or their clients, however, does Uría & Menéndez provide any opinion or guidance as to matters of U.S. securities or fiduciary law or pretend to represent our clients before the Commission.
Applying the Commission's rules of conduct to our lawyers, none of whom is qualified or licensed to practice U.S. securities or fiduciary law, would be unfairly burdensome and unproductive.
The cornerstone of the Proposed Rules of Conduct is the requirement to report "up-the-ladder" or to the Commission "evidence of a material violation of securities law or breach of fiduciary duty or similar violation." In the Release, the Commission states that the term "securities law" refers to U.S. federal and state securities law. As mentioned above, the lawyers of Uría & Menéndez are not qualified or licensed to practice U.S. securities or fiduciary law. Accordingly, they cannot reasonably or fairly be expected to detect or identify violations of such law, which we understand from our conversations with U.S. counsel very often involves difficult and complex judgments based on federal and state caselaw, formal and informal guidance from the Commission, and numerous other sources. Simply ignoring this reality and imposing such obligations on our lawyers would be unfair, placing them in a position of uncertainty and potential liability in connection with matters outside their knowledge and expertise. Moreover, and for the same reason, the likely benefit from imposing such obligations on our lawyers is speculative at best.
Recognizing that an issuer's U.S. lawyers are uniquely suited to detect violations of U.S. securities and fiduciary law would be more effective.
On this last note, we believe that the Commission's attempt to apply the Proposed Rules of Conduct to non-U.S. attorneys may be counterproductive. In our experience, Spanish companies with a presence in the U.S. securities market receive close guidance from (and are subject to due diligence investigations by) their U.S. counsel with respect to their documents filed with the Commission and their compliance with U.S. securities laws on disclosure and corporate governance matters. Making clear that the responsibility for identifying and reporting evidence of violations of U.S. securities law rests solely with an issuer's U.S. lawyers, who are qualified for this task and are directly involved in the preparation of information filed or submitted with the Commission, would be more effective than creating the false impression that non-U.S. lawyers practicing their home country law are also enforcing U.S. securities laws.
While the Proposed Rules of Conduct start from the broad, generally uncontroversial principle that counsel to a corporate issuer should act to protect the best interests of the corporation rather than those of its individual directors and officers, they require lawyers to take specific actions based on static and debatable applications of that principle. By proposing to preempt standards of professional conduct established by state and local authorities, the Commission has attempted to address the concerns of U.S. lawyers who, faced with a particular set of facts, believe that the actions required under the Proposed Rules of Conduct may be inconsistent with standards or practices imposed in their jurisdictions or by their bar associations. However, the Commission has no authority to preempt the standards of professional conduct applicable to non-U.S. lawyers in their home country. For this reason also, the Commission's proposal to apply the Proposed Rules of Conduct on an extraterritorial basis leaves non-U.S. lawyers in an unfair and unworkable situation.
For example, the specific course of action required by the Proposed Rules of Conduct may not be consistent in all cases with a Spanish lawyer's judgment about what best to do in order to protect a corporate client's interests, especially when a "noisy withdrawal" is mandated by the rules. In addition, strict client confidentiality requirements in Spain present serious concerns with respect to "noisy withdrawals" and may not support the "self defense" exception contemplated in Section 205.3(e) of the Proposed Rules of Conduct, without which a Spanish lawyer cannot effectively defend himself or herself against charges of violating such rules. Even the basic premise that Spanish lawyers can and should attempt to identify and report violations of U.S. law raises questions under Spanish standards of professional conduct that prohibit lawyers from advising clients on matters not within their areas of competence. Absent preemptive relief in Spain, the Proposed Rules of Conduct would create the prospect for these and other conflicts, unfairly forcing our lawyers to make impossible choices about whether to risk violating Spanish or U.S. standards.
We are aware of no instance where regulators in one country have attempted to impose rules of professional conduct in lawyers of another country engaged strictly in the practice of their home country law. In our view, absent special circumstances, such action would be contrary to basic principles of international comity, for which the Commission has shown due regard in its past rulemaking activities. Special circumstances justifying such an assertion of extraterritorial jurisdiction might exist where a non-U.S. lawyer holds himself or herself out as qualified to practice U.S. securities law, or actually engages in the practice of such law by offering advice or representing issuers before the Commission on such matters. However, the Proposed Rules of Conduct appear to go well beyond this, imposing themselves on non-U.S. lawyers simply because their advice on matters of non-U.S. law may have some indirect and uncertain effect on the actions and decisions taken by issuers and their U.S. counsel before the Commission. We respectfully submit that this is not a fair and reasonable basis upon which to export rules of professional conduct to lawyers in another country.
For the reasons discussed above, we urge the Commission to clarify in its final rules that non-U.S. lawyers engaged in the practice of their home country law are not subject to the Commission's standards of professional conduct for attorneys. Should the Commission nonetheless attempt to impose its standards on such lawyers, we urge it to mitigate the unfair impact of the rules on such persons by clarifying that: (a) a non-U.S lawyer will not be deemed to "appear and practice before the Commission" due to activities whose effects on the Commission's functions are incidental or indirect (such as those mentioned under "Background on Our Practice" above); (b) a non-U.S. lawyer is not subject to such rules unless he or she has demonstrable general knowledge of U.S. securities and fiduciary law; and (c) a non-U.S. lawyer will not be charged with a violation of such rules if he or she reasonably believes that any mandated action would be inconsistent with non-U.S. laws or professional standards applicable to such lawyer. We have recommended amendments to the Proposed Rules of Conduct in Appendix A to this letter for the Commission's consideration.
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We appreciate the opportunity to comment on the Commission's Proposed Rules of Conduct and would be happy to discuss any questions the Commission may have with respect to this letter. Any questions about this letter may be directed to Luis de Carlos Bertrán at (+34) 915 860 459.
Rodrigo Uría Meruéndano
on behalf of
URÍA & MENÉNDEZ
A. Preferred Amendment
Replace the proposed text of Section 205.2(c) with the following text:
"(c) Attorney refers to any person who is admitted, licensed, or otherwise qualified to practice law in any jurisdiction of or within the United States or who holds himself out as admitted, licensed, or otherwise qualified to practice law in any jurisdiction of or within the United States."
B. Alternative Amendment
Add the following text at the end of Section 205.2(a):
"provided, that no foreign attorney will be deemed to "appear and practice before the Commission" for the purposes of this part as a result of any action described in paragraphs (1) to (5) above: (i) if such action was taken in the practice of, or with reference to, the law or practice of jurisdictions outside the United States; or (ii) in any context in which a domestic attorney has direct responsibility for advising on matters of United States federal securities law."
Add the following text at the end of Section 205.2(c):
"Domestic attorney refers to any attorney who is so admitted, licensed or otherwise qualified to practice law in any jurisdiction of or within the United States, or who so holds himself or herself out as admitted, licensed or otherwise qualified to practice law in any jurisdiction of or within the United States. Foreign attorney refers to any attorney other than a domestic attorney."
Add the following text at the end of Section 205.2(e):
"A foreign attorney may not be considered to have become aware of "evidence of a material violation" for the purposes of this part unless he or she has demonstrable general knowledge of United States securities and fiduciary law."
Add a new section before current Section 205.6:
"A foreign attorney shall not be required to take any action under this part that he or she reasonably believes would be inconsistent with the laws or standards of professional conduct in jurisdictions outside the United States applicable to such foreign attorney."