Tomotsune & KimuraDecember 18, 2002 Via E-Mail: rule-comments@sec.gov 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 are attorneys admitted to practice under the laws of Japan. Accordingly, our comments focus on those aspects of the proposed rules that raise the greatest concern from the perspective of members of the bar in Japan. There are a large number of companies organized under the laws of Japan 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 Japan 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. We are concerned that application of the proposed rules to attorneys practicing law in Japan would impose upon them unrealistic obligations with respect to matters of United States law while making them subject to an irreconcilable conflict between applicable Japanese and U.S. regulations, and furthermore would be unnecessarily disruptive to the relationship between them and their clients, all without significantly enhancing the protection of investors. We begin by noting that, due to the broad drafting of the proposed rules, Japanese attorneys would in many cases find themselves falling within the definitions of the term "attorney" and the phrase "appearing and practicing before the SEC" under the proposed rules. This would have the effect of subjecting Japanese attorneys practicing law outside the United States to the coverage of the rules, even if their sole act is to participate in the drafting of documents subsequently being filed as exhibits, or if they have no participation in overall review of the relevant filings. This aspect of the proposed rules is particularly troubling because the vast majority of attorneys practicing law in Japan are not admitted to practice law in the United States, and, accordingly, have no accurate knowledge of 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. In light of this inability, the proposed rule imposes what we believe is an unfair and unrealistic obligation on such attorneys. Furthermore, subjecting them to the reporting and withdrawal requirements of the proposed rules does not appear well calculated to increase the protection of investors. It is well-established practice that the responsibility for assisting issuers in the drafting of documents to be filed with the Commission and making materiality judgments is assigned to U.S. securities counsel, as companies located in Japan 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. We believe that adoption of rules of conduct applicable solely to such U.S. counsel can appropriately address the problems contemplated by the proposed rules, without raising the difficulties for foreign attorneys described above. In addition, if the Commission were to include Japanese attorneys practicing law outside the United States within the scope of its final rules, such attorneys would be faced with two sets of potentially conflicting standards of professional conduct. The overall structure of regulation of the legal profession in Japan is determined by the Attorneys Law of Japan (Bengoshi Ho), which in turn delegates regulatory and rule-making authority to the Japan Bar Association, a self-regulatory entity. The Attorneys Law (Article 23) expressly establishes for attorneys the right and legal obligation to keep confidential all client information obtained in the course of their practice, except where otherwise provided by law (with "law" for this purpose defined in practice to include only Japanese law). The detailed code of ethics adopted by the Japan Bar Association contains a similar provision imposing a confidentiality obligation on attorneys. The system of "up the ladder" reporting and "noisy withdrawal" contemplated by the proposed rules is directly in conflict with the obligations of confidentiality set forth in the Attorneys Law and in the code of ethics of the Japan Bar Association. Accordingly, the adoption of the proposed rules in their present form will establish an irreconcilable dilemma for Japanese attorneys. The seriousness of this situation is highlighted by the fact that violation by a Japanese attorney of any provision of the Attorneys Law or the code of ethics of the Japan Bar Association may result in disbarment. We strongly urge against the adoption of rules that have the potential effect of placing Japanese attorneys in unavoidable violation of either Japanese or U.S. regulations. In a separate but related final point, we note that the obligation of attorney confidentiality forms one of the most basic support structures of the attorney-client relationship, as established under Japanese legal practice. If rules are adopted which limit client faith in such confidentiality, we believe that the result, rather than any contribution to sound legal practice or improved capital market disclosure, will be a chilling effect on clients' willingness to be fully forthcoming with their attorneys, for fear of unexpected disclosure. This self-defeating result will be detrimental to the clients themselves, to their attorneys and to the free and complete flow of information to the capital markets that the purposed rules seek to protect. 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 within the coverage of the rules, as finally adopted. * * * If you have any questions regarding this letter, feel free to contact the undersigned at the address set forth above.
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