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According to FEE it should be avoided to give the impression that EU companies and public accounting firms fear US legislation because its rules would be too strict.
FEE recommends that the Commission should focuses its discussions on the following key issues:
A major problem with extraterritorial rules in the Sarbanes-Oxley Act is that it assumes that problems are identical all over the world and that the answers developed in the US are suitable for every other country. It should also be emphasized that the detailed rules arising from the Sarbanes-Oxley Act are not fully developed. The FEE therefore recommends that the EC should actively consult with the SEC in relation to specific provisions of the Act as the relevant detail becomes clearer.
Extraterritorial regulations could result in companies, company directors and public accounting firms being in the unacceptable situation that, in certain cases, when complying with the rules of one jurisdiction, they would infringe a law and be subject to criminal sanctions in another. It is clear that this situation will become a barrier to trade and an obstacle to the development of global capital markets.
FEE has also conducted a survey on confidentiality issues arising from the possible implications of the Act.
From the preliminary results it appears that the implementation of the US Act in several member states will face legal problems. When complying with section 104, 106 and to some extent 105 of the Sarbanes-Oxley Act, auditors in several EU countries could infringe a domestic law and be subject to criminal sanctions in their home country.
FEE survey
FEE letter to Schaub
The Sarbanes-Oxley Act mandates changes in the way company boards, senior officers and audit committees operate. It was passed this summer and is designed to restore confidence in corporate America. It affects all companies whose shares trade in the US including more than 1,300 non-US groups.
Non-US companies have complained that the Act is an unwarranted, time-consuming and costly interference in their affairs when they have adequate investor safeguards within their jurisdictions. They are particularly concerned over requirements that they set up audit committees of independent directors to oversee the work of independent auditors. A ban on loans by companies to directors is also a concern. But non-US groups are largely resigned to having their chief executives swear to the accuracy of financial statements, another of the Act's main initiatives.
In a speech held on 6 October Commissioner Bolkestein said: “I share the American concerns over the need to re-establish confidence in the capital markets. But I am worried about the implementation of some provisions of the Sarbanes-Oxley Act which may have undesirable extraterritorial consequences and create unnecessary difficulties for European companies with a secondary listing in the US.“
Commissioner Bolkestein and SEC Chairman Harvey L. Pitt meet in Brussels on 9 October.
Meeting press release
Speech by Frits Bolkestein