Comment letter State Sponsors of Terrorism

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Comment letter State Sponsors of Terrorism

Soof - Diana L. Preston And

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January 22, 2008 Nancy M. Morris Secretary Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Re: Concept Release Nos. 33-8860; 34-56803; File No. S7-27-07 on Mechanisms to Access Disclosures Relating to Business Activities in or With Countries Designated as State Sponsors of Terrorism Dear Ms. Morris: The Securities Industry and Financial Markets Association (“SIFMA”) appreciates the opportunity to comment on the Securities Exchange Commission (“SEC”) concept release on whether to develop a mechanism to facilitate greater access to companies’ disclosures concerning their business activities in or with countries designated as State Sponsors of Terrorism. We believe the tool that was implemented during the 1summer of 2007 -- and subsequently suspended -- inappropriately involved the SEC in foreign policy and national security matters, was unfairly detrimental to companies, was damaging to the role the SEC has historically played in enhancing investor confidence in the U.S. capital markets, and provided no new additional public information. It is our view that any similar mechanism including data tagging would have the same inherent flaws. For the reasons discussed more fully below, we respectfully urge the SEC to refrain from reinstituting a website tool for review of information about activities of SEC registrants relating to countries designated as State Sponsors of Terrorism. Moreover, if the SEC should decide to ...

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Publié par	Soof
Nombre de lectures	34
Langue	English

Extrait

January 22, 2008

Nancy M. Morris

Secretary

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549-1090

Re: Concept Release Nos. 33-8860; 34-56803; File No. S7-27-07 on Mechanisms to Access

Disclosures Relating to Business Activities in or With Countries Designated as State Sponsors

of Terrorism

Dear Ms. Morris:

The Securities Industry and Financial Markets Association (“SIFMA”) appreciates the opportunity to

comment on the Securities Exchange Commission (“SEC”) concept release on whether to develop a

mechanism to facilitate greater access to companies’ disclosures concerning their business activities in or with

countries designated as State Sponsors of Terrorism.

We believe the tool that was implemented during the

summer of 2007 -- and subsequently suspended

-- inappropriately involved the SEC in foreign policy and

national security matters, was unfairly detrimental to companies, was damaging to the role the SEC has

historically played in enhancing investor confidence in the U.S. capital markets, and provided no new

additional public information.

It is our view that any similar mechanism including data tagging would have

the same inherent flaws.

For the reasons discussed more fully below, we respectfully urge the SEC to refrain from reinstituting

a website tool for review of information about activities of SEC registrants relating to countries designated as

State Sponsors of Terrorism.

Moreover, if the SEC should decide to move forward in developing such a

mechanism, it should only do so after describing the proposed mechanism in detail in a full rule proposal that

is subject to public notice and comment in consideration of the reputational risk inherent in such a tool.

SEC’s Mission Is Not Foreign Policy and National Security Matters

Any SEC mechanism on highlighting disclosures related to State Sponsors of Terrorism is inherently

unrelated to the SEC’s primary mission of administering and enforcing the federal securities laws.

While SIFMA is

firmly committed to maintaining and strengthening the security of the United States, we have consistently opposed

the use of the U.S. capital markets to achieve foreign policy goals.

As discussed in our letter to the SEC in 2004, it

is important to preserve both the SEC’s primary focus on securities regulation and the time-honored materiality

standard on which our disclosure-based approach to securities registration has long been based.

Statement by Securities and Exchange Commission Chairman Christopher Cox Concerning Companies’ Activities in Countries Known to

Sponsor Terrorism, 2007-138, Washington, D.C., July 20, 2007,

http://www.sec.gov/news/press/2007/2007-138.htm

“… we also have concerns about the ramifications of the proposed Office for the disclosure-based system that underlies the robust U.S.

capital markets. Under the U.S. disclosure-based approach to securities regulation, issuers are required to disclose information that is

"material" to an informed investment decision. As a result, the disclosure documents filed by foreign companies with the SEC contain

information on activities they have in countries subject to U.S. sanctions to the extent such activities are “material” under established SEC

SIFMA believes that the SEC should leave foreign policy and national security matters to the government

agencies charged with, and possessing significant experience in, carrying out those matters:

the State, Defense,

Commerce, and Homeland Security Departments; the National Security Council; and the Treasury Department

through the Office of Foreign Assets Control (“OFAC”) and the Office of Terrorism and Financial Intelligence.

is important to note that the business activities highlighted by the SEC’s website mechanism were not illegal.

For

some U.S. companies with operations located outside the United States and for non-U.S. headquartered

corporations, there exist complex layers of competing laws and regulations covering economic sanctions, making

permissible some activities by those firms subject to the legal requirements.

Failure to abide by the non-U.S.

sanctions laws and regulations can place the foreign subsidiaries of U.S. companies in harm’s way with local law

and regulation. The nuances of these conflicting laws and regulations are well understood by the State Department

and OFAC, but this expertise does not reside within the SEC.

Accordingly, since the State Department designates countries as State Sponsors of Terrorism and OFAC

administers U.S. sanctions laws, the most appropriate government agency to designate what, if any, disclosures or

restrictions are required related to activities in any of the relevant countries would be the State Department or

OFAC. The SEC should defer to other government agencies in foreign policy matters.

Otherwise, using the U.S.

capital markets to achieve foreign policy goals might leave U.S.-based issuers that are listed in foreign countries

vulnerable to retaliatory requirements imposed by foreign governments.

Unfairly Damaging to SEC Registrants

Any company singled out in a list associated with the term “State Sponsors of Terrorism” will be

potentially stigmatized since that term has strong negative connotations.

As the web site link established last

summer with the title “State Sponsors of Terrorism” contained only a list of countries and a related list of issuers,

SIFMA was troubled that any number of a listed company’s constituencies might conclude that the listed company

directly or indirectly supports state-sponsored terrorism.

Although there were links to excerpts from the listed

company’s annual reports, disclosures in SEC filings are often dependent on the context of the entire report and that

context can be lost when information is extracted. Language included on the link to each country stating that the

annual reports of the listed companies contain “some reference to business” to the country in question was simply

not a sufficient cure for the otherwise stigmatizing implication.

No amount of clarifying language on a similar

mechanism could sufficiently counteract the potential damage to a company included in such a list.

In addition, including any company that merely mentions one of the countries designated as a State Sponsor

of Terrorism in its SEC filings is misleading since it will be both overinclusive and underinclusive.

In other words,

a mechanism based on registrant disclosures can only locate particular identified specific references and would lead

to results that would be overinclusive since such references may relate to operations or activities that have either

ceased or may never occur.

For example, some issuers were included in the website list last summer because of

statements in their filings about discontinuing activities in one of the countries named as a State Sponsor of

Terrorism.

Such disclosure certainly should not merit inclusion in a list that might damage that company’s

reputation.

On the other hand, the mechanism would also be underinclusive in that disclosures relating to the

sanctioned countries that do not identify those countries by name may not be picked up.

In addition, some

companies that do have links to business operations in one or more of the countries designated as a State Sponsor of

doctrine.

(U.S. companies are already prohibited from doing business in countries subject to U.S. sanctions and, thus, would have no such

activities to disclose.)

The SEC does not require, and should not change its existing legal standards to require, the disclosure of information

that may relate to social or political issues, but is not material to an informed investment decision as that term has been interpreted and

applied by the SEC and the courts over time.”

SIA letter to SEC Chairman Donaldson, January 20, 2004.

Terrorism might not be included in the list because they are not SEC registrants or because related information was

not required to be included in SEC filings as it was not material to the company. For example, Berkshire Hathaway

had a stake in PetroChina, which is approximately ninety percent owned by the China National Petroleum Company

that has business activities in Sudan.

However, Berkshire Hathaway did not mention Sudan in its SEC filings

because it determined that the investment was not material to Berkshire Hathaway.

Moreover, the very references to the sanctioned countries in public company filings may in some cases

result from those companies’ efforts to provide more complete disclosures regarding their activities in response to

comments from the SEC Office of Global Security Risk, even when the activities disclosed pursuant to the

comments are immaterial.

Perversely, the SEC’s initiative might encourage companies to provide less complete

disclosure where possible and reward those companies that have chosen to provide either less or more generic

disclosure regarding these sensitive matters.

Such incentives would run counter to the SEC’s stated guiding

principles and the objectives of its disclosure regime.

Furthermore, although SIFMA acknowledges that the SEC is committed to strengthening the

competitiveness of the U.S. capital markets, the damaging and misleading nature of a website tool emphasizing

disclosures related to a State Sponsor of Terrorism will likely further diminish the willingness of foreign

multinational companies to access the U.S. public capital markets or remain as registrants.

As Rep. Frank noted in

a letter dated July 13, 2007 to SEC Chairman Cox, the House Financial Services Committee in developing

economic sanctions legislation against Iran had considered and rejected a U.S. listing requirement of disclosure of

even multi-million dollar activities in that country at least in part “out of consideration for the competitive standing

of the U.S. capital markets.” SIFMA’s membership is strongly committed to combating terrorist financing and

devotes substantial resources to complying with applicable U.S. sanctions and anti-money laundering requirements.

However, the list may potentially unfairly stigmatize SIFMA members and other SEC registrants as supporters of

the listed countries even though none of the activities highlighted by the website mechanism are illegal.

The SEC

as the primary regulator of the U.S. capital markets is best served by keeping the potential competitive impact in

mind when considering a mechanism that might unfairly damage the reputation of SEC registrants for simply

mentioning any of the countries considered to be State Sponsors of Terrorism in their SEC filings.

SEC Materiality Standard Would Be Damaged

SIFMA believes that by establishing the website tool the Commission ventured into the area of merit

regulation that it has consistently sought to avoid.

Historically, the Commission has deliberately refrained from

telling investors which of the complete and accurate disclosures made by its registrants are more material,

interesting, or newsworthy.

Any effort to correct the flaws in the website tool’s methodology by conducting more

substantive evaluations, though perhaps ameliorating some of the more

damaging aspects of the website, would

take the

Commission even further down the road of “merit regulation.”

This is a path the SEC has wisely avoided

in the past.

We are not aware of the SEC having previously singled out companies based on disclosures that they have

made, unless those disclosures were either materially misleading or otherwise violated the law.

With any website

tool designed to draw attention to disclosures involving activities in countries designated as State Sponsors of

Terrorism, however, the SEC in effect would determine what information should concern investors.

Though this

It should be noted that Berkshire Hathaway subsequently sold its stake in PetroChina.

According to articles published in the Wall Street

Journal on October 12, 2007 and October 25, 2007, although investor groups pushing for divestment because of the situation in Sudan

declared the sale as a victory that would put pressure on PetroChina’s parent company to end business activities in Sudan, Berkshire

Hathaway CEO Warren Buffett decided to divest because of price considerations and not because of PetroChina’s parent company’s ties to

Sudan.

kind of judgment may be well-intentioned, it is not consistent with the SEC’s materiality standard.

Instead, it

directly conflicts with the SEC’s longstanding disclosure-based regulatory regime, which is designed to elicit

material information and then to let investors evaluate the disclosures for themselves.

In letters to Chairman Cox

last summer, both Rep. Frank and Rep. Bachus criticized the SEC for not including a materiality threshold in its

website tool. Should the website tool be re-established, it could also invite criticism from investors asking why the

SEC has not published similar information concerning other registrant disclosures, such as any concerning labor

policies, carbon footprint, immigration, or other matters.

Information Is Already Publicly Available

If the SEC were to provide any mechanism to access disclosures in documents filed with the SEC relating

to business activities in or with countries designated as State Sponsors of Terrorism, it would not be providing any

new public information. While the SEC’s press release of June 25, 2007 accompanying its first attempt at such a

mechanism said that the new tool permitted investors to obtain information directly from company disclosure

documents, it did not clarify that those disclosure documents were in fact already publicly available on the SEC’s

website through EDGAR.

The SEC’s website tool listing companies with disclosures related to countries designated as State Sponsors

of Terrorism provided information available in registrant filings, but without relevant explanatory details.

Accordingly, the tool provided information that was already available to investors if they deemed it material to their

investment decisions.

Furthermore, any such disclosure mechanism adopted by the SEC would be similarly

duplicative of widely available information if based on disclosures made by registrants in required SEC filings.

There is also substantial information about firms that have been found to be in violation of U.S. economic

sanctions that is publicly available on the OFAC website.

Any investor seeking information about whether or not a

firm has violated such laws and regulations can obtain it through that means.

OFAC updates its website quarterly to

provide information about companies that were fined and whether or not they self-reported their violations to

OFAC. This additional source of information obviates the need for the SEC to duplicate efforts in attempting to

provide information about economic sanctions violations.

Conclusion

SIFMA is concerned that any website mechanism the SEC might develop to

facilitate greater access to

companies’ disclosures concerning their business activities in or with countries designated as State Sponsors of

Terrorism would divert SEC resources from its mission of administering and enforcing the federal securities

laws and inappropriately involve the SEC in foreign policy and national security matters.

It would also be

unfairly damaging to SEC registrants, damaging to the longstanding materiality standard under the securities

laws, and would not provide information that is not already publicly available.

Data tagging would not solve

any of these problems.

If the SEC does decide to move forward and develop a mechanism to access disclosures

related to activities in countries designated as State Sponsors of Terrorism, SIFMA requests that the SEC describe

the proposed mechanism in a full rule proposal subject to public notice and comment

in consideration of the

reputational risk inherent in such a tool

We appreciate this opportunity to comment on the SEC’s concept release.

If you have any questions

regarding this letter, please feel free to call Diana Preston at 202-962-7386 or David Strongin at 212-313-1213.

Sincerely,

Diana L. Preston

Managing Director and Associate General Counsel

David G. Strongin

Managing Director

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