I have reported over the years on the many problems associated with Sarbanes-Oxley, one of the worst pieces of federal business legislation ever adopted. See my Sarbanes-Oxley archive, which refers to several of my articles. I even have a t-shirt on this subject.
Here’s another problem: Sarbox Section 301 adds, among many other things, subsection (m)(4) to Section 10A of the 1934 Act, which provides:
Each audit committee shall establish procedures for--(A) the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and (B) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.
The problem is that this provision, like the rest of Sarbox, applies to foreign-based US-listed companies and subsidiaries of US firms that operate in countries with laws about privacy, corporate data protection, and restricting anonymity. Today’s W$J reports that these companies “are in a legal bind: If they set up whistle-blower hot lines in subsidiaries in France, and possibly elsewhere in Europe, they might run afoul of local laws. If they don't, they might violate Sarbanes-Oxley."
The story reports, for example, that France’s data protection authority “receives up to 10 phone calls, letters or emails a day asking for guidance on whistle-blower lines.” It also notes that these EU laws are subject to different interpretations and enforcement regimens in each of the EU’s 25 member countries. So these companies have a choice: comply with the local laws and hope that some solution comes along; or comply with Sarbox and violate local law.
The SEC may or may not be understanding about violations compelled by foreign law. But can we count on the courts? One lawyer is quoted as saying: "no one really knows how the SEC or the courts would interpret an excuse saying, 'We didn't have a system there because it's illegal.'”
Incredibly, Congress had to get this massive law passed so fast that it spent no time (as in zero) trying to figure out how the many foreign-based companies that are subject to U.S. securities laws would be affected by the law’s wide-ranging regulation of corporate governance. I cover this aspect of the Sarbanes-Oxley mess in my articles International Implications of Sarbanes-Oxley and Cross-Listing and Regulatory Competition.
In other words, Congress did not exercise anything close to the care in passing Sarbox that it demands from firms that are subject to the Act.
Comments