S.E.C. Adopts Sweeping Changes to Increase Transparency re: Potential Foreign Bad Actors’ in U.S. Capital Markets

(Washington, D.C.): In a long-overdue and stunning development, the Acting Chairman of the Securities and Exchange Commission has advised Congress of actions being taken by her agency to reduce dramatically the dangers that American investors will in the future unwittingly underwrite threats to U.S. “national security, human rights and religious freedom.”

Towards Transparency

In a letter dated 8 May, Acting Chairman Laura Unger wrote Rep. Frank Wolf, one of the Congress’ most indefatigable champions of human rights and American security and the Chairman of the House Appropriations VA, HUD and Independent Agencies Subcommittee, a five-page letter laying out the specific changes the SEC is making in response to a series of recommendations he suggested in an earlier letter to her, dated 2 April 2001. (The full text of the Wolf and Unger correspondence, together with an eleven- page memorandum to Chairman Unger produced by David Martin, the Director of the SEC’s Division on Corporation Finance, may be reviewed on the Center for Security Policy’s website.

The Casey Institute welcomes Acting Chairman Unger’s initiatives. They are the product of intensive consultations between her and other SEC personnel and Rep. Wolf, his staff and the Casey Institute’s Chairman, Roger W. Robinson, Jr., and Senior Associate, Adam Pener. The Institute is gratified by Ms. Unger’s explicit acknowledgment of its contribution in the first paragraph of her letter describing the actions taken to date:

We met and have had ongoing communications with Roger Robinson of the William J. Casey Institute of the Center for Security Policy. Mr. Robinson provided us with additional information about the recommendations in [Rep. Wolf’s] letter and offered some useful suggestions for interagency cooperation on issues involving Sudan and, more generally, on issues involving national security, human rights and religious freedom. His ideas have proven useful in our outreach to other government agencies….

A Bill of Particulars

Among the most important changes being made by Chairman Unger’s agency are the following:

• A requirement that all foreign companies register their filings for proposed investment offerings electronically via the SEC’s EDGAR system. This will ensure that they can be readily accessed by all investors and searched electronically.
• SEC reviews of “registration statements filed by companies doing business in countries subject to U.S. economic sanctions.” Ms. Unger pledged to Chairman Wolf that the SEC’s “staff has decided that it will attempt to review all registration statements filed by foreign companies which reflect material business dealings with governments of companies subject to U.S. economic sanctions administered by [the Treasury Department’s] Office of Foreign Asset Control (OFAC), or with persons or entities in those countries.”
• “Enhanced disclosure for foreign registrants doing business in sanctioned countries.” Ms. Unger notes that “the fact that a foreign company is doing material business with a country, government, or entity on OFAC’s sanctions list is, in the SEC staff’s view, substantially likely to be significant to a reasonable investor’s decision about whether to invest in that company….Our aim is to make available to investors additional information about situations in which the material proceeds of an offering could — however indirectly — benefit countries, governments, or entities that, as a matter of U.S. foreign policy, are off-limits to U.S. companies.” (Emphasis added.)
• Improved interagency communications about and deliberations concerning foreign countries, governments or entities that could raise such concerns, notably Sudan — a country sanctioned by the U.S. government for the Khartoum regime’s ongoing involvement in genocide, slave-trading, terrorism and proliferation, that is nonetheless benefitting from financial resources being obtained in the American capital markets by Canadian, Chinese and other companies exploiting Sudanese oil resources.

The Bottom Line

The Casey Institute looks forward to continuing its highly productive collaboration with the SEC, Rep. Wolf and other congressional leaders and official and non-governmental organizations — notably, the U.S. Commission on International Religious Freedom and NGO members of the “PetroChina Coalition” — as part of its five-year-long Capital Markets Transparency Initiative. It commends the foregoing for their leadership to date in this emerging and increasingly important field. The Casey Institute will be monitoring closely the resulting progress and offering ideas for further improvements in the transparency and discipline urgently needed in America’s capital markets.