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The Independent: Europeans attack Washington over SEC's red-tape bear trap


By Jason Nisse

04 April 2004


A transatlantic row has blown up over America's insistence that hundreds of European companies conform to its draconian new regulations.


A group of European industry bodies, led by the Confederation of British Industry, has challenged the US Securities and Exchange Commission over rules that make it almost impossible for companies to withdraw from the US.


They are claiming that the US is exporting its reaction to the scandals at Enron and WorldCom to European companies.


The row centres on a few hundred quoted companies from Europe which have either taken a secondary listing on an American stock exchange or have in some other way issued securities in the US. Around 200 European firms, including 80 from the UK, have listings on the New York Stock Exchange or Nasdaq, but others were forced to register with the SEC because they bought companies with US listings.


Even if they cancel their listing in the US, they still have to maintain their registration if they have more than 300 US-based shareholders. If they can prove they have less than 300 US shareholders, the SEC will suspend the requirement to register but will reinstate it if the regulator believes the number of US-based investors rises above the threshold.


US registration means that companies have to comply with American regulations, including the Sarbanes-Oxley Act, brought in post-Enron, which has greatly increased regulation and added to the likelihood of a criminal conviction if accounts are wrong.


Mike Rake, the chairman of KPMG International, said: "There is a genuine concern among foreign registrants about the complexity and cost of completing and duplicating regulatory regimes. There is real concern about the time and money spent on this."


HSBC recently revealed that it is spending over $400m (215m) a year on complying with regulations. Meanwhile, a potential litigation against Shell executives about overbooking of reserves has sent a chill through European companies.


"Post Sarbanes-Oxley, the ante has been upped," said Larry Vranka, a corporate partner at City law firm Linklaters. "Companies are seriously looking at delisting and deregistering from the US."


The regulatory burden is about to get worse, he added. From July next year, non-US companies will need a report from their auditors verifying that the group's internal controls are up to scratch. This is causing concern not just to companies but also to their advisers.

"This could be the straw that breaks the camel's back," said Linklaters' Mr Vranka. "It will mean that the accountants are doing effectively two audits and could add 50 to 100 per cent on to the cost of the audit."

Prompted by corporate concerns, 11 European trade bodies, including the CBI and the European Association for Listed Companies, wrote recently to William Donaldson, the chairman of the SEC.


The letter, backed by legal advice from a top New York law firm, called for a change to the laws which would make it easier for companies to deregister in the US.


"We have been informed that, unlike the analogous rules in most European countries, the US rules make it difficult and in some cases impossible for a European company to terminate its reporting obligations," said the letter.


The message was amplified when John Cridland, deputy director-general of the CBI, met with the SEC a few weeks ago. The SEC has yet to respond but Rhian Chilcott, the CBI's representative in Washington, said it was well aware of the problem. However, the US administration does not want to be seen during an election year to be easing up on European companies by letting them escape regulation.

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