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The New York Times: Shell Probe to Test Regulator Cooperation



Published: March 27, 2004


WASHINGTON (Reuters) - Investigating the Royal Dutch/Shell (RD.AS) (SHEL.L) accounting scandal will demand close coordination among U.S., UK and Dutch regulators, testing international teamwork, securities lawyers said on Friday.


But a top U.S. Securities and Exchange Commission official told Reuters the record is strong and getting stronger on transatlantic securities law enforcement.


``We have long-established, well-functioning relationships with our counterparts in the (European) jurisdictions, with whom we've been cooperating over a number of years,'' SEC International Affairs Director Ethiopis Tafara said.


``That cooperation has not waned. As of late, indeed, it is stronger,'' Tafara said in an interview.


Shell is one of several European companies, including Dutch retailer Ahold NV (AHLN.AS) and Italian dairy group Parmalat (PRFI.MI), with U.S. stock market listings that have recently faced SEC probes. Shell has headquarters in both London and The Hague, even further complicating regulation.


Sharp cuts by Shell in its oil and gas reserve estimates have drawn the attention of the SEC and the U.S. Justice Department, as well as Britain's Financial Services Authority and the Netherlands' markets regulator, AFM.


For U.S. authorities, corporate investigations tend to follow established procedural patterns, with the SEC and Justice working hand-in-hand recently on high-profile cases, such as Enron Corp. (ENRNQ.PK) and WorldCom Inc., now MCI (WCOEQ.PK).


``The dynamic changes when foreign regulators step into the mix,'' said Jacob Frenkel, partner in the law firm of Smith Gambrell & Russell in Washington and a former SEC lawyer.


The SEC has standing agreements with its counterparts in the European Union, Canada, Japan and other nations. These pacts largely cover sharing of information, said Maureen Brundage, a partner and co-head of the worldwide securities practice group at the law firm of White & Case in New York.


As the SEC investigates, it typically requests information from other jurisdictions as their probes proceed in parallel.


Shell's twin headquarters in London and The Hague is a peculiar arrangement some analysts say muddles internal lines of authority and communication, perhaps contributing to reserve accounting problems at the world's third-largest oil company.


``When you have two heads ... it complicates the internal workings and then, from a regulator point of view, it does place, I think, added burdens,'' Brundage said.


As in other international matters, the SEC's cooperation agreements don't reach to criminal matters, which are the responsibility of the Justice Department.


The SEC can sanction foreign nationals, but when it comes to bringing criminal charges or arresting them, international extradition and other treaties come into play.


``There is information sharing and that helps in doing investigations,'' Brundage said. ``But that's separate from how you, in effect, arrest a person and try a person.


``The fast way is to actually find the person in the United States so you can then serve them. But generally, people who are in this kind of trouble are smart enough to stay away.''  


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