Reinsch Calls Possible SEC Changes to Disclosure Requirements 'Troubling'

Thursday, 16 August 2001

"We are very troubled by indications that the Commission may be altering its materiality standard for disclosure with respect to foreign registrants' business activity in countries subject to OFAC-administered sanctions," said Bill Reinsch, president of the NFTC.

The NFTC's concerns arose from a May 8, 2001 memorandum to acting SEC Chairperson, Laura Unger, from David Martin, Director of the Division of Corporate Finance, indicating that reasonable investors may find it material to a company's profitability if it were to have "business relationships in sanctioned countries." The memorandum indicates that disclosure would make available to investors information about situations in which "the proceeds of an offering could, however, indirectly" benefit a sanctioned entity.

"We are committed to transparency and compliance with U.S. sanctions programs," said Reinsch. "But this implied expansion of the materiality standard can have a number of significant negative consequences."

·        It can provide a serious disincentive for foreign firms to list on U.S. securities exchanges. The consequences would parallel those raised by Chairman Greenspan in a July 24, 2001 Senate Banking Committee hearing on legislation requiring enhanced disclosure by foreign registrants: “the effect of that would be essentially to move a considerable amount of financing our of the United States to London, Frankfurt, Tokyo…”

·        Application of a different standard to foreign registrants than that applied to U.S. companies is a departure from the principle of national treatment;

·        The May 8 staff memorandum can be read as expanding the definition of materiality to include all business conducted in countries subject to OFAC-administered sanctions however immaterial it may be to the financial outlook and profitability of the company.

USA *ENGAGE is a coalition of 670 small and large businesses, agriculture groups and trade associations working to seek alternatives to the proliferation of unilateral U.S. foreign policy sanctions and to promote the benefits of U.S. engagement abroad. For more information on USA* ENGAGE and the harmful effects of unilateral trade sanctions, visit the USA* ENGAGE web site at

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