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CCBE response to SEC proposed rule:
File No. S7-45-02 1. INTRODUCTION The Council of Bars and Law Societies of the European Union (CCBE) is the representative body of over 500,000 European lawyers through its member bars and law societies. In addition to membership from EU bars, it has also observer representatives from a further 13 European countries' bars. The CCBE responds regularly on behalf of its members to policy consultations which affect European lawyers. The present document is the CCBE's further response to the proposed rule of the Securities and Exchange Commission (SEC) on `Implementation of Standards of Professional Conduct for Attorneys'. The CCBE made an initial response in December 2002, which is attached for ease of reference, and is now responding to the issues raised during the further extended consultation period mentioned by the proposed rule issued by the SEC on 29 January 2003. Our remarks are divided into two parts. First, we comment on the final rule published on 29 January 2003, and seek further clarification in respect of it. Second, we comment on the proposed rule issued on the same date. 2. FINAL RULE (release Nos. 33-8185; 34-47276; IC-25929) In general, the CCBE welcomes the decision made by the SEC to exclude foreign lawyers from the ambit of the new rule, and is grateful that the SEC so decided. However, the CCBE remains concerned about the following issues in the final rule, and therefore seeks some clarification from the SEC in respect of them. a) Noisy withdrawal There will still be European lawyers who will be covered by the new rule. They will be those European lawyers who are either qualified also in a US jurisdiction or who are giving advice on US law without the benefit of US counsel. The CCBE well understands why such lawyers are deemed to be covered by the new rule. The CCBE also understands that Section 205.6(d) exempts such lawyers from the requirement to `comply with the requirements of this part to the extent that such compliance is prohibited by applicable foreign law'. However, the circumstances raised by the CCBE in its original response will still apply to those European lawyers, namely that they may be faced by a conflict of rules (one forbidding them to disclose clients' secrets, and the other requiring them to do so). The CCBE does not believe that there can be any reconciliation between `noisy withdrawal' and a European lawyer's professional obligations - see our original response for concrete examples of the statutory and constitutional duties of European lawyers in this regard. Therefore, the CCBE strongly urges the SEC not to introduce `noisy withdrawal' at all, to avoid such a dilemma. Even though disciplinary sanctions may not follow in such circumstances, it is not healthy for the administration of justice for lawyers to be placed in a position of facing utterly conflicting duties. b) Clarifications of definitions Furthermore, we propose that there be some clarification on questions which have arisen under Section 205.2 `Definitions' and under Section 205.6(d) `Sanctions and Discipline'. The first clarification sought is whether this definition includes a person with a foreign qualification who is licensed as a Foreign Legal Consultant (FLC) in a state of the United States. The CCBE would argue that such a person should be within the definition of Section 205.2 (j), since the FLC status gives no authority to practise US law. The second clarification sought refers to the extent to which non-US qualified partners in a law firm will be deemed to be giving advice on US law with the benefit of US counsel when one of their partners in the law firm, not involved in the particular case, is also qualified to practise - either as a sole qualification or as an add-on to a European qualification - in the US. In the CCBE's view, it should be made clear that in such circumstances the mere accident of having a US qualified partner in the firm should not mean that the non-US qualified partners are giving advice on US law with the benefit of US counsel. This would particularly be the case - taking further the first clarification sought above - if the `US' partner was not fully qualified in the US, but was merely licensed as an FLC in one of the US states. The CCBE suggests that a phrase should be added to that sentence to make clear that not only foreign law might be concerned in such cases, but also professional regulations issued by foreign Bars or Law Societies. This is already provided for in the last sentence of the commentary relating to this section: "New paragraph 205.6(d) provides that attorneys in that situation must comply with the part to the maximum extent allowed by the regulations and laws to which they are subject". 3. PROPOSED RULE (release Nos. 33-8186; 34-47282; IC-25920) Since the CCBE is opposed in principle to the idea of `noisy withdrawal' for the reasons already given, the CCBE favours the alternative option of `silent withdrawal' as outlined in the new proposed rule issued by the SEC. The CCBE shares the view that a lawyer must withdraw from a case if he/she discovers corporate wrongdoing. It is believed that there is not a problem in any European jurisdiction with a lawyer telling the corporate client that he/she is withdrawing for a particular reason (say, reasonable suspicion of corporate wrongdoing), and that the client then becomes subject to a duty to inform the appropriate regulatory authority of this withdrawal. However, the fact that the issuer might, by reporting the withdrawal, disclose some further information, would still cause problems for those European countries where (unlike in the common law system) professional secrecy is not at the disposal of the client, who accordingly cannot validly waive it. In those countries, silent withdrawal by the lawyer could constitute an indirect violation of the secrecy obligation if the client has to report not only the fact of the withdrawal but also the circumstances relating to it, i.e. the facts of the case and the legal valuation received from the lawyer. Because of these rules in some European countries, the CCBE would prefer the issuer to be required to report only the fact of the attorney's withdrawal, without being required to report the circumstances relating to it. However, overall, if the choice has to be between `silent withdrawal' and `noisy withdrawal', without the possibility of a third option where no surrounding circumstances relating to the withdrawal are reported, then the CCBE prefers `silent withdrawal'. 4. CONCLUSION The CCBE:
April 3, 2003 |