German Companies Question Application of Sarbanes-Oxley to Foreign Issuers

A group of Germany’s largest NYSE-listed companies have asked the SEC not to apply the financial certification provisions of the Sarbanes-Oxley Act to them. While supporting efforts to restore investor confidence in the integrity of the U.S. markets, the German foreign private issuers pointed out that German corporate law differs significantly from the U.S. corporate legal regime, but at the same time offers equivalent safeguards for stakeholders. In the tradition of extending comity, the German companies urged the SEC to exercise its broad discretion and exempt foreign private issuers from the certification requirements of Section 302 of Sarbanes-Oxley. The letter was submitted on behalf of, among others, Deutsche Telekom AG, DaimlerChrysler AG, and Allianz AG.

While Section 302 appears on its face to cover foreign private issuers that file reports with the SEC, the German group contends that statutory contruction and legislative history mandate the interpretation that the certification requirement was not intended to apply to foreign private issuers. Section 302(b) specifically applies the certification requirement to U.S. companies that reincorporate outside the U.S. in order to evade the certification requirements. On its face, emphasized the German issuers, Section 302(b) assumes that reincorporating outside the U.S. will relieve the company of the certification requirement found in Section 302(a). Were Section 302(a) read to apply identically to both domestic and foreign issuers, reasoned the German companies, there would have been no reason for Congress to include Section 302(b) to prevent domestic issuers from circumventing the rules. Finally, they noted that imposing the certification requirements on foreign private issuers will make U.S. public capital markets less attractive, even to companies that are fully confident in the integrity of their financial reporting.