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Cross-Border Activity of Collective Investment Schemes ( June 1996), http://riskinstitute.ch/135990.htm (recognizing the “dramatic increase in cross-border investment management activity” and the need to formalize mechanisms for sharing in formation and jointly conducting inspections); Eudald Canadell, IOSCO Reviews Progress on Financial Integrity Initiatives (Oct./Nov. 1996), http://www.futuresindustry.org/ﬁmagazi-1929/ asp?a522. For further discussion, see infra Parts III.B.1 and III.C.1.4. 3. See, e.g., SEC Signs MOU with the Bank of England, Exchange Act Release No. 1106, 65 SEC Docket 1855 (Nov. 4, 1997); Commodities Futures Trading Commission, OTC Derivatives Oversight Statement of the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Securities Investment Board (2001), http://www.cftc.gov/oia/oiaotcderovst.htm [hereinafter OTC Derivatives]. For further discussion, see infra Parts III.C.5. (Bank of England MOU) and III.C.1 ( Joint Statement Regarding OTC Derivatives Oversight).
and varied. However, courts generally have recognized both the global nature of the securities markets and the importance of international cooperation in enforcement. Part II of this article, which will appear in the Winter 2005 publication of The International Lawyer, examines the continuing effort of U.S. regulators to expand their reach beyond U.S. borders. This global reach is causing U.S. courts to grapple more and more often with the difﬁcult question of what circumstances give U.S. courts the authority to assert jurisdiction over securities transactions that are international in character. The impact of the Sarbanes-Oxley Act (SOX) in expanding the extraterritorial reach of the SEC profoundly changed the global enforcement environment. The United States aggressively asserts jurisdiction under the act, which has caused other national regulators to react by establishing more aggressive regulatory initiatives of their own. While perceived overreaching by the United States has caused tension in the international enforcement community, the reaction to SOX has been to raise standards across jurisdictions. These heightened standards, combined with the existing information-sharing infrastructure, have raised the risk of regulatory exposure for international ﬁrms. The same can be said for U.S. anti-money laundering initiatives, which took on renewed importance in the wake of the terrorist attacks of September 11, 2001. The exercise by the SEC of its post-SOX potency has once again raised the question of the reasonable limits to the scope of U.S. jurisdiction. Foreign companies registered in the United States are clearly subject to this jurisdiction, as are their auditors and ofﬁcers. Does such jurisdiction similarly apply to their foreign employees? Can the SEC affect the governance of the foreign corporation that is already governed by foreign law? Should the percentage of U.S. ownership of a foreign company affect these judgments? All of the above questions need to be viewed in the context that at the same time the United States is expanding its extraterritorial reach, investors are continuing to seek investment opportunities in companies in ways that bypass U.S. regulation. Rule 144A offerings or direct purchases on foreign markets are increasingly easy to access directly. As a result, the jurisdictional means that the SEC uses as the basis of its cases is being eroded. This begs the question of where U.S. regulators should draw their line in the sand or whether U.S. investors should have any say in where the line is drawn. The struggle to ﬁnd the balance between the exercise of jurisdiction and the fundamental goal of protecting investors is exempliﬁed in SEC v. TV Azteca S.A. de C.V.,4 which is discussed in detail in Part II of this article.
4. SEC v. TV Azteca S.A. de C.V., No. 1:05-CV-00004 (D.D.C. ﬁled Jan. 4, 2004). 5. See Letter from Ernst & Young to Jonathan Katz, Secretary, U.S. Securities & Exchange Commission ( July 2, 2003), http://www.sec.gov/rules/pcaob/pcaob200303/ernstyoung070203.htm. 6. See id.
7. See id. 8. See In re W, X, Y & Z v. Swiss Banking Commission, 2A.355/1999/leb (Pub. L. Division II May 1, 2000) (Ct. of Pub. L. of the Fed. Tribunal Nov. 24, 1999). In this case, The Swiss Supreme Court indicated that there remain signiﬁcant issues still to be addressed regarding the reconciliation of United States regulatory interests and Swiss privacy laws. For further discussion, see infra Part IV.A.3.
9. Section 3(a)(50) of the Exchange Act broadly deﬁnes the term foreign securities authority to include “any foreign government, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to securities matters.” 15 U.S.C. § 78c(a)(50) (2005). 10. Id. § 78u(a)(2). 11. International Securities Enforcement Cooperation Act of 1988, S. 2544, 100th Cong. (1988). 12. International Securities Enforcement Cooperation Act of 1988, H.R. 4945, 100th Cong. (1988). 13. Insider Trading and Securities Fraud Enforcement Act of 1988, H.R. 5133, 100th Cong. (1988). 14. 15 U.S.C. § 78u(a)(2). 15. Id. 16. Id.
cedures, a witness would be entitled to assert all relevant rights and privileges of the United States. In addition, a witness would be entitled to assert privileges available in the country seeking the evidence, even in cases where the United States does not recognize the privileges. Issues of privilege would be preserved on the record for later consideration by a court of the requesting authority. The SEC also stated that it anticipated that foreign countries providing reciprocal assistance will follow a similar procedure. The Exchange Act provides the SEC with ﬂexibility, as it is not required to enter into a MOU before granting assistance to a foreign securities authority. In the absence of a MOU, the SEC may, if it receives all necessary conﬁdentiality and use assurances, assist a foreign regulator and thereby demonstrate the value of international cooperation. This allows the SEC to use its powers to encourage the development of reciprocal assistance powers in countries that may not yet be able to enter into broad MOUs. The SEC’s 1988 recommendation also contained three provisions that were approved in substantially similar form by the House and the Senate in 1990. Those provisions, along with two new provisions, were introduced in the House (H.R.1396)17 and in the Senate (S.646)18 in March 1989. In December 1990, Congress enacted the International Securities Enforcement Cooperation Act (ISECA), which amended section 24 of the Exchange Act.19 ISECA has improved substantially the SEC’s ability to cooperate with the securities regulators of other countries. Sub-section 24(d) of the Exchange Act provides a basis for withholding disclosure under the Freedom of Information Act (FOIA) of certain records obtained from a foreign securities authority.20 This exemption complements existing exemptions from disclosure under the FOIA. Therefore, information obtained from a foreign securities authority that does not satisfy the speciﬁc requirements of sub-section (d), also may be withheld if it is entitled to any other FOIA exemption. The exemption provided for in sub-section (d) could be claimed where the information requested was provided by a foreign securities authority, and the foreign securities authority has in good faith determined and represented to the SEC that disclosure of such information would violate the laws applicable to the foreign securities authority. ISECA also clariﬁed the Commission’s authority to provide foreign and domestic securities authorities with non-public information and authorized the SEC to obtain reimbursement from a foreign authority for expenses incurred in providing assistance to that authority. Finally, the SEC and U.S. Self Regulatory Organizations (SROs) were authorized to impose sanctions on a securities professional found by a foreign court or securities authority to have engaged in illegal or improper conduct.
Securities Acts Amendments of 1990, H.R. 1396, 101st Cong. (1990). International Securities Enforcement Cooperation Act of 1989, S. 646, 101st Cong. (1990). International Securities Enforcement Cooperation Act of 1990, H.R. 1396, 101st Cong. (1990). 15 U.S.C. § 78x(d).
21. For a listing of MOUs among the members of the International Organization of Securities Commissions, see http://www.iosco.org. 22. For example, the Forum of European Securities Commissions (FESCO) has implemented a multilateral MOU among its members to improve the efﬁciency of enforcement actions relating to cross-border transactions. Currently, there are many bilateral MOU’s in place among FESCO’s members; however, reliance on such bilateral arrangements requires regulators to adhere to varying terms and standards relating to the provision of assistance. The adoption of a single, multilateral MOU will provide a single set of procedures for European regulators to follow. See FESCO: Regulators Agree to Cooperate to Improve Surveillance, Enforcement, World Sec. L. Rep., Feb. 1999, at 9; FESCO to Ink European MOU to Speed Up Cross-Border Enforcement, Global Compliance Rep., Oct. 5, 1998, at 1. 23. The Rio Declaration, which ﬁrst established the basis for such cooperation and the goals of IOSCO, recognized “the need to enhance investor protection through both oversight of the internationalized markets and securities-related businesses as well as through enforcement of national securities laws with respect to international transactions.” International Organization of Securities Commissioners, Resolution Concerning Mutual Assistance (Nov. 1986), available at http://www.iosco.org/library/resolutions/pdf/IOSCORES1.pdf. The Asian regional committee of the International Organization of Securities Commissions (Asian IOSCO) has been established, comprised of representatives from Australia, Japan, Hong Kong, and Malaysia. 24. The resolution derives from the 1994 IOSCO Resolution in which the members renewed their commitment to the principles of mutual assistance and cooperation and agreed to undertake self-evaluations. International Organization of Securities Commissioners, Resolution on Commitment to Basic IOSCO Principles of High Regulatory Standards and Mutual Cooperation and Assistance (Oct. 1994), available at http://www.iosco.org/ library/resolutions/pdf/IOSCORES11.pdf. 25. International Organization of Securities Commissioners, Resolution of Principles for Record Keeping, Collections of Information, Enforcement Powers and Mutual Cooperation to Improve the Enforcement of Securities and Futures Laws (Nov. 1997), available at http://www.iosco.org/library/resolutions/pdf/IOSCORES15.pdf.
temporaneous records of all securities and futures transactions, including information as to funds and assets transferred, beneﬁcial ownership and details such as price, quantity of securities and identity of brokers.26 Record keeping as prescribed by the Resolution will provide a more complete document trail for transactions that will assist in monitoring and enforcement. IOSCO members also agreed in the Resolution that a competent authority in each member’s jurisdiction should have the power to identify persons who own or control public companies, bank accounts, and brokerage accounts, emphasizing that domestic secrecy laws should not prevent or restrict the collection of such information.27 As a result of the selfevaluations, IOSCO members recognized that the ability of members to implement the desired measures may vary signiﬁcantly depending on many factors, including domestic legislation. Because of the importance of access to information, each IOSCO member agreed under the Resolution to “strive to ensure that it or another authority in its jurisdiction has the necessary authority to obtain [the relevant] information.”28 This provision suggests that, while the regulator itself may not have the power to provide assistance in some cases, another government authority in the jurisdiction—the criminal prosecutor, for example—may have such power to share information with foreign regulators. Because of the different legal structures among IOSCO members, this is an important alternative. Equally important to effective enforcement, however, is the sharing of such information with other IOSCO members. The Resolution therefore provides that members will take appropriate efforts to ensure that such information may be shared among them.29 Finally, members agreed generally to take efforts to remove such other impediments to cooperation as may exist under their domestic legislative and regulatory schemes.30 The IOSCO MOU, promulgated in 2002, is a product of the recognition among securities regulators of the underlying need for cross border cooperation. The IOSCO MOU is discussed below at section 6.
III. SEC Cooperation Understandings, Agreements and Declarations31 A. Memoranda of Understanding and Statements of Intent In recent years, the SEC has entered into MOUs with regulators in Germany, Portugal, India, Singapore, Japan, and Jersey. In addition, as noted above, in 2002, the ﬁrst broad based multilateral MOU was endorsed by members of the International Organization of Securities Commissions. Each of these Understandings establishes another important relationship of cooperation in securities enforcement.
26. Id. § A. 27. Id. § B. 28. Id. § C. 29. Id. § D. 30. Id. 31. The SEC has established cooperative agreements with regulators world-wide, including regulators in Argentina, Australia, Brazil, Canada, Chile, Costa Rica, Egypt, the European Community, France, Germany, Hong Kong, India, Indonesia, Israel, Italy, Japan, Jersey, Mexico, Netherlands, Norway, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the members of IOSCO.
32. Memorandum of Understanding between the United States Securities and Exchange Commission and the German Bundesaufsichtsamt fu¨r den Wertpapierhandel Concerning Consultation and Cooperation in the Administration and Enforcement of Securities Laws, Exchange Act Release No. IS-1129, 66 SEC Docket 2312 (Oct. 17, 1997) [hereinafter MOU BAWe]. The Commodity Futures Trading Commission and the German BAWe have also entered into a Memorandum of Understanding Concerning Consultation and Cooperation in the Administration and Enforcement of Futures and Options Laws, pursuant to which a framework was established for assistance in regulating the futures markets, including providing access to ﬁles, taking statements from witnesses, obtaining information, and conducting compliance inspections and investigations of futures transactions and futures businesses. 33. The BAWe does not have regulatory authority over securities exchanges in Germany, nor does it have regulatory power over issues relating to capital or to the safety and soundness of the securities markets. 34. See MOU BAWe, supra note 32. The MOU is unclear as to whether assistance will be denied if the individual can be prosecuted multiple times in the United States by different U.S. Attorneys or local district attorneys. 35. Cf. United States v. Balsys, 524 U.S. 666 (1998) (holding that fear of foreign prosecution is not a criminal case for purposes of the Fifth Amendment right against self-incrimination). 36. But see Understanding Regarding the Establishment of a Framework for Consultations and Administrative Agreement, between the SEC and the Commission des Operations de Bourse of France, Exchange Act Release No. IS-116 ( Jan. 12, 1990), which includes a similar provision. The German MOU also states expressly that assistance may be denied in cases of insider trading if a criminal proceeding has already been initiated in the State of the requested authority based on the same facts and against the same persons, or if the same persons have been sanctioned on the same charges by the competent authorities of the State of the requested authority; provided, that if the requesting authority can demonstrate that the relief or sanctions imposed would not be duplicative, the parties agree to consult regarding assistance.
inspections or investigations. Nevertheless, the cooperation of the German authority in obtaining information which is located in its territory is a critical element in the SEC’s ability to investigate potential securities violations and to take action against appropriate parties. 2. Portuguese MOU The MOU between the SEC and the Comissao do Mercado de Valores Mobilia`rios of Portugal37 (CMVM) provides for broad-based cooperation and contains a high level of detail regarding the scope of assistance and the procedures to be used in implementing the MOU. Perhaps the most important element of the Portuguese MOU is the broad scope of its provisions for cooperation in obtaining information. Like the German MOU, the Portuguese MOU provides for assistance in interviewing persons, conducting inspections, and obtaining information. However, the Portuguese MOU goes further in allowing the active participation by one authority in inspections and investigations conducted in the jurisdiction of the other authority. For example, under the Portuguese MOU, a representative of the requesting authority may be present for the taking of testimony and may present questions to be asked of any witness by the representative of the requested authority. In addition, a representative of the requesting authority may attend any inspection and, subject to approval by the requested authority, may participate in such inspection. Finally, the requesting authority may seek to have examinations and inspections conducted by a person designated by it, provided that the discretion to grant or deny such requests rests solely with the requested authority. While the Portuguese MOU expressly permits the SEC and the CMVM to use whatever unilateral means are available to obtain information,38 the detailed framework set forth in the MOU increases the likelihood that the parties would ﬁrst seek to use the MOU. Although the SEC and the CMVM have acknowledged in the MOU that they may not have the authority to implement all of the MOUs provisions, they have agreed to use all reasonable means to obtain such authority and to obtain the aid of other governmental agencies where appropriate. 3. Indian MOU The MOU39 between the SEC and the Securities and Exchange Board of India (SEBI) is signiﬁcant primarily because it establishes a basis for mutual cooperation in securities enforcement. In light of the size of the Indian market, this general commitment to cooperation is a critical step.
37. Memorandum of Understanding between the United States Securities and Exchange Commission and the Comiss˘a. o do Mercado de Valores Mobilia´rios of Portugal Concerning Consultation and Cooperation in the Administration and Enforcement of Securities Laws, Exchange Act Release No. IS-1104, 65 SEC Docket 1691 (Oct. 10, 1997). 38. Memorandum of Understanding between the United States Securities and Exchange Commission and Ontario Securities Commission, Commission des Valeurs Mobilieres du Quebec, and British Columbia Securities Commission, Exchange Act Release No. IS-6, 43 SEC Docket 175 ( Jan. 7, 1988). The Canadian MOU which is perhaps the broadest MOU the SEC has entered into, expressly provides that the parties will use the procedures set forth in the MOU before resorting to any unilateral measures. 39. Memorandum of Understanding between the United States Securities and Exchange Commission and the Securities and Exchange Board of India Regarding Cooperation, Consultation and the Provision of Technical Assistance, Exchange Act Release No. IS-1124, 66 SEC Docket 1863 (Mar. 18, 1998) [hereinafter Indian MOU].
Unlike the German MOU and the Portuguese MOU, the Indian MOU is fairly narrow in scope and contains very few details or procedures.40 Rather, the parties state their “intent to provide each other assistance in obtaining information and evidence to facilitate the enforcement of their respective laws relating to securities matters,” in particular in the offer, purchase, or sale of securities.41 The SEC and the SEBI also agree to use all reasonable efforts to obtain the cooperation of other domestic governmental agencies in providing assistance, as well as to consult periodically in order to develop a framework for cooperation. The Indian MOU also addresses the provision of technical assistance by the SEC, which has agreed that, upon the request of the SEBI, it will consult with a view to establishing a technical assistance program. Such a program would include, among other things, the establishment of laws and regulations to protect investors, establishment of standards for offering securities, including disclosure standards, and market oversight and enforcement mechanisms. 4. Singapore MOU The MOU between the SEC and the Monetary Authority of Singapore (MAS) followed closely upon the passage in March of 2000 of Singapore legislation allowing the MAS to cooperate with foreign securities and futures authorities by conducting investigations on behalf of those entities.42 The MOU is broad in scope, providing for the “fullest mutual assistance” permitted by law.43 It contemplates mutual assistance through the provision of information in the ﬁles of the authority from which assistance is requested, the taking of statements, and the obtaining of information and documents. The MOU states that information provided pursuant to the agreement may be used in civil and administrative enforcement matters, as well as for investigation and prosecution of criminal matters. In addition to providing for assistance upon request, the MOU acknowledges the importance of proactive, global enforcement by way of unsolicited assistance.44 The agreement notes the understanding that should one authority come into possession of information that gives rise to a suspicion of a breach or anticipated breach of the laws or regulations of the other, the authority will use reasonable efforts to alert the other of this fact and to provide the information.
40. The SEC has entered into other MOUs that, like the Indian MOU, express a general intention of the parties to cooperate without setting forth any detailed procedures for implementation. As a general matter, these MOUs have been entered into with emerging market countries, such as China, Egypt, and Costa Rica. See Memorandum of Understanding between the United States Securities and Exchange Commission and the Egyptian Capital Market Authority Regarding Exchange of Information, Consultation and Technical Assistance, Exchange Act Release No. IS-932, 61 SEC Docket 753 (Feb. 12, 1996); Memorandum of Understanding between the United States Securities and Exchange Commission and the China Securities Regulatory Commission Regarding Cooperation, Consultation and the Provision of Technical Assistance, Exchange Act Release No. IS-662, 56 SEC Docket 1717 (Apr. 29, 1994); Communique between the United States Securities and Exchange Commission and the Costa Rican Comsion de Valores on the Provision of Technical Assistance for the Development of the Costa Rican Securities Markets, Exchange of Information and the Establishment of a Framework for Cooperation, Exchange Act Release No. IS-331, 49 SEC Docket 1644 (Oct. 16, 1991). 41. Indian MOU, supra note 39. 42. Memorandum of Understanding among the SEC, the U.S. Commodity Futures Trading Commission and the Monetary Authority of Singapore, Exchange Act Release No. IS-1224, 72 SEC Docket 1391 (May 16, 2000). 43. Id. 44. Id.
e la Borsa; Jersey—Jersey Financial Services Commission; Lithuania—Lithuanian Securities Commission; Mexico—Comision Nacional Bancaria y de Valores; New Zealand—New Zealand Securities Commission; Ontario—Ontario Securities Commission; Poland—Polish Securities and Exchange Commission; Portugal— Comissao do Mercado de Valores Mobiliarios; Quebec—Commission des valeurs mobilieres du Quebec; Spain—Comision Nacional del Mercado de Valores; South Africa—Financial Services Board; Turkey—Capital Markets Board; United Kingdom—Financial Services Authority; United States—United States Securities and Exchange Commission and Commodity Futures Trading Commission. 49. Memorandum of Understanding Between the United States Securities and Exchange Commission and Commodity Futures Trading Commission and the Jersey Services Commission Concerning Cooperation, Consultation, and the Exchange of Information, Exchange Act Release No. IS-1261, 77 SEC Docket 2802 ( June 20, 2002).
50. The IMRO is a self-regulatory organization recognized by the U.K. Securities Investments Board under the Financial Services Act of 1986. It is now part of the FSA structure, but retains its legal status within that structure pending further ﬁnancial services legislation in the United Kingdom. 51. See Exchange Act Release No. IS-806, supra note 2. 52. U.K. MOU, supra note 46.
53. Memorandum of Understanding with the United Kingdom (and the Commodity Futures Trading Commission), Exchange Act Release No. IS-4, 43 SEC Docket 163, (Sept. 23, 1986). 54. Declaration on Cooperation and Supervision of Cross-Border Investment Management Activity, Exchange Act Release No. IS-863, 60 SEC Docket 1206 (Oct. 6, 1995). 55. OTC Derivatives, supra note 3. 56. Id. The Joint Statement recognizes the work of IOSCO in the area of cross-border activity in the OTC derivatives markets. See also International Conference on Financing for Development, Causes, Effects and Regulatory Implications of Financial and Economic Turbulence in Emergency Markets (Mar. 21, 2001), http://esa.un.org/ ffd/policydb/PolicyTexts/IOSCO-1.htm.
conditions; promoting the development and use of sound management controls as part of an effort to monitor and control ﬁrms’ activities and risk; encouraging strengthened standards for customer protection examining the regulatory framework for multilateral clearing arrangements; and promoting improved standards for accounting recognition, to work actively with other domestic and international securities, futures and ﬁnancial regulators to promote wider regulatory cooperation.57 This ﬁrst international understanding among securities and futures regulators for developing and coordinating an approach to the OTC derivatives market demonstrates the need for, and the ability of, regulators to work in a coordinated fashion to address some of the most complex issues arising in the markets today. 2. Windsor Declaration Representatives of regulatory authorities from sixteen countries came together in May 1995, and issued the Windsor Declaration in an effort to “prevent or contain the adverse effects of ﬁnancial disruptions” in light of “the increase[ed] volume of cross-border [futures] transactions.”58 Like the Bank of England MOU and the SEC/IMRO Declaration, the Windsor Declaration focuses on the regular ﬂow of information and on the development of procedures to address emergency situations in the futures markets. The four main elements of the Windsor Declaration are (i) cooperation between exchanges; (ii) protection of customer positions, funds, and assets, (iii) default procedures; and (iv) regulatory cooperation in emergencies. The Declaration is a statement by the parties recommending areas to be addressed, and changes to be implemented, through the Technical Committee of IOSCO. With respect to cooperation between market authorities, the Windsor Declaration prescribes a survey of current procedures used to identify large exposures and speciﬁes the type of information necessary to evaluate such exposures, as well as certain triggers and thresholds, the occurrence of which would entitle the authorities to request assistance from one another. It also establishes mechanisms for information sharing within the framework of the Declaration. Customer positions, funds, and assets are to be protected through the development of best practices with a view to maximizing the safety of such funds and risk management for protection of the intermediary. The Windsor Declaration also proposes the development of best practices with respect to the treatment of positions and funds in the event of a default or disruption at a member ﬁrm and recommends the establishment of standards for providing information to market participants in the event of a default. Finally, the Windsor Declaration afﬁrms the parties’ commitment to regulatory cooperation in the event of an emergency situation in the futures markets or with respect to a market participant.
57. OTC Derivatives, supra note 3. 58. Commodity Futures Trading Commission, Windsor Declaration (1995), http://www.cftc.gov/oia/ oiawindsordeclaration.htm. Australian Securities Commission, Comissao de Valores Mobiliarios (Brazil), Commission de Valeurs Mobiliers du Quebec and Ontario Securities Commission (Canada), Commission des Operations de Bourse (France), Bundesaufsichtsamt fur den Wertpapierhandel (Germany), Hong Kong Securities and Futures Commission, Commissione Nazionale per le Society e la Bolsa (Italy), Securities Bureau of the Ministry of Finance of Japan, Securities Board of the Netherlands, the Monetary Authority of Singapore, Financial Services Board (South Africa), Commission Nacional del Mercado de Valores (Spain), Swedish Financial Supervisory Authority, the Federal Banking Commission (Switzerland), the CFTC and the SEC (United States), and the Securities and Investments Board (United Kingdom).
3. Joint Initiative to Improve Oversight of Global Securities Firms On July 17, 1995, the SEC and the SIB announced the ﬁrst joint initiative to assess the global activities of major international securities ﬁrms by conducting in-depth studies of the ﬁnancial, operational, and management controls used by selected securities ﬁrms that conduct signiﬁcant cross-border derivatives and securities activities. The initiative is signiﬁcant in that it brings together the major securities regulators in a practical exercise leading to a better understanding of each regulator’s approaches as well as contributing to a better information exchange between the regulatory authorities in the United States and the United Kingdom. Pursuant to this initiative, the SEC and the SIB have worked to review and evaluate internal controls used by ﬁrms with signiﬁcant international securities activities, including controls relating to market, credit, liquidity, and funding risks. Because the selected ﬁrms are likely to have signiﬁcant operations in third countries, the SEC and SIB expect to work jointly with representatives of other relevant regulators. 4. Futures Industry Association MOU On March 15, 1996, forty-nine market authorities and self-regulatory organizations entered into an International Information Sharing Memorandum of Understanding and Agreement (FIA MOU).59 The central focus of the FIA MOU is information sharing and, in particular, notiﬁcation of certain signiﬁcant events and disciplinary actions. This initiative is a complex two-tier approach involving both the exchanges and their corresponding regulators. The exchanges that are parties to the FIA MOU recognized the need for cooperation with respect to certain signiﬁcant events, and the MOU therefore sets out criteria and procedures for notiﬁcation and information sharing with respect to such events. Information to be provided under the FIA MOU is limited to that which is relevant to the event that actually gives rise to a request for assistance. The parties also agree to use best efforts to keep one another informed of conclusions made on the basis of information provided and of any action taken, including disciplinary action. In order to assist in the implementation of the FIA MOU, a Declaration on Cooperation and Supervision of International Futures Markets and Clearing Organizations was also issued on March 15, 1996, by futures exchanges and clearing organizations in the territories of the parties to the FIA MOU. The regulators who are parties to the Declaration endorsed the FIA MOU, acknowledged that the exchanges that have signed the MOU may need the assistance of their regulators in making information available to exchanges in other jurisdictions, and stated their intent to assist by all legal means. In furtherance of the principles set out in the FIA MOU, ﬁfteen regulatory authorities issued a Joint Communique on October 31, 1997, in which they encouraged the development of best practices in contract design and review and in approaches to market surveillance and information sharing. The authorities agreed upon the ﬁrst international benchmarks for supervision of futures market and stressed in particular cooperation in respect of large exposures. The authorities also stated their intent to amend the Declaration on Cooperation and Supervision adopted on March 15, 1995 in order to increase the scope of participation.
59. Canadell, supra note 2.
60. The Financial Services Authority (FSA) also signed the MOU to conﬁrm that its provisions would continue in effect upon the transfer of banking supervision from the Bank of England to the FSA in 1998. Therefore, the MOU should now be thought of as an agreement between the United States authorities and the FSA. 61. Exchange Act Release No. 1106, supra note 3. 62. Id. 63. See id. A “Relevant Firm” is deﬁned by the Bank of England MOU as a broker-dealer, futures commission merchant, or bank, if that entity, its parent or holding company, is incorporated or headquartered in the United States or the United Kingdom and any holding companies, subsidiaries and afﬁliates of such entity if that entity, alone or together with one or more of its related entities, conducts securities, futures, and/or banking transactions (including derivatives transactions) in both the United States and the United Kingdom. 64. Id. 65. Id.
66. Id. 67. See SEC v. Poyiadjis, Exchange Act Release No. 17862, 2002 WL 31643059 (S.D.N.Y. Nov. 25, 2002). Anti-money laundering initiatives are discussed in the forthcoming Part II of this article. 68. OTC Derivatives Dealers, Exchange Act Release No. 39454, 66 SEC Docket 155 (Dec. 17, 1997). The new rules, commonly referred to as the broker-dealer “lite” rules, became effective on January 4, 1999. 69. See id. 70. See Kyra K. Bergin et al. Regulatory Developments and Current Issues in Regulation of Trading Markets and International Dealers, in International Securities Markets 199 (Alan J. Beller & Michael D. Mann co-chairs, Practicing Law Institute 1997), available at 1011PLI/Corp 371 (Westlaw).
71. Global Sec. Corp. v. British Columbia (Securities Commission),  S.C.R. 494. Like the SEC’s MOU’s previously discussed, these information sharing agreements reﬂect the importance of bilateral arrangements between the SEC and foreign regulators in achieving effective enforcement. 72. See TransAtlantic Business Dialogue, 1999 TABD CEO Conference Conclusions (Oct. 29-30, 1999), http://static.tabd.com/gems/1999BerlinCEOReport.pdf.
notice to foreign regulators about actions taken in the United States regarding the securities of dually traded issuers. The notiﬁcation arrangements are intended to complement a number of existing direct market-to-market agreements under which U.S. exchanges and markets already share information directly with certain foreign counterparts regarding issuers with securities trading in the United States and abroad. The arrangements will complement existing MOUs and other arrangements the SEC has to obtain assistance in investigations and enforcement actions and to provide for the exchange of non-public information.
73. Global Sec. Corp.,  S.C.R. 494. 74. Id.; cf. KPMG Klynveld Accountants v. Stichting Toezicht Effectenverkeer [Securities Trade Supervision Foundation], No. 92/1954/113/226, Amsterdam (Dec. 17, 1992) (subject of inquiry unsuccessfully challenged underlying Dutch legislation under which Dutch regulator had ordered provision of information requested by SEC).
75. 76. 77. 78. 79. 80. 81. 82.
Global Sec. Corp.,  S.C.R. 494. Id. at 5. Id. at 5-6. See id. at 7. Id. at 4. Id. at 13. Id. at 22. Id. ¶ 32.
the Court held that the authority of the BCSC to provide assistance to the SEC under the MOU was constitutional.83 2. Singapore: the APL Case In another case in which the SEC requested assistance in obtaining information relevant to potential violations of U.S. securities laws, the High Court of Singapore found that assistance was permissible under domestic law. The case, In Re Evidence (Civil Proceedings in Other Jurisdictions) Act, arose out of litigation brought by the SEC relating to suspected violations of section 10(b) and rule 10b-5 of the Securities Exchange Act by certain Singapore residents.84 The SEC charged that such persons had engaged in insider trading of the stock of APL Ltd. while in possession of non-public information regarding the potential acquisition of the company by Neptune Orient Line Ltd.85 The SEC made an application for the appointment of an examiner in Singapore to take evidence to be used in a civil proceeding in the United States in which the SEC was seeking an order (i) enjoining the defendants from future violations of securities laws, (ii) ordering disgorgement of proﬁts and (iii) imposing civil penalties.86 Two people named as witnesses disputed the SEC’s right to obtain evidence under the Evidence (Civil Proceedings in Other Jurisdictions) Act of Singapore (ECPOJA).87 Under the ECPOJA, assistance may be provided to foreign authorities only if the High Court of Singapore is satisﬁed that the evidence sought is to be “obtained for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated.”88 Moreover, the proceeding must be considered civil in nature under the laws of both the requesting jurisdiction and those of the court addressed in the request.89 The witnesses argued that the U.S. proceeding instituted by the SEC would in fact be characterized as criminal in nature under Singapore law and therefore assistance should not be granted under the ECPOJA. The Singapore court, however, ruled that assistance under the ECPOJA could be provided to the SEC.90 The civil penalties sought by the SEC were found by the court to be penal in nature because the money collected would go to the Treasury rather than to injured persons.91 However, a proceeding seeking injunctive relief is considered a civil proceeding under both U.S. and Singapore law and therefore the requested assistance was held to be permissible.92 The court determined that the signiﬁcant issue was the nature of the proceeding—a civil action in the U.S. courts—and not the nature of the potential relief.93 83. Id. ¶ 36. 84. SEC v. Ong Congqin Bobby & Anor  1 S.L.R. 310, 311. 85. Id. 86. Id. 87. Id. 88. Id. at 312. 89. Id. 90. Id. at 314. 91. Id. at 312-13. 92. Id. at 313-14. 93. In a 1975 case entitled Schemmer v. Property Resources Ltd.,  Ch. 273, an English trial court held that the Securities Exchange Act is a penal statute and therefore unenforceable in the United Kingdom notwithstanding the fact that private citizens may get civil relief thereunder. In Schemmer, a receiver that was appointed in a United States insider trading action brought by the SEC had sought appointment as receiver over certain assets located in the United Kingdom, as well as injunctive relief through U.K. courts. The court’s judgment in Schemmer was never challenged in a higher court, and has not generally been followed.
94. Federal Act on Securities Exchanges and Securities Trading of 24 March 1995 (Securities Act 1995) BEHG/LBVM/LBVM, an unofﬁcial, amended version of the Swiss Act is available at http://www.swx.com/ admission/regulation/rules _ federal _ en.html. 95. Id. 96. Id. 97. Id. 98. Id. 99. Id. 100. See Daniel Zuberbuhler, Int’l Regulatory Talk, Compliance Rep., Feb. 1, 1999, at 10 (director of Swiss Banking Commission discussing cooperation under securities and banking laws). 101. In re W, X, Y & Z, 2A.355/1999/leb.
102. 103. 104. 105. 106. 107. 108.
SEC v. Euro Sec. Fund, No. 98-7347, 2000 WL 1376246, at *1 (S.D.N.Y. Sept. 25, 2000). In re W, X, Y & Z, 2A.355/1999/leb. Id. Id. Id. Id. In re Global Minerals & Metals Corp., No. 99-11, 2001 WL 1167807, at *6 (C.F.T.C. Oct. 3, 2001).
109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119.
Id. at *1. Id. Id. Id. Id. Id. Id. Id. Id. at *3. Id. Id. at *5.
120. 121. 122. 123. 124. 125. 126. 127. 128. 129.
Id. Id. Id. at *5-6. Id. at *6. Id. Id. Id. (citing Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176, 180 (1982)). Id. (quoting Iceland S.S. Co. v. U.S. Dep’t of the Army, 201 F.3d 451, 458 (D.C. Cir. 2000)). Id. at *8. Id.
130. Id. at *7. 131. Id. at *8. 132. Id. 133. SEC v. Dunne Fin. Ltd., Litigation Release No. 15300 (Mar. 18, 1997); SEC v. Dunne Fin. Ltd., IS1065 (Royal Court of Guernsey Feb. 28, 1997). 134. See Michael D. Mann et al., The Establishment of International Mechanisms for Enforcing Provisional Orders and Final Judgments Arising from Securities Law Violations, 55 Law & Contemp. Probs. 303 (Autumn 1992). 135. Litigation Release15300, supra note 133; SEC v. Dunne Fin. Ltd., IS-1065. 136. See also SEC v. Felix, Inc. (Royal Court of Jersey Jul. 7, 1997) (freezing certain assets of an off-shore corporation administered in Jersey, Channel Islands). 137. Poyiadjis, 2002 WL 31643059. 138. Id. The Commission also obtained an asset freeze in the United States through an October 19, 2001, injunction entered by the U.S. District Court for the Southern District of New York.
139. Id. 140. Id. 141. Id. 142. Id. 143. Id. 144. Id. at *2. 145. Id. 146. Ethiopis Tafara, Dir., Ofﬁce of Int’l Affairs SEC, Speech by SEC Staff: IOSCO Annual Conference: Public Discussion Panel on Combating Financial Crime Globally (Oct. 17, 2003), http://www.sec.gov/news/ speech/spch101703iosco.htm. 147. Id. 148. Id. 149. Id. 150. Id.
V. Conclusion The enormous growth in international cooperative agreements among securities regulators over the past decade has provided regulators with potentially powerful tools for regulation and enforcement. The success of these agreements will depend upon two interrelated factors: the degree to which they are used and developed and the degree to which the national legal systems and courts support such use. Each of these factors should be recognized as separate and distinct. The agreements are statements of intent; the practice of utilizing them still needs to be developed. In the Winter 2005 publication of The International Lawyer, this article will examine the issues that have arisen in the course of regulators’ attempts to make use of, and in some instances exceed the scope of, the agreements discussed herein. Regulators must abandon old habits of unilateralism, however expedient the approach may appear. Similarly, courts which have jealously guarded jurisdiction must evaluate the extent to which regulators ought to be able to make use of cooperative agreements to address issues that are international in character. Part II will also discuss the reaction to the efforts of regulators, most notably U.S. regulators, to aggressively assert extra-territorial jurisdiction. Finally, Part II will identify some of the questions likely to shape the direction of international enforcement over the next ten years.

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