Pressure from international legal community forces U-turn on Sarbannes-Oxley
The Securities and Exchange Commission (SEC) has changed its mind on the "noisy withdrawal" provisions of the Sarbannes-Oxley Act. Under pressure from the US and the international legal community, the SEC has ditched the provision, which would have severely impinged on client-lawyer confidentiality.
The SEC will not publish its new rules until early this week, but UK lawyers, including Freshfields Bruckhaus Deringer partner Tom Joyce, heard the proposed new rules explained in a conference call with the regulator last Thursday.
Joyce said: "The most important change is the 'noisy' part of the proposals has gone." He explained that although lawyers will still have to withdraw their services if a client is breaking the law, the firm will no longer have to tell the SEC it has done so. The onus will be on the company involved to report to the SEC that its legal adviser has terminated the relationship.
The new version of the noisy withdrawal rule will be issued this week with a 60-day consultation period. But this is only the start of the process and the SEC could make further changes or drop the rule altogether.
The SEC also redefined which rules will apply to foreign lawyers, narrowing the scope of their application. It adopted the "reporting up" obligation, which provides that lawyers must inform company boards if they find evidence of financial irregularities.