Understanding Issuers

The FCPA (both the antibribery provisions and the books and records and internal control provisions) apply to issuers.

That was easy.

What is not so easy is figuring out just which companies are issuers. The FCPA defines an issuer as when a company "has a class of securities registered" with the SEC pursuant to the securities laws or when a company is "required to file reports" with the SEC pursuant to the securities laws.

These terms can be confusing, particularly when talking about non-U.S. based companies.

In connection with both the BAE and Technip matters, there was some mention of a potential SEC angle despite the fact that neither company currently has shares traded on a U.S. exchange.

Miller & Chevalier's release in connection with the BAE matter (here) states:

"The U.S. pleadings detail significant issues with BAE’s compliance program and internal controls, yet the pleadings did not allege substantive violations of the FCPA’s accounting provisions, and the Securities and Exchange Commission (“SEC”) has yet to bring an action against BAE. The absence of SEC charges may reflect a lack of SEC jurisdiction because BAE was not subject to the registration and reporting requirements of the Securities and Exchange Act during the relevant time period, which is required for FCPA accounting provision jurisdiction. According to press accounts, however, the SEC may have investigated BAE in connection with the al-Yamamah arms sale. The status of this possible investigation remains unclear."

Technip's release (here) speaks of both the DOJ and SEC involvement in resolution of that matter.

Enter James Tillen (here), one of the co-authors of the Miller & Chevalier piece, to help explain SEC jurisdiction in these two similar, yet different matters.

Here is what he had to say.

"We specifically note in the Client Alert that the absence of an SEC resolution was likely due to the fact that the SEC did not have jurisdiction: 'The absence of SEC charges may reflect a lack of SEC jurisdiction because BAE was not subject to the registration and reporting requirements of the Securities and Exchange Act during the relevant time period, which is required for FCPA accounting provision jurisdiction.' Press accounts reported that the SEC was investigating at some point so it was worth raising the question of why no SEC resolution (especially since the DOJ effectively brought an internal controls case).

I looked quite closely at the issue of whether BAE was an issuer and concluded the following:

The definition of issuer includes any entity “which has a class of securities registered pursuant to” Section 12(g) of the Securities Exchange Act of 1934 or “which is required to file reports under” Section 15(d) of the Securities Exchange Act. 15 U.S.C. §§ 78dd-1(a), 78c(a)(8), 781, 78o(d). During the relevant time period, BAE Systems plc’s ADRs were sold in the United States Over The Counter (“OTC”), and not on any national securities exchanges, such as the NYSE, which require registration with the SEC. In fact, BAE has filed for an exemption from registration under Section 12(g) of the Exchange Act since at least 2002. See List of Foreign Issuers That Have Submitted Information Under the Exemption Relating to Certain Foreign Securities, SEC Release No. 34-45855 (May 1, 2002) (BAE listed as British Aerospace plc), SEC Release No. 34-49846 (June 10, 2004), and SEC Release No. 34-51893 (June 28, 2005). Pursuant to this exemption, BAE must provide information to the SEC on a yearly basis by completing Form F-6. See Rule 12g3-2. However, BAE is exempt from the annual and other periodic reports under Section 15(d) of the Act. See 17 C.F.R. § 240.15d-3. Based on these considerations, it would appear that BAE is not subject to the registration and reporting requirements of the Securities Exchange Act and therefore not an “issuer” for purposes of FCPA jurisdiction."

In contrast, Tillen stated that Technip "had American Depository Shares listed on NYSE from at least 2001 until 2007. Thereafter, it delisted (see here and here) and now only trades on the OTC (over-the-counter) market. When it was listed, Technip was an 'issuer' for purposes of the FCPA."

*****

Thanks for the explanation James.

As my mentor was fond of saying ... "at least now I am confused on a higher level."