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EU Calls for European Auditors to be Excluded from U.S. Law

Saying that European auditing companies are already regulated and monitored by the EU, the European Commission has called for those companies to be excluded from a key provision in the controversial Sarbanes-Oxley Act.


New U.S. securities regulations are causing a big headache for German companies

The European Commission is demanding that European auditing firms be excluded from a provision in a new American securities law that gives the U.S. increased regulatory authority over European accounting and auditing firms.

In a letter sent to Harvey Pitt, president of the U.S. Securities and Exchange Commission, on Thursday, European Commissioner Frits Bolkestein, who is in charge of securities and taxation issues, argued the law would essentially create a second regulatory authority for large European companies that is both "unnecessary" and "burdensome."

"Excessive, unproductive, disproportionate"

Bolkestein criticized the fact that auditors from the European Union doing work for American firms would now be subjected to the law. "I'm very concerned about the risk of EU accounting firms being subjected to double regulatory authorities. That would be excessive, unproductive and disproportionate," the Dutch commissioner wrote.

However, Bolkestein did not make any reference in his letter to a provision in the new law requiring that top executives of European companies trading on American stock exchanges be held liable for the accuracy of their balance sheets. On Wednesday, the European Commission stated that this provision was in accordance with European law.

Under the recently passed Sarbanes-Oxley Act, which goes into effect on Aug. 29, executives of 15,000 firms traded on U.S. stock exchanges, including 1,300 foreign firms, will be required to swear to the veracity of their financial filings.

The government of George W. Bush tightened regulations after high-profile scandals at companies including Enron and WorldCom, threatening executives with prosecution and jail sentences for up to 20 years for false accounting. At least 32 major German companies are listed on stock exchanges in New York, including DaimlerChrysler, Bayer and Deutsche Telekom.

"Unnecessary difficulties" for European companies

A spokesman for the Commissioner told reporters on Thursday that full implementation of the law would have "undesirable extraterritorial consequences" and could lead to "unnecessary difficulties" for European companies. But that criticism was mostly leveled at the SEC's intention of assuming the responsibility of monitoring European accounting firms and sanctioning them if they run afoul of the stringent new U.S. regulations.

German justice minister: "problematic plans"

The Sarbanes-Oxley Act has been the subject of intense debate in Germany, where companies are afraid that the structure of corporate management boards will confuse American regulators. Most German corporations have both a management board and supervisory board, and under German law, the entire management board rather than individuals is responsible for the veracity of earnings reports. An additional provision in Sarbanes-Oxley calls for management boards to be independent. In the German tradition, however, boards include representatives of a company's employees.

The Federation of German Industries (BDI) has protested the new regulations, saying they violate German law and European regulations.

Germany's Federal Justice Minister, Herta Däubler-Gmelin, has also registered her criticisms of the law. "National laws with extra-territorial effects violate the very interpretation of international law,"Däubler-Gmelin told reporters in Berlin earlier this week. "Things just can't happen this way." In a letter to Bolkestein in Brussels, Däubler-Gmelin called on the Commissioner to fight "these problematic plans."

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