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German Companies Seeking Exemption From SEC Rules

The Sarbanes-Oxley Act in the U.S. also requires foreign firms registered with the SEC to swear to the veracity of their financial filings. But many German companies are protesting the bill.


Some German companies are not happy about the new regulations at the New York Stock Exchange.

German corporations whose shares trade in New York want to be exempted from parts of the tough new U.S. regulations aimed to hinder corporate corruption. In a letter to the Security and Exchange Commission (SEC), the companies protested that applying the U.S. law is infringing German corporate law, the German industry federation BDI said.

"German companies listed on the New York Stock Exchange support the new regulations of the Sarbanes-Oxley Act, which should reinstate investors' trust in the integrity of the capital markets through effective measures," BDI said in a statement. However, the majority of the 17 German companies affected said the bill was not compatible with European and German standards.

In addition, other points led to an "unnecessary duplication" of comparable systems. "These companies are therefore in favor of not applying certain parts of the new U.S. law on foreign SEC emitters," BDI said. The corporations, including DaimlerChrysler, Allianz and Deutsche Telekom, are asking the SEC to examine potential conflicts with foreign legal systems more closely before it makes a final decision.

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 false accounting.

Different structures pose a problem

In their letter, the companies said the new regulations risked causing legal problems because of the different corporate-governance systems. German corporations typically have two boards, a management and a supervisory board, compared to one in the U.S. According to German law, the management is responsible as an entity and not individual board members.

The companies also argue that laws in Germany and other countries offer sufficient guarantees to prevent stock price manipulation and market abuse, BDI said.

Historically, foreign companies have been exempted from certain laws that apply to U.S.-based companies. But those instances came before the recent wave of accounting messes.

Support from Berlin

The companies can count on backing by the federal government. German Justice Minister Hertha Däubler-Gmelin said the different legal systems conflicted. In a letter to European Union Internal Market Commissioner Frits Bolkestein, she called for the affected states to reach a "rapid agreement" over the matter.

Däubler-Gmelin said she recognized that the tougher laws aimed to restore faith in the U.S. financial markets. "But it's not acceptable that U.S. laws at the same time strive for extra-territorial effects," the letter, published by the Justice Ministry, said.

A particular problem, she said, was that auditors would be obligated to present working papers and other documents to U.S. authorities. This, however, violated domestic secrecy laws.

"Against this background, we need clarity from our American partners that they are still willing to cooperate in the spirit of a free movement of services and capital, as well as in the basic principle of mutual recognition," the Minister said.

If improvements in European law were necessary, they would be tackled quickly, she promised. But she warned Washington of forcing foreign firms to fulfill the U.S. standards, regardless of existing European laws. This would in the medium-term mean "that also in Europe the laws for recognizing rules of foreign companies would have to be put to the test", Däubler-Gmelin said.

Protest not unanimous

Six of the 17 German groups whose shares trade in New York did not put their signature at the bottom of the BDI letter, including Siemens, dialysis specialist Fresenius Medical Care and electronic component maker Epcos.

"Measures are being demanded that we take anyway," an Epcos spokesman said, for example that the management read the financial statements.

Other non-signers feel that the discussion was taking place on the wrong level. Rather, the debate should occur between lawmakers in Berlin and Brussels, on the one hand, and the U.S. on the other.