City lawyers facing US whistleblowing

Non-US lawyers will be caught by whistleblowing obligations under the post-Enron Sarbanes-Oxley Act, the US Securities and Exchange Commission (SEC) confirmed last week in plans that also include the prospect of a 'noisy withdrawal' from acting for a company.

Fleshing out its proposals for the Act's key section 307, the SEC said it would cover foreign lawyers who 'appear and practise' before it.

But it will seek comment on how to ensure the rule does not 'conflict or inappropriately interfere' with the activities of non-US lawyers.

The rule will lay out the whistleblowing process where a lawyer 'reasonably believes' that a 'material violation' has occurred, is occurring or is about to occur.

This would involve reporting up the line to the board if necessary.

In the main, lawyers do not see this as any different from what they already do.

If still unhappy, however, the lawyer would be able to effect a 'noisy withdrawal', which 'obligates a reporting attorney under certain circumstances to disaffirm a submission to the commission which the attorney believes has been tainted by a material violation'.

This goes further than originally envisaged by section 307, but the SEC said it was needed to ensure the 'effective operation' of the reporting obligation.

The rule would provide that where a lawyer files a notification with the SEC as part of a noisy withdrawal, 'no violation of attorney/client privilege occurs'.

A Law Society spokeswoman said: 'There is still a great deal of uncertainty over the implication of the rules.

It is not clear, for example, what constitutes a "material violation".' She said the Society would formally respond to the SEC.

Richard Fleck, worldwide practice partner at City firm Herbert Smith, said he 'was not terribly comfortable with the idea of a noisy withdrawal'.

At the recent International Bar Association conference in South Africa, Mr Fleck found support for the idea of firms simply informing regulators of the fact that they have ceased acting as a possible trigger for an investigation (see [2002] Gazette, 31 October, 1).

Jonathan Goldsmith, secretary-general of the Council of Bars and Law Societies of Europe (CCBE), said a law passed in the US which would allow breaches of privilege would not apply to European lawyers.

He said the CCBE would comment with the aim of maintaining privilege.

'What the SEC does today, governments and other regulators might want to do tomorrow,' he said.

Neil Rose