SARBANES-OXLEY: association acts to head off Securities & Exchange Commission

US lawyers will have to take greater responsibility for reporting corporate wrongdoing after the American Bar Association's ruling House of Delegates amended its model rules of professional conduct at its conference in San Francisco.

The resolutions - which come against the backdrop of moves by the Securities & Exchange Commission (SEC) to implement provisions in last year's post-Enron Sarbanes-Oxley Act - are also set to activate measures that clarify the duty of corporate lawyers to report violations of law up the chain of command within the company.

The amended rules should also allow lawyers to report outside the company if necessary to prevent substantial harm to the corporation.

The House approved two main exemptions to client confidentiality under the amended rules.

The first will be allowed 'to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using his lawyer's services'.

The second is designed 'to prevent, mitigate or rectify substantial injury to the financial interest or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services'.

The measures were given strong backing by the in-coming ABA president Dennis Archer, who told reporters before the vote that change was necessary to bolster public confidence in corporate America.

The move falls some way short of the full 'noisy withdrawal' proposals originally called for by the SEC, which would see lawyers explaining to the authorities why they were withdrawing from acting for a client.

The SEC has yet to announce whether it will instead allow 'silent withdrawal', which would oblige the client to disclose the law firm's withdrawal.

The international legal community opposes both, but prefers silent withdrawal of the two.

Eyes will now turn to Washington to see how it reacts to the vote and whether it will head off SEC regulation.

Foreign lawyers acting for US securities clients could also be caught by the SEC's proposals.

Speaking at the conference, Stanley Sporkin, former director of enforcement at the SEC, described Sarbanes-Oxley as 'the emancipation proclamation for lawyers', explaining that 'it tells us as lawyers what we have to do; and it tells us who our clients are.

Our clients are no longer the chief executive officers - they are the company boards and the shareholders'.

He attacked lawyers who have been critical of the legislation as responding in a predictably Pavlovian manner.

'As lawyers we must recognise that this is now the law and we must make the most of it,' he said.

'Crooked deals don't operate on their own - they need professional help.

Now the SEC is saying that it will hit those professionals who aid and abet those crooked deals.'

Jonathan Ames