Pressure grows over US whistleblowing

International lawyers have expressed strong hopes that the US Securities and Exchange Commission (SEC) is set to row back on some of its controversial whistleblowing proposals under the post-Enron Sarbanes-Oxley Act.

Signs of movement came at a roundtable meeting on attorney conduct hosted by the SEC in Washington DC last month amid major pressure from lawyers (see [2002] Gazette, 19 December, 8).

The planned rule has forged unprecedented unity among corporate lawyers.

The SEC has received a submission against its proposals from a group of 77 top US law firms - also including City giants Linklaters and Clifford Chance.

Linklaters has also put its name to a joint letter from six top City firms, along with Allen & Overy, Freshfields Bruckhaus Deringer, Herbert Smith, Lovells and Norton Rose.

If expressing their concerns internally about corporate wrongdoing does not suffice, lawyers will be obliged by the rule to effect a 'noisy withdrawal' from acting, explaining why they are doing so.

There is widespread concern that this would breach client confidentiality and privilege.

The consensus at the meeting was that firms should be allowed to withdraw silently, with each required to report its withdrawal, and the reasons for it, to the SEC.

It is not clear how this would work for in-house lawyers.

There are also questions as to whether the SEC has the power to legislate for 'noisy withdrawals', which could lead to litigation if introduced.

The other major concern is the reach of the rule, which expressly covers foreign lawyers who 'appear and practise' before the SEC.

This could potentially include any lawyer who contributed a local law opinion that is attached as an exhibit to a registration statement.

The SEC is now thought to be tightening up the definition.

However, the SEC rejected calls to delay making the final rule.

It is expected by 26 January.

Alison Hook, the Law Society's head of international, who took part in the meeting, said: 'I was very encouraged by the attitude of the SEC.

I felt they took on board the concerns expressed by all of the lawyers present and were genuinely prepared to make changes to their draft rule in the direction we wanted.'

Jonathan Goldsmith, secretary-general of the Council of Bars and Law Societies of Europe (CCBE), which took part in the meeting, said: 'We are confident we have done all that we could to persuade the SEC of the difficulties inherent in the proposed rule, and that it has heard and understood our message.'

However, Freshfields Bruckhaus Deringer partner Stephen Revell, who represented the International Bar Association at the meeting, was more downbeat in his assessment, saying that even with the flurry of political lobbying currently under way, chances of a better final rule were only 50/50.

'The technicians at the SEC have already thought about silent withdrawals and dismissed them,' he said.

'They appear to want the lawyer as whistleblower.'

Neil Rose