Whistleblowing in a Foreign Key: The Consistency of Ethics Regulation under Sarbanes-Oxley with the WTO GATS Provisions
Young, Stewart M., Denver Journal of International Law and Policy
Over the past two years, the United States has been hit hard by a number of scandals involving public companies, including mismanagement and ethical violations by company management and lawyers alike. Certain company names are now synonymous with ethical issues and inept management, including such giants as Enron, Tyco, WorldCom and Adelphia. (1) Due to the problems created by the bankruptcy and the scandal-plagued management of these companies, the public is calling for greater transparency and reporting, a better system of director oversight, and a higher degree of separation between compensation given to managers and the board, on the one hand, and actual performance of the company, on the other. (2) There is a sense within the general community that the balance sheets of companies need to reflect fairly and accurately the actual state of the companies' financial situation. The public is simply tired of managers ruining public companies while they profit at the expense of the shareholders. Elected officials are responding to this public outcry with a number of different reform proposals, emphasizing the responsibilities management of public companies owe, both to shareholders and the public at large. Included in these reforms are ethical standards for attorneys who have public companies as clients. (3) These new ethical standards will apply to any lawyer representing companies listed on the American stock exchanges and will be imposed on domestic and foreign lawyers alike. (4) Additionally, foreign firms giving advice to foreign
companies attempting to be listed on American stock exchanges would also be subject to the same ethical standards. (5)
The principal legal manifestation of these heightened concerns is found in the Sarbanes-Oxley Act of 2002. (6) Congress passed the Sarbanes-Oxley Act to assuage the public's concern over the recent management and accounting scandals, hoping that the reforms in the Act would create a better atmosphere for transparency and ethical reporting. (7) The Sarbanes-Oxley Act bestows the SEC with the authority to impose ethical standards on attorneys practicing before it, while the Sarbanes-Oxley Act itself spells out the minimum standards that would be acceptable to Congress. (8) The details of those standards are to be elaborated by the SEC and then enforced by that agency. (9) Thus, a dichotomy exists between the standards stated in the Sarbanes-Oxley Act and the proposed rules offered by the SEC for comment.
The overall purpose of this Article will be to examine the consistency of the legal regime established by the Sarbanes-Oxley Act, and the ethical regulations proposed by the SEC, in relation to the legal services portion of the World Trade Organization's (WTO) General Agreement on Trades in Services (GATS). Part I will discuss the GATS and its effect on the legal services market in general. Part II will then examine an overview of how the ethics requirements stated in the United States Schedule of Commitments to GATS are treated and how those ethics requirements are locked in by GATS and the WTO. Part III will examine the new ethical responsibility requirements imposed by the Sarbanes-Oxley Act of 2002 and the subsequent rules proposed by the Securities and Exchange Commission (SEC) regarding ethical reporting and "noisy withdrawal." (10) Part IV will demonstrate that the new ethical requirements imposed by the Sarbanes-Oxley Act and the SEC are not consistent with the United States' obligations under GATS regarding legal services. This Article will also discuss possible approaches to reconciling the proposed rules with GATS and action that might be taken by WTO member countries, including under the dispute resolution provisions of the WTO agreements. The ultimate conclusion of this Article is that the SEC proposed standards as applied to non-domestic law firms are potentially irreconcilable with GATS, and likely to create friction between the United States and a number of our trading partners. …