Bonus threat to UK FDs

Link: Experts argue over Sarbanes

The full implications of the Sarbanes Oxley Act have only become apparent this week but it is now clear that FDs and CEOs will be compelled to repay bonuses if a company’s accounts have to be restated as a result of ‘material non-compliance’.

The little known provision of the Act comes amid mounting concern over the extent to which UK FDs and CEOs will have to abide by the terms of the legislation. Experts believe all UK companies dual listed in the US – including at least half of the FTSE 100 – will be bound by the Act.

The British ambassador to the US has been lobbying intensely in an attempt to mitigate the effects of the Act on the UK but it appears the appeals are meeting with little sympathy.

Alex Cohen, a corporate partner with City law firm Latham Watkins, said: ‘The message is that if are selling securities and raising capital in the US you have to play by their rules.’

The bonuses measure is sure to clash with a raft of European employment law which might make it the only part of the Sarbanes Oxley Act that FDs and CEOs in the UK will be able to fight with any degrees of success, according to Cohen.

The Act’s reach is extensive. There is already much confusion among UK FDs and CEOs over whether they meet its demands for a sworn statement attesting to the honesty of their company accounts. Lawyers are already warning executives with a US listing that they should make the statement.

To confuse matters further the Securities and Exchange Commission, the US financial watchdog, had demanded sworn statements by yesterday (14 August) while the Act demands another set of sworn statement from the day it became law on 30 July.

European auditors have also been targeted by the Act which requires access to the working papers of those firms engaged by the UK subsidiaries of US companies.

In the background there are has been lobbying across the Atlantic aimed at watering down the effects on UK companies and directors. Prime minister Tony Blair is reported to have spoken to president George Bush some time ago while officials at the Department of Trade have also made their feelings felt.

DTI officials told Accountancy Age this week that there was deep concern about the regulatory reach of the Act to companies outside the US and efforts to reach agreement on exemptions – though this seems not to have so far bourne fruit.

‘We have been lobbying at the highest level to make sure there are exemptions in the Act so UK firms are exempt from the requirements of the legislation,’ said a spokesman.

‘We are concerned about the extra terratorial effects of the Act.’

The European Commission has also been lobbying with internal markets commissioner Fritz Balkenstein personally writing to the US Congress protesting.

In the UK there is gloom over the issue where there is a growing belief that the terms of the Act are enforceable.

Lord Sharman, former chairman of KPMG International, told Accountancy Age at the end of July that it would be illegal to trade in a dual listed stock if the provisions of the Sarbanes Oxley Act were not met.