(seated, left to right) John Hartzel, U.S. Treasury; Richard Ketchum, Richard C. Breeden and Linda Quinn; (standing, center) Michael Mann
(Courtesy of Michael Mann )
"It was somewhat odd that, as we were sitting there demanding foreign authorities to cooperate with us; that there was a recognition that we, in fact, did not have the power to cooperate with them."
By the mid-1980s, the SEC began negotiating MOUs with multiple countries, including the United Kingdom, Canada, and Brazil. Such negotiations were often quite difficult. Gary Lynch, a former Director of Enforcement, recalls, "I spent a lot of time…visiting other countries trying to convince them that it was in their interest to enter into a [MOU]…They saw it as a one-way street where they would help the SEC, which frankly wasn't viewed in a friendly light by many foreign regulators at the time."(86)
Jonathan Rickford, a former U.K. official who participated in MOU negotiations, had a different perspective. He recalls "I certainly had the feeling that we began with a SEC presumption that we were not technically competent – the SEC were the experts."(87) He also remembers that it was the United Kingdom that wanted an MOU in order to provide British officials with access to information in the United States, and that the SEC was not particularly interested in an agreement. Rather, the SEC was in a position in which it had to negotiate as "these were the days of the Reagan/Thatcher love affair – if [the] SEC were to throw us out they had to have a convincing set of arguments."(88) Days after the U.K. MOU was executed, the United Kingdom requested and received documents from the SEC regarding insider trading by the CEO of Guinness.
As the SEC executed MOUs, it became increasingly obvious that it did not have the power to provide other countries with all the material that they might request. The SEC only had the ability to provide information to a foreign country when the underlying conduct being investigated was also a violation of U.S. law. The very type of dual criminality that the SEC sought to circumvent in connection with other countries was hindering its own ability to cooperate with foreign authorities.
There were also other obstacles which the SEC ignored. For example, the MOUs provided that documents produced by foreign countries to the SEC would be treated in a confidential manner. The Freedom of Information Act (FOIA), however, required, in many cases, that the SEC make such information public.(89)
The SEC's strategy was to continue negotiating MOUs and then go to Congress to change the laws so that it could better cooperate with foreign authorities and implement the MOUs. Congress passed the International Securities Enforcement Cooperation Act of 1990, empowering the SEC to provide information to foreign authorities, even when such conduct was not unlawful in the United States, and to withhold disclosure under FOIA. This gave the SEC significant new powers.
The SEC now, on its own accord, could sign MOUs, which were as broad as many mutual assistance treaties, which required the consent of the U.S. Senate. Michael Mann elaborates, "As a result, there were a number of side letters that were written between the SEC and the Department of Justice, and assurances given to Congress at the time, in terms of how these agreements would work to ensure that the international affairs of the United States weren't somehow impaired by this independent agency that now had very broad power…. [N]o other agency in the United States ever had or has this broad power that the SEC obtained." (90)
(86) June 14, 2006 Edited Transcript of SEC Enforcement Roundtable
(87) September 16, 2007 Email from Professor Jonathan B K Rickford to Wayne J. Carroll on MOU negotiation (courtesy of Jonathan Rickford)
(88) Id.
(89) June 13, 2005 Interview with Michael Mann
(90) Id.
