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CCCA_V6No1_Dept-RegulatoryUpdate-FIN_CCCA_V5No3_Dept-RegulatoryUpdate-V1.qxd 2/13/12 9:03 PM Page 17 Dodd-Frank represents a shift in Regulatory Update the approach to corporate governance from SOX’s emphasis considering a range of criteria; and, securities, will be prohibited from in order to prevent awards for illegal on disclosure to an increased listing securities. acts, the SEC may deny a reward emphasis on enforcement… Certain resource extraction where the whistleblower is convict- companies must disclose certain ed of a criminal violation in relation to the action the whistle- payments made to governments for the commercial develop- blower is reporting. ment of oil, natural gas and minerals, and Canadian issuers who Still, where a fraud is potentially greater than $1-million, file periodic reports with the SEC and operate mines in the U.S. whistleblowers in the U.S. now have a significant incentive to go subject to regulation under the Federal Mine Safety and Health Act straight to the regulators instead of calling the internal reporting will also be required to disclose information about mine safety. hotline. Issuers may now hear about a potential fraud first from In the aftermath of the events of 2008, Dodd-Frank represents the SEC. a shift in the regulatory approach to corporate governance. While the scope of the Act, as a whole, is very broad, the expanded ter- Extra-territorial enforcement ritorial jurisdiction and the whistleblower bounty suggest a focus of anti-fraud provisions on strengthened enforcement. Canadian issuers, especially those On the same theme of strengthening enforcement, Dodd-Frank with a presence in the U.S., should be aware of its effects. expands the “extra-territorial” jurisdiction of the SEC and the Department of Justice in actions alleging violations of securities John Keefe is a partner in the litigation group at Goodmans LLP in and anti-bribery laws in matters involving either: Toronto. This article was prepared with the assistance of Chat Ortved A conduct within the U.S. that constitutes significant steps in and Ahmad Mozaffari of Goodmans LLP. furtherance of the violation, even if the securities transaction occurs outside the U.S. and involves only foreign investors, or B conduct occurring outside the U.S. that has a foreseeable sub- stantial effect within the U.S. These provisions were added to the bill apparently in response to the U.S. Supreme Court’s decision in Morrison v. National Australia Bank (Morrison v. Nat’l Austl. Bank Ltd., 130 S. Ct. 2869) which held that U.S. courts do not have jurisdiction over foreign shareholders who purchase from foreign issuers on foreign exchanges, even if the conduct in question had an impact on the U.S. This “extra-territorial” jurisdiction has real implications for Canadian companies, particularly in connection with U.S. anti- excellence bribery laws, which fall under the SEC’s jurisdiction. ADVICE. REPRESENTATION. OUTCOME. Clawback provisions Dodd-Frank includes other provisions that may affect Canadian IT’S WHAT WE DO. issuers. For example, it requires issuers listed on a U.S. stock exchange to have independent compensation committees (for- eign private issuers can satisfy this requirement by disclosing annually the reasons for not having a fully independent commit- a g m l a w y e r s . c o m tee) and mandates rules requiring the clawback of executive compensation by issuers that restate their financial statements. The clawback provisions apply to all present and former execu- tive officers, making it more expansive than the comparable rule Affleck Greene McMurtry LLP 365 Bay Street, Suite 200, Toronto, Canada M5H 2V1 in Sarbanes-Oxley, which applies, in this respect, solely to the T 416.360.2800 F 416.360.5960 CEO and CFO. Issuers that have not implemented clawback policies, including foreign private issuers with any U.S.-listed Excellence in Commercial Litigation and Competition Law PRINTEMPS 2012 CCCA Canadian Corporate Counsel Association 17