SEC Seeks Comments on Disclosures of Business Activities in Cuba, Iran, North Korea, Sudan and Syria

November 27, 2007

  • The Securities and Exchange Commission (the “Commission”) recently issued a Concept Release on Mechanisms to Access Disclosures Relating to Business Activities in or with Countries Designated as State Sponsors of Terrorism (the “Concept Release”), available at
  • The Concept Release seeks public comment by January 22, 2008 regarding various aspects of the Commission’s Congressional mandate to monitor issuers’ disclosures regarding their business activities in or with countries designated as State Sponsors of Terrorism (i.e., Cuba, Iran, North Korea, Sudan and Syria) and its proposed methods to facilitate access to such disclosures. 

Pursuant to a Congressional mandate, the Commission’s Office of Global Security Risk (“OGSR”) routinely monitors public company disclosure of material business activities in or with State Sponsors of Terrorism. While the federal securities laws do not impose a specific disclosure requirement regarding business activities in or with these countries, the Commission has stated that the general “catch-all” disclosure requirements contained in Rule 408 under the Securities Act of 1933 and Rule 12b-20 under the Securities Exchange Act of 1934 require disclosure of an issuer’s business activities in or with a State Sponsor of Terrorism if such business activities constitute material information that is necessary to make an issuer’s statements, in the light of the circumstances under which they are made, not misleading. In this regard, the OGSR has frequently noted that qualitative materiality may be present even when quantitative materiality is not. To date, the OGSR has not publicly distinguished between lawful commercial activities of foreign issuers or activities of U.S. issuers under licenses from the Treasury Department’s Office of Foreign Assets Control (“OFAC”) and contracts with or for the benefit of the governments in these countries for purposes of determining the materiality of these contacts.

The Commission notes that “over the last several years, a large number of state governments, universities, pension funds, and other institutional investors, as well as individual investors, have sought information relating to public company business activities in or with State Sponsors of Terrorism in furtherance of their desire to ensure that their invested funds do not directly or indirectly support terrorism.” Comment letters issued to issuers by the OGSR seeking information from issuers regarding business in or with State Sponsors of Terrorism often refer to laws in some states restricting the investment of public funds in companies doing business in one or more of the five State Sponsors of Terrorism or requiring reports regarding public fund assets invested in, and/or permitting divestment of public fund assets from, such companies. 

In an effort to provide investors with information regarding issuers’ business activities in State Sponsors of Terrorism, the Commission had previously developed a Web tool that linked to portions of issuers’ most recent annual reports that described their business activities in Cuba, Iran, North Korea, Sudan or Syria. However, the linked reports were not always the issuer’s most recent disclosures and would thus not reflect information that materially modified the annual report disclosure (e.g., an issuer terminating its activities in a State Sponsor of Terrorism). In addition, there were concerns that negative connotations could attach to issuers, even if the disclosure related to certain benign activities such as news reporting within a State Sponsor of Terrorism or immaterial activities of the issuer that were voluntarily disclosed in its filings. In response, the Commission suspended the Web tool and issued the Concept Release in order to solicit public comment on how to better address disclosure by issuers concerning their business activities in or with countries designated as State Sponsors of Terrorism. 

The Concept Release makes a general request for public comment and includes 19 specific questions for comment. Eight of these questions relate to the value, appropriateness and possible unintended consequences of enhanced access to disclosures, including whether enhanced access to these disclosures should be available, whether materiality for purposes of these activities should be interpreted in the same manner as other corporate activities and whether the information regarding these activities that is currently in issuers’ filings is sufficient. 

The Concept Release also proposes alternative ways to provide easier access to disclosure in this area, along with specific questions relating to each alternative method: (1) improving the Web tool that the Commission had previously made available, and/or (2) using data tagging (computer labels written in XBRL) by issuers to enhance access to information about business activities in or with the State Sponsors of Terrorism. With respect to improvement of the Web tool, the Commission asks whether the Web tool should be reinstated, and if so, how to address the negative comments regarding the Web tool that were expressed, such as whether an issuer’s most recent filings should be included to ensure that the information is timely. As to data tagging, the Commission expresses the view that data tagging would allow issuers to apply the tags to their filings, which would eliminate the involvement of the Commission in characterizing an issuer’s disclosures vis-à-vis the Web tool. Moreover, the use of data tagging would allow issuers the ability to data tag any of its filings, thus timely displaying any tagged information immediately for any users and addressing concerns regarding the timeliness of information. 

Comments on the Concept Release are due on January 22, 2008. 

Gibson, Dunn & Crutcher LLP

Gibson Dunn & Crutcher LLP has extensive experience with regard to these issues and is prepared to assist you in preparing any comments regarding the Concept Release.  Please contact the Gibson Dunn attorney with whom you work, or the following members of the firm’s International Trade Regulation and Compliance Practice Group:

Judith A. Lee (202-887-3591, [email protected])
Daniel J. Plaine
(202-955-8286, [email protected])
Jim Slear (202-955-8578, [email protected])
Andrea Farr (202-955-8680, [email protected])

Please also feel free to contact the following members of the firm’s Corporate Transactions Practice Group:

John F. Olson (202-955-8522, [email protected]
Ronald O. Mueller
(202-955-8671, [email protected]
Brian J. Lane
(202-887-3646, [email protected])
Amy L. Goodman (202-955-8653, [email protected]
James J. Moloney
(949-451-4343, [email protected])
David C. Lee (949-451-4069, [email protected]

© 2007 Gibson, Dunn & Crutcher LLP

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