April 28, 2022

War in Ukraine: Asking for the SEC’s Help

Earlier this month, the Ukrainian American Bar Association, Razom, Inc. and the former Minister of Finance of Ukraine submitted a petition for rulemaking to the SEC, requesting that the Commission enact a rule requiring issuers to disclose their business dealings in and with Russia and Belarus. The petitioners request that the required disclosure should include: sales to Russia (direct and indirect), purchases from Russia (direct and indirect), ownership of assets in Russia, and stakes in entities registered in Russia. The petitioners note that issuers should conduct reasonable due diligence about their customers and suppliers to ensure that their disclosures include amounts of indirect sales and purchases to and from Russia that can be reasonably ascertained through diligence of respective supply chains. The petitioners note:

These varying stances of issuers regarding their business in Russia and the choice of many to continue operating in and doing business with Russia makes information about such activities of vital importance to investors. This information is vital because it provides disclosure to investors regarding the risks and costs of continuing to operate in a heavily sanctioned market ruled by a government moving to nationlize industry. Disclosure will also enable investors and regulators to ensure issuers are meeting the ever more complex sanctions rules regarding operations in the Russian market. Likewise, issuers are concerned that Russia may apply its own counter-sanctions against issuers that do not continue fully their operations within Russia. This proposed disclosure would help investors better understand the cost of doing business in Russia.

While it is difficult to say whether the SEC will act on this petition for rulemaking (the Commission rarely does act on these petitions), one might argue that some of these disclosures may already be called for under existing disclosure requirements, depending on materiality. You might recall that the SEC had established an Office of Global Security Risk which sent comment letters to issuers seeking disclosure of business with sanctioned governments, persons and entities based on existing disclosure requirements, but it appears that the Office is no longer in operation. Given that precedent, however, it is possible to see how the SEC might seek to elicit more disclosure through means other than rulemaking, which would of course be time consuming and particularly difficult at the moment with all that the SEC has on its agenda.

Sadly, the Office of Global Security Risk’s long-time Chief, Cecilia Blye, passed away earlier this year. I worked with Cecilia in the Office of Chief Counsel and she was a wonderful colleague and a great mentor to the attorneys in Corp Fin. I offer my condolences to Cecilia’s friends, colleagues and family.

For more on the potential disclosure considerations arising from the war in Ukraine, review the resources we have posted in our “Ukraine Crisis” Practice Area.

– Dave Lynn