The Dodd-Frank Act is an omnibus 1,200 page document that cracks down on things like consumer protection and derivatives trading. But many people don't know it also includes over 100 SEC and stock exchange mandates, and these will be implemented very soon.
At the moment many of them are broad with vague language, but a slew of issues will ultimately be covered. Many of these will affect Canadian companies who operate in the U.S., and senior partners from law firm Paul, Weiss were in Toronto on Thursday to give the lowdown.
For starters, there is a new whistleblower rule that ups the rewards for those who disclose corporate secrets. The new legislation stipulates that if the SEC imposes more than $1-million (U.S.) in damages, the whistleblower may get to keep up to 30 per cent of the money collected.
However, the material given up must be 'original information,' which has some people worried because it discourages whistleblowers from going up the internal chain of command, which was a tenet of Sarbanes-Oxley. Ted Maynard, partner at Paul Weiss, said the legal community is expecting a lot of activity to come from this. A Washington, D.C. law firm even reached out to a client of his to preemptively explain that it can work these kinds of cases.
The Dodd-Frank act is also trying to work around a recent U.S. Supreme Court ruling that limits the reach of U.S. securities laws. As it stands, U.S. rules don't apply in a foreign country, like Canada, if a deal is done here. Instead, Dodd-Frank wants to give the SEC more power to reach across borders.
As for disclosure-related rules, resource companies face some big changes. Congress wants all U.S. reporting companies to disclose payments made to foreign governments as a way to rule out bribery. Yet that will also affect firms who only do business in safe places like Canada where strict regulations already exist. It was also revealed that there have already been discussions of implementing a similar rule for Canadian firms.
Dodd-Frank is also cracking down on 'conflict minerals.' New rules could require any company that manufactures a product in which minerals are material to production to have an independent adviser come in and go through their operations to make sure everything being used is conflict free.
Tim Kiladze