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Recent Commission Comments on Business Activities in Certain Countries Designated As State Sponsors of Terrorism

SEC Comment LettersThe Financial Times ran a piece yesterday noting the the Securities and Exchange Commission’s Division of Corporation Finance has been increasingly focusing on disclosure regarding business activities in and with Cuba, Iran, North Korea, Sudan, Syria and other countries designated by the U.S. as state sponsors of terrorism.

Below are some of the recurring comments that the Commission has been issuing*:

  • Please describe your current, past and anticipated operations in and contacts with [Cuba, Iran, North Korea, Sudan and Syria], if any, including through subsidiaries, affiliates and other direct and indirect arrangements. Include a discussion of direct and indirect contacts with the governments of these countries and entities controlled by them.
  • Discuss the materiality to you of the operations and contacts described in your response to the foregoing comment, in light of the related countries’ status as state sponsors of terrorism. Please also discuss whether the operations or contacts constitute a material investment risk to your security holders.
  • Your materiality analysis should address materiality in quantitative terms, including the approximate dollar amount of revenues, assets and liabilities associated with [Cuba, Iran, North Korea, Sudan and Syria], individually and in the aggregate. Please also address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon your reputation and share value.
  • Your qualitative materiality analysis also should address whether, and the extent to which, the governments of [Cuba, Iran, North Korea, Sudan and Syria], or entities controlled by them, receive cash or act as intermediaries in connection with your operations or other direct or indirect contacts with those countries.
  • Please also address the impact of your regulatory compliance programs which cover operations and contacts associated with these countries, and any internal risk assessment undertaken in connection with business in these countries.
  • Please address the applicability to your Iran-related activities, including any direct or indirect payments to the Iranian government, of Section 5(b) of the Iran Sanction Act of 1996, as modified by the Iran Freedom Support Act on September 30, 2006.

The FT also notes that the Commission is considering requiring companies to disclose any dealings with countries designated as state sponsors of terrorism, not just those that are material.
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* Remember, comment letters are released no earlier than 20 business days after the Commission has completed its review.

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